KPM FUNDS, INC.
SEMI-ANNUAL REPORT
DECEMBER 31, 1995
KPM EQUITY PORTFOLIO
KPM FIXED INCOME PORTFOLIO
<PAGE>
KPM FUND'S
PERFORMANCE
Avg. Annual Return
Since Inception
(07/05/94)
------------
Equity Portfolio 22.70%
Fixed Income Portfolio 10.27%
Total returns represent the overall performance of an investment for a specific
period of time, assuming reinvestment of dividends and capital gains.
Total returns reflect past performance. Past performance does not predict future
performance. The investment return and principal value of an investment will
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
CONTENTS
President's Letter.....................1
Managers Commentary
Equity Portfolio.....................2
Fixed Income Portfolio...............3
Schedule of Investments
Equity Portfolio.....................4
Fixed Income Portfolio...............7
Statement of Assets & Liabilities......9
Statement of Operations...............10
Statement of Changes
in Net Assets......................11
Financial Highlights
Equity Portfolio....................12
Fixed Income Portfolio..............13
Notes to Financial Statements.........14
<PAGE>
Dear Shareholder:
No matter how you look at it, the first six months of fiscal 1996 or the last
half of calendar 1995, KPM Funds continued to grow and provide value to both new
and existing clients. While individual Portfolio performance is reported on the
following pages, Fund company performance continued to exceed our expectations
with total assets at December 31, 1995, increasing to over $27.9 million.
KPM Investment Management, the adviser to KPM Funds, continued to provide solid
investment performance in the last half of 1995. KPM's philosophy of basing its
investment decisions on fundamental analysis of individual companies, while
taking into account general economic and market trends, allows it to focus on
the longer term without worrying about day-to-day, week-to- week and
month-to-month market fluctuations. We believe KPM's continuing focus on the
long-term will provide the portfolios with superior results, bringing you a step
closer to realizing your financial goals.
KPM stands ready to serve your investment needs and provide the professional
assistance you deserve. Thank you for investing with KPM Funds.
Sincerely,
Rodney D. Cerny, CFA
President
KPM Funds, Inc.
<PAGE>
KPM Funds - Equity Portfolio
Thomas J. Sudyka, Jr., CFA
Portfolio Manager
The second half of 1995 continued a strong trend for the equity markets as the
Standard & Poors 500 total return was 14.5%. The KPM Funds Equity Portfolio's
total return for the same period was 11.2%. For the full year 1995, this
portfolio's performance was 32.6%, compared to a 37.5% total return for the S&P
500. The equity markets were buoyed by a combination of declining interest
rates, low inflation and reasonably good earnings gains. As one might expect,
most sectors of the equity markets performed quite well during 1995. Especially
strong were the financial, utility and technology stocks. KPM Equity Portfolio's
performance was paced by its financial and health care holdings, and a lack of
technology exposure was a clear negative for relative portfolio performance.
Looking toward 1996, interest rates seem to have stabilized at a relatively low
level, corporate fundamentals in most industries are good and equity valuations
are still not excessive. After such a strong 1995, it would not be surprising to
see some profit-taking; however, in prior years when the stock market had big
gains, the following year, in many cases, also produced good gains. Whatever
1996 holds for the equity market, we will do our best to find high quality
companies whose securities are selling at a discount to their fundamental value.
[GRAPHIC OMITTED]
Comparison of Change in Value of $10,000
Investment in KPM Equity and the S&P 500
12/31/95 Value
Avg. Annual Return KPM Equity $13,564.00
Inception 22.70% S&P 500 $14,351.00
<PAGE>
KPM Funds - Fixed Income Portfolio
Patrick M. Miner, CFA
Portfolio Manager
Interest rates continued their decline during the second half of 1995, leading
to one of the best calendar year returns ever. The Fixed Income Portfolio
generated a total return of 5.52% over the past six months and 16.56% for the
full year. This compares to a total return for the Lehman Bros. Aggregate Bond
Index of 6.31% and 18.48% for the same periods. Since inception (July 5, 1994)
the Fixed Income Portfolio has earned a total return of 15.69%. As interest
rates have fallen, our primary emphasis has been to maintain income yield by
minimizing positions in short maturities (1-3 years) to take advantage of higher
rates offered by intermediate bonds (5-10 years). We have also significantly
increased positions in corporate bonds and mortgage-backed securities to further
preserve income in the face of declining rates. At the end of December, the
Fixed Income Portfolios average maturity was shorter than that of the market
index (4.8 year average life vs. 7.0 years for the Lehman Aggregate Index), but
with a higher income yield than the Index. This gives us the ability to extend
maturities and capture additional income during any periods of bond market
weakness. With broad expectations of even lower short-term interest rates in
1996, the market yield curve should steepen considerably as the difference
between short-term and long-term interest rates grows. As that occurs, we will
be able to slide out the curve into slightly longer maturities and further
improve the relative income return.
[GRAPHIC OMITTED]
Comparison of Change in Value of $10,000 Investment in
KPM Fixed Income and the Lehman Aggregate Bond Index
12/31/95 Value
Avg. Annual Return KPM Fixed Income $10,962.76
Inception 10.27% Lehman Aggregate Bond Index $11,973.00
<PAGE>
KPM FUNDS, INC.
Schedule of Investments
December 31, 1995
KPM EQUITY PORTFOLIO
(Unaudited)
Percent
of Net
Assets Market
Shares Common Stock 92.62% Value
------- ---------------------------------------------- -------
Auto/Truck/Parts 1.96%
---------------- -----
23,500 TBC Corporation* $ 196,813
9,500 Wabash National Corporation 211,375
----------
408,188
----------
Broadcast, Radio & TV 3.29%
--------------------- -----
8,000 Liberty Media Group Class A* 214,000
23,700 Tele-Communications, Inc. Class A* 471,038
----------
685,038
----------
Building Materials/Construction 3.26%
------------------------------- -----
40,000 Apogee Enterprise, Inc. 680,000
----------
Chemicals 4.29%
--------- -----
17,000 Hanna (M.A.) Company 476,000
15,000 Lubrizol Corporation 418,125
----------
894,125
----------
Commercial Services 3.28%
------------------- -----
35,000 Franklin Quest Company* 682,500
----------
Electronics/Electrical Equipment 7.87%
-------------------------------- -----
20,000 America Power Conversion Corporation 187,500
8,500 Emerson Electric Company 694,875
10,500 General Electric Company 756,000
----------
1,638,375
----------
Entertainment/Leisure 0.98%
--------------------- -----
9,068 Johnson Worldwide Associates, Inc. Class A* 204,030
----------
Financial Services 12.60%
------------------ ------
9,600 Federal Home Loan Mortgage Corporation 801,600
11,700 Finova Group, Inc. 564,525
8,000 MBIA, Inc. 600,000
10,000 Student Loan Marketing Association 658,750
----------
$2,624,875
----------
*Indicates nonincome-producing security.
<PAGE>
KPM FUNDS, INC.
Schedule of Investments (Continued)
KPM EQUITY PORTFOLIO
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- --------- ------------------------------- ------ -------
Food Processing 1.87%
--------------- -----
4,300 Philip Morris Companies, Inc. $ 389,150
----------
Forest Products/Paper 1.79%
--------------------- -----
31,800 Specialty Paperboard, Inc.* 373,650
----------
Insurance 4.24%
--------- -----
21,600 Gallagher (Arthur J.) & Company 804,600
5,000 Guarantee Life Companies, Inc.* 78,750
-----------
883,35
-----------
Iron/Steel 1.99%
---------- -----
20,000 Worthington Industries, Inc. 415,000
----------
Lodging 1.20%
------- -----
25,000 Supertel Hospitality, Inc.* 250,000
----------
Machine Tool 0.73%
------------ -----
9,400 Giddings & Lewis, Inc. 152,750
----------
Manufacturing 2.69%
------------- -----
11,250 Pentair, Inc. 559,688
----------
Medical Supplies 2.59%
---------------- -----
7,200 Becton, Dickinson & Company 540,000
----------
Metals/Mining 6.70%
------------- -----
11,600 Potash Corporation of Saskatchewan 822,150
23,600 Valmont Industries 572,300
----------
1,394,450
----------
Oil/Gas 4.09%
------- -----
6,200 Exxon Corporation 496,775
26,850 Prima Energy Corporation* 355,762
----------
$ 852,537
----------
*Indicates nonincome-producing security.
<PAGE>
KPM FUNDS, INC.
Schedule of Investments (Continued)
KPM EQUITY PORTFOLIO
Percent
of Net Market
Shares Common Stock (Continued) Assets Value
- --------- ------------------------------- ------ -------
Pharmaceutical 4.12%
-------------- -----
4,600 Bristol-Myers Squibb Company $ 395,025
5,400 Johnson & Johnson 462,374
--------------
857,399
--------------
Publishing/Printing 6.91%
------------------- -----
11,500 Banta Corporation 506,000
9,200 Gannett Company, Inc. 564,650
23,000 Merrill Corporation 368,000
--------------
1,438,650
--------------
Retail/Apparel 4.85%
-------------- -----
15,000 Reebok International Ltd. 423,750
27,000 Toys R Us, Inc.* 587,250
-------------
1,011,000
--------------
Transportation 3.01%
-------------- -----
9,500 Union Pacific Corporation 627,000
-------------
Utilities 5.07%
--------- -----
20,300 California Energy Company, Inc.* 395,850
8,000 Dominion Resources, Inc. 330,000
10,000 MidAmerican Energy Company 167,500
12,650 Southwestern Energy Company 161,287
-------------
1,054,637
--------------
Utilities - Telecommunications 3.24%
------------------------------ -----
10,400 American Telephone & Telegraph Corporation 673,400
------------
Total Investments 92.62% 19,289,792
Cash Equivalents 6.49% 1,352,493
Net Receivables/(Payables) 0.89% 184,939
-------- ----------
TOTAL NET ASSETS 100.00% $20,827,224
======== ==========
* Indicates nonincome-producing security.
<PAGE>
KPM FUNDS, INC.
Schedule of Investments
December 31, 1995
KPM FIXED INCOME PORTFOLIO
(Unaudited)
Principal Percent of Market
Amount Net Assets Value
---------- ----------- ---------
U.S. Government Securities 18.08%
-------------------------------------------
150,000 U. S. Treasury Note, 9.25%, due 8/15/98 $ 164,531
200,000 U. S. Treasury Note, 6.875%, due 7/31/99 210,031
500,000 U. S. Treasury Note, 8.75%, due 8/15/00 568,047
50,000 U. S. Treasury Note, 7.25%, due 5/15/04 55,531
250,000 U. S. Treasury Bond, 7.125%, due 2/15/23 285,898
----------
1,284,038
----------
Collateralized Mortgage Obligations 50.12%
-------------------------------------------
200,000 Federal Home Loan Mortgage Corporation 207,484
Series 1232 F, 7.50%, due 9/15/06
150,000 Federal Home Loan Mortgage Corporation 155,472
Series 1035 E, 8.00%, due 10/15/20
372,000 Federal Home Loan Mortgage Corporation 384,555
Series 1455 H, 7.00%, due 6/15/21
250,000 Federal Home Loan Mortgage Corporation 258,477
Series 1761 G, 8.00%, due 6/15/21
76,435 Federal Home Loan Mortgage Corporation 74,447
Series 1545 C, 6.00%, due 6/15/23
165,000 Federal National Mortgage Association 165,799
Series 1992-164 PH, 6.50%, due 1/25/06
97,000 Federal National Mortgage Association 97,076
Series 1993-76 PG, 6.00%, due 7/25/06
50,000 Federal National Mortgage Association 48,625
Series 1993-221 C, 5.50%, due 9/25/07
224,833 Federal National Mortgage Association 233,019
Series 1990-96 E, 9.67%, due 1/25/17
195,000 Federal National Mortgage Association 194,208
Series 1993-82 D, 6.35%, due 3/25/19
100,000 Federal National Mortgage Association 99,906
Series 1993-103 PG, 6.25%, due 6/25/19
90,000 Federal National Mortgage Association 91,013
Series 1991-173 HP, 6.95%, due 1/25/20
195,000 Federal National Mortgage Association $ 202,449
Series 1999-65 H, 8.50%, due 1/25/20
<PAGE>
KPM FUNDS, INC.
Schedule of Investments (Continued)
KPM FIXED INCOME PORTFOLIO
Principal Percent of Market
Amount Net Assets Value
------------- ----------- --------
Collateralized Mortgage Obligations (continued)
----------------------------------------------
188,290 Federal National Mortgage Association $ 196,999
Series G-29 O, 8.50%, due 9/25/21
300,000 GE Capital Mortgage Services 298,430
Series 1994-12, 6.00%, due 4/25/09
100,000 Government National Mortgage Association 102,289
Series 1994-4 K, 7.9875%, due 7/16/12
300,000 Green Tree Financial Corporation 325,863
Series 1995-3 M1, 7.95%, due 8/15/25
250,000 Oakwood Management Investors, Inc. 256,719
Series 1995-B B1, 7.55%, due 1/15/21
162,747 Security Pacific Acceptance Corporation 166,944
Series 1991-3 A1, 7.25%, due 12/15/11 --------
3,559,774
---------
Corporate Bonds 27.90%
-------------------------------------------
270,000 Apollo Computer, Inc., 7.25%, due 2/1/11 270,377
50,000 Chevron Capital USA, 7.45%, due 8/15/04 53,749
250,000 Commonwealth Edison Co. MTN, 9.05%, due 10/15/99 274,342
250,000 Ford Motor Company, 6.11%, due 1/1/01 251,387
100,000 May Department Stores Company, 9.45%, due 2/2/99 110,192
50,000 Public Service Electric & Gas Co., 6.50%, due 5/1/04 50,626
200,000 Tenneco Corporation, 9.625%, due 8/15/01 232,194
100,000 Union Pacific Corporation, 6.25%, due 3/15/99 101,313
50,000 U. S. Leasing International, Inc., 8.75%, due 12/1/01 56,420
200,000 United Telecom, 9.50%, due 4/1/03 237,068
200,000 Wal-Mart Stores, Inc., 7.49%, due 6/21/07 219,751
10,000 Washington Natural Gas, 6.07%, due 1/16/04 9,813
120,000 Westinghouse Electric Corporation,6.875%,due 9/1/03 114,111
---------
1,981,343
---------
Total Investments 96.10% 6,825,155
Cash Equivalents 2.23% 158,387
Net Receivables/(Payables) 1.67% 119,184
-------- ----------
TOTAL NET ASSETS 100.00% $7,102,726
======== =========
<PAGE>
<TABLE>
<CAPTION>
KPM FUNDS, INC.
Statements of Assets and
Liabilities
December 31, 1995
(Unaudited)
KPM
KPM Fixed
Equity Income
Portfolio Portfolio
---------------- --------------
<S> <C> <C>
Assets:
Investments in securities, at market value (note 4) $19,289,792 $6,825,155
Cash equivalents 1,352,493 158,387
Accrued interest and dividends receivable 41,004 99,778
Organizational costs, net of accumulated amortization 19,265 3,722
Receivable for fund shares sold 155,515 23,094
Receivable for securities sold 182,309 -
---------------- --------------
Total assets 21,040,378 7,110,136
---------------- --------------
Liabilities:
Accrued expenses, including investment management and
service fees and distribution expenses payable to adviser,
administrator and distributor (note 3) 22,338 6,238
Payable for fund shares redeemed 191 1,172
Payable for securities purchased 190,625 -
---------------- --------------
Total liabilities 213,154 7,410
---------------- --------------
Net assets applicable to outstanding capital stock $20,827,224 $7,102,726
================ ==============
Net assets are represented by:
Capital stock outstanding, at par (note 6) 20 7
Additional paid-in capital 17,491,933 6,801,756
Accumulated undistributed net investment income (loss) 1,026 (474)
Accumulated undistributed net realized gain 252,512 1,533
Unrealized appreciation (note 5) 3,081,733 299,904
---------------- --------------
Total amount representing net assets
applicable to shares outstanding $20,827,224 $7,102,726
================ ==============
Net asset value per share of outstanding capital stock $13.01 $10.71
====== ======
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KPM FUNDS, INC.
Statements of
Operations
Six Months Ended December 31, 1995
(Unaudited)
KPM
KPM Fixed
Equity Income
Portfolio Portfolio
-------------- -------------
<S> <C> <C>
Investment income:
Dividends $166,649 $ -
Interest 32,320 247,081
-------------- -------------
Total investment income 198,969 247,081
-------------- -------------
Expenses (note 3):
Investment advisory fee 72,656 20,489
Administration fee 22,752 8,569
Distribution fees 22,671 8,529
Amortization of organization costs 2,208 535
Custodial fees 1,667 1,667
Registration fees 4,554 1,952
Other operating expenses 8,612 1,684
-------------- -------------
Total expenses 135,120 43,425
-------------- -------------
Net investment income 63,849 203,656
-------------- -------------
Realized and unrealized gain on investments (note 5):
Net realized gain 553,071 18,301
Net unrealized appreciation
Beginning of period 1,778,755 144,466
End of period 3,081,733 299,904
-------------- -------------
Net unrealized appreciation 1,302,978 155,438
-------------- -------------
Net realized and unrealized gain on investments 1,856,049 173,739
-------------- -------------
Net increase in net assets resulting from operations $1,919,898 $377,395
============== =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KPM FUNDS, INC.
Statement of Changes in Net Assets
Six Months ended December 31, 1995, and the
period July 5, 1994 (commencement of operations) to June 30, 1995
KPM KPM
Equity Fixed Income
Portfolio Portfolio
--------------------------------- ------------------------------
Six Months Six Months
Ended Year Ended Ended Year Ended
Dec. 31, 1995 June 30, 1995 Dec. 31, 1995 June 30, 1995
---------------- ---------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operations:
Net investment income $63,849 $101,522 $203,656 $153,193
Net realized gain (loss)
on investments 553,071 202,563 18,301 (2,799)
Unrealized appreciation 1,302,978 1,778,755 155,438 144,466
---------------- ---------------- ------------------------------
Net increase in net assets
resulting from operations 1,919,898 2,082,840 377,395 294,860
---------------- ---------------- -------------- --------------
Distributions to shareholders from:
Net investment income 69,888 94,457 203,673 153,650
Net realized gains 436,952 66,169 13,425 543
---------------- ---------------- -------------- --------------
Total distributions 506,840 160,626 217,098 154,193
---------------- ---------------- -------------- --------------
Capital share transactions: (note 6)
Proceeds from sales 3,854,287 13,884,315 1,913,985 5,902,328
Payment for redemptions (293,555) (603,478) (1,041,355) (417,343)
Reinvestment of net investment
income and net realized gain
distributions at net asset value 492,692 157,691 201,873 142,274
---------------- ---------------- -------------- --------------
Total increase from capital
share transactions 4,053,424 13,438,528 1,074,503 5,627,259
---------------- ---------------- -------------- --------------
Total increase in net assets 5,466,482 15,360,742 1,234,800 5,767,926
Net assets:
Beginning of period 15,360,742 - 5,867,926 100,000
---------------- ---------------- -------------- --------------
End of period $20,827,224 $15,360,742 $7,102,726 $5,867,926
================ ================ ============== ==============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KPM FUNDS, INC.
Financial Highlights
Six Months Ended December 31, 1995 and the
Period from July 5, 1994 (commencement of operations)
to June 30, 1995
KPM
Equity
Portfolio
----------------------------------
Six Months Ended Year Ended
Dec. 31, 1995 June 30, 1995
---------------- ----------------
(Unaudited)
<S> <C> <C>
Net asset value:
Beginning of period $12.00 $10.00
------ ------
Income from investment operations:
Net investment income 0.05 0.11
Net realized and unrealized gain on investments 1.31 2.06
---- ----
Total income from investment operations 1.36 2.17
---- ----
Less distributions:
Dividends from net investment income (0.05) (0.10)
Dividends from capital gains (0.30) (0.07)
------ ------
(0.35) (0.17)
------ ------
End of period $13.01 $12.00
====== ======
Total return 22.18% * 22.01%
====== ======
Ratios/Supplemental data:
Net assets, end of period $20,827,224 $15,360,742
Ratio of expenses to average net assets 1.50% * 1.50% *
Ratio of net income to average net assets 0.70% * 1.04% *
Portfolio turnover rate 13.45% 27.90%
<FN>
*Annualized for periods of less than twelve months in duration
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KPM FUNDS, INC.
Financial Highlights
Six Months Ended December 31, 1995 and the
Period from July 5, 1994 (commencement of operations)
to June 30, 1995
KPM
Fixed Income
Portfolio
--------------------------------
Six Months Ended Year Ended
Dec. 31, 1995 June 30, 1995
---------------- --------------
(Unaudited)
<S> <C> <C>
Net asset value:
Beginning of period $10.47 $10.00
------ ------
Income from investment operations:
Net investment income 0.32 0.57
Net realized and unrealized gain on investments 0.26 0.47
---- ----
Total income from investment operations 0.58 1.04
---- ----
Less distributions:
Dividends from net investment income (0.32) (0.57)
Dividends from capital gains (0.02) 0.00
------ ----
(0.34) (0.57)
------ ------
End of period $10.71 $10.47
====== ======
Total return 10.97% * 9.63%
====== =====
Ratios/Supplemental data:
Net assets, end of period $7,102,726 $5,867,926
Ratio of expenses to average net assets 1.25% * 1.25% *
Ratio of net income to average net assets 5.95% * 5.59% *
Portfolio turnover rate 21.18% 40.34%
<FN>
*Annualized for periods of less than twelve months in duration
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
KPM FUNDS, INC.
Notes to Financial Statements
December 31, 1995 (Unaudited)
1. Organization
------------
KPM Funds, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end management investment
company. The Fund issues its shares in series, each series representing a
distinct portfolio with its own investment objectives and policies. At
December 31, 1995, the Fund had two portfolios in operation the KPM Equity
Portfolio and the KPM Fixed Income Portfolio.
2. Summary of Significant Accounting Policies
------------------------------------------
The following is a summary of significant accounting policies employed by
the Fund in preparing its financial statements.
Valuation of Investments
------------------------
Investment securities are carried at market determined using the following
valuation methods:
o Securities traded on a national securities exchange are valued at the
last reported sale price that day.
o Securities traded on a national securities exchange for which there
were no sales on that day or on the NASDAQ National Market System and
securities traded on other over-the-counter markets for which market
quotations are readily available are valued at closing bid prices.
o Securities including bonds or other assets for which market prices
are not readily available are valued at fair market value as
determined in good faith or under the direction of the Board of
Directors. Determination of fair value involves, among other things,
reference to market indices, matrices and data from independent
brokers and pricing services.
All securities are valued in accordance with the above noted policies at
the close of each business day.
At December 31, 1995, the cost of investment securities is identical for
financial reporting and income tax purposes.
Security Transactions
---------------------
Security transactions are accounted for on the date securities are
purchased or sold (trade date). Dividend income is recognized on the
ex-dividend date and interest income, including amortization of premium
and discount, is accrued daily on the straight-line basis.
<PAGE>
KPM FUNDS, INC.
Notes to Financial Statements
2. Continued
---------
Realized investment gains and losses are determined by specifically
identifying the issue sold.
Federal Income Taxes
--------------------
It is the policy of each Portfolio to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute virtually all of the taxable income generated by the Portfolios
to their shareholders within the time period allowed by Federal law.
Consequently, no liability for Federal income taxes is required. Each
Portfolio is treated as a separate entity for tax purposes, and on a
calendar basis, will distribute substantially all of its net investment
income and realized gains, if any, to avoid payment of any Federal excise
tax. There will be no net realized gain distributions until the net
realized loss carry forwards have been offset or expired. The losses will
expire in 8 years. Each Portfolio prepares its tax return on an accrual
basis.
Distribution to Shareholders
----------------------------
Dividends to shareholders are recorded on the ex-dividend date. The
dividends declared become payable immediately.
Cash Equivalents
---------------
The Fund considers investments with an original maturity of three months
or less when purchased to be cash equivalents.
Organizational Costs
Costs associated with the formation of the Fund, consisting primarily of
accounting and legal fees, have been capitalized and are being amortized
using the straight-line basis over five years. If any or all of the shares
representing initial capital of the Fund is redeemed by any holder prior
to the end of the amortization period, the proceeds will be reduced by the
unamortized organization cost balance in the same proportion as the number
of shares redeemed bears to the number of initial shares outstanding.
3. Fees, Expenses and Related Party Transactions
----------------------------------------------
The Fund and each of its Portfolios have retained KPM Investment
Management, Inc. (the "Adviser"), a wholly-owned subsidiary of
Kirkpatrick, Pettis, Smith, Polian Inc. ("KPSP"), which is a wholly-owned
subsidiary of Mutual of Omaha Insurance Company, as its exclusive
investment adviser. In addition, the Fund has an agreement with KPSP to
act as principal underwriter and distributor for the Portfolio's shares,
and an administration agreement with Lancaster Administrative Services,
Inc. (the "Administrator") to provide administrative and transfer agent
services.
<PAGE>
KPM FUNDS, INC.
Notes to Financial Statements
3. Continued
---------
Under the terms of the investment advisory agreement, the Adviser receives
a management fee equal to .80% and .60% per annum of the daily average net
asset value, respectively, of the KPM Equity Portfolio and the KPM Fixed
Income Portfolio.
The Adviser has voluntarily agreed to reimburse the Portfolios to the
extent of the advisory fee paid, if in any year the annual operating
expenses of the Portfolio exceeds 1.50% for the KPM Equity Portfolio and
1.25% for the KPM Fixed Income Portfolio.
Under the terms of the administration agreement, certain services will be
provided including the transfer of shares, disbursement of dividends and
maintenance of shareholder accounting records of the Fund, for which the
Administrator will be paid a fee of .25% per annum of each of the
Portfolio's daily average net asset value.
Pursuant to the distribution agreement and Rule 12b-1 Plan, KPSP is paid a
fee of .25% per annum of each Portfolio's daily average net asset value.
Under the terms of the advisory, administrative and distribution
agreements outlined above, the Portfolios collectively incurred $93,145
$31,321 and $31,200, respectively for such services.
At December 31, 1995, the following accrued investment advisory,
administrative and distribution fees were payable to the Adviser and
Administrator.
Payable to Payable to Payable to
Adviser Administrator Distributor Total
--------- ---------------- ----------- ---------
KPM Equity
Portfolio $13,720 $4,288 $4,183 $22,191
KPM Fixed
Income Portfolio 3,656 1,523 1,479 6,658
======= ===== ===== =======
The Portfolios also used KPSP to affect security trades on their behalf.
As is customary in the industry, the investment adviser evaluates the
pricing and ability to execute the transaction in selecting brokers to
affect trades. KPSP was paid commissions in the amount of $9,129 for their
brokerage services during the six months ended December 31, 1995.
<PAGE>
KPM FUNDS, INC.
Notes to Financial Statements
4. Investments
-----------
Cost of investment securities held at December 31, 1995 was as follows for
each Portfolio:
KPM Equity Portfolio $16,208,059
KPM Fixed Income Portfolio 6,525,251
5. Securities Transaction
----------------------
Purchases of securities and proceeds from sales, including short-term
securities, were as follows for each Portfolio:
Purchases of Proceeds
Securities from Sales
------------ -----------
KPM Equity Portfolio $5,655,466 $2,261,395
KPM Fixed Income Portfolio $2,590,160 $1,395,128
========= =========
At December 31, 1995, the aggregate gross unrealized appreciation and the
aggregate gross unrealized depreciation of securities in each Portfolio
were as follows:
Aggregate Gross
Unrealized
Appreciation Depreciation
------------ -----------
KPM Equity Portfolio $3,707,543 $625,810
KPM Fixed Income Portfolio $ 300,110 $ 206
========== ==========
6. Capital Share Transactions
--------------------------
The Fund is authorized to issue a total of 1 billion shares of common
stock in series with a par value of $.00001. Fifty million of these shares
have been authorized by the Board of Directors to be issued in each
series. The Board of Directors is empowered to issue other series of the
Fund's shares without shareholders approval. Each share of stock will have
a pro rata interest in the assets of the Portfolio to which the stock of
that series relates and will have no interest in the net assets of any
other Portfolio.
On December 31, 1995, KPM Equity Portfolio and KPM Fixed Income Portfolio
had 1,600,576.943 and 663,446.538 shares outstanding, respectively.
<PAGE>
KPM FUNDS, INC.
Notes to Financial Statements
6. Continued
---------
Transactions in the capital stock of each portfolio for the six months
ended December 31, 1995 were as follows:
KPM Fixed
KPM Equity Income
Portfolio Portfolio
----------- ------------
Transactions in shares:
Shares sold 305,647.291 181,177.964
Shares redeemed (23,231.021) (97,462.269)
Reinvested dividends 38,153.705 19,067.202
------------ -----------
Net increase 320,569.975 102,782.897
=========== ===========
At December 31, 1995, directors, officers and employees of the Fund, the
Adviser and Administrator and their immediate families held 103,818.194
shares of the KPM Equity Portfolio representing $1,350,675.
