<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholder:
Enclosed is your copy of the Kennebec Funds Semi-Annual report for the period
ended September 30, 1995. We would like to extend a very warm welcome to all of
you who have joined us as new shareholders in these initial months of the Funds'
operations.
During this period the stock and credit markets have been strong and have
continued with the upward trend that began near the first of the year. As of
the date of this report, the Standard & Poor's 500 index, a commonly used
indicator of the U.S. stock market, is up 29.77% to a near record high and the
U.S. Treasury's bellwether 30 year bond yield is down to 6.50%, a drop of 1.37%
from the beginning of the year.
Of course, it's easy to look back and discuss the markets' results with great
insight, but it's impossible to predict where they will go from here (all I need
is a copy of tomorrow's Wall Street Journal, today!). Price-to-earnings ratios
are high and dividend yields are low, yet money has continued to flood into the
market, helping to fuel its rise. There are many who say we are due for a major
correction and, while we certainly do not dispute the possibility of such an
occurrence, we do believe it is wise to take a long-term approach to the
markets. We consider long-term as a minimum of five years or more. With this
longer time horizon, the investor can mitigate the down periods of the market.
In addition, the inherent volatility of the market can be reduced further
through the use of a periodic investment plan. Investing on a regular basis
such as monthly or quarterly, a process known as dollar cost averaging, can be
very beneficial. Of course, the difficult part is maintaining one's discipline
and continuing to invest in declining markets as well as rising ones. A
periodic investment will not, of course, assure a profit or protect against a
loss.
At Kennebec Funds we are focused on providing you, our shareholders, with first
rate investment management and service. If there is anything we can do for you
please call us at 800-524-2276.
Sincerely,
/s/ Harley K. Sefton
Harley K. Sefton
Chairman
1
<PAGE>
FUND MANAGER'S UPDATE
KENNEBEC U.S. GOVERNMENT FUND
At mid-year, the economic indicators provided a mixed reading on the economy for
the taxable bond markets. The markets continue to experience significant
volatility within a fairly narrow yield range. The Federal Reserve lowered the
Federal Funds rate 25 basis points to 5.75% on July 6. Since then, the Fed has
adopted a neutral monetary policy. The fixed income markets continue to search
for direction in this apparent era of moderate non-inflationary growth.
By mid-year, the Fund's sector allocation continues to be overweighted in
Treasuries/Agencies, underweighted in Corporates and marketweighted in
Mortgages (overweighted, underweighted, and marketweighted measures are
relative to broad domestic fixed income indexes). The Fund continues to have
the average maturity and duration characteristics of a 7.5-year Treasury note.
The Fund's maturity and duration positions are currently neutral, and we
anticipate maintaining these neutral positions given the current market
conditions.
PORTFOLIO HIGHLIGHTS AS OF SEPTEMBER 30, 1995
Net Assets $18,629,669
The Kennebec U.S. Government Fund's investment objective is to provide
investors with as high a level of current income as is consistent with
preservation of capital. The Fund pursues this objective in a consistently
prudent and diverse manner. The Fund is an intermediate bond fund and will
have an average maturity between 5 and 10 years. At all times the Fund will
have a minimum of 65% of its assets in U.S. Government or U.S. Government
Agency securities.
SECTOR DIVERSIFICATION SIGNIFICANT HOLDINGS
---------------------- --------------------
[PIE CHART APPEARS HERE] U.S. Treasury Note 7.50%, Due 5/15/2002
Agency Mortgage U.S. Treasury Note 7.50%, Due 2/15/2005
8% 26%
FHLMC 8.53%, Due 2/02/2005
Corporates Treasury
6% 60% FNMA 7.50%, Due 4/01/2014
2
<PAGE>
FUND MANAGER'S UPDATE
KENNEBEC CALIFORNIA TAX-FREE FUND
The California municipal bond market has experienced shorter term yields falling
further than longer term yields, steepening the municipal yield curve. The
municipal market continues to struggle with the uncertainty from the tax-reform
debate in Washington D.C. Another important issue for municipal bonds concerns
the fiscal pressure many municipalities are experiencing. Recently, Los Angeles
County showed strains as it grappled with its budgetary problems concerning its
public health-care system.
The Fund currently has an average maturity of approximately 17.5 years and an
average duration of 10.5 years. The Fund's largest sector allocations include
power, transportation, education, waste and health. In addition, approximately
53% of the Fund's current holdings are insured bonds. The Fund's maturity
position is currently somewhat longer than neutral, and we anticipate
maintaining the maturity and duration positions given the current market
conditions.
PORTFOLIO HIGHLIGHTS AS OF SEPTEMBER 30, 1995
Net Assets $38,300,089
The Kennebec California Tax-Free Fund's investment objective is to provide
investors with as high a level of current income, exempt from both Federal and
California state personal income taxes, as is consistent with the preservation
of capital. The Fund will have an average maturity of 10 or more years. The
Fund generally will not purchase bond issues subject to the Alternative Minimum
Tax.
SECTOR DIVERSIFICATION SIGNIFICANT HOLDINGS
---------------------- --------------------
[PIE CHART APPEARS HERE]
Waste California Educational Financing -
9% Pomona College
Transportation California Health Financing -
12% Sutter Hospital
Certificates of Riverside County Electric
Participation
4% San Diego Regional Transportation
Commission
Prisons
3%
Water
7%
Education
14%
Power
20%
General Obligations
8%
Housing
4%
Miscellaneous
Revenues
9%
Health
10%
3
<PAGE>
FUND MANAGER'S UPDATE
KENNEBEC EQUITY FUND
Common stocks performed well during the calender year third quarter owing to a
combination of strongly growing corporate profits and declining interest rates.
Practically all areas of the market were strong during this quarter, and
particularly large gains were posted by the Technology and Financial sectors.
In general, growth stocks outperformed their value counterparts during the
calender year third quarter by a modest amount.
During the calender year third quarter, the Fund increased in assets from $17.8
million to $26.3 million. Cash as a percent of assets decreased from 25.9% to
18.6%.
The Fund continues to be overweighted in the Financial, Utility/REIT and
Consumer Staple areas. In addition, we continue to be underweighted in the
Energy, Manufacturing, Basic Industry and Technology sectors. During the
calender year fourth quarter of 1995 we expect to reduce our cash position
further and to focus on finding undervalued securities in the areas in which we
are currently underexposed.
PORTFOLIO HIGHLIGHTS AS OF SEPTEMBER 30, 1995
Net Assets $26,291,318
The Kennebec Equity Fund's investment objective is to provide investors with
long-term capital appreciation. The Fund purchases both domestic and overseas
stocks which offer low relative valuation multiples and a catalyst to reach
normal valuation levels within a year. The portfolio managers seek value in
both large and small capitalization stocks. Often, the smaller companies that
are selected are overlooked, neglected or misunderstood by the vast majority of
investors. Many of the larger capitalization opportunities tend to be
companies that are contrarian in nature because they are involved in
unglamorous, out-of-favor or mature industries. In addition, many of the
stocks in the portfolio have undergone a major price correction prior to our
purchase.
SECTOR DIVERSIFICATION TOP TEN HOLDINGS
---------------------- ----------------
Manufacturing Bristol-Myers Squibb Co.
6% Tenneco, Inc.
Kroger Company
Finance Philip Morris Companies
17% American General Corp.
Repsol, S.A.
Health Care Boston Edison Company
11% PPG Industries, Inc.
BankAmerica Corporation
Services Allstate Corporation
4%
Consumer Cyclical
6%
Energy
6%
Cash
19%
Consumer Staples
12%
Technology
2%
Basic Industry
4%
Utilities/REITS
13%
4
<PAGE>
MANAGEMENT OF THE FUNDS
THOMAS C. BOWDEN, C.F.A.
Vice President and Portfolio Manager (Equity Fund Co-Manager)
Mr. Bowden joined Kennebec Capital Management, Inc. in February 1995 after
serving as Vice President and Portfolio Manager (Equity) with First Interstate
Capital Management, Inc. (formerly San Diego Financial Capital Management, Inc.)
for nine years. During that time, he worked in the areas of equity analysis,
trading and portfolio management. In addition, Mr. Bowden was co-manager of the
Pacifica Equity Value and Pacifica Balanced Mutual Funds, managing over $250
million in assets. During his tenure, he was involved in account management for
individuals, corporations and foundations. Previously, Mr. Bowden was a
Commercial Loan Officer with Bank of America for two years. He received his
B.S. in Finance and Business Economics from the University of Southern
California and an M.B.A. from the University of Chicago. He received his
Chartered Financial Analyst designation in 1989. Mr. Bowden is also a member of
the Financial Analysts Society of San Diego.
TED J. PIORKOWSKI, C.F.A.
Vice President and Portfolio Manager (U.S. Government & California Tax-Free
Fund)
Also joining Kennebec Capital Management, Inc. at its inception, Mr. Piorkowski
was previously with First Interstate Capital Management, Inc. (formerly San
Diego Financial Capital Management, Inc.) as Vice President and Portfolio
Manager for six years. Mr. Piorkowski functioned as a fixed-income Portfolio
Manager for Pacifica Mutual Funds, managing $350 million in assets. His
responsibilities also included independent credit analysis and review, short-
term liquidity management and individual issue management. He was also
associated with San Diego Trust & Savings Bank as an Accounting Officer in the
Comptrollers office for two years. Mr. Piorkowski received his B.S. in Finance
and an M.B.A. from San Diego State University. He received his Chartered
Financial Analyst designation in 1991 and is a member of the Financial Analysts
Society of San Diego.
LEIF 0. SANCHEZ, C.F.A.
Vice President and Portfolio Manager (Equity Fund Co-Manager)
Mr. Sanchez joined Kennebec Capital Management, lnc. in February 1995 after ten
years as Vice President and Portfolio Manager with First Interstate Capital
Management, Inc. (formerly San Diego Financial Capital Management, Inc.) During
that time he worked in the areas of equity analysis, trading and portfolio
management. Most recently, he was Co-Manager of the Pacifica Equity Value and
Pacifica Balanced Mutual Funds, managing over $250 million in assets. He was
also involved in the management of accounts for individuals, corporations and
foundations. Mr. Sanchez received a B.A. in Engineering from Harvard College in
Cambridge, Massachusetts and obtained his Chartered Financial Analyst
designation in 1989. Mr. Sanchez is also a member of the Financial Analysts
Society of San Diego.
5
<PAGE>
TRUSTEES AND OFFICERS
KENNEBEC FUNDS
BOARD OF TRUSTEES
HARLEY K. SEFTON* Chairman of the Board; Chairman, President and
Chief Executive Officer, Kennebec Capital
Management, Inc.
W. ROBERT ALEXANDER* Chairman and Chief Executive Officer, ALPS Mutual
Funds Services, Inc.
GRACE EVANS CHERASHORE Chief Executive Officer, Bahia and Catamaran
Hotels. Member of the Audit Committee and the
Nominating Committee.
GORDON T. FROST, JR. President and General Manager, Frost Hardwood
Lumber Company. Member of the Audit Committee and
the Nominating Committee.
* Trustee is considered an "interested person" of the Trust as that term is
defined in the Investment Company Act of 1940.
OFFICERS
HARLEY K. SEFTON Chairman of the Board and President
THOMAS C. BOWDEN Senior Vice President
TED J. PIORKOWSKI Senior Vice President
LEIF O. SANCHEZ Senior Vice President
LANI CAPOSSERE Vice President and Secretary
WILLIAM N. PASTON Vice President and Treasurer
MARK A. POUGNET Vice President, Assistant Secretary and Assistant
Treasurer
6
<PAGE>
KENNEBEC U.S. GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (cost-$17,730,072)
-see accompanying statements $18,427,210
Cash 462
Interest receivable 303,196
Organizational costs, net of accumulated amortization 25,595
Prepaid expenses 2,031
- ----------------------------------------------------------------------------
Total Assets 18,758,494
- ----------------------------------------------------------------------------
LIABILITIES
Payables:
Investment advisory fee 4,386
Dividends 86,857
Other 37,582
- ----------------------------------------------------------------------------
Total Liabilities 128,825
- ----------------------------------------------------------------------------
NET ASSETS $18,629,669
============================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $17,897,731
Overdistributed net investment income (36)
Accumulated net realized gain from investment transactions 34,836
Net unrealized appreciation of investments 697,138
- ----------------------------------------------------------------------------
NET ASSETS $18,629,669
============================================================================
NET ASSET VALUE PER SHARE
Shares of beneficial interest outstanding 1,488,693
- ----------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.51
============================================================================
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
KENNEBEC U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
September 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Face Value Market Value*
- ---------- -------------
<S> <C> <C>
CORPORATE BONDS 5.82%
- ------------------------------------------------------------------------------------------
FINANCE 5.82%
- ------------------------------------------------------------------------------------------
$ 500,000 Lehman Brothers Holdings,
8.75%, 05/15/02 $ 542,894
500,000 Salomon Inc, 9.25%, 05/01/01 541,705
-----------
TOTAL CORPORATE BONDS
(Cost $1,033,846) 1,084,599
-----------
MORTGAGE-BACKED SECURITIES 24.90%
- ------------------------------------------------------------------------------------------
913,960 Federal Home Loan Mortgage Corp,
7.50%, 07/01/09 930,810
1,850,179 Federal Home Loan Mortgage Corp,
7.50%, 04/01/14 1,871,140
936,783 Federal National Mortgage Association,
7.00%, 05/01/14 930,983
881,327 Federal National Mortgage Association,
8.00%, 01/01/15 905,342
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $4,583,694) 4,638,275
-----------
U.S GOVERNMENT AGENCIES 7.92%
- ------------------------------------------------------------------------------------------
500,000 Federal Home Loan Mortgage Corp,
8.625%, 11/29/04 539,078
875,000 Federal Home Loan Mortgage Corp,
8.53%, 02/02/05 936,636
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost $1,428,174) 1,475,714
-----------
U.S. GOVERNMENT TREASURIES 57.58%
- ------------------------------------------------------------------------------------------
1,000,000 U.S. Treasury Bonds,
7.25%, 05/15/16 1,070,625
U.S. Treasury Notes:
2,000,000 7.50%, 05/15/02 2,151,872
1,000,000 7.25%, 08/15/04 1,069,061
1,000,000 7.875%, 11/15/04 1,113,436
2,000,000 7.50%, 02/15/05 2,178,122
2,000,000 6.875%, 03/31/00 2,066,250
1,000,000 7.75%, 02/15/01 1,077,186
-----------
TOTAL U.S. GOVERNMENT TREASURIES
(Cost $10,182,288) 10,726,552
-----------
</TABLE>
8
<PAGE>
KENNEBEC U.S. GOVERNMENT FUND
STATEMENT OF INVESTMENTS
September 30, 1995 (Unaudited)(continued)
<TABLE>
<CAPTION>
Face Value Market Value*
- ---------- -------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT
COLLATERALIZED BY U.S.
GOVERNMENT OBLIGATIONS 2.69%
- ---------------------------------------------------------------------------
$ 502,000 Repurchase agreement with
State Street Bank, 2.50%, dated
09/29/95 and maturing 10/02/95,
collateralized by U.S. Treasury
Bonds, 12.00%, due 08/15/13
with a value of $522,104 $502,070
TOTAL REPURCHASE AGREEMENTS
(Cost $502,070) 502,070
-----------
TOTAL INVESTMENTS (Cost $17,730,072) 98.91% $18,427,210
Other Assets in Excess of Liabilities 1.09% 202,459
----------------------
NET ASSETS 100.00% $18,629,669
----------------------
</TABLE>
*See Note 1 to Financial Statements.
9
<PAGE>
KENNEBEC U.S. GOVERNMENT FUND
STATEMENT OF OPERATIONS
For the Period Ended September 30, 1995 (Unaudited)(1)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest $ 588,503
- -------------------------------------------------------------------
Total Investment Income 588,503
- -------------------------------------------------------------------
EXPENSES
Investment advisory fee 52,411
Administration 17,470
Fund accounting 15,107
Legal 4,637
Audit 8,007
Custodian 7,286
Amortization of organization costs 2,826
Transfer agency 3,300
Printing 1,158
Insurance 1,840
Registration 6,037
Trustees fee 990
Other 3,037
- -------------------------------------------------------------------
Total Expenses 124,106
- -------------------------------------------------------------------
Expenses waived by:
Investment advisor (22,173)
Administrator (7,589)
- -------------------------------------------------------------------
Net Expenses 94,344
- -------------------------------------------------------------------
NET INVESTMENT INCOME 494,159
- -------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 34,836
- -------------------------------------------------------------------
Unrealized appreciation of investments:
Beginning of period 0
End of period 697,138
- -------------------------------------------------------------------
Net change in unrealized appreciation 697,138
- -------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 731,974
- -------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,226,133
===================================================================
</TABLE>
(1) Fund began operations on April 3, 1995.
See Notes to Financial Statements.
10
<PAGE>
KENNEBEC U.S. GOVERNMENT FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
For the Period Ended
September 30, 1995 (1)
----------------------
<S> <C>
FROM INVESTMENT ACTIVITIES
Net investment income $ 494,159
Net realized gain on investments 34,836
Net unrealized appreciation 697,138
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,226,133
Dividends to shareholders from net investment income (494,195)
- -----------------------------------------------------------------------------------------------------------
Change in net assets derived from investment activities 731,938
- -----------------------------------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 17,860,147
Net asset value of shares issued to shareholders from reinvestment of dividends 5,873
- -----------------------------------------------------------------------------------------------------------
17,866,020
Cost of shares redeemed (1,626)
- -----------------------------------------------------------------------------------------------------------
Change in net assets from beneficial interest transactions 17,864,394
- -----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 18,596,332
NET ASSETS:
Beginning of period 33,337 (2)
- -----------------------------------------------------------------------------------------------------------
End of period (including overdistributed net investment income of $36). $18,629,669
===========================================================================================================
</TABLE>
(1) Fund commenced operations April 3, 1995.
(2) Initial Capitalization.
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
KENNEBEC U.S. GOVERNMENT FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the period indicated: For the Period Ended
September 30, 1995 (1)
------------------------
<S> <C>
Net asset value - beginning of period 12.00
- -------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.35
Net realized and unrealized gain on investments 0.51
- -------------------------------------------------------------------------------------
Total income from investment operations 0.86
- -------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.35)
- -------------------------------------------------------------------------------------
Net asset value - end of period 12.51
=====================================================================================
Total return 7.19%
=====================================================================================
Ratios/Supplemental Data:
Net assets, end of period (000) 18,630
- -------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.09%(2)
- -------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.69%(2)
- -------------------------------------------------------------------------------------
Ratio of expenses to average net assets without fee waivers 1.43%(2)
- -------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without fee waivers 5.35%(2)
- -------------------------------------------------------------------------------------
Portfolio turnover rate (3) 36.56%(2)
- -------------------------------------------------------------------------------------
</TABLE>
(1) Fund commenced operations April 3, 1995.
(2) Annualized
(3) A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities (excluding
securities with maturity date of one year or less at the time of
acquisition) for the period and dividing it by the monthly average of the
market value of such securities during the period. Purchases and sales of
investment securities (excluding short-term securities) for the period
ended September 30, 1995 were $19,332,045 and $2,121,922, respectively.
See Notes to Financial Statements.
12
<PAGE>
KENNEBEC CALIFORNIA TAX FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at value (cost-$37,325,814)
-see accompanying statements $37,661,866
Cash 48,849
Interest receivable 765,394
Organizational costs, net of accumulated amortization 25,595
Prepaid expenses 3,138
Due from Investment Advisor 2,884
- ---------------------------------------------------------------------------
Total Assets 38,507,726
- ---------------------------------------------------------------------------
LIABILITIES
Payables:
Dividends 155,103
Other 52,534
- ---------------------------------------------------------------------------
Total Liabilities 207,637
- ---------------------------------------------------------------------------
NET ASSETS $38,300,089
===========================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $37,957,005
Overdistributed net investment income (157)
Accumulated net realized gain from investment transactions 7,189
Net unrealized appreciation of investments 336,052
- ---------------------------------------------------------------------------
NET ASSETS $38,300,089
===========================================================================
Shares of beneficial interest outstanding 3,164,576
- ---------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $12.10
===========================================================================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
KENNEBEC CALIFORNIA TAX FREE FUND
STATEMENT OF INVESTMENTS
September 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Bond Ratings Market
Face Amount Moody's/S&P Value*
- ----------- -------------------------
<S> <C> <C> <C>
CERTIFICATE OF PARTICIPATION 3.96%
- -------------------------------------------------------------------------------------------------
$ 1,500,000 West Covina, California Hospital,
Certificate of Participation, 6.50%,
08/15/14, Callable 08/15/04 @ 102.00
(Cost $1,503,659) A/A $1,516,140
----------
GENERAL OBLIGATION BONDS 7.84%
- -------------------------------------------------------------------------------------------------
1,325,000 California State, 6.25%, 04/01/08 A1/A 1,418,956
1,500,000 San Francisco City & County Public Safety,
6.50%, 06/15/08, Callable 06/15/01 @
100.00, FGIC Aaa/AAA 1,583,775
----------
TOTAL GENERAL OBLIGATION BONDS
(Cost $2,962,699) 3,002,731
----------
LEASE REVENUE BONDS 3.94%
- -------------------------------------------------------------------------------------------------
1,000,000 California State Public Works-Department
of Corrections, 5.25%, 12/01/08, AMBAC Aaa/AAA 989,620
500,000 California State Public Works Board Univ,
6.625%, 10/01/10, Callable 10/01/02 @ 102.00 A/A- 518,675
----------
TOTAL LEASE REVENUE BONDS
(Cost $1,481,464) 1,508,295
----------
REVENUE BONDS 82.59%
- -------------------------------------------------------------------------------------------------
1,500,000 California Educational Facilities Authorities,
Santa Clara, 6.25%, 02/01/16, Callable
02/01/02 @ 102.00 A1/NR 1,505,625
1,690,000 California Educational Facilities-Pomona,
6.125%, 02/15/08, Callable 02/15/02 @ 102.00 Aa1/AA 1,747,409
2,000,000 California Health Facilities Finance-Sutter,
7.00%, 01/01/09, Callable 01/01/99 @ 102.00,
MBIA Aaa/AAA 2,179,800
1,500,000 California Health Facilities-Scripps, 6.25%,
10/01/13, Callable 10/01/01 @ 102.00,
MBIA Aaa/AAA 1,543,680
1,460,000 California Housing Finance Agency, 5.95%,
08/01/14, Callable 08/01/05 @ 102.00,
MBIA Aaa/AAA 1,433,924
1,000,000 California State Water Resources, 6.125%,
12/01/13, Callable 12/01/01 @ 101.50 Aa/AA 1,009,980
1,000,000 Fairfield-Suisun California Sewer, 6.25%,
05/01/16, Callable 05/01/01 @ 102.00,
MBIA Aaa/AAA 1,024,770
2,000,000 Los Angeles County Public Works Financing,
6.00%, 10/01/15, Callable 10/01/04 @ 102.00 Aa/AA 1,983,880
</TABLE>
14
<PAGE>
KENNEBEC CALIFORNIA TAX FREE FUND
STATEMENT OF INVESTMENTS
September 30, 1995 (Unaudited)(continued)
<TABLE>
<CAPTION>
Bond Ratings Market
Face Amount Moody's/S&P Value*
- ----------- ----------------------------
<S> <C> <C> <C>
REVENUE BONDS (CONTINUED)
- -----------------------------------------------------------------------------------------------
$1,000,000 Los Angeles Wastewater, 6.25%,
06/01/12, Callable 06/01/02 @ 102.00,
AMBAC Aaa/AAA $ 1,034,360
1,500,000 M-S-R Public Power Agency, 6.00%,
07/01/20, Callable 07/01/03 @ 102.00,
AMBAC Aaa/AAA 1,497,900
1,500,000 Northern California Power Agency,
6.25%, 07/01/12, Callable 07/01/02 @
102.00, MBIA Aaa/AAA 1,551,900
2,000,000 Riverside California Electric, 6.00%,
10/01/15, Callable 10/01/01 @ 100.00 Aa/A+ 1,986,180
1,215,000 Sacramento Municipal Utility District,
5.75%, 01/01/15, Callable 01/01/04 @
102.00, MBIA Aaa/AAA 1,192,693
1,500,000 San Diego County RTD, 5.00%, 04/01/07,
FGIC Aaa/AAA 1,465,380
1,650,000 San Francisco Airport, 6.30%, 05/01/11,
Callable 05/01/02 @ 102.00, AMBAC Aaa/AAA 1,718,640
1,500,000 San Francisco Bay Area Rapid Transit,
5.50%, 07/01/15, Callable 07/01/05 @
101.00, FGIC Aaa/AAA 1,434,585
1,500,000 San Francisco Port Commission, 5.90%,
07/01/09, Callable 07/01/04 @ 102.00 A/BBB+ 1,502,790
1,500,000 San Francisco P.U.C. Water, 6.00%, 11/01/15,
Callable 11/01/02 @ 100.00 Aa/AA 1,500,750
1,500,000 Southern California Public Power Authority,
6.125%, 07/01/18, Callable 07/01/02 @ 102.00 Aa/A+ 1,503,345
1,300,000 Sunnyvale California Financing Authority,
6.30%, 10/01/17, Callable 10/01/00 @ 102.00,
MBIA Aaa/AAA 1,333,969
1,500,000 University of California Regents, 6.30%,
09/01/15, Callable 09/01/03 @ 102.00 NR/A- 1,483,140
-----------
TOTAL REVENUE BONDS
(Cost $31,377,992) 31,634,700
-----------
TOTAL INVESTMENTS
(Cost $37,325,814) 98.33% $37,661,866
Other Assets in Excess of Liabilities 1.67% 638,223
------------------------
NET ASSETS 100.00% $38,300,089
========================
</TABLE>
*See Note 1 to Financial Statements
15
<PAGE>
KENNEBEC CALIFORNIA TAX-FREE FUND
STATEMENT OF OPERATIONS
For the Period Ended September 30, 1995 (Unaudited)(1)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Interest $1,023,905
- -------------------------------------------------------------------
Total Investment Income 1,023,905
- -------------------------------------------------------------------
EXPENSES
Investment advisory fee 107,603
Administration 35,868
Fund accounting 15,107
Legal 5,683
Audit 8,008
Custodian 11,564
Amortization of organization costs 2,826
Transfer agency 3,964
Printing 1,419
Insurance 3,217
Registration 9,617
Trustees fee 1,269
Other 6,185
- -------------------------------------------------------------------
Total Expenses 212,330
- -------------------------------------------------------------------
Expenses waived by:
Investment advisor (51,440)
Administrator (15,671)
- -------------------------------------------------------------------
Net Expenses 145,219
- -------------------------------------------------------------------
NET INVESTMENT INCOME 878,686
- -------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from investment transactions 7,189
- -------------------------------------------------------------------
Unrealized appreciation of investments:
Beginning of period 0
End of period 336,052
- -------------------------------------------------------------------
Net change in unrealized appreciation 336,052
- -------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 343,241
- -------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,221,927
===================================================================
</TABLE>
(1) Fund began operations on April 3, 1995.
See Notes to Financial Statements.
16
<PAGE>
KENNEBEC CALIFORNIA TAX FREE FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
For the Period Ended
September 30, 1995 (1)
----------------------
<S> <C>
FROM INVESTMENT ACTIVITIES
Net investment income $ 878,686
Net realized gain on investments 7,189
Net unrealized appreciation 336,052
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,221,927
Dividends to shareholders from net investment income (878,843)
- ----------------------------------------------------------------------------------------------
Change in net assets derived from investment activities 343,084
- ----------------------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 38,130,522
Net asset value of shares issued to shareholders from reinvestment of dividends 3,189
- ----------------------------------------------------------------------------------------------
38,133,711
Cost of shares redeemed (210,043)
- ----------------------------------------------------------------------------------------------
Change in net assets from beneficial interest transactions 37,923,668
- ----------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 38,266,752
NET ASSETS:
Beginning of period 33,337 (2)
- ----------------------------------------------------------------------------------------------
End of period (including overdistributed net investment income of $157) $38,300,089
==============================================================================================
</TABLE>
(1) Fund commenced operations April 3, 1995.
(2) Initial Capitalization.
See Notes to Financial Statements.
17
<PAGE>
<TABLE>
<CAPTION>
KENNEBEC CALIFORNIA TAX-FREE FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the period indicated: For the Period Ended
September 30, 1995 (1)
------------------------
<S> <C>
Net asset value - beginning of period 12.00
- ---------------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.29
Net realized and unrealized gain on investments 0.10
- ---------------------------------------------------------------------------------------------
Total income from investment operations 0.39
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.29)
- ---------------------------------------------------------------------------------------------
Net asset value - end of period 12.10
=============================================================================================
Total return 3.28%
=============================================================================================
Ratios/Supplemental Data:
Net assets, end of period (000) 38,300
- ---------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.81%(2)
- ---------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.93%(2)
- ---------------------------------------------------------------------------------------------
Ratio of expenses to average net assets without fee waivers 1.19%(2)
- ---------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets without fee waivers 4.55%(2)
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate (3) 147.98%(2)
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Fund commenced operations April 3, 1995.
(2) Annualized
(3) A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities (excluding
securities with maturity date of one year or less at the time of
acquisition) for the period and dividing it by the monthly average of the
market value of such securities during the period. Purchases and sales of
investment securities (excluding short-term securities) for the period
ended September 30, 1995 were $64,450,216 and $26,935,185, respectively.
See Notes to Financial Statements.
18
<PAGE>
KENNEBEC EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments, at value (cost-$24,159,066)
-see accompanying statements $26,598,043
Cash 734
Receivables:
Investments sold 519,778
Dividends 54,459
Organizational costs, net of accumulated amortization 25,595
Prepaid expenses 1,862
- ------------------------------------------------------------------------------
Total Assets 27,200,471
- ------------------------------------------------------------------------------
LIABILITIES
Payables:
Investments purchased 853,075
Investment advisory fee 16,189
Other 39,889
- ------------------------------------------------------------------------------
Total Liabilities 909,153
- ------------------------------------------------------------------------------
NET ASSETS $26,291,318
==============================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $23,968,693
Undistributed net investment income 24,010
Accumulated net realized loss from investment transactions (140,362)
Net unrealized appreciation of investments 2,438,977
- ------------------------------------------------------------------------------
NET ASSETS $26,291,318
==============================================================================
Shares of beneficial interest outstanding 1,957,149
- ------------------------------------------------------------------------------
Net asset value, offering, and redemption price per share $13.43
==============================================================================
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
KENNEBEC EQUITY FUND
STATEMENT OF INVESTMENTS
September 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Shares Market Value*
- ------ -------------
<S> <C> <C>
COMMON STOCKS 81.38%
- ------------------------------------------------------------------
CONSUMER CYCLICALS 6.52%
- ------------------------------------------------------------------
8,500 Dillard Department Stores $ 270,937
5,000 J.C. Penney Company Inc 248,125
6,200 May Department Stores 271,250
20,000 Rhodes Inc ** 230,000
8,600 Sears Roebuck & Co 317,125
20,000 Waban Inc ** 377,500
----------
1,714,937
----------
CONSUMER STAPLES 12.35%
- ------------------------------------------------------------------
23,200 American Stores Co 658,300
15,500 Eckerd Corp ** 620,000
31,500 Kroger Co ** 1,074,938
10,700 Philip Morris Companies Inc 893,450
----------
3,246,688
----------
SERVICES 3.64%
- ------------------------------------------------------------------
35,000 Mail-Well ** 472,500
19,100 Ryder System Inc 484,663
----------
957,163
----------
HEALTH CARE 10.94%
- ------------------------------------------------------------------
17,900 Bristol-Myers Squibb Co 1,304,462
13,000 Foundation Health Corp ** 495,625
14,000 Integrated Health Service 395,500
10,000 Pacificare Health Systems - Cl. B ** 680,000
----------
2,875,587
----------
BASIC INDUSTRY 4.52%
- ------------------------------------------------------------------
15,000 PPG Industries 697,500
20,000 Wellman Inc 490,000
----------
1,187,500
----------
MANUFACTURING 6.48%
- ------------------------------------------------------------------
14,000 Echlin Inc 500,500
26,000 Tenneco Inc 1,202,500
----------
1,703,000
----------
TECHNOLOGY 1.79%
- ------------------------------------------------------------------
5,000 International Business Machines 471,875
----------
</TABLE>
20
<PAGE>
KENNEBEC EQUITY FUND
STATEMENT OF INVESTMENTS
September 30, 1995 (Unaudited)(continued)
<TABLE>
<CAPTION>
Shares Market Value*
- ------ -------------
<S> <C> <C>
ENERGY 5.72%
- -----------------------------------------------------------------------------------------
17,000 Nuevo Energy Co ** $ 382,500
25,000 Repsol S.A.- ADR 793,750
36,000 Swift Energy Co ** 328,500
-----------
1,504,750
-----------
FINANCE 16.57%
- -----------------------------------------------------------------------------------------
23,700 Allmerica Property & Casualty 565,837
19,264 Allstate Corp 681,464
21,500 American General Corp 803,562
11,400 BankAmerica Corp 682,575
7,000 Chemical Banking Corp 426,125
6,600 Citicorp 466,950
6,100 Nationsbank Corp 410,225
30,000 Sovereign Bancorp Inc 320,625
-----------
4,357,363
-----------
UTILITIES/REITS 12.85%
- -----------------------------------------------------------------------------------------
27,000 Boston Edison Co 742,500
16,500 Detroit Edison Co 532,125
21,700 Entergy Corp 566,913
45,000 Equity Inns Inc 528,750
15,000 Reckson Associates Realty Corp 397,500
41,000 Westcoast Energy Inc 609,875
-----------
3,377,663
-----------
TOTAL COMMON STOCKS
(Cost $18,957,549) 21,396,526
-----------
</TABLE>
<TABLE>
<CAPTION>
Face Amount
- -----------
<S> <C> <C> <C>
REPURCHASE AGREEMENT COLLATERALIZED
BY U.S. GOVERNMENT OBLIGATIONS 19.79%
- -----------------------------------------------------------------------------------------
$ 5,200,000 Repurchase agreement with State Street Bank, 5.25%,
dated 9/29/95 and maturing 10/2/95, collateralized
by U.S. Treasury Bonds, 12.00%, due 8/15/2013 with
a value of 5,414,966
(Cost $5,201,517) 5,201,517
-----------
TOTAL INVESTMENTS
(Cost $24,159,066) 101.17% $26,598,043
Liabilities in Excess of Other Assets (1.17%) (306,725)
---------------------------
NET ASSETS 100.00% $26,291,318
---------------------------
</TABLE>
* See Note 1 to Financial Statements.
**Denotes non-income producing security.
21
<PAGE>
KENNEBEC EQUITY FUND
STATEMENT OF OPERATIONS
For the Period Ended September 30, 1995 (Unaudited) (1)
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME
Dividends $ 188,298
Interest 150,996
- --------------------------------------------------------------------
Total Investment Income $ 339,294
- --------------------------------------------------------------------
EXPENSES
Investment advisory fee 95,364
Administration 19,020
Fund accounting 15,252
Legal 4,736
Audit 8,095
Custodian 7,888
Amortization of organization costs 2,826
Transfer agency 3,256
Printing 1,183
Insurance 1,813
Registration 6,290
Trustees fee 1,017
Other 3,062
- --------------------------------------------------------------------
Total Expenses 169,802
- --------------------------------------------------------------------
Expenses waived by:
Investment advisor (6,029)
Administrator (7,835)
- --------------------------------------------------------------------
Net Expenses 155,938
NET INVESTMENT INCOME 183,356
- --------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from investment transactions (140,362)
- --------------------------------------------------------------------
Unrealized appreciation of investments:
Beginning of period 0
End of period 2,438,977
- --------------------------------------------------------------------
Net change in unrealized appreciation 2,438,977
- --------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,298,615
- --------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,481,971
====================================================================
</TABLE>
(1) Fund began operations April 3, 1995.
See Notes to Financial Statements.
22
<PAGE>
KENNEBEC EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
For the Period Ended
September 30, 1995 (1)
----------------------
<S> <C>
FROM INVESTMENT ACTIVITIES
Net investment income $ 183,356
Net realized loss on investments (140,362)
Net unrealized appreciation 2,438,977
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,481,971
- -------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (159,346)
- -------------------------------------------------------------------------------------------------
Change in net assets derived from investment activities 2,322,625
- -------------------------------------------------------------------------------------------------
FROM BENEFICIAL INTEREST TRANSACTIONS
Proceeds from sale of shares 23,930,061
Net asset value of shares issued to shareholders from reinvestment of dividends 13,322
- -------------------------------------------------------------------------------------------------
23,943,383
Cost of shares redeemed (8,016)
- -------------------------------------------------------------------------------------------------
Change in net assets from beneficial interest transactions 23,935,367
- -------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 26,257,992
NET ASSETS:
Beginning of period 33,326 (2)
- -------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $24,010) $26,291,318
=================================================================================================
</TABLE>
(1) Fund began operations April 3, 1995.
(2) Initial Capitalization.
See Notes to Financial Statements.
23
<PAGE>
<TABLE>
<CAPTION>
KENNEBEC EQUITY FUND
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest
outstanding throughout the period indicated: For the Period Ended
September 30, 1995 (1)
----------------------
<S> <C>
Net asset value - beginning of period 12.00
- -----------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.11
Net realized and unrealized gain on investments 1.42
- -----------------------------------------------------------------------------------
Total income from investment operations 1.53
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.10)
- -----------------------------------------------------------------------------------
Net asset value - end of period 13.43
===================================================================================
Total return 12.80%
===================================================================================
Ratios/Supplemental Data:
Net assets, end of period (000) 26,291
- -----------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.64%(2)
- -----------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.93%(2)
- -----------------------------------------------------------------------------------
Ratio of expenses to average net assets without fee waivers 1.79%(2)
- -----------------------------------------------------------------------------------
Ratio of net investment income to average net assets without fee waivers 1.78%(2)
- -----------------------------------------------------------------------------------
Portfolio turnover rate (3) 52.05%(2)
- -----------------------------------------------------------------------------------
</TABLE>
(1) Fund began operations April 3, 1995.
(2) Annualized
(3) A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities (excluding
securities with maturity date of one year or less at the time of
acquisition for the period and dividing it by the monthly average of the
market value of such securities during the period. Purchases and sales of
investment securities (excluding short-term securities) for the period
ended September 30, 1995 were $22,968,962 and $3,871,035, respectively.
See Notes to Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Kennebec Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. Interests in
the U.S. Government Fund, California Tax-Free Fund and Equity Fund (the
"Funds"), are represented by a separate class of shares of beneficial interest
of the Trust, which is organized as a Delaware business trust.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATION: Securities of the Funds are valued at 4:15 p.m. (EST) on
each day the New York Stock Exchange is open for trading. The Funds' investments
are valued at the last sales price of the day. If there has been no sales since
the immediately previous valuation, then the current bid price is used. Where
market quotations are not readily available, a fair market value is determined
in good faith by or under the direction of the Board of Trustees. Short-term
securities having a remaining maturity of 60 days or less are valued at
amortized cost which approximates market value.
FEDERAL INCOME TAXES: It is the Funds' policy to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income to shareholders. Therefore, no Federal
Income Tax provision is required.
ORGANIZATION COSTS: Each of the Funds have deferred certain organizational
costs of $28,421. Such costs are being amortized over a 60 month period from
the commencement of operations.
REPURCHASE AGREEMENTS: The custodian takes possession of the collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to ensure that the value, including
accrued interest, is at least 100% of the repurchase price. In the event of
default of the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and retention of the collateral may be subject to
legal proceedings.
INTEREST AND DIVIDEND INCOME: Interest income, which includes amortization of
premium and accretion of discount, is accrued as earned. Dividend income is
recorded on the ex-dividend date.
OTHER: Investment transactions are accounted for on the date the investments
are purchased or sold (trade date). The Equity Fund will distribute net
investment income quarterly. The U.S. Government and California Tax-Free Funds'
will declare and pay dividends from net investment income daily and monthly,
respectively. Distributions of net realized gains, if any, are declared at
least once a year. Realized gains and losses from investment transactions are
reported on an identified cost basis which is the same basis the Funds use for
Federal Income Tax purposes.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
On September 30, 1995 there was an unlimited number of no par value shares of
beneficial interest authorized. Transactions in shares of beneficial interest
for the period April 3, 1995 to September 30, 1995 were as follows:
<TABLE>
<CAPTION>
====================================================================================
U.S. GOVERNMENT FUND CALIFORNIA TAX-FREE FUND EQUITY FUND
====================================================================================
<S> <C> <C> <C>
SHARES SOLD 1,485,574 3,179,199 1,953,942
- ------------------------------------------------------------------------------------
SHARES REINVESTED 472 265 1,044
- ------------------------------------------------------------------------------------
TOTAL 1,486,046 3,179,464 1,954,986
- ------------------------------------------------------------------------------------
SHARES REDEEMED (131) (17,666) (614)
====================================================================================
NET INCREASE 1,485,915 3,161,798 1,954,372
====================================================================================
</TABLE>
3. INVESTMENT ADVISORY FEES, ADMINISTRATION FEES AND OTHER RELATED PARTY
TRANSACTIONS
The Funds have entered into an Investment Advisory Agreement with Kennebec
Capital Management, Inc. Pursuant to its advisory agreement with the Funds, the
Investment Advisor is entitled to an advisory fee, computed daily and payable
monthly at an annual rate of .60%, .60% and 1.00% of the average net assets for
the U.S. Government Fund, California Tax-Free Fund and Equity Fund,
respectively. Kennebec Capital Management, Inc. voluntarily waived a portion of
its advisory fee for the period ended September 30, 1995. Mr. Harley K. Sefton,
President and CEO of the Investment Advisor, is responsible for the day to day
management of the Funds. As of September 30, 1995, Mr. Sefton and his
affiliates possessed 94%, 85% and 89% of the U.S. Government, California Tax-
Free and Equity Funds' shares outstanding, respectively.
The Funds entered into an Administrative Services Contract with Furman Selz at
the inception of the Funds. On August 13, 1995, Furman Selz resigned as
Administrator and was succeeded by ALPS Mutual Funds Services, Inc. ("ALPS")
which has provided administrative services through September 30, 1995. The
administrator is entitled to receive a fee from the Funds for its services
computed daily and payable monthly, at an annual rate of .20% of each Fund's
average daily net assets. Both Furman Selz and ALPS voluntarily waived a
portion of the administration fee for the period April 3, 1995 through August
13, 1995 and August 14, 1995 through September 30, 1995, respectively. Furman
Selz and ALPS, as Administrators for the relevant periods, assisted in each of
the Fund's administration and operations, including providing office space and
various legal and accounting services in connection with the regulatory
requirements applicable to each Fund.
4. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
As of September 30, 1995:
<TABLE>
<CAPTION>
U.S. California Equity
Government Fund Tax-Free Fund Fund
--------------- ------------- ---------
<S> <C> <C> <C>
Gross Appreciation (excess of value over cost) 697,138 418,909 2,501,945
Gross Depreciation (excess of cost over value) 0 (82,857) (62,968)
- --------------------------------------------------------------------------------------------
Net Unrealized Appreciation 697,138 336,052 2,438,977
============================================================================================
</TABLE>
26
<PAGE>
KENNEBEC FUNDS
U.S. GOVERNMENT FUND
The Kennebec U.S. Government Fund's investment objective is to provide investors
with as high a level of current income as is consistent with preservation of
capital. The Fund pursues this objective in a consistently prudent and diverse
manner. The Fund is an intermediate bond fund and will have an average maturity
between 5 and 10 years. At all times the Fund will have a minimum of 65% of its
assets in U.S. Government or U.S. Government Agency securities.
CALIFORNIA TAX-FREE FUND
The Kennebec California Tax-Free Fund's investment objective is to provide
investors with as high a level of current income, exempt from both Federal and
California state personal income taxes, as is consistent with the preservation
of capital. The Fund will have an average maturity of 10 or more years. The
Fund generally will not purchase bond issues subject to the Alternative Minimum
Tax.
EQUITY FUND
The Kennebec Equity Fund's objective is to provide investors with long-term
capital appreciation. The Fund pursues this objective by investing primarily in
common stocks of both domestic and foreign companies. The Fund may invest in
large, well-established companies and smaller companies with market
capitalization exceeding $50 million. Income generation is a secondary
consideration for the Fund. However, the Fund may purchase dividend paying
stocks of particular issuers when the issuer's dividend record may, in the
Adviser's opinion, have a favorable influence on the market value of the
securities.
27
<PAGE>
INVESTMENT ADVISOR [KENNEBEC LOGO]
[KENNEBEC LOGO] Kennebec Funds
Kennebec Capital
Management, Inc.
4370 La Jolla Village Drive Semi-Annual Report
Suite 400 September 30, 1995
San Diego, California 92122
ADMINISTRATOR, SPONSOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc.
370 Seventeenth Street
Suite 2700
Denver, Colorado 80202
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8521
Boston, Massachusetts 02266-8521
COUNSEL
Baker & McKenzie
805 Third Avenue, 30th Floor
New York, New York 10022
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
950 Seventeenth Street
Suite 2500
Denver, Colorado 80202
- ------------------------------------------------------------------------------
[_] U.S. GOVERNMENT FUND
THESE FUNDS ARE NOT INSURED BY KENNEBEC
CAPITAL MANAGEMENT, THE FDIC OR ANY OTHER [_] CALIFORNIA TAX-FREE FUND
INSURER.
[_] EQUITY FUND
- ------------------------------------------------------------------------------
[ALPS LOGO]
