(KPM FUNDS LOGO)
SEMI-ANNUAL
REPORT
KPM EQUITY PORTFOLIO
DECEMBER 31, 1999
(KPM FUNDS LOGO)
PERFORMANCE STATISTICS
SIX MONTHS ENDED ONE YEAR ENDED AVERAGE ANNUAL RETURN
12/31/99 12/31/99 SINCE INCEPTION (7/5/94)
---------------- -------------- ------------------------
Equity Portfolio (11.37)% (7.06)% 12.15%
The total returns represent the overall performance of an investment for a
specific period of time, assuming reinvestment of dividends and capital gains.
Total returns reflect past performance. Past performance does not predict
future performance. The investment return and principal value of an investment
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
Dear Shareholder:
The equity markets produced an incredibly wide divergence in performance last
year from a style perspective. In the first half of the year, the markets were
constantly shifting between value and growth, with value stocks performing
significantly better in the June quarter. The second half of the calendar year
1999 (which is the first half of KPM Funds' fiscal year) saw momentum growth
stocks thoroughly dominate the performance landscape. This outperformance by
growth was especially poignant in the December quarter when the growth style
overwhelmed value in every category.
TOTAL RETURN
----------------------------------
DECEMBER QUARTER 6 MONTHS
ENDED 12/31/99 ENDED 12/31/99
---------------- --------------
VALUE INDEXES
Russell 1000 Value (large value stocks) +5.44% -5.42%
Russell Midcap (midsize value stocks) +3.77% -7.75%
Russell 2000 Value (small value stocks) +1.53% -7.00%
GROWTH INDEXES
Russell 1000 Growth +25.14% +20.26%
Russell Midcap Growth +39.47% +32.36%
Russell 2000 Growth +33.39% +26.72%
Our value style did not fare well during this period as the KPM Equity portfolio
declined 11.37% in the six-month period ended December 31, 1999
What is happening in this market and why are value stocks acting so poorly? The
primary reason is that the market continues to be dominated by an ever-shrinking
list of large capitalization growth stocks. Technology stocks, in particular,
have been red hot. Valuations for this group have been pushed to incredible
levels, and speculation, especially in the Internet sector, has been at a fever
pitch. For example, the technology-dominated NASDAQ Composite raced ahead over
85% in 1999 with more than half of that gain coming in the fourth quarter alone!
Moreover, over 1/2 of last year's gain by the S&P 500 (+20.3%) can be accounted
for by just eight large technology stocks. Because technology stocks appear to
be the "only game in town," money continues to flow into this area of the market
to the detriment of other sectors. We are seeing where value stocks are being
sold so the money can be directed to the hot technology area. This phenomenon
has also resulted in a wide disparity in valuations. While the valuations of
many growth stocks, especially technology companies, have gone sky-high, much of
the rest of the market remains reasonably priced. For example, the P/E multiple
on the S&P 500, excluding the technology stocks, is less than 20x, while the
technology stocks carry an average P/E ratio of over 50x. Many of the stocks we
own in the Fund are quality companies, have good prospects, and are priced at
less than 15x earnings.
We believe a very unhealthy mania has gripped the tech stock market and the
recent volatility is a danger signal, in our opinion. Manias usually end badly
for those who are speculating in this area of the market. In contrast, we
continue to own excellent businesses at very reasonable prices and are convinced
that a more rational environment will benefit the value style and our investment
philosophy.
Sincerely,
/s/ Rodney D. Cerny
Rodney D. Cerny, CFA
President
KPM EQUITY PORTFOLIO
PORTFOLIO COMMENTARY
Bruce H. Van Kooten, CFA
Portfolio Manager
Throughout our career (which spans over twenty years), we have always believed
in and supported the value style of investing as put forth by Benjamin Graham.
Underlying this discipline is the requirement that you not pay too much for
shares in a company. In other words, Graham always insisted on a "margin of
safety" for all investments. He also put more analytical effort in a company's
past financial performance than in expectations for the future. After all,
since the past is known and the future is not, by focusing on the past, one can
come up with reasonable expectations of the future. Graham also made comments
referring to the price movement of stocks. In The Intelligent Investor,
------------------------
referring to an owner of common stocks, Graham states, "As long as the earning
power of his holdings remains satisfactory, he can give as little attention as
he pleases to the vagaries of the stock market" (p.104). Also, "_price
fluctuations have only one significant meaning for the true investor. They
provide him with an opportunity to buy wisely when prices fall sharply and to
sell wisely when they advance a great deal. At other times he will do better if
he forgets about the stock market and pays attention to his dividend returns and
to the operating results of his companies" (p.109). One of our favorite quotes
is especially applicable to the momentum-driven market of the past two years:
"_market quotations are there for his convenience, either to be taken advantage
of or to be ignored. He should never buy a stock because it has gone up or sell
one because it has gone down." A momentum-driven market feeds on itself. Stock
prices increase simply because they have increased.
This "feeding frenzy" in technology and Internet stocks has, in effect, produced
two separate markets. The "old" market is comprised of the traditional
manufacturing and service companies while the "new" market is made up of
technology, telecommunications, and Internet companies. The "new" market stocks
are those that drove the market averages to their incredible returns last year,
while the "old" market stocks (two-thirds of all stocks traded on the NYSE) as a
whole were down or flat. Throughout 1999, our feeling was that we were standing
in a casino while across the room, a bank of slot machines were paying off
almost 100% of the time. All people had to do was plunk money into the machine,
pull the handle, and win. The only difference was that each successive person
to pull the handle had to ante up a larger sum than the prior player in order to
win the same amount. We never could get to those slot machines because a ball
and chain (read: value principles) kept us shackled to the opposite wall. There
is no way that we can keep up with a speculative mania in technology and
internet stocks without throwing our Benjamin Graham-inspired value principles
to the wind and becoming gamblers ourselves. There is, however, a large
contingent of "value" investors who have capitulated and bought the highly
speculative "new" market stocks. Those managers have done all right in terms of
performance, but we don't see how they can call themselves value managers
anymore. They've shown themselves to be more in the realm of "sector rotators,"
moving from area to area in the market depending on what is working at the time.
We have heard of value shops closing their doors due to loss of business and
know of more than a few value investors who have left the business of managing
other peoples money. Warren Buffett did the same thing in 1969 when he
terminated his investment partnership because he was "not attuned to this market
environment_" He also commented that "a swelling interest in investment
performance has created an increasingly short-term oriented and (in my opinion)
more speculative market."
There is an excellent article in the January 24, 2000 issue of Fortune magazine
-------
entitled "Has the Market Gone Mad?" where the author questions the wisdom of
investors paying absurd prices for companies whose businesses they cannot
explain or even understand. The author also questions how much people are
willing to pay for companies that do have viable businesses. For example, in
order for AOL to justify its current stock price, the company would have to grow
its earnings at 39% per year for twenty years. Cisco Systems would have to grow
earnings at 32% per year to justify its stock price at this level. Growth rates
such as these may be attainable over a short period of time, but growing at
these levels for twenty years or more is unlikely to be attained, especially
when you calculate how big these companies would be even ten years out.
Freddie Mac has been, and continues to be one of the largest holdings in your
Fund. Freddie Mac's stock performance in 1999 was pretty much typical of the
performance of most financial stocks. The company's business (providing
liquidity to the secondary mortgage market) performed exceptionally in 1999.
Earnings grew at a 28% rate from a year ago, while credit risk and interest-rate
risk declined to historically low levels. The reason the stock declined about
25% last year had to do with the increases in interest rates rather than Freddie
Mac's business. An increase in interest rates means that the rate used to
discount expected future cash flows must increase, which implies a decline in
value of financial assets. The impact from rate increases will affect all
stocks in time. Perceptions that technology companies are immune to rate
increases will simply not be borne out. Freddie Mac's shareholder-oriented
management expects that the company can grow earnings in the 12% range for the
next few years, exceeding the growth for the broad market. Freddie Mac is an
excellent example of a company that is continually increasing its business value
while the stock price has been declining. We believe that the ability of a
company to keep increasing its business value is the most important factor in a
successful long-term investment.
Looking out into 2000, in spite of a market that does not currently reward our
style of investment, we intend to stay the course of remaining rational, and we
will patiently search for excellent companies selling below their intrinsic
value. We still believe this is the best and most rewarding technique over the
long-term.
PORTFOLIO PROFILE AS OF DECEMBER 31, 1999
KPM EQUITY
WEIGHTED AVERAGE S&P 500
---------------- -------
Price/Earnings*<F1> 19.3x 29.0x
Price/Book Value 3.4x 5.1x
Dividend Yield 1.5% 1.1%
Return on Equity (5-year average) 23.8% 17.0%
Market Capitalization $30.5 billion $143.1 billion
*<F1> based on 1999 estimates
AVERAGE ANNUAL RATE OF RETURN (%)
FOR THE PERIOD ENDED DECEMBER 31, 1999
FISCAL SINCE INCEPTION
YEAR-TO-DATE 1 YEAR 3 YEARS 7/5/94
------------ ------ ------- ---------------
KPM Equity Portfolio (11.37) (7.06) 2.36 12.15
date KPM Equity Portfolio S&P 500 Composite
6/30/94 $10,000 $10,000
12/31/94 $10,234 $10,440
6/30/95 $12,201 $12,549
12/31/95 $13,565 $14,363
6/30/96 $15,162 $15,813
12/31/96 $17,506 $17,660
6/30/97 $19,850 $21,300
12/31/97 $21,023 $23,554
6/30/98 $21,612 $27,725
12/31/98 $20,204 $30,284
6/30/99 $21,185 $29,869
12/31/99 $18,776 $32,172
This chart assumes an initial investment of $10,000 made on 7/5/94. Total
return is based on the net change in N.A.V. and assuming reinvestment of all
dividends and other distributions. Performance figures represent past
performance, which is no guarantee of future results, and will fluctuate. The
investment return and principal value of an investment in the KPM Equity
Portfolio will fluctuate so that an investor's shares in the Fund, when
redeemed, may be worth more or less than their original cost.
The S&P 500 Composite is an index of 500 selected common stocks. The index
consists primarily of stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all U.S. common stocks.
The returns for this index do not reflect any fees or expenses.
KPM EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 1999 (UNAUDITED)
COMMON STOCKS -- 95.7% SHARES VALUE
- ---------------------- ------ -----
BASIC MATERIALS -- 5.1%
FiberMark, Inc. *<F2> 22,000 $ 258,500
Potash Corporation 9,500 457,781
-----------
716,281
-----------
CAPITAL GOODS -- 9.2%
Emerson Electric Co. 6,000 344,250
Honeywell International, Inc. 9,000 519,187
Pentair, Inc. 11,000 423,500
-----------
1,286,937
-----------
COMMUNICATION SERVICES -- 9.9%
AT&T Corp. 7,000 355,250
MCI WorldCom, Inc. *<F2> 11,250 596,250
SBC Communications, Inc. 9,000 438,750
-----------
1,390,250
-----------
CONSUMER CYCLICALS -- 10.2%
The Dun & Bradstreet Corporation 18,000 531,000
Mattel, Inc. 20,000 262,500
Nike, Inc. 13,000 644,313
-----------
1,437,813
-----------
CONSUMER STAPLES -- 14.8%
Anheuser-Busch Companies, Inc. 7,000 496,125
Kimberly-Clark Corporation 6,500 424,125
McDonald's Corporation 10,500 423,281
Philip Morris Companies Inc. 17,000 394,187
Sara Lee Corporation 15,000 330,938
-----------
2,068,656
-----------
ENERGY -- 7.9%
Atlantic Richfield Company 6,000 519,000
Exxon Mobil Corporation 5,000 402,812
Prima Energy Corporation *<F2> 8,000 192,500
-----------
1,114,312
-----------
FINANCIAL SERVICES -- 11.1%
Gallagher (Arthur J.) & Co. 4,000 259,000
Freddie Mac 14,000 658,875
SLM Holding Corporation 15,000 633,750
-----------
1,551,625
-----------
HEALTHCARE -- 5.8%
IMS Health, Inc. 13,000 353,438
Johnson & Johnson 5,000 465,625
-----------
819,063
-----------
INSURANCE -- 9.9%
The Allstate Corporation 18,000 432,000
Berkshire Hathaway Inc. *<F2> 17 953,700
-----------
1,385,700
-----------
TECHNOLOGY -- 11.8%
Electronic Data Systems Corporation 6,000 401,625
First Data Corporation 9,000 443,813
Gartner Group, Inc.*<F2> 22,000 335,500
Transaction Systems
Architects, Inc.*<F2> 17,000 476,000
-----------
1,656,938
-----------
TOTAL COMMON STOCK
(cost $10,714,912) 13,427,575
-----------
TOTAL INVESTMENTS -- 95.7%
(cost $10,714,912) 13,427,575
Other assets in excess of
liabilities -- 4.3% 601,834
-----------
Total net assets -- 100.00% $14,029,409
-----------
-----------
*<F2> Non-income producing
See notes to the financial statements.
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (UNAUDITED)
KPM
EQUITY
PORTFOLIO
---------
ASSETS:
Investments, at value (cost of $10,714,912) $13,427,575
Cash 391,618
Dividends and interest receivable 23,650
Capital shares sold 271,034
Other assets 1,101
-----------
Total assets 14,114,978
-----------
LIABILITIES:
Payable to Adviser 7,605
Payable to Distributor 3,710
Capital shares redeemed 40,000
Accrued expenses and other liabilities 34,254
-----------
Total liabilities 85,569
-----------
NET ASSETS $14,029,409
-----------
-----------
NET ASSETS CONSIST OF:
Paid in capital $ 9,837,536
Accumulated undistributed net investment loss (6,616)
Accumulated undistributed net realized gain on investments 1,485,826
Unrealized appreciation or depreciation on investments 2,712,663
-----------
NET ASSETS $14,029,409
-----------
-----------
Shares issued and outstanding (Fifty million
shares of $0.00001 par value authorized) 1,027,526
Net asset value per share (offering and redemption price) $ 13.65
-----------
-----------
See notes to the financial statements.
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1999 (UNAUDITED)
KPM
EQUITY
PORTFOLIO
---------
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $1,400 $ 167,039
Interest 14,156
-----------
Total investment income 181,195
-----------
EXPENSES:
Investment advisory fees 83,358
Accounting and transfer agent fees and expenses 30,620
Distribution fees (12b-1) 26,049
Administrative fees 15,088
Custody fees and expenses 4,547
Professional fees 4,307
Directors' fees and expenses 3,312
Shareholder reports 2,576
Registration and filing fees 1,771
Other 893
-----------
Total expenses before reimbursement from Adviser 172,521
Less, expense reimbursement (16,197)
-----------
Net expenses 156,324
-----------
NET INVESTMENT INCOME 24,871
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,486,061
Net change in unrealized appreciation (depreciation)
of investments (4,317,701)
-----------
NET LOSS ON INVESTMENTS (2,831,640)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,806,769)
-----------
-----------
See notes to the financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
KPM EQUITY PORTFOLIO
SIX MONTHS YEAR
ENDED ENDED
DEC. 31, 1999 JUNE 30, 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
OPERATIONS:
Net investment income $ 24,871 $ 160,025
Net realized gain on investments 1,486,061 963,869
Change in unrealized appreciation (depreciation) of investments (4,317,701) (3,309,904)
------------ ------------
Net decrease in net assets resulting from operations (2,806,769) (2,186,010)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (31,487) (165,014)
Net realized gain on investments (962,486) (1,379,833)
------------ ------------
Total dividends and distributions (993,973) (1,544,847)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 739,021 5,660,483
Shares issued in connection with payment of dividends and distributions 952,040 1,411,524
Cost of shares redeemed (10,212,419) (33,104,645)
------------ ------------
Net decrease in net assets from capital share transactions (8,521,358) (26,032,638)
------------ ------------
TOTAL DECREASE IN NET ASSETS (12,322,100) (29,763,495)
NET ASSETS:
Beginning of period 26,351,509 56,115,004
------------ ------------
End of period*<F3> $ 14,029,409 $ 26,351,509
------------ ------------
*<F3> Including undistributed net investment loss of: $ (6,616) $ --
------------ ------------
------------ ------------
CHANGES IN SHARES OUTSTANDING:
Shares sold 50,774 375,834
Shares issued in connection with payment of dividends and distributions 68,052 91,538
Shares redeemed (705,116) (2,095,537)
------------ ------------
NET DECREASE IN SHARES OUTSTANDING (586,290) (1,628,165)
------------ ------------
------------ ------------
</TABLE>
See notes to the financial statements.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING
<TABLE>
KPM EQUITY PORTFOLIO
SIX MONTHS YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
DEC. 31, 1999 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -
BEGINNING OF PERIOD $16.33 $17.31 $17.92 $14.53 $12.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.07 0.08 0.05 0.05
Net realized gain (loss) and
unrealized appreciation
(depreciation) (1.86) (0.45) 1.31 4.25 2.83
------ ------ ------ ------ ------
Total from investment
operations (1.84) (0.38) 1.39 4.30 2.88
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.02) (0.07) (0.08) (0.06) (0.05)
Distributions from net realized
gain from investment
transactions (0.82) (0.53) (1.92) (0.85) (0.30)
------ ------ ------ ------ ------
Total distributions (0.84) (0.60) (2.00) (0.91) (0.35)
------ ------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD $13.65 $16.33 $17.31 $17.92 $14.53
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN -11.37% -1.97% 8.88% 30.92% 24.27%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period
(thousands) $14,029 $26,352 $56,115 $41,343 $30,565
Ratio of net expenses to average
net assets 1.50%(1)<F4> 1.43%(1)<F4> 1.42% 1.45% 1.50%
Ratio of net investment income
to average net assets 0.24%(1)<F4> 0.41%(1)<F4> 0.45% 0.34% 0.40%
Portfolio turnover rate 12.94% 36.22% 32.25% 41.83% 34.05%
</TABLE>
(1)<F4> Without fees waived, ratio of expenses to average net assets would have
been 1.66% and 1.43% and ratio of net investment income to average net
assets would have been 0.08% and 0.41% for the six months ended
December 31, 1999 and the year ended June 30, 1999, respectively.
See notes to the financial statements.
KPM FUNDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- DECEMBER 31, 1999 (UNAUDITED)
1. ORGANIZATION
KPM Funds, Inc. (the "Fund") is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company. The
Fund issues its shares in series, each series representing a distinct portfolio
with its own investment objectives and policies. At December 31, 1999, the Fund
had one portfolio in operation: the KPM Equity Portfolio (the "Portfolio").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies employed by the
Fund in preparing its financial statements.
USE OF ESTIMATES: In preparing the financial statements in accordance with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
VALUATION OF INVESTMENTS: Investment securities are carried at value determined
using the following valuation methods:
o Securities traded on a national securities exchange are valued at the last
reported sale price that day.
o Securities traded on a national securities exchange for which there were no
sales on that day or on the NASDAQ National Market System and securities
traded on other over-the-counter markets for which market quotations are
readily available are valued at closing bid prices.
o Securities including bonds or other assets for which market prices are not
readily available are valued at fair market value as determined in good
faith or under the direction of the Board of Directors. Determination of
fair value involves, among other things, reference to market indices,
matrices and data from independent brokers and pricing services.
All securities are valued in accordance with the above noted policies at the
close of each business day.
DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income are
declared and paid quarterly. Distributions of net realized capital gains, if
any, will be declared at least annually.
FEDERAL INCOME TAXES: It is the Portfolio's policy to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and the
Portfolio intends to distribute investment company net taxable income and net
capital gains to shareholders. Therefore, no federal income tax provision is
required.
OTHER: Security and shareholder transactions are recorded on trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Dividend income and dividends and distributions to
shareholders are recorded on the ex-dividend date. Interest income is
recognized on an accrual basis. Generally accepted accounting principles
require that permanent financial reporting and tax differences relating to
shareholder distributions be reclassified to paid in capital.
3. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Fund has retained KPM Investment Management, Inc. (the "Adviser"), a wholly-
owned subsidiary of KFS Corporation, which is a wholly-owned subsidiary of
Mutual of Omaha Insurance Company, as its exclusive investment adviser. The
Adviser receives a fee, computed daily and payable monthly, at the annual rates
presented below as applied to the Portfolio's daily net assets. The Adviser has
voluntarily agreed to reimburse the Portfolios to the extent of the advisory fee
paid, if operating expenses exceed the annual rates presented below as applied
to the Portfolio's daily net assets. For the six months ended December 31, 1999
the Adviser waived the following fees:
KPM EQUITY
PORTFOLIO
---------
Annual Advisory Rate 0.80%
Annual Cap on Expenses 1.50%
Fees Waived $16,197
The Fund has an agreement with Kirkpatrick, Pettis, Smith, Polian Inc. ("KPSP"),
a wholly-owned subsidiary of KFS Corporation, to act as principal underwriter
and distributor for the Portfolio's shares. Pursuant to the distribution
agreement and Rule 12b-1 Plan, KPSP is paid a fee of 0.25% per annum of the
Portfolio's daily net assets. Under the terms of the distribution agreement,
the Portfolio incurred $26,049 for such service.
For the six months ended December 31, 1999, the KPM Equity Portfolio paid KPSP
$50 in broker commissions.
4. SECURITIES TRANSACTIONS
Purchases and sales of investment securities, other than short-term investments,
for the six months ended December 31, 1999 were as follows:
KPM EQUITY
PORTFOLIO
---------
Purchases:
U.S. Government --
Other $ 2,566,608
Sales:
U.S. Government --
Other $11,746,018
At December 31, 1999, unrealized appreciation (depreciation) for federal income
tax purposes was as follows:
NET
APPRECIATION APPRECIATION DEPRECIATION
------------ ------------ ------------
KPM Equity Portfolio $2,688,150 $3,200,062 $(511,912)
At December 31, 1999, the cost of investment securities for income tax purposes
was $10,739,425.
5. SPECIAL MEETING OF SHAREHOLDERS, NOVEMBER 8, 1999
A Special Meeting of Shareholders of the KPM Fixed Income Portfolio (the
"Portfolio"), a series of the KPM Funds, Inc. (the "Fund"), was held November 8,
1999 at the offices of the Fund. As of October 8, 1999, the record date,
outstanding shares of the Fund were 493,718.194. Holders of 404,013.160 shares
of the Fund were present at the meeting in person or by proxy, being the holders
of a majority of the outstanding shares of the Fund and thus constituting a
quorum. The following matter was voted on at the meeting:
The Shareholders of the Portfolio elected to liquidate and dissolve the
Portfolio.
WITHHOLD/ BROKER SHARES
FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
382,953.310 0.000 110,764.884 0.000
INVESTMENT ADVISER
KPM Investment Management, Inc.
DISTRIBUTOR
Kirkpatrick, Pettis, Smith, Polian Inc.
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT AND SHAREHOLDER SERVICING
AGENT
Firstar Mutual Fund Services, LLC
CUSTODIAN
Firstar Bank, N.A.
This report has been prepared for the general information of KPM Funds
shareholders. It is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus. The Prospectus contains
more complete information about the Fund's objectives, policies, expenses and
risks. Please read the prospectus carefully before investing or sending money.
(KPM FUNDS LOGO)
10250 Regency Circle, Suite 500
Omaha, NE 68114-3723
