<PAGE> 1
As filed with the Securities and Exchange Commission on April 13, 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 [X]
Pre-Effective Amendment No.____ [ ]
Post-Effective Amendment No. 32 and/or [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 33
(Check appropriate box or boxes)
THE KENT FUNDS
--------------
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
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(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):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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[KENT FUNDS LOGO]
KENT ADVISOR SCIENCE AND TECHNOLOGY FUND
KENT ADVISOR CANTERBURY FUND
KENT ADVISOR CASCADE FUND
PROSPECTUS
________, 2000
NEED 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.
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TABLE OF CONTENTS
Carefully review this important section, which summarizes each Fund's
investments, risks and fees.
RISK/RETURN SUMMARY AND FUND EXPENSES
Overview
Kent Advisor Science and Technology Fund
Kent Advisor Canterbury Fund
Kent Advisor Cascade Fund
Principal Risks of Investing in the Funds
Who May Want to Invest
Performance
Fees and Expenses
ADDITIONAL INFORMATION
Investment Policies and Practices
Review this section for details on the people and organizations who oversee the
Funds
FUND MANAGEMENT
Investment Adviser
Portfolio Managers
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
Pricing of Fund Shares
Purchasing Your Shares
Adding to Your Account
Selling Shares
Exchanging Your Shares
Dividends and Distributions
Taxation
FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Funds
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RISK/RETURN SUMMARY AND FUND EXPENSES
OVERVIEW
This prospectus describes the Retail Class of shares of the following Kent
Advisor Funds (the "Funds").
KENT ADVISOR SCIENCE AND TECHNOLOGY FUND
KENT ADVISOR CANTERBURY FUND
KENT ADVISOR CASCADE FUND
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
The Funds are managed by Lyon Street Asset Management Company ("Lyon Street" or
the "Adviser").
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Foreign
Market Selection Investment Concentration
Risk Risk Risk Risk
<S> <C> <C> <C> <C>
Science & Technology Fund X X X X
Canterbury Fund X X X
Cascade Fund X X X
</TABLE>
A complete description of these and other risks can be found in the section
entitled "Principal Risks."
The Kent Advisor Science and Technology Fund has two classes of shares: Retail
Class and Institutional Class. The Kent Advisor Canterbury Fund and the Kent
Advisor Cascade Fund each have one class of shares: Retail Class. Retail shares
of the Funds are sold primarily through investment representatives.
Institutional shares of the Kent Advisor Science and Technology Fund are sold
primarily to financial or other institutions. This prospectus only relates to
the Retail Class of shares of each Fund. The Institutional Class of shares of
the Kent Advisor Science and Technology Fund are offered in a separate
prospectus.
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RISK/RETURN SUMMARY AND FUND EXPENSES
KENT ADVISOR SCIENCE AND TECHNOLOGY FUND
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of companies expected to benefit from the development, advancement, and use of
science and technology. Some of the industries likely to be included in the
portfolio are:
- computers, including products, software, hardware and electronic
systems and components
- internet
- biotechnology
- pharmaceuticals
- telecommunications
- media and information services
- chemicals and synthetic materials
- defense and aerospace
- medical supply
Lyon Street selects stocks based on intensive research that assesses a company's
fundamental prospects for above-average earnings. The Fund's holdings can range
from small companies developing new technologies to blue chip firms with
established track records of developing and marketing technological advances.
The Fund may also invest in companies that should benefit from technological
advances even if they are not directly involved in research and development.
The Fund may invest without limit in foreign securities and American Depositary
Receipts ("ADRs"). The Fund may also invest in futures and options.
The Fund may sell securities for a variety of reasons, such as to secure gains,
limit losses, or redeploy assets into more promising opportunities.
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RISK/RETURN SUMMARY AND FUND EXPENSES
KENT ADVISOR CANTERBURY FUND
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
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.
The Fund normally invests at least 65% of its total assets in equity securities
of U.S. companies with at least $1 billion in market capitalization. The Fund
intends to invest at least 65% of its total assets in equity securities of
companies which Lyon Street believes have above-average potential for growth in
revenues, earnings or assets.
The Fund intends generally to purchase common stock. The Fund may also invest in
preferred stock or bonds that are convertible into common stock. The Fund may
invest a portion of its assets in foreign securities or ADRs.
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RISK/RETURN SUMMARY AND FUND EXPENSES
KENT ADVISOR CASCADE FUND
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
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.
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.
The Fund intends generally to purchase common stock. The Fund may also invest in
preferred stock or bonds that are convertible into common stock. The Fund may
invest a portion of its assets in foreign securities or ADRs.
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RISK/RETURN SUMMARY AND FUND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUNDS
PRINCIPAL INVESTMENT RISKS - ALL FUNDS
Investing in the 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 a Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
A full discussion of all permissible investments can be found in the Statement
of Additional Information.
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
CONCENTRATION RISK. To the extent that the Science and Technology Fund's
investments are concentrated in issuers conducting business in the same
technology or science market sector, the Fund is subject to legislative or
regulatory changes, adverse market conditions and/or increased competition
affecting that market sector. Competitive pressures may significantly impact the
financial condition of technology companies. For example, an increasing number
of companies and new product offerings can lead to price cuts and slower selling
cycles. In addition, many of these companies may be dependent on the success of
a principal product, may rely on sole source providers and third-party
manufacturers, and may experience difficulties in managing growth.
INVESTMENT STYLE RISK. 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. A
portfolio focused primarily on these stocks is therefore likely to be much more
volatile than one with broader diversification that includes investments in more
economic sectors. As a result, the Science and Technology Fund's net asset value
may be subject to rapid and substantial changes.
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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. The level of risk will be
increased to the extent that a Fund has significant exposure to smaller or
unseasoned companies (those with less than a three-year operating history),
which may not have established products or more experienced management.
Historically, small company stocks have been more volatile than those of larger
companies. As a result, the net asset values of the Cascade Fund and the Science
and Technology Fund 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 Funds may invest in growth stocks.
FOREIGN INVESTMENT RISK. 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.
Each of the Funds may invest in foreign securities. As a result, an investment
in the Funds involves additional risks not present in equity funds which invest
solely in shares of U.S. companies. For additional information on foreign
securities, see "Additional Information - Investment Policies and Practices."
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WHO MAY WANT TO INVEST
Consider investing in the Funds if you are:
- PURSUING A LONG-TERM GOAL SUCH AS RETIREMENT
- SEEKING TO ADD AN AGGRESSIVE GROWTH COMPONENT TO YOUR PORTFOLIO
- WILLING TO ACCEPT HIGHER RISKS OF INVESTING IN THE STOCK MARKET AND
THE POTENTIAL FOR ABOVE-AVERAGE PRICE FLUCTUATIONS IN EXCHANGE FOR
POTENTIALLY HIGHER LONG TERM RETURNS
The Funds will not be appropriate for anyone:
- SEEKING MONTHLY INCOME
- PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
- SEEKING SAFETY OF PRINCIPAL
PERFORMANCE
No performance information is shown for the Funds because the Funds had not
commenced operations as of the date of this prospectus. The performance of the
Funds will vary from year to year. As with all mutual funds, a Fund's past
performance will not necessarily indicate how it will perform in the future.
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RISK/RETURN SUMMARY AND FUND EXPENSES
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>
SCIENCE AND TECHNOLOGY
FUND CANTERBURY FUND CASCADE FUND
<S> <C> <C> <C>
SHAREHOLDER FEES
(fees paid directly from your
investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of 5.75%(1) 5.75%(1) 5.75%(1)
offering price)
Maximum Deferred Sales Charge (Load) 0%(2) 0%(2) 0%(2)
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends 0% 0% 0%
Redemption Fee 0% 0% 0%
Exchange Fee 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from
Fund assets)
Management Fees 0.70% 0.70% 0.70%
Distribution (12b-1) Fees(3) 0.25% 0.25% 0.25%
Other Expenses 0.73% 0.62% 0.62%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.68% 1.57% 1.57%
</TABLE>
(1) Sales charges are reduced or eliminated for larger purchases.
(2) A contingent deferred sales charge of 1% applies on certain redemptions
made within 12 months following certain purchases made without a sales
charge.
See "Shareholder Information - Purchasing Your Shares" for additional
information on sales charges.
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 to the Funds' operating expenses
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
<TABLE>
<CAPTION>
SCIENCE & TECHNOLOGY
FUND CANTERBURY FUND CASCADE FUND
<S> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 736 $ 726 $ 726
THREE YEARS AFTER PURCHASE $1,074 $1,042 $1,042
</TABLE>
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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. Although each of the Funds may
invest in the securities and pursue the strategies described below, a Fund will
not necessarily do so.
The investment objectives of the Funds are not fundamental and may be changed by
the Trustees without shareholder approval. 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
In seeking to meet its investment objective, each Fund may invest in any type of
security or instrument (including certain potentially high-risk derivatives
described in this section) whose investment characteristics are consistent with
the Fund's investment program.
The Funds invest primarily in common stocks and may, to a lesser degree,
purchase other types of securities described below.
COMMON STOCKS. Stocks represent shares of ownership in a company. After other
claims are satisfied, common stockholders participate in company profits on a
pro-rata basis; profits may be paid out in dividends or reinvested in the
company to help it grow. Increases and decreases in earnings are usually
reflected in a company's stock price, so common stocks generally have the
greatest appreciation and depreciation potential of all corporate securities.
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 Funds may invest in value stocks.
CONVERTIBLE SECURITIES AND WARRANTS. The Funds may invest in debt or preferred
equity securities convertible into, or exchangeable for, equity securities.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stocks but lower than nonconvertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. Some convertibles
are sold as units that combine higher or lower current income with options,
warrants and other features. Warrants are options to buy a stated number of
shares of common stock at a specified price anytime during the life of the
warrants (generally, two or more years).
FOREIGN SECURITIES. There is no limit to the amount of assets the Science and
Technology Fund may invest in foreign securities. The Canterbury and Cascade
Funds may invest up to 10% of their total assets in foreign securities. Such
investments increase a portfolio's diversification and may enhance return, but
they also involve some special risks, such as
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exposure to potentially adverse local political and economic developments;
nationalization and exchange controls; potentially lower liquidity and higher
volatility; possible problems arising from accounting, disclosure, settlement,
and regulatory practices that differ from U.S. standards; and the chance that
fluctuations in foreign exchange rates will decrease the investment's value
(favorable changes can increase its value). These risks are heightened for
investments in developing countries.
AMERICAN DEPOSITARY RECEIPTS. The 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. Securities underlying such investments, however,
are denominated in foreign currencies.
HYBRID INSTRUMENTS. Each Fund may invest up to 10% of its total assets in hybrid
instruments. These instruments (a type of potentially high-risk derivative) can
combine the characteristics of securities, futures, and options. For example,
the principal amount, redemption, or conversion terms of a security could be
related to the market price of some commodity, currency, or securities index.
Such securities may bear interest or pay dividends at below market or even
relatively nominal rates. Under certain conditions, the redemption value of such
an investment could be zero. Hybrids can have volatile prices and limited
liquidity, and their use by a Fund may not be successful.
PRIVATE PLACEMENTS. These securities are sold directly to a small number of
investors, usually institutions. Unlike public offerings, such securities are
not registered with the SEC. Although most of these securities may be readily
sold, for example, under Rule 144A or Section 4(2), others may be illiquid, and
their sale may involve substantial delays and additional costs.
TYPES OF INVESTMENT MANAGEMENT PRACTICES
FUTURES AND OPTIONS. Futures (a type of potentially high-risk derivative) are
often used to manage or hedge risk because they enable the investor to buy or
sell an asset in the future at an agreed-upon price. Options (another type of
potentially high-risk derivative) give the investor the right (where the
investor purchases the option), or the obligation (where the investor writes
(sells) the option), to buy or sell an asset at a predetermined price in the
future. The Funds may buy and sell futures and options contracts for any number
of reasons, including: to manage its exposure to changes in securities prices
and foreign currencies; as an efficient means of adjusting the Fund's overall
exposure to certain markets; as a cash management tool; and to protect the value
of portfolio securities. The Funds may purchase and write options on futures
contracts. The Funds may also purchase put and call options and write covered
call and secured put options on securities, indices, financial instruments and
foreign currencies.
MANAGING FOREIGN CURRENCY RISK. Investors in foreign securities may "hedge"
their exposure to potentially unfavorable currency changes by purchasing a
contract to exchange one currency for another on some future date at a specified
exchange rate. If a Fund were to engage in foreign currency transactions, they
would be used primarily to protect the Fund's foreign securities from adverse
currency movements relative to the U.S. dollar or another foreign currency. Such
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transactions involve the risk that anticipated currency movements will not
occur, and the Fund's total return could be reduced.
PORTFOLIO TURNOVER. The Funds will not generally trade in securities for
short-term profits, but, when circumstances warrant, securities may be purchased
and sold without regard to the length of time held. A high turnover rate may
increase transaction costs and result in higher capital gain distributions by a
Fund.
INVESTING FOR DEFENSIVE PURPOSES. When Lyon Street determines that market
conditions are appropriate, each of the Funds may, for temporary defensive
purposes, invest up to 100% of its assets in money market instruments. If a Fund
is investing defensively, it will not be pursuing its investment objective.
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FUND MANAGEMENT
INVESTMENT ADVISER
Lyon Street is the investment adviser to the Funds and provides the Funds with
professional investment supervision and management. 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. Lyon Street or its
affiliates have served as investment adviser to the Kent Funds since their
inception.
Lyon Street maintains offices at 111 Lyon Street, NW, Grand Rapids, Michigan
49503. Lyon Street is a wholly-owned subsidiary of Old Kent Bank. 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.
As compensation for Lyon Street's investment advisory services, each Fund pays
Lyon Street an annual fee of 0.70% of the Fund's average daily net assets.
PORTFOLIO MANAGERS
Lyon Street has several portfolio managers committed to the day-to-day
management of the Funds.
<TABLE>
<CAPTION>
<S> <C>
MANAGER EXPERIENCE
Joseph T. Keating, President and Chief - Mr. Keating is responsible for developing and
Investment Officer at Lyon Street implementing the Funds' investment policies.
- Mr. Keating has over twenty years of portfolio
management experience, including twelve years with Old
Kent and Lyon Street.
Allan J. Meyers, CFA, Chief Equity Officer - Mr. Meyers has over twenty-four years of portfolio
at Lyon Street management experience, including fifteen years with
Old Kent and Lyon Street.
- Mr. Meyers is also the portfolio manager for the Kent
Growth and Income and the Kent Large Company Growth
Funds.
Robert Cummisford, CFA, Director of Small - Mr. Cummisford has over eight years of portfolio
Company Stock Management at Lyon Street management experience, including over three years with
Old Kent and Lyon Street.
- Prior to joining Old Kent, he was a Senior Consultant
with Ibbotson Associates.
- Mr. Cummisford is also the portfolio manager for the
Kent Small Company Growth Fund.
David C. Eder, Director of Structured - Mr Eder has over seven years of portfolio management
Equity Management at Lyon Street experience with Old Kent and Lyon Street.
- Mr. Eder is also a co-portfolio manager for the Kent
Index Equity and the Kent International Growth Funds.
Daniel Skubiz -Prior to joining Lyon Street, Mr. Skubiz was an equity
trader with Trade Street Securities.
</TABLE>
KENT ADVISOR SCIENCE AND TECHNOLOGY FUND
There is an investment advisory team that is responsible for the day-to-day
management of the Science and Technology Fund. The Fund's investment advisory
team is composed of the following members: David C. Eder, Allan J. Meyers,
Robert Cummisford and Daniel Skubiz. The investment
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advisory team has had day-to-day responsibility for managing the Fund since the
Fund's inception.
KENT ADVISOR CANTERBURY FUND
Allan J. Meyers and Daniel Skubiz are responsible for the day-to-day management
of the Canterbury Fund. Mr. Meyers and Mr. Skubiz have had day-to-day
responsibility for managing the Fund since its inception.
KENT ADVISOR CASCADE FUND
Robert Cummisford is responsible for the day-to-day management of the Cascade
Fund. Mr. Cummisford has had day-to-day responsibility for managing the Fund
since its inception.
The Statement of Additional Information has more detailed information about Lyon
Street and the Funds' other service providers.
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SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The net asset value ("NAV") of a share of the Retail Class of each Fund is
calculated by adding the total value of the Fund's investments and other assets
attributable to the Retail Class, subtracting the liabilities of the Fund
attributable to the Retail Class and then dividing that figure by the number of
outstanding shares of the Fund attributable to the Retail Class:
NAV =
Total Assets attributable to class
- - Liabilities attributable to class
Number of Shares Outstanding
attributable to class
The per share NAV for each class of a Fund is determined 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.
HOW OFFERING PRICE IS CALCULATED
The offering price is the NAV plus the front-end sales charge.
HOW THE FUNDS' SECURITIES ARE VALUED
The 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. A Fund may invest in securities primarily listed on foreign
exchanges and that trade on days when the Fund does not price its shares. As a
result, a Fund's net asset value may change on days when shareholders are not
able to purchase or redeem the Fund's shares.
HOW YOUR PURCHASE OR SALE PRICE IS DETERMINED
Your shares will be purchased at the offering price, or sold at the NAV, next
determined after your request 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 a 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 on
that day. 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.
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SHAREHOLDER INFORMATION
PURCHASING YOUR SHARES
You may purchase shares of the Kent Advisor Funds through any investment
representative authorized to sell the Funds' shares. The investment
representative 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.
- Shares of the Funds may be purchased through IRAs and Rollover IRAs,
which are available through the Kent Advisor Funds.
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 employees of Old Kent and its
affiliates, 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.
SALES CHARGES
A sales charge may apply to your purchase. Your sales charge may be reduced for
larger purchases as indicated below.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of Dealer Commission as a
Net Asset Value Percentage of Offering
Investment Offering Price Value Price*
<S> <C> <C> <C>
Less than $25,000 5.75% 6.10% 5.00%
</TABLE>
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<TABLE>
<S> <C> <C> <C>
$25,000 but less than $50,000 5.00 5.26 4.25
$50,000 but less than $100,000 4.50 4.71 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $750,000 2.00 2.04 1.60
$750,000 but less than $1 million 1.50 1.52 1.20
$1 million and above See below See below See below
- --------------------------------------------- ------------------- -------------------- -------------------------------
</TABLE>
* The Dealer Commission may change periodically.
PURCHASES NOT SUBJECT TO SALES CHARGE; CONTINGENT DEFERRED SALES CHARGE.
Investments of $1 million or more are sold with no initial sales charge. However
a 1% contingent deferred sales charge may be imposed on the NAV of the shares
redeemed if redemptions are made within one year of purchase. Shares exchanged
from the Retail Class of another Kent Advisor Fund and reinvested dividend
shares are not subject to an initial sales charge. The Funds may pay a dealer
concession of up to 1% under its Distribution Plan on investments made with no
initial sales charge.
REDUCING YOUR SALES CHARGE
You and your "immediate family" (your spouse and your children under the age of
21) may combine investments to reduce your sales charge. You must let your
investment representative or the Funds' transfer agent know at the time of
purchase that you qualify for a reduction in your sales charge using one or any
combination of the methods described below and in the Statement of Additional
Information.
AGGREGATING ACCOUNTS. To receive a reduced sales charge, investments made by you
and your immediate family (see above) may be aggregated if made for their own
account(s) and/or:
- trust accounts established by the above individuals. However, if the
person(s) who established the trust is deceased, the trust account
may be aggregated with accounts of the person who is the primary
beneficiary of the trust.
- solely-controlled business accounts
- single-participant retirement plans
Other types of accounts may also be aggregated. You should check with your
financial adviser or consult the Statement of Additional Information for more
information.
CONCURRENT PURCHASES. You may combine simultaneous purchases of two or more Kent
Advisor Funds to qualify for a reduced sales charge.
RIGHTS OF ACCUMULATION. You may take into account the current value of your
existing holdings in the Kent Advisor Funds to determine your sales charge.
STATEMENT OF INTENTION. You may establish a Statement of Intention (SOI) that
allows you to combine the purchases you intend to make over a 13-month period in
any Kent Advisor Fund. At
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<PAGE> 20
your request purchases made during the previous 90 days may be included;
however, capital appreciation and reinvested dividends and capital gains do not
apply toward these combined purchases. An SOI allows you to take immediate
advantage of the maximum quantity discount available. A portion of your account
may be held in escrow to cover additional sales charges which may be due if your
total investments over the 13-month period do not qualify for the applicable
sales charge reduction.
PLAN OF DISTRIBUTION
The Board of Trustees of the Trust has adopted a Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940. Under the Distribution
Plan, a Fund's distributor and other dealers and investment representatives are
entitled to receive a distribution fee of up to 0.25% from each Fund. 12b-1 fees
compensate the Fund's distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of shares and for providing shareholder services to purchasers. 12b-1 fees are
paid from Fund assets 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.
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<PAGE> 21
SHAREHOLDER INFORMATION
INSTRUCTIONS FOR OPENING OR ADDING TO YOUR ACCOUNT
You can open an account or add to your existing 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.
BY REGULAR MAIL OR OVERNIGHT SERVICE
INITIAL INVESTMENT. If you would like to purchase shares of the Kent Advisor
Funds through your investment representative or financial institution, simply
tell your investment representative 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 a Kent Advisor Funds 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 Advisor Funds"
and include the name of the appropriate Fund(s) on the check.
3. Send by your application and payment:
By regular mail to: Kent Advisor Funds, P.O. Box 182201, Columbus, OH
43218-2201.
By overnight service to: Kent Advisor Funds, c/o BISYS Fund Services, Attn:
T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.
SUBSEQUENT INVESTMENTS. If you would like to add to your account through your
investment representative or financial institution, simply tell your investment
representative that you wish to purchase additional shares of the Funds and he
or she will take care of the necessary documentation. Your investment
representative or financial institution may have transaction minimums and/or
transaction times which will affect your investment.
For all other subsequent investments, follow the instructions below.
1. Complete the investment slip attached to your account statement, or, if
unavailable, provide the following information in writing:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
2. Make check, bank draft or money order payable to the "Kent Advisor Funds"
and include the name of the appropriate Fund(s) on the check.
3. Send by your investment slip and payment:
By regular mail to: Kent Advisor Funds, P.O. Box 182201, Columbus,
OH 43218-2201.
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<PAGE> 22
By overnight service to: Kent Advisor 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 & loan.
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.
Note: Your bank or broker may charge for this service.
BY WIRE TRANSFER
For initial and subsequent investments, call 1-800-633-KENT (5368) for wire
instructions, a confirmation number and 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.
Note: Your bank may charge a wire transfer fee.
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.
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<PAGE> 23
SHAREHOLDER INFORMATION
ADDING TO YOUR ACCOUNT
You can add to your account through your investment representative or financial
institution or by using the convenient options described below. The Funds
reserve the right to change or eliminate these privileges at any time with
60day's notice.
AUTOMATIC INVESTMENT PLAN
You can make automatic investments in the Funds from your bank account.
Automatic investments can be as little as $50, once you have 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, you can elect to
receive your distributions in cash (check) or have distributions (capital gains
and dividends) reinvested in another Kent Advisor 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.
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<PAGE> 24
SHAREHOLDER INFORMATION
SELLING YOUR 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.
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 Advisor Funds, the Funds' transfer agent, or your
investment representative. Normally you will receive your proceeds within a week
after your request is received in good order. See section on "General Policies
on Selling Shares" below for certain exceptions.
If you intend to redeem shares worth more than $1,000,000, you should notify the
Funds at least one day in advance.
THROUGH YOUR DEALER (certain charges may apply)
If you are selling shares through your investment representative, ask him or her
for redemption procedures. Your investment representative and/or institution may
have transaction minimums and/or transaction times which will affect your
redemption.
Shares held for you in your dealer's name must be sold through your dealer. For
all other sales transactions, follow the instructions below.
BY TELEPHONE (unless you have declined telephone sales privileges)
You can redeem up to $50,000 worth of shares by calling 1-800-633-KENT (5368).
If the amount redeemed is less than $2,500, then a check for the proceeds will
be mailed to you. If the amount redeemed is 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 (See "General Policies on Selling Shares - When Written Redemption
Requests are Required" below.)
1. Call 1-800-633-KENT (5368) to request redemption forms or write a letter of
instruction indicating:
- your Fund and your account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
If you have a stock certificate, you must sign on the back and send it to the
Kent Advisor Funds.*
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<PAGE> 25
2. Mail to:
Kent Advisor Funds
P.O. Box 182201
Columbus, OH 43218-2201
BY OVERNIGHT SERVICE (See instruction 1 above)
Send to:
Kent Advisor Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
*Signatures on stock certificates must be guaranteed if the amount is greater
than $50,000, if the proceeds are to be mailed to an address other than the
address of record, or the proceeds are to be made payable to a party other than
the owner of the account. See "General Policies on Selling Shares" for
instructions regarding signature guarantees.
WIRE TRANSFER (You must indicate this option on your application)
Call 1-800-633-KENT (5368) to request a wire transfer. If you call by 4 p.m.
Eastern time, your payment will normally be wired to your bank on the next
business day.
The Funds may charge a wire transfer fee. Your financial institution may also
charge a separate fee.
ELECTRONIC REDEMPTIONS (Your bank must participate in the Automated Clearing
House (ACH) and must be a U.S. bank)
Call 1-800-633-KENT (5368) to request an electronic redemption. If you call by 4
p.m. Eastern time, the NAV of your shares will normally be determined on the
same day and the proceeds will be credited within 8 days.
Your bank may charge for this service.
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.
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<PAGE> 26
- Your account must have a value of $10,000 or more to start automatic
redemptions of 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.
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 Advisor 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 Funds' 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.
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.
25
<PAGE> 27
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), 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.
26
<PAGE> 28
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Kent Advisor 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 Kent Advisor Fund for shares of the same
class of another Kent Advisor Fund. No sales charge or 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.
27
<PAGE> 29
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.
28
<PAGE> 30
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 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. With regard to the Science and Technology
Fund, since Retail Shares have higher distribution and service fees than
Institutional Shares, the dividends paid to shareholders owning Retail Shares
will be lower than those paid to shareholders owning Institutional Shares.
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.
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.
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 taxed 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."
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.)
29
<PAGE> 31
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.
It is expected that the Funds will be subject to foreign withholding taxes with
respect to dividends or interest received from sources in foreign countries.
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.
30
<PAGE> 32
FINANCIAL HIGHLIGHTS
No financial highlights have been included because the Funds had not commenced
operations as of the date of this prospectus.
31
<PAGE> 33
[KENT FUNDS LOGO]
THE FOLLOWING ADDITIONAL INFORMATION IS AVAILABLE TO YOU UPON REQUEST AND
WITHOUT CHARGE:
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.
You can get a free copy of 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 Advisor
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
32
<PAGE> 34
[KENT FUNDS LOGO]
KENT SCIENCE AND TECHNOLOGY FUND
PROSPECTUS
________, 2000
NEED 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.
<PAGE> 35
TABLE OF CONTENTS
Carefully review this important section, which summarizes the Fund's
investments, risks and fees.
RISK/RETURN SUMMARY AND FUND EXPENSES
Overview
Kent Science and Technology Fund
Principal Risks of Investing in the Fund
Who May Want to Invest
Performance
Fees and Expenses
ADDITIONAL INFORMATION
Investment Policies and Practices
Review this section for details on the people and organizations who oversee the
Fund
FUND MANAGEMENT
Investment Adviser
Portfolio Managers
Review this section for details on how shares are valued, how to purchase and
sell shares, related charges and payments of dividends and distributions
SHAREHOLDER INFORMATION
Pricing of Fund Shares
Purchasing Your Shares
Adding to Your Account
Selling Shares
Dividends and Distributions
Taxation
FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Fund
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<PAGE> 36
RISK/RETURN SUMMARY AND FUND EXPENSES
OVERVIEW
This prospectus describes the Institutional Class of shares of the Kent Advisor
Science and Technology Fund (the "Kent Science and Technology Fund" or the
"Fund").
On the following pages, you will find important information about the Fund,
including:
- the investment objective
- principal investment strategy
- performance information
- fees and expenses, and
- principal risks associated with the Fund
The Fund is managed by Lyon Street Asset Management Company ("Lyon Street" or
the "Adviser").
PRINCIPAL RISKS OF THE FUND
Foreign
Market Selection Investment Concentration
Risk Risk Risk Risk
X X X X
A complete description of these and other risks can be found in the section
entitled "Principal Risks."
The Kent Advisor Science and Technology Fund has two classes of shares: Retail
Class and Institutional Class. The Institutional Class of shares of the Fund is
sold primarily to financial or other institutions. The Retail Class of shares of
the Fund is sold primarily through investment representatives. This prospectus
only relates to the Institutional Class of shares of the Kent Advisor Science
and Technology Fund. The Retail Class of shares of the Kent Advisor Science and
Technology Fund are offered in a separate prospectus.
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<PAGE> 37
RISK/RETURN SUMMARY AND FUND EXPENSES
KENT SCIENCE AND TECHNOLOGY FUND
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund normally invests at least 65% of its total assets in the common stocks
of companies expected to benefit from the development, advancement, and use of
science and technology. Some of the industries likely to be included in the
portfolio are:
- computers, including products, software, hardware and electronic
systems and components
- internet
- biotechnology
- pharmaceuticals
- telecommunications
- media and information services
- chemicals and synthetic materials
- defense and aerospace
- medical supply
Lyon Street selects stocks based on intensive research that assesses a company's
fundamental prospects for above-average earnings. The Fund's holdings can range
from small companies developing new technologies to blue chip firms with
established track records of developing and marketing technological advances.
The Fund may also invest in companies that should benefit from technological
advances even if they are not directly involved in research and development.
The Fund may invest without limit in foreign securities and American Depositary
Receipts. The Fund may also invest in futures and options.
The Fund may sell securities for a variety of reasons, such as to secure gains,
limit losses, or redeploy assets into more promising opportunities.
4
<PAGE> 38
RISK/RETURN SUMMARY AND FUND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in the Fund involves risks common to any investment in securities. By
itself, no Fund constitutes a balanced investment program. There is no guarantee
that the Fund will meet its goals. When you sell your shares in the Fund, they
may be worth more or less than you paid for them. It is possible to lose money
by investing in the Fund.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
A full discussion of all permissible investments can be found in the Statement
of Additional Information.
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 the Fund may underperform the market or
other funds with similar objectives.
CONCENTRATION RISK. To the extent that the Fund's investments are concentrated
in issuers conducting business in the same technology or science market sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that market sector.
Competitive pressures may significantly impact the financial condition of
technology companies. For example, an increasing number of companies and new
product offerings can lead to price cuts and slower selling cycles. In addition,
many of these companies may be dependent on the success of a principal product,
may rely on sole source providers and third-party manufacturers, and may
experience difficulties in managing growth.
INVESTMENT STYLE RISK. 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. A
portfolio focused primarily on these stocks is therefore likely to be much more
volatile than one with broader diversification that includes investments in more
economic sectors. As a result, the Fund's net asset value may be subject to
rapid and substantial changes.
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 the Fund to sell its shares at a desirable price. Smaller companies may be
more sensitive to changes in the economy overall. The level of risk will be
5
<PAGE> 39
increased to the extent that the Fund has significant exposure to smaller or
unseasoned companies (those with less than a three-year operating history),
which may not have established products or more experienced management.
Historically, small company stocks have been more volatile than those of larger
companies. As a result, the net asset value of Fund 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. The Fund may invest in growth stocks.
FOREIGN INVESTMENT RISK. 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.
The Fund may invest in foreign securities. As a result, an investment in the
Fund involves additional risks not present in equity funds which invest solely
in shares of U.S. companies. For additional information on foreign securities,
see "Additional Information - Investment Policies and Practices."
WHO MAY WANT TO INVEST
Consider investing in the Fund if you are:
- PURSUING A LONG-TERM GOAL SUCH AS RETIREMENT
6
<PAGE> 40
- SEEKING TO ADD AN AGGRESSIVE GROWTH COMPONENT TO YOUR PORTFOLIO
- WILLING TO ACCEPT HIGHER RISKS OF INVESTING IN THE STOCK MARKET AND
THE POTENTIAL FOR ABOVE-AVERAGE PRICE FLUCTUATIONS IN EXCHANGE FOR
POTENTIALLY HIGHER LONG TERM RETURNS
The Fund will not be appropriate for anyone:
- SEEKING MONTHLY INCOME
- PURSUING A SHORT-TERM GOAL OR INVESTING EMERGENCY RESERVES
- SEEKING SAFETY OF PRINCIPAL
PERFORMANCE
No performance information is shown for the Fund because the Fund had not
commenced operations as of the date of this prospectus. The performance of the
Fund will vary from year to year. As with all mutual funds, the Fund's past
performance will not necessarily indicate how it will perform in the future.
7
<PAGE> 41
RISK/RETURN SUMMARY AND FUND EXPENSES
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)
None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends None
Redemption Fee None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees 0.70%
Distribution (12b-1) Fees None
Other Expenses 0.73%
TOTAL ANNUAL FUND OPERATING EXPENSES 1.43%
</TABLE>
EXAMPLE: This Example is intended to help you compare the cost of investing in
the Fund 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 to the Fund's operating expenses
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
ONE YEAR AFTER PURCHASE $ 171
THREE YEARS AFTER PURCHASE $ 477
8
<PAGE> 42
ADDITIONAL INFORMATION
INVESTMENT POLICIES AND PRACTICES
This section takes a detailed look at some of the types of securities the Fund
may hold in its portfolio and the various kinds of investment practices that
may be used in day-to-day portfolio management. Although the Fund may invest in
the securities and pursue the strategies described below, the Fund will not
necessarily do so.
The investment objective of the Fund is not fundamental and may be changed by
the Trustees without shareholder approval. The Fund adheres to certain
investment restrictions and policies at the time it makes 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 Fund's investment program is subject to further restrictions and risks
described in the Statement of Additional Information.
TYPES OF PORTFOLIO SECURITIES
In seeking to meet its investment objective, the Fund may invest in any type of
security or instrument (including certain potentially high-risk derivatives
described in this section) whose investment characteristics are consistent with
the Fund's investment program.
The Fund invests primarily in common stocks and may, to a lesser degree,
purchase other types of securities described below.
COMMON STOCKS. Stocks represent shares of ownership in a company. After other
claims are satisfied, common stockholders participate in company profits on a
pro-rata basis; profits may be paid out in dividends or reinvested in the
company to help it grow. Increases and decreases in earnings are usually
reflected in a company's stock price, so common stocks generally have the
greatest appreciation and depreciation potential of all corporate securities.
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. The Fund may invest in value stocks.
CONVERTIBLE SECURITIES AND WARRANTS. The Fund may invest in debt or preferred
equity securities convertible into, or exchangeable for, equity securities.
Traditionally, convertible securities have paid dividends or interest at rates
higher than common stocks but lower than nonconvertible securities. They
generally participate in the appreciation or depreciation of the underlying
stock into which they are convertible, but to a lesser degree. Some convertibles
are sold as units that combine higher or lower current income with options,
warrants and other features. Warrants are options to buy a stated number of
shares of common stock at a specified price anytime during the life of the
warrants (generally, two or more years).
FOREIGN SECURITIES. There is no limit on the amount of assets the Fund may
invest in foreign securities. Such investments increase a portfolio's
diversification and may enhance return, but they also involve some special
risks, such as exposure to potentially adverse local political and economic
developments; nationalization and exchange controls; potentially lower liquidity
and
9
<PAGE> 43
higher volatility; possible problems arising from accounting, disclosure,
settlement, and regulatory practices that differ from U.S. standards; and the
chance that fluctuations in foreign exchange rates will decrease the
investment's value (favorable changes can increase its value). These risks are
heightened for investments in developing countries.
AMERICAN DEPOSITARY RECEIPTS. The Fund 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. Securities underlying such investments, however,
are denominated in foreign currencies.
HYBRID INSTRUMENTS. The Fund may invest up to 10% of its total assets in hybrid
instruments. These instruments (a type of potentially high-risk derivative) can
combine the characteristics of securities, futures, and options. For example,
the principal amount, redemption, or conversion terms of a security could be
related to the market price of some commodity, currency, or securities index.
Such securities may bear interest or pay dividends at below market or even
relatively nominal rates. Under certain conditions, the redemption value of such
an investment could be zero. Hybrids can have volatile prices and limited
liquidity, and their use by a Fund may not be successful.
PRIVATE PLACEMENTS. These securities are sold directly to a small number of
investors, usually institutions. Unlike public offerings, such securities are
not registered with the SEC. Although most of these securities may be readily
sold, for example, under Rule 144A or Section 4(2), others may be illiquid, and
their sale may involve substantial delays and additional costs.
TYPES OF INVESTMENT MANAGEMENT PRACTICES
FUTURES AND OPTIONS. Futures (a type of potentially high-risk derivative) are
often used to manage or hedge risk because they enable the investor to buy or
sell an asset in the future at an agreed-upon price. Options (another type of
potentially high-risk derivative) give the investor the right (where the
investor purchases the option), or the obligation (where the investor writes
(sells) the option), to buy or sell an asset at a predetermined price in the
future. The Fund may buy and sell futures and options contracts for any number
of reasons, including: to manage its exposure to changes in securities prices
and foreign currencies; as an efficient means of adjusting the Fund's overall
exposure to certain markets; as a cash management tool; and to protect the value
of portfolio securities. The Fund may purchase and write options on futures
contracts. The Fund may also purchase put and call options and write covered
call and secured put options on securities, indices, financial instruments and
foreign currencies.
MANAGING FOREIGN CURRENCY RISK. Investors in foreign securities may "hedge"
their exposure to potentially unfavorable currency changes by purchasing a
contract to exchange one currency for another on some future date at a specified
exchange rate. If the Fund were to engage in foreign currency transactions, they
would be used primarily to protect the Fund's foreign securities from adverse
currency movements relative to the U.S. dollar or another foreign currency. Such
transactions involve the risk that anticipated currency movements will not
occur, and the Fund's total return could be reduced.
10
<PAGE> 44
PORTFOLIO TURNOVER. The Fund will not generally trade in securities for
short-term profits, but, when circumstances warrant, securities may be purchased
and sold without regard to the length of time held. A high turnover rate may
increase transaction costs and result in higher capital gain distributions by
the Fund.
INVESTING FOR DEFENSIVE PURPOSES. When Lyon Street determines that market
conditions are appropriate, the Fund may, for temporary defensive purposes,
invest up to 100% of its assets in money market instruments. If the Fund is
investing defensively, it will not be pursuing its investment objective.
11
<PAGE> 45
FUND MANAGEMENT
INVESTMENT ADVISER
Lyon Street is the investment adviser to the Fund and provides the Fund with
professional investment supervision and management. 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. Lyon Street or its
affiliates have served as investment adviser to the Kent Funds since their
inception.
Lyon Street maintains offices at 111 Lyon Street, NW, Grand Rapids, Michigan
49503. Lyon Street is a wholly-owned subsidiary of Old Kent Bank. 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.
As compensation for Lyon Street's investment advisory services, the Fund pays
Lyon Street an annual fee of 0.70% of the Fund's average daily net assets.
PORTFOLIO MANAGERS
There is an investment advisory team that is responsible for the day-to-day
management of the Fund. The Fund's investment advisory team is composed of the
following members: David C. Eder, Allan J. Meyers, Robert Cummisford and Daniel
Skubiz. The investment advisory team has had day-to-day responsibility for
managing the Fund since the Fund's inception.
<TABLE>
<CAPTION>
MANAGER EXPERIENCE
<S> <C>
Joseph T. Keating, President and Chief - Mr. Keating is responsible for developing and
Investment Officer at Lyon Street implementing the Trust's investment policies.
- Mr. Keating has over twenty years of portfolio
management experience, including twelve years
with Old Kent and Lyon Street.
David C. Eder, Director of Structured - Mr Eder has over seven years of portfolio
Equity Management at Lyon Street management experience with Old Kent
and Lyon Street. - Mr. Eder is also a co-portfolio manager for the Kent
Index Equity and the Kent International Growth Funds.
Allan J. Meyers, CFA, Chief Equity Officer - Mr. Meyers has over twenty-four years of portfolio
at Lyon Street management experience, including fifteen years with
Old Kent and Lyon Street.
- Mr. Meyers is also the portfolio manager for the Kent
Growth and Income and the Kent Large Company Growth
Funds.
Robert Cummisford, CFA, Director of Small - Mr. Cummisford has over eight years of portfolio
Company Stock Management at Lyon Street management experience, including over three years with
Old Kent and Lyon Street.
- Prior to joining Old Kent, he was a Senior Consultant
with Ibbotson Associates.
- Mr. Cummisford is also the portfolio manager for the
Kent Small Company Growth Fund.
Daniel Skubiz - Prior to joining Lyon Street, Mr. Skubiz was an equity
trader with Trade Street Securities.
</TABLE>
The Statement of Additional Information has more detailed information about Lyon
Street and the Funds' other service providers.
12
<PAGE> 46
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
HOW NAV IS CALCULATED
The net asset value ("NAV") of a share of the Institutional Class of the Fund is
calculated by adding the total value of the Fund's investments and other assets
attributable to the Institutional Class, subtracting the liabilities of the Fund
attributable to the Institutional Class and then dividing that figure by the
number of outstanding shares of the Institutional Class of the Fund:
NAV =
Total Assets attributable to class
- - Liabilities attributable to class
- -----------------------------------
Number of Shares Outstanding
attributable to class
The per share NAV for each class of the Fund is determined 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.
HOW THE FUNDS' SECURITIES ARE VALUED
The Fund's 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. The Fund may invest in securities primarily listed on foreign
exchanges and that 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.
HOW YOUR PURCHASE OR SALE PRICE IS DETERMINED
Your shares will be purchased or sold at the NAV next determined after your
request 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 a 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 on that day. 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.
13
<PAGE> 47
SHAREHOLDER INFORMATION
PURCHASING YOUR 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 a purchase order.
3. Wire federal funds, which must be received by the Fund no later than the
close of business the day the purchase order is placed. You must establish
an account with the Fund prior to sending the wire. The wire must include
your Fund account number.
You should note that (i) a purchase of shares will not be completed until the
Fund receives the purchase proceeds and (ii) banks may charge for wiring federal
funds to the Fund. You may obtain information on how to wire funds from any
national bank and certain state banks.
To add to your account, follow instructions 2 and 3 above.
MINIMUM INVESTMENTS
The minimum initial investment amount for Institutional Shares is $100,000.
Subsequent investments may be made in any amount.
The Fund may waive its minimum investment requirements and may reject a purchase
order if it considers it in the best interest of the Fund and its shareholders.
DIVIDENDS AND DISTRIBUTIONS
All dividends and distributions will be automatically reinvested unless you
request otherwise.
If you wish to receive distributions in cash, notify the Fund at 1-800-633-KENT
(5368) and your distributions will be sent by electric funds transfer directly
to your designated bank account.
AVOID 31% TAX WITHHOLDING
The 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.
14
<PAGE> 48
SHAREHOLDER INFORMATION
SELLING YOUR 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.
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 in good order by the Fund.
If you intend to redeem shares worth more than $1,000,000, you should notify the
Funds at least one business day in advance.
Redemption proceeds will be wired in federal funds only to the commercial bank
and account number listed on your account application. To change the bank
account, you should call the Fund at 1-800-633-KENT (5368) and request the
appropriate form.
BY TELEPHONE (unless you have declined telephone sales privileges)
You can redeem up to $50,000 worth of shares by calling 1-800-633-KENT (5368).
If the amount redeemed is less than $2,500, then a check for the proceeds will
be mailed to you. If the amount redeemed is 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 (See "General Policies on Selling Shares - When Written Redemption
Requests are Required" below.)
1. Call 1-800-633-KENT (5368) to request redemption forms or write a letter of
instruction indicating:
- your Fund and your account number
- amount you wish to redeem
- address where your check should be sent
- account owner signature
If you have a stock certificate, you must sign on the back and send it to the
Kent Funds.*
2. Mail to:
Kent Funds
P.O. Box 182201
Columbus, OH 43218-2201
BY OVERNIGHT SERVICE (See instruction 1 above)
Send to:
15
<PAGE> 49
Kent Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
*Signatures on stock certificates must be guaranteed if the amount is greater
than $50,000, if the proceeds are to be mailed to an address other than the
address of record, or the proceeds are to be made payable to a party other
than the owner of the account. See "General Policies on Selling Shares" for
instructions regarding signature guarantees.
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 Fund makes 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 Fund 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.
REFUSAL OF REDEMPTION REQUEST. The Fund 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
16
<PAGE> 50
telephone redemption during periods of drastic economic or market change, you
can send the Fund 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 Fund reserves 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 Fund
deems 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), the 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 Fund.
17
<PAGE> 51
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You may acquire Institutional Shares of any other investment portfolio of the
Kent Funds by exchanging shares of the Fund for shares of the new fund. In
effect, you would be redeeming (reselling to the fund) shares of the old fund
and purchasing shares of the new fund. Exchanges are effected at the net asset
value next determined after the exchange request is received in good order by
the Fund. Be sure to carefully read the prospectus of any fund into which you
wish to exchange shares.
You must meet the minimum investment requirement for the fund into which you are
exchanging. Exchanges from one fund to another are taxable.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to:
Kent Funds
P.O. Box 182201
Columbus, Ohio 43218-2201
Or by calling 1-800-KENT (5368)
Please provide the following information:
- - Your name an telephone number
- - The exact name on your account and account number
- - Taxpayer identification number (or Social Security Number)
- - Dollar value or number of shares to be exchanged
- - The name of the fund from which the exchange is to be made and the account
number
- - The name of the fund into which the exchange is being made, and if this is an
existing account, please provide the account number
IMPORTANT INFORMATION ABOUT EXCHANGES
Kent Funds may disallow exchanges of shares if a shareholder has made more than
five exchanges between investment portfolios offered by the Kent Funds in a
year, or more than three exchanges in a calendar quarter. The Kent Funds may
reject any exchanges or change or terminate rights to exchange shares. The
exchange privilege is available only in states where shares of the new fund may
be sold.
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.
All exchanges are based on the relative net asset value next determined after
the exchange order is received by the Funds.
18
<PAGE> 52
SHAREHOLDER INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund pays dividends to its shareholders from the Fund's net investment
income. The Fund distributes any net capital gains that have been realized.
Income dividends on the Fund are declared and paid annually. Capital gains, if
any, for the Fund are distributed at least annually.
Dividends on each share class of the Fund 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 Retail Shares of the Fund have
higher distribution and service fees than Institutional Shares, the dividends
paid to shareholders owning Retail Shares will be lower than those paid to
shareholders owning Institutional Shares.
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.
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.
TAXATION
FEDERAL TAXES
The 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 the
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 taxed 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."
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.
19
<PAGE> 53
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.
It is expected that the Fund will be subject to foreign withholding taxes with
respect to dividends or interest received from sources in foreign countries.
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 the
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.
20
<PAGE> 54
FINANCIAL HIGHLIGHTS
No financial highlights have been included because the Fund had not commenced
operations as of the date of this prospectus.
21
<PAGE> 55
[KENT FUNDS LOGO]
THE FOLLOWING ADDITIONAL INFORMATION IS AVAILABLE TO YOU UPON REQUEST AND
WITHOUT CHARGE:
Statement of Additional Information (SAI):
The SAI provides more
detailed information about
the Fund, including its
operations and investment
policies. It is incorporated
by reference and is legally
considered to be a part of
this prospectus.
You can get a free copy of the SAI, request other information and discuss your
questions about the Fund by contacting a broker or other financial institution
that sells the Fund. In addition, you may contact the Fund 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 Fund, 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 Fund's website is not part of this Prospectus.
Investment Company Act File No. 811-4824
22
<PAGE> 56
THE KENT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
KENT ADVISOR SCIENCE AND TECHNOLOGY FUND
KENT ADVISOR CANTERBURY FUND
KENT ADVISOR CASCADE FUND
, 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
Funds dated , 2000, as amended or supplemented from time to time.
Copies of the prospectus may be obtained by writing to Kent Advisor 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.
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Trust........................................................................................................3
Common Types of Investments and Management Practices and Potential Risks.........................................3
Investment Restrictions.........................................................................................18
Securities Transactions.........................................................................................19
Valuation Of Securities.........................................................................................21
Trustees And Officers...........................................................................................22
Investment Adviser..............................................................................................24
Administrator...................................................................................................26
Distributor.....................................................................................................27
Transfer Agent..................................................................................................27
Custodian, Auditors And Counsel.................................................................................27
Distribution Plan...............................................................................................28
Additional Purchase And Redemption Information..................................................................29
Dividends And Taxes.............................................................................................33
Declaration Of Trust............................................................................................33
Standardized Total Return Quotations............................................................................35
Advertising Information.........................................................................................36
Financial Statements............................................................................................37
Additional Information..........................................................................................37
Appendix A.....................................................................................................A-1
Appendix B.....................................................................................................B-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.
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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 series,
each of which is diversified and has a distinct investment objective and
distinct investment policies.
This SAI relates to the following three series (individually, a "Fund,"
and collectively, the "Funds"): Kent Advisor Science and Technology Fund, Kent
Advisor Canterbury Fund, and Kent Advisor Cascade Fund. The Kent Advisor Science
and Technology Fund has two classes of shares: Retail Class and Institutional
Class. The Kent Advisor Canterbury Fund and the Kent Advisor Cascade Fund each
have one class of shares: Retail Class. This SAI relates to both the Retail and
Institutional Classes of shares of the Kent Advisor Science and Technology Fund
and the Retail Class of shares of the Kent Advisor Canterbury Fund and the Kent
Advisor Cascade Fund.
Important information about the Trust and the Funds is contained in the
Funds' prospectuses. This SAI provides additional information about the Trust
and the Funds that may be of interest to some investors. The Trust also offers
an Institutional Class of shares of the Kent Advisor Science and Technology Fund
which are described in a separate prospectus and additional series which are
described in separate prospectuses and statements of additional information.
Each Fund is advised by Lyon Street Asset Management Company ("Lyon
Street" or the "Investment Adviser").
COMMON TYPES OF INVESTMENTS AND MANAGEMENT PRACTICES AND POTENTIAL RISKS
This section describes some of the types of securities a Fund may hold
in its portfolio and the various kinds of investment practices that may be used
in day-to-day portfolio management. 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 Series' investment
objective(s) and policies described in the Prospectus and in this SAI.
AMERICAN DEPOSITARY RECEIPTS. Each Fund 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.
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
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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 "Foreign Securities."
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities.
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; whether 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.
CURRENCY SWAPS. Each Fund may also enter into currency swaps for
hedging purposes or to increase total return. Currency swaps involve the
exchange of the rights of a Fund and another party to make or receive payments
in specific currencies. The net amount of the excess, if any, of a 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
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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 Investment Company Act of 1940 ("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 Funds 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, a Fund will have contractual
remedies pursuant to the agreements related to the transaction.
FOREIGN CURRENCY TRANSACTIONS. 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 Funds
are 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 Funds 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 Funds may enter into forward currency exchange contracts in several
circumstances. When entering into a contract for the purchase or sale of a
security, a 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, a 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 a 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
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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. A
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 a 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" if a 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.
FOREIGN SECURITIES. The Kent Advisor Science and Technology Fund may
invest without limit in the securities of foreign issuers. The Kent Advisor
Canterbury Fund and the Kent Advisor Cascade Fund may invest up to 10% of their
total assets in securities of foreign issuers. 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
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government agencies. As noted under the heading "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 Funds may invest in securities denominated in foreign
currencies, their portfolio securities and other assets are valued in U.S.
dollars. Currency exchange rates may fluctuate significantly over short periods
of time causing, together with other factors, a Fund's net asset value to
fluctuate as well. Currency exchange rates generally are determined by the
forces of supply and demand in the foreign exchange markets and the relative
merits of investments in different countries, actual or anticipated changes in
interest rates and other complex factors, as seen from an international
perspective. Currency exchange rates also can be affected unpredictably by the
intervention or the failure to intervene by U.S. or foreign governments or
central banks, or by currency controls or political developments in the U.S. or
abroad. The Funds are also subject to the possible imposition of exchange
control regulations or freezes on convertibility of currencies.
Dividends and interest payable on a Fund's foreign portfolio securities
may be subject to foreign withholding taxes. To the extent such taxes are not
offset by credits or deductions allowed to investors under U.S. federal income
tax law, they may reduce the net return to the shareholders.
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.
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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.
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 hold the portfolio securities themselves in a segregated
account while the commitment is outstanding. These procedures are designed to
ensure that the Fund will maintain sufficient assets at all times to cover its
obligations under when-issued 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.
FUTURES CONTRACTS AND RELATED OPTIONS. Each Fund 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 a stated quantity of foreign currency. Each
Fund 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 B to this SAI.
HYBRID INSTRUMENTS. Each Fund may invest in Hybrid Instruments. Hybrid
Instruments (a type of potentially high-risk derivative) combine the elements of
futures contracts or options with those of debt, preferred equity, or a
depository instrument. Generally, a Hybrid Instrument will be a debt security,
preferred stock, depository share, trust certificate, certificate of deposit, or
other evidence of indebtedness on which a portion of or all interest payments,
and/or the principal or stated amount payable at maturity, redemption, or
retirement, is determined by reference to prices, changes in prices, or
differences between prices, of securities, currencies, intangibles, goods,
articles, or commodities (collectively "Underlying Assets") or by another
objective index, economic factor, or other measure, such as interest rates,
currency exchange rates, commodity indices, and securities indices (collectively
"Benchmarks"). Thus, Hybrid Instruments may take a variety of forms, including,
but not limited to, debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity.
Hybrid Instruments can be an efficient means of creating exposure to a
particular market, or segment of a market, with the objective of enhancing total
return. For example, a Fund may wish to take advantage of expected declines in
interest rates in several European countries, but
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avoid the transaction costs associated with buying and currency-hedging its
securities positions. One solution would be to purchase a U.S.
dollar-denominated Hybrid Instrument whose redemption price is linked to the
average three-year interest rate in a designated group of countries. The
redemption price formula would provide for payoffs of greater than par if the
average interest rate was lower than a specified level, and payoffs of less than
par if rates were above the specified level. Furthermore, a Fund could limit the
downside risk of the security by establishing a minimum redemption price so that
the principal paid at maturity could not be below a predetermined minimum level
if interest rates were to rise significantly. The purpose of this arrangement,
known as a structured security with an embedded put option, would be to give the
Fund the desired European security exposure while avoiding currency risk,
limiting downside market risk, and lowering transactions costs. Of course, there
is no guarantee that the strategy will be successful, and a Fund could lose
money if, for example, interest rates do not move as anticipated or credit
problems develop with the issuer of the Hybrid.
The risks of investing in Hybrid Instruments reflect a combination of
the risks of investing in securities, options, futures and currencies. Thus, an
investment in a Hybrid Instrument may entail significant risks that are not
associated with a similar investment in a traditional debt instrument that has a
fixed principal amount, is denominated in U.S. dollars, or bears interest either
at a fixed rate or a floating rate determined by reference to a common,
nationally published benchmark. The risks of a particular Hybrid Instrument
will, of course, depend upon the terms of the instrument, but may include,
without limitation, the possibility of significant changes in the Benchmarks or
the prices of Underlying Assets to which the instrument is linked. Such risks
generally depend upon factors which are unrelated to the operations or credit
quality of the issuer of the Hybrid Instrument and which may not be readily
foreseen by the purchaser, such as economic and political events, the supply and
demand for the Underlying Assets, and interest rate movements. In recent years,
various Benchmarks and prices for Underlying Assets have been highly volatile,
and such volatility may be expected in the future. Reference is also made to the
discussion of futures, options, and forward contracts herein for a discussion of
the risks associated with such investments.
Hybrid Instruments are potentially more volatile and carry greater
market risks than traditional debt instruments. Depending on the structure of
the particular Hybrid Instrument, changes in a Benchmark may be magnified by the
terms of the Hybrid Instrument and have an even more dramatic and substantial
effect upon the value of the Hybrid Instrument. Also, the prices of the Hybrid
Instrument and the Benchmark or Underlying Asset may not move in the same
direction or at the same time. Hybrid Instruments may bear interest or pay
preferred dividends at below market (or even relatively nominal) rates.
Alternatively, Hybrid Instruments may bear interest at above market rates but
bear an increased risk of principal loss (or gain). The latter scenario may
result if "leverage" is used to structure the Hybrid Instrument. Leverage risk
occurs when the Hybrid Instrument is structured so that a given change in a
Benchmark or Underlying Asset is multiplied to produce a greater value change in
the Hybrid Instrument, thereby magnifying the risk of loss as well as the
potential for gain. Hybrid Instruments may also carry liquidity risk since the
instruments are often "customized" to meet the portfolio needs of a particular
investor, and therefore, the number of investors that are willing and able to
buy such instruments in the secondary market may be smaller than that for more
traditional debt securities. In addition, because the purchase and sale of
Hybrid Instruments could take place in
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an over-the-counter market without the guarantee of a central clearing
organization or in a transaction between the Fund and the issuer of the Hybrid
Instrument, the creditworthiness of the counter party of issuer of the Hybrid
Instrument would be an additional risk factor which the Fund would have to
consider and monitor. Hybrid Instruments also may not be subject to regulation
of the Commodities Futures Trading Commission ("CFTC"), which generally
regulates the trading of commodity futures by U.S. persons, the SEC, which
regulates the offer and sale of securities by and to U.S. persons, or any other
governmental regulatory authority.
The various risks discussed above, particularly the market risk of such
instruments, may in turn cause significant fluctuations in the net asset value
of a Fund. Accordingly, each Fund will limit its investments in Hybrid
Instruments to 10% of total assets. However, because of their volatility, it is
possible that a Fund's investment in Hybrid Instruments will account for more
than 10% of the Fund's return (positive or negative).
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its total 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.
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.
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
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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 chares 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.
MONEY MARKET INSTRUMENTS. Each Fund may invest from time to time in
"money market instruments," a term that includes, among other things, bank
obligations, commercial paper, corporate bonds with maturities of less than one
year, variable amount master demand notes 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.
Obligations of foreign banks and foreign branches of domestic banks
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
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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 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 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.
OPTIONS. Each Fund 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
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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
effectedby 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 ofan
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding option, to prevent an underlying instrument from being
called, to permit the sale of the underlying instrument or to permit the writing
of a new option containing different terms on such underlying instrument. The
cost of such a liquidation purchase plus transaction costs may be greater than
the premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying instrument (in the case of a covered call option) or liquidate the
segregated account (in the case of a secured put option) until the option
expires or the optioned instrument or
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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.
PORTFOLIO TURNOVER. 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.
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
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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 1940 Act".
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.
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.
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.
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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.
SECURITIES LENDING. Each 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 issuedor 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.
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.
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WARRANTS. Each Fund 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.
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.
FUNDAMENTAL RESTRICTIONS. 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 (including the value of
the collateral received for the loan); 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;
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(6) With respect to the Kent Advisor Canterbury Fund and the Kent
Advisor Cascade Fund, 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;
(7) 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;
(8) 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) 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.
NON-FUNDAMENTAL RESTRICTIONS. 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 in illiquid securities;
(3) 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
(4) 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.
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
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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 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
Funds usually will be effected through brokerage transactions for which
commissions are payable.
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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.
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.
VALUATION OF SECURITIES
Current values for Funds' portfolio securities are determined as
follows:
(1) Common stock, preferred stock and other equity securities listed
on the NYSE are valued on the basis of the last sale price on the exchange. In
the absence of any sales, such securities are valued at the last bid price;
(2) Common stock, preferred stock and other equity securities listed
on other U.S. or foreign exchanges; will be valued as described in (1) above
using quotations on the exchange on which the security is primarily traded;
(3) Common stock, preferred stock and other equity securities which
are unlisted and quoted on the National Market System (NMS) are valued at the
last sale price, provided a sale has occurred. In the absence of any sales, such
securities are valued at the 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;
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(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.
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.
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* 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 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.
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<PAGE> 79
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 and provides the
Funds with professional investment supervision and management. 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. Lyon
Street or its affiliates have served as investment adviser to the Kent Funds
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<PAGE> 80
since March 2, 1998. As of December 31, 1999, Lyon Street managed assets of
approximately $6.2 billion.
Lyon Street is a wholly-owned subsidiary of Old Kent Bank ("Old Kent")
and is located at 111 Lyon Street, NW, Grand Rapids, Michigan 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, Indiana 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.
As compensation for its investment advisory services, Lyon Street is
entitled to an annual fee of 0.70% of the average daily net assets of each Fund,
payable monthly.
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.
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<PAGE> 81
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 is an affiliate of Lyon
Street. 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.
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 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.
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
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<PAGE> 82
0.045% of the Trust's average daily net 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.
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.
_________________________ 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> 83
DISTRIBUTION PLAN
As described in the prospectuses, the Trust has adopted 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 Retail 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
Retail 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 Retail Shares, aggregating and processing purchase, exchange and
redemption requests for Retail Shares, maintaining account records, issuing
confirmations of transactions and providing sub-accounting with respect to
Retail 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 Plans were approved by the Board of Trustees as a whole and by the
Independent Trustees on May 25, 2000. 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 Retail Shares of the affected Fund. The Plan
may be terminated
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<PAGE> 84
at any time by a majority vote of the Independent Trustees or by a majority vote
of the outstanding Retail 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.
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. Order 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.
The net asset value ("NAV") of each class of shares of each 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 diving by the number of outstanding shares of the Fund
attributable to the class. The per share NAV for each class of shares of each
Fund is determined 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.
The offering price for shares of the Retail Class is the NAV plus the
front-end sales charge. The offering price of the Institutional Class of shares
of the Science and Technology Fund is the NAV.
SALES CHARGES
The Funds may sell shares of the Retail Class at net asset value to:
(1) current or retired directors, trustees, officers and advisory board
members of the funds managed by Lyon Street Asset Management Company,
employees of Old Kent Securities Corporation, employees of Old Kent
Bank and its affiliated companies, employees of the Distributor,
certain family members of the above persons, and trusts or plans
primarily for such persons;
(2) current registered representatives, retired registered
representatives with respect to accounts established while active, or
full-time employees (and their spouses, parents, and children) of
dealers who have sales agreements with the Fund's distributor (or who
clear transactions through such dealers) and plans for such persons or
the dealers;
(3) companies exchanging securities with the Funds through a merger,
acquisition or exchange offer; and
(4) Old Kent Bank and its affiliated companies.
Shares of the Retail Class are offered at net asset value to these
persons and organizations due to anticipated economies in sales effort and
expense.
DEALER COMMISSIONS. Commissions of up to 1% will be paid to dealers who
initiate and are responsible for purchases of $1 million or more, for purchases
by any employer-sponsored 403(b) plan or purchases by any defined contribution
plan qualified under Section 401(a) of the Internal Revenue Code including a
"401(k)" plan with 100 or more eligible employees, and for
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<PAGE> 85
purchases made at net asset value by certain retirement plans of organizations
with collective retirement plan assets of $50 million or more: 1.00% on amounts
of $1 million to $4 million, 0.50% on amounts over $4 million to $10 million,
and 0.25% on amounts over $10 million.
STATEMENT OF INTENTION. You may enter into a non-binding commitment to
purchase shares of the Retail Class of one or more Kent Advisor Funds over a
13-month period and receive the same sales charge as if all shares had been
purchased at once. This includes purchases made during the previous 90 days, but
does not include appreciation of your investment or reinvested distributions.
The reduced sales charges and offering prices set forth in the Prospectus apply
to purchases of $25,000 or more made within a 13-month period subject to the
following statement of intention (the "Statement"). The Statement is not a
binding obligation to purchase the indicated amount. When a shareholder elects
to utilize a Statement in order to qualify for a reduced sales charge, shares
equal to 5% of the dollar amount specified in the Statement will be held in
escrow in the shareholder's account out of the initial purchase (or subsequent
purchases, if necessary) by the Funds' transfer agent. All dividends and any
capital gain distributions on shares held in escrow will be credited to the
shareholder's account in shares (or paid in cash, if requested). If the intended
investment is not completed within the specified 13-month period, the purchaser
will remit to the Fund's distributor the difference between the sales charge
actually paid and the sales charge which would have been paid if the total of
such purchases had been made at a single time. If the difference is not paid by
the close of the period, the appropriate number of shares held in escrow will be
redeemed to pay such difference. If the proceeds from this redemption are
inadequate, the purchaser will be liable to the Fund's distributor for the
balance still outstanding. The Statement may be revised upward at any time
during the 13-month period, and such a revision will be treated as a new
Statement, except that the 13-month period during which the purchase must be
made will remain unchanged. Existing holdings eligible for rights of
accumulation (see the account application) may be credited toward satisfying the
Statement. During the Statement period, reinvested dividends and capital gain
distributions and investments made under a right of reinstatement will not be
credited toward satisfying the Statement.
Shareholders purchasing shares of the Retail Class at a reduced sales
charge under a Statement indicate their acceptance of these terms with their
first purchase.
AGGREGATION. Sales charge discounts on purchases of shares of the
Retail Class are available for certain aggregated investments. Qualifying
investments include those by you, your spouse and your children under the age of
21, if all parties are purchasing shares for their own accounts and/or:
- employee benefit plan(s), such as an IRA, individual-type 403(b)
plan, or single-participant Keogh-type plan;
- business accounts solely controlled by these individuals (for
example, the individuals own the entire business);
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<PAGE> 86
- trust accounts established by the above individuals. However, if
the person(s) who established the trust is deceased, the trust
account may be aggregated with accounts of the person who is the
primary beneficiary of the trust.
Individual purchases of shares of the Retail Class by a trustee(s) or
other fiduciary(ies) may also be aggregated if the investments are:
- for a single trust estate or fiduciary account, including an
employee benefit plan other than those described above;
- made for two or more employee benefit plans of a single employer
or of affiliated employers as defined in the 1940 Act, again
excluding employee benefit plans described above; or
- for a diversified common trust fund or other diversified pooled
account not specifically formed for the purpose of accumulating
fund shares.
Purchases made for nominee or street name accounts (securities held in
the name of an investment dealer or another nominee such as a bank trust
department instead of the customer) may not be aggregated with those made for
other accounts and may not be aggregated with other nominee or street name
accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES. You may combine purchases of shares of the Retail
Class of two or more Kent Advisor Funds.
RIGHTS OF ACCUMULATION. You may take into account the current value of
your existing holdings of shares of the Retail Class of the Kent Advisor Funds
to determine your sales charge on investments in accounts eligible to be
aggregated, or when making a gift to an individual or charity.
CONTINGENT DEFERRED SALES CHARGES. A contingent deferred sales charge
of 1% applies to certain redemptions of shares of the Retail Class of the Kent
Advisor Funds made within twelve months of purchase on investments of $1 million
or more. The charge is 1% of the lesser of the value of the shares redeemed
(exclusive of reinvested dividends and capital gain distributions) or the total
cost of such shares. Shares held for the longest period are assumed to be
redeemed first for purposes of calculating this charge. The charge is waived for
exchanges (except if shares acquired by exchange were then redeemed within 12
months of the initial purchase); for distributions from 403(b) plans or IRAs due
to death, disability or attainment of age 59 1/2; for tax-free returns of excess
contributions to IRAs; and for redemptions through certain automatic withdrawals
not exceeding 10% of the amount that would otherwise be subject to the charge.
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.
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<PAGE> 87
Shares of both the Retail Class and the Institutional Class 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.
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.)
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.
A Fund may make payment for redemption in securities or other property
if it appears appropriate to do so in light of the Fund's responsibilities under
the 1940 Act. In the event shares are redeemed for securities or other property,
shareholders may incur additional costs in connection with the conversion
thereof to cash. Redemption in kind is not as liquid as a cash redemption.
Shareholders who receive a redemption in kind may receive less than the
redemption value of their shares upon sale of the securities or property
received, particularly where such securities are sold prior to maturity.
The Trust has filed an election pursuant to Rule 18f-1 under the 1940
Act which provides that each portfolio of the Trust is obligated to redeem
shares solely in cash up to $250,000 or 1% of such portfolio's net asset value,
whichever is less, for any one shareholder within a 90-day period. Any
redemption beyond this amount may be made in proceeds other than cash.
DIVIDENDS AND TAXES
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
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<PAGE> 88
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.
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. The series may have one or more separate classes of shares - Retail
Shares, Investment Shares or Institutional Shares. Each share of the Trust has
no par value and is entitled to such dividends and distributions of the income
earned on its respective series' assets as are declared at the discretion of the
Trustees. Each class or series is entitled upon liquidation of such class or
series to a pro rata share in the net assets of that class or series.
Shareholders have no preemptive rights. When issued for payment as described in
the 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
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<PAGE> 89
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.
Shares of the Trust have non-cumulative voting rights, which means that
the holders of more than 50% of the shares of the Trust voting for the election
of Trustees can elect 100% of the Trustees to be elected at a meeting and, in
such event, the holders of the remaining less than 50% of the shares of the
Trust voting will not be able to elect any Trustees.
As a general matter, the Trust does not hold annual or other meetings
of shareholders. At such time, however, as less than a majority of the Trustees
holding office have been elected by shareholders, the Trustees then in office
will call a shareholders meeting for the election of Trustees. The Trustees
shall continue to hold office indefinitely, unless otherwise required by law,
and may appoint successor Trustees. A Trustee may be removed from office: (1) at
any time by two-thirds vote of the Trustees; or (2) at a special meeting of
shareholders by a two-thirds vote of the outstanding shares. Trustees may also
voluntarily resign from office.
LIMITATION OF TRUSTEES' LIABILITY
The Restatement of Declaration of Trust provides that the Trustees
shall not be responsible or liable for any neglect or wrongdoing of any officer,
agent, employee or adviser of the Trust, provided that they have exercised
reasonable care in the selection of such individuals. The Restatement of
Declaration of Trust also provides that a Trustee shall be indemnified against
all liabilities and expenses reasonably incurred in connection with the defense
or disposition of any action, suit or other proceeding in which said Trustee is
involved by reason of being or
34
<PAGE> 90
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 QUOTATIONS
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:
<TABLE>
<S><C>
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.
</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:
<TABLE>
<S><C>
ERV
Aggregate Total Return = [(-----------) - 1]
P
</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.
35
<PAGE> 91
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.
36
<PAGE> 92
FINANCIAL STATEMENTS
No financial statements have been included for the Funds because the
Funds had not commenced operations as of the date of this Statement of
Additional Information.
DETERMINATION OF NET ASSET VALUE, REDEMPTION PRICE AND MAXIMUM OFFERING PRICE
PER SHARE - AS OF THE DATE OF COMMENCEMENT OF OPERATIONS OF THE FUNDS
<TABLE>
<CAPTION>
Retail Shares Institutional Shares
------------- --------------------
<S> <C> <C>
Net Assets $ 10.00 $ 10.00
Number of Shares Outstanding 1 1
NAV Per Share $ 10.00 $ 10.00
Sales Charge (5.75% of offering price $ 0.61 $ 0.00
or 6.10% of NAV)
Offering Price Per Share $ 10.61 $ 10.00
</TABLE>
ADDITIONAL INFORMATION
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 under
Rule 17j-1 of 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.
37
<PAGE> 93
APPENDIX A
DESCRIPTION OF SECURITIES
COMMERCIAL PAPER RATINGS
STANDARD & POOR'S. 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.
A-1
<PAGE> 94
MOODY'S. 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:
"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.
DUFF & PHELPS. 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.
A-2
<PAGE> 95
"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.
FITCH IBCA. 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. 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.
A-3
<PAGE> 96
"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-4
<PAGE> 97
APPENDIX B
As stated in the Prospectus, 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.
B-1
<PAGE> 98
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.
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.
B-2
<PAGE> 99
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 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
B-3
<PAGE> 100
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 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
B-4
<PAGE> 101
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. 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.
B-5
<PAGE> 102
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 is filed herewith as Exhibit 23(e).
(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.
-1-
<PAGE> 103
(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 is filed herewith as Exhibit 23(h)(1).
(h)(2) The Fund Accounting Agreement between Registrant and Old Kent Securities
Corporation dated December 1, 1999 is filed herewith as Exhibit 23(h)(2).
(h)(3) The Transfer Agency Agreement between Registrant and Old Kent Securities
Corporation dated December 1, 1999 is filed herewith as Exhibit 23(h)(3).
(h)(4) The Sub-Administration Agreement between Old Kent Securities Corporation
and BISYS Fund Services Ohio, Inc. dated December 1, 1999 is filed
herewith as Exhibit 23(h)(4).
(h)(5) The Sub-Fund Accounting Agreement between Old Kent Securities Corporation
and BISYS Fund Services Ohio, Inc. dated December 1, 1999 is filed
herewith as Exhibit 23(h)(5).
(h)(6) The Sub-Transfer Agency Agreement between Old Kent Securities Corporation
and BISYS Fund Services Ohio, Inc. dated December 1, 1999 is filed
herewith as Exhibit 23(h)(6).
(h)(7) The Omnibus Fee Agreement between Old Kent Securities Corporation and
BISYS Fund Services Ohio, Inc. dated December 1, 1999 is filed herewith
as Exhibit 23(h)(7).
(i) Opinion of Drinker Biddle & Reath LLP is filed herewith as Exhibit 23(i).
(j)(1) Consent of Drinker Biddle & Reath LLP is incorporated in Exhibit 23(i)
filed herewith.
(j)(1) Consent of independent auditor to be filed by Amendment.
(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) Amended and Restated 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.
(o) Not Applicable.
(p)(1) Code of Ethics of The Kent Funds is filed herewith as Exhibit 23(p)(1).
(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. is filed herewith as
Exhibit 23(p)(3).
-2-
<PAGE> 104
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 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.
-3-
<PAGE> 105
ITEM 24. (continued)
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.
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:
Name and Principal Positions and Offices Positions and Offices
Business Addresses with KFDI with Registrant
- ------------------ ------------------------ ---------------------
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
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, One
Logan Square, 18th & Cherry Streets, Philadelphia, Pennsylvania 19103-6996.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
-4-
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Grand Rapids, in the State
of Michigan, on the 13th 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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ James F. Duca, II President April 13, 2000
- -----------------------------
James F. Duca, II
*/s/ Martin R. Dean Treasurer (Principal Accounting April 13, 2000
- ----------------------------- and Financial Officer)
Martin R. Dean
*/s/ Walter B. Grimm Chairman and Trustee April 13, 2000
- -----------------------------
Walter B. Grimm
*/s/ Joseph F. Damore Trustee April 13, 2000
- -----------------------------
Joseph F. Damore
*/s/ James F. Rainey Trustee April 13, 2000
- -----------------------------
James F. Rainey
*/s/ Ronald F. VanSteeland Trustee April 13, 2000
- -----------------------------
Ronald F. VanSteeland
*/s/ E. Philip Farley Trustee April 13, 2000
- -----------------------------
E. Philip Farley
*By: /s/ Amy D. Eisenbeis
-----------------------
Amy D. Eisenbeis
Attorney-in-Fact
</TABLE>
* 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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- ----------------------------------------------------------------
<S> <C>
23(e) The Distribution Agreement between Registrant and Kent Funds
Distributors, Inc. is filed herewith as EX-99.23e.
23(h)(1) The Administration Agreement between Registrant and Old Kent
Securities Corporation is filed herewith as EX-99.23h1.
23(h)(2) The Fund Accounting Agreement between Registrant and Old Kent
Securities Corporation is filed herewith as EX-99.23h2.
23(h)(3) The Transfer Agency Agreement between Registrant and Old Kent
Securities Corporation is filed herewith as EX-99.23h3.
23(h)(4) The Sub-Administration Agreement between Old Kent Securities
Corporation and BISYS Fund Services Ohio, Inc. is filed herewith
as EX-99.23h4.
23(h)(5) The Sub-Fund Accounting Agreement between Old Kent Securities
Corporation and BISYS Fund Services Ohio, Inc. is filed herewith
as EX-99.23h5.
23(h)(6) The Sub-Transfer Agency Agreement between Old Kent Securities
Corporation and BISYS Fund Services Ohio, Inc. is filed herewith
as EX-99.23h6.
23(h)(7) The Omnibus Fee Agreement between Old Kent Securities Corporation
and BISYS Fund Services Ohio, Inc. is filed herewith as
EX-99.23h7.
23(i) Opinion of Drinker Biddle & Reath LLP is filed herewith as
EX-99.23i.
23(j)(1) Consent of Drinker Biddle & Reath LLP is incorporated in Exhibit
23(i) filed herewith.
23(p)(1) Code of Ethics of The Kent Funds is filed herewith as EX-99.23p1.
23(p)(2) Code of Ethics of Lyon Street Asset Management Company is filed
herewith as EX-99.23p2.
23(p)(3) Code of Ethics of Kent Funds Distributors, Inc. is filed herewith
as EX-99.23p3.
</TABLE>
<PAGE> 1
EXHIBIT 99.23(e)
DISTRIBUTION AGREEMENT
AGREEMENT made as of this 1st day of July, 1999, between THE KENT FUNDS
(the "Trust"), a Massachusetts business trust having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219, and KENT FUNDS
DISTRIBUTORS, INC. ("Distributor"), having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company,
organized as a Massachusetts business trust and registered with the Securities
and Exchange Commission (the "Commission") under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of
the Shares covered by the registration statement and prospectus of the Trust in
effect from time to time under the Securities Act of 1933, as amended (the
"Securities Act"). As used in this Agreement, the term "registration statement"
shall mean Parts A (the prospectus), B (the Statement of Additional Information)
and C of each registration statement that is filed on Form N-1A, or any
successor thereto, with the Commission, together with any amendments thereto.
The term "prospectus" shall mean each form of prospectus and Statement of
Additional Information used by the Funds for delivery to shareholders and
prospective shareholders after the effective dates of the above referenced
registration statements, together with any amendments and supplements thereto.
1.2 The Trust understands that Distributor is now and may in
the future be the distributor of the shares of several investment companies or
series (together, "Companies") including Companies having investment objectives
similar to those of the Funds. The Trust further understands that investors and
potential investors in the Funds may invest in shares of such other Companies.
The Trust agrees that Distributor's duties to such Companies shall not be deemed
in conflict with its duties to the Trust under this paragraph 1.2.
Distributor shall receive a fee pursuant to Section 2
of this Agreement in accordance with the Trust's Amended and Restated Master
Distribution Plan (the "Plan"). Distributor shall make payments to the persons
described in Section 2 for services that are more particularly described in the
Plan.
1.3 In its capacity as distributor of the Shares, all
activities of Distributor and its
1
<PAGE> 2
partners, agents, and employees shall conform with the Trust's Declaration of
Trust, Bylaws, registration statement and prospectuses as in effect from time to
time and shall conform to and comply with all applicable laws, rules and
regulations, including, without limitation, the 1940 Act, all rules and
regulations promulgated by the Commission thereunder and all rules and
regulations adopted by any securities association registered under the
Securities Exchange Act of 1934. Distributor agrees to perform the following
compliance-related functions in its capacity as distributor of the Shares:
ADVERTISING AND SALES LITERATURE
1. Review and approve all Fund advertisements and sales literature
for compliance with applicable laws and regulations.
2. File with NASD all Fund advertisements and sales literature, as
required.
3. Maintain and update files for all Fund advertisements and sales
literature.
4. Respond to comments from the NASD with respect to advertising and
sales literature filings.
REGISTRATION/QUALIFICATION ACTIVITIES (FOR BISYS REPRESENTATIVES
DISTRIBUTING CLIENT'S FUNDS)
1. Ensure that Distributor's representatives are licensed in
appropriate jurisdiction(s).
2. Satisfy all registration requirements for Distributor's
representatives.
3. Maintain and update SEC, NASD and state registrations for
Distributor's representatives.
4. Satisfy NASD continuing education requirements for all
Distributor's licensed representatives.
BROKER/DEALER COMPLIANCE ACTIVITIES
1. Execute service agreements, as Distributor, with broker-dealer
firms and other service organizations.
2. If appropriate, provide assistance to the Trust's investment
adviser and its affiliates concerning obligations to bank
customers pursuant to the Bank Inter-Agency Statement.
3. Maintain compliance calendar.
4. Coordinate NASD audits of Distributor's books and records.
5. File audited financial statements for Distributor's operations.
1.4 Distributor will provide one or more persons, during
normal business hours, to respond to telephone questions with respect to the
Trust.
1.5 Distributor will transmit any orders received by it for
purchase or redemption of the Shares to the transfer agent and custodian for the
Trust.
1.6 Whenever in their judgment such action is warranted by
unusual market, economic or political conditions, or by abnormal circumstances
of any kind, the Trust's officers may
2
<PAGE> 3
decline to accept any orders for, or make any sales of, the Shares until such
time as those officers deem it advisable to accept such orders and to make such
sales.
1.7 Distributor will act only on its own behalf as principal
if it chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in
connection with the sale of the Shares, such information with respect to the
Funds and the Shares as Distributor may reasonably request; and the Trust
warrants that the statements contained in any such information shall fairly show
or represent what they purport to show or represent. The Trust shall also
furnish Distributor upon request with: (a) unaudited semi-annual statements of
the Funds' books and accounts prepared by the Trust, (b) a monthly itemized list
of the securities in the Funds, (c) monthly balance sheets as soon as
practicable after the end of each month, and (d) from time to time such
additional information regarding the financial condition of the Funds as
Distributor may reasonably request.
1.10 The Trust represents to Distributor that, with respect to
the Shares, all registration statements and prospectuses filed by the Trust with
the Commission under the Securities Act have been prepared in conformity with
requirements of said Act and rules and regulations of the Commission thereunder.
As of their effective date, the Trust's registration statement and prospectus
contained all statements required to be stated therein in conformity with said
Act and the rules and regulations of the Commission and all statements of fact
contained in any such registration statement and prospectus were true and
correct. Furthermore, as of their effective date, neither any registration
statement nor any prospectus included an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading to a purchaser of the Shares. The
Trust may, but shall not be obligated to, propose from time to time such
amendment or amendments to any registration statement and such supplement or
supplements to any prospectus as, in the light of future developments, may, in
the opinion of the Trust's counsel, be necessary or advisable. If the Trust
shall not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Trust of a written request from
Distributor to do so, Distributor may, at its option, terminate this Agreement.
The Trust shall not file any amendment to any registration statement or
supplement to any prospectus without giving Distributor reasonable notice
thereof in advance; provided, however, that nothing contained in this Agreement
shall in any way limit the Trust's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus, of whatever
character, as the Trust may deem advisable, such right being in all respects
absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to
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<PAGE> 4
indemnify, defend and hold Distributor, its several partners and employees, and
any person who controls Distributor within the meaning of Section 15 of the
Securities Act free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which Distributor, its partners and employees, or any such
controlling person, may incur under the Securities Act or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged untrue
statement, of a material fact contained in any registration statement or any
prospectus or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in either any registration statement
or any prospectus necessary to make the statements in either thereof not
misleading; provided, however, that the Trust's agreement to indemnify
Distributor, its partners or employees, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any untrue statement or omission or alleged untrue statement or omission made
in reliance and in conformity with information furnished to the Trust by the
Distributor or its affiliated persons and further provided that the Trust's
agreement to indemnify Distributor and the Trust's representations and
warranties hereinbefore set forth in paragraph 1.10 shall not be deemed to cover
any liability to the Trust or its Shareholders to which Distributor would
otherwise be subject by reason of willful misfeasance, bad faith or negligence
in the performance of its duties, or by reason of Distributor's reckless
disregard of its obligations and duties under this Agreement. The Trust's
agreement to indemnify Distributor, its partners and employees and any such
controlling person, as aforesaid, is expressly conditioned upon the Trust being
notified of any action brought against Distributor, its partners or employees,
or any such controlling person, such notification to be given by letter or by
telegram addressed to the Trust at its principal office in Columbus, Ohio and
sent to the Trust by the person against whom such action is brought, within 10
days after the summons or other first legal process shall have been served. The
failure in good faith to so notify the Trust of any such action shall not
relieve the Trust from any liability which the Trust may have to the person
against whom such action is brought by reason of any such untrue, or allegedly
untrue, statement or omission, or alleged omission, otherwise than on account of
the Trust's indemnity agreement contained in this paragraph 1.11. The Trust will
be entitled to assume the defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Trust and approved by Distributor, which
approval shall not be unreasonably withheld. In the event the Trust elects to
assume the defense of any such suit and retain counsel of good standing approved
by Distributor, the defendant or defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of them; but in case the
Trust does not elect to assume the defense of any such suit, or in case
Distributor reasonably does not approve of counsel chosen by the Trust, the
Trust will reimburse Distributor, its partners and employees, or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by Distributor or them. The Trust's
indemnification agreement contained in this paragraph 1.11 and the Trust's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
Distributor, its partners and employees, or any controlling person, and shall
survive the delivery of any Shares.
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<PAGE> 5
This Agreement of indemnity will inure exclusively to
Distributor's benefit, to the benefit of its several partners and employees, and
their respective estates, and to the benefit of the controlling persons and
their successors. The Trust agrees promptly to notify Distributor of the
commencement of any litigation or proceedings against the Trust or any of its
officers or Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the
Trust, its several officers and Trustees and any person who controls the Trust
within the meaning of Section 15 of the Securities Act free and harmless from
and against any and all claims, demands, liabilities and expenses (including the
costs of investigating or defending such claims, demands, or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Trust, its
officers or Trustees or any such controlling person, may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Trust, its officers or Trustees or
such controlling person resulting from such claims or demands, shall arise out
of or be based upon any untrue statement or alleged untrue statement of a
material fact contained in the Trust's registration statement or any prospectus
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such statement or omission was made in reliance upon information furnished to
the Trust by the Distributor or its affiliated persons. Distributor's agreement
to indemnify the Trust, its officers and Trustees, and any such controlling
person, as aforesaid, is expressly conditioned upon Distributor being notified
of any action brought against the Trust, its officers or Trustees, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office in Columbus, Ohio, and sent to
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served. The
failure in good faith to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the Trust,
its officers or Trustees, or to such controlling person by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Distributor's indemnity agreement contained in this paragraph
1.12. Distributor shall have the right of first control of the defense of such
action, with counsel of its own choosing, satisfactory to the Trust, if such
action is based solely upon such alleged misstatement or omission on
Distributor's part, and the Trust, its officers or Trustees or such controlling
person shall each have the right to participate in the defense or preparation of
the defense of any such action.
1.13 No Shares shall be offered by either Distributor or
the Trust under any of the provisions of this Agreement and no orders for the
purchase or sale of Shares hereunder shall be accepted by the Trust if and so
long as the effectiveness of the registration statement then in effect or any
necessary amendments thereto shall be suspended under any of the provisions of
the Securities Act or if and so long as a current prospectus as required by
Section 10 of said Act is not on file with the Commission; provided, however,
that nothing contained in this paragraph 1.13 shall in any way restrict or have
an application to or bearing upon the Trust's obligation to repurchase Shares
from any Shareholder in accordance with the provisions of the Trust's
registration statement, Declaration of Trust, or Bylaws.
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<PAGE> 6
1.14 The Trust agrees to advise Distributor as soon as
reasonably practical by a notice in writing delivered to Distributor or its
counsel:
(a) of any request by the Commission for amendments
to the registration statement or prospectus
then in effect or for additional information;
(b) in the event of the issuance by the Commission
of any stop order suspending the effectiveness
of the registration statement or prospectus
then in effect or the initiation by service of
process on the Trust of any proceeding for that
purpose;
(c) of the happening of any event that makes untrue
any statement of a material fact made in the
registration statement or prospectus then in
effect or which requires the making of a change
in such registration statement or prospectus in
order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to
any amendment to any registration statement or
prospectus which may from time to time be filed
with the Commission.
For purposes of this section, informal requests by or
acts of the Staff of the Commission shall not be deemed actions of or requests
by the Commission.
1.15 Distributor shall review, provide advice with respect
to, and file with the federal and state agencies or other organization as
required by federal, state, and other applicable laws and regulations, all sales
literature for each Fund and any classes of Shares thereof.
1.16 This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
2. Fee.
During the term of this Agreement, Distributor shall receive
from the Funds identified in the Plan attached as Schedule A hereto (the "Rule
12b-1 Plan Funds") fees at the rate and upon the terms and conditions set forth
in the Trust's registration statement from time to time. The fees shall be
accrued daily and shall be paid on the first business day of each month, or at
such time(s) as Distributor shall reasonably request. Distributor may reallow
all or a portion of the fees paid by the Rule 12b-1 Plan Funds to such brokers,
dealers or other persons as Distributor may determine.
3. Sale and Payment.
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<PAGE> 7
3.1 Sales of Shares by Distributor shall be at the
applicable public offering price determined in the manner set forth in the
registration statement current at the time of the Trust's acceptance of the
order for Shares; provided that Distributor also shall have the right to sell
shares at net asset value, if such sale is permissible under and consistent with
applicable statutes, rules, regulations and orders. All orders shall be subject
to acceptance by the Trust and the Trust reserves the right in its sole
discretion to reject any order received. The Trust shall not be liable to anyone
for failure to accept any order. Shares of a Fund that are subject to a sales
load are hereinafter referred to as "Load Shares."
3.2 Distributor shall have the right to purchase Load Shares
at their net asset value and to sell such Load Shares to the public against
orders therefor at the applicable public offering price. Distributor shall also
have the right to sell Load Shares to dealers against orders therefor at the
public offering price less a concession determined by Distributor, which
concession shall not exceed the amount set forth in the Trust's then current
prospectuses.
3.3 Prior to the time of delivery of any Shares by a Fund
to, or on the order of, Distributor, Distributor shall pay or cause to be paid
to the Fund or to its order an amount in Boston or New York clearing house funds
equal to the applicable net asset value of such Shares. Distributor may retain
so much of any sales charge or underwriting discount as is not allowed by
Distributor as a concession to brokers, dealers or other persons.
4. Issuance of Shares.
The Trust reserves the right to issue, transfer or sell Shares
otherwise subject to a sales load at net asset value (a) in connection with the
merger or consolidation of the Trust or a Fund with any other investment company
or the acquisition by the Trust or a Fund of all or substantially all of the
assets or of the outstanding Shares of any other investment company; (b) in
connection with a pro rata distribution directly to the holders of Shares in the
nature of a stock dividend or split; (c) upon the exercise of subscription
rights granted to the holders of Shares on a pro rata basis; (d) in connection
with the issuance of Shares pursuant to any exchange and reinvestment privileges
described in any then-current prospectus of a Fund; and (e) otherwise in
accordance with any then-current prospectus of a Fund.
5. Term, Duration and Termination.
This Agreement shall become effective with respect to each
Fund as of the date first written above and, unless sooner terminated as
provided herein, shall continue for an initial one-year term and thereafter
shall be renewed for successive one-year terms, provided that such continuance
is specifically approved at least annually by (a) by the vote of a majority of
those members of the Trust's Board of Trustees who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
for the purpose of voting on such approval and (b) by the vote of the Trust's
Board of Trustees or the vote of a majority of the outstanding voting securities
of such Fund. This Agreement is terminable without penalty, on not less than
sixty days' prior written
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<PAGE> 8
notice, by the Trust's Board of Trustees, by vote of a majority of the
outstanding voting securities of the Trust or by the Distributor. This Agreement
will also terminate automatically in the event of its assignment. (As used in
this Agreement, the terms "majority of the outstanding voting securities,"
"interested persons" and "assignment" shall have the same meanings as ascribed
to such terms in the 1940 Act.)
6. Confidentiality.
The Distributor agrees on behalf of itself and its partners
and employees to treat confidentially and as the proprietary information of the
Trust, all records and other information relative to the Trust and prior,
present or potential shareholders, and not to use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except, after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where the Distributor may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
7. Notices.
Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by facsimile or registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the following address: 3435 Stelzer Road, Columbus, Ohio 43219,
facsimile number: 614-470-8715, or at such other address or facsimile number as
such party may from time to time specify in writing to the other party pursuant
to this Section. Notice sent by registered or certified mail shall be deemed to
have been given three days after it is sent. Notice sent by facsimile shall be
deemed to have been given immediately.
8. Amendments.
No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
against whom an enforcement of the change, waiver, discharge or termination is
sought.
9. Multiple Originals.
This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
10. Matters Relating to the Trust as a Massachusetts Business
Trust.
The names "The Kent Funds" and "Trustees of The Kent Funds"
refer respectively
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<PAGE> 9
to the business trust created and the Trustees, as trustees but not individually
or personally, acting from time to time under a Declaration of Trust dated as of
May 9, 1986 to which reference is hereby made and a copy of which is on file at
the office of the Secretary of the Commonwealth of Massachusetts and elsewhere
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "The Kent Funds" entered into in the name or on behalf
thereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the assets of the Trust, and all persons dealing with any Fund must look solely
to the assets of the Trust belonging to such Fund for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
written above.
THE KENT FUNDS KENT FUNDS DISTRIBUTORS, INC.
By: /s/ By: /s/
--------------------------- ----------------------------
Title: Title:
------------------------- --------------------------
Date: Date:
--------------------------- ---------------------------
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<PAGE> 10
Dated: July 1, 1999
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
THE KENT FUNDS
AND
KENT FUNDS DISTRIBUTORS, INC.
DISTRIBUTION PLANS
A-1
<PAGE> 1
EXHIBIT 99.23(h)(1)
ADMINISTRATION AGREEMENT
This AGREEMENT is made as of this 1st day of December, 1999, by and
between THE KENT FUNDS, a Massachusetts business trust (the "Company"), and OLD
KENT SECURITIES CORPORATION (the "Administrator"), a Michigan corporation having
its principal place of business at 111 Lyon Street NW, Grand Rapids, Michigan
49503.
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), consisting of several series of shares of beneficial interest ("Shares");
and
WHEREAS, the Company desires the Administrator to provide, and the
Administrator is willing to provide, management and administrative services to
such series of the Company that are currently in existence and which may
hereafter be created (the "Portfolios") on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the covenants
herein set forth, the Company and the Administrator hereby agree as follows:
ARTICLE 1. Retention of the Administrator. The Company hereby appoints
the Administrator to act as the administrator of the Portfolios and, subject to
the supervision, direction and control of the Company's Board of Trustees, to
furnish the Portfolios with the management and administrative services set forth
in Article 2 below. The Administrator hereby accepts such appointment and agrees
to perform said services for the compensation provided for in Article 4 below.
The Administrator shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized
shall have no authority to act for or represent the Company in any way and shall
not be deemed an agent of the Company.
ARTICLE 2. Administrative Services. The Administrator shall perform or
supervise the performance by others of the administrative services described
herein in connection with the operations of the Portfolios, and, on behalf of
the Company, will investigate, assist in the selection of and conduct relations
with custodians, depositories, accountants, legal counsel, underwriters, brokers
and dealers, corporate fiduciaries, insurers, banks and persons in any other
capacity deemed to be necessary or desirable for the Portfolios' operations. The
Administrator shall provide the Trustees of the Company with such reports
regarding the Portfolios' investment performance as they may reasonably request
but shall have no responsibility for supervising the performance by any
investment adviser or sub-adviser of its responsibilities. The Administrator
agrees to perform the services described herein in accordance with the service
standards set forth in Schedule A attached hereto and made a part hereof.
<PAGE> 2
The Administrator shall provide the Company with regulatory reporting,
all necessary office space, equipment, personnel, and facilities (including
facilities for Shareholders' and Trustees meetings) for handling the affairs of
the Portfolios and such other services as the Administrator shall, from time to
time, determine to be necessary to perform its obligations under this Agreement.
In addition, at the request of the Company's Board of Trustees, the
Administrator shall make reports to the Trustees concerning the performance of
its obligations hereunder.
Without limiting the generality of the foregoing, the Administrator
shall:
(a) calculate each Portfolio's contractual expenses and control
all disbursements by the Company and the Portfolios, and as
appropriate compute each Portfolio's yields, total return,
expense ratios, portfolio turnover rate and, if required,
portfolio average dollar-weighted maturity;
(b) prepare drafts of prospectuses, statements of additional
information, registration statements and proxy materials with
the advice of Company counsel and assist Company counsel with
the filing of the same;
(c) prepare such reports, applications and documents (including
reports regarding the sale and redemption of Shares as may be
required in order to comply with federal and state securities
law) as may be necessary or desirable to register the
Company's Shares with state securities authorities, monitor
the sale of Company Shares for compliance with state
securities laws, and file with the appropriate state
securities authorities the registration statements and reports
for the Company and the Company's Shares and all amendments
thereto, as may be necessary or desirable to register, or
otherwise quality, and keep effective the Company and the
Company's Shares with state securities authorities to enable
the Company to make a continuous offering of its Shares;
(d) develop and prepare, with the assistance of the Company's
investment adviser, communications to Shareholders, including
annual and semi-annual reports to Shareholders, coordinate the
mailing of prospectuses, statements of additional information,
notices, proxy statements, proxies and other reports to
Company Shareholders, and supervise and facilitate the proxy
solicitation process for all Shareholder meetings, including
the tabulation of Shareholder votes;
(e) administer contracts on behalf of the Company with, among
others, the Company's investment adviser, distributor,
custodian, transfer agent and fund accountant;
(f) supervise the Company's transfer agent with respect to the
payment of dividends and other distributions to Shareholders;
(g) calculate performance data of the Portfolios for dissemination
to information services covering the investment company
industry;
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<PAGE> 3
(h) coordinate and supervise the preparation and filing of the
Company's tax returns and required tax filings;
(i) examine and review the operations and performance of the
various organizations providing services to the Company or any
Portfolio, including, without limitation, the Company's
investment adviser, distributor, custodian, fund accountant,
transfer agent, outside legal counsel and independent public
accountants, and at the request of the Company's Board of
Trustees, report to the Board on the performance of such
organizations;
(j) assist with the layout and printing of publicly disseminated
prospectuses and assist with and coordinate layout and
printing of the Company's semi-annual and annual reports to
Shareholders;
(k) assist with the design, development, and operation of the
Portfolios, including new classes, investment objectives,
policies and structure;
(l) provide individuals reasonably acceptable to the Company's
Board of Trustees to serve as officers of the Company, who
will be responsible for the management of certain of the
Company's affairs as determined by the Company's Board of
Trustees;
(m) advise the Company and its Board of Trustees on matters
concerning the Company and its affairs;
(n) obtain and keep in effect fidelity bonds and directors and
officers/errors and omissions insurance policies for the
Company in accordance with the requirements of Rules 17g-1 and
17d-1(d)(7) under the 1940 Act as such bonds and policies are
approved by the Company's Board of Trustees;
(o) monitor and advise the Company and its Portfolios on their
registered investment company status under the Internal
Revenue Code of 1986, as amended;
(p) perform all administrative services and functions of the
Company and each Portfolio to the extent administrative
services and functions are not provided to the Company or such
Portfolio pursuant to the Company's or such Portfolio's
investment advisory agreement, distribution agreement,
custodian agreement, transfer agent agreement and fund
accounting agreement;
(q) furnish advice and recommendations with respect to other
aspects of the business and affairs of the Portfolios as the
Company and the Administrator shall determine desirable;
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<PAGE> 4
(r) prepare and file with the SEC the semi-annual report for the
Company on Form N-SAR and, within 60 days after the close of
each fiscal year of the Company, all required notices pursuant
to Rule 24f-2;
(s) provide reasonable assistance to the Company in connection
with any examination by the SEC;
(t) prepare and maintain a current compliance manual for the
Company;
(u) monitor on at least a monthly basis compliance by each
Portfolio with (i) the investment restrictions and
diversification requirements of the 1940 Act; and (ii) the
investment restrictions and policies in the Portfolio's
current prospectus and statement of additional information;
and
(v) prepare drafts of minutes for all meetings of the Company's
Board of Trustees and each committee thereof with the advice
of Company counsel and otherwise prepare and distribute all
materials necessary or desirable for each such meeting.
The Administrator shall perform such other services for the Company
that are mutually agreed upon by the parties from time to time. Such services
may include performing internal audit examinations; mailing the annual and
semi-annual reports of the Portfolios; preparing an annual list of Shareholders;
and mailing notices of Shareholders' meetings, proxies and proxy statements, for
all of which the Company will pay the Administrator's out-of-pocket expenses.
In performing its duties as Administrator under this Agreement, the
Administrator will act in conformity with the Company's Declaration of Trust,
By-Laws, prospectus and statements of additional information as in effect from
time to time and will conform to and comply with the requirements of the 1940
Act and all applicable federal and state laws and regulations.
ARTICLE 3. Allocation of Charges and Expenses.
(A) The Administrator. The Administrator shall furnish at its own
expense the executive, supervisory and clerical personnel necessary to perform
its obligations under this Agreement. The Administrator shall also provide the
items which it is obligated to provide under this Agreement, and shall pay all
compensation, if any, of officers of the Company as well as all Trustees of the
Company who are affiliated persons of the Administrator or any other
organization affiliated with the Administrator; provided, however, that unless
otherwise specifically provided the Administrator shall not be obligated to pay
the compensation of any employee of the Company retained by the Trustees of the
Company to perform services on behalf of the Company.
(B) The Company. The Company assumes and shall pay or cause to be
paid all other expenses of the Company not otherwise allocated herein,
including, without limitation, organization costs, taxes, expenses for legal and
auditing services, the expenses of preparing (including typesetting), printing
and mailing reports, prospectuses, statements of additional information, proxy
solicitation material and notices to existing Shareholders, all expenses
-4-
<PAGE> 5
incurred in connection with issuing and redeeming Shares, the costs of custodial
services, the cost of initial and ongoing registration of the Shares under
federal and state securities laws, fees and out-of-pocket expenses of Trustees
who are not affiliated persons of the Administrator or the investment adviser to
the Company or any other organization affiliated with the Administrator or the
investment adviser, insurance, interest, brokerage costs, litigation and other
extraordinary or nonrecurring expenses, and all fees and charges of investment
advisers to the Company.
ARTICLE 4. Compensation of the Administrator.
(A) Administrative Fees. For the services to be rendered, the
facilities furnished and the expenses assumed by the Administrator pursuant to
this Agreement, the Company shall pay to the Administrator during the term of
this Agreement compensation in accordance with, and in the manner set forth in,
Schedule B attached hereto. Such compensation shall be calculated and accrued
daily, and paid to the Administrator monthly. The Company shall also reimburse
the Administrator for its reasonable out-of-pocket expenses, including the
reasonable travel and lodging expenses incurred by officers and employees of the
Administrator in connection with attendance at Board meetings.
(B) Survival of Compensation Rights. All rights of compensation
under this Agreement for services performed as of the termination date shall
survive the termination of this Agreement.
(C) Reimbursement Based Upon State Expense Limitations. If in any
fiscal year the aggregate expenses of a particular Portfolio (as defined under
the securities regulations of any state having jurisdiction over the Company)
exceed the expense limitations of any such state, the Administrator will
reimburse such Portfolio for a portion of such excess expenses equal to such
excess times the ratio of the fees respecting such Portfolio otherwise payable
to the Administrator hereunder to the aggregate fees respecting such Portfolio
otherwise payable to the Administrator hereunder and to Old Kent Bank under the
Investment Advisory Agreement between Old Kent Bank and the Company. The expense
reimbursement obligation of the Administrator is limited to the amount of its
fees hereunder for such fiscal year, provided, however, that notwithstanding the
foregoing, the Administrator shall reimburse a particular Portfolio for such
proportion of such excess expenses regardless of the amount of fees paid to it
during such fiscal year to the extent that the securities regulations of any
state having jurisdiction over the Company so require. Such expense
reimbursement, if any, will be estimated daily and reconciled and paid on a
monthly basis.
ARTICLE 5. Limitation of Liability of the Administrator. The duties of
the Administrator shall be confined to those expressly set forth herein, and no
implied duties are assumed by or may be asserted against the Administrator
hereunder. The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the performance of its duties, or by reason of reckless
disregard of its obligations and duties hereunder, except as may otherwise be
provided under provisions of applicable law which cannot be waived or modified
hereby. (As used in this Article 5, the term "Administrator" shall include
partners, directors, officers, employees and other agents of the
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<PAGE> 6
Administrator as well as the Administrator itself.) Any person, even though also
an officer, director, partner, employee or agent of the Administrator, who may
be or become an officer, Trustee, employee or agent of the Company, shall be
deemed, when rendering services to the Company or to any Portfolio, or acting on
any business of the Company or of any Portfolio (other than services or business
in connection with the Administrator's duties hereunder) to be rendering such
services to or acting solely for the Company or the Portfolio and not as an
officer, director, partner, employee or agent or one under the control or
direction of the Administrator even though paid by the Administrator.
So long as the Administrator acts in good faith and with due diligence
and without negligence, the Company assumes full responsibility and shall
indemnify the Administrator and hold it harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages, costs, charges, reasonable counsel fees and
disbursements, payments, expenses and liabilities (including reasonable
investigation expenses) arising directly or indirectly out of the
Administrator's actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
survive the termination of this Agreement for a period of five years.
Except for actions, suits or claims brought or threatened against the
Administrator by (i) the Company, or (ii) one or more Shareholders of the
Company, the rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case the Company may be asked to indemnify or hold the
Administrator harmless, the Company shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is further
understood that the Administrator will use all reasonable care to identify and
notify the Company promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
the Company, but failure to do so in good faith shall not affect the
Administrator's indemnification rights hereunder.
The Company shall be entitled to participate at its own expense or, if
it so elects, to assume the defense of any suit brought to enforce any claims
subject to this indemnity provision. If the Company elects to assume the defense
of any such claim, the defense shall be conducted by counsel chosen by the
Company and satisfactory to the Administrator, whose approval shall not be
unreasonably withheld. In the event that the Company elects to assume the
defense of any suit and retain counsel, the Administrator shall bear the fees
and expenses of any additional counsel retained by it. If the Company does not
elect to assume the defense of a suit, it will reimburse the Administrator for
the reasonable fees and expenses of any counsel retained by the Administrator.
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<PAGE> 7
The Administrator may apply to the Company at any time for instructions
and may consult counsel for the Company or its own counsel and with accountants
and other experts with respect to any matter arising in connection with the
Administrator's duties, and the Administrator shall not be liable or accountable
for any reasonable action taken or omitted by it in good faith in accordance
with such instructions or with the opinion of such counsel, accountants or other
experts.
Also, the Administrator shall be protected in acting in good faith upon
any document which it reasonably believes to be genuine and to have been signed
or presented by the proper person or persons.
ARTICLE 6. Activities of the Administrator. The services of the
Administrator rendered to the Company are not to be deemed to be exclusive. The
Administrator is free to render such services to others and to have other
businesses and interests. To the extent the Administrator renders services to
another investment company which are similar to the services the Administrator
is obligated to perform under this Agreement, the Administrator will take
reasonable precautions to avoid any conflict of interest between its obligations
to the Company and its obligations to any such other investment company. It is
understood that directors, officers, employees and Shareholders of the Company
are or may be or become interested in the Administrator, as officers, employees
or otherwise and that partners, officers and employees of the Administrator and
its counsel are or may be or become similarly interested in the Company, and
that the Administrator may be or become interested in the Company as a
Shareholder or otherwise.
ARTICLE 7. Duration of this Agreement. The duration of this Agreement
shall be as specified in Schedule C hereto.
ARTICLE 8. Assignment. This Agreement shall not be assignable by
either party without the written consent of the other party; provided, however,
that the Administrator may, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder. The
Administrator shall not, however, be relieved of any of its obligations under
this Agreement by the appointment of such subcontractor and provided further,
that the Administrator shall be responsible, to the extent provided in Article 5
hereof, for all acts of such subcontractor as if such acts were its own. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
ARTICLE 9. Amendments. No provision of this Agreement may be changed,
waived, discharged or terminated, except by an instrument in writing signed by
the party against whom an enforcement of the change, waiver, discharge or
termination is sought.
ARTICLE 10. Certain Records. The Administrator shall maintain
customary records in connection with its duties as specified in this Agreement.
Any records required to be maintained and preserved pursuant to Rules 31a-1 and
31a-2 under the 1940 Act which are prepared or maintained by the Administrator
on behalf of the Company shall be prepared and
-7-
<PAGE> 8
maintained at the expense of the Administrator, but shall be the property of the
Company and will be made available to or surrendered promptly to the Company on
request.
In case of any request or demand for the inspection of such records by
another party, the Administrator shall notify the Company and follow the
Company's instructions as to permitting or refusing such inspection; provided
that the Administrator may exhibit such records to any person in any case where
it is advised by its counsel that it may be held liable for failure to do so,
unless (in cases involving potential exposure only to civil liability) the
Company has agreed to indemnify the Administrator against such liability.
ARTICLE 11. Definitions of Certain Terms. The terms "interested
person" and "affiliated person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
ARTICLE 12. Notices.
Any notice provided hereunder shall be sufficiently given when
sent to the party required to be served with such notice, at the following
address:
Administrator:
Old Kent Securities Corporation
250 Monroe Avenue, Suite 400
Grand Rapids, Michigan 49503
Facsimile number (616) 771-0268
The Trust:
The Kent Funds
3435 Stelzer Road
Columbus, Ohio 43219
Facsimile number (614) 470-8715
or at such other address or facsimile number as such party may from time to time
specify in writing to the other party pursuant to this Section. All notices or
other communications permitted or required hereunder shall be in writing and
shall be sufficiently given if and when hand delivered to the persons set forth
above or if sent by documented overnight delivery service or registered or
certified mail, postage prepaid, return receipt requested, or by telegram, telex
or telecopy, receipt acknowledged, addressed as set forth above or to such other
person or persons and/or at such other address or addresses as shall be
furnished in writing by any party hereto to the others. Any such notice or
communication shall be deemed to have been given as of the date received, in the
case of personal delivery, or on the date shown on the receipt or confirmation
therefor in all other cases.
-8-
<PAGE> 9
ARTICLE 13. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Michigan and the applicable provisions
of the 1940 Act. To the extent that the applicable laws of the State of
Michigan, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
ARTICLE 14. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
ARTICLE 15. Confidentiality. The Administrator agrees on behalf of
itself and its employees to treat confidentially and as the proprietary
information of the Company, all records and other information relative to the
Company and prior, present or potential Shareholders, and not to use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except, after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where the Administrator or may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Company.
ARTICLE 16. Matters Relating to the Company as a Massachusetts
Business Trust. The names "The Kent Funds" and "Trustees of the Kent Funds"
refer respectively to the business trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a Declaration
of Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments so
filed or hereafter filed. The obligations of "The Kent Funds" entered into in
the name or on behalf thereof by any of the Trustees, representatives or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, shareholders or representatives of the Company personally, but
bind only the assets of the Company, and all persons dealing with any Portfolio
must look solely to the assets of the Company belonging to such Portfolio for
the enforcement of any claims against the Company.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
THE KENT FUNDS
By: /s/ James F. Duca, II
-------------------------------------
Name: James F. Duca, II
Title: President
OLD KENT SECURITIES CORPORATION
By: /s/ Mark S. Crouch
-------------------------------------
Name: Mark Crouch
Title: President
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<PAGE> 11
SCHEDULE A
TO THE ADMINISTRATION AGREEMENT
BETWEEN THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
SERVICE STANDARDS
Pursuant to Article 2 of this Agreement, the Administrator has agreed to perform
the services described in this Agreement in accordance with the service
standards set forth in this Schedule A. Such standards are contained on the
pages attached hereto. The parties agree that such service standards may be
revised, from time to time, by mutual agreement.
Each of the service standards will be monitored by a quality assurance team. In
the event the Administrator fails to meet a service standard in any particular
month, the Administrator agrees to take appropriate collective measures within
the following thirty-day period in order to be in compliance with the
appropriate standard at the end of such thirty-day period; provided, however,
that the foregoing requirement shall not apply in those instances in which the
Administrator's failure to meet a service standard was due to circumstances
beyond its control.
In the event the Administrator fails to meet a particular service standard
(except for any failure due to circumstances beyond its control) in two
consecutive months, the fee payable to the Administrator hereunder shall be
reduced by one percent (1%) or such lower amount as the parties shall agree upon
for the second of those two months. If such failure occurs in three consecutive
months, the fee payable to the Administrator hereunder shall be reduced by one
and one-half percent (1.5%) or such lower amount as the parties shall agree upon
for the third of those three months.
In the event the Administrator fails to meet a particular service standard
(except for any failure due to circumstances beyond its control) for any three
months within a six-month period, such failure shall be deemed to be a service
standard deficiency for purposes of the "cause" definition contained in the
Duration and Termination provisions set forth in Schedule C.
-A-1-
<PAGE> 12
OLD KENT SECURITIES CORPORATION/THE KENT FUNDS
SERVICING STANDARDS
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ---------------------------------------------------------
<S> <C>
ITEM STANDARD
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY (PROCESSING):
- ------------------------------------------------------------ ---------------------------------------------------------
New Account Set-up
Timeliness 100% processed same day
Accuracy 98%
- ------------------------------------------------------------ ---------------------------------------------------------
Financial Quality Rate
Timeliness 100% processed same day
Accuracy 98%
- ------------------------------------------------------------ ---------------------------------------------------------
Maintenance Items
Non-financial 5 business days
- ------------------------------------------------------------ ---------------------------------------------------------
Not in good order items Call out next business day
- ------------------------------------------------------------ ---------------------------------------------------------
Research received by phone or mail 100% completed within 5 business days from day of
receipt
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY (PHONES):
- ------------------------------------------------------------ ---------------------------------------------------------
Abandonment Rate 3% or less
- ------------------------------------------------------------ ---------------------------------------------------------
Average speed of answer 20 seconds or less
- ------------------------------------------------------------ ---------------------------------------------------------
Service level 85% of calls will be answered in 20 seconds or less
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY (PRINT/MAIL):
- ------------------------------------------------------------ ---------------------------------------------------------
Quarterly Statements Five business days
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Confirms T + 2
- ------------------------------------------------------------ ---------------------------------------------------------
Checks T + 1
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY (FULFILLMENT): Within 48 hours
- ------------------------------------------------------------ ---------------------------------------------------------
FUND ACCOUNTING/CUSTODY:
- ------------------------------------------------------------ ---------------------------------------------------------
NAV Calculation Accuracy Accurate 98% of time
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Bulletin 98% delivered by 6:30 p.m.
- ------------------------------------------------------------ ---------------------------------------------------------
Cash Availability 98% delivered by 9:30 a.m.
- ------------------------------------------------------------ ---------------------------------------------------------
Position Reconciliation Detailed security position reconciliation weekly
- ------------------------------------------------------------ ---------------------------------------------------------
FUND ADMINISTRATION:
- ------------------------------------------------------------ ---------------------------------------------------------
Portfolio Compliance Reviews Monthly
- ------------------------------------------------------------ ---------------------------------------------------------
Financial Reports Printed and mailed within sixty days fiscal year end,
or 60 days fiscal semi-annual
- ------------------------------------------------------------ ---------------------------------------------------------
Prospectus Updates Prepared and printed within five days of the effective
date of the Registration Statement
- ------------------------------------------------------------ ---------------------------------------------------------
Review of accruals Monthly
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
-A-2-
<PAGE> 13
SCHEDULE B
TO THE ADMINISTRATION AGREEMENT
DATED AS OF DECEMBER 1, 1999
BETWEEN THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
Portfolios: This Agreement shall apply to all Portfolios of the Company,
either now or hereafter created (collectively, the
"Portfolios"). The current Portfolios of the Company are set
forth below: The Kent International Growth Fund, The Kent
Small Company Growth Fund, The Kent Large Company Growth Fund,
The Kent Index Equity Fund, The Kent Growth and Income Fund,
The Kent Income Fund, The Kent Intermediate Bond Fund, The
Kent Short Term Bond Fund, The Kent Tax-Free Income Fund, The
Kent Intermediate Tax-Free Fund, The Kent Michigan Municipal
Bond Fund, The Kent Money Market Fund, The Kent Government
Money Market Fund, The Lyon Street Institutional Money Market
Fund and The Kent Michigan Municipal Money Market Fund.
Fees: Pursuant to Article 4, in consideration of services rendered
and expenses assumed pursuant to this Agreement, the Company
will pay the Administrator on the first business day of each
month, or at such time(s) as the Administrator shall request
and the parties hereto shall agree, a fee computed daily at
the annual rate of:
Eighteen and one-half one-hundredths of one
percent (.185%) of the Company's average
daily net assets up to $5 billion.
Sixteen and one-half one-hundredths of one
percent (.165%) of the Company's average
daily net assets in excess of $5 billion up
to $7.5 billion.
Thirteen and one-half one-hundredths of one
percent (.135%) of the Company's average
daily net assets in excess of $7.5 billion.
The fee payable by the Company hereunder shall be allocated to
each Portfolio based upon its pro rata share of the total fee
payable hereunder. Such fee as is attributable to each
Portfolio shall be a separate (and not joint or joint and
several) obligation of each such Portfolio. The Administrator
may agree, from time to time, to waive any fees payable under
this Agreement. Such waiver shall be at Administrator's sole
discretion. All Portfolios that are created after the
effective date of this Agreement shall be subject to a per
Portfolio annual minimum fee of $45,000.
- B-1 -
<PAGE> 14
Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be prorated
according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of
termination of this Agreement.
For purposes of determining the fees payable to the
Administrator, the value of the net assets of a particular
Portfolio shall be computed in the manner described in the
Company's Declaration of Trust or in the Prospectus or
Statement of Additional Information respecting that Portfolio
as from time to time is in effect for the computation of the
value of such net assets in connection with the purchase and
redemption of the shares of such Portfolio.
-B-2 -
<PAGE> 15
SCHEDULE C
TO THE ADMINISTRATION AGREEMENT
BETWEEN THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
DURATION AND TERMINATION
Pursuant to Article 7, the term of this Agreement shall commence on December 1,
1999 and shall remain in effect through December 31, 2001 (the "Initial Term").
Thereafter, unless otherwise terminated as provided herein, this Agreement shall
be renewed automatically for successive one-year periods ("Rollover Periods").
This Agreement may be terminated without penalty (i) by provision of a notice of
nonrenewal in the manner set forth below, (ii) by provision of 60 days advance
written notice of termination during any Rollover Period, (iii) by mutual
agreement of the parties or (iv) for "cause," as defined below, upon the
provision of 45 days advance written notice by the party alleging cause. Written
notice of nonrenewal must be provided within 60 days following the Initial Term
or any Rollover Period in order to avoid automatic renewal. In the event such
notice is provided in a timely manner, this Agreement shall terminate 180 days
after such notice, if given following the Initial Term, or 60 days after such
notice, if given following a Rollover Period.
For purposes of this Agreement, "cause" shall mean (a) willful misfeasance, bad
faith, gross negligence or reckless disregard on the part of the party to be
terminated with respect to its obligations and duties set forth herein; (b)
multiple negligent acts on the part of the party to be terminated which in the
aggregate constitute a serious failure to perform satisfactorily that party's
obligations hereunder; (c) a final, non-appealable judicial, regulatory or
administrative ruling or order in which the party to be terminated has been
found guilty of criminal or unethical behavior in the conduct of its business;
(d) financial difficulties on the part of the party to be terminated which are
evidenced by the authorization or commencement of, or involvement by way of
pleading, answer, consent or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to time is in effect, or
any applicable law, other than said Title 11, of any jurisdiction relating to
the liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors; or (e) a service standard deficiency as
defined in Schedule A.
Notwithstanding the foregoing, after such termination for so long as the
Administrator, with the written consent of the Company, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due the Administrator and unpaid by the Company
upon such termination shall be immediately due and payable upon and
notwithstanding such termination. The Administrator shall be entitled to collect
from the Company, in addition to the compensation described in Schedule B, the
amount of all of the Administrator's reasonable cash disbursements for services
in connection with the
- C-1 -
<PAGE> 16
Administrator's activities in effecting such termination, including without
limitation, the delivery to the Company and/or its designees of the Company's
property, records, instruments and documents, or any copies thereof. Subsequent
to such termination, the Administrator shall remain obligated to provide the
Company with reasonable access to any Company documents or records in its
possession. If requested by the Company, the Administrator shall deliver such
documents or records, or copies thereof, to the Company or its designee for a
reasonable fee.
If the Company terminates this Agreement other than as provided in the first
paragraph of this Schedule C, then the Company shall make a one-time cash
payment, as liquidated damages, to the Administrator equal to the balance due
the Administrator for the remainder of the then current term of this Agreement,
assuming for purposes of calculation of the payment that the asset level of the
Company on the date the Agreement is terminated will remain constant for the
balance of the then current contract term.
-C-2 -
<PAGE> 1
EXHIBIT 99.23(h)(2)
FUND ACCOUNTING AGREEMENT
AGREEMENT made as of this 1st day of December, 1999, by and between THE
KENT FUNDS (the "Trust"), a Massachusetts business trust having its principal
place of business at 3435 Stelzer Road, Columbus, Ohio 43219, and OLD KENT
SECURITIES CORPORATION ("Fund Accountant"), a corporation organized under the
laws of the State of Michigan, and having its principal place of business at 111
Lyon Street NW, Grand Rapids, Michigan 49503.
WHEREAS, the Trust desires that Fund Accountant perform certain fund
accounting services for each investment portfolio of the Trust currently in
existence or hereafter created (individually referred to herein as a "Fund" and
collectively as the "Funds"); and
WHEREAS, Fund Accountant is willing to perform such services on the
terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Fund Accountant.
Subject to the supervision, direction and control of
the Trust's Board of Trustees, Fund Accountant shall provide
the services set forth below in accordance with the service
standards set forth in Schedule A attached hereto and made a
part hereof. In performing its duties as Fund Accountant under
this Agreement, Fund Accountant will act in conformity with
the Trust's Declaration of Trust, By-Laws, Prospectuses and
Statements of Additional Information as in effect from time to
time and will conform to and comply with the requirements of
the Investment Company Act of 1940 (the "1940 Act") and all
other applicable federal and state laws and regulations.
(a) Performance of Daily Accounting Services. Fund
Accountant shall perform the following accounting
services daily for each Fund:
(i) Calculate the net asset value per share in
accordance with the Fund's Prospectus and
Statement of Additional Information
utilizing prices obtained from the sources
described in subsection 1(a)(ii) below;
(ii) Obtain security prices from independent
pricing services, or if such quotes are
unavailable, then obtain such prices from
such other appropriate sources in accordance
with the Trust's Pricing Procedures, as
approved by the Trust's Board of Trustees;
<PAGE> 2
(iii) Verify and reconcile with the Funds'
custodian all daily trade activity;
(iv) Compute, as appropriate, each Fund's net
income and capital gains, dividend payables,
dividend factors, 7-day yields, 7-day
effective yields, 30-day yields, and
weighted average portfolio maturity;
(v) Review daily the net asset value calculation
and dividend factor (if any) for each Fund
prior to release to shareholders, check and
confirm the net asset values and dividend
factors for reasonableness and deviations,
and distribute net asset values and yields
to NASDAQ;
(vi) Report to the Trust the daily market pricing
of securities in any Money Market Funds,
with the comparison to the amortized cost
basis;
(vii) Determine appreciation and depreciation on
securities held in variable net asset value
Funds;
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than
face value, if requested by the Trust;
(ix) Update fund accounting system to reflect
rate changes, as received from a Fund's
investment adviser, on variable interest
rate instruments;
(x) Post Fund transactions to appropriate
categories;
(xi) Accrue expenses of each Fund according to
instructions received from the Trust's
Administrator;
(xii) Determine the outstanding receivables and
payables for all (1) security trades, (2)
Fund share transactions and (3) income and
expense accounts;
(xiii) Provide accounting reports in connection
with the Trust's regular annual audit and
other audits and examinations by regulatory
agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon.
-2-
<PAGE> 3
(b) Special Reports and Services.
(i) Fund Accountant may provide additional
special reports upon the request of the
Trust or a Fund's investment adviser, which
may result in an additional charge, the
amount of which shall be agreed upon between
the parties.
(ii) Fund Accountant may provide such other
similar services with respect to a Fund as
may be reasonably requested by the Trust,
which may result in an additional charge,
the amount of which shall be agreed upon
between the parties.
(c) Additional Accounting Services. Fund Accountant shall
also perform the following additional accounting
services for each Fund:
(i) Provide monthly a download (and hard copy
thereof) of the financial statements
described below, upon request of the Trust.
The download will include the following
items:
Statement of Assets and Liabilities;
Statement of Operations;
Statement of Changes in Net Assets; and
Condensed Financial Information.
(ii) Provide accounting information for the
following:
(A) federal and state income tax
returns and federal excise tax
returns;
(B) the Trust's semi-annual reports
with the Securities and Exchange
Commission ("SEC") on Form N-SAR,
(C) the Trust's annual, semi-annual and
quarterly (if any) shareholder
reports;
(D) registration statements on Form
N-lA and other filings relating to
the registration of shares;
(E) the Administrator's monitoring of
the Trust's status as a regulated
investment company under Subchapter
M of the Internal Revenue Code, as
amended;
(F) annual audit by the Trust's
auditors; and
(G) examinations performed by the SEC.
-3-
<PAGE> 4
2. Subcontracting.
Fund Accountant may, at its expense, subcontract with any entity or person
concerning the provision of the services contemplated hereunder; provided,
however, that Fund Accountant shall not be relieved of any of its obligations
under this Agreement by the appointment of such subcontractor and provided
further, that Fund Accountant shall be responsible, to the extent provided in
Section 7 hereof, for all acts of such subcontractor as if such acts were its
own.
3. Compensation.
During the term of this Agreement, the Trust shall pay Fund Accountant
for the services to be provided by Fund Accountant under this Agreement in
accordance with, and in the manner set forth in, Schedule B hereto, as such
Schedule may be amended from time to time.
4. Reimbursement of Expenses.
In addition to paying Fund Accountant the fees described in Section 3
hereof, the Trust agrees to reimburse Fund Accountant for its reasonable
out-of-pocket expenses in providing services hereunder, including without
limitation the following:
(a) All freight and other delivery and bonding charges incurred by
Fund Accountant in delivering materials to and from the Trust;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by Fund
Accountant in communication with the Trust, the Trust's
investment advisor or custodian, dealers or others as required
for Fund Accountant to perform the services to be provided
hereunder;
(c) The cost of obtaining security market quotes pursuant to
Section l(b)(ii) above;
(d) The cost of microfilm or microfiche of records or other
materials;
(e) Any expenses Fund Accountant shall incur at the written
direction of an officer of the Trust thereunto duly
authorized; and
(f) Any additional expenses reasonably incurred by Fund Accountant
in the performance of its duties and obligations under this
Agreement.
5. Effective Date.
This Agreement shall become effective with respect to a Fund as of the
date first written above or, if a particular Fund is not in existence on that
date, on the date such Fund commences operation (the "Effective Date").
-4-
<PAGE> 5
6. Term.
This Agreement shall commence on December 1, 1999 and shall remain in
effect through December 31, 2001 (the "Initial Term"). Thereafter, unless
otherwise terminated as provided herein, this Agreement shall be renewed
automatically for successive one-year periods ("Rollover Periods"). This
Agreement may be terminated without penalty (i) by provision of a notice of
nonrenewal in the manner set forth below, (ii) by provision of 60 days advance
written notice of termination during any Rollover Period, (iii) by mutual
agreement of the parties or (iv) for "cause," as defined below, upon the
provision of 45 days advance written notice by the party alleging cause. Written
notice of nonrenewal must be provided within 60 days following the Initial Term
or any Rollover Period in order to avoid automatic renewal. In the event such
notice is provided in a timely manner, this Agreement shall terminate 180 days
after such notice, if given following the Initial Term, or 60 days after such
notice, if given following a Rollover Period.
After such termination for so long as Fund Accountant, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect.
Compensation due Fund Accountant and unpaid by the Trust upon such termination
shall be immediately due and payable upon and notwithstanding such termination.
Fund Accountant shall be entitled to collect from the Trust, in addition to the
compensation described under Section 3 hereof, the amount of all of Fund
Accountant's reasonable cash disbursements for services in connection with Fund
Accountant's activities in effecting such termination, including without
limitation, the delivery to the Trust and/or its designees of the Trust's
property, records, instruments and documents, or any copies thereof. Subsequent
to such termination, Fund Accountant shall remain obligated to provide the Trust
with reasonable access to any Trust documents or records remaining in its
possession. If requested by the Trust, Fund Accountant shall deliver such
documents or records, or copies thereof, to the Trust or its designee for a
reasonable fee.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) multiple negligent acts on the part of the party to be terminated
which in the aggregate constitute a serious failure to perform satisfactorily
that party's obligations hereunder; (c) a final, non-appealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; (d) financial difficulties on the part of the party to be terminated
which are evidenced by the authorization or commencement of, or involvement by
way of pleading, answer, consent or acquiescence in, a voluntary or involuntary
case under Title 11 of the United States Code, as from time to time is in
effect, or any applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the modification
or alteration of the rights of creditors; or (e) a service standard deficiency,
as defined in Schedule A.
-5-
<PAGE> 6
If the Trust terminates this Agreement other than as provided in the
first paragraph of this Section 6, then the Trust shall make a one-time cash
payment, as liquidated damages, to Fund Accountant equal to the balance due Fund
Accountant for the remainder of the then current term of this Agreement,
assuming for purposes of calculation of the payment that the asset level of the
Trust on the date the Agreement is terminated will remain constant for the
balance of the then current contract term.
7. Standard of Care: Reliance on Records and Instructions:
Indemnification.
Fund Accountant shall use its best efforts to insure the accuracy of
all services performed under this Agreement, but shall not be liable to the
Trust for any action taken or omitted by Fund Accountant in the absence of bad
faith, willful misfeasance, negligence or reckless disregard by it of its
obligations and duties hereunder. The Trust agrees to indemnify and hold
harmless Fund Accountant, its employees, agents, directors and officers from and
against any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character arising out of or in any way relating to Fund Accountant's
actions taken or nonactions with respect to the performance of services under
this Agreement or based, if applicable, upon reasonable reliance on information,
records, instructions or requests given or made to Fund Accountant by a duly
authorized representative of the Trust; provided that this indemnification shall
not apply to actions or omissions of Fund Accountant in cases of its own bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties, and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, Fund Accountant
shall give the Trust written notice of and reasonable opportunity to defend
against said claim in its own name or in the name of Fund Accountant.
Any person even though also an officer, director, employee or agent of
Fund Accountant, who may be or become an officer, Trustee, employee or agent of
the Trust shall be deemed, when rendering services to the Trust or to any Fund,
or acting on any business of the Trust or of any Fund (other than services or
business in connection with Fund Accountant's duties hereunder) to be rendering
such services to or acting solely for the Trust or the Fund and not as an
officer, director, employee or agent or one under the control or direction of
Fund Accountant even though paid by Fund Accountant.
8. Record Retention and Confidentiality.
Fund Accountant shall keep and maintain on behalf of the Trust all
books and records which the Trust and Fund Accountant is, or may be, required to
keep and maintain pursuant to any applicable statutes, rules and regulations,
including without limitation Rules 31a-1 and 31a-2 under the 1940 Act, relating
to the maintenance of books and records in connection with the services to be
provided hereunder. Fund Accountant further agrees that all such books and
records shall be the property of the Trust and to make such books and records
available for inspection by the Trust or by the Securities and Exchange
Commission at reasonable times and otherwise to keep confidential all books and
records and other information relative to the Trust and its shareholders; except
when requested to divulge such information by duly-constituted
-6-
<PAGE> 7
authorities or court process. Fund Accountant agrees to surrender promptly such
books and records on the Trust's request.
9. Uncontrollable Events.
Fund Accountant assumes no responsibility hereunder, and shall not be
liable, for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control. Fund Accountant shall, however, be
obligated to design and institute reasonable procedures to prevent or limit any
such damages, loss of data, delay or other losses.
10. Rights of Ownership.
All computer programs and procedures developed to perform services
required to be provided by Fund Accountant under this Agreement are the property
of Fund Accountant. All records and other data except such computer programs and
procedures are the exclusive property of the Trust and all such other records
and data will be furnished to the Trust in appropriate form as soon as
practicable after termination of this Agreement for any reason.
11. Representations of the Trust.
The Trust certifies to Fund Accountant that: (1) as of the close of
business on the Effective Date, each Fund that is in existence as of the
Effective Date has authorized unlimited shares, and (2) this Agreement has been
duly authorized by the Trust and, when executed and delivered by the Trust, will
constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
12. Representations of Fund Accountant.
Fund Accountant represents and warrants that: (1) the various
procedures and systems which Fund Accountant has implemented with regard to
safeguarding from loss or damage attributable to fire, theft or any other cause
the records, and other data of the Trust and Fund Accountant's records, data,
equipment facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder, and (2) this Agreement has been duly authorized by Fund Accountant
and, when executed and delivered by Fund Accountant, will constitute a legal,
valid and binding obligation of Fund Accountant, enforceable against Fund
Accountant in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
-7-
<PAGE> 8
13. Insurance.
Fund Accountant shall notify the Trust should any of Fund Accountant's
insurance coverage be canceled or reduced. Such notification shall include the
date of change and the reasons therefor. Fund Accountant shall notify the Trust
of any material claims against Fund Accountant with respect to services
performed under this Agreement, whether or not they may be covered by insurance,
and shall notify the Trust from time to time as may be appropriate of the total
outstanding claims made by Fund Accountant under its insurance coverage.
14. Information to be Furnished by the Trust and Funds.
The Trust has furnished to Fund Accountant the following:
(a) Copies of the Declaration of Trust of the Trust and
any amendments thereto, certified by the proper
official of the state in which such document has been
filed.
(b) Copies of the following documents:
(i) The Trust's By-Laws and any amendments
thereto; and
(ii) Certified copies of resolutions of the Board
of Trustees covering the approval of this
Agreement and authorization of a specified
officer of the Trust to execute and deliver
this Agreement.
(c) A list of all the officers of the Trust.
(d) Two copies of the Prospectuses and Statements of
Additional Information for each Fund.
15. Information Furnished by Fund Accountant.
(a) Fund Accountant has furnished to the Trust the
following:
(i) Fund Accountant's Articles of Incorporation;
and
(ii) Fund Accountant's By-Laws and any amendments
thereto.
-8-
<PAGE> 9
(b) Fund Accountant shall, upon request, furnish
certified copies of corporate actions covering the
following matters:
(i) Approval of this Agreement, and
authorization of a specified officer of Fund
Accountant to execute and deliver this
Agreement; and
(ii) Authorization of Fund Accountant to act as
fund accountant for the Trust and to provide
accounting services for the Trust.
16. Amendments to Documents.
The Trust shall furnish Fund Accountant written copies of any
amendments to, or changes in, any of the items referred to in Section 14 hereof
forthwith upon such amendments or changes becoming effective. In addition, the
Trust agrees that no amendments will be made to the Prospectuses or Statements
of Additional Information of the Trust which might have the effect of changing
the procedures employed by Fund Accountant in providing the services agreed to
hereunder or which amendment might affect the duties of Fund Accountant
hereunder unless the Trust first obtains Fund Accountant's approval of such
amendments or changes.
17. Compliance with Law.
The Trust assumes full responsibility for the preparation, contents and
distribution of each prospectus of the Trust in compliance with all applicable
requirements of the Securities Act of 1933, as amended, the 1940 Act and any
other laws, rules and regulations of governmental authorities having
jurisdiction, except for any noncompliance caused by the actions of Fund
Accountant and its affiliates or based upon information provided by Fund
Accountant and its affiliates. Fund Accountant shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares.
18. Notices.
Any notice provided hereunder shall be sufficiently given when
sent to the party required to be served with such notice, at the following
address:
Fund Accountant:
Old Kent Securities Corporation
250 Monroe Avenue, Suite 400
Grand Rapids, Michigan 49503
Facsimile number (616) 771-0268
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<PAGE> 10
The Trust:
The Kent Funds
3435 Stelzer Road
Columbus, Ohio 43219
Facsimile number (614) 470-8715
or at such other address or facsimile number as such party may from time to time
specify in writing to the other party pursuant to this Section. All notices or
other communications permitted or required hereunder shall be in writing and
shall be sufficiently given if and when hand delivered to the persons set forth
above or if sent by documented overnight delivery service or registered or
certified mail, postage prepaid, return receipt requested, or by telegram, telex
or telecopy, receipt acknowledged, addressed as set forth above or to such other
person or persons and/or at such other address or addresses as shall be
furnished in writing by any party hereto to the others. Any such notice or
communication shall be deemed to have been given as of the date received, in the
case of personal delivery, or on the date shown on the receipt or confirmation
therefor in all other cases.
19. Headings.
Paragraph headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
20. Assignment.
This Agreement and the rights and duties hereunder shall not
be assignable by either of the parties hereto except by the specific written
consent of the other party. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns.
21. Amendments.
No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
against whom an enforcement of the change, waiver, discharge or termination is
sought.
22. Multiple Originals.
This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
23. Governing Law.
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Michigan.
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<PAGE> 11
24. Confidentiality.
Fund Accountant agrees on behalf of itself and its employees
to treat confidentially and as the proprietary information of the Trust, all
records and other information relative to the Trust and prior, present or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where the
Fund Accountant may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
25. Matters Relating to the Trust as a Massachusetts Business
Trust.
The names "The Kent Funds" and "Trustees of The Kent Funds"
refer respectively to the business trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a Declaration
of Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Kent Funds" entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders or representatives of the Trust
personally, but bind only the assets of the Trust, and all persons dealing with
any Fund must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE KENT FUNDS
By: /s/ James F. Duca, II
----------------------------------
Name: James F. Duca, II
Title: President
OLD KENT SECURITIES CORPORATION
By: /s/ Mark S. Crouch
----------------------------------
Name: Mark Crouch
Title: President
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<PAGE> 12
SCHEDULE A
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
SERVICE STANDARDS
Pursuant to Section I of this Agreement, Fund Accountant has agreed to perform
the services described in this Agreement in accordance with the service
standards set forth in this Schedule A. Such standards are contained on the
pages attached hereto. The parties agree that such service standards may be
revised, from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance team. In
the event Fund Accountant fails to meet a service standard in any particular
month, Fund Accountant agrees to take appropriate corrective measures within the
following thirty-day period in order to be in compliance with the appropriate
standard at the end of such thirty-day period; provided, however, that the
foregoing requirement shall not apply in those instances in which Fund
Accountant's failure to meet a service standard was due to circumstances beyond
its control.
In the event Fund Accountant fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) in two consecutive
months, the fee payable to Fund Accountant hereunder shall be reduced by one
percent (1%) or such lower amount as the parties shall agree upon for the second
of those two months. If such failure occurs in three consecutive months, the fee
payable to Fund Accountant hereunder shall be reduced by one and one-half
percent (1.5%) or such lower amount as the parties shall agree upon for the
third of those three months.
In the event Fund Accountant fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) for any three months
within a six-month period, such failure shall be deemed to be a service standard
deficiency for purposes of the "cause" definition set forth in Section 6 of this
Agreement
- A-1 -
<PAGE> 13
OLD KENT SECURITIES CORPORATION/THE KENT FUNDS
SERVICING STANDARDS
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------------------------
ITEM STANDARD
- ------------------------------------------------------------ ---------------------------------------------------------
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY (PROCESSING):
- ------------------------------------------------------------ ---------------------------------------------------------
New Account Set-up
Timeliness 100% processed same day
Accuracy 98%
- ------------------------------------------------------------ ---------------------------------------------------------
Financial Quality Rate
Timeliness 100% processed same day
Accuracy 98%
- ------------------------------------------------------------ ---------------------------------------------------------
Maintenance Items
Non-financial 5 business days
- ------------------------------------------------------------ ---------------------------------------------------------
Not in good order items Call out next business day
- ------------------------------------------------------------ ---------------------------------------------------------
Research received by phone or mail 100% completed within 5 business days from day of
receipt
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY (PHONES):
- ------------------------------------------------------------ ---------------------------------------------------------
Abandonment Rate 3% or less
- ------------------------------------------------------------ ---------------------------------------------------------
Average Speed of answers 20 seconds or less
- ------------------------------------------------------------ ---------------------------------------------------------
Service level 85% of calls will be answered in 20 seconds or less
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY(PRINT/MAIL):
- ------------------------------------------------------------ ---------------------------------------------------------
Quarterly Statements Five business days
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Confirms T + 2
- ------------------------------------------------------------ ---------------------------------------------------------
Checks T + 1
- ------------------------------------------------------------ ---------------------------------------------------------
TRANSFER AGENCY (FULFILLMENT): within 48 hours
- ------------------------------------------------------------ ---------------------------------------------------------
FUND ACCOUNTING/CUSTODY:
- ------------------------------------------------------------ ---------------------------------------------------------
NAV Calculation Accuracy Accurate 98% of time
- ------------------------------------------------------------ ---------------------------------------------------------
Daily Bulletin 98% delivered by 6:30 p.m.
- ------------------------------------------------------------ ---------------------------------------------------------
Cash Availability 98% delivered by 9:30 a.m.
- ------------------------------------------------------------ ---------------------------------------------------------
Position Reconciliation Detailed security position reconciliation weekly
- ------------------------------------------------------------ ---------------------------------------------------------
FUND ADMINISTRATION:
- ------------------------------------------------------------ ---------------------------------------------------------
Portfolio Compliance Reviews Monthly
- ------------------------------------------------------------ ---------------------------------------------------------
Financial Reports Printed and mailed within sixty days fiscal year end,
or 60 days fiscal semi-annual
- ------------------------------------------------------------ ---------------------------------------------------------
Prospectus Updates Prepared and printed within five days of the effective
date of the Registration Statement
- ------------------------------------------------------------ ---------------------------------------------------------
Review of accruals Monthly
- ------------------------------------------------------------ ---------------------------------------------------------
</TABLE>
- A-2 -
<PAGE> 14
SCHEDULE B
TO THE FUND ACCOUNTING AGREEMENT
BETWEEN THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
FEES
The Trust will pay Fund Accountant on the first business day of each month, or
at such time(s) as Fund Accountant shall request and the parties hereto shall
agree, a fee computed daily at the annual rate of one and one-half
one-hundredths of one percent (.015%) of the Trust's average daily net assets.
The fee payable by the Trust hereunder shall be allocated to each Fund based
upon its pro rata share of the total fee payable hereunder. Such fee as is
attributable to each Fund shall be a separate (and not joint or joint and
several) obligation of each such Fund. Fund Accountant may agree, from time to
time, to waive fees payable under this Agreement. Such waiver shall be at Fund
Accountant's sole discretion. All Funds that are created after the effective
date of this Agreement shall be subject to a per Fund annual minimum fee of
$5,000. With respect to any class of shares (other than Trust Investment Shares
or Institutional Shares) that is created after the effective date of this
Agreement in a Fund in existence on the date hereof or in a Fund established
after the date hereof, the fee paid by such Fund that is allocated to such class
shall be subject to an annual minimum of $10,000.
- B-1 -
<PAGE> 1
EXHIBIT 99.23(h)(3)
TRANSFER AGENCY AGREEMENT
AGREEMENT made as of this 1st day of December, 1999, between THE KENT
FUNDS (the "Trust"), a Massachusetts business trust having its principal place
of business at 3435 Stelzer Road, Columbus, Ohio 43219, and OLD KENT SECURITIES
CORPORATION ("OKSC"), a Michigan corporation having its principal place of
business at 111 Lyon Street NW, Grand Rapids, Michigan, 49503.
WHEREAS, the Trust desires that OKSC perform certain services for each
series of the Trust currently in existence or hereafter created (individually
referred to herein as a "Fund" and collectively as the "Funds"); and
WHEREAS, OKSC is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and
covenants herein set forth, the parties agree as follows:
1. Services.
Subject to the supervision, direction and control of the Trust's
Board of Trustees, OKSC shall perform for the Trust the transfer agent services
set forth in Schedule A hereto. OKSC agrees to perform such services in
accordance with the service standards set forth in Schedule B attached hereto
and made a part hereof. OKSC also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time. OKSC shall perform such additional
services as are provided on an amendment to Schedule A hereof, in consideration
of such fees as the parties hereto may agree.
In performing its duties under this Agreement, OKSC will act in
conformity with the Trust's Declaration of Trust, By-Laws, Prospectuses and
Statements of Additional Information as in effect from time to time and will
conform to and comply with the requirements of the Investment Company Act of
1940 (the "1940 Act") and all other applicable federal and state laws and
regulations.
OKSC may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Sub-transfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of OKSC and not the agent of the
Trust or such Fund, and that OKSC shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
<PAGE> 2
2. Fees.
During the term of this Agreement, the Trust shall pay OKSC for
the services to be provided by OKSC under this Agreement in accordance with, and
in the manner set forth in, Schedule C hereto. Fees for any additional services
to be provided by OKSC pursuant to an amendment to Schedule A hereto shall be
subject to mutual agreement at the time such amendment to Schedule A is
proposed.
3. Reimbursement of Expenses.
In addition to paying OKSC the fees described in Section 2
hereof, the Trust agrees to reimburse OKSC for OKSC's reasonable out-of-pocket
expenses in providing services hereunder, including without limitation, the
following:
(a) All freight and other delivery and bonding charges incurred
by OKSC in delivering materials to and from the Trust and in
delivering all materials to shareholders;
(b) All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by OKSC in
communication with the Trust, the Trust's investment adviser
or custodian, dealers, shareholders or others as required
for OKSC to perform the services to be provided hereunder;
(c) Costs of postage, couriers, stock computer paper,
statements, labels, envelopes, checks, reports, letters, tax
forms, proxies, notices or other form of printed material
which shall be required by OKSC for the performance of the
services to be provided hereunder;
(d) The cost of microfilm or microfiche of records or other
materials; and
(e) Any expenses OKSC shall incur at the written direction of an
officer of the Trust thereunto duly authorized.
4. Effective Date.
This Agreement shall become effective with respect to a Fund as
of the date first written above or, if a particular Fund is not in existence on
that date, on the date such Fund commences operation (the "Effective Date").
5. Term.
This Agreement shall commence on December 1, 1999 and shall
remain in effect through December 31, 2001 (the "Initial Term"). Thereafter,
unless otherwise terminated as provided herein, this Agreement shall be renewed
automatically for successive one-year periods ("Rollover Periods"). This
Agreement may be terminated without penalty (i) by provisions of a notice of
nonrenewal in the manner set forth below, (ii) by provision of 60 days advance
written
-2-
<PAGE> 3
notice of termination during any Rollover Period, (iii) by mutual agreement of
the parties or (iv) for "cause," as defined below, upon the provision of 45 days
advance written notice by the party alleging cause. Written notice of nonrenewal
must be provided within 60 days following the Initial Term or any Rollover
Period in order to avoid automatic renewal. In the event such notice is provided
in a timely manner, this Agreement shall terminate 180 days after such notice,
if given following the Initial Term, or 60 days after such notice, if given
following a Rollover Period.
After such termination, for so long as OKSC, with the written
consent of the Trust, in fact continues to perform any one or more of the
services contemplated by this Agreement or any Schedule or exhibit hereto, the
provisions of this Agreement, including without limitation the provisions
dealing with indemnification, shall continue in full force and effect. Fees and
out-of-pocket expenses incurred by OKSC but unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. OKSC shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of OKSC's reasonable cash disbursements for services in connection with
OKSC's activities in effecting such termination, including without limitation,
the delivery to the Trust and/or its designee of the Trust's property, records,
instruments and documents, or any copies thereof. Subsequent to such
termination, OKSC shall remain obligated to provide the Trust with reasonable
access to any Trust documents or records remaining in its possession. If
requested by the Trust, OKSC shall deliver such documents or records, or copies
thereof, to the Trust or its designee for a reasonable fee.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence or reckless disregard on the part of
the party to be terminated with respect to its obligations and duties set forth
herein; (b) multiple negligent acts on the part of the party to be terminated
which in the aggregate constitute a serious failure to perform satisfactorily
that party's obligations hereunder; (c) a final, non-appealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; (d) financial difficulties on the part of the party to be terminated
which are evidenced by the authorization or commencement of, or involvement by
way of pleading, answer, consent or acquiescence in, a voluntary or involuntary
case under Title 11 of the United States Code, as from time to time is in
effect, or any applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the modification
or alteration of the rights of creditors; or (e) a service standard deficiency,
as defined in Schedule B.
If the Trust terminates this Agreement other than as provided
in the first paragraph of this Section 5, then the Trust shall make a one-time
cash payment, as liquidated damages, to OKSC equal to the balance due OKSC for
the remainder of the then current term of this Agreement, assuming for purposes
of calculation of the payment that the asset level of the Trust on the date this
Agreement is terminated, will remain constant for the balance of the then
current contract term.
-3-
<PAGE> 4
6. Uncontrollable Events.
OKSC assumes no responsibility hereunder, and shall not be
liable for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control. OKSC shall, however, be obligated to
design and institute reasonable procedures to prevent or limit any such damages,
loss of data, delay or other loss.
7. Legal Advice.
OKSC shall notify the Trust at an time OKSC believes that it
is in need of the advice of counsel (other than counsel in the regular employ of
OKSC or any affiliated companies) with regard to OKSC's responsibilities and
duties pursuant to this Agreement; and after so notifying the Trust, OKSC, at
its discretion, shall be entitled to seek, receive and act upon advice of
qualified legal counsel of its choosing, reasonably acceptable to the Trust, and
OKSC shall in no event be liable to the Trust or any Fund or any shareholder or
beneficial Owner of the Trust for any action reasonably taken pursuant to such
advice.
8. Instructions.
Whenever OKSC is requested or authorized to take action
hereunder pursuant to instructions from a shareholder, or a properly authorized
agent of an agent of a shareholder ("shareholder's agent"), concerning an
account in a Fund, OKSC shall be entitled to rely upon any certificate, letter
or other instrument or communication, believed by OKSC to be genuine and to have
been properly made, signed or authorized by an officer or other authorized agent
of the Trust or by the shareholder or shareholder's agent, as the case may be,
and shall be entitled to receive as conclusive proof of any fact or matter
required to be ascertained by it hereunder a certificate signed by an officer of
the Trust or any other person authorized by the Trust's Board of Trustees or by
the shareholder or shareholder's agent, as the case may be.
As to the services to be Provided hereunder, OKSC may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless OKSC receives written instructions to the contrary
in a timely manner from the Trust.
9. Standard of Care; Reliance on Records and Instructions;
Indemnification.
OKSC shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by OKSC in the absence of bad faith, willful
misfeasance, negligence or reckless disregard by it of its obligations and
duties hereunder. The Trust agrees to indemnify and hold harmless OKSC, its
employees, agents, directors and officers from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, actions and suits, liabilities, losses, damages,
costs, charges, reasonable counsel fees and other expenses of every nature and
character arising out of or in any way relating to OKSC's actions taken or
nonactions with respect to the performance of services under this Agreement or
based, if applicable, upon reasonable reliance on information, records,
instructions or requests given or made to OKSC by a duly authorized
representative of the Trust, provided that this
-4-
<PAGE> 5
indemnification shall not apply to actions or omissions of OKSC in cases of its
own bad faith, willful misfeasance, negligence or from reckless disregard by it
of its obligations and duties; and further provided that prior to confessing any
claim against it which may be the subject of this indemnification, OKSC shall
give the Trust written notice of and reasonable opportunity to defend against
said claim in its own name or in the name of OKSC.
Any person, even though also an officer, director, employee or
agent of OKSC who may be or become an officer, Trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or to any Fund, or
acting on any business of the Trust or of any Fund (other than services or
business in connection with OKSC's duties hereunder) to be rendering such
services to or acting solely for the Trust or the Fund and not as an officer,
director, employee or agent or one under the control or direction of OKSC even
though paid by OKSC.
10. Record Retention and Confidentiality.
OKSC shall keep and maintain on behalf of the Trust all books
and records which the Trust or OKSC is, or may be, required to keep and maintain
pursuant to any applicable statutes, rules and regulations, including without
limitation Rules 31a-1 and 31a-2 under the 1940 Act relating to the maintenance
of books and records in connection with the services to be provided hereunder.
OKSC further agrees that all such books and records shall be the property of the
Trust and to make such books and records available for inspection by the Trust
or by the Securities and Exchange Commission (the "Commission") at reasonable
times and otherwise to keep confidential all books and records and other
information relative to the Trust and its shareholders, except when requested to
divulge such information by duly-constituted authorities or court process, or
requested by a shareholder or shareholder's agent with respect to information
concerning an account as to which such shareholder has either a legal or
beneficial interest or when requested by the Trust, the shareholder, or
shareholder's agent, or the dealer of record as to such account. OKSC agrees to
surrender promptly such books and records on the Trust's request.
11. Rights of Ownership.
All computer programs and procedures developed to perform
services required to be provided by OKSC under this Agreement are the property
of OKSC. All records and other data except such computer programs and procedures
are the exclusive property of the Trust and all such other records and data will
be furnished to the Trust in appropriate form as soon as practicable after
termination of this Agreement for any reason.
12. Bank Accounts.
The Trust and the Funds shall establish and maintain such bank
accounts with such bank or banks as are selected by the Trust, as are necessary
in order that OKSC may perform the services required to be performed hereunder.
To the extent that the performance of such services shall require OKSC directly
to disburse amounts for payment of dividends, redemption proceeds or other
purposes, the Trust and Funds shall provide such bank or banks with all
instructions and authorizations necessary for OKSC to effect such disbursements.
-5-
<PAGE> 6
13. Representations of the Trust.
The Trust certifies to OKSC that: (a) as of the close of
business on the Effective Date, each Fund which is in existence as of the
Effective Date has authorized unlimited shares, and (b) this Agreement has been
duly authorized by the Trust and, when executed and delivered by the Trust, will
constitute a legal, valid and binding obligation of the Trust, enforceable
against the Trust in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
14. Representations of OKSC.
OKSC represents and warrants that: (a) OKSC has been in, and
shall continue to be in, substantial compliance with all provisions of law,
including Section 17A(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of its duties under
this Agreement; (b) the various procedures and systems which OKSC has
implemented with regard to safekeeping from loss or damage attributable to fire,
theft or any other cause of the blank checks, records, and other data of the
Trust and OKSC's records, data, equipment, facilities and other property used in
the performance of its obligations hereunder are adequate and that it will make
such changes therein from time to time as are required for the secure
performance of its obligations hereunder; and (c) this Agreement has been duly
authorized by OKSC and, when executed and delivered by OKSC, will constitute a
legal, valid and binding obligation of OKSC, enforceable against OKSC in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
15. Insurance.
OKSC shall notify the Trust should OKSC's insurance coverage
with respect to professional liability or errors and omissions coverage be
canceled or reduced. Such notification shall include the date of change and the
reasons therefor. OKSC shall notify the Trust of any material claims against
OKSC with respect to services performed under this Agreement, whether or not
they may be covered by insurance, and shall notify the Trust from time to time
as may be appropriate of the total outstanding claims made by OKSC under its
insurance coverage.
16. Information to be Furnished by the Trust.
The Trust has furnished to OKSC the following:
(a) Copies of the Declaration of Trust of the Trust and of
any amendments thereto, certified by the proper
official of the state in which such Declaration has
been filed.
-6-
<PAGE> 7
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of
Trustees covering the approval of this Agreement and
authorization of a specified officer of the Trust to
execute and deliver this Agreement and authorization
for specified officers of the Trust to instruct OKSC
hereunder.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct
OKSC in all matters.
(d) Two copies of the Prospectuses and Statement of Additional
Information for each Fund.
(e) A certificate as to shares of beneficial interest of the
Trust authorized, issued, and outstanding as of the
Effective Date of OKSC's appointment as Transfer Agent (or
as of the date on which OKSC's services are commenced,
whichever is the later date) and as to receipt of full
consideration by the Trust for all shares outstanding, such
statement to be certified by the Treasurer of the Trust.
17. Information Furnished by OKSC.
OKSC has furnished to the Trust the following:
(a) OKSC's Articles of Incorporation.
(b) OKSC's By-Laws and any amendments thereto.
(c) Certified copies of actions of OKSC covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of OKSC to execute and deliver this
Agreement;
2. Authorization of OKSC to act as Transfer Agent for the
Trust.
(d) A copy of the most recent independent accountants' report
relating to internal accounting control systems as filed
with the Commission pursuant to Rule 17Ad-13 under the
Exchange Act.
18. Amendment to Documents.
The Trust shall furnish OKSC written copies of any amendments
to, or changes in, any of the items referred to in Section 16 hereof promptly
upon such amendments or changes becoming effective. In addition, the Trust
agrees that no amendments will be made to the Prospectuses or Statement of
Additional Information of the Trust which might have the effect of
-7-
<PAGE> 8
changing the procedures employed by OKSC in providing the services agreed to
hereunder or which amendment might affect the duties of OKSC hereunder unless
the Trust first obtains OKSC's approval of such amendments or changes.
19. Reliance on Amendments.
OKSC may rely on any amendments to or changes in any of the
documents and other items to be provided by the Trust pursuant to Sections 16
and 18 of this Agreement and the Trust hereby indemnifies and holds harmless
OKSC from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, reasonable counsel fees and other
expenses of every nature and character which may result from actions or
omissions on the part of OKSC in reasonable reliance upon such amendments and/or
changes. Although OKSC is authorized to rely on the above-mentioned amendments
to and changes in the documents and other items to be provided pursuant to
Sections 16 and 18 hereof, OKSC shall be under no duty to comply with or take
any action as a result of any of such amendments or changes unless the Trust
first obtains OKSC's written consent to and approval of such amendments or
changes.
20. Compliance with Law.
The Trust assumes full responsibility for the preparation,
contents and distribution of each prospectus of the Trust in compliance with all
applicable requirements of the Securities Act of 1933, as amended, the 1940 Act
and any other laws, rules and regulations of governmental authorities having
jurisdiction, except for any noncompliance caused by the actions of OKSC and its
affiliates or based upon information provided by OKSC and its affiliates. OKSC
shall have no obligation to take cognizance of any laws relating to the sale of
the Trust's shares.
21. Notices.
Any notice provided hereunder shall be sufficiently given when
sent to the party required to be served with such notice, at the following
address:
Transfer Agent:
Old Kent Securities Corporation
250 Monroe Avenue, Suite 400
Grand Rapids, Michigan 49503
Facsimile number (616) 771-0268
The Trust:
The Kent Funds
3435 Stelzer Road
Columbus, Ohio 43219
Facsimile number (614) 470-8715
-8-
<PAGE> 9
or at such other address or facsimile number as such party may from time to time
specify in writing to the other party pursuant to this Section. All notices or
other communications permitted or required hereunder shall be in writing and
shall be sufficiently given if and when hand delivered to the persons set forth
above or if sent by documented overnight delivery service or registered or
certified mail, postage prepaid, return receipt requested, or by telegram, telex
or telecopy, receipt acknowledged, addressed as set forth above or to such other
person or persons and/or at such other address or addresses as shall be
furnished in writing by any party hereto to the others. Any such notice or
communication shall be deemed to have been given as of the date received, in the
case of personal delivery, or on the date shown on the receipt or confirmation
therefor in all other cases.
22. Headings.
Paragraph headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
23. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Section 23 shall not limit or in any way affect
OKSC's right to appoint a Sub-transfer Agent pursuant to Section 1 hereof. This
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and the respective successors and permitted assigns.
24. Governing Law.
This Agreement shall be governed by and provisions shall be
construed in accordance with the laws of the State of Michigan.
25. Amendments.
No provision of this Agreement may be changed, waived, discharged
or terminated, except by an instrument in writing signed by the party against
whom an enforcement of the change, waiver, discharge or termination is sought.
26. Multiple Originals.
This Agreement may be executed in two or more counterparts, each
of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
27. Confidential.
OKSC agrees on behalf of itself and its employees to treat
confidentially and as the proprietary information of the Trust, all records and
other information relative to the Trust and prior, present or potential
shareholders, and not to use such records and information for any
-9-
<PAGE> 10
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where OKSC
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by the Trust.
28. Matters Relating to the Trust as a Massachusetts Business Trust.
The names "The Kent Funds" and "Trustees of The Kent Funds" refer
respectively to the business trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Kent Funds" entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders or representatives of the Trust
personally, but bind only the assets of the Trust, and all persons dealing with
any Fund must look solely to the assets of the Trust belonging to such Fund for
the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
THE KENT FUNDS
By: /s/ James F. Duca, II
--------------------------------------------
Name: James F. Duca, II
Title: President
OLD KENT SECURITIES CORPORATION
By: /s/ Mark S. Crouch
--------------------------------------------
Name: Mark Crouch
Title: President
-10-
<PAGE> 11
SCHEDULE A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new shares,
through dividend reimbursement.
2. Shareholder Information Services
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements or marketing material to current
shareholders.
A-1
<PAGE> 12
3. Compliance Reporting
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
b. Prepare and distribute appropriate Internal Revenue Service forms
for corresponding Fund and shareholder income and capital gains.
c. Issue tax-withholding reports to the Internal Revenue Service.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and purchases
made under a letter of intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchase of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide for
payment of commissions on direct shareholder purchases in a load
Fund.
5. Shareholder Account Maintenance
a. Maintain all shareholder records for each account in the Trust.
b. Issue customer statements on scheduled cycle, providing duplicate
second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
A-2
<PAGE> 13
SCHEDULE B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
SERVICE STANDARDS
Pursuant to Section 1 of this Agreement, OKSC has agreed to perform the services
described in this Agreement in accordance with the service standards set forth
in this Schedule B. Such standards are contained on the pages attached hereto.
The parties agree that such service standards may be revised, from time to time,
by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance team. In
the event OKSC fails to meet a service standard in any particular month, OKSC
agrees to take appropriate corrective measures within the following thirty-day
period in order to be in compliance with the appropriate standard at the end of
such thirty-day period; provided, however, that the foregoing requirement shall
not apply in those instances in which OKSC's failure to meet a service standard
was due to circumstances beyond its control.
In the event OKSC fails to meet a particular service standard (except for any
failure due to circumstances beyond its control) in two consecutive months, the
fee payable to OKSC hereunder shall be reduced by one percent (1%) or such lower
amount as the parties shall agree upon for the second of those two months. If
such failure occurs in three consecutive months, the fee payable to OKSC
hereunder shall be reduced by one and one-half percent (1.5%) or such lower
amount as the parties shall agree upon for the third of those three months.
In the event OKSC fails to meet a particular service standard (except for any
failure due to circumstances beyond its control) for any three months within a
six-month period, such failure shall be deemed to be a service standard
deficiency for purposes of the "cause" definition set forth in Section 5 of this
Agreement.
B-1
<PAGE> 14
Old Kent Securities Corporation/The Kent Funds
Servicing Standards
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
ITEM STANDARD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANSFER AGENCY (PROCESSING):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
New Account Set-up
Timeliness 100% processed same day
Accuracy 98%
- --------------------------------------------------------------------------------
Financial Quality Rate
Timeliness 100% processed same day
Accuracy 98%
- --------------------------------------------------------------------------------
Maintenance Items
Non-financial 5 business days
- --------------------------------------------------------------------------------
Not in good order items Call out next business day
- --------------------------------------------------------------------------------
Research received by phone or mail 100% completed within 5 business days
from day of receipt
- --------------------------------------------------------------------------------
TRANSFER AGENCY (PHONES):
- --------------------------------------------------------------------------------
Abandonment Rate 3% or less
- --------------------------------------------------------------------------------
Average speed of answer 20 seconds or less
- --------------------------------------------------------------------------------
Service level 85% of calls will be answered in 20
seconds or less
- --------------------------------------------------------------------------------
TRANSFER AGENCY(PRINT/MAIL):
- --------------------------------------------------------------------------------
Quarterly Statements Five business days
- --------------------------------------------------------------------------------
Daily Confirms T + 2
- --------------------------------------------------------------------------------
Checks T + 1
- --------------------------------------------------------------------------------
TRANSFER AGENCY (FULFILLMENT): within 48 hours
- --------------------------------------------------------------------------------
FUND ACCOUNTING/CUSTODY:
- --------------------------------------------------------------------------------
NAV Calculation Accuracy Accurate 98% of time
- --------------------------------------------------------------------------------
Daily Bulletin 98% delivered by 6:30 p.m.
- --------------------------------------------------------------------------------
Cash Availability 98% delivered by 9:30 a.m.
- --------------------------------------------------------------------------------
Position Reconciliation Detailed security position reconciliation
weekly
- --------------------------------------------------------------------------------
FUND ADMINISTRATION:
- --------------------------------------------------------------------------------
Portfolio Compliance Reviews Monthly
- --------------------------------------------------------------------------------
Financial Reports Printed and mailed within sixty days
fiscal year end, or 60 days fiscal
semi-annual
- --------------------------------------------------------------------------------
Prospectus Updates Prepared and printed within five days of
the effective date of the Registration
Statement
- --------------------------------------------------------------------------------
Review of accruals Monthly
- --------------------------------------------------------------------------------
</TABLE>
B-2
<PAGE> 15
SCHEDULE C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
TRANSFER AGENT FEES
<TABLE>
<CAPTION>
<S> <C>
Annual Per Fund Minimum Fee: $15,000.00
Annual Per Account Fee:
Daily/Monthly Dividend $ 18.00
Annual Dividend $ 16.50
Closed Accounts $ 7.50
</TABLE>
Multiple Classes of Shares:
Additional classes of shares created after the Effective Date of this
Agreement will be subject to an additional fee of $10,000 per class per year.
Additional Services:
Additional services such as IRA processing, development of interface
capabilities, servicing of 403(b) and 408(c) accounts, management of cash sweeps
between DDAs and mutual fund accounts and coordination of the printing and
distribution of prospectuses, annual reports and semiannual reports are subject
to additional fees which will be quoted upon request. Programming costs or
database management fees for special reports or specialized processing will be
quoted upon request.
C-1
<PAGE> 16
SCHEDULE D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE KENT FUNDS
AND
OLD KENT SECURITIES CORPORATION
REPORTS
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transaction
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning OKSC's
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Security Exchange Act of 1934, as amended.
D-1
<PAGE> 1
EXHIBIT 99.23(h)(4)
SUB-ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of December, 1999, by and
between OLD KENT SECURITIES CORPORATION ("Old Kent"), a Michigan corporation,
and BISYS FUND SERVICES OHIO, INC. ("BISYS"), an Ohio corporation.
WHEREAS, Old Kent has entered into an Administration Agreement, dated
December 1, 1999 (the "Administration Agreement"), with The Kent Funds (the
"Company"), a Massachusetts business trust registered with the Securities and
Exchange Commission (the "Commission"), concerning the provision of various
services, including but not limited to administration services, for the
investment portfolios of the Company, all as now or hereafter may be established
from time to time (individually referred to herein as a "Portfolio" and
collectively as the "Portfolios");
WHEREAS, Old Kent desires to retain BISYS to assist it in performing
certain administration services for the Portfolio; and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter contained, the Administrator and BISYS hereby agree as follows:
1. Retention of BISYS.
Old Kent hereby appoints BISYS, subject to the supervision,
direction and control of the Company's Board of Trustees, to furnish the
Portfolios with the services that are more particularly set forth in Schedule A
hereto. BISYS agrees to perform the services described herein in accordance with
the service standards set forth in Schedule B hereto. BISYS also agrees to
perform such special services incidental to the performance of the services
enumerated herein as agreed to by the parties from time to time. BISYS shall
perform such additional services as are provided on an amendment to this
Agreement, in consideration of such fees as the parties hereto may agree.
Notwithstanding the foregoing, BISYS agrees to provide reasonable assistance to
Old Kent (including but not limited to consultation, employee training, and the
performance of certain agreed upon tasks) in connection with Old Kent's
performance of its duties and responsibilities under the Administration
Agreement. In performing its duties under this Agreement, BISYS will act in
conformity with the Company's Declaration of Trust, By-Laws, Prospectuses and
Statements of Additional Information as in effect from time to time and will
conform to and comply with the requirements of the Investment Company Act of
1940 (the "1940 Act") and all other applicable federal and state laws and
regulations. BISYS shall, for all purposes herein, be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent Old Kent or the Company in any
way and shall not be deemed an agent of Old Kent or the Company.
<PAGE> 2
2. Allocation of Charges and Expenses.
(A) BISYS. BISYS shall furnish at its own expense the executive,
supervisory and clerical personnel necessary to perform its obligations under
this Agreement. BISYS shall also provide the items which it is obligated to
provide under this Agreement, and shall pay all compensation, if any, of
officers of the Company as well as all Trustees of the Company who are
affiliated persons of BISYS or any affiliated company of BISYS; provided,
however, that unless otherwise specifically provided, BISYS shall not be
obligated to pay the compensation of any employee of the Company retained by the
Trustees of the Company to perform services on behalf of the Company.
(B) Old Kent. Old Kent hereby represents that the Company has
undertaken to pay or cause to be paid all other expenses of the Company not
otherwise allocated herein, including, without limitation, organization costs,
taxes, expenses for legal and auditing services, the expenses of preparing
(including typesetting), printing and mailing reports, prospectuses, statements
of additional information, proxy solicitation material and notices to existing
shareholders, all expenses incurred in connection with issuing and redeeming
shares, the costs of custodial services, the cost of initial and ongoing
registration of the shares under Federal and state securities laws, fees and
out-of-pocket expenses of Trustees who are not affiliated persons of Old Kent or
the Investment Adviser to the Company or any affiliated corporation of Old Kent
or the Investment Adviser, insurance, interest, brokerage costs, litigation and
other extraordinary or nonrecurring expenses, and all fees and charges of
investment advisers to the Company.
3. Compensation of BISYS.
(A) Sub-Administration Fee. Old Kent shall pay BISYS for the
services to be provided by BISYS under this Agreement in accordance with, and in
the manner set forth in, the Omnibus Fee Agreement between Old Kent and BISYS
dated as of December 1, 1999. Old Kent shall also reimburse BISYS for reasonable
travel and lodging expenses incurred by officers and employees of BISYS in
connection with attendance at Board meetings.
(B) Survival of Compensation Rights. All rights of compensation
under this Agreement for services performed as of the termination date shall
survive the termination of this Agreement.
4. Limitation of Liability of BISYS.
The duties of BISYS shall be confined to those expressly set
forth herein, and no implied duties are assumed by or may be asserted against
BISYS hereunder. BISYS shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any act or omission in carrying out its
duties hereunder, except a loss resulting from willful misfeasance, bad faith or
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and
2
<PAGE> 3
duties hereunder, except as may otherwise be provided under provisions of
applicable law which cannot be waived or modified hereby. (As used in this
Section 4, the term "BISYS" shall include directors, officers, employees and
other agents of BISYS as well as BISYS itself.) Any person, even though also an
officer, director, employee or agent of BISYS, who may be or become an officer,
Trustee, employee or agent of the Company, shall be deemed, when rendering
services to the Company or to any Portfolio, or acting on any business of the
Company or of any Portfolio (other than services or business in connection with
BISYS' duties hereunder) to be rendering such services to or acting solely for
the Company or the Portfolio and not as an officer, director, employee or agent
or one under the control or direction of BISYS even though paid by BISYS.
So long as BISYS acts in good faith and with due diligence and
without negligence, Old Kent assumes full responsibility and shall indemnify
BISYS and hold it harmless from and against any and all actions, suits and
claims, whether groundless or otherwise, and from and against any and all
losses, damages, costs, charges, reasonable counsel fees and disbursements,
payments, expenses and liabilities (including reasonable investigation expenses)
arising directly or indirectly out of BISYS' actions taken or nonactions with
respect to the performance of services hereunder.
Except for actions, suits or claims brought or threatened
against BISYS by (i) the Company, (ii) Old Kent, or (iii) one or more
shareholders of the Company, the rights hereunder shall include the right to
reasonable advances of defense expenses in the event of any pending or
threatened litigation with respect to which indemnification hereunder may
ultimately be merited. In order that the indemnification provision contained
herein shall apply, however, it is understood that if in any case Old Kent may
be asked to indemnify or hold BISYS harmless, Old Kent shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that BISYS will use all reasonable care to identify
and notify Old Kent promptly concerning any situation which presents or appears
likely to present the probability of such a claim for indemnification against
Old Kent, but failure to do so in good faith shall not affect the rights
hereunder.
Old Kent shall be entitled to participate at its own expense
or, if it so elects, to assume the defense of any suit brought to enforce any
claims subject to this indemnity provision. If Old Kent elects to assume the
defense of any such claim, the defense shall be conducted by counsel chosen by
Old Kent and satisfactory to BISYS, whose approval shall not be unreasonably
withheld. In the event that Old Kent elects to assume the defense of any suit
and retain counsel, BISYS shall bear the fees and expenses of any additional
counsel retained by it. If Old Kent does not elect to assume the defense of a
suit, it will reimburse BISYS for the reasonable fees and expenses of any
counsel retained by BISYS.
BISYS may apply to Old Kent at any time for instructions and
may consult counsel for Old Kent or its own counsel and with accountants and
other experts with respect to any matter arising in connection with BISYS'
duties, and BISYS shall not be liable or accountable for any
3
<PAGE> 4
reasonable action taken or omitted by it in good faith in accordance with such
instruction or with the opinion of such counsel, accountants or other experts.
Also, BISYS shall be protected in acting in good faith upon
any document which it reasonably believes to be genuine and to have been signed
or presented by the proper person or persons. BISYS will not be held to have
notice of any change of authority of any officers, employees or agents of Old
Kent until receipt of written notice thereof from Old Kent.
5. Activities of BISYS.
The services of BISYS rendered hereunder are not to be deemed
to be exclusive. BISYS is free to render such services to others and to have
other businesses and interests. To the extent BISYS renders services to another
investment company which are similar to the services BISYS is obligated to
perform under this Agreement, BISYS will take reasonable precautions to avoid
any conflict of interest between its obligations under this Agreement and its
obligations to any such other investment company. It is understood that
Trustees, officers, employees and shareholders of the Company are or may be or
become interested in BISYS, as officers, employees or otherwise and that
directors, officers and employees of BISYS and its counsel are or may be or
become similarly interested in the Company, and that BISYS may be or become
interested in the Company as a shareholder or otherwise.
6. Duration of this Agreement.
This Agreement shall become effective as of the date first
written above or, if a particular Portfolio is not in existence on that date, on
the date such Portfolio commences operation (the "Effective Date"). The Term of
this Agreement shall be as specified in the Omnibus Fee Agreement between Old
Kent and BISYS dated as of December 1, 1999.
7. Assignment.
This Agreement shall not be assignable by either party without
the written consent of the other party; provided, however, that BISYS may, with
the prior consent of Old Kent, at its expense, subcontract with any entity or
person concerning the provision of the services contemplated hereunder. BISYS
shall not, however, be relieved of any of its obligations under this Agreement
by the appointment of such subcontractor and provided further, that BISYS shall
be responsible, to the extent provided in Section 4 hereof, for all acts of such
subcontractor as if such acts were its own. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
4
<PAGE> 5
8. Amendments.
No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the
parties hereto.
9. Certain Records.
BISYS shall maintain customary records in connection with its
duties as specified in this Agreement. Any records required to be maintained and
preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are
prepared or maintained by BISYS on behalf of the Company shall be prepared and
maintained at the expense of BISYS, but shall be the property of the Company and
will be made available to or surrendered promptly to the Company on request.
In case of any request or demand for the inspection of such
records by another party, BISYS shall notify Old Kent and follow Old Kent's
instructions as to permitting or refusing such inspection; provided that BISYS
may exhibit such records to any person in any case where it is advised by its
counsel that it may be held liable for failure to do so, unless (in cases
involving potential exposure only to civil liability) Old Kent or the Company
has agreed to indemnify BISYS against such liability.
10. Definitions of Certain Terms.
The terms "interested person" and "affiliated person," when
used in this Agreement, shall have the respective meanings specified in the 1940
Act and the rules and regulations thereunder, subject to such exemptions as may
be granted by the Commission.
11. Notice.
Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
following address: if to Old Kent, at 250 Monroe Avenue, N.W. Grand Rapids,
Michigan 49503, facsimile number (616) 771-0268, ATTENTION: JAMES DUCA; and if
to BISYS, at 3435 Stelzer Road, Columbus, Ohio 43219, facsimile number (614)
470-8715, ATTENTION: WILLIAM J. TOMKO; or at such other address as such party
may from time to time specify in writing to the other party pursuant to this
Section.
12. Governing Law.
This Agreement shall be construed in accordance with the laws
of the State of Ohio and the applicable provisions of the 1940 Act. To the
extent that the applicable laws of the State of
5
<PAGE> 6
Ohio, or any of the provisions herein, conflict with the applicable provisions
of the 1940 Act, the latter shall control.
13. Multiple Originals.
This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
14. Confidentiality.
BISYS agrees on behalf of itself and its employees to treat
confidentially and as the proprietary information of the Company, all records
and other information relative to the Company and prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of its responsibilities and duties hereunder, except, after
prior notification to and approval in writing by Old Kent or the Company, which
approval shall not be unreasonably withheld and may not be withheld where BISYS
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by Old Kent or the Company.
15. Matters Relating to the Company as a Massachusetts Business
Trust.
The names "The Kent Funds" and "Trustees of The Kent Funds"
refer respectively to the business trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a Declaration
of Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Kent Funds" entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, shareholders or representatives of the Company
personally, but bind only the assets of the Company, and all persons dealing
with any Portfolio must look solely to the assets of the Company belonging to
such Portfolio for the enforcement of any claims against the Company.
16. Year 2000 Readiness.
BISYS has performed comprehensive date testing on the systems
it utilizes to provide the services hereunder to simulate the actual turning of
the century and leap year. These tests were intended to identify any operational
issues regarding the accurate process of date/time data from, into and between
the Twentieth and Twenty-First Century, including leap year calculations. BISYS
agrees to use all commercially reasonable efforts to implement all necessary
updates and
6
<PAGE> 7
changes for such systems, if any, to accommodate the turn of the century and
leap year if not making such updates or changes would have a material or
significant adverse affect on the services to be performed by BISYS hereunder.
BISYS agrees to provide the Company updates on the status of its Year 2000
readiness project and to make its personnel reasonably available to address any
questions or concerns.
If, at any time prior to December 31, 1999, the Company or Old
Kent reasonably determines that any of the systems BISYS utilizes to perform the
services hereunder will not be Year 2000 ready, and that such lack of readiness
will have a material or significant adverse effect on the services to be
performed by BISYS hereunder, Old Kent shall have the right to terminate this
Agreement upon providing written notice to BISYS describing, in reasonable
detail, the basis for its termination; provided, however, that BISYS shall have
sixty (60) days following receipt of any such notice to cure any deficiencies to
Old Kent's reasonable satisfaction. Promptly upon becoming aware of such, BISYS
agrees to use all commercially reasonable efforts to cure any defect or
deficiency that relates to the processing of date/time data from, into and
between the Twentieth and Twenty-First centuries, including leap year
calculations, in any system BISYS utilizes to provide services hereunder if not
curing such defect or deficiency would have a material or significant adverse
effect on the services to be performed by BISYS hereunder.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
OLD KENT SECURITIES CORPORATION
By: /s/ Mark S. Crouch
---------------------------------
Title: President
------------------------------
BISYS FUND SERVICES OHIO, INC.
By: /s/
---------------------------------
Title: President
------------------------------
7
<PAGE> 8
SCHEDULE A
TO THE SUB-ADMINISTRATION AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
SERVICES
ADMINISTRATION
1. Prepare and file Form N24-F2.
2. Obtain tax identification numbers from the IRS for each Portfolio.
3. Assist the Company's independent accountants with 17f-2-audit process.
4. Assist the Company in obtaining Fund ratings from NRSROs.
5. Obtain Portfolio CUSIPs.
6. Assist the Company in the preparation of appropriate documentation and
records relating to the contribution of seed money capital.
7. Maintain books and records on behalf of the Company, as agreed upon by
the parties.
8. Make available persons to serve as officers of the Company.
9. Provide appropriate personnel to attend Board meetings.
COMPLIANCE
1. Review monthly compliance reports that are prepared by the investment
adviser(s).
2. Perform independent monthly Portfolio compliance testing.
3. Prepare quarterly tax compliance checklist for use by investment
adviser(s).
4. Notify appropriate Company officers of mark-to-market issues pursuant
to Board-approved procedures.
5. Provide appropriate assistance with respect to Commission inspections
including (i) rendering advice regarding proposed responses (ii)
compiling data and other information in response to Commission requests
for information and (iii) communicating with Commission staff members,
as necessary.
6. Provide appropriate assistance with respect to audits conducted by the
Company's independent accountants including (i) compiling data and
other information and (ii) communicating with independent accountants,
as necessary.
7. Consult with and advise, on a proactive basis, Company Portfolio
managers with respect to compliance matters.
8. Prepare quarterly brokerage allocation compliance checklist and
supporting documentation for use by investment adviser(s).
9. Provide compliance training for investment advisory personnel, as
requested.
10. Preparation of Company specific compliance manual.
A-1
<PAGE> 9
TAX AND FINANCIAL SERVICES
1. Prepare semi-annual/annual financial statements.
2. Prepare and file Form N-SAR
3. Calculate/distribute all standard performance information
4. Prepare annual Company expense budget and monthly accrual analyses
5. Validate/approve Company expenses to be paid for invoices sent to
BISYS.
6. Register Portfolios with NASDAQ
7. Prepare financial materials for Board books.
8. Calculate declaration of income/capital gain distributions in
compliance with income/excise tax distribution requirements.
9. Review all dividend declarations to ensure that such distributions are
not "preferential" under the Internal Revenue Code.
10. Review and file federal and state income tax returns and federal excise
tax returns within statutory deadlines.
11. Prepare/distribute year-end shareholder tax information letters and
Forms 1099-MISC for trustee fees/vendor payments within 30 days of
calendar year-end.
12. Provide compliance/consulting for Portfolio managers focused on the
impact of changes in tax laws and managing a tax-efficient mutual fund.
13. Provide consulting services for conversions.
14. Provide expense budgeting consulting to review expense ratios/fee
waivers.
15. Produce semi-annual/annual reports.
16. Calculate Portfolio performance information.
LEGAL SERVICES
GENERAL
1. Prepare or review broker-dealer agreements and agreements for
shareholder support services.
2. Provide general information concerning current legal and regulatory
developments.
3. Maintain appropriate insurance coverage on behalf of the Company in the
form of (i) a Directors & Officers/Errors & Omissions professional
liability policy and (ii) a Fidelity Bond. Prepare memoranda and other
correspondence that outlines the terms and conditions of the insurance
policies.
PROXY MATERIALS
1. Review proxy statements that are prepared by counsel to the Company.
BLUE SKY
1. Qualify the Company and its shares with appropriate state blue sky
authorities upon client authorization.
2. Amend and renew sales permits as required from time to time.
3. Monitor the sales of shares in individual states on a daily basis upon
receipt of sales information and, when required, report sales to
appropriate states.
4. Maintain Company blue-sky filing calendars.
5. Address all blue-sky audit and examination issues.
A-2
<PAGE> 10
6. Conduct blue-sky fee analysis, upon request.
7. Produce checks required for state filing fees at a fee of $8.00 per
check.
A-3
<PAGE> 11
SCHEDULE B
TO THE SUB-ADMINISTRATION AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
Pursuant to Section 1 of this Agreement, BISYS has agreed to perform
the services described in this Agreement in accordance with the service
standards set forth in this Schedule B. Such standards are contained on the page
attached hereto. The parties agree that such service standards may be revised,
from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance
team. In the event BISYS fails to meet a service standard in any particular
month, BISYS agrees to take appropriate corrective measures within the following
thirty-day period in order to be in compliance with the appropriate standard at
the end of such thirty-day period; provided, however, that the foregoing
requirement shall not apply in those instances in which BISYS's failure to meet
a service standard was due to circumstances beyond its control.
In the event BISYS fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) in two consecutive
months, the fee payable to BISYS hereunder shall be reduced by one percent (1%)
or such lower amount as the parties shall agree upon for the second of those two
months. If such failure occurs in three consecutive months, the fee payable to
BISYS hereunder shall be reduced by one and one-half percent (1.5%) or such
lower amount as the parties shall agree upon for the third of those three
months.
In the event BISYS fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) for any three months
within a six-month period, such failure shall be deemed to be a service standard
deficiency for purposes of the "cause" definition set forth in Schedule B to the
Fee Agreement.
B-1
<PAGE> 12
SERVICING STANDARDS
ITEM STANDARD
Portfolio Compliance Reviews Monthly
Financial Reports Printed and mailed within
sixty (60) days following
fiscal year end, or sixty (60)
days following semi-annual
period
Review of accruals Monthly
Prospectus Updates Prepared and printed within
five (5) days of the effective
date of the Registration
Statement
B-2
<PAGE> 1
EXHIBIT 99.23(h)(5)
SUB-FUND ACCOUNTING AGREEMENT
AGREEMENT made this 1st day of December, 1999, between OLD KENT
SECURITIES CORPORATION ("Old Kent"), a Michigan corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS"), an Ohio corporation.
WHEREAS, Old Kent has entered into a Fund Accounting Agreement, dated
December 1, 1999 (the "Services Agreement"), with The Kent Funds (the
"Company"), a Massachusetts business trust registered with the Securities and
Exchange Commission (the "Commission"), concerning the provision of various
services, including but not limited to fund accounting services, for the
investment portfolios of the Company, all as now or hereafter may be established
from time to time (individually referred to herein as a "Fund" and collectively
as the "Funds");
WHEREAS, Old Kent desires to retain BISYS to assist it in performing
certain fund accounting services for the Funds; and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Sub-Fund Accountant.
Subject to the supervision, direction and control of the
Company's Board of Trustees, BISYS shall perform the fund accounting services
set forth in Schedule A attached hereto in accordance with the service standards
set forth in Schedule B attached hereto. BISYS also agrees to perform such
special services incidental to the performance of the services enumerated herein
as agreed to by the parties from time to time. BISYS shall perform such
additional services as are provided on an amendment to this Agreement, in
consideration of such fees as the parties hereto may agree. Notwithstanding the
foregoing, BISYS agrees to provide reasonable assistance to Old Kent (including
but not limited to consultation, employee training and the performance of
certain agreed upon tasks) in connection with Old Kent's performance of its
duties and responsibilities under the Services Agreement. In performing its
duties under this Agreement, BISYS will act in conformity with the Company's
Declaration of Trust, By-Laws, Prospectuses and Statements of Additional
Information as in effect from time to time and will conform to and comply with
the requirements of the Investment Company Act of 1940 (the "1940 Act") and all
other applicable federal and state laws and regulations. BISYS shall, for all
purposes herein, be deemed to be an independent contractor and, unless otherwise
expressly provided or authorized, shall have no authority to act for or
represent Old Kent or the Company in any way and shall not be deemed an agent of
Old Kent or the Company.
<PAGE> 2
2. Fees.
Old Kent shall pay BISYS for the services to be provided by
BISYS under this Agreement in accordance with, and in the manner set forth in,
the Omnibus Fee Agreement between Old Kent and BISYS dated as of December 1,
1999 (the "Fee Agreement").
3. Reimbursement of Expenses.
In addition to paying BISYS the fees referred to in Section 2
hereof, Old Kent agrees to reimburse BISYS for its out-of-pocket expense in
obtaining security prices in accordance with guidelines established by the
Company.
4. Effective Date.
This Agreement shall become effective as of the date first
written above or, if a particular Fund is not in existence on that date, on the
date such Fund commences operation (the "Effective Date").
5. Term.
The Term of this Agreement shall be as specified in the
Omnibus Fee Agreement between Old Kent and BISYS dated as of December 1, 1999.
6. Standard of Care; Reliance on Records and Instructions;
Indemnification.
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to Old Kent or
the Company for any action taken or omitted by BISYS in the absence of bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties. Old Kent agrees to indemnify and hold harmless BISYS,
its employees, agents, directors, officers and nominees from and against any and
all claims, demands, actions and suits, whether groundless or otherwise, and
from and against any and all judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character arising out of or in any way relating to BISYS' actions taken or
nonactions with respect to the performance of services under this Agreement or
based, if applicable, upon reasonable reliance on information, records,
instructions or requests given or made to BISYS by a duly authorized
representative of the Company or Old Kent; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
Old Kent written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
2
<PAGE> 3
Any person, even though also an officer, director, employee or
agent of BISYS who may be or become an officer, Trustee, employee or agent of
the Company, shall be deemed, when rendering services to the Company or to any
Fund, or acting on any business of the Company or of any Fund (other than
services or business in connection with BISYS' duties hereunder) to be rendering
such services to or acting solely for the Company or the Fund and not as an
officer, director, employee or agent or one under the control or direction of
BISYS even though paid by BISYS.
7. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the Company all
books and records that it is, or may be, required to keep and maintain in
connection with the services provided hereunder pursuant to all applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the 1940 Act. BISYS further agrees that all such books and records
shall be the property of the Company and to make such books and records
available for inspection by Old Kent or the Company or by the Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Company and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process. BISYS agrees to surrender promptly such books and records upon request
by Old Kent or the Company.
8. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and shall not be
liable, for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control. BISYS shall, however, be obligated to
design and institute reasonable procedures to prevent or limit any such damages,
loss of data, delay or other losses.
9. Rights of Ownership.
All computer programs and procedures developed to perform
services required to be provided by BISYS under this Agreement are the property
of BISYS. All records and other data except such computer programs and
procedures are the exclusive property of the Company and all such other records
and data will be furnished to the Company in appropriate form as soon as
practicable after termination of this Agreement for any reason.
10. Representations of Old Kent.
Old Kent certifies to BISYS that: (1) as of the close of
business on the Effective Date, each Fund that is in existence as of the
Effective Date has authorized unlimited shares, and (2) this Agreement has been
duly authorized by Old Kent and, when executed and delivered by Old Kent, will
constitute a legal, valid and binding obligation of Old Kent, enforceable
against Old Kent
3
<PAGE> 4
in accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
11. Representations of BISYS.
BISYS represents and warrants that: (a) the various procedures
and systems which BISYS has implemented with regard to safeguarding from loss or
damage attributable to fire, theft, or any other cause of the records, and other
data of the Company and BISYS' records, data, equipment, facilities and other
property used in the performance of its obligations hereunder are adequate and
that it will make such changes therein from time to time as are required for the
secure performance of its obligations hereunder, and (b) this Agreement has been
duly authorized by BISYS and, when executed and delivered by BISYS, will
constitute a legal, valid and binding obligation of BISYS, enforceable against
BISYS in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors and secured parties.
12. Insurance.
BISYS shall notify Old Kent should any of its insurance
coverage be canceled or reduced. Such notification shall include the date of
change and the reasons therefor. BISYS shall notify Old Kent of any material
claims against it with respect to services performed under this Agreement,
whether or not they may be covered by insurance, and shall notify Old Kent from
time to time as may be appropriate of the total outstanding claims made by BISYS
under its insurance coverage.
13. Information Furnished by Old Kent.
Old Kent has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Company and
of any amendments thereto, certified by the proper
official of the state in which such document has been
filed.
(b) Copies of the following documents:
(i) The Company's Bylaws and any amendments thereto; and
(ii) Certified copies of resolutions of the Board of
Trustees of the Company authorizing (i) Old Kent to
provide fund accounting services to the Company and
(ii) specified officers of the Company to instruct
Old Kent pursuant to the Services Agreement.
4
<PAGE> 5
(c) A list of all the officers of the Company; and
(d) Two copies of the Prospectus and Statement of
Additional Information for each Fund.
14. Information Furnished by BISYS.
(a) BISYS has furnished to Old Kent the following:
(i) BISYS' Articles of Incorporation; and
(ii) BISYS' Bylaws and any amendments thereto.
(b) BISYS shall, upon request, furnish certified copies of
corporate actions covering the following matters:
(i) approval of this Agreement and authorization of
a specified officer of BISYS to execute and
deliver this Agreement; and
(ii) authorization of BISYS to provide accounting
services for the Company.
15. Amendments to Documents.
Old Kent shall furnish BISYS with written copies of any
amendments to, or changes in, any of the items referred to in Section 13 hereof
forthwith upon such amendments or changes becoming effective. In addition, Old
Kent agrees that no amendments will be made to the Prospectuses or Statements of
Additional Information of the Company which might have the effect of changing
the procedures employed by BISYS in providing the services agreed to hereunder
or which amendment might affect the duties of BISYS hereunder unless Old Kent
first obtains BISYS' approval of such amendments or changes.
16. Compliance with Law.
Old Kent represents and warrants that the Company has
assumed full responsibility for the preparation, contents and distribution of
each prospectus of the Company as to compliance with all applicable requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the 1940 Act
and any other laws, rules and regulations of governmental authorities having
jurisdiction, except for any noncompliance caused by the actions of BISYS and
its affiliates or based upon information provided by BISYS and its affiliates.
5
<PAGE> 6
17. Notices.
Any notice required or permitted to be given by either party
to the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
following address: if to Old Kent, at 250 Monroe Avenue, N.W., Grand Rapids,
Michigan 49503, facsimile number (616) 771-0268, ATTENTION: JAMES DUCA; and if
to BISYS, at 3435 Stelzer Road, Columbus, Ohio 43219, facsimile number (614)
470-8715, ATTENTION: WILLIAM J. TOMKO; or at such other address as such party
may from time to time specify in writing to the other party pursuant to this
Section.
18. Headings.
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
19. Assignment.
This Agreement and the rights and duties hereunder shall not
be assignable by either of the parties hereto except by the specific written
consent of the other party. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns.
20. Governing Law.
This Agreement shall be construed and enforced in accordance
with the laws of the State of Ohio and the applicable provisions of the 1940
Act. To the extent that applicable laws of the State of Ohio, or any of the
provisions herein, conflict with applicable provisions of the 1940 Act, the
latter shall control.
21. Proprietary and Confidential Information.
BISYS agrees on behalf of itself and its officers and
employees to treat confidentially and as proprietary information of the Company
all records and other information relative to the Company and prior, present, or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by Old Kent, which
approval shall not be unreasonably withheld and may not be withheld where BISYS
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by Old Kent.
6
<PAGE> 7
22. Year 2000 Readiness.
BISYS has performed comprehensive date testing on the systems
it utilizes to provide the services hereunder to simulate the actual turning of
the century and leap year. These tests were intended to identify any operational
issues regarding the accurate process of date/time data from, into and between
the Twentieth and Twenty-First Century, including leap year calculations. BISYS
agrees to use all commercially reasonable efforts to implement all necessary
updates and changes for such systems, if any, to accommodate the turn of the
century and leap year if not making such updates or changes would have a
material or significant adverse affect on the services to be performed by BISYS
hereunder. BISYS agrees to provide the Company with updates on the status of its
Year 2000 readiness project and to make its personnel reasonably available to
address any questions or concerns.
If, at any time prior to December 31, 1999, the Company or Old
Kent reasonably determines that any of the systems BISYS utilizes to perform the
services hereunder will not be Year 2000 ready, and that such lack of readiness
will have a material or significant adverse effect on the services to be
performed by BISYS hereunder, Old Kent shall have the right to terminate this
Agreement upon providing written notice to BISYS describing, in reasonable
detail, the basis for its termination; provided, however, that BISYS shall have
sixty (60) days following receipt of any such notice to cure any deficiencies to
Old Kent's reasonable satisfaction. Promptly upon becoming aware of such, BISYS
agrees to use all commercially reasonable efforts to cure any defect or
deficiency that relates to the processing of date/time data from, into and
between the Twentieth and Twenty-First centuries, including leap year
calculations, in any system BISYS utilizes to provide services hereunder if not
curing such defect or deficiency would have a material or significant adverse
effect on the services to be performed by BISYS hereunder.
23. Amendments.
No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the party
against whom an enforcement of the change, waiver, discharge or termination is
sought.
24. Multiple Originals.
This Agreement may be executed in two or more counterparts,
each of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
25. Matters Relating to the Company as a Massachusetts Business
Trust.
The names "The Kent Funds" and "Trustees of the Kent Funds"
refer respectively to the business trust created and the Company, as trustees
but not individually or personally, acting
7
<PAGE> 8
from time to time under a Declaration of Trust dated as of May 9, 1986 to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of the Commonwealth of Massachusetts and elsewhere as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of "The Kent Funds" entered into in the name or on behalf thereof by
any of the Company's, representatives or agents are made not individually, but
in such capacities, and are not binding upon any of the Company's, shareholders
or representatives of the Company personally, but bind only the assets of the
Company, and all persons dealing with any Fund must look solely to the assets of
the Company, belonging to such Fund for the enforcement of any claims against
the Company.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the day and year first above written.
OLD KENT SECURITIES CORPORATION
By: /s/ Mark S. Crouch
-----------------------------------
Title: President
-------------------------------
BISYS FUND SERVICES OHIO, INC.
By: /s/
-----------------------------------
Title: President
--------------------------------
8
<PAGE> 9
SCHEDULE A
TO THE SUB-FUND ACCOUNTING AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
SERVICES
1. Calculate net asset value (NAV) and public offering price (POP).
2. Compute net income, dividend payments and capital gains, dividend factors,
mark-to-market, 7 and 30 day yields, SEC yields, and weighted average
maturity.
3. Execute security pricing per the direction of the Company.
4. Verify and reconcile all daily trade activity with both custodian and
investment adviser.
5. Reconcile cash, foreign currency and security holding positions with
custodian.
6. Report NAV/Income factor to NASDAQ.
7. Report NAV/Income factor to Transfer Agent personnel.
8. Report NAV/Income factor to client locations, as requested.
9. Determine unrealized appreciation and depreciation on securities.
10. Amortize premiums and discounts on securities as required.
11. Reset interest accruals on variable/floating rate securities.
12. Identify, research and post all corporate actions due the Company.
13. Calculate fee-based expenses as appropriate.
14. Calculate allocation of income, expense and security
appreciation/depreciation across multiple classes, as appropriate.
15. Post summary shareholder activity received from Transfer Agent personnel
and reconcile share balances, including receivables and payables, with
Transfer Agent personnel on a daily basis.
16. Respond to surveys from industry publications including, but not limited to
Lipper, Morningstar, Donoghue, DALBAR, Standard and Poor's and Investment
Company Institute.
17. Provide reports to investment adviser on daily, weekly and monthly basis.
18. Provide reports used in preparation of financial reports, regulatory
filings, compliance reporting, total return and tax reporting.
19. Post all Fund transactions to general ledger categories, as appropriate.
20. Maintain books and records of the Company pursuant to Rule 31a-1 under the
Investment Company Act of 1940.
A-1
<PAGE> 10
SCHEDULE B
TO THE SUB-FUND ACCOUNTING AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
Pursuant to Section 1 of this Agreement, BISYS has agreed to perform
the services described in this Agreement in accordance with the service
standards set forth in this Schedule B. Such standards are contained on the page
attached hereto. The parties agree that such service standards may be revised,
from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance
team. In the event BISYS fails to meet a service standard in any particular
month, BISYS agrees to take appropriate corrective measures within the following
thirty-day period in order to be in compliance with the appropriate standard at
the end of such thirty-day period; provided, however, that the foregoing
requirement shall not apply in those instances in which BISYS's failure to meet
a service standard was due to circumstances beyond its control.
In the event BISYS fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) in two consecutive
months, the fee payable to BISYS hereunder shall be reduced by one percent (1%)
or such lower amount as the parties shall agree upon for the second of those two
months. If such failure occurs in three consecutive months, the fee payable to
BISYS hereunder shall be reduced by one and one-half percent (1.5%) or such
lower amount as the parties shall agree upon for the third of those three
months.
In the event BISYS fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) for any three months
within a six-month period, such failure shall be deemed to be a service standard
deficiency for purposes of the "cause" definition set forth in Schedule B to the
Fee Agreement.
B-1
<PAGE> 11
SERVICING STANDARDS
<TABLE>
<CAPTION>
ITEM STANDARD
<S> <C>
NAV Calculation Accuracy Accurate 98% of time
Daily Bulletin 98% delivered by 6:30 p.m.
Cash Availability 98% delivered by 9:30 a.m.
Position Reconciliation Detailed security position
reconciliation weekly
</TABLE>
B-2
<PAGE> 1
EXHIBIT 99.23(h)(6)
SUB-TRANSFER AGENCY AGREEMENT
AGREEMENT made this 1st day of December, 1999, between OLD KENT
SECURITIES CORPORATION ("Old Kent") a Michigan corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS"), an Ohio corporation.
WHEREAS, Old Kent has entered into a Transfer Agency Agreement, dated
December 1, 1999 (the "Services Agreement"), with The Kent Funds (the
"Company"), a Massachusetts business trust registered with the Securities and
Exchange Commission (the "Commission"), concerning the provision of various
services, including but not limited to transfer agency services, for the
investment portfolios of the Company, all as now or hereafter may be established
from time to time (individually referred to herein as a "Fund" and collectively
as the "Funds");
WHEREAS, Old Kent desires to retain BISYS to assist it in performing
certain transfer agency services for the Funds; and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as the Sub-Transfer Agent.
Subject to the supervision, direction and control of the
Trust's Board of Trustees, BISYS shall perform the transfer agency services set
forth in Schedule A hereto. BISYS agrees to perform such services in accordance
with the service standards set forth in Schedule B hereto. BISYS also agrees to
perform such special services incidental to the performance of the services
enumerated herein as agreed to by the parties from time to time. BISYS shall
perform such additional services as are provided on an amendment to this
Agreement, in consideration of such fees as the parties hereto may agree.
Notwithstanding the foregoing, BISYS agrees to provide reasonable assistance to
Old Kent (including but not limited to consultation, employee training and
performance of certain agreed upon tasks) in connection with Old Kent's
performance of its duties and responsibilities under the Services Agreement. In
performing its duties under this Agreement, BISYS will act in conformity with
the Company's Declaration of Trust, By-Laws, Prospectuses and Statements of
Additional Information as in effect from time to time and will conform to and
comply with the requirements of the Investment Company Act of 1940 (the "1940
Act") and all other applicable federal and state laws and regulations. BISYS
shall, for all purposes herein, be deemed to be an independent contractor and,
unless otherwise expressly provided or authorized, shall have no authority to
act for or represent Old Kent or the Company in any way and shall not be deemed
an agent of Old Kent or the Company.
<PAGE> 2
2. Fees.
Old Kent shall pay BISYS for the services to be provided by
BISYS under this Agreement in accordance with, and in the manner set forth in,
the Omnibus Fee Agreement between Old Kent and BISYS dated as of December 1,
1999 (the "Fee Agreement").
3. Reimbursement of Expenses.
In addition to paying BISYS the fees referred to in Section 2
hereof, Old Kent agrees to reimburse BISYS for the following out-of-pocket
expenses in providing services hereunder, subject to the dollar limitation
contained in the Omnibus Fee Agreement:
(a) Costs of producing shareholder statements;
(b) Costs of producing transaction confirmations;
(c) Costs of maintaining 800 lines;
(d) Costs of NSCC processing; and
(e) Costs of IRA custody and tax reporting.
4. Effective Date.
This Agreement shall become effective as of the date first
written above or, if a particular Fund is not in existence on that day, on the
date such Fund commences operation (the "Effective Date").
5. Term.
The Term of this Agreement shall be as specified in the Omnibus
Fee Agreement between Old Kent and BISYS dated as of December 1, 1999.
6. Uncontrollable Events.
BISYS assumes no responsibility hereunder, and shall not be
liable for any damage, loss of data, delay or any other loss whatsoever caused
by events beyond its reasonable control. BISYS shall, however, be obligated to
design and institute reasonable procedures to prevent or limit any such damages,
loss of data, delay or other loss.
2
<PAGE> 3
7. Legal Advice.
BISYS shall notify Old Kent at any time BISYS believes that it
is in need of the advice of counsel (other than counsel in the regular employ of
BISYS or any affiliated companies) with regard to BISYS' responsibilities and
duties pursuant to this Agreement; and after so notifying Old Kent, BISYS, at
its discretion, shall be entitled to seek, receive and act upon advice of
qualified legal counsel of its choosing, reasonably acceptable to Old Kent and
BISYS shall in no event be liable to the Company, or any Fund, or any
shareholder or beneficial owner of the Company for any action reasonably taken
pursuant to such advice.
8. Instructions.
Whenever BISYS is requested or authorized to take action
hereunder pursuant to instructions from a shareholder, or a properly authorized
agent of a shareholder ("shareholder's agent"), concerning an account in a Fund,
BISYS shall be entitled to rely upon any certificate, letter or other instrument
or communication, believed by BISYS to be genuine and to have been properly
made, signed or authorized by an officer or other authorized agent of the
Company or by the shareholder or shareholder's agent, as the case may be, and
shall be entitled to receive as conclusive proof of any fact or matter required
to be ascertained by it hereunder a certificate signed by an officer of the
Company or any other person authorized by the Company's Board of Trustees or by
the shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statement of Additional
Information of the Company relating to the Funds to the extent that such
services are described therein unless BISYS receives written instructions to the
contrary in a timely manner from Old Kent or the Company.
9. Standard of Care; Reliance on Records and Instructions;
Indemnification.
BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to Old Kent or
the Company for any action taken or omitted by BISYS in the absence of bad
faith, willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties. Old Kent agrees to indemnify and hold harmless BISYS,
its employees, agents, directors, officers and nominees from and against any and
all claims, demands, actions and suits, whether groundless or otherwise, and
from and against any and all judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character arising out of or in any way relating to BISYS' actions taken or
nonactions with respect to the performance of services under this Agreement or
based, if applicable, upon reasonable reliance on information, records,
instructions or requests given or made to BISYS by a duly authorized
representative of the Company or Old Kent; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
3
<PAGE> 4
Old Kent written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
Any person, even though also an officer, director, employee or
agent of BISYS who may be or become an officer, Trustee, employee or agent of
the Company, shall be deemed, when rendering services to the Company or to any
Fund, or acting on any business of the Company or of any Fund (other than
services or business in connection with BISYS' duties hereunder) to be rendering
such services to or acting solely for the Company or the Fund and not as an
officer, director, employee or agent or one under the control or direction of
BISYS even though paid by BISYS.
10. Record Retention and Confidentiality.
BISYS shall keep and maintain on behalf of the Company all books
and records that it is, or may be, required to keep and maintain in connection
with the services provided hereunder pursuant to all applicable statutes, rules
and regulations, including without limitation Rules 31a-1 and 31a-2 under the
1940 Act. BISYS further agrees that all such books and records shall be the
property of the Company and to make such books and records available for
inspection by Old Kent or the Company or by the Securities and Exchange
Commission (the "Commission") at reasonable times and otherwise to keep
confidential all books and records and other information relative to the Company
and its shareholders, except when requested to divulge such information by
duly-constituted authorities or court process, or requested by a shareholder or
shareholder's agent with respect to information concerning an account as to
which such shareholder has either a legal or beneficial interest or when
requested by Old Kent or the Company, the shareholder, or shareholder's agent,
or the dealer of record as to such account. BISYS agrees to surrender promptly
such books and records upon request by Old Kent or the Company.
11. Rights of Ownership.
All computer programs and procedures developed to perform
services required to be provided by BISYS under this Agreement are the property
of BISYS. All records and other data except such computer programs and
procedures are the exclusive property of the Company and all such other records
and data will be furnished to the Company in appropriate form as soon as
practicable after termination of this Agreement for any reason.
12. Bank Accounts.
Pursuant to the Services Agreement, the Company and the Funds
have agreed to establish and maintain such bank accounts with such bank or banks
as are selected by the Company, as are necessary in order that BISYS may perform
the services required to be performed hereunder. To the extent that the
performance of such services shall require BISYS directly to disburse amounts
for payment of dividends, redemption proceeds or other purposes, the Company and
Funds have
4
<PAGE> 5
agreed to provide such bank or banks with all instructions and authorizations
necessary for BISYS to effect such disbursements.
13. Representations of Old Kent.
Old Kent certifies to BISYS that: (a) as of the close of
business on the Effective Date, each Fund which is in existence as of the
Effective Date has authorized unlimited shares, and (b) this Agreement has been
duly authorized by Old Kent and, when executed and delivered by Old Kent, will
constitute a legal, valid and binding obligation of Old Kent, enforceable
against Old Kent in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the rights and remedies of creditors and secured parties.
14. Representations of BISYS.
BISYS represents and warrants that: (a) BISYS has been in, and
shall continue to be in, substantial compliance with all provisions of law,
including Section 17A(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), required in connection with the performance of its duties under
this Agreement; (b) the various procedures and systems which BISYS has
implemented with regard to safekeeping from loss or damage attributable to fire,
theft or any other cause of the blank checks, records, and other data of the
Company and BISYS' records, data, equipment, facilities and other property used
in the performance of its obligations hereunder are adequate and that it will
make such changes therein from time to time as are required for the secure
performance of its obligations hereunder; and (c) this Agreement has been duly
authorized by BISYS and, when executed and delivered by BISYS, will constitute a
legal, valid and binding obligation of BISYS enforceable against BISYS in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
15. Insurance.
BISYS shall notify Old Kent should its insurance coverage with
respect to professional liability or errors and omissions coverage be canceled
or reduced. Such notification shall include the date of change and the reasons
therefor. BISYS shall notify Old Kent of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance, and shall notify Old Kent from time to time as may be
appropriate of the total outstanding claims made by BISYS under its insurance
coverage.
16. Information Furnished by Old Kent.
Old Kent has furnished to BISYS the following:
5
<PAGE> 6
(a) Copies of the Declaration of Trust of the Company and any
amendments thereto, certified by the proper official of
the state in which each such document has been filed.
(b) Copies of the following documents:
1. The Company's Bylaws and any amendments thereto;
2. Certified copies of the following resolutions:
Resolutions of the Board of Trustees of the
Company authorizing (i) Old Kent to provide
transfer agency services for the Company and
(ii) specified officers of the Company to
instruct Old Kent pursuant to the Services
Agreement.
(c) A list of all officers of the Company and Old Kent,
together with specimen signatures of those officers, who
are authorized to instruct BISYS in all matters.
(d) Two copies of the following (if such documents are
employed by the Company):
1. Prospectuses and Statement of Additional
Information;
2. Distribution Agreement; and
3. All other forms commonly used by the Company or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the
Company authorized, issued, and outstanding as of the
Effective Date of this Agreement and as to receipt of full
consideration by the Company for all shares outstanding,
such statement to be certified by the Treasurer of the
Company.
17. Information Furnished by BISYS.
BISYS has furnished to Old Kent the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the
following matters:
6
<PAGE> 7
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver
this Agreement;
2. Authorization of BISYS to act as Sub-Transfer Agent
for the Company.
(d) A copy of the most recent independent accountants' report
relating to BISYS' internal accounting control systems as
filed with the Commission pursuant to Rule 17Ad-13 under
the Exchange Act.
18. Amendments to Documents.
Old Kent shall furnish BISYS written copies of any amendments
to, or changes in, any of the items referred to in Section 16 hereof forthwith
upon such amendments or changes becoming effective. In addition, Old Kent agrees
that no amendments will be made to the Prospectuses or Statement of Additional
Information of the Company which might have the effect of changing the
procedures employed by BISYS in providing the services agreed to hereunder or
which amendment might affect the duties of BISYS hereunder unless Old Kent first
obtains BISYS' approval of such amendments or changes.
19. Reliance on Amendments.
BISYS may rely on any amendments to or changes in any of the
documents and other items to be provided by Old Kent pursuant to Sections 16 and
18 of this Agreement and Old Kent hereby indemnifies and holds harmless BISYS
from and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, counsel fees and other expenses of
every nature and character which may result from actions or omissions on the
part of BISYS in reasonable reliance upon such amendments and/or changes.
Although BISYS is authorized to rely on the above-mentioned amendments to and
changes in the documents and other items to be provided pursuant to Sections 16
and 18 hereof, BISYS shall be under no duty to comply with or take any action as
a result of any of such amendments or changes unless Old Kent first obtains
BISYS' written consent to and approval of such amendments or changes.
20. Compliance with Law.
Old Kent represents and warrants that the Company has assumed
full responsibility for the preparation, contents, and distribution of each
prospectus of the Company as to compliance with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act, and any
other laws, rules and regulations of governmental authorities having
jurisdiction except for any noncompliance caused by the actions of Old Kent and
its affiliates and agents or based upon information provided by Old Kent and its
affiliates and agents. BISYS shall have no obligation to take cognizance of any
laws relating to the sale of the Company's shares. Old Kent further represents
and warrants that no shares of the Company will be offered to the public until
the Company's registration statement under the 1933 Act and the 1940 Act has
been declared or becomes effective.
7
<PAGE> 8
21. Notices.
Any notice required or permitted to be given by either party to
the other shall be deemed sufficient if sent by registered or certified mail,
postage prepaid, addressed by the party giving notice to the other party at the
following address: if to Old Kent, at 250 Monroe Street, N.W. Grand Rapids,
Michigan 49503, facsimile number (616) 771-0268, ATTENTION: JAMES DUCA; and if
to BISYS, at 3435 Stelzer Road, Columbus, Ohio 43219, facsimile number (614)
470-8715, ATTENTION: WILLIAM J. TOMKO; or at such other address as such party
may from time to time specify in writing to the other party pursuant to this
Section.
22. Headings.
Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this Agreement.
23. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable by either of the parties hereto except by the specific written
consent of the other party. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
permitted assigns.
24. Governing Law.
This Agreement shall be construed and enforced in accordance
with the laws of the State of Ohio and the applicable provisions of the 1940
Act. To the extent that applicable laws of the State of Ohio or any of the
provisions herein, conflict with applicable provisions of the 1940 Act, the
latter shall control.
25. Proprietary and Confidential Information.
BISYS agrees on behalf of itself and its officers and employees
to treat confidentially and as proprietary information of the Company all
records and other information relative to the Company and prior, present, or
potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by Old Kent, which
approval shall not be unreasonably withheld and may not be withheld where BISYS
may be exposed to civil or criminal contempt proceedings for failure to comply,
when requested to divulge such information by duly constituted authorities, or
when so requested by Old Kent.
26. Year 2000 Readiness.
BISYS has performed comprehensive date testing on the systems
it utilizes to provide
8
<PAGE> 9
the services hereunder to simulate the actual turning of the century and leap
year. These tests were intended to identify any operational issues regarding the
accurate process of date/time data from, into and between the Twentieth and
Twenty-First Century, including leap year calculations. BISYS agrees to use all
commercially reasonable efforts to implement all necessary updates and changes
for such systems, if any, to accommodate the turn of the century and leap year
if not making such updates or changes would have a material or significant
adverse affect on the services to be performed by BISYS hereunder. BISYS agrees
to provide the Company with updates on the status of its Year 2000 readiness
project and to make its personnel reasonably available to address any questions
or concerns.
If, at any time prior to December 31, 1999, the Company or Old
Kent reasonably determines that any of the systems BISYS utilizes to perform the
services hereunder will not be Year 2000 ready, and that such lack of readiness
will have a material or significant adverse effect on the services to be
performed by BISYS hereunder, Old Kent shall have the right to terminate this
Agreement upon providing written notice to BISYS describing, in reasonable
detail, the basis for its termination; provided, however, that BISYS shall have
sixty (60) days following receipt of any such notice to cure any deficiencies to
Old Kent's reasonable satisfaction. Promptly upon becoming aware of such, BISYS
agrees to use all commercially reasonable efforts to cure any defect or
deficiency that relates to the processing of date/time data from, into and
between the Twentieth and Twenty-First centuries, including leap year
calculations, in any system BISYS utilizes to provide services hereunder if not
curing such defect or deficiency would have a material or significant adverse
effect on the services to be performed by BISYS hereunder.
27. Amendments.
No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing signed by the
parties hereto.
28. Multiple Originals.
This Agreement may be executed in two or more counterparts, each
of which when so executed shall be deemed to be an original, but such
counterparts shall together constitute but one and the same instrument.
29. Matters Relating to the Trust as a Massachusetts Business Trust.
The names "The Kent Funds" and "Trustees of the Kent Funds"
refer respectively to the business trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a Declaration
of Trust dated as of May 9, 1986 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of the Commonwealth of
Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "The Kent Funds" entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents are made not individually, but in such capacities, and are not
9
<PAGE> 10
binding upon any of the Trustees, shareholders or representatives of the Trust
personally, but bind only the assets of the Trust, and all persons dealing with
any Fund must look solely to the assets of the Trust, belonging to such Fund for
the enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the day and year first above written.
OLD KENT SECURITIES CORPORATION
By: /s/ Mark S. Crouch
------------------------------------
Title: President
---------------------------------
BISYS FUND SERVICES OHIO, INC.
By: /s/
------------------------------------
Title: President
---------------------------------
10
<PAGE> 11
SCHEDULE A
TO THE
SUB-TRANSFER AGENCY AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
SERVICES
RECORDKEEPING
1. Produce monthly shareholder statements by the fifth business day
2. Post shareholder transactions
3. Produce and mail daily confirmations to shareholders
4. Produce and mail dividend and redemption checks
5. Balance daily transaction activity
6. Disburse dividends and capital gains
7. Maintain shareholder information files
8. Manage daily ACH transmissions
9. Monitor NSCC activity
10. Complete cash settlement between funds, custodians, NSCC and
shareholders
11. Reconcile deposit, redemption, wire, check writing, dividend and DDA's
12. Microfiche all source documentation
13. Prepare daily open items report
14. Calculate and produce shareholder tax records
15. Coordinate development of systematic enhancements
16. Communicate and coordinate corporate action events
17. Perform legal review on all incoming transactions
18. Complete quality assurance review of transactions processed at BISYS
19. Calculate and distribute 12b-1 and shareholder services fees
20. Provide standard sales activity reports
21. Accept and track incoming retirement rollover subscriptions
22. Process previously-authorized purchases
23. Process systematic withdrawals
24. Complete gross dividend reinvestment
25. Process payments to multiple payees
26. Develop and utilize interface capabilities
27. Manage FundServ linkage
28. Support full NSCC networking support
A-1
<PAGE> 12
29. Establish account relationship linking
30. Maintain 401(k) interface
31. Service 403(b) and 408(c) accounts
32. Manage cash sweeps between DDAs and mutual fund accounts
SHAREHOLDER SERVICING
33. Staff toll-free telephone lines on weekdays from 8 a.m. to 5 p.m. EST
for overflow and from 5 p.m. to 9 p.m.
34. Process and verify telephone transactions
35. Research and resolve account documentation issues
36. Handle shareholder correspondence including registered complaints
37. Mail literature requests to prospects and existing shareholders by
ordering from fulfillment vendor
38. Provide voice-response system account balances, Fund yields, Fund NAVs
and offering prices, and Fund total rates of returns
39. Assist shareholder and tax form questions
40. Assist sales representatives with establishing accounts
41. Send duplicate confirm, when required
42. Advise shareholders of procedures for changing account options
43. Provide agreements for corporation and partnerships to establish
accounts
SYSTEMS (ADDITIONAL CHARGES WILL VARY BY PROJECT)
44. Prepare research/feasibility studies
45. Develop systems specifications and implementation plans
46. Design and testing of changes
47. Complete implementation/conversion
MISCELLANEOUS
48. Assist with management/implementation of DDA Sweep
49. Coordinate use of outside vendors by the Company
50. Provide a designated project manager for routine on-going projects
51. Provide institutional trade facilitation
52. Assist with asset-related conversions
A-2
<PAGE> 13
SCHEDULE B
TO THE SUB-TRANSFER AGENCY AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
Pursuant to Section 1 of this Agreement, BISYS has agreed to perform
the services described in this Agreement in accordance with the service
standards set forth in this Schedule B. Such standards are contained on the page
attached hereto. The parties agree that such service standards may be revised,
from time to time, by mutual agreement.
Each of the service standards will be monitored by a Quality Assurance
team. In the event BISYS fails to meet a service standard in any particular
month, BISYS agrees to take appropriate corrective measures within the following
thirty-day period in order to be in compliance with the appropriate standard at
the end of such thirty-day period; provided, however, that the foregoing
requirement shall not apply in those instances in which BISYS's failure to meet
a service standard was due to circumstances beyond its control.
In the event BISYS fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) in two consecutive
months, the fee payable to BISYS hereunder shall be reduced by one percent (1%)
or such lower amount as the parties shall agree upon for the second of those two
months. If such failure occurs in three consecutive months, the fee payable to
BISYS hereunder shall be reduced by one and one-half percent (1.5%) or such
lower amount as the parties shall agree upon for the third of those three
months.
In the event BISYS fails to meet a particular service standard (except
for any failure due to circumstances beyond its control) for any three months
within a six-month period, such failure shall be deemed to be a service standard
deficiency for purposes of the "cause" definition set forth in Schedule B to the
Fee Agreement.
B-1
<PAGE> 14
SERVICING STANDARDS
<TABLE>
<CAPTION>
ITEM STANDARD
<S> <C>
TRANSFER AGENCY (PROCESSING)
NEW ACCOUNT SET-UP
Timeliness 100% processed same day
Accuracy 98%
FINANCIAL QUALITY RATE
Timeliness 100% processed same day
Accuracy 98%
MAINTENANCE ITEMS
Non-financial 5 business days
NOT IN GOOD ORDER ITEMS Call out next business day
RESEARCH IN BY PHONE OR MAIL 100% completed within 5 business
days from day of receipt
TRANSFER AGENCY (PRINT/MAIL)
QUARTERLY STATEMENTS Five business days
DAILY CONFIRMS T+2
CHECKS T+1
TRANSFER AGENCY (FULFILLMENT) within 48 hours
TRANSFER AGENCY (PHONES)
Abandonment Rate 2.5% or less
Average speed of answer 20 seconds or less
Service level 85% of calls will be answered in 20
seconds or less
</TABLE>
B-2
<PAGE> 15
SCHEDULE C
TO THE
SUB-TRANSFER AGENCY AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
REPORTS
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
C-1
<PAGE> 1
EXHIBIT 99.23(h)(7)
OMNIBUS FEE AGREEMENT
THIS AGREEMENT is made as of this 1st day of December, 1999 by and
between OLD KENT SECURITIES CORPORATION ("Old Kent"), a Michigan corporation,
and BISYS FUND SERVICES OHIO, INC. ("BISYS"), an Ohio corporation.
WHEREAS, Old Kent has entered into an Administration Agreement, Fund
Accounting Agreement and Transfer Agency Agreement, each dated December 1, 1999,
with The Kent Funds (the "Company"), an open-end management investment company
registered under the Investment Company Act of 1940, as amended, concerning the
provision of administration, fund accounting, and transfer agency services
(collectively, the "Services");
WHEREAS, Old Kent and BISYS have entered into a Sub-Administration
Agreement, a Sub-Fund Accounting Agreement and a Sub-Transfer Agency Agreement
(collectively, the "Subcontracts"), each of which is dated as of December 1,
1999, pursuant to which BISYS has been retained to provide a portion of the
Services;
WHEREAS, the parties desire to set forth the compensation payable to
BISYS by Old Kent under the Subcontracts in a separate written document; and
WHEREAS, the parties desire to set forth the terms between BISYS and
Old Kent under the Subcontracts in a separate written documents.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. The amount of the compensation due and payable to BISYS for the
services set forth in the Subcontracts is set forth in Schedule A hereto. Such
compensation shall be payable during the term of the Subcontracts. In addition
to the foregoing, BISYS shall be reimbursed for certain out-of-pocket expenses,
as more fully set forth in Schedule A.
2. The term for the Subcontracts between BISYS and Old Kent shall be set forth
in the Schedule B.
3. This Agreement shall be governed by, and its provisions shall be construed in
accordance with, the laws of the State of Ohio.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be fully executed as of the day and year first written above.
OLD KENT SECURITIES CORPORATION
By: /s/ Mark S. Crouch
--------------------------------------
Title: President
-----------------------------------
BISYS FUND SERVICES OHIO, INC.
By: /s/
-------------------------------------
Title: President
-----------------------------------
2
<PAGE> 3
SCHEDULE A
TO THE OMNIBUS AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
CONTRACTUAL FEE SCHEDULE
SERVICE FEES
Old Kent shall pay to BISYS on the first business day of each month, or
at such time(s) as BISYS shall request and the parties hereto shall agree, a fee
computed daily at the annual rate set forth below:
Four and one-half one-hundredths of one percent
(.045%) of the average daily net assets of the
Company.
In addition to the asset-based fee set forth above, BISYS shall be
entitled to receive a $15 per account annual processing fee for all open Company
accounts on BISYS' transfer agency system in excess of 22,000.
REIMBURSEMENT OF EXPENSES
BISYS shall be reimbursed for the out-of-pocket expenses set forth in
Section 3 of the Sub-Transfer Agency Agreement and Section 3 of the Sub-Fund
Accounting Agreement up to $300,000 per year. To the extent such out-of-pocket
expenses exceed $300,000 in a given year, the excess shall not be subject to
reimbursement.
In addition, BISYS shall be reimbursed for the out-of-pocket expenses
set forth in Section 3, paragraph (A) of the Sub-Administration Agreement. Such
reimbursement shall include all expenses incurred, as described in that
paragraph, without limitation.
A-1
<PAGE> 4
SCHEDULE B
TO THE OMNIBUS FEE AGREEMENT
BETWEEN
OLD KENT SECURITIES CORPORATION
AND
BISYS FUND SERVICES OHIO, INC.
TERM
Each Subcontract shall continue in effect, unless earlier
terminated by either party hereto as provided hereunder, until December
31, 2001 (the "Initial Term"). Thereafter, unless otherwise terminated
as provided herein, the Subcontracts shall be renewed automatically for
successive ninety (90) day periods ("Rollover Periods"). The
Subcontracts may be terminated without penalty (i) by provision of a
notice of nonrenewal in the manner set forth below, (ii) by mutual
agreement of the parties or (iii) for "cause," as defined below, upon
the provision of 60 days advance written notice by the party alleging
cause. Written notice of nonrenewal must be provided at least 60 days
prior to the expiration of the Initial Term or any Rollover Period, as
the case may be.
For purposes of the Subcontracts, "cause" shall mean (a)
willful misfeasance, bad faith, gross negligence or reckless disregard
on the part of the party to be terminated with respect to its
obligations and duties set forth herein; (b) multiple negligent acts on
the part of the party to be terminated which in the aggregate
constitute a serious failure to perform satisfactorily that party's
obligations hereunder; (c) a final, unappealable judicial, regulatory
or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct
of its business; (d) financial difficulties on the part of the party to
be terminated which are evidenced by the authorization or commencement
of, or involvement by way of pleading, answer, consent or acquiescence
in, a voluntary or involuntary case under Title 11 of the United States
Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors; or (e) a service standard deficiency, as defined
in each Subcontract.
After such termination, for so long as BISYS, with the written
consent of Old Kent, in fact continues to perform any one or more of
the services contemplated by the Subcontracts or any Schedule or
exhibit hereto, the provisions of the relevant Subcontract(s),
including without limitation the provisions dealing with
indemnification, shall continue in
B-1
<PAGE> 5
full force and effect. Fees and out-of-pocket expenses incurred by
BISYS but unpaid by Old Kent upon such termination shall be immediately
due and payable upon and notwithstanding such termination. BISYS shall
be entitled to collect from Old Kent, in addition to the fees and
disbursements provided in each Subcontract, the amount of all BISYS'
reasonable cash disbursements in connection with BISYS' activities in
effecting such termination, including without limitation, the delivery
to the Company and/or its distributor or investment adviser and/or
other parties, of the Company's property, records, instruments and
documents, or any copies thereof. Subsequent to such termination, BISYS
shall remain obligated to provide the Company with reasonable access to
any Company documents or records remaining in its possession. If
requested by the Company, BISYS shall deliver such documents or
records, or copies thereof, to the Company or its designee for a
reasonable fee.
If, for any reason other than nonrenewal, mutual agreement of
the parties or "cause," BISYS is replaced as the service provider under
any or all of the Subcontracts, or if a third party is added to perform
all or a part of the services provided by BISYS under the Subcontracts,
then the Company shall make a one-time cash payment, in consideration
of the fee structure and services to be provided under the
Subcontracts, and not as a penalty, to BISYS equal to the balance due
BISYS for the lesser of (A) the next 6 months or (B) the remainder of
the then-current term of the Subcontracts assuming for purposes of
calculation of the payment that such balance shall be based upon the
average amount of Company assets and the average number of Company
shareholder accounts for the twelve months prior to the date BISYS is
replaced or a third party is added.
In the event the Company is merged into another legal entity
in part or in whole pursuant to any form of business reorganization or
is liquidated in part or in whole prior to the expiration of the
then-current term of the Subcontracts, the parties acknowledge and
agree that the liquidated damages provision set forth above shall be
applicable in those instances in which BISYS is not retained to provide
services consistent with the Subcontracts, including the level of
assets subject to such services. The one-time cash payment referenced
above shall be due and payable on the day prior to the first day in
which BISYS is replaced or a third party is added.
The parties further acknowledge and agree that, in the event
BISYS is replaced, or a third party is added, as set forth above, (i) a
determination of actual damages incurred by BISYS would be extremely
difficult, and (ii) the liquidated damages provision contained herein
is intended to adequately compensate BISYS for damages incurred and is
not intended to constitute any form of penalty.
B-2
<PAGE> 1
EXHIBIT 23(i)
April 12, 2000
The Kent Funds
P.O. Box 182201
Columbus, OH 43218-2201
RE: The Kent Funds - Shares of Beneficial Interest
Gentlemen:
We have acted as counsel for The Kent Funds, a Massachusetts
business trust (the "Trust"), in connection with the registration of its shares
of beneficial interest under the Securities Act of 1933, as amended.
The Trust is authorized to issue an unlimited number of shares
of beneficial interest. The Board of Trustees of the Trust has the power to
divide any unissued shares of beneficial interest into one or more series of
shares and to divide any series of shares into one or more classes of shares.
Pursuant to such authority, the Board of Trustees has previously classified an
unlimited number of the Trust's shares of beneficial interest into eighteen
series of shares (the "Series") and has classified fifteen Series into two
classes of shares and three series into one class of shares (the "Classes"). The
shares of beneficial interest in such Series and Classes are referred to herein
as the "Shares." The Board of Trustees has previously authorized the issuance of
the Shares to the public. You have asked for our opinion on certain matters
relating to the Shares.
We have reviewed the Trust's Restatement of Declaration of
Trust, its by-laws, resolutions adopted by its Board of Trustees and
shareholders, and such other legal and factual matters as we have considered
necessary.
This opinion is based exclusively on the laws of the
Commonwealth of Massachusetts and the federal law of the United States of
America. We have relied on an opinion of Ropes & Gray, special Massachusetts
counsel to the Trust, insofar as our opinion below relates to matters arising
under the laws of the Commonwealth of Massachusetts.
We have also assumed the following for this opinion:
1. The Shares have been, and will continue to be, issued in
accordance with the Trust's Restatement of Declaration of Trust, its by-laws and
resolutions of the Trust's Board of Trustees and shareholders relating to the
creation, authorization and issuance of the Shares.
<PAGE> 2
The Kent Funds
April 12, 2000
Page 2
2. All Shares issued after December 31, 1996 through the date
hereof were offered and sold on the terms, and the Trust received for the sale
of such Shares the consideration, set forth in the Trust's Registration
Statement on Form N-1A as in effect at the time of such sale, and that such
consideration was in each case at least equal to the applicable net asset value.
3. All Shares issued and sold after the date hereof will be
offered and sold on the terms, and the Trust will receive for the sale of such
Shares the consideration, set forth in the Trust's Registration Statement on
Form N-1A as in effect at the time of such sale, and that such consideration
will be in each case at least equal to the applicable net asset value.
On the basis of the foregoing, it is our opinion that (A) the
Shares issued after (i) December 31, 1996 or (ii) with respect to any Series
created thereafter, the effective date of the first amendment to the Trust's
Registration Statement on Form N-1A relating to such Series, were validly
issued, fully paid and non-assessable by the Trust, and (B) any Shares issued or
sold after the date hereof will be validly issued, fully paid and non-assessable
by the Trust.
Under Massachusetts law, shareholders of a Massachusetts
business trust could, under certain circumstances, be held personally liable for
the obligations of the trust. However, the Restatement of Declaration of Trust
disclaims shareholder liability for acts or obligations of the Trust and
requires that a recitation of such disclaimer be included in every note, bond,
contract or other undertaking issued by or on behalf of the Trust or its
trustees relating to the Trust. The Restatement of Declaration of Trust provides
for indemnification out of the assets of the Trust for all loss and expense of
any shareholder held personally liable solely by reason of his being or having
been a shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Trust
itself would be unable to meet its obligations.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to Post-Effective Amendment No.
32 to the Trust's Registration Statement on Form N-1A. 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.
<PAGE> 3
The Kent Funds
April 12, 2000
Page 3
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
<PAGE> 1
EXHIBIT 99.23(p)(1)
KENT FUNDS
(the "Trust")
CODE OF ETHICS
I. Legal Requirement.
Rule 17j-1(b) under the Investment Company Act of 1940, as amended (the
"1940 Act"), makes it unlawful for any officer or trustee of the Trust in
connection with the purchase or sale by such person of a security "held or to be
acquired" by the Trust:
1. To employ any device, scheme or artifice to defraud the Trust;
2. To make to the Trust any untrue statement of a material fact
or omit to state to the Trust a material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading;
3. To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the
Trust; or
4. To engage in any manipulative practice with respect to the
Trust's investment portfolios.
II. Purpose of the Code of Ethics.
The Trust expects that its officers and trustees will conduct their
personal investment activities in accordance with (1) the duty at all times to
place the interests of the Trust's shareholders first, (2) the requirement that
all personal securities transactions be conducted consistent with this Code of
Ethics and in such a manner as to avoid any actual or potential conflict of
interest or any abuse of an individual's position of trust and responsibility,
and (3) the fundamental standard that investment company personnel should not
take inappropriate advantage of their positions.
In view of the foregoing, the provisions of Section 17(j) of the 1940
Act, the Securities and Exchange Commission's 1940 Act Release No. 23958
"Personal Investment Activities of Investment Company Personnel" (August 24,
1999), the "Report of the Advisory Group on Personal Investing" issued by the
Investment Company Institute on May 9, 1994 and the Securities and Exchange
Commission's September 1994 Report on "Personal Investment Activities of
Investment Company Personnel," the Trust's Board of Trustees has determined to
adopt this Code of Ethics on behalf of the Trust to specify a code of conduct
for certain types of personal securities transactions which might involve
conflicts of interest or an appearance of impropriety, and to establish
reporting requirements and enforcement procedures.
1
<PAGE> 2
III. Definitions.
A. "Access Person" means: (1) each trustee or officer of the
Trust; (2) each employee (if any) of the Trust (or of any
company in a control relationship to the Trust) who in
connection with his or her regular functions or duties,
makes, participates in, or obtains information regarding the
purchase or sale of a security by the Trust or whose
functions relate to the making of any recommendations with
respect to such purchases or sales; and (3) any natural
person in a control relationship to the Trust who obtains
information concerning recommendations made to the Trust with
regard to the purchase or sale of a security.
For purposes of this Code of Ethics, an "Access Person" does
not include any person who is subject to the securities
transaction pre-clearance requirements and securities
transaction reporting requirements of the Codes of Ethics
adopted by the Trust's investment adviser or principal
underwriter in compliance with Rule 17j-1 of the 1940 Act and
Rule 204-2(a)(12) of the Investment Advisers Act of 1940 or
Section 15(f) of the Securities Exchange Act of 1934, as
applicable.
B. "Restricted Trustee" or "Restricted Officer" means each
trustee or officer of the Trust who is not also a trustee,
director, officer, partner, employee or controlling person of
the Trust's investment adviser, administrator, custodian,
transfer agent, or distributor.
C. An Access Person's "immediate family" includes a spouse,
minor children and adults living in the same household as the
Access Person.
D. A security is "held or to be acquired" if within the most
recent 15 days it (1) is or has been held by the Trust, or
(2) is being or has been considered by the Trust or its
investment adviser for purchase by the Trust. A purchase or
sale includes the writing of an option to purchase or sell
and any security that is exchangeable for or convertible
into, any security that is held or to be acquired by a fund.
E. An "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.
F. "Investment Personnel" of the Trust means:
(i) Any employee of the Trust (or of any company in a
control relationship to the Trust) 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 the Trust.
(ii) Any natural person who controls the Trust and
who obtains information concerning recommendations made to the
Trust regarding the purchase or sale of securities by the
Trust.
2
<PAGE> 3
G. A "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.
H. "Exempt Security" means:
1. Direct obligations of the Government of the United States;
banker's acceptances; bank certificates of deposit;
commercial paper; high quality short-term debt instruments,
including repurchase agreements; and shares of registered
open-end investment companies.
2. Securities purchased or sold in any account over which the
Access Person has no direct or indirect influence or control.
3. Securities purchased or sold in a transaction which is
non-volitional on the part of either the Access Person or the
Trust.
4. Securities acquired as a part of an automatic dividend
reinvestment plan.
5. Securities acquired upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from such issuer, and
sales of such rights so acquired.
6. Securities which the Trust's investment portfolios are not
permitted to purchase under the investment objectives and
policies set forth in the Trust's then current prospectus(es)
under the Securities Act of 1933 or the Trust's registration
statement on Form N-1A.
I. "De Minimis Security" means securities issued by any company
included in the Standard and Poor's 500 Stock Index and in an
amount less than $10,000.
IV. Policies of the Trust Regarding Personal Securities Transactions.
A. General Policy.
No Access Person of the Trust shall engage in any act, practice or
course of business that would violate the provisions of Rule 17j-
1(b) set forth above, or in connection with any personal
investment activity, engage in conduct inconsistent with this Code
of Ethics.
3
<PAGE> 4
B. Specific Policies.
1. Restrictions on Personal Securities Transactions By Access
Persons Other Than Restricted Trustees and Restricted
Officers.
a. No Access Person who is not a Restricted Trustee or
Restricted Officer may buy or sell securities other
than Exempt Securities and De Minimis Securities
for his or her personal portfolio or the portfolio
of a member of his or her immediate family without
obtaining oral authorization from the Compliance
Officer of the Trust's investment adviser PRIOR to
effecting such security transaction.
A written authorization for such security
transaction will be provided by the investment
adviser's Compliance Officer to the person
receiving the authorization (if granted) and to the
Trust's administrator to memorialize the oral
authorization that was granted.
NOTE: If an Access Person has
questions as to whether purchasing
or selling a security for his or her
personal portfolio or the portfolio
of a member of his or her immediate
family requires prior oral
authorization, the Access Person
should consult the investment
adviser's Compliance Officer for
clearance or denial of clearance to
trade PRIOR to effecting any
securities transactions.
b. Pre-clearance approval under paragraph (a) will
expire at the close of business on the trading day
after the date on which oral authorization is
received, and the Access Person is required to
renew clearance for the transaction if the trade is
not completed before the authority expires.
c. No clearance will be given to an Access Person
other than a Restricted Trustee or Restricted
Officer to purchase or sell any security (1) on a
day when any portfolio of the Trust has a pending
"buy" or "sell" order in that same security until
that order is executed or withdrawn or (2) when the
Compliance Officer has been advised by the
investment adviser that the same security is being
considered for purchase or sale for any portfolio
of the Trust.
d. The pre-clearance requirement contained in
paragraph IV.B.1.a, above, shall apply to all
purchases of a beneficial interest in any security
through an Initial Public Offering or a Limited
Offering by any Access Person who is also
classified as Investment Personnel. A record of any
decision and the reason supporting such decision to
approve the acquisition by Investment Personnel of
Initial Public Offerings or Limited Offerings shall
be made.
4
<PAGE> 5
2. Restrictions on Personal Securities Transactions by
Restricted Trustees and Restricted Officers.
The Trust recognizes that Restricted Trustees and Restricted
Officers do not have on-going, day-to-day involvement with
the operations of the Trust. In addition, it has been the
practice of the Trust to give information about securities
purchased or sold by the Trust or considered for purchase or
sale by the Trust to Restricted Trustees and Restricted
Officers in materials circulated more than 15 days after such
securities are purchased or sold by the Trust or are
considered for purchase or sale by the Trust. Accordingly,
the Trust believes that less stringent controls are
appropriate for Restricted Trustees and Restricted Officers,
as follows:
a. The securities pre-clearance requirement contained in
paragraph IV.B.1.a. above shall only apply to a
Restricted Trustee or Restricted Officer if he or she
knew or, in the ordinary course of fulfilling his or her
official duties as a trustee or officer, should have
known, that during the fifteen day period before the
transaction in a security (other than an Exempt Security
or a De Minimis Security) or at the time of the
transaction that the security purchased or sold by him
or her other than an Exempt Security or a De Minimis
Security was also purchased or sold by the Trust or
considered for the purchase or sale by the Trust.
b. If the pre-clearance provisions of the preceding
paragraph apply, no clearance will be given to a
Restricted Trustee or Restricted Officer to purchase or
sell any security (1) on a day when any portfolio of the
Trust has a pending "buy" or "sell" order in that same
security until that order is executed or withdrawn or
(2) when the Compliance Officer has been advised by the
investment adviser that the same security is being
considered for purchase or sale for any portfolio of the
Trust.
V. Procedures.
A. In order to provide the Trust with information to enable it to
determine with reasonable assurance whether the provisions of this
Code are being observed by its Access Persons:
1. Each Access Person of the Trust other than a trustee who is
not an "interested person" of the Trust (as defined in the
1940 Act) will submit to the administrator an Initial Holdings
Report in the form attached hereto as Exhibit A that lists all
securities other than Exempt Securities beneficially
owned1 by the Access Person. This report must be submitted
within 10
- ----------------------------
1. You will be treated as the "beneficial owner" of a security under this
policy only if you have a direct or indirect pecuniary interest in the
security.
5
<PAGE> 6
days of becoming an Access Person (or for persons already
designated as Access Person within 10 days of the adoption of
this Code of Ethics), and must include the title of each
security, the number of shares held, and the principal amount
of the security. The Report must also include a list of any
securities accounts maintained with any broker, dealer or
bank.
2. Each Access Person of the Trust other than a trustee who is
not an "interested person" of the Trust (as defined in the
1940 Act) will also submit to the administrator an Annual
Holdings Report attached hereto as Exhibit A no later than 30
days after the end of the calendar year. The Annual Holdings
Report must list all securities other than Exempt Securities
beneficially owned by the Access Person, the title of each
security, the number of shares held, and the principal amount
of the security, as well as a list of any securities accounts
maintained with any broker, dealer or bank.
3. Each Access Person of the Trust other than a Restricted
Trustee or Restricted Officer shall direct his or her broker
to supply to the Compliance Officer of the Trust's
administrator, on a timely basis, duplicate copies of
confirmations of all securities transactions in which the
person has, or by reason of such transaction acquires any
direct or indirect beneficial ownership and copies of periodic
statements for all securities accounts.
4. Each Access Person of the Trust, other than a trustee who is
not an "interested person" (as defined in the 1940 Act), shall
submit reports in the form attached hereto as Exhibit B to the
Trust's administrator, showing all transactions in securities
other than Exempt Securities in which the person has, or by
reason of such transaction acquires, any direct or indirect
beneficial ownership as well as all accounts established with
brokers, dealers or banks during the quarter in which any
securities were held for the direct or indirect beneficial
interest of the Access Person.2 Such reports shall be filed no
later than 10 days after the end of each calendar quarter. An
Access Person of the Trust need not make a quarterly
transaction report under this paragraph if all of the
information required by this paragraph 4 is
- --------------------------------------------------------------------------------
(a) A direct pecuniary interest is the opportunity, directly or
indirectly, to profit, or to share the profit, from the
transaction.
(b) An indirect pecuniary interest is any nondirect financial
interest, but is specifically defined in the rules to include
securities held by members of your immediate family sharing
the same household; securities held by a partnership of which
you are a general partner; securities held by a trust of which
you are the settlor if you can revoke the trust without the
consent of another person, or a beneficiary if you have or
share investment control with the trustee; and equity
securities which may be acquired upon exercise of an option or
other right, or through conversion.
For interpretive guidance on this test, you should consult
counsel.
2. See footnote 1 above.
6
<PAGE> 7
contained in the brokerage confirmations or account statements
required to be submitted under paragraph 3.
5. Each trustee who is not an "interested person" of the Trust
need not make an initial or annual holdings report but shall
submit the same quarterly report as required under paragraph 4
to the administrator, but only for a transaction in a security
other than an Exempt Security where he or she knew at the time
of the transaction or, in the ordinary course of fulfilling
his or her official duties as a trustee, should have known
that during the 15-day period immediately preceding or after
the date of the transaction, such security is or was purchased
or sold, or considered for purchase or sale, by the Trust.
6. The administrator shall notify each Access Person of the Trust
who may be subject to the pre-clearance requirement or
required to make reports pursuant to this Code that such
person is subject to the pre-clearance or reporting
requirements and shall deliver a copy of this Code to each
such person.
7. The administrator shall review the initial holdings reports,
annual holdings reports, and quarterly transaction reports
received, and as appropriate compare the reports with the
pre-clearance authorization received, and report to the
Trust's Board of Trustees:
a. with respect to any transaction that appears to evidence a
possible violation of this Code; and
b. apparent violations of the reporting requirement stated
herein.
8. The Board shall consider reports made to it hereunder and
shall determine whether the policies established in Sections
IV and V of this Code of Ethics have been violated, and what
sanctions, if any, should be imposed on the violator,
including but not limited to a letter of censure, suspension
or termination of the employment of the violator, or the
unwinding of the transaction and the disgorgement of any
profits to the Trust. The Board shall review the operation of
this Code of Ethics at least once a year.
9. The Trust's investment adviser and principal underwriter shall
adopt, maintain and enforce separate codes of ethics with
respect to their personnel in compliance with Rule 17j-1 and
Rule 204-2(a)(12) of the Investment Advisers Act of 1940 or
Section 15(f) of the Securities Exchange Act of 1934, as
applicable, and shall forward to the administrator and the
Trust's counsel copies of such codes and all future amendments
and modifications thereto. The Board shall review and approve
such codes at least once a year. Furthermore, any material
changes to an investment adviser's or principal underwriter's
code will be approved by the board at the next
7
<PAGE> 8
scheduled quarterly board meeting and in no case more than six
months after such change.
10. At each quarterly board of trustees' meeting the investment
adviser and principal underwriter of the Trust shall provide a
written report to the Trust's Board of Trustees stating:
a. any reported securities transaction that occurred during
the prior quarter that may have been inconsistent with the
provisions of the codes of ethics adopted by the Trust's
investment adviser or principal underwriter; and
b. all disciplinary actions3 taken in response to such
violations.
11. At least once a year, the Trust's investment adviser and
principal underwriter shall provide to the Board a written
report which contains: (a) a summary of existing procedures
concerning personal investing by advisory persons and any
changes in the procedures during the past year; (b) an
evaluation of current compliance procedures and a report on
any recommended changes in existing restrictions or procedures
based upon the Trust's experience under this Code of Ethics,
industry practices, or developments in applicable laws and
regulations; (c) describes any issues arising under the code
of ethics or procedures since the last report, including but
not limited to, information about material violations of the
code or procedures and sanctions imposed in response to
material violations; and (d) a certification that the
procedures which have been adopted are those reasonably
necessary to prevent Access Persons from violating the
respective Codes of Ethics.
12. This Code, the codes of the investment adviser and principal
underwriter, a copy of each report by an Access Person, any
written report hereunder by the Trust's administrator,
investment adviser or principal underwriter, records of
approvals relating to Initial Public Offerings and Limited
Offerings, lists of all persons required to make reports and a
list of all persons responsible for reviewing such reports
shall be preserved with the Trust's records for the period
required by Rule 17j-1.
- ------------------------
3. Disciplinary action includes but is not limited to any action that has
a material financial effect upon the employee, such as fining,
suspending, or demoting the employee, imposing a substantial fine or
requiring the disgorgement of profits.
8
<PAGE> 9
VI. Certification.
Each Access Person will be required to certify annually that he or she
has read and understood this Code of Ethics, and will abide by them. Each Access
Person will further certify that he or she has disclosed or reported all
personal securities transactions required to be disclosed or reported under the
Code of Ethics. A form of such certification is attached hereto as Exhibit B.
The Board of Trustees of The Kent Funds
Adopted: February 24, 2000
9
<PAGE> 10
EXHIBIT A
KENT FUNDS
HOLDINGS REPORT
For the Year/Period Ended
-------------------------
(month/day/year)
[ ] Check Here if this is an Initial Holdings Report
To: , as Administrator of the Kent Funds
---------------------
As of the calendar year/period referred to above, I have a
direct or indirect beneficial ownership interest in the securities listed below
which are required to be reported pursuant to the Code of Ethics of the Trust:
Title of Number Principal
Security of Shares Amount
-------- --------- ---------
The name of any broker, dealer or bank with whom I maintain an
account in which my securities are held for my direct or indirect benefit are as
follows:
THIS REPORT (I) EXCLUDES TRANSACTIONS WITH RESPECT TO WHICH I HAD
NO DIRECT OR INDIRECT INFLUENCE OR CONTROL, (II) EXCLUDES OTHER TRANSACTIONS NOT
REQUIRED TO BE REPORTED, AND (III) IS NOT AN ADMISSION THAT I HAVE OR HAD ANY
DIRECT OR INDIRECT BENEFICIAL OWNERSHIP IN THE SECURITIES LISTED ABOVE.
Signature:
---------------------------------
Print Name:
---------------------------------
A-1
<PAGE> 11
EXHIBIT B
KENT FUNDS
Securities Transaction Report
For the Calendar Quarter Ended
------------------------------
(month/day/year)
To: , as Administrator of the Kent Funds
------------------
During the quarter referred to above, the following
transactions were effected in securities of which I had, or by reason of such
transactions acquired, direct or indirect beneficial ownership, and which are
required to be reported pursuant to the Code of Ethics of the Trust:
<TABLE>
<CAPTION>
<S><C>
Broker/
Interest Dealer or
Number of Rate and Nature of Bank
Shares or Maturity Dollar Transaction Through
Date of Principal Date (if Amount of (Purchase, Whom
Security Transaction Amount applicable) Transaction Sale, Other) Price Effected
- -------- ----------- ----------- ----------- ----------- ------------ ----- ---------
</TABLE>
For each Access Person of the Trust, other than a trustee who is not an
"interested person" (as defined in 1940 Act), provide the following information
with respect to any account established by you during the quarter referred to
above, in which securities were held during the quarter for your direct or
indirect benefit:
1. The name of the broker, dealer or bank with whom you established the account.
2. The date the account was established.
B-1
<PAGE> 12
THIS REPORT (I) EXCLUDES TRANSACTIONS WITH RESPECT TO WHICH I HAD NO DIRECT
OR INDIRECT INFLUENCE OR CONTROL, (II) EXCLUDES OTHER TRANSACTIONS NOT REQUIRED
TO BE REPORTED, AND (III) IS NOT AN ADMISSION THAT I HAVE OR HAD ANY DIRECT OR
INDIRECT BENEFICIAL OWNERSHIP IN THE SECURITIES LISTED ABOVE.
Signature:
-------------------------------
Print Name:
-------------------------------
B-2
<PAGE> 13
EXHIBIT C
KENT FUNDS
ANNUAL CERTIFICATE
Pursuant to the requirements of the Code of Ethics of the Kent
Funds, the undersigned hereby certifies as follows:
1. I have read the Trust's Code of Ethics.
2. I understand the Code of Ethics and acknowledge that
I am subject to it.
3. Since the date of the last Annual Certificate (if
any) given pursuant to the Code of Ethics, I have
reported all personal securities transactions and
provided any securities holding reports required to
be reported under the requirements of the Code of
Ethics.
Date: --------------------------------
Print Name
--------------------------------
Signature
C-1
<PAGE> 1
EXHIBIT 99.23(p)(2)
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS
FOR SECURITIES TRANSACTIONS
EFFECTIVE FEBRUARY 25, 2000
<PAGE> 2
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS
FOR
SECURITIES TRANSACTIONS
<TABLE>
<S> <C> <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> <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
a Subject Security for a Personal Account within at
least seven calendar days 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 Limited Offering, such person shall disclose that
investment when involved
8
<PAGE> 13
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;
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<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;
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<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.
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<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 February 25, 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
Print Name the Designated Compliance Person
<PAGE> 20
LYON STREET ASSET MANAGEMENT COMPANY
CODE OF ETHICS INITIAL REPORT OF SECURITIES HOLDINGS
- - THIS REPORT MUST BE RETURNED TO THE DESIGNATED COMPLIANCE PERSON NO LATER THAN
10 DAYS AFTER THE DATE OF APPLICABILITY, SET FORTH BELOW -
- --------------------------------------------------------------------------------
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 TO
NAME OF ISSUER AND DESCRIPTION OF SECURITY AMOUNT OF BONDS PER BOND THAN 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 YOUR TO
NAME OF BROKER, DEALER OR BANK ADDRESS OF BROKER, DEALER OR BANK 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
- - UNDER SEC REGULATIONS, THIS REPORT MUST BE RETURNED TO THE DESIGNATED
COMPLIANCE PERSON NO LATER THAN 10 DAYS AFTER QUARTER-END -
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 NUMBER OF INTEREST RATE NATURE OF PRICE PER NAME OF NAME OF ACCOUNT YOUR
TRANSACTION ISSUER AND SHARES OF AND MATURITY TRANSACTION SHARE OR PER BROKER/DEALER OR IN WHICH SECURITY RELATIONSHIP
DESCRIPTION STOCK OR DATE (IF (BUY, SELL, BOND BANK EFFECTING HELD (IF OTHER TO THE
OF SECURITY PRINCIPAL APPLICABLE) MAKE OR RECEIVE TRANSACTION THAN YOUR NAME ACCOUNT
AMOUNT OF A GIFT, OR OTHER SINGLY)
BONDS TRANSACTION)
===================================================================================================================================
<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
- --------------------------------------------------------------------------------
- - UNDER SEC REGULATIONS, THIS REPORT MUST BE RETURNED TO THE DESIGNATED
COMPLIANCE PERSON NO LATER THAN JANUARY 30 -
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 TO
NAME OF ISSUER AND DESCRIPTION OF SECURITY AMOUNT OF BONDS PER BOND THAN 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 YOUR TO
NAME OF BROKER, DEALER OR BANK ADDRESS OF BROKER, DEALER OR BANK 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 PRENOTIFICATION REPORTING SHORT-TERM
REQUIREMENTS TRADING
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACCESS Can't effect a purchase or sale Shall not acquire All Subject Securities Initial, N/A
PERSONS of a Subject Security for a in a Personal transactions in Personal Quarterly
Personal Account on a day during Account any Subject Accounts must be approved and Annual
which any Account has a "buy" or Securities in an by the President prior
"sell" order for the same Subject Initial Public to the transactions being
Security. Offering. executed.
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT Can't effect a purchase or sale Shall not acquire All Subject Securities Initial, Must request authority
PERSONNEL of a Subject Security for a in a Personal transactions in Personal Quarterly from the President to
Personal Account on a day during Account any Subject Accounts must be approved and Annual profit from the
which any Account has a "buy" or Securities in an by the President prior purchase and sale, or
"sell" order for the same Subject Initial Public to the transactions being sale and purchase, of
Security. Offering. executed. the same Subject
Securities within 60
calendar days.
- ------------------------------------------------------------------------------------------------------------------------------------
ASSET Can't purchase a Subject Security Shall not acquire All Subject Securities Initial, Must request authority
MANAGERS for a Personal Account within at in a Personal transactions in Personal Quarterly from the President to
least seven calendar days after Account any Subject Accounts must be approved and Annual profit from the
that Subject Security is traded Securities in an by the President prior purchase and sale, or
by an Account for which the Asset Initial Public to the transactions being sale and purchase, of
Manager is a manager. (This Offering. executed. the same Subject
restriction is not applicable to Securities within 60
index funds identified as such by calendar days.
the Board of Directors).
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------
PRIOR APPROVAL
- ------------------------------------------
<S> <C>
ACCESS N/A
PERSONS
- ------------------------------------------
INVESTMENT Express prior approval of
PERSONNEL the President is required
to either (a) acquire
securities in a Limited
Offering or (b) serve on
the board of directors of
a publicly traded company.
- ------------------------------------------
ASSET Express prior approval of
MANAGERS the President is required
to either (a) acquire
securities in a Limited
Offering or (b) serve on
the board of directors of
a publicly traded company.
- ------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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.
"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
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.23(p)(3)
BISYS FUND SERVICES
CODE OF ETHICS
I. INTRODUCTION
This Code of Ethics (the "Code") sets forth the basic policies of
ethical conduct for all directors, officers and associates (hereinafter referred
to as "Covered Persons") of the BISYS Fund Services companies listed on Exhibit
A hereto (hereinafter collectively referred to as "BISYS").
Rule 17j-1(b) under the Investment Company Act of 1940, as amended,
(the "1940 Act") makes it unlawful for BISYS companies operating as a principal
underwriter of a registered investment company (hereinafter referred to
individually as a "Fund" or collectively as the "Funds"), or any affiliated
person of such principal underwriter, in connection with the purchase or sale by
such person of a security "HELD OR TO BE ACQUIRED"(1) by any Fund:
(1) to employ any device, scheme or artifice to defraud the Fund;
(2) to make to the Fund any untrue statement of a material fact or omit to
state to the Fund a material fact necessary in order to make the
statements made, 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 upon the Fund; or
(4) to engage in any manipulative practice with respect to the Fund.
Any violation of this provision by a Covered Person shall be deemed to be
a violation of this Code.
II. RISKS OF NON-COMPLIANCE
Any violation of this Code may result in the imposition by BISYS of
sanctions against the Covered Person, or may be grounds for the immediate
termination of the Covered Person's position with BISYS. In addition, in some
cases (e.g., the misuse of inside information), a violation of federal and state
civil and criminal statutes may subject the Covered Person to fines,
imprisonment and/or monetary damages.
- -------------------------
(1)A security "HELD OR TO BE ACQUIRED" is defined under Rule 17j-l(a)(10) as any
COVERED SECURITY which, within the most recent fifteen (15) days: (A) is or has
been held by a Fund, or (B) is being or has been considered by a Fund or the
investment adviser for a Fund for purchase by the Fund. A purchase or sale
includes the writing of an option to purchase or sell and any security that is
convertible into or exchangeable for, any security that is held or to be
acquired by a Fund. "COVERED SECURITIES", as defined under Rule 17j-1(a)(4), DO
NOT INCLUDE: (i) securities issued by the United States Government; (ii)
bankers' acceptances, bank certificates of deposit, commercial paper and high
quality short-term debt instruments, including repurchase agreements; (iii)
shares of open-end investment companies; (iv) transactions which you had no
direct or indirect influence or control; (v) transactions that are not
initiated, or directed, by you; and (vi) securities acquired upon the exercise
of rights issued by the issuer to all shareholders pro rata.
<PAGE> 2
III. ETHICAL STANDARDS
The foundation of this Code consists of basic standards of conduct
including, but not limited to, the avoidance of conflicts between personal
interests and interests of BISYS or its Fund clients. To this end, Covered
Persons should understand and adhere to the following ethical standards:
(A) THE DUTY AT ALL TIMES TO PLACE THE INTERESTS OF FUND
SHAREHOLDERS FIRST;
This duty requires that all Covered Persons avoid serving
their own personal interests ahead of the interests of the
shareholders of any Fund for which BISYS serves as the
administrator, distributor, transfer agent or fund accountant.
(B) THE DUTY TO ENSURE THAT ALL PERSONAL SECURITIES TRANSACTIONS
BE CONDUCTED IN A MANNER THAT IS CONSISTENT WITH THIS CODE TO
AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY
ABUSE OF SUCH COVERED PERSON'S POSITION OF TRUST AND
RESPONSIBILITY; AND
Covered Persons should study this Code and ensure that they
understand its requirements. Covered Persons should conduct
their activities in a manner that not only achieves technical
compliance with this Code but also abides by its spirit and
principles.
(C) THE DUTY TO ENSURE THAT COVERED PERSONS DO NOT TAKE
INAPPROPRIATE ADVANTAGE OF THEIR POSITION WITH BISYS.
Covered Persons engaged in personal securities transactions
should not take inappropriate advantage of their position or
of information obtained during the course of their association
with BISYS. Covered Persons should avoid situations that might
compromise their judgment (e.g., the receipt of perquisites,
gifts of more than de minimis value or unusual investment
opportunities from persons doing or seeking to do business
with BISYS or the Funds).
A "PERSONAL SECURITIES TRANSACTION" is considered to be a
transaction in a Covered Security of which the Covered Person
is deemed to have "BENEFICIAL OWNERSHIP."(2) This includes,
but is not limited to, transactions in accounts of the Covered
Person's spouse, minor children, or other relations residing
in the Covered Person's household, or accounts in which the
Covered Person has discretionary investment control.
- -------------------------
(2)"BENEFICIAL OWNERSHIP" of a security is defined under Rule 16a-1(a)(2) of the
Securities Exchange Act of 1934, which provides that a Covered Person should
consider himself/herself the beneficial owner of securities held by his/her
spouse, his/her minor children, a relative who shares his/her home, or other
persons, directly or indirectly, if by reason of any contract, understanding,
relationship, agreement or other arrangement, he/she obtains from such
securities benefits substantially equivalent to those of ownership. He/she
should also consider himself/herself the beneficial owner of securities if
he/she can vest or revest title in himself/herself now or in the future.
2
<PAGE> 3
IV. RESTRICTIONS AND PROCEDURES
This section is divided into two (2) parts. Part A relates to
restrictions and procedures applicable to all Covered Persons in addition to the
aforementioned Rule 17j-1(b) provisions. Part B imposes additional restrictions
and reporting requirements for those Covered Persons who are listed on Exhibit B
hereto (hereinafter referred to as "ACCESS PERSONS"(3)).
A. RESTRICTIONS AND PROCEDURES FOR ALL COVERED PERSONS:
1. Prohibition Against Use of Material Inside Information
Covered Persons may have access to information about Funds
that is confidential and not available to the general public,
such as (but not limited to) information concerning securities
held in, or traded by, Fund portfolios, information concerning
certain underwritings of broker/dealers affiliated with a Fund
that may be deemed to be "MATERIAL INSIDE INFORMATION", and
information which involves a merger or acquisition that has
not been disclosed to the public.
"MATERIAL INSIDE INFORMATION" IS DEFINED AS ANY INFORMATION
ABOUT A COMPANY WHICH HAS NOT BEEN DISCLOSED TO THE GENERAL
PUBLIC AND WHICH EITHER A REASONABLE PERSON WOULD DEEM TO BE
IMPORTANT IN MAKING AN INVESTMENT DECISION OR THE
DISSEMINATION OF WHICH IS LIKELY TO IMPACT THE MARKET PRICE OF
THE COMPANY'S SECURITIES.
Covered Persons in possession of material inside information
must not trade in or recommend the purchase or sale of the
securities concerned until the information has been properly
disclosed and disseminated to the public.
2. Initial and Annual Certifications
Within ten (10) days following the commencement of their
employment or otherwise becoming subject to this Code and at
least annually following the end of the calendar year, all
Covered Persons shall be required to sign and submit to the
Code Compliance Officer a written certification, in the form
of Exhibit C hereto, affirming that he/she has read and
understands this Code to which he/she is subject. In addition,
the Covered Person must certify annually that he/she has
complied with the requirements of this Code and has disclosed
and reported all personal securities
- -------------------------
(3)An "ACCESS PERSON" is defined under Rule 17j-1(a)(1)(ii) to include any
director, officer or general partner of a principal underwriter for a Fund who,
in the ordinary course of business, makes, participates in or OBTAINS
INFORMATION regarding the purchase or sale of securities for such Fund or whose
functions or duties in the ordinary course of business relate to the making of
any recommendation to such Fund regarding the purchase or sale of securities.
This Code has included BISYS associates that are not directors, officers or
general partners of any BISYS Fund Services company but would otherwise be
deemed Access Persons for purposes of this Code.
3
<PAGE> 4
transactions that are required to be disclosed and reported by
this Code. The Code Compliance Officer will circulate the
Annual Certifications and Holdings Reports for completion
following the end of each calendar year.
B. RESTRICTIONS AND REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS:
Each Access Person must refrain from engaging in a PERSONAL
SECURITIES TRANSACTION when the Access Person knows, or in the
ordinary course of fulfilling his/her duties would have reason
to know, that at the time of the personal securities
transaction a Fund has a pending buy or sell order in the same
Covered Security.
1. Initial and Annual Holdings Reports
All Access Persons must file a completed Initial and Annual
Holdings Report, in the form of Exhibit D hereto, with the
Code Compliance Officer WITHIN TEN (10) DAYS OF COMMENCEMENT
OF THEIR EMPLOYMENT OR OTHERWISE BECOMING SUBJECT TO THIS CODE
AND THEREAFTER ON AN ANNUAL BASIS FOLLOWING THE END OF THE
CALENDAR YEAR IN ACCORDANCE WITH PROCEDURES ESTABLISHED BY THE
CODE COMPLIANCE OFFICER.
2. Transaction/New Account Reports
All Access Persons must file a completed Transaction/New
Account Report, in the form of Exhibit E hereto, with the Code
Compliance Officer WITHIN TEN (10) DAYS AFTER (I) OPENING AN
ACCOUNT WITH A BROKER, DEALER OR BANK IN WHICH COVERED
SECURITIES ARE HELD; OR (II) ENTERING INTO ANY PERSONAL
SECURITIES TRANSACTION IN WHICH AN ACCESS PERSON HAS ANY
DIRECT OR INDIRECT BENEFICIAL OWNERSHIP. Personal securities
transactions are those involving any COVERED SECURITY(1) in
which the person has, or by reason of such personal securities
transaction acquires, any direct or indirect, "BENEFICIAL
OWNERSHIP."(2)
3. Confirmations and Statements
In order to provide BISYS with information to determine
whether the provisions of this Code are being observed, each
Access Person shall direct his/her broker, dealer or bank to
supply to the Code Compliance Officer, on a timely basis,
duplicate copies of confirmations of all personal securities
transactions and copies of monthly statements for all Covered
Securities accounts. The confirmations should match the
Transaction/New Account Reports. These confirmations and
statements should be mailed, on a confidential basis, to the
Code Compliance Officer at the following address:
4
<PAGE> 5
ATTN: Code Compliance Officer
Regulatory Services
BISYS Fund Services
3435 Stelzer Road, Suite 1000
Columbus, Ohio 43219-8001
C. REVIEW OF REPORTS AND ASSESSMENT OF CODE ADEQUACY:
The Code Compliance Officer shall review and maintain the
Initial and Annual Certifications, Initial and Annual Holdings
Reports and Transaction/New Account Reports (the "Reports")
with the records of BISYS. Following receipt of the Reports,
the Code Compliance Officer shall consider in accordance with
Procedures designed to prevent Access Persons from violating
this Code:
(a) whether any personal securities transaction evidences
an apparent violation of this Code; and
(b) whether any apparent violation of the reporting
requirement has occurred pursuant to Section B above.
Upon making a determination that a violation of this Code,
including its reporting requirements, has occurred, the Code
Compliance Officer shall report such violations to the General
Counsel of BISYS Fund Services who shall determine what
sanctions, if any, should be recommended to be taken by BISYS.
The Code Compliance Officer shall prepare quarterly reports to
be presented to the Fund Boards of Directors/Trustees with
respect to any material trading violations under this Code.
This Code, a copy of all Reports referenced herein, any
reports of violations, and lists of all Covered and Access
Persons required to make Reports, shall be preserved for the
period(s) required by Rule 17j-1. BISYS shall review the
adequacy of the Code and the operation of its related
Procedures at least once a year.
V. REPORTS TO FUND BOARDS OF DIRECTORS/TRUSTEES
BISYS shall submit the following reports to the Board of
Directors/Trustees for each Fund for which it serves as principal underwriter:
A. BISYS Fund Services Code of Ethics
A copy of this Code shall be submitted to the Board of each
Fund no later than September 1, 2000 or for new Fund clients,
prior to BISYS commencing operations as principal underwriter,
for review and approval. Thereafter, all material changes to
this Code shall be submitted to each Board for review and
approval not later than six (6) months following the date of
implementation of such material changes.
5
<PAGE> 6
B. Annual Certification of Adequacy
The Code Compliance Officer shall annually prepare a written
report to be presented to the Board of each Fund detailing the
following:
1. Any issues arising under this Code or its related
Procedures since the preceding report, including
information about material violations of this Code or
its related Procedures and sanctions imposed in
response to such material violations; and
2. A Certification to Fund Boards, in the form of
Exhibit F hereto, that BISYS has adopted Procedures
designed to be reasonably necessary to prevent Access
Persons from violating this Code.
6
<PAGE> 7
BISYS FUND SERVICES
CODE OF ETHICS
EXHIBIT A
The following companies are subject to the BISYS Fund Services Code of
Ethics(1):
Barr Rosenberg Funds Distributor, Inc.
BISYS Fund Services, Inc.
BISYS Fund Services Limited Partnership
BISYS Fund Services Ohio, Inc.
BNY Hamilton Distributors, Inc.
CFD Fund Distributors, Inc.
Centura Funds Distributor, Inc.
Concord Financial Group, Inc.
Kent Funds Distributors, Inc.
Evergreen Distributor, Inc.
IBJ Funds Distributor, Inc..
Mentor Distributors, LLC
The One Group Services Company
Performance Funds Distributor, Inc.
VISTA Fund Distributors, Inc.
- -------------------------
(1)The companies listed on this Exhibit A may be amended from time to time, as
required.
AS OF JANUARY 11, 2000
A-1
<PAGE> 8
BISYS FUND SERVICES
CODE OF ETHICS
EXHIBIT B
The following Covered Persons are considered ACCESS PERSONS under the BISYS Fund
Services Code of Ethics(1):
Client Services - all associates
CFD Fund Distributors, Inc. - all directors, officers and employees
Directors/Officers of each BISYS entity listed on Exhibit A that met the
statutory definition of Access Person under Rule 17j-1
Financial Services (Fund Accounting and Financial Administration) - all
associates
Fund Administration - all associates
Information Systems - all associates
Legal Services - all paralegals and attorneys
The One Group Services Company - all directors, officers and employees
Tax Services - all associates
VISTA Fund Distributors, Inc.- all officers, directors and employees
All wholesalers and telewholesalers employed by the BISYS companies listed on
Exhibit A
- -------------------------
(1)The Access Persons listed on this Exhibit B may be amended from time to time,
as required.
AS OF JANUARY 11, 2000
B-1
<PAGE> 9
BISYS FUND SERVICES
CODE OF ETHICS
EXHIBIT C
INITIAL AND ANNUAL CERTIFICATIONS
I hereby certify that I have read and thoroughly understand and agree
to abide by the conditions set forth in the BISYS Fund Services Code of Ethics.
I further certify that, during the time of my affiliation with BISYS, I will
comply or have complied with the requirements of this Code and will
disclose/report or have disclosed/reported all personal securities transactions
required to be disclosed/reported by the Code.
If I am deemed to be an Access Person under this Code, I certify that I
will comply or have complied with the Transaction/New Account Report
requirements as detailed in the Code and submit herewith my Initial and Annual
Holdings Report. I further certify that I will direct or have directed each
broker, dealer or bank with whom I have an account or accounts to send to the
BISYS Code Compliance Officer duplicate copies of all confirmations and
statements relating to my account(s).
- --------------------------------
Print or Type Name
- ---------------------------------
Signature
- ---------------------------------
Date
C-1
<PAGE> 10
BISYS FUND SERVICES
CODE OF ETHICS
EXHIBIT D
INITIAL AND ANNUAL HOLDINGS REPORT
<TABLE>
<CAPTION>
NAME AND ADDRESS OF ACCOUNT NUMBER(S) IF NEW ACCOUNT,
BROKER, DEALER OR BANK(S) DATE ESTABLISHED
<S> <C> <C>
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
- -------------------------------------- ------------------ ------------------
</TABLE>
ATTACHED ARE THE COVERED SECURITIES BENEFICIALLY OWNED BY ME AS OF THE DATE OF
THIS INITIAL AND ANNUAL HOLDINGS REPORT.
- --------------------------------
Print or Type Name
- ---------------------------------
Signature
- ---------------------------------
Date
D-1
<PAGE> 11
SECURITY NUMBER OF PRINCIPAL AMOUNT
DESCRIPTION COVERED
(SYMBOL/CUSIP) SECURITIES/
SHARES HELD
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
- ------------------ ---------------- ----------------
D-2
<PAGE> 12
BISYS FUND SERVICES CODE OF ETHICS - TRANSACTION/NEW ACCOUNT REPORT
EXHIBIT E
I hereby certify that the Covered Securities described below (or
attached hereto in the annual statement from my broker, dealer or bank) were
purchased or sold on the date(s) indicated. Such Covered Securities were
purchased or sold in reliance upon public information lawfully obtained by me
through independent research. I have also listed below the account number(s) for
any new account(s) opened in which Covered Securities are held. My decision to
enter into any personal securities transaction(s) was not based upon information
obtained as a result of my affiliation with BISYS.
COVERED SECURITIES PURCHASED/ACQUIRED OR SOLD/DISPOSED
<TABLE>
<CAPTION>
Security Trade Number of Per Share Principal Interest Maturity Name of Broker, Dealer Bought (B) or
Description Date Shares Price Amount Rate Rate or Bank (and Account Sold (S)
(Symbol/CUSIP) (If (If Number and Date
Applicable) Applicable) Established, If New)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
- -------- ----- ------- ------ -------- ------- -------- ----------------------- ------------
</TABLE>
This Transaction/New Account Report is not an admission that you have
or had any direct or indirect beneficial ownership in the Covered Securities
listed above.
- --------------------------------
Print or Type Name
- -------------------------------- --------------------------------------
Signature Date
E-1
<PAGE> 13
BISYS FUND SERVICES
CODE OF ETHICS
EXHIBIT F
CERTIFICATION TO FUND BOARDS
BISYS Fund Services ("BISYS") requires that all directors, officers and
associates of BISYS ("Covered Persons") certify that they have read and
thoroughly understand and agree to abide by the conditions set forth in the
BISYS Code of Ethics (the "Code"). If such Covered Persons are deemed to be
Access Persons under the Code, they are required to submit Initial and Annual
Holdings Reports, as well as Transaction/New Account Reports, to the Code
Compliance Officer, listing all personal securities transactions in Covered
Securities for all such accounts in which the Access Person has any direct or
indirect beneficial interest within ten (10) days of entering into any such
transactions. Access Persons must direct their broker, dealer or bank(s) to send
duplicate trade confirmations and statements of all such personal securities
transactions directly to the Code Compliance Officer who compares them to the
required Transaction/New Account Reports. Additionally, the Code Compliance
Officer undertakes a quarterly review of all Access Person's personal securities
transactions against the Fund's Investment Adviser for all such Funds that BISYS
serves as principal underwriter.
The undersigned hereby certifies that BISYS has adopted Procedures designed to
be reasonably necessary to prevent Access Persons from violating BISYS' Code and
the required provisions of Rule 17j-1 under the Investment Company Act of 1940,
as amended.
- -------------------------------- ------------------
Kathleen McGinnis Date
Code Compliance Officer
BISYS Fund Services
F-1
