<PAGE> 1
As filed with the Securities and Exchange Commission on June 27, 2000
Securities Act File No. 33-8398
Investment Company Act File No. 811-4824
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
------
Post-Effective Amendment No. 34 and/or [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 35
(Check appropriate box or boxes)
THE KENT FUNDS
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(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):
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
[KENT FUNDS LOGO]
PROSPECTUS - JUNE 27, 2000
KENT ADVISOR
-- Science & Technology Fund
-- Canterbury Fund
-- Cascade Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<C> <C> <S>
Carefully review this important
section, which summarizes each Fund's
investments, risks and fees.
RISK/RETURN SUMMARY AND FUND EXPENSES
2 Overview
3 Science and Technology Fund
4 Canterbury Fund
5 Cascade Fund
6 Principal Risks of Investing in the Funds
8 Performance
9 Fees and Expenses
ADDITIONAL INFORMATION
10 Investment Policies and Practices
Review this section for details on the
people and organizations who oversee
the Funds.
FUND MANAGEMENT
13 Investment Adviser
13 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
14 Pricing of Fund Shares
15 Purchasing Your Shares
17 Adding to Your Account
18 Selling Your Shares
19 General Policies on Selling Shares
20 Exchanging Your Shares
21 Dividends and Distributions
21 Taxation
22 FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Funds
</TABLE>
1
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RISK/RETURN SUMMARY AND FUND EXPENSES
OVERVIEW
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This prospectus describes the Advisor Shares of the following Kent Funds (the
"Kent Advisor Funds" or the "Funds").
SCIENCE AND TECHNOLOGY FUND
CANTERBURY FUND
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").
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
FOREIGN
MARKET SELECTION INVESTMENT CONCENTRATION
RISK RISK RISK RISK
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Science and Technology Fund X X X X
-------------------------------------------------------------------------------------------------------------------
Canterbury Fund X X X
-------------------------------------------------------------------------------------------------------------------
Cascade Fund X X X
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</TABLE>
A complete description of these and other risks can be found in the section
entitled "Principal Risks."
The Kent Science and Technology Fund has two classes of shares: Advisor Shares
and Institutional Shares. The Kent Canterbury Fund and the Kent Cascade Fund
each have one class of shares: Advisor Shares. Advisor Shares of the Funds are
sold primarily through investment representatives. Institutional Shares of the
Kent Science and Technology Fund are sold primarily to financial or other
institutions. This prospectus only relates to the Advisor Shares of each Fund.
The Institutional Shares of the Kent Science and Technology Fund are offered in
a separate prospectus.
2
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RISK/RETURN SUMMARY AND FUND EXPENSES
SCIENCE AND TECHNOLOGY FUND
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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
that are engaged in the innovation, development
or advancement 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 a company's
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 Lyon Street
believes will significantly 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.
3
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RISK/RETURN SUMMARY AND FUND EXPENSES
CANTERBURY FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in equity securities of U.S.
companies with at least $1 billion in market
capitalization at the time of purchase. 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.
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.
4
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RISK/RETURN SUMMARY AND FUND EXPENSES
CASCADE FUND
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INVESTMENT OBJECTIVE Long-term capital appreciation.
PRINCIPAL INVESTMENT
STRATEGIES The Fund normally invests at least 65% of its
total assets in the equity securities of a
diverse group of companies whose market
capitalizations are less than $2 billion at the
time of purchase. The Fund intends to invest at
least 65% of its total assets in equity
securities of companies that Lyon Street
believes have above-average potential for growth
in revenues, earnings or assets.
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.
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.
5
<PAGE> 8
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. Because the Science and
Technology Fund's investments are concentrated
in issuers conducting business in the technology
and science market sectors, the Fund is more
sensitive to legislative or regulatory changes,
adverse market conditions and/or increased
competition affecting those market sectors.
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.
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.
CAPITALIZATION RISK. While stocks of smaller
companies can provide greater growth potential
and potentially higher returns, they carry
higher risks than those of larger companies.
They may trade infrequently or in lower volumes,
making it difficult for a Fund to sell its
shares at a desirable price. Smaller companies
may be more sensitive to changes in the economy
overall. 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
6
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RISK/RETURN SUMMARY AND FUND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUNDS, CONTINUED
--------------------------------------------------------------------------------
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.
INVESTMENT STYLE RISK. Each of the Funds will
invest primarily in growth stocks. 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 Canterbury Fund and the Cascade Fund may
invest in technology stocks. The risks
associated with investing in technology stocks
are described under "Concentration Risk."
FOREIGN INVESTMENT RISK. 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.
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.
For additional information on foreign
securities, see "Additional Information -
Investment Policies and Practices."
7
<PAGE> 10
RISK/RETURN SUMMARY AND FUND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUNDS, CONTINUED
--------------------------------------------------------------------------------
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.
8
<PAGE> 11
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> <C>
SHAREHOLDER FEES
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 5.75%(1) 5.75%(1) 5.75%(1)
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 0.25% 0.25% 0.25%
Other Expenses(3) 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.
3 Other Expenses are estimated based on expenses expected to be incurred
during each Fund's first fiscal year.
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 AND
TECHNOLOGY FUND CANTERBURY FUND CASCADE FUND
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE YEAR AFTER PURCHASE $ 736 $ 726 $ 726
THREE YEARS AFTER PURCHASE $1,074 $1,042 $1,042
</TABLE>
9
<PAGE> 12
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
Lyon Street may use in the day-to-day management of the Fund's portfolios.
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.
The Funds will invest primarily in growth
stocks, but may also invest in value stocks.
Value stocks are those that appear to be
underpriced based upon valuation measures, such
as lower price-to-earnings ratios and
price-to-book ratios. Value stocks present the
risk that they may not perform as well as other
types of stocks, such as growth stocks.
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
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
10
<PAGE> 13
ADDITIONAL INFORMATION
INVESTMENT POLICIES AND PRACTICES, CONTINUED
--------------------------------------------------------------------------------
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, these
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 transactions involve the risk
that anticipated currency
11
<PAGE> 14
ADDITIONAL INFORMATION
INVESTMENT POLICIES AND PRACTICES, CONTINUED
--------------------------------------------------------------------------------
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, the Funds may
purchase and sell securities 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.
12
<PAGE> 15
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>
------------------------------------------------------------------------------------------------------------------------------------
MANAGER EXPERIENCE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
JOSEPH T. KEATING, President and Chief Investment Officer at - Mr. Keating is responsible for developing and implementing
Lyon Street 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 at Lyon Street - Mr. Meyers has over twenty-four years of portfolio
management experience, including fifteen years with Old Kent
and Lyon Street.
- Mr. Meyers is also the portfolio manager of the Kent
Growth and Income Fund and the Kent Large Company Growth
Fund and co-portfolio manager of the Kent International
Growth Fund.
------------------------------------------------------------------------------------------------------------------------------------
ROBERT CUMMISFORD, CFA, Director of Small Company Stock - Mr. Cummisford has over eight years of portfolio
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 of the Kent
Small Company Growth Fund.
------------------------------------------------------------------------------------------------------------------------------------
DAVID C. EDER, Director of Structured Equity Management at - Mr. Eder has over seven years of portfolio management
Lyon Street experience with Old Kent and Lyon Street.
- Mr. Eder is also the portfolio manager of the Kent
International Growth Fund and a manager of the Kent Index
Equity Fund.
------------------------------------------------------------------------------------------------------------------------------------
DANIEL SKUBIZ, Portfolio Manager - Prior to joining Lyon Street, Mr. Skubiz was a Vice
President with TradeStreet Investment Associates, Inc., a
wholly-owned subsidiary of Bank of America.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 advisory team has had
day-to-day responsibility for managing the Fund since the Fund's inception.
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.
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.
13
<PAGE> 16
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
--------------------------------------------------------------------------------
HOW NAV IS CALCULATED
The net asset value ("NAV") of a
share of the Advisor class of
each Fund is calculated by
adding the total value of the
Fund's investments and other
assets attributable to the
Advisor class, subtracting the
liabilities of the Fund
attributable to the Advisor
class and then dividing that
figure by the number of
outstanding shares of the Fund
attributable to the Advisor
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.
14
<PAGE> 17
SHAREHOLDER INFORMATION
PURCHASING YOUR SHARES
--------------------------------------------------------------------------------
You may purchase the Kent Advisor Funds through any investment representative or
financial institution authorized to sell the Funds' Advisor 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.
To purchase any of the Kent Advisor Funds by check, make your check payable to
"Kent Advisor Funds" and include the name of the Fund(s) you wish to purchase on
the check. Mail the check, along with your completed application, to: Kent
Advisor Funds, P.O. Box 182201, Columbus, OH 43218-2201.
- 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.
- Kent Advisor Funds may be purchased through IRAs and Rollover IRAs, which are
available through the Funds.
<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>
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 Concession as a
----------------------------------- Percentage of
Investment Offering Price Net Asset Value Offering Price*
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than $25,000 5.75% 6.10% 5.00%
---------------------------------------------------------------------------------------------------------------------
$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 concession may change periodically.
15
<PAGE> 18
SHAREHOLDER INFORMATION
PURCHASING YOUR SHARES, CONTINUED
--------------------------------------------------------------------------------
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 another Kent Advisor Fund and reinvested dividend shares are not
subject to an initial sales charge. The Trust's distributor may pay a dealer
concession of up to 1% 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 of Kent Advisor Funds to determine your sales charge.
LETTER OF INTENT. You may establish a Letter of Intent (LOI) that allows you to
combine the purchases you intend to make over a 13-month period in any Kent
Advisor Fund. At 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 LOI 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.
16
<PAGE> 19
SHAREHOLDER INFORMATION
ADDING TO YOUR ACCOUNT
--------------------------------------------------------------------------------
Subject to the minimum described under "Purchasing Your Shares," you can make
additional investments of any amount at any time.
THROUGH YOUR DEALER
If you purchased the Funds through an investment representative or financial
institution, you may make additional investments through the investment
representative or financial institution. Your investment representative or
financial institution may have transaction minimums and/or transaction times
which will affect your investment.
BY MAIL
Make your check payable to "Kent Advisor Funds" and include your account number
and the name of the appropriate Fund(s) on the check. Mail the check to Kent
Advisor Funds, along with the completed investment slip attached to your account
statement.
17
<PAGE> 20
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 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.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
You can redeem up to $50,000 worth of shares by calling the Kent Advisor Funds.
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
Complete a redemption form, available from your investment representative or
financial institution, 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
Mail to: Kent Advisor Funds, P.O. Box 182201, Columbus, OH 43218-2201
If you have a stock certificate, you must sign on the back and send it to the
Kent Advisor Funds.*
*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.
18
<PAGE> 21
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
--------------------------------------------------------------------------------
WHEN WRITTEN REDEMPTION REQUESTS ARE REQUIRED
You must request redemptions in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Redemption requests requiring a signature guarantee, which include each of
the following:
- Redemptions over $50,000
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account with
a different registration
Signature guarantees can be obtained from a U.S. stock exchange member, a U.S.
commercial bank or trust company, or any other financial institution that is a
member of the STAMP (Securities Transfer Agents Medallion Program), MSP (New
York Stock Exchange Medallion Signature Program) or SEMP (Stock Exchanges
Medallion Program) or is approved by the Kent Funds.
VERIFYING TELEPHONE REDEMPTIONS
The Funds make every effort to ensure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, the Funds will not be liable for
any fraudulent telephone orders.
REDEMPTIONS WITHIN 10 DAYS OF INVESTMENT
When you have made your investment by check, you cannot redeem any portion of it
until the 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 "Selling Shares--By Mail".
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.
19
<PAGE> 22
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
--------------------------------------------------------------------------------
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to Kent Advisor Funds.
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, and if this is an
existing account, the account number
You can exchange your shares of one Kent Advisor Fund for shares of another Kent
Advisor Fund. No sales charge or transaction fees are charged for exchanges.
IMPORTANT INFORMATION ABOUT 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 Shares" for important information about
telephone transactions.
To prevent disruption in the management of the Funds due to market timing
strategies, the Funds may limit exchange activity 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.
The registration and tax identification numbers of the two accounts must be
identical. If you don't have an account with the 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 fund may
be sold.
If shares of a Fund are purchased by check, those shares cannot be exchanged
until your check has cleared. This could take up to 15 days.
All exchanges are based on the relative net asset value next determined after
the exchange request is received in good order by the Funds.
20
<PAGE> 23
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 Advisor Shares have higher distribution and service fees than
Institutional Shares, the dividends paid to shareholders owning Advisor 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.)
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.
21
<PAGE> 24
FINANCIAL HIGHLIGHTS
No financial highlights have been included because the Funds had not commenced
operations as of the date of this prospectus.
22
<PAGE> 25
[KENT FUNDS LOGO]
THE FOLLOWING ADDITIONAL INFORMATION IS AVAILABLE TO YOU UPON REQUEST AND
WITHOUT CHARGE:
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Statement of Additional Information (SAI): The SAI provides more detailed information about the Funds,
including their operations and investment policies. It is
incorporated by reference and is legally considered to be a
part of this prospectus.
</TABLE>
You can get a free copy of the SAI, request other information and discuss your
questions about the Funds by contacting an investment representative or
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
1-800-896-KENT (5368).
Information about the Funds, including the SAI, is available:
- For review and copying at the Public Reference Room of the Securities and
Exchange Commission in Washington, D.C. 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. 20549-0102.
Investment Company Act File No. 811-4824.
(KKF-0393 6/00)
<PAGE> 26
[KENT FUNDS LOGO]
KENT SCIENCE AND TECHNOLOGY FUND
Institutional Shares
PROSPECTUS
JUNE 27, 2000
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SHARES DESCRIBED IN THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOT FDIC INSURED - MAY LOSE VALUE - NO BANK GUARANTEE
<PAGE> 27
TABLE OF CONTENTS
<TABLE>
<C> <C> <S>
Carefully review this important
section, which summarizes the Fund's
investments, risks and fees.
RISK/RETURN SUMMARY AND FUND EXPENSES
2 Overview
3 Kent Science and Technology Fund
4 Principal Risks of Investing in the Fund
6 Performance
7 Fees and Expenses
ADDITIONAL INFORMATION
8 Investment Policies and Practices
Review this section for details on the
people and organizations who oversee
the Fund.
FUND MANAGEMENT
11 Investment Adviser
11 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
12 Pricing of Fund Shares
13 Purchasing Your Shares
14 Selling Your Shares
15 General Policies on Selling Shares
16 Exchanging Your Shares
17 Dividends and Distributions
17 Taxation
18 FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Fund
</TABLE>
1
<PAGE> 28
RISK/RETURN SUMMARY AND FUND EXPENSES
OVERVIEW
--------------------------------------------------------------------------------
This prospectus describes the Institutional Shares of the Kent Science and
Technology Fund (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").
PRINCIPAL RISKS OF THE FUND
<TABLE>
<CAPTION>
----------------------------------------------------------
FOREIGN
MARKET SELECTION INVESTMENT CONCENTRATION
RISK RISK RISK RISK
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
X X X X
----------------------------------------------------------
</TABLE>
A complete description of these and other risks can be found in the section
entitled "Principal Risks."
The Kent Science and Technology Fund has two classes of shares: Advisor Shares
and Institutional Shares. The Institutional Shares of the Fund are sold
primarily to financial or other institutions. The Advisor Shares of the Fund are
sold primarily through investment representatives. This prospectus only relates
to the Institutional Shares of the Kent Science and Technology Fund. The Advisor
Shares of the Kent Science and Technology Fund are offered in a separate
prospectus.
2
<PAGE> 29
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
that are engaged in the innovation, development
or advancement 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 a company's
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 Lyon Street
believes will significantly 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.
3
<PAGE> 30
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 Because the Fund's investments are concentrated
in issuers conducting business in the technology
and science market sectors, the Fund is more
sensitive to legislative or regulatory changes,
adverse market conditions and/or increased
competition affecting those market sectors.
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.
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.
CAPITALIZATION RISK While stocks of smaller companies can provide
greater growth potential and potentially higher
returns, they carry higher risks than those of
larger companies. They may trade infrequently or
in lower volumes, making it difficult for 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 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.
INVESTMENT STYLE RISK The Fund will invest primarily in growth stocks.
Growth stocks offer strong revenue and earnings
potential and accompanying capital growth, with
less dividend income than value stocks. Growth
stocks
4
<PAGE> 31
RISK/RETURN SUMMARY AND FUND EXPENSES
PRINCIPAL RISKS OF INVESTING IN THE FUND, CONTINUED
--------------------------------------------------------------------------------
present the risk that they may not perform as
well as other types of stocks, such as value
stocks.
FOREIGN INVESTMENT RISK 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.
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 the 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.
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
- 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
5
<PAGE> 32
RISK/RETURN SUMMARY AND FUND EXPENSES
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.
6
<PAGE> 33
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> <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(1) 0.73%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.43%
=====
</TABLE>
(1) Other expenses are estimated based on expenses expected to be incurred
during the Fund's first fiscal year.
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:
<TABLE>
<S> <C> <C>
ONE YEAR AFTER PURCHASE $146
THREE YEARS AFTER PURCHASE $452
</TABLE>
7
<PAGE> 34
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
Lyon Street may use in the day-to-day management of the Fund's portfolio.
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.
The Fund will invest primarily in growth stocks,
but may also invest in value stocks. Value
stocks are those that appear to be underpriced
based upon valuation measures, such as lower
price-to-earnings ratios and price-to-book
ratios. Value stocks present the risk that they
may not perform as well as other types of
stocks, such as growth stocks.
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 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
8
<PAGE> 35
ADDITIONAL INFORMATION
INVESTMENT POLICIES AND PRACTICES, CONTINUED
--------------------------------------------------------------------------------
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 the Fund may not be successful.
PRIVATE PLACEMENTS. These securities are sold
directly to a small number of investors, usually
institutions. Unlike public offerings, these
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.
9
<PAGE> 36
ADDITIONAL INFORMATION
INVESTMENT POLICIES AND PRACTICES, CONTINUED
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER. The Fund will not generally
trade in securities for short-term profits, but,
when circumstances warrant, the Fund may
purchase and sell securities 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.
10
<PAGE> 37
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> <C> <C>
JOSEPH T. KEATING, President and Chief Investment Officer at - Mr. Keating is responsible for developing and implementing
Lyon Street 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 Equity Management at - Mr. Eder has over seven years of portfolio management
Lyon Street experience with Old Kent and Lyon Street.
- Mr. Eder is also the portfolio manager of the Kent
International Growth Fund and a manager of the Kent Index
Equity Fund.
------------------------------------------------------------------------------------------------------------------------------------
ALLAN J. MEYERS, CFA, Chief Equity Officer at Lyon Street - Mr. Meyers has over twenty-four years of portfolio
management experience, including fifteen years with Old
Kent and Lyon Street.
- Mr. Meyers is also the portfolio manager of the Kent
Growth and Income Fund and the Kent Large Company Growth
Fund and co-portfolio manager of the Kent International
Growth Fund.
------------------------------------------------------------------------------------------------------------------------------------
ROBERT CUMMISFORD, CFA, Director of Small Company Stock - Mr. Cummisford has over eight years of portfolio
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 of the Kent
Small Company Growth Fund.
------------------------------------------------------------------------------------------------------------------------------------
DANIEL SKUBIZ, Portfolio Manager - Prior to joining Lyon Street, Mr. Skubiz was a Vice
President with TradeStreet Investment Associates, Inc., a
wholly-owned subsidiary of Bank of America.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Statement of Additional Information has more detailed information about Lyon
Street and the Fund's other service providers.
11
<PAGE> 38
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 Fund attributable to the
Institutional 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 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.
12
<PAGE> 39
SHAREHOLDER INFORMATION
PURCHASING YOUR SHARES
--------------------------------------------------------------------------------
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 $1,000,000.
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.
--------------------------------------------------------------------------------
13
<PAGE> 40
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.
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------------
BY TELEPHONE You can redeem up to $50,000 worth of shares by calling
(unless you have declined telephone 1-800-633-KENT (5368). If the amount redeemed is less than
sales privileges) $2,500, a check for the proceeds will be mailed to you. If
the amount redeemed is equal to or greater than $2,500, the
proceeds will be mailed or sent by wire or electronic funds
transfer to the bank listed on your account application.
---------------------------------------------------------------------------------------------------------
BY MAIL 1. Call 1-800-633-KENT (5368) to request redemption forms or
(See "General Policies on Selling write a letter of instruction indicating:
Shares - When Written Redemption - your Fund and your account number
Requests are Required" below.) - amount you wish to redeem
- address where your check should be sent
- 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 Send to:
(See instruction 1 above)
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.
</TABLE>
14
<PAGE> 41
SHAREHOLDER INFORMATION
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
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 "Selling Shares--By Mail."
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.
15
<PAGE> 42
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
--------------------------------------------------------------------------------
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by sending a written request to: Kent Funds P.O. Box
182201 Columbus, Ohio 43218-2201, or by calling 1-800-633-KENT (5368).
Please provide the following information:
- Your name an 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 and the account
number
- The name of the fund into which the exchange is being made, and if this is
an existing account, the account number
You can exchange your Institutional Shares of one Kent Fund
for Institutional Shares of another Kent Fund.
You must meet the minimum investment requirement for the fund
into which you are exchanging. Exchanges from one fund to
another are taxable.
--------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT EXCHANGES
See "General Policies on Selling Shares" for important information about
telephone transactions.
To prevent disruption in the management of the Fund due to market timing
strategies, the Fund may limit exchange activity to five exchanges within a
year, or no more than three exchanges in a calendar quarter. The Fund may reject
any exchanges or change or terminate rights to exchange shares.
The exchange privilege is available only in states where shares of the 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 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.
If shares of the Fund are purchased by check, those shares cannot be exchanged
until your check has cleared. This could take up to 15 days.
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 request is received in good order by the Fund.
16
<PAGE> 43
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 Advisor Shares of the Fund have
higher distribution and service fees than Institutional Shares, the dividends
paid to shareholders owning Advisor 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.
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.
17
<PAGE> 44
FINANCIAL HIGHLIGHTS
No financial highlights have been included because the Fund had not commenced
operations as of the date of this prospectus.
18
<PAGE> 45
[KENT FUNDS LOGO]
THE FOLLOWING ADDITIONAL INFORMATION IS AVAILABLE TO YOU UPON REQUEST AND
WITHOUT CHARGE:
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
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.
</TABLE>
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.
TELEPHONE: 1-800-633-KENT (5368)
Information about the Fund, including the SAI, is available:
- For review and copying at the Public Reference Room of the Securities and
Exchange Commission in Washington, D.C. 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. 20549-0102.
Investment Company Act File No. 811-4824
(KKF-0392 6/00)
<PAGE> 46
THE KENT FUNDS
STATEMENT OF ADDITIONAL INFORMATION
SCIENCE AND TECHNOLOGY FUND
CANTERBURY FUND
CASCADE FUND
June 27, 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 June 27, 2000, as amended or supplemented from time to time. Copies of
the prospectus may be obtained by writing to Kent Funds, P.O. Box 182201,
Columbus, Ohio 43218-2201 or by calling 1-800-896-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> 47
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.........................................................................................20
Valuation Of Securities.........................................................................................22
Trustees And Officers...........................................................................................23
Investment Adviser..............................................................................................25
Administrator...................................................................................................26
Distributor.....................................................................................................28
Transfer Agent..................................................................................................28
Custodian, Auditors And Counsel.................................................................................28
Distribution Plan...............................................................................................29
Additional Purchase And Redemption Information..................................................................30
Dividends And Taxes.............................................................................................34
Declaration Of Trust............................................................................................34
Standardized Total Return Quotations............................................................................35
Advertising Information.........................................................................................37
Financial Statements............................................................................................38
Additional Information..........................................................................................38
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"): Science and Technology Fund, Canterbury Fund, and
Cascade Fund. The Science and Technology Fund has two classes of shares: Advisor
Shares and Institutional Shares. The Canterbury Fund and the Cascade Fund each
have one class of shares: Advisor Shares. This SAI relates to both the Advisor
Shares and Institutional Shares of the Science and Technology Fund and the
Advisor Shares of the Canterbury Fund and the 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
Institutional Shares of the 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").
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 Lyon Street may
use in the day-to-day management of the Funds' portfolios. 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 Funds' 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 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
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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.
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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 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 believes that such obligations do not constitute
senior securities as defined in the Investment Company Act of 1940, as amended
("1940 Act") and, accordingly, will not treat them as being subject to the
Funds' 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.
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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 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, transactions 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 the 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
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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 Science and Technology Fund may invest without limit in
the securities of foreign issuers. The Canterbury Fund and the 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 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.
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Dividends and interest payable on a Fund's foreign portfolio securities may
be subject to foreign withholding taxes. To the extent such taxes are not offset
by credits or deductions allowed to investors under U.S. federal income tax law,
they may reduce the net return to the shareholders.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a U.S. company. Volume
and liquidity in most foreign securities markets are less than in the United
States and securities of many foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of foreign securities exchanges, brokers, dealers and
listed and unlisted companies than in the United States. For example, there may
be no comparable provisions under certain foreign laws to insider trading and
similar investor protection securities laws that apply with respect to
securities transactions consummated in the United States. Mail service between
the United States and foreign countries may be slower or less reliable than
within the United States, thus increasing the risk of delayed settlement of
portfolio transactions or loss of certificates for portfolio securities.
Foreign markets also have different clearance and settlement procedures,
and in certain markets there have been times when settlements have been unable
to keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when some of a Fund's assets are uninvested and no return is earned on
such assets. The inability of a Fund to make intended security purchases due to
settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund due to subsequent declines in
value of the portfolio securities or, if the Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments which could affect a Fund's investments in those
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
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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.
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.
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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 avoid the transaction costs
associated with buying and currency-hedging its securities. 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
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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 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.
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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 since the last dividend
payment by the UIT, net of expenses and liabilities, and (c) a cash payment or
credit ("Balancing Amount") designed to equalize the net asset value of the S&P
Index and the net asset value of a Portfolio Deposit.
SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the Fund must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the Fund
will receive Index Securities and cash identical to the Portfolio Deposit
required of an investor wishing to purchase a Creation Unit that day.
The price of SPDRs is derived from and based upon the securities held by
the UIT. Accordingly, the level of risk involved in the purchase or sale of a
SPDR is similar to the risk involved in the purchase or sale of traditional
common stock, with the exception that the pricing mechanism for SPDRs is based
on a basked to stocks. Disruption in the markets for the securities underlying
SPDRs purchased or sold by the Funds could result in losses on SPDRs.
The Funds may also purchase shares of investment companies investing
primarily in foreign securities, including "country funds." Country funds have
portfolios consisting primarily of securities of issuers located in one foreign
country or region. The Funds may also invest in World Equity Benchmark Shares
("WEBS") and similar securities that invest in securities included in foreign
securities indices.
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
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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
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
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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 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
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(ii) greater than the exercise price of the call written provided the difference
is maintained by the Fund in liquid assets in a segregated account with its
custodian. The Funds will write put options only if they are secured by liquid
assets maintained in a segregated account by the Funds' custodian in an amount
not less than the exercise price of the option at all times during the option
period.
A Fund's obligation to sell an instrument subject to a covered call option
written by it, or to purchase an instrument subject to a secured put option
written by it, may be terminated prior to the expiration date of the option by
the Fund's execution of a closing purchase transaction, which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
instrument, exercise price and expiration date) as the option previously
written. Such a purchase does not result in the ownership of an option. A
closing purchase transaction will ordinarily be effected to realize a profit on
an outstanding option, to prevent an underlying instrument from being called, to
permit the sale of the underlying instrument or to permit the writing of a new
option containing different terms on such underlying instrument. The cost of
such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Fund will have
incurred a loss in the transaction. There is no assurance that a liquid
secondary market will exist for any particular option. An option writer, unable
to effect a closing purchase transaction, will not be able to sell the
underlying instrument (in the case of a covered call option) or liquidate the
segregated account (in the case of a secured put option) until the option
expires or the optioned instrument or currency is delivered upon exercise with
the result that the writer in such circumstances will be subject to the risk of
market decline or appreciation in the instrument during such period.
When a Fund purchases an option, the premium paid by it is recorded as an
asset of the Fund. When a Fund writes an option, an amount equal to the net
premium (the premium less the commission) received by a Fund is included in the
liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of this asset or deferred credit will be
subsequently marked-to-market to reflect the current value of the option
purchased or written. The current value of the traded option is the last sale
price or, in the absence of a sale, the current bid price. If an option
purchased by a Fund expires unexercised, the Fund realizes a loss equal to the
premium paid. If a Fund enters into a closing sale transaction on an option
purchased by it, the Fund will realize a gain if the premium received by the
Fund on the closing transaction is more than the premium paid to purchase the
option, or a loss if it is less. If an option written by a Fund expires on the
stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. If an option written
by a Fund is exercised, the proceeds of the sale will be increased by the net
premium originally received and the Fund will realize a gain or loss.
There are several risks associated with transactions in options. For
example, there are significant differences between the securities, currency and
options markets that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its objectives. In addition,
a liquid secondary market for particular options, whether traded
over-the-counter or on an exchange may be absent for reasons which include the
following: there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on
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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 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.
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Lyon Street may determine securities eligible for resale pursuant to Rule
144A of the Securities Act of 1933 or commercial paper issued in reliance upon
the exemption from registration contained in Section 4(2) of that Act to be
liquid in accordance with guidelines established by the Board of Trustees. In
reaching liquidity decisions, Lyon Street will consider such factors as: (a) the
frequency of trades and quotes for the security; (b) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (c) the willingness of dealers to undertake to make a market in the
security; and (d) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer). The use of Rule 144A and
Section 4(2) transactions could have the effect of increasing the level of
illiquidity in the Funds during any period that qualified institutional buyers
become uninterested in purchasing these restricted securities.
REVERSE REPURCHASE AGREEMENTS. Each Fund may borrow funds for temporary or
emergency purposes by selling portfolio securities to financial institutions
such as banks and broker/dealers and agreeing to repurchase them at a mutually
specified date and price ("reverse repurchase agreements"). Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the repurchase price. A Fund will pay interest on amounts
obtained pursuant to a reverse repurchase agreement. While reverse repurchase
agreements are outstanding, a Fund will maintain in a segregated account cash,
U.S. Government securities or other liquid high-grade debt securities of an
amount at least equal to the market value of the securities, plus accrued
interest, subject to the agreement. Reverse repurchase agreements are considered
to be borrowings by a Fund under the 1940 Act.
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 issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, irrevocable bank letters of credit or any other liquid
high-grade short-term instrument approved for use as collateral by the
Securities and Exchange Commission (or any combination thereof). The borrower of
securities will be required to maintain the market value of the collateral at
not less than the market value of the loaned securities, and such value will be
monitored on a daily basis. When a Fund lends its securities, it continues to
receive dividends and interest on the securities loaned and may simultaneously
earn interest on the investment of the cash collateral. Although voting rights,
or rights to consent, attendant to securities on loan pass to the borrower, such
loans will be called so that the securities may be voted by a Fund if a material
event affecting the investment is to occur.
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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.
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;
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(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;
(6) With respect to the Canterbury Fund and the 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
(9) 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;
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(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 expects that purchases and sales of securities for the
Funds usually will be effected through brokerage transactions for which
commissions are payable.
Lyon Street, under policies established by the Board of Trustees, selects
broker-dealers to execute transactions for the Funds. It is the policy of the
Trust, in effecting transactions in portfolio securities, to seek best price and
execution of orders. The determination of what may constitute best price and
execution in the execution of a transaction by a broker involves a number of
considerations, including, without limitation, the overall direct net economic
result to a Fund, involving both price paid or received and any commissions and
other costs paid, the breadth of the market where the transaction is executed,
the efficiency with which the transaction is effected, the ability to effect the
transaction at all where a large block is involved, the availability of the
broker to stand ready to execute potentially difficult transactions in the
future and the financial strength and stability of the broker. Such
considerations are judgmental and are weighed by Lyon Street in determining the
overall reasonableness of brokerage commissions paid. In determining best price
and execution and selecting brokers to execute transactions, Lyon Street may
consider brokerage and research services, such as analyses and reports
concerning issuers, industries, securities, economic factors and trends, and
other statistical and factual information provided to a Fund. Lyon Street is
authorized to pay a broker-dealer who provides such brokerage and research
services a commission for executing a Fund's transactions which is in excess of
the amount of commission another broker-dealer would have charged for effecting
that transaction if, but only if, Lyon Street determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer viewed in terms of that particular
transaction or the overall responsibilities of Lyon Street to the Funds and its
other clients. 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.
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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.
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.
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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;
(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
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(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.
* 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.(1)
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.
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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.
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.
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<PAGE> 70
<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 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.
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<PAGE> 71
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, or 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
a majority of the Trustees of the Trust, and a majority of the "non-interested"
Trustees, or by vote of a majority of the outstanding voting shares of such
Fund. The Investment Advisory Agreement will terminate automatically upon its
assignment and may be terminated with respect to any Fund or Funds without
penalty on 60-days' written notice at the option of either party or by a vote of
the shareholders of such Fund or Funds.
ADMINISTRATOR
Old Kent Securities Corporation, 111 Lyon Street NW, Grand Rapids,
Michigan 49503 ("OKSC"), serves as the Administrator of the Trust under an
Administration Agreement dated December 1, 1999. OKSC 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.
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<PAGE> 72
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 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.
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<PAGE> 73
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.
KPMG LLP, Two Nationwide Plaza, Suite 1600, Columbus, Ohio 43215,
Certified Public Accountants, are the independent auditors for the Trust.
Drinker Biddle & Reath LLP, One Logan Square, 18th and Cherry Streets,
Philadelphia, PA 19103, serves as counsel to the Trust.
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<PAGE> 74
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 Advisor 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
Advisor 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 Advisor Shares, aggregating and processing purchase, exchange and
redemption requests for Advisor Shares, maintaining account records, issuing
confirmations of transactions and providing sub-accounting with respect to
Advisor 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 Advisor Shares of the affected Fund. The Plan
may be
29
<PAGE> 75
terminated at any time by a majority vote of the Independent Trustees or by a
majority vote of the outstanding Advisor 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. Orders received by the Funds in proper form will be
priced at the Funds' NAV next computed after they are accepted by the financial
institution or its designee. Financial institutions are responsible for their
customers and the Kent Funds for timely transmission of all subscription and
redemption requests, investment information, documentation and money.
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 dividing 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 Advisor Shares is the NAV plus the front-end
sales charge. The offering price of the Institutional Shares of the Science and
Technology Fund is the NAV.
SALES CHARGES. The Funds may sell Advisor Shares 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,
current or retired employees of Old Kent Financial Corporation and its
affiliated companies, employees of the Trust's distributor, certain
family members of the above persons, and trusts or plans established
primarily for the benefit of 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 Trust's distributor (or who
clear transactions through such dealers) and plans for such persons or
the dealers;
(3) employee benefit plans which purchase shares through the Fidelity
Advisor Retirement Connection - Premium Service Program;
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<PAGE> 76
(4) companies exchanging securities with the Funds through a merger,
acquisition or exchange offer; and
(5) Old Kent Financial Corporation and its affiliated companies.
Advisor Shares are offered at net asset value to these persons and
organizations due to anticipated economies in sales effort and expense.
DEALER CONCESSIONS. The Trust's distributor and its affiliates may, at their
expense, pay concessions of up to 1% to dealers who initiate and are
responsible for purchases of Advisor Shares in amounts of $1 million or more,
if such purchases otherwise qualify for the reduced sales charge applicable to
investments of $1 million and above. In addition, the Trust's distributor, at
its expense, may provide non-cash compensation and promotional incentives to
dealers in connection with the sales of shares of the Funds. Subject to NASD
regulation, compensation may include promotional and other merchandise, sales
and training programs and other special events sponsored by dealers.
Compensation may also include payment for reasonable expenses incurred in
connection with trips taken by invited registered representatives for meetings
or seminars of a business nature.
LETTER OF INTENT. You may enter into a non-binding commitment to purchase
Advisor Shares of one or more Kent 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 a Letter of Intent ("LOI"). An LOI
is not a binding obligation to purchase the indicated amount. When a shareholder
elects to utilize an LOI in order to qualify for a reduced sales charge, shares
equal to 5% of the dollar amount specified in the LOI 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 LOI may be revised upward at any time during the 13-month
period, and such a revision will be treated as a new LOI, 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 LOI. During the LOI period,
reinvested dividends and capital gain distributions and investments made under a
right of reinstatement will not be credited toward satisfying the LOI.
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<PAGE> 77
Shareholders purchasing Advisor Shares at a reduced sales charge under
an LOI indicate their acceptance of these terms with their first purchase.
AGGREGATION. Sales charge discounts on purchases of Advisor Shares 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);
- 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 Advisor Shares 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 Advisor Shares of two or
more Kent Funds.
RIGHTS OF ACCUMULATION. You may take into account the current value of your
existing holdings of Advisor Shares of the Kent 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 Advisor Shares of the Kent 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
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<PAGE> 78
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. An investor may exchange shares of one Kent Fund for the same class
of shares of another Kent Fund. In an exchange, shares in the Fund from which an
investor is withdrawing will be redeemed at the net asset value per share next
determined after the exchange request is received. Shares of the Fund in which
the investor is investing will 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. No sales
charge will be imposed when Advisor Shares on which a shareholder previously
paid a sales charge are exchanged for Advisor Shares of another series of the
Trust. No sales charge is imposed on exchanges involving Advisor Shares
purchased by persons who are exempt from sales charge.
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.
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<PAGE> 79
You may reinvest proceeds from a redemption of Advisor Shares without a sales
charge in the Advisor Shares of any Kent Fund within 90 days after the date of
the redemption (any contingent deferred sales charge will be credited to your
account). Proceeds will be reinvested at the next calculated net asset value
after your request is received and accepted by the Funds.
DIVIDENDS AND TAXES
FEDERAL - GENERAL. Each Fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, and to distribute its
income to shareholders each year, so that each Fund itself generally will be
relieved of federal income and excise taxes. If a Fund were to fail to so
qualify: (1) the Fund would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction. Moreover, if a Fund were to fail
to make sufficient distributions in a year, the Fund would be subject to
corporate income taxes and/or excise taxes in respect of the shortfall or, if
the shortfall is large enough, the Fund could be disqualified as a regulated
investment company.
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 - Advisor 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.
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SHAREHOLDER LIABILITY. The Trust is an entity of the type commonly known as a
"Massachusetts Business Trust." Pursuant to certain decisions of the Supreme
Judicial Court of Massachusetts, there is a possibility that shareholders of
such a trust may, under certain circumstances, be held personally liable as
partners for the obligations of the trust. However, even if the Trust were held
to be a partnership, the possibility of the shareholders incurring financial
loss for that reason appears remote because the Trust's Restatement of
Declaration of Trust contains an express disclaimer of shareholder liability for
obligations of the Trust and requires that notice of such disclaimer be given in
every note, bond, contract or other undertaking entered into or executed by the
Trust or the Trustees. In addition, the Restatement of Declaration of Trust
provides for indemnification out of the Trust property for any shareholder held
personally liable for the obligations of the Trust.
VOTING RIGHTS. Rule 18f-2 under the 1940 Act provides that any matter required
by the provisions of the 1940 Act or applicable state law, or otherwise, to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each class or series affected by such matter. Rule 18f-2 further provides that a
class or series shall be deemed to be affected by a matter unless the interests
of each class or series in the matter are substantially identical or the matter
does not affect any interest of the class or series. Under the Rule, the
approval of an investment advisory agreement or any change in a fundamental
investment policy would be effectively acted upon with respect to a class or
series only if approved by a majority of the outstanding shares of that class or
series. However, the Rule also provides that the ratification of the appointment
of independent accountants, the approval of principal underwriting contracts and
the election of Trustees may be effectively acted upon by shareholders of the
Trust voting together in the aggregate without regard to a particular class or
series.
The term "majority of the outstanding shares" of a Fund means the vote
of the lesser of (i) 67% or more of the shares of the Fund present at a meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the outstanding shares
of the Fund.
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.
35
<PAGE> 81
LIMITATION OF TRUSTEES' LIABILITY. The Restatement of Declaration of Trust
provides that the Trustees shall not be responsible or liable for any neglect or
wrongdoing of any officer, agent, employee or adviser of the Trust, provided
that they have exercised reasonable care in the selection of such individuals.
The Restatement of Declaration of Trust also provides that a Trustee shall be
indemnified against all liabilities and expenses reasonably incurred in
connection with the defense or disposition of any action, suit or other
proceeding in which said Trustee is involved by reason of being or having been a
Trustee of the Trust, except with respect to any matter as to which such Trustee
has been finally adjudicated not to have acted in good faith in the reasonable
belief that his or her actions were in the best interest of the Trust. Nothing
in the Restatement of Declaration of Trust shall protect a Trustee against any
liability for his or her willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office as
Trustee.
STANDARDIZED TOTAL RETURN 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:
ERV1/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.
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:
ERV
Aggregate Total Return =[(-----------)- 1]
P
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<PAGE> 82
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.
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
37
<PAGE> 83
investor scenarios, timely information on financial management, tax and
retirement planning and investment alternatives to certificates of deposit and
other financial instruments. Such Materials may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail therein.
FINANCIAL STATEMENTS
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.
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.
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<PAGE> 84
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.
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Foreign currency issuer ratings are also distinguished from local currency
issuer ratings to identify those instances where sovereign risks make them
different for the same issuer.
MOODY'S. 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.
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"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as to investment grade. Risk factors are larger and
subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest
payments.
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.
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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.
"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.
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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.
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Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges -principally, the Chicago Board of Trade 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.
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<PAGE> 90
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
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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.
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Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a Fund is also subject to Lyon Street's
ability to predict correctly movements in the direction of the market. For
example, if a particular Fund has hedged against the possibility of a decline in
the market adversely affecting securities held by it and securities prices
increase instead, the Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. A Fund may also have to
sell securities at a time when it may be disadvantageous to do so.
VI. Options on Futures Contracts
A Fund may purchase and write options on the futures contracts
described above. A futures option gives the holder, in return for the premium
paid, the right to buy (call) from or sell (put) to the writer of the option a
futures contract at a specified price at any time during the period of the
option. Upon exercise, the writer of the option is obligated to pay the
difference between the cash value of the futures contract and the exercise
price. Like the buyer or seller of a futures contract, the holder, or writer, of
an option has the right to terminate its position prior to the scheduled
expiration of the option by selling, or purchasing an option of the same series,
at which time the person entering into the closing transaction will realize a
gain or loss.
Investments in futures options involve some of the same considerations
that are involved in connection with investments in futures contracts (for
example, the existence of a liquid secondary market). In addition, the purchase
or sale of an option also entails the risk that changes in the value of the
underlying futures contract will not correspond to changes in the value of the
option purchased. Depending on the pricing of the option compared to either the
futures contract upon which it is based, or upon the price of the securities
being hedged, an option may or may not be less risky than ownership of the
futures contract or such securities. In general, the market prices of options
can be expected to be more volatile than the market prices on the underlying
futures contract. Compared to the purchase or sale of futures contracts,
however, the purchase of call or put options on futures contracts may frequently
involve less potential risk to a Fund because the maximum amount at risk is the
premium paid for the options (plus transaction costs). The writing of an option
on a futures contract involves risks similar to those risks relating to the sale
of futures contracts.
VII. Other Matters
Accounting for futures contracts and related options will be in
accordance with generally accepted accounting principles.
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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.
(d)(8) A form of 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 Science
and Technology Fund, the Kent Canterbury Fund and the Kent Cascade Fund is filed
herewith as Exhibit 23(d)(7).
(e) The Distribution Agreement between Registrant and Kent Funds
Distributors, Inc. dated July 1, 1999 was filed with Registrant's Post-Effective
Amendment No. 32 as Exhibit 23(e) and is incorporated by reference herein.
-1-
<PAGE> 94
(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.
(g)(1) 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.
(g)(2) A form of Amendment to Custody Agreement between Registrant and Bank
of New York is filed herewith as Exhibit 23(g)(2).
(h)(1) The Administration Agreement between Registrant and Old Kent
Securities Corporation dated December 1, 1999 was filed with Registrant's
Post-Effective Amendment No. 32 as Exhibit 23(h)(1) and is incorporated by
reference herein.
(h)(2) The Fund Accounting Agreement between Registrant and Old Kent
Securities Corporation dated December 1, 1999 was filed with Registrant's
Post-Effective Amendment No. 32 as Exhibit 23(h)(2) and is incorporated by
reference herein.
(h)(3) The Transfer Agency Agreement between Registrant and Old Kent
Securities Corporation dated December 1, 1999 was filed with Registrant's
Post-Effective Amendment No. 32 as Exhibit 23(h)(3) and is incorporated by
reference herein.
(h)(4) The Sub-Administration Agreement between Old Kent Securities
Corporation and BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed
with Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(4) and is
incorporated by reference herein.
(h)(5) The Sub-Fund Accounting Agreement between Old Kent Securities
Corporation and BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed
with Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(5) and is
incorporated by reference herein.
(h)(6) The Sub-Transfer Agency Agreement between Old Kent Securities
Corporation and BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed
with Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(6) and is
incorporated by reference herein.
(h)(7) The Omnibus Fee Agreement between Old Kent Securities Corporation and
BISYS Fund Services Ohio, Inc. dated December 1, 1999 was filed with
Registrant's Post-Effective Amendment No. 32 as Exhibit 23(h)(7) and is
incorporated by reference herein.
(h)(8) The Waiver and Reimbursement Agreement between the Registrant, Lyon
Street Asset Management Company and Old Kent Securities Corporation dated
January 3, 2000, is filed herewith as Exhibit 23(h)(8).
(h)(9) The Waiver Agreement between the Registrant and Kent Funds
Distributors, Inc. dated January 3, 2000, is filed herewith as Exhibit 23(h)(9).
(h)(10) The Waiver and Reimbursement Agreement between the Registrant and Old
Kent Securities Corporation dated May 15, 2000, is filed herewith as Exhibit
23(h)(10).
(i) Opinion of Drinker Biddle & Reath LLP was filed with Registrant's
Post-Effective Amendment No. 32 as Exhibit 23(i) and is incorporated by
reference herein.
(j)(1) Consent of Drinker Biddle & Reath LLP is filed herewith as Exhibit
23(j)(1).
(j)(2) Consent of KPMG LLP is filed herewith as Exhibit 23(j)(2).
(k) Not applicable.
-2-
<PAGE> 95
(l)(1) The subscription agreement was filed with Registrant's Registration
Statement as Exhibit 24(b)(13) and is incorporated by reference herein.
(l)(2) A form of Purchase Agreement between Registrant and Kent Funds
Distributors, Inc. relating to the Kent Science and Technology Fund, the Kent
Canterbury Fund and the Kent Cascade Fund is filed herewith as Exhibit 23(l)(2).
(m) The Amended and Restated Master Distribution Plan of the Kent Funds
dated May 25, 2000 and related forms of agreements are filed herewith as Exhibit
23(m).
(n) The Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of
A Multi-Class System dated May 25, 2000 is filed herewith as Exhibit 23(n).
(o) Not Applicable.
(p)(1) Code of Ethics of The Kent Funds was filed with Registrant's
Post-Effective Amendment No. 32 as Exhibit 23(p)(1) and is incorporated by
reference herein.
(p)(2) Code of Ethics of Lyon Street Asset Management Company was filed with
Registrant's Post-Effective Amendment No. 33 as Exhibit 23(p)(2) and is
incorporated by reference herein.
(p)(3) Code of Ethics of Kent Funds Distributors, Inc. was filed with
Registrant's Post-Effective Amendment No. 32 as Exhibit 23(p)(3) and is
incorporated by reference herein.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 25. INDEMNIFICATION
Indemnification of the Registrant's investment adviser, principal
underwriter, administrator, fund accountant and transfer agent against certain
losses is provided for, respectively, in Section 5 of the Advisory Agreement
incorporated herein by reference as Exhibit (d)(1), in Section 1.12 of the
Distribution Agreement incorporated herein by reference as Exhibit (e), in
Article V of the Administration Agreement incorporated herein by reference as
Exhibit (h)(l), in Section 7 of the Fund Accounting Agreement incorporated
herein by reference as Exhibit (h)(2) and in Section 9 of the Transfer Agency
Agreement incorporated herein by reference as Exhibit (h)(3). The Registrant has
obtained form a major insurance carrier a trustees' and officers' liability
policy covering certain types of errors and omissions. In addition, Article
VIII, Section 1 of the Registrant's Restatement of Declaration of Trust dated
May 1, 1990, incorporated herein by reference as Exhibit (a), provides as
follows:
Section 1. Trustees, Officers, etc. The Trust shall indemnify each of
its present and former Trustees and officers and may indemnify any of
its present or former employees or agents, and shall indemnify any
persons who serve or have served at the Trust's request as Directors,
officers or Trustees of another organization, and may indemnify persons
who serve or have served at the Trust's request as employees or agents
of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person") against all liabilities and
-3-
<PAGE> 96
ITEM 25. (continued)
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 willful
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.
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.
-4-
<PAGE> 97
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Kent Funds Distributors, Inc. (KFDI) acts as distributor for the
Registrant.
(b) Officers and Directors of KFDI are as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Addresses with KFDI with Registrant
------------------ ------------------------ ---------------------
<S> <C> <C>
Lynn J. Magnum Chairman None
William J. Tomko President None
Kevin J. Dell Vice President and None
Secretary
Robert Tuch Assistant Secretary Assistant Secretary
R. Jeffrey Young Supervisory Principal Vice President and
Assistant Secretary
Andrew Corbin Vice President None
Gregory A. Trichtinger Vice President None
Olu T. Lawal Fin-Op None
</TABLE>
The principal business address for all officers and directors of KFDI is 3435
Stelzer Road, Columbus, Ohio 43219.
(c) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 to 31a-3 thereunder are maintained by the Registrant at 250 Monroe
Avenue NW, Suite 400, Grand Rapids, Michigan 49503. Certain accounts, books and
other documents required to be maintained by Registrant pursuant to Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder
are maintained by Lyon Street Asset Management Company, 111 Lyon Street NW,
Grand Rapids, Michigan 49503. Certain accounts, books and other documents
required to be maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 thereunder are
maintained by BISYS Fund Services at 3435 Stelzer Road, Columbus, Ohio 43219.
Registrant's minute books are maintained by Drinker Biddle & Reath LLP, 1 Logan
Square, 18th & Cherry Streets, Philadelphia, Pennsylvania 19103-6996.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
-5-
<PAGE> 98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment under rule
485(b) under the Securities Act and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Grand Rapids, in the State
of Michigan, on the 27th day of June, 2000.
THE KENT FUNDS
By: /s/ James F. Duca, II
---------------------------
James F. Duca, II
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registrant's Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ James F. Duca, II President June 27, 2000
-----------------------------
James F. Duca, II
*/s/ Martin R. Dean Treasurer (Principal Accounting June 27, 2000
----------------------------- and Financial Officer)
Martin R. Dean
*/s/ Walter B. Grimm Chairman and Trustee June 27, 2000
-----------------------------
Walter B. Grimm
*/s/ Joseph F. Damore Trustee June 27, 2000
-----------------------------
Joseph F. Damore
*/s/ James F. Rainey Trustee June 27, 2000
-----------------------------
James F. Rainey
*/s/ Ronald F. VanSteeland Trustee June 27, 2000
-----------------------------
Ronald F. VanSteeland
*/s/ E. Philip Farley Trustee June 27, 2000
------------------------------
E. Philip Farley
*By: /s/ Amy D. Eisenbeis
-----------------------
Amy D. Eisenbeis
Attorney-in-Fact
* Amy D. Eisenbeis, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named Trustees and Officers of
Registrant pursuant to powers of attorney duly executed by such persons.
<PAGE> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
EXHIBIT LIST
Exhibit No. Description
---------- ---------------------------------------------------------------
23(d)(8) A form of 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 Science and Technology Fund, the Kent
Canterbury Fund and the Kent Cascade Fund is filed herewith as
EX-99.23(d)(7).
23(g)(2) A form of Amendment to Custody Agreement between Registrant and
Bank of New York is filed herewith as EX-99.23(g)(2).
23(h)(8) The Waiver and Reimbursement Agreement between the Registrant,
Lyon Street Asset Management Company and Old Kent Securities
Corporation dated January 3, 2000, is filed herewith as
EX-99.23(h)(8).
23(h)(9) The Waiver Agreement between the Registrant and Kent Funds
Distributors, Inc. dated January 3, 2000, is filed herewith as
EX-99.23(h)(9).
23(h)(10) The Waiver and Reimbursement Agreement between the Registrant and
Old Kent Securities Corporation dated May 15, 2000, is filed
herewith as EX-99.23(h)(10).
23(j)(1) Consent of Drinker Biddle & Reath LLP is filed herewith as
EX-99.23(j)(1).
23(j)(2) Consent of KPMG LLP is filed herewith as EX-99.23(j)(2).
23(l)(2) A form of Purchase Agreement between Registrant and Kent Funds
Distributors, Inc. relating to the Kent Science and Technology
Fund, the Kent Canterbury Fund and the Kent Cascade Fund is filed
herewith as EX-99.23(l)(2).
23(m) The Amended and Restated Master Distribution Plan of the Kent
Funds dated May 25, 2000 and related forms of agreements are
filed herewith as EX-99.23(m).
23(n) The Amended and Restated Plan Pursuant to Rule 18f-3 for
Operation of A Multi-Class System dated May 25, 2000 is filed
herewith as EX-99.23(n).
