CLINE, WILLIAMS, WRIGHT, JOHNSON & OLDFATHER
1900 U.S. Bank Building
233 South 13th Street
Lincoln, Nebraska 68508-2095
(402) 474-6900
Fax (402) 474-5393
September 2, 1998
FILED VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: KPM Funds, Inc., Form N-1A Amendment #5
Registration Nos. 33-78234; 811-8488
Ladies and Gentlemen:
On behalf of the above-referenced registrant, we submit Post-Effective No.
5 under the Securities Act of 1933 and Amendment No. 6 under the Investment
Company Act of 1940 of Form N-1A Registration Statement together with exhibits.
Pursuant to Rule 485(b), this Amendment shall become effective immediately on
September 2, 1998. This Amendment was prepared pursuant to the requirements of
the "old" Form N-1A, as the Registrant has elected to conform to the
requirements of new Form N-1A in the fall of 1999. The undersigned reviewed
this Amendment and represents that the Amendment does not contain disclosures
that would render it ineligible to become effective under Rule 485(b).
If you have any questions, please feel free to contact the undersigned at
the above number.
Very truly yours,
/s/ JOHN C. MILES
JOHN C. MILES
For the Firm
Encs.
As filed with the Securities and Exchange Commission on September 2, 1998
1933 Act Registration Number 33-78234
1940 Act Registration Number 811-8488
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [x]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940[x]
Amendment No. 6 [x]
KPM FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
10250 Regency Circle
Omaha, NE 68114
(Address of Principal Offices)
Registrant's Telephone Number, including Area Code:
(402) 392-7931
Rodney D. Cerny
10250 Regency Circle
Omaha, NE 68114
(Name and Address of Agent for Service)
Copies of all communications to:
JOHN C. MILES, ESQ.
Cline, Williams, Wright, Johnson & Oldfather
1900 U.S. Bank Building, 233 South 13th Street
Lincoln, NE 68508
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
It is proposed that this filing will become effective (check appropriate box)
[x] immediately upon filing pursuant to paragraph (b) of Rule 485
under the Securities Act of 1933.
[ ] 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.
This Registration Statement relates to an indefinite number of shares of the
Registrant pursuant to Rule 24f-2 under the Securities Act of 1933.
THE RULE 24F-2 NOTICE FOR THE FISCAL YEAR ENDED JUNE 30, 1998 WAS FILED ON OR
ABOUT AUGUST 28, 1998.
KPM FUNDS, INC.
Cross-Reference Sheet
Required by Rule 404(a)
N-1A Item No. Location in Prospectus
- ------------- ----------------------
PART A
1. Cover Page Cover Page
2. Synopsis Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Investment Objectives and
Policies; General Information
5. Management of the Fund The Investment Adviser;
General Information
5A.Management's Discussion of the Fund
Performance Not Applicable - INCLUDED IN
THE FUND'S ANNUAL REPORT
6. Capital Stock and Other Securities Cover Page; Redemption of
Shares; Dividends and Taxes;
General Information
7. Purchase of Securities Being Offered Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not Applicable
PART B
Location in Statement of
Additional Information
-------------------------
10.Cover Page Cover Page
11.Table of Contents Table of Contents
12.General Information and History Not Applicable
13.Investment Objective and Policies Investment Objective,
Policies and Restrictions;
Securities and Other
Investment Policies
14.Management of the Fund Directors and Executive
Officers
15.Control Persons and Principal
Holders of Securities Investment Advisory and Other
Services-- Control of the
Adviser and the Distributor
Capital Stock
16.Investment Advisory and Other Services Investment Advisory and Other
Services - The Investment
Advisory Agreement
17.Brokerage Allocation and Other Practices Portfolio Transactions and
Brokerage Allocations
18.Capital Stock and Other Securities Capital Stock
19.Purchase, Redemption and Pricing of
Securities Being Offered Determination of Net Asset
Value; Redemption
20.Tax Status Taxation
21.Underwriters Investment Advisory and Other
Services
22.Calculation of Performance Data Calculation of Performance
Data
23.Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
(KPM Funds Logo)
PROSPECTUS
KPM EQUITY PORTFOLIO
KPM FIXED INCOME PORTFOLIO
September 2, 1998
KPM FUNDS, INC.
KPM EQUITY PORTFOLIO
KPM FIXED INCOME PORTFOLIO
This Prospectus concisely describes information about the Portfolios that you
ought to know before investing. Please read it carefully before investing and
retain it for future reference. A Statement of Additional Information about the
Portfolios dated as of the date of this Prospectus is available free of charge
from Kirkpatrick Pettis or KPM Funds, Inc., 10250 Regency Circle, Omaha,
Nebraska 68114; or telephone 1-877-576-3863 or 1-877-KPM-FUND. The Statement
of Additional Information has been filed with the Securities and Exchange
Commission and is incorporated in its entirety by reference in this Prospectus.
KPM FUNDS, Inc. (the "Fund") is a Nebraska corporation offering shares in
series, each series operated as a separate diversified open-end management
investment company. This Prospectus relates to the series designated KPM Equity
Portfolio and KPM Fixed Income Portfolio (individually a "Portfolio" or
collectively the "Portfolios"). The shares of the Portfolios are not deposits
or obligations of, or guaranteed or endorsed by any bank, nor are they federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other federal or state agency.
KPM EQUITY PORTFOLIO
- --------------------
The KPM Equity Portfolio seeks to provide capital appreciation. At least 65% of
the Equity Portfolio's total assets will ordinarily be invested in equity
securities consisting of common stock and other securities convertible into
common stock. In making selections for the Portfolio, the Adviser will utilize
an investment approach based on fundamental analysis employing a value
philosophy. In pursuit of the Portfolio's investment objective, the Adviser
seeks to identify companies that are selling at market prices below what the
Adviser believes to be their intrinsic fundamental value. These companies
generally fall into two categories: well-recognized, large capitalization
companies (market capitalization in excess of $1 billion) that are currently out
of favor with investment professionals evidenced by low price to earnings ratios
compared to similar companies and/or relative to the market as a whole and
small- to medium-capitalization companies (market capitalization between $100
million and $1 billion) that lack significant research coverage from major Wall
Street firms.
KPM FIXED INCOME PORTFOLIO
- --------------------------
The KPM Fixed Income Portfolio seeks to provide total return over a market cycle
of 3 to 5 years consistent with preservation of capital and prudent investment
management.
The Fixed Income Portfolio will invest primarily in fixed-income securities with
an emphasis on income. Capital appreciation, while more difficult to achieve,
is a secondary objective. The Portfolio will invest in investment-grade
securities (rated BBB or better by Standard & Poor's Corporation or Baa
or better by Moody's Investors Services), corporate debt, preferred
stock, mortgage-backed securities, asset-backed securities and U.S. Government
securities. The Portfolio has no stated policy on portfolio maturity, but the
Investment Adviser anticipates average dollar-weighted portfolio maturity to
range between seven and ten years.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is September 2, 1998
INTRODUCTION
------------
KPM FUNDS, Inc. (the "Fund") is a Nebraska corporation, commonly called a mutual
fund. The Fund, which was organized in February, 1994, has one class of capital
stock that is issued in series, each series referred to as a Portfolio and
operated as a separate diversified open-end management investment company. This
Prospectus only relates to the series designated KPM Equity Portfolio and KPM
Fixed Income Portfolio.
THE INVESTMENT ADVISER
- ----------------------
The Portfolios are managed by KPM Investment Management, Inc., Omaha, Nebraska
("KPM" or the "Adviser"). The Portfolios pay the Adviser monthly fees for
advisory services rendered. See "Management -- Investment Adviser and
Administrator" and "Management -- Portfolio Brokerage."
THE ADMINISTRATOR, TRANSFER AGENT, FUND ACCOUNTANT AND CUSTODIAN
- ----------------------------------------------------------------
Firstar Trust Company acts as the Fund's administrator ("Administrator"),
transfer agent ("Transfer Agent"), custodian and also provides accounting
services. The Portfolios pay the Administrator monthly fees for administrative
services rendered. See "Management -- Investment Adviser and Administrator."
THE DISTRIBUTOR
- ---------------
Kirkpatrick, Pettis, Smith, Polian Inc. ("Kirkpatrick Pettis"), a wholly owned
subsidiary of Mutual of Omaha Insurance Company, acts as the distributor
("Distributor") of the Fund's shares. See "Purchase of Shares."
PURCHASE OF SHARES
- ------------------
Shares of the Portfolios are offered to the public at the next determined net
asset value after receipt of an order by the Distributor or the Fund without a
sales charge. See "Valuation of Shares." The minimum aggregate initial
investment in the Portfolios is $25,000 unless waived by the Fund for Mutual of
Omaha and subsidiaries, employees and family members and certain other group
purchases. Subsequent investments can be made in amounts of $1,000 or more.
See "Purchase of Shares."
CERTAIN RISK FACTORS TO CONSIDER
- --------------------------------
An investment in the Portfolios is subject to certain risks, as set forth in
detail under "Investment Objectives and Policies." As with other mutual funds,
there can be no assurance that the Portfolios will achieve their objectives.
REDEMPTIONS
- -----------
Shares of the Portfolios may be redeemed at any time at their net asset value
next determined after receipt of a redemption request by the Distributor or the
Fund. See "Redemption of Shares." The Fund reserves the right, upon 30 days'
written notice, to redeem a shareholder's investment in a Portfolio if the net
asset value of the shares held by such shareholder falls below $5,000 as a
result of redemptions or transfers. See "Redemption of Shares - Involuntary
Redemption."
DIVIDENDS
- ---------
Dividends for both the KPM Equity Portfolio and the KPM Fixed Income Portfolio
are declared and paid quarterly (see "Dividends and Taxes").
SHAREHOLDER EXPENSES
- --------------------
The Fund offers shares of the Portfolios without any sales load or contingent
sales loads on purchases, reinvestments of dividends or redemptions and does not
charge any exchange or account maintenance fees. For more complete descriptions
of the various costs and expenses, see "Management--Investment Adviser and
Administrator" and "Management -- Expenses."
ANNUAL OPERATING EXPENSES
- -------------------------
The table below provides information for the Portfolios regarding actual
expenses incurred for the fiscal year ended June 30, 1998 expressed as annual
percentages of average daily net assets. The Adviser has agreed to reimburse
the Portfolios monthly to the extent of the advisory fee paid if in any year the
annual total expenses exceed 1.50% of the Equity Portfolio's and 1.25% of the
Fixed Income Portfolio's average annual net assets.
KPM EQUITY KPM FIXED INCOME
PORTFOLIO PORTFOLIO
--------- ---------------
Management Fees .80% .60%
12b-1 Fees .25% .25%
Other Expenses
(after expense reimbursement) .37% .40%
Total Portfolio Operating Expenses
(after expense reimbursement) 1.42% 1.25%
Example:
You would pay these expenses on a $10,000 investment assuming (1) 5% annual
return and (2) redemption at the end of each time period. This example should
not be considered a representation of past or future expenses. Actual expenses
may be greater or lesser than those shown.
KPM EQUITY KPM FIXED INCOME
PORTFOLIO PORTFOLIO
---------- ---------------
1 year $ 145 $ 127
3 years $ 449 $ 397
5 years $ 776 $ 686
10 years $1,702 $1,511
The purpose of the table above is to assist investors in understanding the
various costs and expenses that an investor will bear directly or indirectly as
a result of an investment in the Portfolios. Such expenses do not include any
fees charged by some banks or other financial institutions to customer accounts
which may be invested in shares of the Portfolios. Long-term shareholders may,
as a result of the Portfolios' payment of Rule 12b-1 fees, pay more than the
economic equivalent of the maximum front end sales charges permitted by the
National Association of Securities Dealers, Inc. The expense information
indicated above has been restated to reflect reimbursement by the Adviser of
certain "Other Expenses." The total actual Other Expenses absent the expense
reimbursement would have been 0.48% for the KPM Fixed Income Portfolio and the
Total Portfolio Operating Expenses would have been 1.33%. The advisory fee paid
by the KPM Equity Portfolio is higher than that paid by most other investment
companies. See "Management" for a more complete discussion of the shareholder
transaction and annual operating expenses for the Portfolios of the Fund.
FINANCIAL HIGHLIGHTS
- --------------------
The following financial information provides audited selected financial data for
shares of the Portfolios outstanding throughout the periods as indicated to
June 30, 1998. The information for the fiscal years ended June 30, 1997 and
1998 has been audited by Deloitte & Touche LLP, independent certified public
accountants. The information for the period ended June 30, 1995 and the fiscal
year ended June 30, 1996 has been audited by other independent certified public
accountants. The information is contained in the Fund's Annual Financial Report
included with the Statement of Additional Information and is available upon
request without charge. Further information about performance of the Portfolios
is contained in the Annual Report.
<TABLE>
KPM EQUITY PORTFOLIO
-----------------------------------------------------------------------------
JULY 5, 1994
YEAR ENDED YEAR ENDED YEAR ENDED TO
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $17.92 $14.53 $12.00 $10.00
-------------- -------------- -------------- ---------------
Income from investment operations
Net investment income 0.08 0.05 0.05 0.11
Net realized and unrealized
gain on investments 1.31 4.25 2.83 2.06
-------------- -------------- -------------- ---------------
Total income from investment
operations 1.39 4.30 2.88 2.17
-------------- -------------- -------------- ---------------
Less distributions:
Dividends from net investment income (0.08) (0.06) (0.05) (0.10)
Dividends from capital gains (1.92) (0.85) (0.30) (0.07)
-------------- -------------- -------------- ---------------
(2.00) (0.91) (0.35) (0.17)
-------------- -------------- -------------- ---------------
End of period $17.31 $17.92 $14.53 $12.00
-------------- -------------- -------------- ---------------
TOTAL RETURN 8.88% 30.92% 24.19% 22.01%*<F1>
-------------- -------------- -------------- ---------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $56,115,004 $41,342,708 $30,565,173 $15,360,742
Ratio of expenses to average net assets 1.42% 1.45% 1.50% 1.50%*<F1>
Ratio of net income to average net assets 0.45% 0.34% 0.40% 1.04%*<F1>
Portfolio turnover rate 32.25% 41.83% 34.05% 27.90%
</TABLE>
Per share data has been calculated using weighted average shares outstanding
during the period indicated.
*<F1> Annualized for periods of less than twelve months in duration.
<TABLE>
KPM FIXED INCOME PORTFOLIO
-----------------------------------------------------------------------------
JULY 5, 1994
YEAR ENDED YEAR ENDED YEAR ENDED TO
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE:
Beginning of period $10.42 $10.23 $10.47 $10.00
-------------- -------------- -------------- ---------------
Income from investment operations
Net investment income 0.59 0.61 0.63 0.57
Net realized and unrealized gain
(loss) on investments 0.38 0.19 (0.23) 0.47
-------------- -------------- -------------- ---------------
Total income from investment
operations 0.97 0.80 0.40 1.04
-------------- -------------- -------------- ---------------
Less distributions:
Dividends from net investment income (0.59) (0.61) (0.62) (0.57)
Dividends from capital gains (0.00) (0.00) (0.02) (0.00)
-------------- -------------- -------------- ---------------
(0.59) (0.61) (0.64) (0.57)
-------------- -------------- -------------- ---------------
End of period $10.80 $10.42 $10.23 $10.47
-------------- -------------- -------------- ---------------
TOTAL RETURN 9.39% 7.96% 3.63% 9.63%*<F3>
-------------- -------------- -------------- ---------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $11,744,036 $8,872,285 $8,464,834 $5,867,926
Ratio of expenses to average
net assets 1.25% 1.25% 1.25% 1.25%*<F3>
Ratio of net income to average
net assets before
adviser reimbursements #<F2> 1.33% 1.51% 1.29% 1.56%*<F3>
Ratio of net income to average net assets 5.52% 5.82% 5.94% 5.59%*<F3>
Portfolio turnover rate 19.33% 26.14% 19.52% 40.34%
Per share data has been calculated using weighted average shares outstanding
during the period indicated.
#<F2> KPM Investment Management, Inc. reimbursed a portion of the Fund's
expenses.
*<F3> Annualized for periods of less than twelve months in duration.
SHAREHOLDER INQUIRIES
- ---------------------
Any questions or communications regarding a shareholder account should be
directed to your Kirkpatrick Pettis investment executive, other broker-dealer or
the Fund directly. General inquiries regarding the Portfolios should be
directed to the Fund at one of the telephone numbers set forth on the cover page
of this Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
----------------------------------
The investment objective of each of the Portfolios listed below cannot be
changed without shareholder approval in the manner described under the caption
"Investment Restrictions" below. In view of the risks inherent in all
investments in securities, there is no assurance that these objectives will be
achieved. The investment policies and techniques employed in pursuit of the
Portfolios' objectives may be changed without shareholder approval, unless
otherwise identified as fundamental policies. See "Special Investment Methods"
for definitions and discussion regarding certain types of securities and the
risks of investing in such securities.
KPM EQUITY PORTFOLIO
---------------------
INVESTMENT OBJECTIVE
- ---------------------
The KPM Equity Portfolio seeks to provide capital appreciation. At least 65% of
the KPM Equity Portfolio's total assets will ordinarily be invested in equity
securities consisting of common stock and other securities convertible into
common stock.
INVESTMENT POLICIES
- -------------------
In making selections for the Portfolio, the Adviser will utilize an investment
approach based on fundamental analysis employing a value philosophy. The
Adviser's philosophy can be summarized in its mission statement, which is "to
find high quality companies whose securities are selling at prices we believe
are below their long-term fundamental value." The Adviser regards long-term
fundamental value of a company as its economic value as a going concern, taking
into account the nature of its business, its assets, historical earnings and
profitability, projected earnings and profitability and the investment
environment. In terms of "high quality companies," the Adviser seeks companies
with a strong balance sheet, above-average historical growth of sales and
earnings, companies with superior profitability as evidenced by a high return on
equity, and strong management as evidenced by a good historical track record.
The Adviser attempts to buy and hold securities over an anticipated four to five
year period. In valuing securities, the Adviser uses several methodologies
including, but not limited to, price-to-earnings, price-to-cash flow and price-
to-book value. Generally, the Adviser looks for companies that are selling at a
discount price-to-earnings ratio relative to their peer group and/or relative to
the market as a whole.
There are two areas of the market where the Adviser concentrates its analytical
efforts. First, the Adviser analyzes large capitalization companies that are
well known by the investment community, but may be out of favor due to a recent
fundamental problem, such as a temporary decline in earnings. The Adviser
defines "large capitalization" as companies with market capitalizations in
excess of $1 billion. The Adviser attempts to take advantage of the short-term
oriented thinking displayed by many investment professionals by analyzing
companies whose stocks have been sold off dramatically due to a quarterly
earnings report or monthly sales figure that comes up short of the published
estimates. When the Adviser determines that the long-term fundamental value of
a company has not been harmed by such short-term earnings expectations, whether
or not they ultimately prove to be accurate, the Adviser will initiate purchases
at prices it believes provide solid value. Secondly, the Adviser analyzes
small- to medium-sized companies that it believes are not well received or
followed by the research community. These companies range in size from $100
million to $1 billion in market capitalization. The same analysis performed on
the largest companies is followed by the Adviser for these smaller to mid-sized
companies; however, because of the lack of widespread published research on
these companies, the Adviser may frequently utilize more direct research
techniques, including company visitations and interviews with management.
Investment in smaller capitalization companies may involve greater risk than
investment in other companies. The securities of smaller capitalization
companies may be subject to more abrupt or erratic market movements, and many of
them have limited product lines, markets, financial resources and/or management
capabilities.
KPM FIXED INCOME PORTFOLIO
---------------------------
INVESTMENT OBJECTIVE
- ---------------------
The KPM Fixed Income Portfolio seeks to provide total return over a market cycle
of 3 to 5 years consistent with preservation of capital and prudent investment
management.
INVESTMENT POLICIES
- -------------------
The KPM Fixed Income Portfolio will invest at least 65% of its assets in fixed-
income securities with an emphasis on income. Capital appreciation, while more
difficult to achieve, is a secondary objective. The KPM Fixed Income Portfolio
will invest only in investment-grade securities (rated BBB or better by Standard
& Poor's Corporation ("S&P") or Baa or better by Moody's Investors Services
("Moody's")), corporate debt, preferred stock, mortgage-backed securities,
asset-backed securities and U.S. Government securities. Securities rated below
BBB byS&P or below Baa by Moody's are considered to have speculative charac-
teristics and, as a result, are more susceptible to fluctuations in market
value than higher rated securities. In the event that the rating of an
investment grade security is lowered to below investment grade, the Adviser
will assess the creditworthiness of the issuer, evaluate the likelihood of the
security being upgraded to investment grade or being further down-graded and
may choose to hold or sell the security as appropriate. The KPM Fixed Income
Portfolio does not have a stated policy on portfolio maturity, but the Adviser
anticipates average dollar-weighted portfolio maturity to range between seven
and ten years. A longer portfolio maturity results in greater fluctuation in
net asset value in periods of interest rate volatility.
PORTFOLIO TURNOVER
- -------------------
While it is not the policy of either of the Portfolios to trade actively for
short-term (less than six months) profits, each Portfolio will dispose of
securities without regard to the time they have been held when such action
appears advisable to the Adviser, subject to, among other factors, the
constraints imposed on regulated investment companies by Subchapter M of the
Internal Revenue Code. See "Dividends and Taxes." For the period ending
June 30, 1998, the portfolio turnover for the KPM Equity and KPM Fixed Income
Portfolios were 32.25% and 19.33%, respectively. In the case of each Portfolio,
frequent changes would result in increased brokerage and other costs, however
the Fund does not expect the turnover rate for either the KPM Equity Portfolio
or the KPM Fixed Income Portfolio to exceed 50% this year. The methods of
calculating portfolio turnover rate are set forth in the Statement of Additional
Information under "Investment Policies and Restrictions--Portfolio Turnover."
INVESTMENT RESTRICTIONS
- ------------------------
The Fund has adopted certain investment restrictions applicable to the
Portfolios which are fully set forth in the Statement of Additional Information.
Some of these restrictions, which are fundamental and may not be changed without
shareholder approval, include the following: (1) no Portfolio will invest 25% or
more of its total assets in any one industry (this restriction does not apply to
securities of the U.S. Government or its agencies and instrumentalities and
repurchase agreements relating thereto); (2) no security can be purchased by a
Portfolio if, as a result, more than 5% of the value of the total assets of that
Portfolio would then be invested in the securities of a single issuer (other
than U.S. Government obligations); and (3) no security can be purchased by a
Portfolio if, as a result, more than 10% of any class of securities, or more
than 10% of the outstanding voting securities of an issuer, would be held by
that Portfolio. Other restrictions, which are not fundamental policies and may
be changed without Shareholder approval include: (1) no Portfolio shall invest
more than 20% of its total assets in securities of foreign issuers; and (2) no
Portfolio shall invest in companies for the purpose of exercising control over
management. Additional investment restrictions are set forth in the Statement
of Additional Information.
If a percentage restriction set forth under "Investment Objectives and Policies"
is adhered to at the time of an investment, a later increase or decrease in
percentage resulting from changes in values or assets will not constitute a
violation of such restriction. The foregoing investment restrictions, as well
as all investment objectives and policies designated by the Fund as fundamental
policies in the Statement of Additional Information, may not be changed without
the approval of a "majority" of a Portfolio's shares outstanding, defined as the
lesser of: (a) 67% of the votes cast at a meeting of shareholders for a
Portfolio at which more than 50% of the shares are represented in person or by
proxy, or (b) a majority of the outstanding voting shares of that Portfolio.
These provisions apply to each Portfolio if the action proposed to be taken
affects that Portfolio. The Adviser may also agree to certain additional non-
fundamental investment policies from time to time in order to qualify the shares
of one or both of the Portfolios in various states.
SPECIAL INVESTMENT METHODS
---------------------------
Both of the Portfolios may invest in U. S. Government Securities, repurchase
agreements, options for hedging purposes and money market instruments.
Additionally, the Portfolios may engage in limited borrowings, may invest for
temporary defensive purposes and may purchase fixed-income securities on a when-
issued or delayed-delivery basis. The KPM Fixed Income Portfolio may also
invest in mortgage-backed securities and asset-backed securities. The KPM
Equity Portfolio may invest in convertible securities. Descriptions of such
securities, and the inherent risks of investing in such securities, are set
forth below. Additional information about special investment methods is set
forth in the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES
- --------------------------
The Portfolios may invest in U.S. Government Securities which are obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Obligations issued by the U.S. Treasury include Bills, Notes and Bonds
("Treasury Securities") which differ from each other mainly in their interest
rates and the length of their maturity at original issue. In this regard,
Treasury Bills have a maturity of one year or less, Treasury Notes have
maturities of one to ten years and Treasury Bonds generally have maturities
greater than ten years. Such Treasury Securities are backed by the full faith
and credit of the U.S. Government.
The obligations of U.S. Government agencies or instrumentalities are guaranteed
or backed in a variety of ways by the U.S. Government, its agencies or
instrumentalities. Some of these obligations, such as Government National
Mortgage Association mortgage-related securities, and obligations of the Farmers
Home Administration, are backed by the full faith and credit of the U. S.
Treasury. Obligations of the Farmers Home Administration are also backed by the
issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks and the Farmers Home Administration are backed by the discretionary
authority of the U.S. Government to purchase certain obligations of agencies or
instrumentalities. Obligations of Federal Home Loan Banks, the Farmers Home
Administration, Federal Farm Credit Banks, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation are backed by the
credit of the agency or instrumentality issuing the obligations.
As with all fixed-income securities, various market forces influence the value
of such securities. There is an inverse relationship between the market value
of such securities and yield. As interest rates rise, the value of the
securities falls; conversely, as interest rates fall, the market value of such
securities rises.
REPURCHASE AGREEMENTS
- ----------------------
The Portfolios may also enter into repurchase agreements on U.S. Government
Securities to invest cash awaiting investment and/or for temporary defensive
purposes. A repurchase agreement involves the purchase by a Portfolio of U.S.
Government Securities with the condition that after a stated period of time
(usually seven days or less) the original seller will buy back the same
securities ("collateral") at a predetermined price or yield. Repurchase
agreements involve certain risks not associated with direct investments in
securities. In the event the original seller defaults on its obligation to
repurchase, as a result of its bankruptcy or otherwise, the Portfolio will seek
to sell the collateral, which action could involve costs or delays. In such
case, the Portfolio's ability to dispose of the collateral to recover such
investment may be restricted or delayed. While collateral will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest due thereunder), to the extent proceeds from the
sale of collateral were less than the repurchase price, a Portfolio would suffer
a loss.
MORTGAGE-BACKED SECURITIES
- --------------------------
Mortgage loans made by banks, savings and loan institutions, and other lenders
are often assembled into pools which are issued and guaranteed by an agency or
instrumentality of the U.S. Government, though not necessarily backed by the
full faith and credit of the U.S. Government itself. Pools are also created
directly by banks, savings and loans and other mortgage lenders with mortgage
loans that have been made by these institutions. Interests in such pools are
described as "Mortgage-Backed Securities". These include securities issued by
the Government National Mortgage Association ("GNMA"), Federal Home Loan
Mortgage Corporation ("FHLMC"), and the Federal National Mortgage Association
("FNMA"). The KPM Fixed Income Portfolio may invest in Mortgage-Backed
Securities representing undivided ownership interests in pools of mortgage
loans, including GNMA, FHLMC, and FNMA certificates and loans issued directly by
banks, savings and loans and other mortgage lenders.
The KPM Fixed Income Portfolio may invest a portion of its assets in
Collateralized Mortgage Obligations ("CMOs"), which are debt obligations
collateralized by mortgage loans or mortgage pass-through securities.
Typically, CMOs are collateralized by certificates issued by GNMA, FNMA or FHLMC
but also may be collateralized by whole loans or private mortgage pass-through
securities (such collateral collectively hereinafter referred to as "Mortgage
Assets").
The KPM Fixed Income Portfolio may also invest a portion of its assets in
multi-class pass-through securities which are interests in a trust composed of
Mortgage Assets. CMOs (which include multi-class pass-through securities)
may be issued by agencies, authorities or instrumentalities of the U.S.
Government or by private originators or investors in mortgage loans, including
savings and loan associations, mortgage banks, commercial banks, investments
banks and special-purpose subsidiaries of the foregoing. Payments of principal
and interest on Mortgage Assets, and any reinvestment income thereon, provide
the funds to pay debt service on the CMOs or make scheduled distributions on
the multi-class pass-through securities. In a CMO, a series of bonds or
certificates is usually issued in multiple classes with different maturities.
Each class of CMOs, often referred to as a "tranche", is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal repayments on the Mortgage Assets may cause the CMOs to be
retired substantially earlier than their stated maturities or final distri-
bution dates, resulting in a loss of all or part of the premium if any has
been paid.
The KPM Fixed Income Portfolio may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class.
These simultaneous payments are taken into account in calculating the stated
maturity date or final distribution date of each class, which as with other CMO
structures, must be retired by its stated maturity date but may be retired
earlier. PAC Bonds generally require payment of a specified amount of principal
on each payment date. PAC Bonds are always parallel pay CMOs with the required
principal payment of such securities having the highest priority after interest
has been paid to all classes.
ASSET-BACKED SECURITIES
- -----------------------
Asset-backed securities are securities secured by non-mortgage assets such as
company receivables, truck and auto loans, leases, credit card receivables and
other consumer loans. Such securities are generally issued as pass-through
certificates, which represent undivided fractional ownership interests in the
underlying pools of assets. Such securities also may be debt instruments, which
are also known as collateralized obligations and are generally issued as the
debt of a special-purpose entity, such as a trust, organized solely for the
purpose of owning such assets and issuing such debt. The KPM Fixed Income
Portfolio may invest in these and other types of asset-backed securities that
may be developed in the future.
Asset-backed securities are not issued or guaranteed by the U.S. Government or
its agencies or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for a
certain period by a letter of credit issued by a financial institution (such as
bank or insurance company) unaffiliated with the issuers of such securities, or
insured by a financial insurance company. The purchase of asset-backed
securities raises risk considerations peculiar to the instruments underlying
such securities. For example, there is a risk that another party could acquire
an interest in the obligations superior to that of the holders of the asset-
backed securities. There also is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on those
securities. The ability of an issuer of asset-backed securities to enforce its
security interest in the underlying assets may be limited. In addition, some
asset-backed securities (e.g., credit card receivables are unsecured obligations
of the card holders).
Mortgage-backed and asset-backed securities have yield and maturity
characteristics corresponding to the underlying assets. Unlike corporate debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on certain mortgage-backed
securities and asset-backed securities include both interest and a partial
payment of principal. In addition to scheduled repayment of principal via
normal amortization, payments of principal may result from the voluntary
prepayment, refinancing, or foreclosure of the underlying loans. Asset-backed
securities entail prepayment risk, which may vary depending on the type of
asset, but is generally less than the prepayment risk associated with mortgage-
backed securities.
Due to their prepayment aspect, mortgage-backed and asset-backed securities are
less effective than other types of securities as a means of "locking in"
attractive long-term interest rates. This is caused by the need to reinvest
repayment of scheduled principal and the possibility of significant unscheduled
prepayments resulting from declines in interest rates. In such an environment
these prepayments would have to be reinvested at lower interest rates. As a
result, these securities may have less potential for capital appreciation during
periods of declining interest rates than other securities of comparable
maturities, although they may have a comparable risk of decline in market value
during periods of rising interest rates. At times, some of the mortgage-backed
and asset-backed securities in which the Fund may invest will have higher than
market interest rates, and will therefore be purchased at a premium above their
par value. Unscheduled prepayments, which are made at par, will cause a Fund to
suffer a loss equal to any unamortized premium.
OPTIONS TRANSACTIONS
- ---------------------
The KPM Equity Portfolio may purchase put options, solely for hedging purposes,
in order to protect portfolio holdings in an underlying security against a
substantial decline in the market value of such holdings ("protective puts").
Such protection is provided during the life of the put because the Portfolio may
sell the underlying security at the put exercise price, regardless of a decline
in the underlying security's market price. Any loss to the Portfolio is limited
to the premium paid for, and transaction costs paid in connection with, the put
plus the initial excess, if any, of the market price of the underlying security
over the exercise price. However, if the market price of such security
increases, the profit a Portfolio realizes on the sale of the security will be
reduced by the premium paid for the put option less any amount for which the put
is sold.
The KPM Equity Portfolio may also purchase call options solely for the purpose
of hedging against an increase in prices of securities that the Portfolio
ultimately wants to buy. Such protection is provided during the life of the
call option because the Portfolio may buy the underlying security at the call
exercise price regardless of any increase in the underlying security's market
price. In order for a call option to be profitable, the market price of the
underlying security must rise sufficiently above the exercise price to cover the
premium and transaction costs. By using call options in this manner, a
Portfolio will reduce any profit it might have realized had it bought the
underlying security at the time it purchased the call option by the premium paid
for the call option and by transaction costs.
The KPM Equity Portfolio may only purchase exchange-traded put and call options.
Exchange-traded options are third party contracts with standardized strike
prices and expiration dates and are purchased from a clearing corporation.
Exchange-traded options have a continuous liquid market while other options may
not. See "Investment Objectives and Policies--Investment Restrictions."
Use of options in hedging strategies is intended to protect performance but can
result in poorer performance than without hedging with options, if the Adviser
is incorrect in its forecasts of the direction of stock prices. Normally, the
Portfolio will only invest in options to protect existing positions and, as a
result, will normally invest no more than 10% of the Portfolio's assets in
options.
CONVERTIBLE SECURITIES
- -----------------------
The KPM Equity Portfolio may invest in convertible securities which are rated
investment grade, BBB or better by S&P or Baa or better by Moody's. The KPM
Fixed Income Portfolio will not invest in convertible securities. Convertible
securities are securities that may be exchanged or converted into a
predetermined number of the issuer's underlying common shares at the option of
the holder during a specified time period. Convertible securities may take the
form of convertible preferred stock, convertible bonds or debentures, or a
combination of the features of these securities. The investment characteristics
of convertible securities vary widely, allowing convertible securities to be
employed for different investment objectives.
Convertible bonds and convertible preferred stocks are fixed-income securities
entitling the holder to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. They are senior securities, and, therefore, have a claim
to assets of the issuer prior to the common stock in the case of liquidation.
However, convertible securities are generally subordinated to non-convertible
securities of the same company. The interest income and dividends from
convertible bonds and preferred stocks provide a stream of income with generally
higher yields than common stocks, but lower than non-convertible securities of
similar quality.
As with all fixed-income securities, various market forces influence the market
value of convertible securities, including changes in the prevailing level of
interest rates. As the level of interest rates increases, the market value of
convertible securities tends to decline and, conversely, as interest rates
decline, the market value of convertible securities tends to increase. The
unique investment characteristic of convertible securities (the right to
exchange for the issuer's common stock) causes the market value of the
convertible securities to increase when the value of the underlying common stock
increases. However, because security prices fluctuate, there cannot be an
assurance of capital appreciation. Most convertible securities will not
reflect as much capital appreciation as their underlying common stocks. When
the underlying common stock is experiencing a decline, the value of the
convertible security tends to decline to a level approximating the
yield-to-maturity basis of straight nonconvertible debt of similar quality,
often called "investment value," and may not experience the same decline as the
underlying common stock.
Most convertible securities sell at a premium over their conversion values
(i.e., the number of shares of common stock to be received upon conversion
multiplied by the current market price of the stock). This premium represents
the price investors are willing to pay for the privilege of purchasing a
fixed-income security with a possibility of capital appreciation due to the
conversion privilege. If this appreciation potential is not realized, the
premium may not be recovered.
MONEY MARKET INSTRUMENTS
- ------------------------
The Portfolios may invest in money market instruments which include:
(i) U.S. Treasury Bills;
(ii) U.S. Treasury Notes with maturities of 18 months or less;
(iii) U.S. Government Securities subject to repurchase agreements;
(iv)Obligations of domestic branches of U.S. banks (including certificates
of deposit and bankers' acceptances with maturities of 18 months or
less) which, at the date of investment, have capital, surplus, and
undivided profits (as of the date of their most recently published
financial statements) in excess of $10,000,000 and obligations of other
banks or savings and loan associations if such obligations are insured
by the Federal Deposit Insurance Corporation ("FDIC") or the Federal
Savings and Loan Insurance Corporation ("FSLIC");
(v) Commercial paper which at the date of investment is rated A-1 by S&P or
P-1 by Moody's or, if not rated, is issued or guaranteed as to payment
of principal and interest by companies which, at the date of investment,
have an outstanding debt issue rated AA or better by S&P or Aa or better
by Moody's;
(vi)Short-term (maturing in one year or less) corporate obligations which,
at the date of investment, are rated AA or better by S&P or Aa or better
by Moody's; and
(vii) Shares of no-load money market mutual funds (subject to the ownership
restrictions of the Investment Company Act of 1940 ("1940 Act")). See
"Investment Policies and Restrictions" in the Statement of Additional
Information.
Investment by a Portfolio in shares of a money market mutual fund indirectly
results in the investor paying not only the advisory fee and related fees
charged by the Portfolio, but also the advisory fees and related fees charged by
the adviser and other entities providing services to the money market mutual
fund.
BORROWING
- ----------
The Portfolios may borrow money from banks for temporary or emergency purposes
in an amount of up to 10% of the value of a Portfolio's total assets. Interest
paid by a Portfolio on borrowed funds would decrease the net earnings of that
Portfolio. Neither of the Portfolios will purchase portfolio securities while
outstanding borrowings exceed 5% of the value of the Portfolio's total assets.
Each of the Portfolios may mortgage, pledge, or hypothecate its assets in an
amount not exceeding 10% of the value of its total assets to secure temporary or
emergency borrowing. The policies set forth in this paragraph are fundamental
and may not be changed with respect to a Portfolio without the approval of a
majority of that Portfolio's shares.
TEMPORARY DEFENSIVE POSITIONS
- ------------------------------
Both Portfolios may deviate from their fundamental and non-fundamental
investment policies during periods of adverse or abnormal market, economic,
political and other circumstances requiring immediate action to protect assets.
In such cases, the Portfolios may invest up to 100% of their assets in U.S.
Government Securities and any Money Market Investment described above.
MANAGEMENT
-----------
BOARD OF DIRECTORS
- -------------------
As in all corporations, the Fund's Board of Directors has the primary
responsibility for overseeing the overall management of the Fund. The Board of
Directors meets periodically to review the activities of the Portfolios and the
Adviser and to consider policy matters relating to the Portfolios and the Fund.
INVESTMENT ADVISER AND ADMINISTRATOR
- ------------------------------------
KPM has been retained under an Investment Advisory Agreement with the Fund to
act as the Portfolios' Adviser subject to the authority of the Board of
Directors. KPM is a wholly owned subsidiary of KFS Corporation, which is a
wholly owned subsidiary of Mutual of Omaha Insurance Company.
The Adviser furnishes the Portfolios with investment advice and, in general,
supervises the management and investment programs of the Fund. The Adviser
furnishes at its own expense all necessary administrative services, office
space, equipment, clerical personnel for servicing the investments of the
Portfolios, investment advisory facilities, executive and supervisory personnel
for managing the investments and effecting the securities transactions of the
Portfolios. In addition, the Adviser pays the salaries and fees of all officers
and directors of the Fund who are affiliated persons of the Adviser. Under the
Investment Advisory Agreement, the Adviser receives a monthly fee computed
separately for the Portfolios at an annual rate of 0.80% for the KPM Equity
Portfolio and 0.60% for the KPM Fixed Income Portfolio of the daily average net
asset value of the respective Portfolio. The advisory fee paid to the Adviser
for managing the KPM Equity Portfolio is higher than that paid by most other
investment companies.
The KPM Equity Portfolio is managed jointly by Rodney D. Cerny, President of the
Fund and Executive Vice President and Chief Investment Officer of the Adviser,
and Bruce H. Van Kooten, First Vice President and Portfolio Manager for the
Adviser. Mr. Cerny is a Chartered Financial Analyst with a bachelor of science
degree from the University of Nebraska-Lincoln and has been affiliated with KPM
in various capacities since 1986. Mr. Cerny has been an investment analyst
since 1975. Mr. Van Kooten is a Chartered Financial Analyst with a bachelor of
science degree from Iowa State University. Mr. Van Kooten has been a portfolio
manager with KPM since 1988. Prior to that time, Mr. Van Kooten was a Trust
Investment Officer for a regional national bank from 1982 through 1988.
The Fixed Income Portfolio is managed by Patrick M. Miner, Vice President of the
Adviser. Mr. Miner is a Chartered Financial Analyst and received his bachelor
of science degree from the University of Nebraska-Lincoln in 1972. Mr. Miner
has been affiliated with Mutual of Omaha since 1992. Prior to that time,
Mr. Miner was a portfolio manager for a regional national bank from 1984 through
1992 and was an account executive with two broker-dealer firms from 1978 through
1984.
Firstar Trust Company has been retained as the Fund's administrator, transfer
agent and fund accountant under a Fund Administration Servicing Agreement,
Transfer Agent Servicing Agreement and Fund Accounting Servicing Agreement with
the Fund. The Administrator provides all necessary recordkeeping services and
share transfer services for the Fund.
EXPENSES
- ---------
The expenses paid by the Portfolios are deducted from total income before
dividends are paid. These expenses include, but are not limited to, the fees
paid to the Adviser, the Administrator and the Distributor (under the Rule 12b-1
Plan), taxes, interest, ordinary and extraordinary legal and auditing fees,
custodial charges, registration and blue sky fees incurred in registering and
qualifying the Portfolio under state and federal securities laws, association
fees, director fees paid to directors who are not affiliated with the Adviser,
and any other fees not expressly assumed by the Adviser or Administrator. Any
general expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated to the Portfolios on a pro rata basis at
the time such expenses are accrued. The Portfolios pay their own brokerage
commissions and related transactions costs.
PORTFOLIO BROKERAGE
- --------------------
The primary consideration in effecting transactions for the Portfolios is
execution at the most favorable prices. The Adviser has complete freedom as to
the markets in and the broker-dealers through or with which (acting on an agency
basis or as principal) they seek execution. The Adviser may consider a number
of factors in determining which broker-dealers to use for the Portfolios'
transactions. These factors, which are also discussed in the Statement of
Additional Information, include research services, the reasonableness of com-
missions, the quality of services and execution. Portfolio transactions for the
Portfolios may be effected through the Distributor if the commissions, fees or
other remuneration received by the Distributor are reasonable and fair compared
to the commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. In
effecting portfolio transactions through the Distributor, the Portfolios intend
to comply with Section 17(e)(1) of the 1940 Act, as amended.
The Adviser may also purchase securities from time to time from broker-dealers
who are participating as underwriters in a firm commitment underwriting of
municipal securities where the Distributor is also a member of the selling
syndicate. The Board of Directors of the Fund has adopted a policy pursuant to
Rule 10f-3 under the 1940 Act governing such purchases. The purchase of such
municipal securities shall only be made pursuant to the requirements of Rule
10f-3 and the policies adopted by the Board of Directors of the Fund.
The Board of Directors of the Fund has also adopted a policy pursuant to Rule
17a-7 under the 1940 Act which allows certain principal transactions between
certain remote affiliates of the Fund and the Fund and between Portfolios of the
Fund. These transactions will only be effected in accordance with the
provisions of Rule 17a-7 under the 1940 Act and are further restricted by the
policies adopted by the Board of Directors pursuant thereto.
DISTRIBUTOR
- ------------
Kirkpatrick Pettis serves as distributor and principal underwriter for the Fund
pursuant to a Distribution Agreement and a Rule 12b-1 Plan. Kirkpatrick Pettis
bears all expenses of providing distribution services pursuant to the
Distribution Agreement. Kirkpatrick Pettis provides for the preparation of
advertising or sales literature and bears the cost of printing and mailing
prospectuses to persons other than shareholders. The Fund bears the cost of
qualifying and maintaining the qualification of Fund shares for sale under the
securities laws of the various states and the expense of registering their
shares with the Securities and Exchange Commission. For its services under the
Distribution Agreement, Kirkpatrick Pettis receives a fee, payable monthly, at
the annual rate of 0.25% of average daily net assets of the shares of each
Portfolio. This fee is accrued daily as an expense of each Portfolio.
Kirkpatrick Pettis, as the Distributor, may enter into related selling group
agreements with various broker-dealer firms that provide distribution services
to investors. Kirkpatrick Pettis does not currently compensate firms for sales
of shares of the Fund, but may elect to pay such compensation solely from its
assets. Kirkpatrick Pettis may, from time to time, pay additional commissions
or promotional incentives to firms that sell shares of the Fund. In some
instances, such additional commissions, fees or other incentives may be offered
only to certain firms that sell or are expected to sell during specified time
periods certain minimum amounts of shares of the Fund, or of other funds
distributed by Kirkpatrick Pettis.
Banks and other financial services firms may provide administrative services to
facilitate transactions in shares of the Fund for their clients, and Kirkpatrick
Pettis may pay them a fee up to the level of the distribution fee allowable as
described above. Banks currently are prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. If the Glass-
Steagall Act should prevent banking firms from acting in any capacity or
providing any of the described services, management will consider what action,
if any, is appropriate in order to provide efficient services for the Fund.
Banks or other financial services firms may be subject to various state laws
regarding the services described above and may be required to register as
dealers pursuant to state law. The Fund does not believe that a termination of
a relationship with a bank would result in any material adverse consequence to
the Fund.
Since the Distribution Agreement provides for fees that are used by Kirkpatrick
Pettis to pay for distribution services, the Distribution Agreement along with
the related selling agreements is approved and reviewed in accordance with the
Fund's Rule 12b-1 Plan under the 1940 Act, which regulates the manner in which
an investment company may, directly or indirectly, bear the expenses of
distributing its shares.
PURCHASE OF SHARES
------------------
GENERAL
- --------
Kirkpatrick Pettis acts as the principal distributor of the Fund's shares. The
Portfolios' shares may be purchased at the net asset value per share from
registered representatives of Kirkpatrick Pettis, from certain other
broker-dealers who have sales agreements with Kirkpatrick Pettis, or from the
Fund directly. The address of Kirkpatrick Pettis is that of the Fund.
Shareholders will receive written confirmation of their purchases. Stock
certificates will not be issued. Kirkpatrick Pettis reserves the right to
reject any purchase order. Shares of the Portfolios are offered to the public
without a sales charge at the net asset value per share next determined
following receipt of an order by Kirkpatrick Pettis or the Fund. See "Valuation
of Shares."
Payment for Fund shares should be made by check or money order in U.S.
dollars drawn on a U.S. bank, savings and loan, or credit union. The minimum
aggregate initial investment in the Portfolios is $25,000. Subsequent
investments of at least $1,000 may be made by mail or by wire. For investors
using the Automatic Investment Plan, as described below, the minimum
investment is $10,000 with a minimum monthly investment of $250. These minimums
can be changed or waived by the Fund at any time. Shareholders will be given
at least 30 days' notice of any increase in the minimum dollar amount of
subsequent investments.
INITIAL INVESTMENT - MINIMUM $25,000
You may purchase Portfolio shares by completing the enclosed shareholder
application and mailing it and a check or money order payable to "KPM Funds,
Inc." to the Distributor or the Transfer Agent. The minimum initial investment
is $25,000. All funds should be payable in U.S. dollars only and checks must be
drawn on a U.S. Bank. If mailing to the Distributor, please send to
Kirkpatrick, Pettis, Smith, Polian Inc. at 10250 Regency Circle, Omaha, Nebraska
68114. If Mailing to the Transfer Agent, please send to the following address:
Firstar Trust Company, Mutual Fund Services, P.O. Box 701, Milwaukee, Wisconsin
53201-0701. In addition, overnight mail should be sent to the following address:
KPM Funds, Inc., Firstar Trust Company, Mutual Fund Services, Third Floor, 615
East Michigan Street, Milwaukee, Wisconsin 53202. The Fund does not consider
the U.S. Postal Service or other independent delivery services to be its agents.
Therefore, deposit in the mail or with such services, or receipt at the Transfer
Agent's post office box, of purchase applications does not constitute receipt by
the Transfer Agent or the Fund. Do not mail letters by overnight courier to the
post office box.
If your check does not clear, you will be charged a $20 service fee. You
will also be responsible for any losses suffered by the Fund as a result.
Neither cash nor third-party checks will be accepted. All applications to
purchase Portfolio shares are subject to acceptance by the Fund and are not
binding until so accepted. The Fund reserves the right to decline or accept a
purchase order application in whole or in part.
WIRE PURCHASES
You may also purchase Portfolio shares by wire. The following instructions
should be followed when wiring funds to the Transfer Agent for the purchase of
Portfolio shares:
Wire to: Firstar Bank
ABA Number 075000022
Credit: Firstar Trust Company
Account 112-952-137
Further Credit: KPM Funds, Inc.
(shareholder account number)
(shareholder name/account registration)
Please call 1-877-KPM-FUND (1-877-576-3863) prior to wiring any funds to
notify the Transfer Agent that the wire is coming and to verify the proper wire
instructions so that the wire is properly applied when received. The Fund is
not responsible for the consequences of delays resulting from the banking or
Federal Reserve wire system.
TELEPHONE PURCHASES
The telephone purchase option allows investors to make subsequent
investments directly from a bank checking or savings account. To establish the
telephone purchase option on your account, complete the appropriate section in
the shareholder application. Only bank accounts held at domestic financial
institutions that are Automated Clearing House ("ACH") members may be used for
telephone transactions. This option will become effective approximately 15
business days after the application form is received by Firstar. Purchases must
be in amounts of $250 or more and may not be used for initial purchases of a
Portfolio's shares. To have Portfolio shares purchased at the offering price
determined at the close of regular trading on a given date, Firstar must receive
both your purchase order and payment by Electronic Funds Transfer through the
ACH system prior to the close of regular trading on such date. Most transfers
are completed within one business day. Subsequent investments may be made by
calling 1-877-KPM-FUND (1-877-576-3863).
AUTOMATIC INVESTMENT PLAN - MINIMUM $10,000
The Automatic Investment Plan ("AIP") allows you to make regular,
systematic investments in one or more of the Funds from your bank checking or
NOW account. The minimum initial investment for investors using the AIP is
$10,000. To establish the AIP, complete the appropriate section in the
shareholder application. Under certain circumstances (such as discontinuation
of the AIP before a Fund's minimum initial investment is reached), the Fund
reserves the right to close the investor's account. Prior to closing any
account for failure to reach the minimum initial investment, the Fund will give
the investor written notice and 60 days in which to reinstate the AIP or
otherwise reach the minimum initial investment. You should consider your
financial ability to continue in the AIP until the minimum initial investment
amount is met because the Fund has the right to close an investor's account for
failure to reach the minimum initial investment. Such closing may occur in
periods of declining share prices.
Under the AIP, you may choose to make monthly investments on the days of
your choosing (or the next business day thereafter) from your financial
institution in amounts of $250 or more. There is no service fee for
participating in the AIP. However, a service fee of $20 will be deducted from
your Fund account for any AIP purchase that does not clear due to insufficient
funds or, if prior to notifying the Fund in writing or by telephone of your
intention to terminate the plan, you close your bank account or in any manner
prevent withdrawal of funds from the designated checking or NOW account. You
can set up the AIP with any financial institution that is a member of ACH.
The AIP is a method of using dollar cost averaging which is an investment
strategy that involves investing a fixed amount of money at a regular time
interval. However, a program of regular investment cannot ensure a profit or
protect against a loss from declining markets. By always investing the same
amount, you will be purchasing more shares when the price is low and fewer
shares when the price is high. Since such a program involves continuous
investment regardless of fluctuating share values, you should consider your
financial ability to continue the program through periods of low share price
levels.
SUBSEQUENT INVESTMENTS - MINIMUM $1,000
Additions to your account may be made by mail or by wire. Any subsequent
investment must be for at least $1,000. When making an additional purchase by
mail, enclose a check payable to "KPM Funds, Inc." and the Additional Investment
Form provided on the lower portion of your account statement. To make an
additional purchase by wire, please call 1-877-KPM-FUND (1-877-576-3863) for
complete wiring instructions.
REDEMPTION OF SHARES
--------------------
IN GENERAL
Investors may request redemption of part or all of their Portfolio shares
at any time at the next determined net asset value. See "Valuation of Shares."
No redemption request will become effective until a redemption request is
received in proper form (as described below) by Firstar. An investor should
contact Firstar for further information concerning redemption of Portfolio
shares. The Fund normally will mail your redemption proceeds the next business
day and, in any event, no later than seven days after receipt of a redemption
request in good order. However, when a purchase has been made by check, the
Fund may hold payment on redemption proceeds until it is reasonably satisfied
that the check has cleared, which may take up to 12 days.
Redemptions may also be made through brokers or dealers. Such redemptions
will be effected at the net asset value next determined after receipt by the
Fund of the broker or dealer's instruction to redeem shares. Some brokers or
dealers may charge a fee in connection with such redemptions.
Investors who have an Individual Retirement Account ("IRA") must indicate
on their redemption requests whether or not federal income tax should be
withheld. Redemption requests failing to make an election will be subject to
withholding.
Checks will be sent to the investor's address of record. If the proceeds
of the redemption are requested to be sent to an address other than the address
of record or if the address of record has been changed within 15 days of the
redemption request, the request must be in writing with the investor's signature
guaranteed. If the U.S. Postal Service is unable to deliver the check to the
address of record or if the check remains outstanding for at least six months,
the Fund reserves the right to reinvest the check at the then current net asset
value.
Your account may be terminated by the Fund on not less than 30 days' notice
if, at the time of any redemption of shares in your account, the value of the
remaining shares in the account falls below $25,000. Upon any such termination,
a check for the proceeds of redemption will be sent to you within seven days of
the redemption.
WRITTEN REDEMPTION
For most redemption requests, an investor need only furnish a written,
unconditional request to redeem his or her shares at net asset value to the
Transfer Agent: Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin
53201-0701. Overnight mail should be sent to KPM Funds, Inc., Firstar Trust
Company, Mutual Fund Services, Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202. Requests for redemption must (i) be signed exactly as the
shares are registered, including the signature of each owner, and (ii) specify
the number of shares or dollar amount to be redeemed. Redemption proceeds made
by written redemption request may also be wired to a commercial bank that you
have authorized on your account application.. Additional documentation may be
requested from corporations, executors, administrators, trustees, guardians,
agents or attorneys-in-fact. The Fund does not consider the U.S. Postal Service
or other independent delivery services to be its agents. Therefore, deposit in
the mail or with such services, or receipt at the Transfer Agent's post office
box of redemption requests does not constitute receipt by the Transfer Agent or
the Fund. Do not mail letters by overnight courier to the post office box. Any
written redemption requests received within 15 days after an address change must
be accompanied by a signature guarantee.
TELEPHONE REDEMPTION
Shares of the Portfolios may also be redeemed by calling the Transfer Agent
at 1-877-KPM-FUND (1-877-576-3863). Redemption requests by telephone are
available for redemptions of $1,000 or more. Redemption requests for less than
$1,000 must be in writing. To redeem shares by telephone, an investor must
check the appropriate box on the account application. Proceeds redeemed by
telephone can be mailed, wired, or sent via ACH only to an investor's address or
bank of record as shown on the records of the Transfer Agent. Funds sent via
ACH are automatically credited to your account within three business days.
There is currently no charge for this service. To change the designated
account, send a written request with signature(s) guaranteed to the Transfer
Agent. To change the address, call the Transfer Agent or send a written request
with signature(s) guaranteed to the Transfer Agent. Additional documentation
may be requested from corporations, executors, administrators, trustees,
guardians, agents or attorneys-in-fact. No telephone redemption requests will
be allowed within 15 days of such a change. The Fund reserves the right to
limit the number of telephone redemptions by an investor. Once made, telephone
redemptions may not be modified or canceled.
The Transfer Agent will use reasonable procedures to ensure that
instructions received by telephone are genuine. These procedures may include
requiring some form of personal identification prior to acting upon telephone
instructions, recording telephonic transactions and/or sending written
confirmation of such transactions to investors. Assuming procedures such as the
above have been followed, neither the Fund nor the Transfer Agent will be liable
for any loss, cost, or expense for acting upon an investor's instructions or for
any unauthorized telephone redemption. The Fund reserves the right to refuse a
telephone redemption request if so advised.
SYSTEMATIC WITHDRAWAL PLAN
You may set up automatic withdrawals from your account at regular
intervals. To begin distributions, you must have an initial balance of $50,000
in your account and withdraw at least $250 per payment. To establish the
systematic withdrawal plan ("SWP"), you must complete the appropriate section in
the shareholder application. Redemptions will take place on a monthly,
quarterly, semi-annual or annual basis (or the following business day) as
indicated on your shareholder application. You may vary the amount or frequency
of withdrawal payments or temporarily discontinue them by calling 1-877-KPM-
FUND (1-877-576-3863). Depending upon the size of the account and the
withdrawals requested (and fluctuations in the net asset value of the shares
redeemed), redemptions for the purpose of satisfying such withdrawals may reduce
or even exhaust your account. If the amount remaining in your account is not
sufficient to meet a plan payment, the remaining amount will be redeemed and the
SWP will be terminated.
SIGNATURE GUARANTEES
Signature guarantees are required for: (i) redemption requests to be mailed
or wired to a person other than the registered owner(s) of the shares; (ii)
redemption requests to be mailed or wired to an address other than the address
that appears of record and (iii) any redemption request if a change of address
has been received by the Fund or Transfer Agent within the last 15 days. A
signature guarantee may be obtained from any eligible guarantor institution,
as defined by the SEC. These institutions generally include banks, saving
associations, credit unions and brokerage firms (including Kirkpatrick Pettis).
Please note that a notary public stamp or seal is not acceptable.
INVOLUNTARY REDEMPTION
- ------------------------
The Fund reserves the right to redeem a shareholder's account at any time the
net asset value of the account falls below $5,000 as the result of a redemption
or transfer request. Shareholders will be notified in writing that the value of
their account is less than $5,000 and will be allowed 30 days to make additional
investments before the redemption is processed.
REDEMPTIONS IN KIND
- --------------------
If your redemption request exceeds the lesser of $250,000 or 1% of the NAV (an
amount that would affect fund operations), the Fund reserves the right to make a
"redemption in-kind." A redemption in-kind is a payment in portfolio securities
rather than cash. The portfolio securities would be valued according to their
NAV. You may have additional expenses such as brokerage commissions for the
sale of the securities received from the Fund. In-kind payments do not have to
constitute a cross section of the Fund's portfolio. The Fund will not recognize
gain or loss for federal tax purposes on the securities used to complete an in-
kind redemption, but you will recognize gain or loss equal to the difference
between the fair market value of the securities received and the shareholder's
basis in the Fund shares redeemed.
VALUATION OF SHARES
--------------------
The Portfolios determine their net asset value on each day the New York Stock
Exchange (the "Exchange") is open for business. The calculation is made as of
the close of business of the Exchange (currently 4:00 p.m., New York time) after
the Portfolios have declared any applicable dividends.
The net asset value per share for each of the Portfolios is determined by
dividing the value of the securities owned by the Portfolio plus any cash and
other assets (including interest accrued and dividends declared but not
collected) less all liabilities by the number of Portfolio shares outstanding.
For the purposes of determining the aggregate net assets of the Portfolios, cash
and receivables will be valued at their face amounts. Interest will be recorded
as accrued and dividends will be recorded on the ex-dividend date. Securities
traded on a national securities exchange are valued at the last reported sale
price that day. 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. Portfolio securities
underlying actively traded options will be valued at their market price as
determined above. The current market value of any exchange-traded option held
by a Portfolio is its last sales price on the exchange prior to the time when
assets are valued unless the bid price is higher or the asked price is lower, in
which event such bid or asked price is used. Lacking any sales that day, the
options will be valued at the mean between the current closing bid and asked
prices. Securities and other assets for which market prices are not readily
available are valued at fair value as determined in good faith by the Board of
Directors. With the approval of the Board of Directors, the Portfolios may
utilize a pricing service, bank, or broker-dealer experienced in such matters to
perform any of the above-described functions.
INDIVIDUAL RETIREMENT ACCOUNTS
Individuals may establish their own tax-sheltered IRAs. The Fund offers
various types of IRAs, including the Traditional IRA, that can be adopted by
executing the IRA application form.
TRADITIONAL IRA
In a Traditional IRA, amounts contributed to the IRA may be tax deductible
at the time of contribution depending on whether the investor is an "active
participant" in an employer-sponsored retirement plan and the investor's income.
Distributions from a Traditional IRA will be taxed at distribution except to the
extent that the distribution represents a return of the investor's own
contributions for which the investor did not claim (or was not eligible to
claim) a deduction. Distributions prior to age 59-1/2 may be subject to an
additional 10% tax applicable to certain premature distributions. Distributions
must commence by April 1 following the calendar year in which the investor
attains age 70-1/2. Failure to begin distributions by this date (or
distributions that do not equal certain minimum thresholds) may result in
adverse tax consequences.
ROTH IRA
In a Roth IRA (sometimes known as the American Dream IRA), amounts
contributed to the IRA are taxed at the time of contribution, but distributions
from the IRA are not subject to tax if the investor has held the IRA for certain
minimum periods of time (generally, until age 59-1/2). Investors whose income
exceeds certain limits are ineligible to contribute to a Roth IRA.
Distributions that do not satisfy the requirements for tax-free withdrawal are
subject to income taxes (and possibly penalty taxes) to the extent that the
distribution exceeds the investor's contributions to the IRA. The minimum
distribution rules applicable to Traditional IRAs do not apply during the
lifetime of the investor. Following the death of the investor, certain minimum
distribution rules apply.
For Traditional and Roth IRAs, the maximum annual contribution generally is
equal to the lesser of $2,000 or 100% of the investor's compensation (earned
income). An individual may also contribute to a Traditional IRA or Roth IRA on
behalf of his or her spouse provided that the individual has sufficient
compensation (earned income). Contributions to a Traditional IRA reduce the
allowable contributions under a Roth IRA, and contributions to a Roth IRA reduce
the allowable contribution to a Traditional IRA.
SIMPLIFIED EMPLOYEE PENSION PLAN
A Traditional IRA may also be used in conjunction with a Simplified
Employee Pension Plan ("SEP-IRA"). A SEP-IRA is established through execution
of Form 5305-SEP together with a Traditional IRA established for each eligible
employee. Generally, a SEP-IRA allows an employer (including a self-employed
individual) to purchase shares with tax deductible contributions not exceeding
annually for any one participant 15% of compensation (disregarding for this
purpose compensation in excess of $160,000 per year). The $160,000 compensation
limit applies for 1998 and is adjusted periodically for cost of living
increases. A number of special rules apply to SEP-IRA Plans, including a
requirement that contributions generally be made on behalf of all employees of
the employer (including for this purpose a sole proprietorship or partnership)
who satisfy certain minimum participation requirements.
SIMPLE IRA
An IRA may also be used in connection with a SIMPLE Plan established by the
investor's employer (or by a self-employed individual). When this is done, the
IRA is known as a SIMPLE IRA, although it is similar to a Traditional IRA with
the exceptions described below. Under a SIMPLE Plan, the investor may elect to
have his or her employer make salary reduction contributions of up to $6,000 per
year to the SIMPLE IRA. The $6,000 limit is adjusted periodically for cost of
living increases. In addition, the employer will contribute certain amounts to
the investor's SIMPLE IRA, either as a matching contribution to those
participants who make salary reduction contributions or as a non-elective
contribution to all eligible participants whether or not making salary reduction
contributions. A number of special rules apply to SIMPLE Plans, including (1) a
SIMPLE Plan generally is available only to employers with fewer than 100
employees; (2) contributions must be made on behalf of all employees of the
employer (other than bargaining unit employees) who satisfy certain minimum
participation requirements; (3) contributions are made to a special SIMPLE IRA
that is separate and apart from the other IRAs of employees; (4) the
distribution excise tax (if otherwise applicable) is increased to 25% on
withdrawals during the first two years of participation in a SIMPLE IRA; and (5)
amounts withdrawn during the first two years of participation may be rolled over
tax-free only into another SIMPLE IRA (and not to a Traditional IRA or to a Roth
IRA). A SIMPLE IRA is established by executing Form 5304-SIMPLE together with
an IRA established for each eligible employee.
Under current IRS regulations, all IRA applicants must be furnished a
disclosure statement containing information specified by the IRS. Applicants
generally have the right to revoke their account within seven days after
receiving the disclosure statement and obtain a full refund of their
contributions. The custodian may, in its discretion, hold the initial
contribution uninvested until the expiration of the seven-day revocation period.
The Custodian does not anticipate that it will exercise its discretion but
reserves the right to do so.
DIVIDENDS AND TAXES
--------------------
DIVIDENDS
- ---------
All net investment income dividends and net realized capital gains distributions
with respect to the shares of either Portfolio will be payable in additional
shares of such Portfolio unless the shareholder gives written notification to
the Fund of an election to receive cash. Dividends for both the KPM Equity
Portfolio and KPM Fixed Income Portfolio will be declared and paid quarterly.
The taxable status of income dividends and/or net capital gains distribution
is not affected by whether they are reinvested or paid in cash. If you choose
to have distribution checks mailed to you and either the U.S. Postal Service is
unable to deliver the check to you or if the check remains outstanding for at
least six months, the Fund reserves the right to reinvest the check at the then
current net asset value until you notify us with different instructions.
TAXES
- ------
The Portfolios will each be treated as separate entities for federal income tax
purposes. The Portfolios of the Fund are presently qualified as "regulated
investment companies" as defined in the Internal Revenue Code and take the
necessary steps to requalify the Portfolios as "regulated investment companies"
on an annual basis. Provided certain distribution requirements are met, the
Portfolios will not be subject to federal income tax on their net investment
income and net capital gains that they distribute to their shareholders.
Shareholders subject to federal income taxation will receive taxable dividend
income or capital gains, as the case may be, from distributions, whether paid in
cash or received in the form of additional shares. Promptly after the end of
each calendar year, each shareholder will receive a statement of the federal
income tax status of all dividends and distributions paid during the year.
The Fund may be required to withhold federal income tax at a rate of 31% (back-
up withholding) from dividend payments, distributions and redemption proceeds if
a shareholder fails to furnish the Fund with his or her social security number.
The shareholder must also certify that the number is correct and that he or she
is not subject to back-up withholding. The certification is included as part of
the share purchase application.
This discussion is only a summary and relates solely to federal tax matters.
Dividends may also be subject to state and local taxation. Shareholders are
urged to consult with their personal tax advisers.
GENERAL INFORMATION
--------------------
CAPITAL STOCK
- --------------
The Fund is authorized to issue a total of one billion shares of common stock,
with a par value of $.00001 per share. Of these shares, the Fund's Articles of
Incorporation authorize the issuance of 50 million shares in each series
designated KPM Equity Portfolio shares and KPM Fixed Income Portfolio shares.
The Board of Directors is empowered under the Fund's Articles of Incorporation
to issue other shares of the Fund's common stock without shareholder approval or
to designate additional authorized but unissued shares for issuance by one or
more existing Portfolios.
All shares, when issued, will be fully paid and nonassessable and will be
redeemable and freely transferable. All shares have equal voting rights. They
can be issued as full or fractional shares. A fractional share has pro rata the
same rights and privileges as a full share. The shares possess no preemptive or
conversion rights.
As of August 17, 1998 Kirkpatrick Pettis had control of the voting power of
826,782.773 shares of the 3,834,436.747 shares outstanding held by it as trustee
of its employees' 401(k) Profit Sharing Plan and an affiliated entity,
Kirkpatrick Pettis Trust Company, had control of the voting power of
1,059,325.632 shares of the 3,834,436.747 shares outstanding held by it as
trustee for its customers. As a result, Kirkpatrick Pettis and Kirkpatrick
Pettis Trust Company could elect all of the directors if such shares were voted
on a noncumulative basis and three out of the five directors if such shares were
voted on a cumulative basis.
VOTING RIGHTS
- -------------
Each share of the Portfolios has one vote (with proportionate voting for
fractional shares) irrespective of the relative net asset value of the Fund's
shares. On some issues, such as the election of directors, all shares of the
Fund, irrespective of series, vote together as one series. Cumulative voting in
the election of directors is authorized. This means that shareholders may
cumulate their shares by multiplying the number of shares they hold by the
number of directors and then allocate the result among one or more directors.
On an issue affecting only one Portfolio, the shares of the Portfolio vote as a
separate series. Examples of such issues would be proposals to (i) change the
Investment Advisory Agreement, (ii) change a fundamental investment restriction
pertaining to only one Portfolio or (iii) change a Portfolio's Distribution
Plan. In voting on the Investment Advisory Agreement or proposals affecting
only one Portfolio, approval of such an agreement or proposal by the
shareholders of one Portfolio would make that agreement effective as to that
Portfolio whether or not the agreement or proposal had been approved by the
shareholders of the Fund's other Portfolios.
SHAREHOLDERS' MEETINGS
- -----------------------
The Fund does not intend to hold annual or periodically scheduled regular
meetings of shareholders unless it is required to do so. Nebraska corporation
law requires only that the Board of Directors of a mutual fund convene
shareholder meetings when it deems appropriate. The 1940 Act requires a
shareholder vote for all amendments to fundamental investment policies and
restrictions, for all investment advisory contracts and amendments thereto, and
for all amendments to Rule 12b-l distribution plans. The Fund's Articles of
Incorporation provide that shareholders also have the right to remove Directors
upon two-thirds vote of the outstanding shares and may call a meeting to remove
a Director upon the application of 10% or more of the outstanding shares. The
Fund is obligated to facilitate shareholder communications in this situation if
certain conditions are met.
ALLOCATION OF INCOME AND EXPENSES
- ---------------------------------
The assets received by the Fund for the issue or sale of shares of the
Portfolios, and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, are allocated to the Portfolios, and constitute
the underlying assets of the Portfolios. The underlying assets of the
Portfolios are required to be segregated on the books of account, and are to be
charged with the expenses of the Portfolios and with a share of the general
expenses of the Fund. Any general expenses of the Fund not readily identifiable
as belonging to a particular series are allocated among all series based upon
the relative net assets of each series at the time such expenses were accrued.
ADMINISTRATOR, TRANSFER AGENT, FUND ACCOUNTANT AND CUSTODIAN
- ------------------------------------------------------------
Firstar Trust Company, Milwaukee, Wisconsin, serves as Custodian for the Fund's
portfolio securities and cash. Firstar Trust Company also serves as the
administrator, transfer agent and fund accountant. In its capacity as transfer
agent and fund accountant, the Administrator performs many of the clerical and
administrative functions for the Portfolios.
YEAR 2000 ISSUES
- ----------------
Like all financial service providers, the Adviser, Administrator, Custodian,
Transfer Agent, Distributor and other third parties utilize systems that may be
affected by Year 2000 transition issues. The services provided to the Fund and
the shareholders by these service providers depend on the smooth functioning of
their computer systems and those of other parties they deal with. Many computer
software systems in use today cannot distinguish the year 2000 from the year
1900 because of the way dates are encoded and calculated. Such an event could
have a negative impact on handling securities trades, payments of interest and
dividends, pricing and account services. Although, at this time, there can be
no assurance that there will be no adverse impact on the Fund, the Fund's
service providers have advised the Fund that they have been actively working on
necessary changes to their computer systems to prepare for the year 2000 and
expect that their systems, and those of other parties they deal with, will be
adapted in time for that event.
REPORTS TO SHAREHOLDERS
- ------------------------
The Fund will issue annual and semi-annual reports, which will include a list
of securities owned by the Fund and financial statements which, in the case of
the annual report, will be examined and reported upon by the Fund's independent
auditor.
LEGAL OPINION
- --------------
The legality of the shares offered hereby has been passed upon in an opinion
rendered by Cline, Williams, Wright, Johnson & Oldfather, 1900 U.S. Bank
Building, 233 South 13th Street, Lincoln, Nebraska 68508.
AUDITORS
- ---------
The Fund's auditors are Deloitte & Touche LLP, Omaha, Nebraska, independent
certified public accountants.
TABLE OF CONTENTS
Introduction 1
Investment Objectives and Policies 5
KPM Equity Portfolio 5
KPM Fixed Income Portfolio 6
Special Investment Methods 7
Management 12
Purchase of Shares 14
Redemption of Shares 16
Valuation of Shares 18
Individual Retirement Accounts 19
Dividends and Taxes 20
General Information 21
No dealer, sales representative or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus (and/or in the Statement of Additional Information referred to on the
cover page of this Prospectus), and, if given or made, such information or
representations must not be relied upon as having been authorized by KPM FUNDS,
Inc. or Kirkpatrick Pettis. This Prospectus does not constitute an offer or
solicitation by anyone in any state in which such an offer or solicitation is
not authorized or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation.
INVESTMENT ADVISER
KPM Investment Management, Inc.
DISTRIBUTOR
Kirkpatrick, Pettis, Smith, Polian Inc.
ADMINISTRATOR, TRANSFER AGENT,
FUND ACCOUNTANT AND CUSTODIAN
Firstar Trust Company
Milwaukee, Wisconsin
KPM FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
September 2, 1998
Table of Contents
Page
Investment Policies and Restrictions 2
Directors and Executive Officers 6
Investment Advisory and Other Services 8
Distribution Plan 10
Portfolio Transactions and Brokerage Allocations 11
Capital Stock and Control 13
Net Asset Value and Public Offering Price 13
Purchase of Shares 14
Redemption 14
Tax Status 14
Calculations of Performance Data 16
Financial Statements 17
Auditors 17
Appendix A - Ratings of Corporate Obligations,
Commercial Paper and Preferred Stock A-1
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information relates to the Prospectus dated September 2,
1998, and should be read in conjunction therewith. A copy of the Prospectus may
be obtained from the Fund or Kirkpatrick, Pettis, Smith, Polian Inc. at 10250
Regency Circle, Omaha, Nebraska 68114.
INVESTMENT POLICIES AND RESTRICTIONS
-------------------------------------
The shares of KPM Funds, Inc. (the "Fund") are offered in series. This
Statement of Additional Information relates to the series designated: KPM
Equity Portfolio and KPM Fixed Income Portfolio (sometimes referred to herein as
a "Portfolio" or, collectively, as the "Portfolios"). The investment objectives
and policies of the Portfolios are set forth in the Prospectus. Certain
additional investment information is set forth below.
Investment Restrictions
- -----------------------
In addition to the investment objectives and policies set forth in the
Prospectus, the Fund and each of the Portfolios is subject to certain investment
restrictions, as set forth below, which may not be changed without the vote of a
majority of the Portfolio's outstanding shares. "Majority," as used in the
Prospectus and in this Statement of Additional Information, means the lesser of
(a) 67% of the Portfolio's outstanding shares voting at a meeting of
shareholders at which more than 50% of the outstanding shares are represented in
person or by proxy or (b) a majority of the Portfolio's outstanding shares.
Similar shareholder approval as required to change the investment
objective of each of the Portfolios. The following discussion provides
fundamental investment restrictions for all Portfolios, non-fundamental policies
for all Portfolios, and then, for each Portfolio, a statement of its investment
objective, a description of its investment restrictions that are matters of
fundamental policy specifically for it and a description of any investment
restrictions that may be changed without shareholder approval. For purposes of
the investment restrictions, all percentage and rating limitations apply at the
time of acquisition of a security, and any subsequent change in any applicable
percentage resulting from market fluctuations or in a rating by a rating service
will not require elimination of any security from the Portfolio. Unless
specifically identified as a matter of fundamental policy, each investment
policy discussed in the Prospectus or the Statement of Additional Information is
not fundamental and may be changed by the Portfolio's Board of Directors.
As fundamental policies, unless otherwise specified below, none of the
Portfolios will:
1. Invest more than 5% of the value of their total assets in the securities
of any one issuer (other than securities of the U.S. Government, its
agencies or instrumentalities).
2. Purchase more than 10% of any class of securities of any one issuer
(taking all preferred stock issues of an issuer as a single class and all
debt issues of an issuer as a single class) or acquire more than 10% of
the outstanding voting securities of an issuer. In the aggregate, the
Fund may not own more than 15% of all classes of securities or more than
10% of the outstanding voting securities of an issuer.
3. Invest 25% or more of the value of their total assets in the securities of
issuers conducting their principal business activities in any one
industry. This restriction does not apply to securities of the U.S.
Government or its agencies and instrumentalities and repurchase
agreements relating thereto. The various types of utilities companies,
such as gas, electric and telephone and telegraph are considered as
separate industries.
4. Issue any senior securities as defined in the Investment Company Act of
1940, as amended ("1940 Act") except as otherwise excepted or excluded by
Section 18(g) of the 1940 Act or as permitted by Investment Company Act
Release No. 10666.
5. Borrow money except from banks for temporary or emergency purposes. The
amount of such borrowing may not exceed the lesser of (i) 10% of the
value of the Portfolio's total assets or (ii) 5% of the value of the
Portfolio's total assets less liabilities other than such borrowings.
None of the Portfolios will purchase securities while outstanding
borrowings exceeds 5% of the value of the Portfolio's total assets. None
of the Portfolios will borrow money for leverage purposes.
6. Make short sales of securities or maintain a short position, except that
short sales against the box shall not be deemed short sales.
7. Purchase any securities on margin except to obtain such short-term credits
as may be necessary for the clearance of transactions.
8. Purchase or retain the securities of any issuer if, to the Portfolio's
knowledge, those officers or directors of the Fund or its affiliates or
of its investment adviser who individually own beneficially more than
0.5% of the outstanding securities of such issuer, together own more than
5% of such outstanding securities.
9. Purchase or sell commodities or commodity futures contracts, except that
the Portfolios may purchase stock and bond index options, financial
futures contracts and options on such contracts.
10. Purchase or sell real estate or real estate mortgage loans, except that
the Portfolios may invest in securities secured by real estate or
interests therein or issued by companies that invest in real estate or
interests therein.
11. Purchase or sell oil, gas or other mineral leases, rights or royalty
contracts, except that the Portfolios may purchase or sell securities of
companies investing in the foregoing.
12. Participate on a joint or a joint and several basis in any securities
trading account (as prohibited by Section 12(a)2 of the 1940 Act) except
as permitted by 16 below.
13. Underwrite securities of other issuers, except that the Portfolio may
acquire portfolio securities under circumstances where if sold the
Portfolio might be deemed an underwriter for purposes of the Securities
Act of 1933.
14. Invest more than 10% of their net assets in restricted securities or more
than 10% of their net assets in repurchase agreements with a maturity of
more than seven days, and other liquid assets, such as securities with no
readily available market quotation. The value of any options purchased
in the over-the-counter market are deemed to be illiquid.
15. Invest more than 5% of their total assets at the time of purchase in
rights and/or warrants (other than those that have been acquired in units
or attached to other securities).
16. Make loans, except that the Portfolios may (i) purchase and hold debt
obligations in accordance with their investment objective and policies,
(ii) enter into repurchase agreements, and (iii) lend portfolio securities
without limitation against collateral (consisting of cash or securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities) equal at all times to not less than 100% of the value
of the securities loaned.
The Fund has also adopted the following restrictions for each of the
Portfolios which are not fundamental policies and may be changed without
shareholder approval. The Portfolios shall not:
17. Invest in warrants that are not listed on the New York or American Stock
Exchange in excess of 2% of the Portfolio's total assets.
18. Invest more than 20% of their total assets in securities of foreign
issuers.
19. Invest more than 5% of their total assets in the purchase of covered
spread options and the purchase of put and call options on securities,
securities indices and financial futures contracts. Options on financial
futures contracts and options on securities indices will be used solely
for hedging purposes--not for speculation.
20. Invest more than 5% of their assets in initial margin and premiums on
financial futures contracts and options on such contracts.
21. Invest in arbitrage transactions.
22. Invest in real estate limited partnership interests.
23. Invest in companies for the purpose of exercising control or management.
24. Purchase the securities of other investment companies except as provided
by Section 12(d)(1) of the 1940 Act.
25. Invest more than 5% of the value of their total assets in the securities
of any issuers which, with their predecessors, have a record of less than
three years' continuous operation. (Securities of such issuers will not
be deemed to fall within this limitation if they are guaranteed by an
entity in continuous operation for more than three years.) Asset-backed
and mortgage-backed securities will not be deemed to fall within this
limitation if the originator of the underlying loan has been in continuous
operation for more than three years. The value of all securities issued
or guaranteed by such guarantor and owned by a Portfolio shall not exceed
10% of the value of the total assets of such Portfolio.
26. Mortgage, pledge or hypothecate their assets except in an amount not
exceeding 15% of the value of their total assets to secure temporary or
emergency borrowing. For purposes of this policy, collateral arrangements
for margin deposits on futures contracts or with respect to the writing of
options are not deemed to be a pledge of assets.
27. Lend Portfolio securities when the value of securities subject to such
transactions and the value of the securities to be loaned would exceed 5%
of the total asset value of the Portfolio.
KPM Equity Portfolio - Investment Objective and Policies
- --------------------------------------------------------
The investment objective of the KPM Equity Portfolio is capital
appreciation. In seeking to achieve this objective, the Adviser's investment
philosophy is to follow a value analysis utilizing fundamental considerations to
identify companies that are either large companies (market capitalizations in
excess of $1 billion) or small to medium capitalization companies (market
capitalizations between $100 million and $1 billion) which are selling at
current prices substantially below what the Adviser believes to be a fair market
price. Determinations of value are not made based upon market movement but are
achieved from the Adviser's analysis of past earnings, future earnings
projections, return on equity, strength and vision of management, price to
earnings ratios and other factors. The Adviser views "long-term fundamental
value" of a company as the value of a company based upon: (1) the level of
earnings and profitability in the employment of the company's assets as
distinguished from currently reported earnings (which may be and frequently are
distorted by transient influences); (2) dividends actually paid or the capacity
to pay such dividends currently and in the future; (3) a realistic expectation
about the company's historical and projected growth of earning power; and (4)
stability and predictability of these quantitative and qualitative projections
of the future economic value of the company.
In selecting equity securities, KPM Equity Portfolio uses a conservative,
fundamental, value selection process. KPM Equity Portfolio employs a "bottom-
up" approach to stock selection. The Adviser uses computer and manual screens
of a large number of publicly-held securities looking for specific balance
sheet, return on investment and valuation criteria. These lists are further
reduced through more in-depth company and industry analysis as well as contacts
with company management. KPM Equity Portfolio looks for above-average quality
companies as evidenced by a strong balance sheet, current or expected high
return on equity and expected growth in excess of the rate of inflation. The
Adviser considers purchase when these companies are selling for low relative
price/earnings ratios. Other valuation criteria such as price/book value,
price/sales per share, price/cash flow per share and current yield are
considered. Target purchase/sale prices are based on analytical judgments of
objective relative price/earnings ratios and current earning power (or
normalized earnings) of the company. Since such target prices are based on
relative price/earnings ratios (relative to the Standard & Poor's 400 average)
these target prices are adjusted as the overall market changes or when estimates
of normalized earnings change. The Adviser considers selling companies as
securities achieve their target price or when there is a fundamental change in
the company's business prospects or other investment criteria.
KPM Fixed Income Portfolio - Investment Objective and Policies
- --------------------------------------------------------------
The investment objective of the KPM Fixed Income Portfolio is to provide a
high level of total return over a market cycle of 3 to 5 years, consistent with
the preservation of capital and prudent investment risk. In seeking to achieve
this objective, the Adviser intends to invest in debt obligations of the U.S.
Government, its agencies and instrumentalities, and corporate bonds rated BBB or
better by Standard & Poor's or Baa or better by Moody's Investors Service. See
Appendix A for a description of ratings. In pursuit of this objective, the
Adviser seeks to identify fixed income securities which provide above-average
relative yield, appreciation potential and safety of principal. Particular
emphasis is placed on credit analysis of corporate issuers to enhance income
return and protect against credit losses. The potential for capital
appreciation is balanced with the need for capital preservation and stability of
income.
This Portfolio will invest in marketable, fixed income securities with
investment grade ratings. These include government obligations, corporate debt,
asset-backed securities and mortgage-backed securities such as mortgage pass-
through certificates and collateralized mortgage obligations (CMO's) issued by
government sponsored agencies and mortgage banking companies. Additional
investments may also include dividend paying preferred stocks, non-investment
grade corporate debt, municipal bonds and various money market instruments.
With respect to asset-backed and mortgage-backed securities, the term issuer
will mean any separate trust or other entity formed exclusively to issue
mortgage-backed and asset-backed securities, consisting of a discrete pool of
underlying loans or leases.
Repurchase Agreements
- ---------------------
Both of the Portfolios may invest in repurchase agreements on U. S.
Government Securities. The Portfolios' Custodian will hold the securities
underlying any repurchase agreement or such securities will be part of the
Federal Reserve Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
of the repurchase agreement (including any accrued interest), the respective
Portfolio will promptly receive additional collateral so that the total
collateral is an amount at least equal to the repurchase price plus accrued
interest.
Option Trading Limits
- ---------------------
The writing by the Portfolios of options on securities is subject to
limitations established by each of the registered securities exchanges on which
such options are traded. Such limitations govern the maximum number of options
in each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different securities exchanges or are held or written in one or more accounts or
through one or more brokers. Thus, the number of options which one Portfolio
may write may be affected by options written by the other Portfolios and by
other investment advisory clients of the Adviser. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions. The Adviser believes it is unlikely that the
level of option trading by the Fund will exceed applicable limitations.
Portfolio Turnover
- ------------------
Portfolio turnover is the ratio of the lesser of annual purchases or sales
of portfolio securities to the average monthly value of portfolio securities,
not including short-term securities maturing in less than 12 months. A 100%
portfolio turnover rate would occur, for example, if the lesser of the value of
purchases or sales of portfolio securities for a particular year were equal to
the average monthly value of the portfolio securities owned during such year.
For the period ending June 30, 1998, the portfolio turnover rate for KPM equity
Portfolio and KPM Fixed Income Portfolio was 32.25% and 19.33 respectively. The
Fund does not expect the turnover rate for either the KPM Equity Portfolio or
the KPM Fixed Income Portfolio to exceed 50% this year. The turnover rate will
not be a limiting factor when management deems portfolio changes appropriate.
Any investment restriction or limitation referred to above or in the
Prospectus, except the borrowing policy, which involves a maximum percentage of
securities or assets, shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom.
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The names, addresses and principal occupations during the past five years
of the directors and executive officers of the Fund are as follows:
NAME, POSITION WITH PRINCIPAL OCCUPATION
FUND AND ADDRESS AGE LAST FIVE YEARS
- ------------------- --- ---------------------
Randall D. Greer*<F4> 47 Director, President Chairman of the
Chairman, Director Board and Chief Executive Officer, KPM
Investment Management, Inc., Omaha,
Nebraska (1994-present)
Director, President and Chief Executive
Officer, Kirkpatrick Pettis Trust
Company, Omaha, Nebraska (1995-Present)
Director (1987-Present), President and
Chief Operating Officer, Kirkpatrick,
Pettis, Smith, Polian Inc., Omaha,
Nebraska (1988-1994)
Rodney D. Cerny* <F4> 47 Director, Executive Vice President and
President and Director Chief Investment Officer, KPM Investment
Management, Inc., Omaha, Nebraska (1994-
present)
Director, Kirkpatrick Pettis Trust
Company, Omaha, Nebraska (1995-Present)
First Vice President (1987-1990),
Executive Vice President and Chief
Investment Officer, Kirkpatrick, Pettis,
Smith, Polian Inc., Omaha, Nebraska
(1990-1996)
Donald L. Stroh 71 Retired; Superintendent of Schools,
Director Millard, Nebraska Public
5060 South 149th Court Schools (1955-1989)
Omaha, Nebraska 68137
William G. Campbell 64 Attorney - private practice (1993-
Director present); Partner Roger & Wells
P.O. Box 51, (attorneys), New York City, New York
3239 Wolf Lake Road (1991-1993)
Ely, MN 55731
Herbert H. Davis, Jr. 74 Owner, Miracle Hill Golf & Tennis
Director Center; President - Legacy Golf,
1401 North 120th Street Omaha, Nebraska
Omaha, NE 68154
Christine E. Walker 28 Associate Portfolio Manager, KPM
Assistant Secretary Investment Management, Inc., Omaha,
Nebraska (1996-Present), Administrative
Supervisor (1993-1996)
Jan M. Brockman 42 General Counsel--Financial Services,
Secretary Mutual of Omaha, Omaha, Nebraska (1995-
Present), Partner, Orrick Herrington &
Sutcliffe, San Francisco, California
(1992-1995)
Jeffrey N. Sime 37 Executive Vice President, Chief
Treasurer Financial Officer, Kirkpatrick, Pettis,
Smith, Polian Inc., Omaha, Nebraska
(1993-present); Audit Supervisor, Peter
Kiewit Sons, Inc., Omaha, Nebraska
(1990-1993)
The addresses of the directors and officers of the Fund are that of the Fund
unless otherwise indicated.
*<F4> Interested directors of the Fund by virtue of their affiliation with KPM
Investment Management, Inc.
The following table represents the compensation amounts received for
services as a director of the Fund:
Aggregate Pension Total
Compensation or Compensation
Name & Position from the Fund Retirement*<F5> from the Fund
--------------- ------------- --------------- ---------------
Randall D. Greer*<F5> $0 $0 $0
Chairman, Director
Rodney D. Cerny*<F5> $0 $0 $0
President, Director
Donald L. Stroh $1,800 $0 $1,800
Director
William G. Campbell $1,800 $0 $1,800
Director
Herbert H. Davis, Jr. $1,800 $0 $1,800
Director
*<F5> Benefits paid for by the Adviser.
INVESTMENT ADVISORY AND OTHER SERVICES
---------------------------------------
General
- -------
The investment adviser for the Portfolios is KPM Investment Management,
Inc. (the "Adviser" or "KPM"). Until September 1, 1998, Lancaster
Administrative Services, Inc. acted as the administrator ("Lancaster") for the
Fund. As of September 1, 1998, Firstar Trust Company serves as the
Administrator. Kirkpatrick, Pettis, Smith, Polian Inc. ("Kirkpatrick Pettis")
acts as the Fund's distributor ("Distributor"). The Adviser, the Administrator
and the Distributor will act as such pursuant to written agreements which will
be periodically approved by the directors and/or the shareholders of the Fund.
The Adviser's and the Distributor's address is the same as the Fund's.
Control of the Adviser and the Distributor
- ------------------------------------------
The Adviser and Kirkpatrick Pettis are wholly owned subsidiaries of KFS
Corporation, a Nebraska corporation which is a wholly owned subsidiary of Mutual
of Omaha Insurance Company, a mutual insurance company organized under Nebraska
law and engaged in the business of providing life, health, accident and related
insurance products throughout the United States.
Investment Advisory Agreements and Administration Agreement
- -----------------------------------------------------------
KPM acts as the investment adviser to the Fund and the Portfolios under an
Investment Advisory Agreement ("Advisory Agreement"). The Advisory Agreement
has been approved by the Board of Directors (including a majority of the
directors who are not parties to the Advisory Agreement, or interested persons
of any such party, other than as directors of the Fund). The Advisory Agreement
for all Portfolios was approved by the shareholders on April 15, 1994. The
Advisory Agreement was last approved by the Board of Directors on July 27, 1998.
The Advisory Agreement terminates automatically in the event of its
assignment. In addition, the Advisory Agreement is terminable at any time with
respect to a Portfolio, without penalty, by the Board of Directors of the Fund,
by vote of a majority of the affected Portfolio's outstanding voting securities
on 60 days' written notice to the Adviser, and by the Adviser on 60 days'
written notice to the Fund. Unless sooner terminated, the Advisory Agreement
shall continue in effect for more than two years after its execution only so
long as such continuance is specifically approved at least annually by either
the Board of Directors or by a vote of a majority of the outstanding voting
securities of the Portfolio, provided that in either event such continuance is
also approved by a vote of a majority of the directors who are not parties to
such agreement, or interested persons of such parties, cast in person at a meet-
ing called for the purpose of voting on such approval. If a majority of the
outstanding voting securities of any of the Portfolios approves the Advisory
Agreement, the Advisory Agreement shall continue in effect with respect to such
approving Portfolio whether or not the shareholders of any other Portfolio
approve such Advisory Agreement.
Pursuant to the Advisory Agreement, the Fund pays the Adviser a monthly
advisory fee equal on an annual basis to .80% of the KPM Equity Portfolio's
average daily net assets. The Fund pays the Adviser a monthly advisory fee
equal on an annual basis to .60% of the KPM Fixed Income Portfolio's average
daily net assets. The Advisory Agreement also provides that the Adviser shall
reimburse the Portfolios monthly to the extent of the advisory fee paid, for
annual expenses of the Portfolios exceeding 1.5% of the average daily net assets
for the KPM Equity Portfolio and 1.25% of the average daily net assets for the
KPM Fixed Income Portfolio.
Under the Advisory Agreement, the Adviser provides each Portfolio with
advice and assistance in the selection and disposition of that Portfolio's
investments. All investment decisions are subject to review by the Board of
Directors of the Fund. The Adviser is obligated to pay the salaries and fees of
any affiliates of the Adviser serving as officers or directors of the Fund.
Under the Advisory Agreement, the Adviser has agreed to reimburse the Portfolios
monthly to the extent of the advisory fee paid if annual total expenses exceed
1.50% of the Equity Portfolio's and 1.25% of the Fixed Income Portfolio's
average annual net assets. At June 30, 1998, the Adviser had reimbursed the
Fixed Income Portfolio $8,538 for expenses. The Adviser did not reimburse the
Equity Portfolio during the past fiscal year.
Pursuant to the Fund Administration Servicing Agreement, the Transfer
Agent Servicing Agreement, and the Fund Accounting Servicing Agreement, Firstar
Trust Company will act as administrator, transfer agent and fund accountant to
provide all necessary bookkeeping, shareholder recordkeeping services and share
transfer services to the Fund. Under the Fund Administration Servicing
Agreement, Firstar will receive an administration fee, for both Portfolios
combined, at an annual rate of 6 basis points (0.06%) on the first $400 million,
5 basis points (0.05%) on the next $1 billion and 3 basis points (0.03%) on the
balance of the daily average net assets of the Portfolios. The Fund
Administration Servicing Agreement further provides that the annual fee in any
event shall not be less than $60,000 in the aggregate for all Portfolios. Fees
will be billed to the Fund on a monthly basis.
Under the Transfer Agent Servicing Agreement, Firstar will provide all of
the customary services of a transfer agent and dividend disbursing agent
including, but not limited to: (1) receiving and processing orders to purchase
or redeem shares; (2) mailing shareholder reports and prospectuses to current
shareholders; and (3) providing blue sky services to monitor the number of Fund
shares sold in each state. Firstar will receive a transfer agent fee which will
be billed on a monthly basis.
Under the Fund Accounting Servicing Agreement, Firstar will provide
portfolio accounting services, expense accrual and payment services, fund
valuation and financial reporting services, tax accounting services and
compliance control services. Firstar will receive a fund accountant fee, for
both Portfolios combined, which will be billed on a monthly basis.
For the period July 5, 1994 to June 30, 1995, and during the fiscal years
ended June 30, 1996, June 30, 1997 and June 30, 1998, the Fund paid to the
Adviser and to Lancaster, the previous administrator, the following amounts for
advisory and administrative services as indicated:
</TABLE>
<TABLE>
ADVISORY FEE ADMINISTRATIVE FEE
-------------- --------------------
YEAR ENDED EQUITY FIXED INCOME EQUITY FIXED INCOME
JUNE 30 PORTFOLIO PORTFOLIO TOTAL PORTFOLIO PORTFOLIO TOTAL
- ---------- --------- ------------ ------ -------- ----------- ------
<C> <C> <C> <C> <C> <C> <C>
(Since
inception
07/05/94)
1995 $ 77,104 $ 16,101 $ 93,205 $ 24,095 $ 6,709 $ 30,804
1996 $181,817 $ 44,938 $226,755 $ 56,865 $ 18,757 $ 75,622
1997 $272,525 $ 50,207 $322,232 $ 85,164 $ 20,919 $106,083
1998 $408,062 $ 60,788 $468,850 $127,519 $ 25,328 $152,847
</TABLE>
Custodian
- ---------
The Custodian for the Fund and each of the Portfolios is Firstar Trust
Company, 615 E. Michigan Street, Milwaukee, Wisconsin 53202. Firstar Trust
Company, as Custodian, holds all of securities and cash owned by the Portfolios.
DISTRIBUTION PLAN
------------------
Rule 12b-1(b) under the 1940 Act provides that any payments made by the
Portfolios in connection with financing the distribution of their shares may
only be made pursuant to a written plan describing all aspects of the proposed
financing of distribution, and also requires that all agreements with any person
relating to the implementation of the plan must be in writing. Because some of
the payments described below to be made by the Portfolios are distribution
expenses within the meaning of Rule 12b-1, the Fund has entered into a
Distribution Agreement with the Distributor pursuant to a Distribution Plan
adopted in accordance with such Rule.
In addition, Rule 12b-1(b)(1) requires that such plan be approved by a
majority of a Portfolio's outstanding shares, and Rule 12b-1(b)(2) requires that
such plan, together with any related agreements, be approved by a vote of the
Board of Directors who are not interested persons of the Fund and who have no
direct or indirect interest in the operation of the plan, cast in person at a
meeting for the purpose of voting on such plan or agreement. Rule 12(b)-1(b)(3)
requires that the plan or agreement provide, in substance:
(a) that it shall continue in effect for a period of more than one year
from the date of its execution or adoption only so long as such continuance
is specifically approved at least annually in the manner described in
paragraph (b)(2) of Rule 12b-1;
(b) that any person authorized to direct the disposition of moneys paid
or payable by the Fund pursuant to the plan or any related agreement shall
provide to the Fund's Board of Directors, and the directors shall review,
at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made; and
(c) in the case of a plan, that it may be terminated at any time by a
vote of a majority of the members of the Board of Directors of the Fund who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the plan or in any agreements
related to the plan or by a vote of a majority of the outstanding voting
securities of a Portfolio.
Rule 12b-1(b)(4) requires that such a plan may not be amended to increase
materially the amount to be spent for distribution without shareholder approval
and that all material amendments to the plan must be approved in the manner
described in paragraph (b)(2) of Rule 12b-1.
Rule 12b-1(c) provides that the Fund may rely upon Rule 12b-1(b) only if
the selection and nomination of the Fund's disinterested directors are committed
to the discretion of such disinterested directors. Rule 12b-1(e) provides that
the Fund may implement or continue a plan pursuant to Rule 12b-1(b) only if the
directors who vote to approve such implementation or continuation conclude, in
the exercise of reasonable business judgment and in light of their fiduciary
duties under state law, and under Sections 36(a) and (b) of the 1940 Act, that
there is a reasonable likelihood that the plan will benefit the Fund and its
shareholders. The Fund has complied with the provisions of Rule 12b-1 and the
Board of Directors has concluded that there is a reasonable likelihood that the
Distribution Plan will benefit the Fund and its shareholders.
Pursuant to the provisions of the Distribution Plan, each of the
Portfolios pays a fee to the Distributor computed and paid monthly at an annual
rate of up to .25% of such Portfolio's average daily net assets in order to
reimburse the Distributor for its actual expenses incurred in the distribution
and promotion of such Portfolio's shares.
Expenses for which the Distributor will be reimbursed under the
Distribution Plan include, but are not limited to, compensation paid to
registered representatives of the Distributor and to broker-dealers which have
entered into sales agreements with the Distributor; expenses incurred in the
printing of prospectuses, statements of additional information and reports used
for sales purposes; expenses of preparation and printing of sales literature;
advertisement, promotion, marketing and sales expenses; and other distribution-
related expenses. Compensation will be paid out of such amounts to investment
executives of the Distributor and to broker-dealers which have entered into
sales agreements with the Distributor as follows. If shares of the Portfolios
are sold by a representative of a broker-dealer other than the Distributor, that
portion of the reimbursement which is attributable to shares sold by such
representative is paid to such broker-dealer. If shares of the Portfolios are
sold by an investment executive of the Distributor, compensation will be paid to
the investment executive by the Distributor in an amount not to exceed that
portion of .25% of the average daily net assets of the Portfolios which is
attributable to shares sold by such investment executive.
Under the Distribution Plan, the Fund paid the Distributor the following
amounts for the period July 5, 1994 to June 30, 1995, and the fiscal years ended
June 30, 1996, June 30, 1997 and June 30, 1998:
07/05/94
to Year Ended Year Ended Year Ended
06/30/95 06/30/96 06/30/97 06/30/98
---------- --------- ---------- -----------
Equity Portfolio $ 24,104 $ 56,550 $ 85,056 $127,496
Fixed Income Portfolio 6,712 18,709 20,901 25,329
---------- --------- ---------- -----------
Total $ 30,816 $ 75,259 $105,957 $152,825
For the year ended June 30, 1998, the Distributor has paid for the
following:
Advertising $ 0.00
Printing & Mailing of Prospectuses
to new shareholders 2,221.00
Compensation to Dealers 0.00
Compensation to Sales Personnel 150,604.00
Other Finance Charges 0.00
Other Fees 0.00
---------------
TOTAL $152,825.00
Under the Distribution Agreement, the Distributor is also the principal
underwriter of the Fund's shares and continuously distributes the shares on an
agency best efforts basis. In so doing, the Distributor may pay its
representatives or others additional amounts over the amounts paid under the
Distribution Plan in furtherance of distribution of the Fund's shares.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
------------------------------------------------
The Adviser is responsible for decisions to buy and sell securities for
the Portfolios, the selection of broker-dealers to effect the transactions and
the negotiation of brokerage commissions, if any. In placing orders for
securities transactions, the primary criterion for the selection of a broker-
dealer is the ability of the broker-dealer, in the opinion of the Adviser, to
secure prompt execution of the transactions on favorable terms, including the
reasonableness of the commission (if any) and considering the state of the
market at the time.
When consistent with these objectives, business may be placed with broker-
dealers, including the Distributor, who furnish investment research and/or
services to the Adviser. Such research or services include advice, both
directly and in writing, as to the value of securities; the advisability of
investing in, purchasing or selling securities; and the availability of
securities, or purchasers or sellers of securities; as well as analyses and
reports concerning issues, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. This allows the Adviser to
supplement its own investment research activities and enables the Adviser to
obtain the views and information of individuals and research staffs of many
different securities firms prior to making investment decisions for the
Portfolios. To the extent portfolio transactions are effected with broker-
dealers who furnish research services to the Adviser, the Adviser may receive a
benefit, not capable of evaluation in dollar amounts, without providing any
direct monetary benefit to the Portfolios from these transactions. The Adviser
believes that most research services obtained by it generally benefit several or
all of the accounts which it manages, as opposed to solely benefiting one
specific managed fund or account. Normally, research services obtained through
managed funds or accounts investing in common stocks would primarily benefit the
managed funds or accounts which invest in common stock; similarly, services
obtained from transactions in fixed-income securities would normally be of
greater benefit to the managed funds or accounts which invest in debt
securities.
The Adviser has not entered into any formal or informal agreements with
any broker-dealers, nor does it maintain any "formula" which must be followed in
connection with the placement of any Portfolio's transactions in exchange for
research services provided the Adviser except as noted below. However, from
time to time the Adviser may elect to use certain brokers to execute
transactions in order to encourage them to provide the Adviser with research
services which the Adviser anticipates will be useful to it. The Adviser will
authorize the Portfolio to pay an amount of commission for effecting a
securities transaction in excess of the amount of commission another broker-
dealer would have charged only if the Adviser doing so determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer, viewed in terms
of either that particular transaction or the Adviser's overall responsibilities
with respect to the accounts as to which it exercises investment discretion.
Agency transactions for the Portfolios may be effected through the
Distributor, as discussed in the Prospectus under "Management-Portfolio
Brokerage." In determining the commissions to be paid to the Distributor, it is
the policy of the Fund that such commissions, will, in the judgment of the
Adviser, subject to review by the Board of Directors, be both (a) at least as
favorable as those which would be charged by other qualified brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time,
(b) at least as favorable as commissions contemporaneously charged by the
Distributor on comparable transactions for its most favored comparable
unaffiliated customers, and (c) conform to the requirements of Rule 17e-1 under
the 1940 Act. While the Adviser does not deem it practicable and in the best
interest of the Portfolios to solicit competitive bids for commission rates on
each transaction, consideration will regularly be given to posted commission
rates as well as to other information concerning the level of commissions
charged on comparable transactions by other qualified brokers.
In certain instances, there may be securities which are suitable for the
Fund as well as for that of one or more of the advisory clients of the Adviser.
Investment decisions for the Portfolios and for such advisory clients are made
by the Adviser with a view to achieving their respective investment objectives.
It may develop that a particular security is bought or sold for only one client
of the Adviser even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
of one of the Adviser when one or more other clients are selling that same
security. Some simultaneous transactions are inevitable when several clients
receive investment advice from the same investment adviser, particularly when
the same security is suitable for the investment objectives of more than one
client. When two or more clients of the Adviser are simultaneously engaged in
the purchase or sale of the same security, the securities are allocated among
clients in a manner believed by the Adviser to be equitable to each (and may
result, in the case of purchases, in allocation of that security only to some of
those clients and the purchase of another security for other clients regarded by
the Adviser as a satisfactory substitute). 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 the Portfolio involved is concerned. At the same time,
however, it is believed that the ability of the Portfolio to participate in
volume transactions will sometimes produce better execution prices.
For the period July 5, 1994 to June 30, 1995 and the fiscal years ended
June 30, 1996, June 30, 1997 and June 30, 1998, the Fund paid $26,538, $30,853,
$35,120 and $46,430 respectively, in brokerage commissions, some of which was
paid to the Fund's Distributor, allocated among the Portfolios as follows:
07/05/94
to Year Ended Year Ended Year Ended
06/30/95 06/30/96 06/30/97 06/30/98
---------- --------- ---------- -----------
Equity Portfolio $10,736 $18,684 $10,518 $11,976
Fixed Income Portfolio 260 300 0 4
---------- --------- ---------- -----------
Total to Fund's
Distributor $10,996 $18,984 $10,518 $11,980
The brokerage commissions paid to the Funds' Distributor, which is a related
person to the Funds' Adviser, amounted to 41% of the total for the period
July 5, 1994 to June 30, 1995, 62% for the fiscal year ended June 30, 1996, 30%
for the fiscal year ended June 30, 1997 and 26% for the fiscal year ended
June 30, 1998. The remaining brokerage commissions were paid to eight unrelated
brokers. Of the aggregate dollar amount of transactions involving payment of
commissions, 21% or $6,813,337, were effected through the Distributor during the
fiscal year ended June 30, 1998.
CAPITAL STOCK AND CONTROL
-------------------------
A complete description of the rights and characteristics of the Fund's
capital stock is included in the Prospectus.
The following table provides the name and address of any person who owns
of record or beneficially 5% or more of the outstanding shares of each Portfolio
as of July 31, 1998:
<TABLE>
PORTFOLIO NAME AND ADDRESS SHARES % OWNERSHIP
- --------- ---------------- ------- ------------
<C> <C> <C> <C>
EQUITY Kirkpatrick, Pettis, Smith, Polian Inc. 781,919.579 24.12%
PORTFOLIO 401k Profit Sharing Plan
10250 Regency Circle
Omaha, NE 68114
Maril & Co. 165,918.168 5.12%
c/o Marshall & Ilsley Trust & Co.
P.O. Box 2977
Milwaukee, WI 53202
FIXED INCOME Maril & Co. 100,069.130 9.21%
c/o Marshall & Ilsley Trust & Co.
P.O. Box 2977
Milwaukee, WI 53202
</TABLE>
As of August 17, 1998, Kirkpatrick Pettis had control of the voting power
of 3,834,436.747 shares of the 826,782.773 shares outstanding held by it as
trustee of its employees' 401(k) Profit Sharing Plan and an affiliated entity,
Kirkpatrick Pettis Trust Company, had control of the voting power of
1,059,325.632 shares of the 3,834,436.747 shares outstanding held by it as
trustee for its customers. As a result, Kirkpatrick Pettis and Kirkpatrick
Pettis Trust Company could elect all of the directors if such shares were voted
on a noncumulative basis and three out of the five directors if such shares were
voted on a cumulative basis. In addition, Kirkpatrick Pettis and Kirkpatrick
Pettis Trust Company could ratify the selection of the Fund's accountants. On
matters affecting the Portfolios, Kirkpatrick Pettis and Kirkpatrick Pettis
Trust Company could control the outcome of all matters presented to the Equity
Portfolio and the Fixed Income Portfolio.
The Directors and officers of the Fund beneficially owned 105,119.224
shares or 3.77% of the Equity Portfolio. Directors and officers owned 3.18% of
the shares outstanding in all Portfolios as of August 17, 1998.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
------------------------------------------
The method for determining the public offering price of Portfolio shares
is summarized in the Prospectus in the text following the headings "Purchase of
Shares" and "Valuation of Shares." The net asset value of each Portfolio's
shares is determined on each day on which the New York Stock Exchange is open,
provided that the net asset value need not be determined on days when no
Portfolio shares are tendered for redemption and no order for Portfolio shares
is received. The New York Stock Exchange is not open for business on the
following holidays (or on the nearest Monday or Friday if the holiday falls on a
weekend): New Year's Day, Presidents' Day, Good Friday, Memorial Day, July 4th,
Labor Day, Thanksgiving and Christmas.
The portfolio securities in which each Portfolio invests fluctuate in
value, and hence the net asset value per share of each Portfolio also
fluctuates. An example of how the net asset value per share for all Portfolios
was calculated on June 30, 1998 is as follows:
<TABLE>
EQUITY PORTFOLIO FIXED INCOME PORTFOLIO
----------------------------------------------- ------------------------------------------------
<C> <C> <C> <C>
Net Assets Net Assets Value Net Assets Net Assets Value
------------------ = per Share ------------------ = per Share
Shares Outstanding Shares Outstanding
$56,115,004 $11,744,036
------------------ = $17.31 ------------------ = $10.80
3,241,980.377 1,087,041.208
</TABLE>
PURCHASE OF SHARES
-------------------
The manner in which the shares of the Portfolios are offered to the public
is described in the Prospectus under the headings "Purchase of Shares" and
"Valuation of Shares". Shares of the Portfolios may be purchased initially
subject to the minimums set forth in the Prospectus, unless the purchaser is an
employee of the Distributor, Adviser or Mutual of Omaha Insurance Company, or is
a family member of such employee. The term family member shall include parents,
mother-in-law or father-in-law, husband or wife, brother or sister, brother-in-
law or sister-in-law, son or daughter, son-in-law or daughter-in-law, and their
respective children. In addition, the term shall include any person who is
supported directly or indirectly, to a material extent, by the employee or other
family member. The minimum initial investment for accounts established by money
purchase/profit-sharing plans, 401(k) plans, IRA/SEP, 403(b) plans or 457 (state
deferred compensation plans) is $2,000. Finally, investments made by an
individual, or by an individual's spouse and/or children under the age of 21,
purchasing shares for their own account, or by a trustee, or other fiduciary
purchasing for a single trust estate, or single fiduciary account will be
treated as investments made by a single investor for purposes of meeting initial
purchase requirements.
REDEMPTION
-----------
Redemption of shares, or payment, may be suspended at times (a) when the
New York Stock Exchange is closed for other than customary weekend or holiday
closings, (b) when trading on said exchange is restricted, (c) when an emergency
exists, as a result of which disposal by the Portfolios of securities owned by
them is not reasonably practicable, or it is not reasonably practicable for the
Portfolios fairly to determine the value of their net assets, or (d) during any
other period when the Securities and Exchange Commission, by order, so permits,
provided that applicable rules and regulations of the Securities and Exchange
Commission shall govern as to whether the conditions prescribed in (b) or (c)
exist.
TAX STATUS
-----------
The Fund will qualify and intends to continue to qualify its Portfolios as
"regulated investment companies" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), so as to be relieved of federal income tax on
its capital gains and net investment income distributed to shareholders. To
qualify as a regulated investment company, a Portfolio must, among other things,
receive at least 90% of its gross income each year from dividends, interest,
gains from the sale or other disposition of securities and certain other types
of income including, with certain exceptions, income from options and futures
contracts. The Code also requires a regulated investment company to diversify
its holdings. The Internal Revenue Service has not made its position clear
regarding the treatment of futures contracts and options for purposes of the
diversification test, and the extent to which a Portfolio could buy or sell
futures contracts and options may be limited by this requirement.
The Code requires that all regulated investment companies pay a
nondeductible 4% excise tax to the extent the regulated investment company does
not distribute 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end.
The required distributions are based only on the taxable income of a regulated
investment company.
Ordinarily, distributions and redemption proceeds earned by a Portfolio
shareholder are not subject to withholding of federal income tax. However, if a
shareholder fails to furnish a tax identification number or social security
number, or certify under penalties of perjury that such number is correct, the
Fund may be required to withhold federal income tax ("backup withholding") from
all dividend, capital gain and/or redemption payments to such shareholder.
Dividends and capital gain distributions may also be subject to backup
withholding if a shareholder fails to certify under penalties of perjury that
such shareholder is not subject to backup withholding due to the underreporting
of certain income. These certifications are contained in the purchase
application enclosed with the Prospectus.
CALCULATIONS OF PERFORMANCE DATA
---------------------------------
From time to time the Fund may quote the yield for the Portfolios in
advertisements or in reports and other communications to shareholders. For this
purpose, yield is calculated by dividing a Portfolio's net investment income per
share for the base period, which is 30 days or one month, by the Portfolio's
maximum offering purchase price on the last day of the period and annualizing
the result. The Portfolio's net investment income changes in response to
fluctuations in interest rates and in the expenses of the Portfolio.
Consequently, any given quotation should not be considered as representative of
what the Portfolio's yield may be for any specified period in the future.
Yield information may be useful in reviewing a Portfolio's performance and
for providing a basis for comparison with other investment alternatives.
However, a Portfolio's yield will fluctuate, unlike other investments which pay
a fixed yield for a stated period of time. Current yield should be considered
together with fluctuations in the Portfolio's net asset value over the period
for which yield has been calculated, which, when combined, will indicate a
Portfolio's total return to shareholders for that period. Other investment
companies may calculate yields on a different basis. In addition, investors
should give consideration to the quality and maturity of the portfolio
securities of the respective investment companies when comparing investment
alternatives.
Investors should recognize that in periods of declining interest rates a
bond portfolio's yield will tend to be somewhat higher than prevailing market
rates, and in periods of rising interest rates, such portfolio's yield will tend
to be somewhat lower. Also, when interest rates are falling, the inflow of net
new money to a bond portfolio from the continuous sale of its shares will likely
be invested in instruments producing lower yields than the balance of such
portfolio's holdings, thereby reducing the current yield of such portfolio. In
periods of rising interest rates, the opposite can be expected to occur.
The Fund may also quote the indices of bond prices and yields prepared by
Lehman Bros., Inc., Salomon Bros., Inc., Merrill Lynch or other leading broker-
dealer firms. These indices are not managed for any investment goal and their
composition may be changed from time to time.
The Fixed Income Portfolio may quote the yield or total return on Ginnie
Maes, Fannie Maes, Freddie Macs, corporate bonds and Treasury bonds and notes,
either as compared to each other or as compared to the Portfolio's performance.
In considering such yields or total returns, investors should recognize that the
performance of securities in which the Portfolio may invest does not reflect the
Portfolio's performance. Furthermore, such yields or total returns do not take
into account either the effects of portfolio management or of management fees or
other expenses. The issuers of such securities guarantee that interest will be
paid when due and that principal will be fully repaid if the securities are held
to maturity; however there are no such guarantees with respect to shares of the
Portfolio. Investors should also be aware that the mortgages underlying
mortgage-related securities may be prepaid at any time. Prepayment is
particularly likely in the event of an interest rate decline, as the holders of
the underlying mortgages seek to pay off high-rate mortgages or re-negotiate
them at potentially lower current rates. Because the underlying mortgages are
more likely to be prepaid at their par value when interest rates decline, the
value of certain high-yielding mortgage-related securities may have less
potential for capital appreciation than conventional debt securities (such as U.
S. Treasury bonds and notes) in such markets. At the same time, such mortgage-
related securities may have less potential for capital appreciation when
interest rates rise.
In connection with the quotations of yields in advertisements described
above, the Fund will also provide average annual total returns from the date of
inception for one, five and ten-year periods if applicable. Total return is a
calculation which equates an initial amount invested to the ending redeemable
value at a specified time. It assumes the reinvestment of all dividends and
capital gains distributions. Average total return will be the average of the
total returns for each year in the period. The Portfolios may also provide a
total return figure for the most recent calendar quarter prior to the
publication of the advertisement. The yield of the Fixed Income Portfolio for
the 30-day period ending June 30, 1998 was 5.30%.
The average annual total returns of the Portfolios for one year ending
June 30, 1998 and from inception to date ending June 30, 1998 are as follows:
ANNUALIZED TOTAL RETURN
------------------------
07/05/94
(Inception)
1 Year To Date
------- ------------
Equity Portfolio 8.88% 21.31%
Fixed Income Portfolio 9.39% 7.65%
FINANCIAL STATEMENTS
--------------------
Attached hereto is the Fund's Annual Financial Report dated June 30, 1998.
AUDITORS
---------
The Board of Directors, including all disinterested directors, unanimously
approved the appointment of Deloitte & Touche LLP, 2000 First National Center,
Omaha, Nebraska 68102 as the Fund's independent accountants.
APPENDIX A
RATINGS OF CORPORATE OBLIGATIONS,
COMMERCIAL PAPER, AND PREFERRED STOCK
Ratings of Corporate Obligations
---------------------------------
Moody's Investors Service, Inc.
- --------------------------------
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
---
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
--
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes
-
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade
---
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
Ba: Bonds rated Ba are judged to have speculative elements; their future
--
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds rated B generally lack characteristics of desirable
-
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds rated Caa are of poor standing. Such bonds may be in default
---
or there may be present elements of danger with respect to principal and
interest.
Ca: Bonds rated Ca represent obligations which are speculative in a high
--
degree. Such bonds are often in default or have other marked shortcomings.
Those securities in the A and Baa groups which Moody's believes possess
the strongest investment attributes are designated by the symbols A-1 and Baa-1.
Other A and Baa securities comprise the balance of their respective groups.
These rankings (1) designate the securities which offer the maximum in security
within their quality groups, (2) designate securities which can be bought for
possible upgrading in quality, and (3) additionally afford the investor an
opportunity to gauge more precisely the relative attractiveness of offerings in
the marketplace.
Standard & Poor's Corporation
- -----------------------------
AAA: Bonds rated AAA have the highest rating assigned by Standard &
---
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and repay
--
principal and differ from the highest rated issues only in a small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
-
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
---
interest and repay principal. Although they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories. Bonds
rated BBB are regarded as having speculation characteristics.
BB--B--CCC-CC: Bonds rated BB, B, CCC, and CC are regarded, on balance,
-------------
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
Commercial Paper Ratings
------------------------
Standard & Poor's Corporation
- -----------------------------
Commercial paper ratings are graded into four categories, ranging from "A"
for the highest quality obligations to "D" for the lowest. Issues assigned the
A rating are regarded as having the greatest capacity for timely payment.
Issues in this category are further refined with the designation 1, 2 and 3 to
indicate the relative degree of safety. The "A-1" designation indicates that
the degree of safety regarding timely payment is very strong. Those issues
determined to possess overwhelming safety characteristics will be denoted with a
plus sign designation.
Moody's Investors Service, Inc.
- -------------------------------
Moody's commercial paper ratings are opinions of the ability of the
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated issuer
or issued in conformity with any applicable law. Moody's employs the following
three designations, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:
Prime-1 Superior capacity for repayment
Prime-2 Strong capacity for repayment
Prime-3 Acceptable capacity for repayment
Ratings of Preferred Stock
---------------------------
Standard & Poor's Corporation
- -----------------------------
Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any applicable
sinking fund obligations. A preferred stock rating differs from a bond rating
inasmuch as it is assigned to an equity issue, which issue is intrinsically
different from, and subordinated to, a debt issue. Therefore, to reflect this
difference, the preferred stock rating symbol will normally not be higher than
the bond rating symbol assigned to, or that would be assigned to, the senior
debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1.Likelihood of payment--capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation.
2.Nature of and provisions of the issue.
3.Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangements affecting creditors' rights.
AAA: This is the highest rating that may be assigned by Standard &
---
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA: A preferred stock issue rated AA also qualifies as a high-quality
--
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A: An issue rated A is backed by a sound capacity to pay the preferred
-
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB: An issue rated BBB is regarded as backed by an adequate capacity to
---
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
BB, B, CCC: Preferred stock issues rated BB, B, and CCC are regarded, on
----------
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC: The rating CC is reserved for a preferred stock issue in arrears on
--
dividends or sinking fund payments but that is currently paying.
C: A preferred stock rated C is a nonpaying issue.
-
D: A preferred stock rated D is a nonpaying issue with the issuer in
-
default on debt instruments.
NR indicates that no rating has been requested, that there is
--
insufficient information on which to base a rating, or that S & P does not rate
a particular type of obligation as a matter of policy.
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
Moody's Investors Service, Inc.
- -------------------------------
aaa: An issue which is rated aaa is considered to be a top-quality
---
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa: An issue which is rated aa is considered a high-grade preferred
--
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a: An issue which is rated a is considered to be an upper-medium grade
-
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa: An issue which is rated baa is considered to be medium grade,
---
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
ba: An issue which is rated ba is considered to have speculative
--
elements and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b: An issue which is rated b generally lacks the characteristics of a
-
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa: An issue which is rated caa is likely to be in arrears on dividend
---
payments. This rating designation does not purport to indicate the future
status of payments.
ca: An issue which is rated ca is speculative in a high degree and is
--
likely to be in arrears on dividends with little likelihood of eventual payment.
c: This is the lowest rated class of preferred or preference stock.
-
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
(1) Financial Highlights (Included in Part A)
(2) Included in Part B:
Incorporated by reference:
Annual Report dated June 30, 1998
filed on EDGAR on August 28, 1998
- Schedule of Investments - KPM Equity Portfolio
- Schedule of Investments - KPM Fixed Income Portfolio
- Statements of Assets and Liabilities
- Statements of Operations
- Statements of Changes in Net Assets
- Financial Highlights
- Notes to Financial Statements
- Independent Auditors' Report
(b) Exhibits
Exhibits No. Description
*<F7>1. Articles of Incorporation
*<F7>2. Bylaws
3. Not Applicable
4. Not Applicable
*<F7>5. Amended Management and Investment Advisory Agreement
*<F7>6. Distribution Agreement
7. Not Applicable
8. Custodian Servicing Agreement between KPM Funds,
Inc. and Firstar Trust Company dated
September 1, 1998
9.1 Fund Administration Servicing Agreement between KPM
Funds, Inc. and Firstar
Trust Company dated September 1, 1998
9.2 Fund Accounting Servicing Agreement between KPM
Funds, Inc. and Firstar Trust Company
dated September 1, 1998
9.3 Transfer Agent Servicing Agreement between KPM
Funds, Inc. and Firstar Trust Company
dated September 1, 1998
*<F7>10. Opinion and Consent of Messrs. Cline, Williams,
Wright Johnson & Oldfather
11. Consent of Deloitte & Touche LLP
12. Not Applicable
*<F7>13. Subscription Agreement of KPM Investment
Management, Inc.
**<F8>14. Prototype Retirement Plan Documents
*<F7>15. Rule 12b-1 Plan
16. Schedule of Computations for Performance Quotations
17. Financial Data Schedule
*<F7>Filed in Post-effective Amendment No. 2 on October 13, 1995.
**<F8>Filed in Pre-effective Amendment No. 1 on June 24, 1994.
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Kirkpatrick, Pettis, Smith, Polian Inc., a Nebraska corporation
("Kirkpatrick Pettis"), which serves as the distributor of the Registrant, is
deemed to be in control of the Registrant as a result of its capacity as Trustee
of its employees' 401K Profit Sharing Plan which holds a significant percentage
of the shares of the Registrant. Kirkpatrick Pettis is a wholly owned
subsidiary of Mutual of Omaha Insurance Company, a mutual insurance company
organized under Nebraska law.
Item 26. Number of Holders of Securities
-------------------------------
As of August 17, 1998, the number of shareholders for the KPM Equity
Portfolio and the KPM Fixed Income Portfolio was 485 and 139, respectively.
Item 27. Indemnification
---------------
The Nebraska Business Corporation Act allows indemnification of officers and
directors of the Registrant under circumstances set forth therein. The
Registrant has made such indemnification mandatory. Reference is made to
Article 8.d. of the Articles of Incorporation (Exhibit 1) and Article XIII of
the Bylaws of Registrant (Exhibit 2).
The general effect of such provisions is to require indemnification of
persons who are in an official capacity with the corporation against judgments,
penalties, fines and reasonable expenses, including attorneys' fees incurred by
said person if: (1) the person has not been indemnified by another organization
for the same judgments penalties, fines and expenses for the same acts or
omissions; (2) the person acted in good faith; (3) the person received no
improper personal benefit; (4) in the case of a criminal proceeding, the person
had no reasonable cause to believe the conduct was unlawful; (5) in the case of
directors, officers and employees of the corporation, or in the case of
directors, officers, or employees serving at the request of the corporation for
another organization, such person reasonably believed that the conduct was not
opposed to the best interests of the corporation. A corporation is permitted to
maintain insurance on behalf of any officer, director, employee or agent of the
corporation, or any person serving as such at the request of the corporation,
against any liability of such person.
Nevertheless, Article 8.d. of the Articles of Incorporation prohibits any
indemnification which would be in violation of Section 17(h) of the Investment
Company Act of 1940, as now enacted or hereafter amended, and Article XIII of
the Fund's Bylaws prohibits any indemnification inconsistent with the guidelines
set forth in Investment Company Act Releases No. 7221 (June 9, 1972) and No.
11330 (September 2, 1980). Such Releases prohibit indemnification in cases
involving willful misfeasance, bad faith, gross negligence and reckless
disregard of duty and establish procedures for the determination of entitlement
to indemnification and expense advances.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, 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 by the Registrant is against public policy as expressed in the
Act and, therefore, may be unenforceable. In the event that a claim for such
indemnification (except insofar as it provides for the payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director officer or controlling person and the Securities and
Exchange Commission is still of the same opinion, 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 of whether or not
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
In addition to the indemnification provisions contained in the Registrant's
Articles and Bylaws, there are also indemnification and hold harmless provisions
contained in the Investment Advisory Agreement, Distribution Agreement, Fund
Administration Servicing Agreement, Transfer Agent Servicing Agreement, Fund
Accountant Servicing Agreement and Custodian Servicing Agreement. Finally, the
Registrant has also included in its Articles of Incorporation (See Article X
of the Articles of Incorporation [Exhibit 1]) a provision which eliminates the
liability of outside directors to monetary damages for breach of fiduciary duty
of such directors. Such limitation of liability does not eliminate or limit
liability of such directors for any act or omission not in good faith which
involves intentional misconduct or a knowing violation of law, any transaction
from which such director derived an improper direct or indirect financial
benefit, for paying a dividend or approving a stock repurchase which was in
violation of the Nebraska Business Corporation Act and for any act or omission
which violates a declaratory or injunctive order obtained by the Registrant or
its shareholders.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
<TABLE>
Position With Business Connections
Name Advisor (Present and for past two years)
---- -------------- ---------------------------------
<C> <C> <C>
Randall D. Greer*<F9> Chairman of the Board, Director, Butler Holdings, Inc.
President and CEO
Rodney D. Cerny*<F9> Director, Executive Director and Secretary, Smeal Manufacturing, Inc., Board Member,
Vice President and CIO University of Nebraska, CBA Alumni Board
Jan M. Brockman*<F9> Secretary
Jeffrey N. Sime*<F9> Treasurer
Bruce H. Van Kooten*<F9> First Vice President
Patrick M. Miner Vice President Vice President, Mutual Asset Management Co. and Vice President
and Portfolio Manager, Mutual of Omaha Insurance Company an
United of Omaha Insurance Company
John W. Weekly Director Vice Chairman and Chief Executive Officer, Mutual of Omaha
Insurance Company and United of Omaha Insurance Company; Director
of Companion Life Insurance Company; Kirkpatrick, Pettis, Smith,
Polian Inc.; Tele-Trip Company, Inc., Omaha Financial Insurance
Company; Omaha Property and Casualty Insurance Company; United
World Life Insurance Company; Norwest Bank Nebraska, N.A.;
Health Insurance Association of America; Omaha Airport Authority;
and Bellevue College.
John A. Sturgeon Director President, Mutual of Omaha Insurance Company, United of Omaha
Insurance Company and United Arts of Omaha; Director of
Kirkpatrick, Pettis, Smith, Polian Inc.; Mutual of Omaha
Marketing Corporation; Omaha Property and Casualty Insurance
Company; Tele-Trip Company, Inc.; Companion Life Insurance
Company; United World Life Insurance Company; The Omaha Indemnity
Company, and Omaha Chamber of Commerce; Trustee, University of
Nebraska-Lincoln School of Accountancy.
Peter N. Lahti Director Chairman of the Board, President and Chief Executive Officer,
Kirkpatrick, Pettis, Smith, Polian Inc.; Director of KFS
Corporation; Child Saving Institute; American Red Cross; and
Chairman, PSA PAC.
</TABLE>
*<F9> See caption "Directors and Executive Officers" in the Statement of
Additional Information forming a part of this Registration Statement.
Item 29. Principal Underwriters
----------------------
(a) Not applicable.
(b)
<TABLE>
Position and Offices Positions and Offices
Name with Underwriter with Registrant
----- ------------------ --------------------
<C> <C> <C>
Gregory D. Adams **<F10> First Vice President, Branch Manager, None
Private Client Services, Denver, CO
John (Jack) J. Bell, Jr. **<F10> First Vice President, Institutional None
Sales, Denver, CO
Thomas R. Bishop **<F10> First Vice President, Public Finance None
Banker, Denver, CO
Joseph M. Brady **<F10> Senior Vice President and Manager, None
Tax-Exempt Trading, Denver, CO
Robert E. Brady *<F11> Senior Vice President, Private Client None
Services, Omaha, NE
Arlan Dohrmann **<F10> First Vice President, Public Finance None
Banker, St. Louis, MO
Samuel C. Doyle **<F10> Executive Vice President, Fixed Income Capital None
Markets, Denver, CO
Lauren G. Faist *<F11> Senior Vice President, Private Client Services, None
Omaha, NE
Patricia A. French *<F11> First Vice President, Human Resources, None
Omaha, NE
Richard Fulmer **<F10> First Vice President, Taxable Securities None
Trader, Denver, CO
Marvin E. Giannangelo *<F11> Senior Vice President, Private Client Services, None
Omaha, NE
Darrel H. Gottsch *<F11> Senior Vice President, Private Client None
Services, Omaha, NE
Joseph E. Haller *<F11> Executive Vice President and Director, None
SID, Omaha, NE
Richard S. Healy *<F11> First Vice President, Municipal Trading, None
Omaha, NE
Andrew B. Kane **<F10> First Vice President, Public Finance Banker, None
Denver, CO
Robert F. Kathol *<F11> Executive Vice President, Corporate Finance, None
Omaha, NE
Kurt W. Kitson *<F11> Senior Vice President, Risk Management None
and Compliance
Patrick E. Knoell **<F10> Senior Vice President, Manager None
Taxableand Tax-Exempt Sales, Denver, CO
Bradley L. Knuth *<F11> Senior Vice President, Private Client Services, None
Omaha, NE
John E. Kuehl *<F11> First Vice President, SID Underwriting, None
Omaha, NE
Peter N. Lahti *<F11> Chairman of the Board, President Director
and Chief Executive Officer
Stephen J. Lococo *<F11> Senior Vice President, Private Client Services, None
Omaha, NE
Philip A. Lorenzen *<F11> First Vice President, Public Finance Banker, None
Omaha, NE
Philip M. (Marty) Nohe ****<F13> First Vice President, Public Finance Banker, None
Overland Park, KS
L.C. (Jack) Petersen *<F11> Chairman Emeritus of the Board of Directors None
Kevin Peterson *****<F14> First Vice President, Public Finance Banker, None
Salt Lake City, UT
Darwin L. Reider *<F11> First Vice President, Public Finance Banker, None
Omaha, NE
Owen L. Saddler, Jr. *<F11> Executive Vice President, Equity Trading, None
Omaha, NE
Jeffrey N. Sime *<F11> Executive Vice President, Treasurer and Treasurer
Chief Financial Officer, Omaha, NE
Eugenia M. Simpson *<F11> First Vice President, Director of Research, None
Omaha, NE
John P. Smigelsky *<F11> Senior Vice President, Private Client Services, None
Omaha, NE
Daniel J. Smith *<F11> First Vice President, Public Finance Banker, None
Omaha, NE
John H. Staiano **<F10> First Vice President, Private Client Services, None
Denver, CO
Theodore T. Thull *<F11> Senior Vice President, Private Client Services, None
Omaha, NE
Roger V. Voorhees *<F11> First Vice President, Private Client Services, None
Omaha, NE
Paul R. Wertz *<F11> Senior Vice President, Private Client Services, None
Omaha, NE
*<F11>10250 Regency Circle, Omaha, NE 68114
**<F10> One Norwest Center, 1700 Lincoln St., Ste. 1300, Denver, CO 80203
***<F12> Creve Couer Executive Park, 745 Craig Road, Ste. 220, St. Louis, MO
63141
**** <F13>8401 Indian Creek Parkway, 40 Corporate Woods, Ste. 520, Overland
Park, KS 66210
*****<F14>4001 South 700 East, Ste. 500, Salt Lake City, UT 84107
(c) Not applicable
Item 30. Location of Accounts and Records
--------------------------------
All required accounts, books and records will be maintained by KPM
Investment Management, Inc. and Kirkpatrick, Pettis, Smith, Polian Inc., 10250
Regency Circle, Omaha, Nebraska 68114. Separate ledger accounts will be
maintained by Firstar Trust Company, 615 E. Michigan Street, Milwaukee,
Wisconsin 53202.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
The Registrant hereby undertakes to call a meeting of shareholders for
the purpose of voting upon the question or removal of a director, if requested
to do so by the holders of at least 10% of the Registrant's outstanding shares
and to assist in communications with other shareholders as required by Section
16(c) of the 1940 Act.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment to its Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Omaha, State of
Nebraska, on the 1st day of September, 1998. The undersigned hereby certifies
that this Post-Effective Amendment meets all the requirements for effectiveness
pursuant to Rule 485(b).
KPM FUNDS, INC.
By:/s/ Rodney D. Cerny
--------------------------------
Rodney D. Cerny
President and Principal Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in the capacities
indicated on September 2, 1998:
Signatures
- ----------
/s/ Rodney D. Cerny
- ------------------------------------
Rodney D. Cerny, President, Director
and Principal Executive Officer
/s/ Randall D. Greer
- ---------------------------------------
Randall D. Greer, Chairman and Director
/s/ Jeffrey N. Sime
- ------------------------------------
Jeffrey N. Sime, Treasurer and
Principal Financial Officer
/s/ Donald L. Stroh /s/ Rodney D. Cerny
- ------------------------------------- ---------------------------------
Donald L. Stroh, Director Rodney D. Cerny, Attorney-in-Fact
/s/ William G. Campbell
- -------------------------------------
William G. Campbell, Director
/s/ Herbert H. Davis
- ------------------------------------
Herbert H. Davis, Jr., Director
</TABLE>
EXHIBIT 8
CUSTODIAN SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
September, 1998, by and between KPM Funds, Inc., a Nebraska corporation
(hereinafter referred to as the "Company"), and Firstar Trust Company, a
corporation organized under the laws of the State of Wisconsin (hereinafter
referred to as the "Custodian").
WHEREAS, the Company is an open-end management investment company
which is registered under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Company is authorized to create separate series, each
with its own separate investment portfolio; and
WHEREAS, the Company desires that the securities and cash of the
Equity Portfolio (the "Fund") and each additional series of the Company listed
on Exhibit A attached hereto, as may be amended from time to time, shall be
hereafter held and administered by Custodian pursuant to the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Company and Custodian agree as follows:
1. DEFINITIONS
The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.
The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Company by any two of the
President, a Vice President, the Secretary and the Treasurer of the Company, or
any other persons duly authorized to sign by the Board of Directors.
The word "Board" shall mean Board of Directors of the KPM Funds, Inc.
2. NAMES, TITLES, AND SIGNATURES OF THE COMPANY'S OFFICERS
An officer of the Company will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Directors, together with any changes which may occur from time to time.
3. RECEIPT AND DISBURSEMENT OF MONEY
A. Custodian shall open and maintain a separate account or accounts
in the name of the Company, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it from or
for the account of the Company. Custodian shall make payments of cash to, or
for the account of, the Company from such cash only:
(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the
name of the Company or of the nominee of Custodian referred to in
Section 7 or in proper form for transfer;
(b) for the purchase or redemption of shares of the common stock of
the Fund upon delivery thereof to Custodian, or upon proper
instructions from the Company;
(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without limitation
thereto, fees for legal, accounting, auditing and custodian
services and expenses for printing and postage);
(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held by
or to be delivered to Custodian; or
(e) for other proper corporate purposes certified by resolution of
the Board of Directors of the Company.
Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c), or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Company issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Company.
C. Custodian shall, upon receipt of proper instructions, make
federal funds available to the Company as of specified times agreed upon from
time to time by the Company and the Custodian in the amount of checks received
in payment for shares of the Fund which are deposited into the Fund's account.
D. If so directed by the Company, Custodian will invest any and all
available cash in overnight cash-equivalent investments as specified by the
investment manager.
4. REPRESENTATIONS OF FTC
FTC represents and warrants to the Company that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered agent under the Exchange Act;
C. It is duly qualified to carry on its business in the State of
Wisconsin;
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement;
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement; and
G. It will comply with all applicable requirements of the Securities Act
of 1933, as amended, and the Exchange Act, the 1940 Act, and any laws,
rules, and regulations of governmental authorities having jurisdiction.
5. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to FTC that:
A. The Company is an open-ended non diversified investment company under
the 1940 Act;
B. The Company is a corporation organized, existing, and in good standing
under the laws of Nebraska;
C. The Company is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Articles of Incorporation
have been taken to authorize it to enter into and perform this
Agreement;
E. The Company will comply with all applicable requirements of the
Securities Act, the Exchange Act, the 1940 Act, and any laws, rules and
regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act will be made
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Company being offered for sale.
6. SEGREGATED ACCOUNTS
Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the Fund, into which
account(s) may be transferred cash and/or securities.
7. TRANSFER, EXCHANGE, REDELIVERY, ETC. OF SECURITIES
Custodian shall have sole power to release or deliver any securities
of the Company held by it pursuant to this Agreement. Custodian agrees to
transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefore;
(b) when such securities are called, redeemed or retired or otherwise
become payable;
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom;
(d) in exchange for, or upon conversion into, other securities alone
or other securities and cash whether pursuant to any plan of
merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;
(e) upon conversion of such securities pursuant to their terms into
other securities;
(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;
(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;
(h) for the purpose of redeeming in kind shares of common stock of
the Fund upon delivery thereof to Custodian; or
(i) for other proper corporate purposes.
As to any deliveries made by Custodian pursuant to items (a), (b), (d),
(e), (f), and (g), securities or cash receivable in exchange therefor shall be
deliverable to Custodian.
Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g), or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Company issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.
8. CUSTODIAN'S ACTS WITHOUT INSTRUCTIONS
Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Company, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
the Company, all necessary ownership certificates required by the Internal
Revenue Code of 1986, as amended (the "Code") or the Income Tax Regulations (the
"Regulations") of the United States Treasury Department (the "Treasury
Department") or under the laws of any state now or hereafter in effect,
inserting the Company's name on such certificates as the owner of the securities
covered thereby, to the extent it may lawfully do so.
9. REGISTRATION OF SECURITIES
Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued thereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. All securities held by Custodian hereunder shall be at all
times identifiable in its records held in an account or accounts of Custodian
containing only the assets of the Company.
The Company shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Company and which may from time to time be
registered in the name of the Company.
10. VOTING AND OTHER ACTION
Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the Company
all notices, proxies and proxy soliciting materials with respect to such
securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Company), but
without indicating the manner in which such proxies are to be voted.
11. TRANSFER TAX AND OTHER DISBURSEMENTS
The Company shall pay or reimburse Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.
Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exempt transfers and/or deliveries of any such securities.
12. CONCERNING CUSTODIAN
Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.
The Company agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including reasonable counsel fees) incurred or assessed against it or by its
nominee in connection with the performance of this Agreement, except such as may
arise from its or its nominee's own bad faith, negligent action, negligent
failure to act or willful misconduct. Custodian is authorized to charge any
account of the Fund for such items. In the event of any advance of cash for any
purpose made by Custodian resulting from orders or instructions of the Company,
or in the event that Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's own bad faith, negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Company shall
be security therefor.
Custodian agrees to indemnify and hold harmless the Company from all charges,
expenses, assessments, and claims/liabilities (including reasonable counsel
fees) incurred or assessed against it in connection with the performance of this
Agreement, except such as may arise from the Fund's own bad faith, negligent
action, negligent failure to act, or willful misconduct.
13. SUBCUSTODIANS
Custodian is hereby authorized to engage another bank or trust company
as a subcustodian for all or any part of the Company's assets, so long as any
such bank or trust company is itself qualified under the 1940 Act and the rules
and regulations thereunder and provided further that, if the Custodian utilizes
the services of a subcustodian, the Custodian shall remain fully liable and
responsible for any losses caused to the Company by the subcustodian as fully as
if the Custodian was directly responsible for any such losses under the terms of
this Agreement.
Notwithstanding anything contained herein, if the Company requires the
Custodian to engage specific subcustodians for the safekeeping and/or clearing
of assets, the Company agrees to indemnify and hold harmless Custodian from all
claims, expenses and liabilities incurred or assessed against it in connection
with the use of such subcustodian in regard to the Company's assets, except as
may arise from Custodian's own bad faith, negligent action, negligent failure to
act or willful misconduct.
14. REPORTS BY CUSTODIAN
Custodian shall furnish the Company periodically as agreed upon with a
statement summarizing all transactions and entries for the account of Company.
Custodian shall furnish to the Company, at the end of every month, a list of the
portfolio securities for the Fund showing the aggregate cost of each issue. The
books and records of Custodian pertaining to its actions under this Agreement
shall be open to inspection and audit at reasonable times by officers of, and by
auditors employed by, the Company.
15. TERMINATION OR ASSIGNMENT
This Agreement may be terminated by the Company, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to:
Firstar Trust Company
Attn.: Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
or to the Company at:
KPM Funds, Inc.
Attn.: Ms. Christine E. Walker
10250 Regency Circle, Suite 500
Omaha, NE 68114
as the case may be. Upon any termination of this Agreement, pending appointment
of a successor to Custodian or a vote of the shareholders of the Fund to
dissolve or to function without a custodian of its cash, securities and other
property, Custodian shall not deliver cash, securities or other property of the
Fund to the Company, but may deliver them to a bank or trust company of its own
selection that meets the requirements of the 1940 Act as a Custodian for the
Company to be held under terms similar to those of this Agreement, provided,
however, that Custodian shall not be required to make any such delivery or
payment until full payment shall have been made by the Company of all
liabilities constituting a charge on or against the properties then held by
Custodian or on or against Custodian, and until full payment shall have been
made to Custodian of all its fees, compensation, costs and expenses, subject to
the provisions of Section 10 of this Agreement.
This Agreement may not be assigned by Custodian without the consent of
the Company, authorized or approved by a resolution of its Board of Directors.
16. DEPOSITS OF SECURITIES IN SECURITIES DEPOSITORIES
No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Directors of the Company approves by resolution
the use of such central securities clearing agency or securities depository.
17. RECORDS
Custodian shall keep records relating to its services to be performed
hereunder, in the form and manner, and for such period, as it may deem advisable
and is agreeable to the Company but not inconsistent with the rules and
regulations of appropriate government authorities, in particular Section 31 of
the 1940 Act and the rules thereunder. Custodian agrees that all such records
prepared or maintained by the Custodian relating to the services performed by
Custodian hereunder are the property of the Company and will be preserved,
maintained, and made available in accordance with such section and rules of the
1940 Act and will be promptly surrendered to the Company on and in accordance
with its request.
18. GOVERNING LAW
This Agreement shall be governed by Wisconsin law. However, nothing
herein shall be construed in a manner inconsistent with the 1940 Act or any rule
or regulation promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
KPM FUNDS, INC. FIRSTAR TRUST COMPANY
By /S/ Rodney D. Cerny By: /s/ Robert J. Kern
---------------------------- ---------------------------------
Rodney D. Cerny, President
Attest: /s/ Christine E. Walker Attest: /s/ Andrea E. McVoy
----------------------- ------------------------------
Christine E. Walker
CUSTODY SERVICES
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
Separate Series of KPM Funds, Inc.
NAME OF SERIES DATE ADDED
-------------- -----------
Equity Portfolio 9/1/98
Fixed Income Portfolio 9/1/98
Annual fee based upon market value
2 basis points per year
Minimum annual fee per fund - $3,000
Investment transactions (purchase, sale, exchange, tender, redemption, maturity,
receipt, delivery):
$12.00 per book entry security (depository or
Federal Reserve system)
$25.00 per definitive security (physical)
$25.00 per mutual fund trade
$75.00 per Euroclear
$ 8.00 per principal reduction on pass-through certificates
$35.00 per option/futures contract
$15.00 per variation margin
$15.00 per Fed wire deposit or withdrawal
Variable Amount Demand Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge, which is 1/4
of 1%, is deducted from the variable amount note income at the time it is
credited to your account.
Plus out-of-pocket expenses, and extraordinary expenses based upon complexity
Fees and out-of-pocket expenses are billed to the fund monthly, based upon
market value at the beginning of the month
EXHIBIT 9.1
FUND ADMINISTRATION SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of September,
1998, by and between KPM Funds, Inc., a Nebraska corporation (hereinafter
referred to as the "Company") and Firstar Trust Company, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, the Company is an open-end management investment company which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create separate series, each with
its own separate investment portfolio;
WHEREAS, FTC is a trust company and, among other things, is in the
business of providing fund administration services for the benefit of its
customers; and
WHEREAS, the Company desires to retain FTC to act as Administrator for the
Equity Portfolio (the "Fund") and for each additional series of the Company
listed on Exhibit A attached hereto, as may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Company and FTC agree as follows:
1. APPOINTMENT OF ADMINISTRATOR
The Company hereby appoints FTC as Administrator of the Company on the
terms and conditions set forth in this Agreement, and FTC hereby accepts
such appointment and agrees to perform the services and duties set forth in
this Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FTC
A. General Fund Management
1. Act as liaison among all Fund service providers
2. Coordinate board communication by:
a. Assisting Company counsel in establishing meeting agendas
b. Preparing board reports based on financial and administrative
data
c. Evaluating independent auditor
d. Securing and monitoring fidelity bond and director and officer
liability coverage, and making the necessary SEC filings relating
thereto
e. Preparing minutes of meetings of the board and shareholders
3. Audits
a. Prepare appropriate schedules and assist independent auditors
b. Provide information to SEC and facilitate audit process
c. Provide office facilities
4. Assist in overall operations of the Fund
5. Pay Fund expenses upon written authorization from the Company
B. Compliance
1. Regulatory Compliance
a. Monitor compliance with 1940 Act requirements, including:
1) Asset diversification tests
2) Total return and SEC yield calculations
3) Maintenance of books and records under Rule 31a-3
4) Code of Ethics for the disinterested directors of the Fund
b. Monitor Fund's compliance with the policies and investment
limitations of the Company as set forth in its Prospectus and
Statement of Additional Information
2. Blue Sky Compliance
a. Prepare and file with the appropriate state securities
authorities any and all required compliance filings relating to
the registration of the securities of the Company so as to enable
the Company to make a continuous offering of its shares in all
states
b. Monitor status and maintain registrations in each state
3. SEC Registration and Reporting
a. Assist Company counsel in updating Prospectus and Statement of
Additional Information and in preparing proxy statements and
Rule 24f-2 notices
b. Prepare annual and semiannual reports
c. Coordinate the printing of publicly disseminated Prospectuses
and reports
d. File fidelity bond under Rule 17g-1
e. File shareholder reports under Rule 30b2-1
4. IRS Compliance
a. Monitor Company's status as a regulated investment company
under Subchapter M through review of the following:
1) Asset diversification requirements
2) Qualifying income requirements
3) Distribution requirements
b. Calculate required distributions (including excise tax
distributions)
C. Financial Reporting
1. Provide financial data required by Fund's Prospectus and
Statement of Additional Information
2. Prepare financial reports for shareholders, the board, the SEC,
and independent auditors
3. Supervise the Company's Custodian and Company Accountants in the
maintenance of the Company's general ledger and in the preparation
of the Fund's financial statements, including oversight of expense
accruals and payments, of the determination of net asset value of
the Company's net assets and of the Company's shares, and of the
declaration and payment of dividends and other distributions to
shareholders
D.Tax Reporting
1. Prepare and file on a timely basis appropriate federal and state
tax returns including Forms 1120/8610 with any necessary schedules
2. Prepare state income breakdowns where relevant
3. File Form 1099 Miscellaneous for payments to directors and other
service providers
4. Monitor wash losses
5. Calculate eligible dividend income for corporate shareholders
3. COMPENSATION
The Company, on behalf of the Fund, agrees to pay FTC for the performance
of the duties listed in this Agreement, the fees and out-of-pocket expenses
as set forth in the attached Exhibit A.
These fees may be changed from time to time, subject to mutual written
Agreement between the Company and FTC.
The Company agrees to pay all fees and reimbursable expenses within ten
(10) business days following the receipt of the billing notice.
4. REPRESENTATIONS OF FTC
FTC represents and warrants to the Company that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered agent under the Exchange Act.
C. It is duly qualified to carry on its business in the State of
Wisconsin;
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement;
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement; and
G. It will comply with all applicable requirements of the Securities Act
of 1933, as amended, and the Exchange Act, the 1940 Act, and any laws,
rules, and regulations of governmental authorities having jurisdiction.
5. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to FTC that:
A. The Company is an open-ended non diversified investment company under
the 1940 Act;
B. The Company is a corporation organized, existing, and in good standing
under the laws of Nebraska;
C. The Company is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Articles of Incorporation
have been taken to authorize it to enter into and perform this
Agreement;
E. The Company will comply with all applicable requirements of the
Securities Act, the Exchange Act, the 1940 Act, and any laws, rules and
regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act will be made
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Company being offered for sale.
6. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FTC shall exercise reasonable care in the performance of its duties
under this Agreement. FTC shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with
matters to which this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power supplies
beyond FTC's control, except a loss resulting from FTC's refusal or failure
to comply with the terms of this Agreement or from bad faith, negligence,
or willful misconduct on its part in the performance of its duties under
this Agreement. Notwithstanding any other provision of this Agreement, the
Company shall indemnify and hold harmless FTC from and against any and all
claims, demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which FTC may sustain or incur or which may be asserted
against FTC by any person arising out of any action taken or omitted to be
taken by it in performing the services hereunder (i) in accordance with the
foregoing standards, or (ii) in reliance upon any written or oral
instruction provided to FTC by any duly authorized officer of the Company,
such duly authorized officer to be included in a list of authorized
officers furnished to FTC and as amended from time to time in writing by
resolution of the Board of Directors of the Company.
FTC shall indemnify and hold the Company harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Company may sustain or incur or which may be
asserted against the Company by any person arising out of any action taken
or omitted to be taken by FTC as a result of FTC's refusal or failure to
comply with the terms of this Agreement, its bad faith, negligence, or
willful misconduct.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FTC shall take all reasonable steps to
minimize service interruptions for any period that such interruption
continues beyond FTC's control. FTC will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such
a breakdown at the expense of FTC. FTC agrees that it shall, at all times,
have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available.
Representatives of the Company shall be entitled to inspect FTC's premises
and operating capabilities at any time during regular business hours of
FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the indemnitor may be
asked to indemnify or hold the indemnitee harmless, the indemnitor shall be
fully and promptly advised of all pertinent facts concerning the situation
in question, and it is further understood that the indemnitee will use all
reasonable care to notify the indemnitor promptly concerning any situation
which presents or appears likely to present the probability of a claim for
indemnification. The indemnitor shall have the option to defend the
indemnitee against any claim which may be the subject of this
indemnification. In the event that the indemnitor so elects, it will so
notify the indemnitee and thereupon the indemnitor shall take over complete
defense of the claim, and the indemnitee shall in such situation initiate
no further legal or other expenses for which it shall seek indemnification
under this section. The indemnitee shall in no case confess any claim or
make any compromise in any case in which the indemnitor will be asked to
indemnify the indemnitee except with the indemnitor's prior written
consent.
7. PROPRIETARY AND CONFIDENTIAL INFORMATION
FTC agrees on behalf of itself and its directors, officers, and employees
to treat confidentially and as proprietary information of the Company all
records and other information relative to the Company and prior, present,
or potential shareholders of the Company (and clients of said
shareholders), and not to use such records and information for any purpose
other than the performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Company,
which approval shall not be unreasonably withheld and may not be withheld
where FTC may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company.
8. DATA NECESSARY TO PERFORM SERVICES
The Company or its agent, which may be FTC, shall furnish to FTC the data
necessary to perform the services described herein at times and in such
form as mutually agreed upon.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue automatically in
effect for successive annual periods. The Agreement may be terminated by
either party upon giving ninety (90) days prior written notice to the other
party or such shorter period as is mutually agreed upon by the parties.
However, this Agreement may be amended by mutual written consent of the
parties.
10. NOTICES
Notices of any kind to be given by either party to the other party shall be
in writing and shall be duly given if mailed or delivered as follows:
Notice to FTC shall be sent to:
Firstar Trust Company
Attn.: Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Company shall be sent to:
KPM Funds, Inc.
Attn.: Ms. Christine E. Walker
10250 Regency Circle, Suite 500
Omaha, NE 68114
11. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any of
FTC's duties or responsibilities hereunder is designated by the Company by
written notice to FTC, FTC will promptly, upon such termination and at the
expense of the Company, transfer to such successor all relevant books,
records, correspondence, and other data established or maintained by FTC
under this Agreement in a form reasonably acceptable to the Company (if
such form differs from the form in which FTC has maintained, the Company
shall pay any expenses associated with transferring the data to such form),
and will cooperate in the transfer of such duties and responsibilities,
including provision for assistance from FTC's personnel in the
establishment of books, records, and other data by such successor.
12. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner inconsistent with the 1940
Act or any rule or regulation promulgated by the Securities and Exchange
Commission thereunder.
13. RECORDS
FTC shall keep records relating to the services to be performed hereunder,
in the form and manner, and for such period as it may deem advisable and is
agreeable to the Company but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section
31 of the 1940 Act and the rules thereunder. FTC agrees that all such
records prepared or maintained by FTC relating to the services to be
performed by FTC hereunder are the property of the Company and will be
preserved, maintained, and made available in accordance with such section
and rules of the 1940 Act and will be promptly surrendered to the Company
on and in accordance with its request.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by a duly authorized officer or one or more counterparts as of the day and year
first written above.
KPM FUNDS, INC. FIRSTAR TRUST COMPANY
By:/s/ Rodney D. Cerny By: /s/ Robert J. Kern
-------------------------- --------------------------------
Rodney D. Cerny, President
Attest: /s/ Christine E. Walker Attest: /s/ Andrea E. McVoy
------------------- ------------------------------
Christine E. Walker
FUND ADMINISTRATION AND COMPLIANCE
ANNUAL FEE SCHEDULE - DOMESTIC FUNDS
EXHIBIT A
Separate Series of KPM Funds, Inc.
NAME OF SERIES DATE ADDED
-------------- ----------
Equity Portfolio 9/1/98
Fixed Income Portfolio 9/1/98
Minimum Annual Fee (Two Funds Combined)- $60,000
Annual fee based upon fund group net assets (Two Funds Combined):
6 basis points on the first $400 million
5 basis points on the next $1 billion
3 basis points on the balance
Plus out-of-pocket expense reimbursements, including but not limited to:
Postage
Programming
Stationery
Proxies
Retention of records
Special reports
Federal and state regulatory filing fees
Certain insurance premiums
Expenses from board of directors meetings
Auditing and legal expenses
Fees will be applied based upon relative fund assets
Fees and out-of-pocket expense reimbursements are billed monthly
EXHIBIT 9.2
FUND ACCOUNTING SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of September,
1998, by and between KPM Funds, Inc., a Nebraska corporation (hereinafter
referred to as the "Company") and Firstar Trust Company, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, the Company is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FTC is in the business of providing, among other things, mutual
fund accounting services to investment companies; and
WHEREAS, the Company desires to retain FTC to provide accounting services
to the Equity Portfolio (the "Fund") and each additional series of the Company
listed on Exhibit A attached hereto, as it may be amended from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Company and FTC agree as follows:
1. APPOINTMENT OF FUND ACCOUNTANT
The Company hereby appoints FTC as fund accountant of the Company on the
terms and conditions set forth in this Agreement, and FTC hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein.
2. DUTIES AND RESPONSIBILITIES OF FTC
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date+1 basis using
security trade information communicated from the investment manager.
(2) For each valuation date, obtain prices from a pricing source
approved by the Board of Directors of the Company and apply those
prices to the portfolio positions. For those securities where market
quotations are not readily available, the Board of Directors of the
Company shall approve, in good faith, the method for determining the
fair value for such securities.
(3) Identify interest and dividend accrual balances as of each
valuation date and calculate gross earnings on investments for the
accounting period.
(4) Determine gain/loss on security sales and identify them as,
short-term or long-term; account for periodic distributions of gains or
losses to shareholders and maintain undistributed gain or loss balances
as of each valuation date.
B. Expense Accrual and Payment Services:
(1) For each valuation date, calculate the expense accrual amounts
as directed by the Company as to methodology, rate or dollar amount.
(2) Record payments for Fund expenses upon receipt of written
authorization from the Company.
(3) Account for Fund expenditures and maintain expense accrual
balances at the level of accounting detail, as agreed upon by FTC and
the Company.
(4) Provide expense accrual and payment reporting.
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges, transfers,
dividend reinvestments, and other Fund share activity as reported by
the transfer agent on a timely basis.
(2) Apply equalization accounting as directed by the Company.
(3) Determine net investment income (earnings) for the Fund as of
each valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income balances
as of each valuation date.
(4) Maintain a general ledger and other accounts, books, and
financial records for the Fund in the form as agreed upon.
(5) Determine the net asset value of the Fund according to the
accounting policies and procedures set forth in the Fund's Prospectus.
(6) Calculate per share net asset value, per share net earnings,
and other per share amounts reflective of Fund operations at such time
as required by the nature and characteristics of the Fund.
(7) Communicate, at an agreed upon time, the per share price for
each valuation date to parties as agreed upon from time to time.
(8) Prepare monthly reports which document the adequacy of
accounting detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of
the Fund to support the tax reporting required for IRS-defined
regulated investment companies.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using the tax
lot relief method designated by the Company.
(4) Provide the necessary financial information to support the
taxable components of income and capital gains distributions to the
transfer agent to support tax reporting to the shareholders.
E. Compliance Control Services:
(1) Support reporting to regulatory bodies and support financial
statement preparation by making the Fund's accounting records available
to the Company, the Securities and Exchange Commission, and the outside
auditors.
(2) Maintain accounting records according to the 1940 Act and
regulations provided thereunder.
3. PRICING OF SECURITIES
For each valuation date, obtain prices from a pricing source selected by FTC but
approved by the Company's Board of Directors and apply those prices to the
portfolio positions of the Fund. For those securities where market quotations
are not readily available, the Company's Board of Directors shall approve, in
good faith, the method for determining the fair value for such securities.
If the Company desires to provide a price which varies from the pricing source,
the Company shall promptly notify and supply FTC with the valuation of any such
security on each valuation date. All pricing changes made by the Company will
be in writing and must specifically identify the securities to be changed by
CUSIP, name of security, new price or rate to be applied, and, if applicable,
the time period for which the new price(s) is/are effective.
4. REPRESENTATIONS OF FTC
FTC represents and warrants to the Company that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered agent under the Exchange Act.
C. It is duly qualified to carry on its business in the State of
Wisconsin;
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement;
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement; and
G. It will comply with all applicable requirements of the Securities Act
of 1933, as amended, and the Exchange Act, the 1940 Act, and any laws,
rules, and regulations of governmental authorities having jurisdiction.
5. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to FTC that:
A. The Company is an open-ended non diversified investment company under
the 1940 Act;
B. The Company is a corporation organized, existing, and in good standing
under the laws of Nebraska;
C. The Company is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Articles of Incorporation
have been taken to authorize it to enter into and perform this
Agreement;
E. The Company will comply with all applicable requirements of the
Securities Act, the Exchange Act, the 1940 Act, and any laws, rules and
regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act will be made
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Company being offered for sale.
6. CHANGES IN ACCOUNTING PROCEDURES
Any resolution passed by the Board of Directors of the Company that affects
accounting practices and procedures under this Agreement shall be effective upon
written receipt and acceptance by the FTC.
7. CHANGES IN EQUIPMENT, SYSTEMS, SERVICE, ETC.
FTC reserves the right to make changes from time to time, as it deems advisable,
relating to its services, systems, programs, rules, operating schedules and
equipment, so long as such changes do not adversely affect the service provided
to the Company under this Agreement.
8. COMPENSATION
FTC shall be compensated for providing the services set forth in this Agreement
in accordance with the Fee Schedule attached hereto as Exhibit A and as mutually
agreed upon and amended from time to time. The Company agrees to pay all fees
and reimbursable expenses within ten (10) business days following the receipt of
the billing notice.
9. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
A. FTC shall exercise reasonable care in the performance of its
duties under this Agreement. FTC shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Company in
connection with matters to which this Agreement relates, including losses
resulting from mechanical breakdowns or the failure of communication or
power supplies beyond FTC's control, except a loss resulting from FTC's
refusal or failure to comply with the terms of this Agreement or from bad
faith, negligence, or willful misconduct on its part in the performance of
its duties under this Agreement. Notwithstanding any other provision of
this Agreement, the Company shall indemnify and hold harmless FTC from and
against any and all claims, demands, losses, expenses, and liabilities
(whether with or without basis in fact or law) of any and every nature
(including reasonable attorneys' fees) which FTC may sustain or incur or
which may be asserted against FTC by any person arising out of any action
taken or omitted to be taken by it in performing the services hereunder (i)
in accordance with the foregoing standards, or (ii) in reliance upon any
written or oral instruction provided to FTC by any duly authorized officer
of the Company, such duly authorized officer to be included in a list of
authorized officers furnished to FTC and as amended from time to time in
writing by resolution of the Board of Directors of the Company.
FTC shall indemnify and hold the Company harmless from and against any
and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Company may sustain or incur or which may be
asserted against the Company by any person arising out of any action taken
or omitted to be taken by FTC as a result of FTC's refusal or failure to
comply with the terms of this Agreement, its bad faith, negligence, or
willful misconduct.
In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FTC shall take all reasonable steps to
minimize service interruptions for any period that such interruption
continues beyond FTC's control. FTC will make every reasonable effort to
restore any lost or damaged data and correct any errors resulting from such
a breakdown at the expense of FTC. FTC agrees that it shall, at all times,
have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electrical data processing
equipment to the extent appropriate equipment is available.
Representatives of the Company shall be entitled to inspect FTC's premises
and operating capabilities at any time during regular business hours of
FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and
correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this
section shall apply, it is understood that if in any case the indemnitor
may be asked to indemnify or hold the indemnitee harmless, the indemnitor
shall be fully and promptly advised of all pertinent facts concerning the
situation in question, and it is further understood that the indemnitee
will use all reasonable care to notify the indemnitor promptly concerning
any situation which presents or appears likely to present the probability
of a claim for indemnification. The indemnitor shall have the option to
defend the indemnitee against any claim which may be the subject of this
indemnification. In the event that the indemnitor so elects, it will so
notify the indemnitee and thereupon the indemnitor shall take over complete
defense of the claim, and the indemnitee shall in such situation initiate
no further legal or other expenses for which it shall seek indemnification
under this section. Indemnitee shall in no case confess any claim or make
any compromise in any case in which the indemnitor will be asked to
indemnify the indemnitee except with the indemnitor's prior written
consent.
10. NO AGENCY RELATIONSHIP
Nothing herein contained shall be deemed to authorize or empower FTC to Act as
agent for the other party to this Agreement, or to conduct business in the name
of, or for the account of the other party to this Agreement.
11. RECORDS
FTC shall keep records relating to the services to be performed hereunder, in
the form and manner, and for such period as it may deem advisable and is
agreeable to the Company but not inconsistent with the rules and regulations of
appropriate government authorities, in particular, Section 31 of the 1940 Act,
and the rules thereunder. FTC agrees that all such records prepared or
maintained by FTC relating to the services to be performed by FTC hereunder are
the property of the Company and will be preserved, maintained, and made
available in accordance with such section and rules of the 1940 Act and will be
promptly surrendered to the Company on and in accordance with its request.
12. DATA NECESSARY TO PERFORM SERVICES
The company or its agent, which may be FTC, shall furnish to FTC the data
necessary to perform the services described herein at such times and in such
form as mutually agreed upon. If FTC is also acting as the transfer agent for
the Company, nothing herein shall be deemed to relieve FTC of any of its
obligations under the Transfer Agent Servicing Agreement.
13. NOTIFICATION OF ERROR
The Company will notify FTC of any balancing or control error caused by FTC
within three (3) business days after receipt of any reports rendered by FTC to
the Company, or within three (3) business days after discovery of any error or
omission not covered in the balancing or control procedure, or within three (3)
business days of receiving notice from any shareholder.
14. PROPRIETARY AND CONFIDENTIAL INFORMATION
FTC agrees on behalf of itself and its directors, officers, and employees to
treat confidentially and as proprietary information of the Company all records
and other information relative to the Company and prior, present, or potential
shareholders of the Company (and clients of said shareholders), and not to use
such records and information for any purpose other than the performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where FTC may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the
Company.
15. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless sooner
terminated as provided herein, shall continue automatically in effect for
successive annual periods. This Agreement may be terminated by either party
upon giving ninety (90) days prior written notice to the other party or such
shorter period as is mutually agreed upon by the parties. However, this
Agreement may be replaced or modified by a subsequent agreement between the
parties.
16. NOTICES
Notices of any kind to be given by either party to the other party shall be in
writing and shall be duly given if mailed or delivered as follows: Notice to
FTC shall be sent to:
Firstar Trust Company
Attn.: Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Company shall be sent to:
KPM Funds, Inc.
Attn.: Christine E. Walker
10250 Regency Circle, Suite 500
Omaha, NE 68114
17. DUTIES IN THE EVENT OF TERMINATION
In the event that in connection with termination, a successor to any of FTC's
duties or responsibilities hereunder is designated by the Company by written
notice to FTC, FTC will promptly, upon such termination and at the expense of
the Company transfer to such successor all relevant books, records,
correspondence and other data established or maintained by FTC under this
Agreement in a form reasonably acceptable to the Company (if such form differs
from the form in which FTC has maintained the same, the Company shall pay any
expenses associated with transferring the same to such form), and will cooperate
in the transfer of such duties and responsibilities, including provision for
assistance from FTC's personnel in the establishment of books, records and other
data by such successor.
18. GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State of
Wisconsin. However, nothing herein shall be construed in a manner inconsistent
with the 1940 Act or any rule or regulation promulgated by the SEC thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer on one or more counterparts as of the day
and year first written above.
KPM FUNDS, INC. FIRSTAR TRUST COMPANY
By:/s/ Rodney D. Cerny By: /s/ Robert J. Kern
-------------------------- --------------------------------
Rodney D. Cerny, President
Attest: /s/ Christine E. Walker Attest: /s/ Andrea E. McVoy
------------------- ------------------------------
Christine E. Walker
FUND ACCOUNTING SERVICES
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of KPM Funds, Inc.
NAME OF SERIES DATE ADDED
-------------- ----------
Equity Portfolio 9/1/98
Fixed Income Portfolio 9/1/98
Annual Fee (Two Funds Combined)
$44,000 for the first $80 million
2 basis points on the next $320 million
1 basis point on average net assets exceeding $400 million
Plus out-of-pocket expenses, including pricing service:
Domestic and Canadian Equities $.15
Options $.15
Corp/Gov/Agency Bonds $.50
CMO's $.80
International Equities and Bonds $.50
Municipal Bonds $.80
Money Market Instruments $.80
Fees will be applied based upon relative fund assets
Fees and out-of-pocket expenses are billed to the fund monthly
EXHIBIT 9.3
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of September,
1998, by and between KPM Funds, Inc., a Nebraska corporation (hereinafter
referred to as the "Company") and Firstar Trust Company, a corporation organized
under the laws of the State of Wisconsin (hereinafter referred to as "FTC").
WHEREAS, the Company is an open-end management investment company which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Company is authorized to create separate series, each with its
own separate investment portfolio;
WHEREAS, FTC is a trust company and, among other things, is in the business
of administering transfer and dividend disbursing agent functions for the
benefit of its customers; and
WHEREAS, the Company desires to retain FTC to provide transfer and dividend
disbursing agent services to the Equity Fund (the "Fund") and each additional
series of the Company listed on Exhibit A attached hereto, as may be amended
from time to time.
NOW, THEREFORE, in consideration of the mutual agreements herein made, the
Company and FTC agree as follows:
1. APPOINTMENT OF TRANSFER AGENT
The Company hereby appoints FTC as Transfer Agent of the Company on the
terms and conditions set forth in this Agreement, and FTC hereby accepts such
appointment and agrees to perform the services and duties set forth in this
Agreement in consideration of the compensation provided for herein
2. DUTIES AND RESPONSIBILITIES OF FTC
FTC shall perform all of the customary services of a transfer agent and
dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to:
A. Receive orders for the purchase of shares;
B. Process purchase orders with prompt delivery, where appropriate, of
payment and supporting documentation to the Company's custodian, and
issue the appropriate number of uncertificated shares with such
uncertificated shares being held in the appropriate shareholder
account;
C. Process redemption requests received in good order and, where relevant,
deliver appropriate documentation to the Company's custodian;
D. Pay monies upon receipt from the Company's custodian, where relevant,
in accordance with the instructions of redeeming shareholders;
E. Process transfers of shares in accordance with the shareholder's
instructions;
F. Process exchanges between funds and/or classes of shares of funds both
within the same family of funds and with the Portico Money Market Fund,
if applicable;
G. Prepare and transmit payments for dividends and distributions declared
by the Company with respect to the Fund;
H. Make changes to shareholder records, including, but not limited to,
address changes in plans (i.e., systematic withdrawal, automatic
investment, dividend reinvestment, etc.);
I. Record the issuance of shares of the Fund and maintain, pursuant to
Rule 17ad-10(e) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), a record of the total number of shares
of the Fund which are authorized, issued and outstanding;
J. Prepare shareholder meeting lists and, if applicable, mail, receive and
tabulate proxies;
K. Mail shareholder reports and prospectuses to current shareholders;
L. Prepare and file U.S. Treasury Department Forms 1099 and other
appropriate information returns required with respect to dividends and
distributions for all shareholders;
M. Provide shareholder account information upon request and prepare and
mail confirmations and statements of account to shareholders for all
purchases, redemptions and other confirmable transactions as agreed
upon with the Company;
N. Provide a Blue Sky System which will enable the Company to monitor the
total number of shares of the Fund sold in each state. In addition,
the Company or its agent, including FTC, shall identify to FTC in
writing those transactions and assets to be treated as exempt from the
Blue Sky reporting for each state. The responsibility of FTC for the
Company's Blue Sky state registration status is solely limited to the
initial compliance by the Company and the reporting of such
transactions to the Company or its agent;
3. COMPENSATION
The Company agrees to pay FTC for the performance of the duties listed in
this agreement as set forth on Exhibit A attached hereto; the fees and
out-of-pocket expenses include, but are not limited to the following: printing,
postage, forms, stationery, record retention (if requested by the Company),
mailing, insertion, programming (if requested by the Company), labels,
shareholder lists and proxy expenses.
These fees and reimbursable expenses may be changed from time to time
subject to mutual written agreement between the Company and FTC.
The Company agrees to pay all fees and reimbursable expenses within ten
(10) business days following the receipt of the billing notice.
4. REPRESENTATIONS OF FTC
FTC represents and warrants to the Company that:
A. It is a trust company duly organized, existing and in good standing
under the laws of Wisconsin;
B. It is a registered transfer agent under the Exchange Act.
C. It is duly qualified to carry on its business in the State of
Wisconsin;
D. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
E. All requisite corporate proceedings have been taken to authorize it to
enter and perform this Agreement;
F. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement; and
G. It will comply with all applicable requirements of the Securities Act
of 1933, as amended, and the Exchange Act, the 1940 Act, and any laws,
rules, and regulations of governmental authorities having jurisdiction.
5. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to FTC that:
A. The Company is an open-ended non diversified investment company under
the 1940 Act;
B. The Company is a corporation organized, existing, and in good standing
under the laws of Nebraska;
C. The Company is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform this Agreement;
D. All necessary proceedings required by the Articles of Incorporation
have been taken to authorize it to enter into and perform this
Agreement;
E. The Company will comply with all applicable requirements of the
Securities Act, the Exchange Act, the 1940 Act, and any laws, rules and
regulations of governmental authorities having jurisdiction; and
F. A registration statement under the Securities Act will be made
effective and will remain effective, and appropriate state securities
law filings have been made and will continue to be made, with respect
to all shares of the Company being offered for sale.
6. COVENANTS OF THE COMPANY AND FTC
The Company shall furnish the Agent a certified copy of the resolution of
the Board of Directors of the Fund authorizing the appointment of FTC and the
execution of this Agreement. The Company shall provide to the Agent a copy of
its Articles of Incorporation and Bylaws, and all amendments thereto.
FTC shall keep records relating to the services to be performed hereunder,
in the form and manner as it may deem advisable. To the extent required by
Section 31 of the 1940 Act, and the rules thereunder, FTC agrees that all such
records prepared or maintained by FTC relating to the services to be performed
by FTC hereunder are the property of the Company and will be preserved,
maintained and made available in accordance with such section and rules and will
be surrendered to the Company on and in accordance with its request.
7. PERFORMANCE OF SERVICE; LIMITATION OF LIABILITY
FTC shall exercise reasonable care in the performance of its duties under
this Agreement. FTC shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Company in connection with matters to which
this Agreement relates, including losses resulting from mechanical breakdowns or
the failure of communication or power supplies beyond FTC's control, except a
loss resulting from the Agent's refusal or failure to comply with the terms of
this Agreement or from bad faith, negligence, or willful misconduct on its part
in the performance of its duties under this Agreement. Notwithstanding any
other provision of this Agreement, the Company shall indemnify and hold harmless
FTC from and against any and all claims, demands, losses, expenses, and
liabilities (whether with or without basis in fact or law) of any and every
nature (including reasonable attorneys' fees) which FTC may sustain or incur or
which may be asserted against FTC by any person arising out of any action taken
or omitted to be taken by it in performing the services hereunder (i) in
accordance with the foregoing standards, or (ii) in reliance upon any written or
oral instruction provided to FTC by any duly authorized officer of the Company,
such duly authorized officer to be included in a list of authorized officers
furnished to FTC and as amended from time to time in writing by resolution of
the Board of Directors of the Company.
FTC shall indemnify and hold the Company harmless from and against any and
all claims, demands, losses, expenses, and liabilities (whether with or without
basis in fact or law) of any and every nature (including reasonable attorneys'
fees) which the Company may sustain or incur or which may be asserted against
the Company by any person arising out of any action taken or omitted to be taken
by FTC as a result of FTC's refusal or failure to comply with the terms of this
Agreement, its bad faith, negligence, or willful misconduct.
In the event of a mechanical breakdown or failure of communication or power
supplies beyond its control, FTC shall take all reasonable steps to minimize
service interruptions for any period that such interruption continues beyond
FTC's control. FTC will make every reasonable effort to restore any lost or
damaged data and correct any errors resulting from such a breakdown at the
expense of FTC. FTC agrees that it shall, at all times, have reasonable
contingency plans with appropriate parties, making reasonable provision for
emergency use of electrical data processing equipment to the extent appropriate
equipment is available. Representatives of the Company shall be entitled to
inspect FTC's premises and operating capabilities at any time during regular
business hours of FTC, upon reasonable notice to FTC.
Regardless of the above, FTC reserves the right to reprocess and correct
administrative errors at its own expense.
In order that the indemnification provisions contained in this section
shall apply, it is understood that if in any case the indemnitor may be asked to
indemnify or hold the indemnitee harmless, the indemnitor shall be fully and
promptly advised of all pertinent facts concerning the situation in question,
and it is further understood that the indemnitee will use all reasonable care to
notify the indemnitor promptly concerning any situation which presents or
appears likely to present the probability of a claim for indemnification. The
indemnitor shall have the option to defend the indemnitee against any claim
which may be the subject of this indemnification. In the event that the
indemnitor so elects, it will so notify the indemnitee and thereupon the
indemnitor shall take over complete defense of the claim, and the indemnitee
shall in such situation initiate no further legal or other expenses for which it
shall seek indemnification under this section. The indemnitee shall in no case
confess any claim or make any compromise in any case in which the indemnitor
will be asked to indemnify the indemnitee except with the indemnitor's prior
written consent.
8. PROPRIETARY AND CONFIDENTIAL INFORMATION
FTC agrees on behalf of itself and its directors, officers, and employees
to treat confidentially and as proprietary information of the Company all
records and other information relative to the Company and prior, present, or
potential shareholders (and clients of said shareholders) and not to use such
records and information for any purpose other than the performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which approval shall not be unreasonably
withheld and may not be withheld where FTC may be exposed to civil or criminal
contempt proceedings for failure to comply after being requested to divulge such
information by duly constituted authorities, or when so requested by the
Company.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and, unless
sooner terminated as provided herein, shall continue automatically in effect for
successive annual periods. The Agreement may be terminated by either party upon
giving ninety (90) days prior written notice to the other party or such shorter
period as is mutually agreed upon by the parties. However, this Agreement may
be amended by mutual written consent of the parties.
10. NOTICES
Notices of any kind to be given by either party to the other party shall
be in writing and shall be duly given if mailed or delivered as follows: Notice
to FTC shall be sent to:
Firstar Trust Company
Attn.: Mutual Fund Services
615 East Michigan Street
Milwaukee, WI 53202
and notice to the Company shall be sent to:
KPM Funds, Inc.
Attn.: Ms. Christine E. Walker
10250 Regency Circle, Suite 500
Omaha, NE 68114
11. DUTIES IN THE EVENT OF TERMINATION
In the event that, in connection with termination, a successor to any of
FTC's duties or responsibilities hereunder is designated by the Company by
written notice to FTC, FTC will promptly, upon such termination and at the
expense of the Company, transfer to such successor all relevant books, records,
correspondence, and other data established or maintained by FTC under this
Agreement in a form reasonably acceptable to the Company (if such form differs
from the form in which FTC has maintained, the Company shall pay any expenses
associated with transferring the data to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from FTC's personnel in the establishment of books, records, and other data by
such successor.
12. GOVERNING LAW
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Wisconsin. However,
nothing herein shall be construed in a manner inconsistent with the 1940 Act or
any rule or regulation promulgated by the Securities and Exchange Commission
thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
KPM FUNDS, INC. FIRSTAR TRUST COMPANY
By:/s/ Rodney D. Cerny By: /s/ Robert J. Kern
-------------------------- --------------------------------
Rodney D. Cerny, President
Attest: /s/ Christine E. Walker Attest: /s/ Andrea E. McVoy
------------------- ------------------------------
Christine E. Walker
TRANSFER AGENT AND SHAREHOLDER SERVICING
ANNUAL FEE SCHEDULE
EXHIBIT A
Separate Series of KPM Funds, Inc.
NAME OF SERIES DATE ADDED
-------------- ----------
Equity Portfolio 9/1/98
Fixed Income Portfolio 9/1/98
Annual Fee
$14.00 per shareholder account -- no-load fund accounts
Minimum annual fee of $26,500 for the Equity Portfolio
Minimum annual fee of $6,000 for the Fixed Income Portfolio
Minimum annual fees of $10,000 for each additional fund or class
Plus Out-of-Pocket Expenses, including but not limited to:
Telephone - toll-free lines Proxies
Postage Retention of records (with prior
approval)
Programming (with prior approval) Microfilm/fiche of records
Stationery/envelopes Special reports
Mailing ACH fees
Insurance NSCC charges
ACH Shareholder Services (billed to the fund)
$12.00 per outgoing wire transfer
(shareholder liquidation, dividend, etc.)
$125.00 per month per fund group
$ .50 per account setup and/or change
$ .50 per item for AIP purchases
$ .35 per item for EFT payments and purchases
$3.50 per correction, reversal, return item
Qualified Plan Fees (Billed to Investors)(If Applicable)
Annual maintenance fee per account $12.50 / acct.
(Cap at $25.00 per SSN)
Transfer to successor trustee $15.00 / trans.
Distribution to participant $15.00 / trans.
(Exclusive of SWP)
Refund of excess contribution $15.00 / trans.
Additional Shareholder Fees (Billed to Investors)
Telephone Exchange $ 5.00 / exchange transaction
Return check fee $20.00 / item
Stop payment $20.00 / stop
(Liquidation, dividend,
draft check)
Research fee $ 5.00 / item
(For requested items of the second calendar year [or previous] to the
request)(Cap at $25.00)
NSCC AND DAZL
OUT-OF-POCKET CHARGES
NSCC INTERFACES
SETUP
FUND/SERV, NETWORKING
ACATS, EXCHANGES $5,000 SETUP (ONE TIME)
COMMISSIONS $5,000 SETUP (ONE TIME)
PROCESSING
FUND/SERV $ 50 / MONTH
NETWORKING $ 250 / MONTH
CPU ACCESS $ 40 / MONTH
FUND/SERV TRANSACTIONS $ .35 / TRADE
NETWORKING - PER ITEM $.025 / MONTHLY DIVIDEND FUND
NETWORKING - PER ITEM $.015 / NON-MO. DIVIDEND FUND
FIRST DATA $ .10 / NEXT-DAY FUND/
SERV TRADE
FIRST DATA $ .15 / SAME-DAY FUND/
SERV TRADE
NSCC IMPLEMENTATION
8 TO 10 WEEKS LEAD TIME
DAZL (DIRECT ACCESS ZIP LINK - ELECTRONIC MAIL INTERFACE TO FINANCIAL ADVISOR
NETWORK)
SETUP $5,000 / FUND GROUP-WAIVED FOR
FIRSTAR
MONTHLY USAGE $1,000 / MONTH
TRANSMISSION $ .015 / PRICE RECORD
$ .025 / OTHER RECORD
ENHANCEMENT $ 125 / HOUR
FEES AND OUT-OF-POCKET EXPENSES ARE BILLED TO THE FUND MONTHLY
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 5 to Registration Statement No. 33-78234 of KPM Funds, Inc. filed on Form N-
1A of our report dated July 24, 1998 appearing in the Annual Report dated June
30, 1998, and to the reference to us under the headings "Auditors" and
"Financial Highlights" in the Prospectus and "Auditors" in the Statement of
Additional Information, which is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
August 26, 1998
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE QUOTATIONS
KPM EQUITY PORTFOLIO
The Total Return information shown in the Statement of Additional
Information for the KPM Equity Portfolio was calculated as follows:
TOTAL RETURN:
n
P(1+T) =ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of a period, at the end
of the period
The computation of average annual return assumes dividends and
distributions are reinvested at net asset value (as stated in the prospectus) on
the reinvestment dates during the period.
The ending redeemable value assumes a complete redemption at the end of the
period.
Total Return for the Period Ending June 30, 1998
P = $1,000 (initial value)
n = 1 year
ERV = $1,089 (ending redeemable value)
Solve for T:
$1,000 (1+T)1 = 1,089
T = .089 or 8.9% annualized
Total Return from Inception (July 5, 1994) to June 30, 1998:
P = $1,000 (initial value)
n = 3.9890 years (1456 days)
ERV = $2,160 (ending redeemable value)
Solve for T:
$1,000 (1+T)3.9890 = 2,160
T = .213 or 21.3% annualized
KPM FIXED INCOME PORTFOLIO
The Total Return information shown in the Statement of Additional
Information for the KPM Fixed Income Portfolio was calculated as follows:
TOTAL RETURN:
n
P(1+T) + ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual return
n = number of years
ERV = ending redeemable value of hypothetical $1,000
payment made at the beginning of a period, at the
end of the period
The computation of average annual return assumes dividends and
distributions are reinvested at net asset value (as stated in the prospectus) on
the reinvestment dates during the period.
The ending redeemable value assumes a complete redemption at the end of the
period.
Total Return for the Period Ending June 30, 1998:
P = $1,000 (initial value)
n = 1 year
ERV = $1,094 (ending redeemable value)
Solve for T:
$1,000 (1+T)1 = 1,094
T = .094 or 9.4% annualized
Total Return from Inception (July 5, 1994) to June 30, 1998:
P = $1,000 (initial value)
n = 3.9890 years (1456 days)
ERV = $1,344 (ending redeemable value)
Solve for T:
3.9890
$1,000 (1+T) = 1,344
T = .077 or 7.7% annualized
The yield quotation for the KPM Fixed Income Portfolio described in the
Statement of Additional Information was calculated according to the following
formula for the 30 day period ending June 30, 1998.
6
YIELD = 2[(a/cd=1) -1]
a = dividends and interest earned during period net for accrued
expenses (net of reimbursements) or $52,205.
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends or 1,045,660.
d = the maximum offering price per share on the last day of the
period or $10.83.
The yield for the 30-day period was 5.81%.
[ARTICLE] 6
[LEGEND]
Pursuant to Item 602(c) (2) (i) of Regulations S-K and S-B.
[/LEGEND]
[CIK] 0000922379
[NAME] KPM FUNDS, INC.
[SERIES]
[NUMBER] 1
[NAME] KPM EQUITY PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 46,626,456
[INVESTMENTS-AT-VALUE] 56,966,724
[RECEIVABLES] 155,109
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 57,121,833
[PAYABLE-FOR-SECURITIES] 873,179
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 133,650
[TOTAL-LIABILITIES] 1,006,829
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 44,394,097
[SHARES-COMMON-STOCK] 3,241,980
[SHARES-COMMON-PRIOR] 2,307,684
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 249
[ACCUMULATED-NET-GAINS] 1,380,888
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 10,340,268
[NET-ASSETS] 56,115,004
[DIVIDEND-INCOME] 681,263
[INTEREST-INCOME] 277,996
[OTHER-INCOME] 0
[EXPENSES-NET] 726,621
[NET-INVESTMENT-INCOME] 232,638
[REALIZED-GAINS-CURRENT] 2,858,996
[APPREC-INCREASE-CURRENT] 845,812
[NET-CHANGE-FROM-OPS] 3,937,446
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 230,975
[DISTRIBUTIONS-OF-GAINS] 5,646,345
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,017,370
[NUMBER-OF-SHARES-REDEEMED] 407,792
[SHARES-REINVESTED] 324,718
[NET-CHANGE-IN-ASSETS] 934,296
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 408,062
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 726,621
[AVERAGE-NET-ASSETS] 51,273,961
[PER-SHARE-NAV-BEGIN] 17.92
[PER-SHARE-NII] 0.08
[PER-SHARE-GAIN-APPREC] 1.31
[PER-SHARE-DIVIDEND] (0.08)
[PER-SHARE-DISTRIBUTIONS] (1.92)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 17.31
[EXPENSE-RATIO] 1.42
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
[ARTICLE] 6
[LEGEND]
Pursuant to Item 602 (c) (2) (i) of Regulations S-K and S-B.
[/LEGEND]
[CIK] 0000922379
[NAME] KPM FUNDS, INC.
[SERIES]
[NUMBER] 2
[NAME] KPM FIXED INCOME PORTFOLI0
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 11,219,656
[INVESTMENTS-AT-VALUE] 11,618,718
[RECEIVABLES] 140,119
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 11,758,837
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 14,801
[TOTAL-LIABILITIES] 14,801
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 11,330,258
[SHARES-COMMON-STOCK] 1,087,041
[SHARES-COMMON-PRIOR] 851,557
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 2,504
[ACCUMULATED-NET-GAINS] 17,221
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 399,061
[NET-ASSETS] 11,744,036
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 685,689
[OTHER-INCOME] 8,538
[EXPENSES-NET] 126,187
[NET-INVESTMENT-INCOME] 559,502
[REALIZED-GAINS-CURRENT] 43,244
[APPREC-INCREASE-CURRENT] 399,061
[NET-CHANGE-FROM-OPS] 1,001,807
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 559,794
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 430,107
[NUMBER-OF-SHARES-REDEEMED] 238,960
[SHARES-REINVESTED] 44,337
[NET-CHANGE-IN-ASSETS] 235,484
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 26,023
[GROSS-ADVISORY-FEES] 60,788
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 134,725
[AVERAGE-NET-ASSETS] 10,138,783
[PER-SHARE-NAV-BEGIN] 10.42
[PER-SHARE-NII] 0.59
[PER-SHARE-GAIN-APPREC] 0.38
[PER-SHARE-DIVIDEND] (0.59)
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.80
[EXPENSE-RATIO] 1.25
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
