1
Exhibit (17)(2)
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KENT FUNDS
PROSPECTUS
MAY 1, 1998
KENT GROWTH AND INCOME FUND
KENT INDEX EQUITY FUND
KENT SMALL COMPANY GROWTH FUND
KENT INTERNATIONAL GROWTH FUND
KENT INCOME FUND
KENT INTERMEDIATE BOND FUND
KENT SHORT TERM BOND FUND
KENT TAX-FREE INCOME FUND
KENT INTERMEDIATE TAX-FREE FUND
KENT MICHIGAN MUNICIPAL BOND FUND
KENT LIMITED TERM TAX-FREE FUND
KENT MONEY MARKET FUND
KENT GOVERNMENT MONEY MARKET FUND
KENT MICHIGAN MUNICIPAL MONEY MARKET FUND
[LOGO]
KENT FUNDS
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2
TABLE OF CONTENTS
HIGHLIGHTS
What are the key facts regarding the Funds?................. 2
FINANCIAL INFORMATION
What are the Funds' fees and expenses?...................... 4
FINANCIAL HIGHLIGHTS........................................ 8
FUND CHOICES
What Funds are offered?..................................... 36
What instruments do the Funds invest in?.................... 40
What are the risks of investing in the Funds?............... 44
PERFORMANCE
How is the Funds' performance calculated?................... 46
Where can I obtain performance data?........................ 46
EXPENSE INFORMATION
What are the Funds' expenses?............................... 47
PURCHASES OF SHARES
Who may want to invest in the Funds?........................ 48
When can I purchase shares?................................. 48
What is the minimum required investment?.................... 48
How can I purchase shares?.................................. 49
What price do I pay for shares?............................. 51
REDEMPTIONS (SALES) OF SHARES
When can I redeem shares?................................... 51
How can I redeem shares?.................................... 51
What price do I receive for shares?......................... 52
When will I receive redemption money?....................... 52
STRUCTURE AND MANAGEMENT OF THE FUNDS
How are the Funds structured?............................... 53
Who manages and services the Funds?......................... 53
What are my rights as a Fund shareholder?................... 54
DIVIDENDS, DISTRIBUTIONS AND TAXES
When will I receive distributions from the Funds?........... 55
How will distributions be made?............................. 55
What are the tax implications of my investments in the
Funds?.................................................... 55
ADDITIONAL INFORMATION
Where do I get additional information about my account and
the Funds?................................................ 56
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, OLD KENT BANK OR ANY OF ITS AFFILIATES, AND ARE NOT INSURED BY,
GUARANTEED BY, OBLIGATIONS OF OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. LYON STREET ASSET MANAGEMENT COMPANY, A WHOLLY-OWNED
SUBSIDIARY OF OLD KENT BANK, RECEIVES FEES FROM THE FUNDS FOR ADVISORY SERVICES.
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KENT FUNDS
P.O. Box 182201
Columbus, Ohio 43218-2201
1-800-633-KENT (5368)
Prospectus dated May 1, 1998
THIS PROSPECTUS DESCRIBES THE FOLLOWING FUNDS (THE "FUNDS") OFFERED BY THE KENT
FUNDS (THE "TRUST"):
KENT GROWTH AND INCOME FUND seeks long-term capital growth with current income
as a secondary objective by principally investing in common stock of U.S.
companies with a net capitalization of at least $100 million which are listed on
the New York Stock Exchange ("NYSE").
KENT INDEX EQUITY FUND seeks investment results which mirror the capital
performance and dividend income of the Standard & Poor's 500 Composite Stock
Price Index ("S&P 500").
KENT SMALL COMPANY GROWTH FUND seeks long-term capital appreciation by
principally investing in companies whose securities are traded in the U.S.
securities markets and whose market capitalizations are less than $1 billion.
KENT INTERNATIONAL GROWTH FUND seeks long-term capital appreciation by
principally investing in equity securities of issuers located in at least three
foreign countries.
KENT INCOME FUND seeks a high level of current income, consistent with the
preservation of capital, through investments in a broad range of investment
quality debt securities. The Fund maintains a dollar-weighted average maturity
between seven and twenty years.
KENT INTERMEDIATE BOND FUND seeks current income, consistent with the
preservation of capital, through investments in a broad range of investment
quality debt securities. The Fund maintains a dollar-weighted average maturity
between three and ten years.
KENT SHORT TERM BOND FUND seeks current income, consistent with the preservation
of capital, through investments in a limited range of investment quality fixed
income securities. The Fund maintains a dollar-weighted average maturity between
one and three years.
KENT TAX-FREE INCOME FUND seeks to provide as high a level of current income
exempt from Federal income tax as is consistent with prudent investing, while
preserving capital. The Fund maintains a dollar-weighted average maturity
between ten and twenty-five years.
KENT INTERMEDIATE TAX-FREE FUND seeks current income exempt from Federal income
tax, while preserving capital. The Fund maintains a dollar-weighted average
maturity between three and ten years.
KENT MICHIGAN MUNICIPAL BOND FUND seeks current income exempt from Federal and
Michigan state personal income taxes, while preserving capital. The Fund
maintains a dollar-weighted average maturity of between three and five years.
KENT LIMITED TERM TAX-FREE FUND seeks current income exempt from Federal income
tax, while preserving capital. The Fund maintains a dollar-weighted average
maturity between one and three years.
KENT MONEY MARKET FUND seeks current income while preserving capital and
maintaining liquidity.
KENT GOVERNMENT MONEY MARKET FUND seeks current income from short-term United
States Government securities while preserving capital and maintaining liquidity.
KENT MICHIGAN MUNICIPAL MONEY MARKET FUND seeks current income, exempt from
Federal and Michigan state personal income taxes, while preserving capital and
maintaining liquidity.
This Prospectus contains information that you should know before investing.
Please read and retain this Prospectus for future reference. The Trust has filed
a Statement of Additional Information ("SAI") dated May 1, 1998 with the
Securities and Exchange Commission (the "Commission"), which, as supplemented
from time to time, is incorporated by reference into this Prospectus. The
Commission maintains a World Wide Web site (http://www.sec.gov) that contains
the SAI and other information regarding issuers, such as the Trust, that file
electronically with the Commission. For a free copy of the SAI, or for other
information about the Funds, write to the address or call the telephone number
listed above.
AN INVESTMENT IN THE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND WHILE EACH MONEY MARKET FUND INTENDS TO MAINTAIN A STABLE
NET ASSET VALUE PER SHARE OF $1.00, THERE IS NO ASSURANCE THAT THEY WILL BE ABLE
TO DO SO. THE KENT MICHIGAN MUNICIPAL MONEY MARKET FUND MAY INVEST A SIGNIFICANT
PORTION OF ITS ASSETS IN THE SECURITIES OF A SINGLE ISSUER. AS A RESULT, AN
INVESTMENT IN SUCH FUND MAY ENTAIL MORE RISKS THAN AN INVESTMENT IN ANOTHER TYPE
OF MONEY MARKET FUND.
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.
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HIGHLIGHTS
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WHAT ARE THE KEY FACTS REGARDING THE FUNDS?
Q: What types of funds are offered by the Trust?
A: The Trust is an open-end management investment company (commonly known as a
mutual fund) that offers investors the opportunity to invest in different
investment portfolios, each having separate investment objectives and policies.
This prospectus describes each of the fourteen Funds that are offered by the
Trust: the Growth and Income Fund, Index Equity Fund, Small Company Growth Fund
and International Growth Fund (the "Equity Funds"); the Income Fund,
Intermediate Bond Fund and Short Term Bond Fund (the "Bond Funds"); the Tax-
Free Income Fund, Intermediate Tax-Free Fund, Michigan Municipal Bond Fund and
Limited Term Tax-Free Fund (the "Municipal Bond Funds"); and the Money Market
Fund, Government Money Market Fund and Michigan Municipal Money Market Fund (the
"Money Market Funds"). For a detailed description of the Funds, see "Fund
Choices -- What Funds are Offered?"
Q: Who advises the Funds?
A: The Funds are managed by Lyon Street Asset Management Company ("Lyon
Street"), a wholly-owned subsidiary of Old Kent Bank ("Old Kent"), which, in
turn, is a wholly-owned subsidiary of Old Kent Financial Corporation ("OKFC").
OKFC is a financial services company with total assets as of December 31, 1997
of approximately $13.8 billion. See "Structure and Management of the
Funds -- Who Manages and Services the Funds?"
Q: What advantages do the Funds offer?
A: The Funds offer investors the opportunity to invest in a variety of
professionally managed diversified investment portfolios without having to
become involved with the detailed accounting and safekeeping procedures normally
associated with direct investments in securities. The Funds also offer the
economic advantages of block trading in portfolio securities and the
availability of a family of fourteen mutual funds should your investment goals
change.
Q: How does someone buy and redeem shares?
A: The Funds are distributed by BISYS Fund Services ("BISYS" or the
"Distributor") and are sold in two classes: Investment Shares and Institutional
Shares. Investment Shares can be purchased from any broker-dealer or financial
institution which has entered into a dealer agreement with the Distributor, or
by completing an application and mailing it directly to the Trust with a check,
payable to the appropriate Fund, for $1,000 or more, or $100 or more for
Individual Retirement Accounts ("IRAs"). Institutional Shares are offered to
financial and other institutions for the benefit of fiduciary, agency or
custodial accounts. The minimum initial aggregate investment for Institutional
Shares is $100,000. The Trust may waive the minimum purchase requirements in
certain instances. See "Purchases of Shares." For information on how to redeem
your shares, see "Redemptions (Sales) of Shares."
Q: When are dividends paid?
A: Dividends of each Fund's net investment income are declared and paid monthly,
except for (i) the Money Market Funds, which declare dividends daily and pay
them monthly and (ii) the International Growth Fund, which declares and pays
dividends annually. Net realized capital gains of the Funds are distributed at
least annually. See "Dividends, Distributions and Taxes."
Q: What shareholder privileges are offered by the Trust?
A: Investors may exchange shares of a Fund having a value of at least $100 for
shares of the same class of any other Fund in which the investor has an existing
account. In addition, the Trust offers traditional IRAs, Roth IRAs and Education
IRAs, which can be established by contacting the Trust's Distributor. The Trust
also offers an
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Automatic Investment Program which allows investors to automatically invest in
Investment Shares on a monthly basis. See "Purchases of Shares -- How Can I
Purchase Shares?"
Q: What are the potential risks presented by the Funds' investment practices?
A: Investing in the Funds involves the risks common to any investment in
securities. With respect to the Equity, Bond and Municipal Bond Funds, the net
asset value ("NAV") of Fund shares will fluctuate with changes in the market
value of each Fund's portfolio securities. With respect to the Money Market
Funds, each Fund seeks to maintain a stable net asset value per share of $1.00,
although there is no assurance that they will be able to do so.
The Equity Funds will invest principally in common stocks, which have
historically presented greater potential for capital appreciation than fixed
income securities, but do not provide the same protection of capital or
assurance of income. The Small Company Growth Fund will primarily invest in the
stocks of smaller companies which tend to present increased risk and are subject
to greater price volatility. The Growth and Income Fund and International Growth
Fund may also invest from time to time in securities issued by smaller
companies. In addition, the International Growth Fund and, to a lesser extent,
certain other Funds will invest in foreign securities which may be subject to
certain risks in addition to those inherent in U.S. investments, including the
possible imposition of exchange control regulation, freezes on convertibility of
currency and adverse changes in foreign currency exchange rates.
The market value of fixed income securities, which will constitute substantially
all of the investments of the Bond, Municipal Bond and Money Market Funds, will
generally vary inversely with changes in prevailing interest rates. Longer term
bond funds are generally more sensitive to interest rate changes than shorter
term bond funds. The value of some fixed income securities (such as
collateralized mortgage obligations, "stripped" securities and structured notes)
may be more volatile than other types of securities. The performance of the
Michigan Municipal Bond Fund and Michigan Municipal Money Market Fund will be
closely tied to the economic and political conditions in the State of Michigan.
For a complete description of the risks associated with each Fund, see "Fund
Choices -- What Instruments do the Funds Invest In?" and " -- What are the Risks
of Investing in the Funds?"
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6
FINANCIAL INFORMATION
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WHAT ARE THE FUNDS' FEES AND EXPENSES?
The purpose of the following tables is to assist you in understanding the
various costs and expenses that an investor in each Fund will bear directly or
indirectly. See "Expense Information" for more information regarding such costs
and expenses.
EQUITY FUNDS
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GROWTH AND INDEX EQUITY SMALL COMPANY INTERNATIONAL
INCOME FUND FUND GROWTH FUND GROWTH FUND
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Invest- Institu- Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares Shares Shares
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge on Purchases None None None None None None None None
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)(1)
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Management Fees 0.70% 0.70% 0.27% 0.27% 0.70% 0.70% 0.75% 0.75%
(after fee waivers)(2)
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12b-1 Fees(3) 0.25% None 0.25% None 0.25% None 0.25% None
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Other Expenses 0.22% 0.22% 0.16% 0.16% 0.23% 0.23% 0.30% 0.30%
(after fee waivers)(2)
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TOTAL FUND OPERATING EXPENSES 1.17% 0.92% 0.68% 0.43% 1.18% 0.93% 1.30% 1.05%
(after fee waivers)(2)
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(1) Expense ratios for each Fund are based on amounts incurred for the fiscal
year ended December 31, 1997. Sweep, trustee, agency, custody and certain other
fees charged by Old Kent and its affiliates to their customers who own shares of
the Funds are not reflected in the fee table.
(2) In the case of the Growth and Income Fund, Small Company Growth Fund and
International Growth Fund, a voluntary waiver of a portion of such Funds'
administration fee has been reflected. Absent such waiver, Other Expenses and
Total Fund Operating Expenses would be 0.23% and 1.18%, respectively, for the
Investment Shares of the Growth and Income Fund, 0.23% and 0.93%, respectively,
for the Institutional Shares of the Growth and Income Fund, 0.24% and 1.19%,
respectively, for the Investment Shares of the Small Company Growth Fund, 0.24%
and 0.94%, respectively, for the Institutional Shares of the Small Company
Growth Fund, 0.31% and 1.31%, respectively, for the Investment Shares of the
International Growth Fund, and 0.31% and 1.06%, respectively, for the
Institutional Shares of the International Growth Fund. In the case of the Index
Equity Fund, voluntary waivers of a portion of such Fund's investment advisory
fee and administration fee have been reflected. Absent such waivers, Management
Fees, Other Expenses and Total Fund Operating Expenses would be 0.30%, 0.24% and
0.79%, respectively, for such Fund's Investment Shares and 0.30%, 0.24% and
0.54%, respectively, for such Fund's Institutional Shares.
(3) As a result of the payment of 12b-1 fees, long-term Investment class
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the rules of the National Association of Securities
Dealers, Inc.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(i) 5% annual return and (ii) redemption at the end of each period:
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GROWTH AND INDEX EQUITY SMALL COMPANY INTERNATIONAL
INCOME FUND FUND GROWTH FUND GROWTH FUND
-------------------------------------------------------------------
Invest- Institu- Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares Shares Shares
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One Year After Purchase $12 $9 $7 $4 $12 $9 $13 $11
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Three Years After Purchase $37 $29 $22 $14 $37 $30 $41 $33
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Five Years After Purchase $64 $51 $38 $24 $65 $51 $71 $58
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Ten Years After Purchase $142 $113 $85 $54 $143 $114 $157 $128
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AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RETURN OR EXPENSES. ACTUAL INVESTMENT RETURN AND EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN.
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BOND FUNDS
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INTERMEDIATE SHORT TERM
INCOME FUND BOND FUND BOND FUND
--------------------------------------------------
Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge on Purchases None None None None None None
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ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)(1)
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Management Fees 0.60% 0.60% 0.55% 0.55% 0.50% 0.50%
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12b-1 Fees 0.25% None 0.25% None 0.15% None
(after fee waivers)(2, 3)
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Other Expenses 0.22% 0.22% 0.20% 0.20% 0.23% 0.22%
(after fee waivers)(3)
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TOTAL FUND OPERATING EXPENSES 1.07% 0.82% 1.00% 0.75% 0.88% 0.72%
(after fee waivers)(3)
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(1) Expense ratios for each Fund are based on amounts incurred for the fiscal
year ended December 31, 1997. Sweep, trustee, agency, custody and certain other
fees charged by Old Kent and its affiliates to their customers who own shares of
the Funds are not reflected in the fee table.
(2) As a result of the payment of 12b-1 fees, long-term Investment class
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the rules of the National Association of Securities
Dealers, Inc.
(3) In the case of the Income Fund and Intermediate Bond Fund, a voluntary
waiver of a portion of such Funds' administration fee has been reflected. Absent
such waiver, Other Expenses and Total Fund Operating Expenses would be 0.23% and
1.08%, respectively, for the Investment Shares of the Income Fund, 0.23% and
0.83%, respectively, for the Institutional Shares of the Income Fund, 0.21% and
1.01%, respectively, for the Investment Shares of the Intermediate Bond Fund,
and 0.21% and 0.76%, respectively, for the Institutional Shares of the
Intermediate Bond Fund. In the case of the Short Term Bond Fund, voluntary
waivers of a portion of such Fund's 12b-1 fee for the Investment Shares and
administration fee have been reflected. Absent such waivers, 12b-1 Fees, Other
Expenses and Total Fund Operating Expenses would be 0.25%, 0.24% and 0.99%,
respectively, for such Fund's Investment Shares and Other Expenses and Total
Fund Operating Expenses would be 0.23% and 0.73%, respectively, for such Fund's
Institutional Shares.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(i) 5% annual return and (ii) redemption at the end of each period:
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INTERMEDIATE SHORT TERM
INCOME FUND BOND FUND BOND FUND
--------------------------------------------------
Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares
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One Year After Purchase $11 $8 $10 $8 $9 $7
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Three Years After Purchase $34 $26 $32 $24 $28 $23
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Five Years After Purchase $59 $46 $55 $42 $49 $40
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Ten Years After Purchase $131 $101 $122 $93 $108 $89
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AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RETURN OR EXPENSES. ACTUAL INVESTMENT RETURN AND EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN.
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MUNICIPAL BOND FUNDS
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TAX-FREE INTERMEDIATE MICHIGAN MUNICIPAL LIMITED TERM
INCOME FUND TAX-FREE FUND BOND FUND TAX-FREE FUND
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Invest- Institu- Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares Shares Shares
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SHAREHOLDER TRANSACTION EXPENSES
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Maximum Sales Charge on Purchases None None None None None None None None
- -----------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)(1)
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Management Fees 0.55% 0.55% 0.50% 0.50% 0.45% 0.45% 0.45% 0.45%
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12b-1 Fees 0.25% None 0.25% None 0.15% None 0.15% None
(after fee waivers)(2, 3)
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Other Expenses 0.24% 0.24% 0.22% 0.22% 0.24% 0.24% 0.33% 0.31%
(after fee waivers)(3)
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TOTAL FUND OPERATING EXPENSES 1.04% 0.79% 0.97% 0.72% 0.84% 0.69% 0.93% 0.76%
(after fee waivers)(3)
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(1) Expense ratios for each Fund are based on amounts incurred for the fiscal
year ended December 31, 1997. Sweep, trustee, agency, custody and certain other
fees charged by Old Kent and its affiliates to their customers who own shares of
the Funds are not reflected in the fee table.
(2) As a result of the payment of 12b-1 fees, long-term Investment class
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the rules of the National Association of Securities
Dealers, Inc.
(3) In the case of the Tax-Free Income Fund and Intermediate Tax-Free Fund, a
voluntary waiver of a portion of such Funds' administration fee has been
reflected. Absent such waiver, Other Expenses and Total Fund Operating Expenses
would be 0.25% and 1.05%, respectively, for the Investment Shares of the
Tax-Free Income Fund, 0.25% and 0.80%, respectively, for the Institutional
Shares of the Tax-Free Income Fund, 0.23% and 0.98%, respectively, for the
Investment Shares of the Intermediate Tax-Free Fund, and 0.23% and 0.73%,
respectively, for the Institutional Shares of the Intermediate Tax-Free Fund. In
the case of the Michigan Municipal Bond Fund and Limited Term Tax-Free Fund,
voluntary waivers of a portion of such Funds' 12b-1 fee for the Investment
Shares and administration fee have been reflected. Absent such waivers, 12b-1
Fees, Other Expenses and Total Fund Operating Expenses would be 0.25%, 0.25% and
0.95%, respectively, for the Investment Shares of the Michigan Municipal Bond
Fund and 0.25%, 0.34% and 1.04%, respectively, for the Investment Shares of the
Limited Term Tax-Free Fund, and Other Expenses and Total Fund Operating Expenses
would be 0.25% and 0.70%, respectively, for the Institutional Shares of the
Michigan Municipal Bond Fund and 0.32% and 0.77%, respectively, for the
Institutional Shares of the Limited Term Tax-Free Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(i) 5% annual return and (ii) redemption at the end of each period:
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TAX-FREE INTERMEDIATE MICHIGAN MUNICIPAL LIMITED TERM
INCOME FUND TAX-FREE FUND BOND FUND TAX-FREE FUND
----------------------------------------------------------------------
Invest- Institu- Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares Shares Shares
- -----------------------------------------------------------------------------------------------------------
One Year After Purchase $11 $8 $10 $7 $9 $7 $9 $8
- -----------------------------------------------------------------------------------------------------------
Three Years After Purchase $33 $25 $31 $23 $27 $22 $30 $24
- -----------------------------------------------------------------------------------------------------------
Five Years After Purchase $57 $44 $54 $40 $47 $38 $51 $42
- -----------------------------------------------------------------------------------------------------------
Ten Years After Purchase $127 $98 $119 $89 $104 $86 $114 $94
- -----------------------------------------------------------------------------------------------------------
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RETURN OR EXPENSES. ACTUAL INVESTMENT RETURN AND EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN.
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9
MONEY MARKET FUNDS
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MONEY MARKET GOVERNMENT MONEY MICHIGAN MUNICIPAL
FUND MARKET FUND MONEY MARKET FUND
------------------------------------------------------
Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------------------------------------
Maximum Sales Charge on Purchases None None None None None None
- -------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)(1)
- -------------------------------------------------------------------------------------------------------------
Management Fees 0.40% 0.40% 0.20% 0.20% 0.40% 0.40%
(after fee waivers)(2)
- -------------------------------------------------------------------------------------------------------------
12b-1 Fees None None None None None None
- -------------------------------------------------------------------------------------------------------------
Other Expenses 0.12% 0.12% 0.15% 0.15% 0.12% 0.12%
(after fee waivers)(2)
- -------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 0.52% 0.52% 0.35% 0.35% 0.52% 0.52%
(after fee waivers)(2)
- -------------------------------------------------------------------------------------------------------------
(1) The expense ratios for the Money Market Fund and Michigan Municipal Money
Market Fund are based on amounts incurred for the fiscal year ended December 31,
1997. The expense ratios for the Government Money Market Fund are estimates for
the fiscal year ending December 31, 1998, after giving effect to waivers of
certain expenses. Sweep, trustee, agency, custody and certain other fees charged
by Old Kent and its affiliates to their customers who own shares of the Funds
are not reflected in the fee table.
(2) In the case of the Money Market Fund and Michigan Municipal Money Market
Fund, a voluntary waiver of a portion of such Funds' administration fee has been
reflected. Absent such waiver, Other Expenses and Total Fund Operating Expenses
would be 0.22% and 0.62%, respectively, for each class of the Money Market Fund
and 0.23% and 0.63%, respectively, for each class of the Michigan Municipal
Money Market Fund. In the case of the Government Money Market Fund, voluntary
waivers of a portion of such Fund's investment advisory fee and administration
fee have been reflected. Absent such waivers, Management Fees, Other Expenses
and Total Fund Operating Expenses would be 0.40%, 0.29% and 0.69%, respectively,
for each class of the Government Money Market Fund.
EXAMPLE: You would pay the following expenses on a $1,000 investment, assuming
(i) 5% annual return and (ii) redemption at the end of each period:
- -------------------------------------------------------------------------------------------------------------
MONEY MARKET GOVERNMENT MONEY MICHIGAN MUNICIPAL
FUND MARKET FUND MONEY MARKET FUND
------------------------------------------------------
Invest- Institu- Invest- Institu- Invest- Institu-
ment tional ment tional ment tional
Shares Shares Shares Shares Shares Shares
- -------------------------------------------------------------------------------------------------------------
One Year After Purchase $5 $5 $4 $4 $5 $5
- -------------------------------------------------------------------------------------------------------------
Three Years After Purchase $17 $17 $11 $11 $17 $17
- -------------------------------------------------------------------------------------------------------------
Five Years After Purchase $29 $29 $20 $20 $29 $29
- -------------------------------------------------------------------------------------------------------------
Ten Years After Purchase $65 $65 $44 $44 $65 $65
- -------------------------------------------------------------------------------------------------------------
AMOUNTS SHOWN IN THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RETURN OR EXPENSES. ACTUAL INVESTMENT RETURN AND EXPENSES
MAY BE GREATER OR LESSER THAN THOSE SHOWN.
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10
FINANCIAL HIGHLIGHTS
The Financial Highlights presented below have been audited by KPMG Peat Marwick
LLP, independent auditors, whose report on the financial statements of the Funds
containing the Financial Highlights for each of the five years in the period
ended December 31, 1997 has been incorporated by reference into the Funds' SAI.
These tables should be read in conjunction with the Funds' financial statements
and the related notes. Additional information concerning the performance of the
Funds is contained in their annual report. Both the SAI and the Funds' annual
report can be obtained without charge by calling 1-800-633-KENT (5368).
GROWTH AND INCOME FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.81 $13.19 $10.46 $10.87 $10.29 $10.23
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.21 0.26 0.30 0.32 0.27 **
Net realized and unrealized gains (losses) on
investments and futures contracts 3.02 2.15 3.26 (0.27) 0.93 0.06
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations: 3.23 2.41 3.56 0.05 1.20 0.06
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.21) (0.26) (0.30) (0.31) (0.23) --
In excess of net investment income -- (0.02) -- ** (0.05) --
Net realized gains on investments and futures
contracts (1.39) (1.51) (0.53) (0.15) (0.20) --
In excess of net realized gains -- -- -- -- (0.14) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (1.60) (1.79) (0.83) (0.46) (0.62) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 1.63 0.62 2.73 (0.41) 0.58 0.06
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD 15.44 $13.81 $13.19 $10.46 $10.87 $10.29
============================================================================================================================
TOTAL RETURN(2) 23.89% 19.14% 34.61% 0.50% 11.81% 0.59%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $35,343 $15,063 $11,079 $8,005 $4,607 $ 102
Ratios to average net assets:
Ratio of expenses 1.17% 1.09% 1.18% 0.98% 1.22% 0.33%++
Ratio of net investment income (loss) 1.31% 1.77% 2.48% 3.03% 2.43% (0.88)%+
Ratio of expenses* 1.18% 1.09% *** *** *** ***
Ratio of net investment income (loss)* 1.30% 1.77% *** *** *** ***
Portfolio turnover rate(3) 88% 39% 58% 28% 54% 0%
Average commission rate paid(4) $ 0.0571 $0.0539 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
*** During the period, there were no waivers and/or reimbursements.
(1) The Investment Class date of initial public investment was December 1, 1992.
(2) Calculation does not include sales charge that was previously applicable for
Investment Shares. Such sales charge was discontinued as of May 1, 1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(4) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
8
11
GROWTH AND INCOME FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.90 $ 13.25 $ 10.50 $ 10.91 $ 10.31 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.25 0.30 0.33 0.31 0.27 0.06
Net realized and unrealized gains
(losses) on investments and
futures contracts 3.04 2.16 3.28 (0.26) 0.95 0.31
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 3.29 2.46 3.61 0.05 1.22 0.37
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.25) (0.30) (0.33) (0.31) (0.27) (0.06)
In excess of net investment income -- -- -- ** (0.01) **
Net realized gains on investments and
futures contracts (1.39) (1.51) (0.53) (0.15) (0.34) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (1.64) (1.81) (0.86) (0.46) (0.62) (0.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 1.65 0.65 2.75 (0.41) 0.60 0.31
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 15.55 $ 13.90 $ 13.25 $ 10.50 $ 10.91 $ 10.31
===========================================================================================================================
TOTAL RETURN 24.14% 19.47% 34.91% 0.51% 11.98% 3.68%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $697,973 $500,857 $401,371 $308,825 $180,864 $76,449
Ratios to average net assets:
Ratio of expenses 0.92% 0.95% 0.94% 0.98% 1.03% 0.19%++
Ratio of net investment income 1.61% 2.18% 2.73% 3.04% 2.61% 3.51%+
Ratio of expenses* 0.93% 0.95% *** *** *** ***
Ratio of net investment income* 1.60% 2.18% *** *** *** ***
Portfolio turnover rate(2) 88% 39% 58% 28% 54% 0%
Average commission rate paid(3) $ 0.0571 $ 0.0539 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
*** During the period, there were no waivers and/or reimbursements.
(1) The Institutional Class commenced operations on November 2, 1992.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(3) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
9
12
INDEX EQUITY FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.72 $12.57 $10.70 $11.07 $10.44 $10.28
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.20 0.22 0.23 0.26 0.22 **
Net realized and unrealized gains
(losses) on investments
and futures contracts 4.51 2.48 3.44 (0.17) 0.72 0.16
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 4.71 2.70 3.67 0.09 0.94 0.16
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.20) (0.22) (0.23) (0.26) (0.20) --
In excess of net investment income (0.01) (0.01) -- -- (0.03) --
Net realized gains on investments and
futures contracts (0.06) (0.32) (1.57) (0.20) (0.06) --
In excess of net realized gains (0.01) -- -- -- (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.28) (0.55) (1.80) (0.46) (0.31) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 4.43 2.15 1.87 (0.37) 0.63 0.16
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 19.15 $14.72 $12.57 $10.70 $11.07 $10.44
===========================================================================================================================
TOTAL RETURN(2) 32.24% 21.92% 35.81% 0.75% 9.09% 1.56%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $27,992 $9,925 $6,612 $4,736 $3,776 $ 89
Ratios to average net assets:
Ratio of expenses 0.68% 0.74% 0.80% 0.60% 0.86% 0.12%++
Ratio of net investment income 1.20% 1.67% 1.86% 2.30% 2.04% 1.03%+
Ratio of expenses* 0.79% 0.84% 0.81% 0.60% 0.86% 0.12%++
Ratio of net investment income* 1.09% 1.57% 1.85% 2.30% 2.04% 1.03%+
Portfolio turnover rate(3) 1% 2% 3% 50% 1% 0%
Average commission rate paid(4) $ 0.0508 $0.0496 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was November 25,
1992.
(2) Calculation does not include sales charge that was previously applicable for
Investment Shares. Such sales charge was discontinued as of May 1, 1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(4) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
10
13
INDEX EQUITY FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $14.71 $12.56 $10.68 $11.04 $10.41 $10.00
Income from Investment Operations:
Net investment income 0.25 0.26 0.26 0.25 0.23 0.05
Net realized and unrealized gains
(losses)
on investments and futures contracts 4.50 2.47 3.44 (0.15) 0.71 0.41
- ---------------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 4.75 2.73 3.70 0.10 0.94 0.46
- ---------------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.25) (0.26) (0.25) (0.26) (0.23) (0.05)
In excess of net investment income -- -- -- -- ** **
Net realized gains on investments and
futures contracts (0.05) (0.28) (1.57) (0.20) (0.08) --
In excess of net realized gains (0.02) (0.04) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.32) (0.58) (1.82) (0.46) (0.31) (0.05)
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 4.43 2.15 1.88 (0.36) 0.63 0.41
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $19.14 $14.71 $12.56 $10.68 $11.04 $10.41
=================================================================================================================================
TOTAL RETURN 32.55% 22.18% 36.23% 0.86% 9.11% 4.55%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $590,241 $243,438 $183,877 $245,550 $233,451 $153,431
Ratios to average net assets:
Ratio of expenses 0.43% 0.49% 0.56% 0.58% 0.65% 0.13%++
Ratio of net investment income 1.44% 1.91% 2.14% 2.32% 2.18% 2.65%+
Ratio of expenses* 0.54% 0.59% 0.56% 0.58% 0.65% 0.13%++
Ratio of net investment income* 1.33% 1.81% 2.14% 2.32% 2.18% 2.65%+
Portfolio turnover rate(2) 1% 2% 3% 50% 1% 0%
Average commission rate paid(3) $0.0508 $0.0496 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on November 2, 1992.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(3) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
11
14
SMALL COMPANY GROWTH FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.61 $ 13.81 $ 11.98 $ 12.49 $ 10.86 $ 10.65
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment
Operations:
Net investment income -- 0.07 0.07 0.10 0.08 **
Net realized and unrealized gains
(losses) on investments and futures
contracts 4.19 2.54 2.64 (0.11) 1.74 0.21
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment
Operations: 4.19 2.61 2.71 (0.01) 1.82 0.21
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income -- (0.08) (0.07) (0.08) (0.06) --
In excess of net investment income (0.04) (0.01) -- (0.01) (0.03) --
Net realized gains on investments and
futures contracts (1.43) (0.72) (0.81) (0.41) (0.10) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (1.47) (0.81) (0.88) (0.50) (0.19) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 2.72 1.80 1.83 (0.51) 1.63 0.21
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.33 $15.61 $ 13.81 $11.98 $12.49 $ 10.86
===========================================================================================================================
TOTAL RETURN(2) 27.71% 19.16% 23.47% (0.08)% 16.84% 1.97%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $22,784 $14,436 $10,955 $8,433 $5,345 $ 84
Ratios to average net assets:
Ratio of expenses 1.18% 1.21% 1.20% 0.98% 1.25% 0.27%++
Ratio of net investment income (loss) (0.01)% 0.53% 0.59% 0.79% 0.59% (1.50)%+
Ratio of expenses* 1.19% 1.21% *** *** *** ***
Ratio of net investment income (loss)* (0.02)% 0.53% *** *** *** ***
Portfolio turnover rate(3) 32% 16% 30% 20% 14% 1%
Average commission rate paid(4) $ 0.0447 $ 0.0481 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
*** During the period, there were no waivers and/or reimbursements.
(1) The Investment Class date of initial public investment was December 4, 1992.
(2) Calculation does not include sales charge that was previously applicable for
Investment Shares. Such sales charge was discontinued as of May 1, 1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(4) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
12
15
SMALL COMPANY GROWTH FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.65 $ 13.82 $ 11.99 $ 12.50 $ 10.85 $ 10.00
Income from Investment Operations:
Net investment income 0.04 0.12 0.10 0.10 0.08 0.02
Net realized and unrealized gains
(losses) on investments and futures
contracts 4.19 2.55 2.64 (0.10) 1.76 0.86
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 4.23 2.67 2.74 -- 1.84 0.88
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.04) (0.12) (0.10) (0.09) (0.08) (0.02)
In excess of net investment income (0.02) -- -- (0.01) (0.01) (0.01)
Net realized gains on investments and
futures contracts (1.43) (0.72) (0.81) (0.41) (0.10) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (1.49) (0.84) (0.91) (0.51) (0.19) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 2.74 1.83 1.83 (0.51) 1.65 0.85
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.39 $ 15.65 $ 13.82 $ 11.99 $ 12.50 $ 10.85
===========================================================================================================================
TOTAL RETURN 27.94% 19.56% 23.75% (0.06)% 17.04% 8.75%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $719,998 $544,081 $450,072 $304,179 $252,401 $95,999
Ratios to average net assets:
Ratio of expenses 0.93% 0.96% 0.97% 0.98% 1.06% 0.18%++
Ratio of net investment income 0.24% 0.78% 0.83% 0.79% 0.74% 1.35%+
Ratio of expenses* 0.94% 0.96% ** ** ** **
Ratio of net investment income* 0.23% 0.78% ** ** ** **
Portfolio turnover rate(2) 32% 16% 30% 20% 14% 1%
Average commission rate paid(3) $ 0.0447 $ 0.0481 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the period, there were no waivers and/or reimbursements.
(1) The Institutional Class commenced operations on November 2, 1992.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(3) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
13
16
INTERNATIONAL GROWTH FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.69 $ 14.13 $13.00 $12.81 $10.03 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.08 0.12 0.14 0.14 0.13 **
Net realized and unrealized gains on
investments and foreign currency 0.25 0.66 1.50 0.56 2.85 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.33 0.78 1.64 0.70 2.98 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.06) (0.08) (0.09) (0.07) (0.02) --
In excess of net investment income (0.09) -- (0.11) (0.03) (0.09) --
Net realized gains on investments and
foreign currency (0.07) (0.14) (0.31) (0.41) (0.05) --
In excess of net realized gains (0.01) -- -- -- (0.04) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.23) (0.22) (0.51) (0.51) (0.20) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.10 0.56 1.13 0.19 2.78 0.03
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.79 $ 14.69 $14.13 $13.00 $12.81 $10.03
===========================================================================================================================
TOTAL RETURN(2) 2.25% 5.57% 12.86% 5.51% 29.67% 0.30%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $ 9,780 $ 8,799 $7,548 $6,539 $3,202 $ 15
Ratios to average net assets:
Ratio of expenses 1.30% 1.34% 1.40% 1.25% 1.43% 0.20%++
Ratio of net investment income (loss) 0.53% 0.74% 1.11% 0.81% 0.32% (1.34)%+
Ratio of expenses* 1.31% 1.34% *** *** *** ***
Ratio of net investment income (loss)* 0.52% 0.74% *** *** *** ***
Portfolio turnover rate(3) 3% 13% 6% 20% 5% 0%
Average commission rate paid(4) $0.0148 $0.0219 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
*** During the period, there were no waivers and/or reimbursements.
(1) The Investment Class date of initial public investment was December 4, 1992.
(2) Calculation does not include sales charge that was previously applicable for
Investment Shares. Such sales charge was discontinued as of May 1, 1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(4) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
14
17
INTERNATIONAL GROWTH FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.75 $ 14.18 $ 13.06 $ 12.84 $ 10.01 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.11 0.13 0.13 0.12 0.09 **
Net realized and unrealized gains on
investments and foreign currency 0.26 0.70 1.54 0.61 2.95 0.02
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.37 0.83 1.67 0.73 3.04 0.02
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.09) (0.10) (0.13) (0.07) (0.08) --
In excess of net investment income (0.06) (0.02) (0.11) (0.03) (0.04) (0.01)
Net realized gains on investments and
foreign currency (0.07) (0.13) (0.31) (0.41) (0.08) --
In excess of net realized gains (0.01) (0.01) -- -- (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.23) (0.26) (0.55) (0.51) (0.21) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.14 0.57 1.12 0.22 2.83 0.01
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 14.89 $ 14.75 $ 14.18 $ 13.06 $ 12.84 $ 10.01
===========================================================================================================================
TOTAL RETURN 2.54% 5.87% 13.00% 5.73% 30.32% 0.20%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $492,598 $387,799 $286,545 $178,186 $157,716 $81,105
Ratios to average net assets:
Ratio of expenses 1.05% 1.09% 1.17% 1.22% 1.33% 0.14%++
Ratio of net investment income (loss) 0.80% 0.97% 1.35% 0.87% 0.86% (0.28)%+
Ratio of expenses* 1.06% 1.09% *** *** *** ***
Ratio of net investment income (loss)* 0.79% 0.97% *** *** *** ***
Portfolio turnover rate(2) 3% 13% 6% 20% 5% 0%
Average commission rate paid(3) $ 0.0148 $ 0.0219 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
*** During the period, there were no waivers and/or reimbursements.
(1) The Investment Class date of initial public investment was December 4, 1992.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(3) The average commission represents the total dollar amount of commissions
paid on portfolio transactions divided by the total number of portfolio
shares purchased and sold for which commissions were charged. Disclosure is
not required for periods prior to 1996.
15
18
[THIS PAGE INTENTIONALLY LEFT BLANK]
16
19
INCOME FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, Year ended December 31,
------------------------------------- -------------------------------------
1997 1996 1995(1) 1997 1996 1995(2)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $10.16 $10.82 $10.00 $ 10.16 $ 10.84 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment
Operations:
Net investment income 0.63 0.66 0.52 0.68 0.66 0.55
Net realized and unrealized
gains (losses) on investments 0.35 (0.56) 0.91 0.34 (0.56) 0.92
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.98 0.10 1.43 1.02 0.10 1.47
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions
from:
Net investment income (0.65) (0.64) (0.52) (0.68) (0.65) (0.54)
In excess of net investment
income -- (0.09) -- -- (0.10) --
Net realized gain on investments (0.20) (0.03) (0.09) (0.20) (0.03) (0.09)
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and
Distributions: (0.85) (0.76) (0.61) (0.88) (0.78) (0.63)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.13 (0.66) 0.82 0.14 (0.68) 0.84
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.29 $10.16 $10.82 $ 10.30 $ 10.16 $ 10.84
===========================================================================================================================
TOTAL RETURN(3) 10.19% 1.16% 14.63%++ 10.55% 1.19% 15.05%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, End of period
(000's) $5,611 $2,722 $1,961 $229,778 $240,060 $126,056
Ratios to average net assets:
Ratio of expenses 1.07% 1.08% 1.14%+ 0.82% 0.83% 0.91%+
Ratio of net investment income 6.38% 6.31% 6.40%+ 6.65% 6.57% 6.65%+
Ratio of expenses* 1.08% 1.08% ** 0.83% 0.83% **
Ratio of net investment income* 6.37% 6.31% ** 6.64% 6.57% **
Portfolio turnover rate(4) 84% 102% 50% 84% 102% 50%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** During the period, there were no waivers and/or reimbursements.
(1) The Investment Class date of initial public investment was March 22, 1995.
(2) The Institutional Class commenced operations on March 20, 1995.
(3) Calculation does not include sales charge that was previously applicable
for Investment Shares. Such sales charge was discontinued as of May 1,
1997.
(4) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
17
20
INTERMEDIATE BOND FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.78 $10.14 $ 9.32 $10.19 $10.03 $ 9.98
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment
Operations:
Net investment income 0.57 0.58 0.61 0.57 0.47 0.03
Net realized and unrealized gains
(losses) on investments 0.15 (0.32) 0.82 (0.87) 0.34 0.02
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment
Operations: 0.72 0.26 1.43 (0.30) 0.81 0.05
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.57) (0.57) (0.61) (0.54) (0.46) --
In excess of net investment income -- (0.05) -- (0.01) (0.05) --
Net realized gains on investments -- -- -- (0.02) (0.14) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.57) (0.62) (0.61) (0.57) (0.65) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.15 (0.36) 0.82 (0.87) 0.16 0.05
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.93 $9.78 $10.14 $9.32 $10.19 $10.03
===========================================================================================================================
TOTAL RETURN(2) 7.62% 2.76% 15.76% (3.01)% 8.19% 0.50%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $6,972 $7,327 $6,862 $9,196 $4,966 $ 174
Ratios to average net assets:
Ratio of expenses 1.00% 1.02% 1.01% 0.81% 1.13% 0.16%++
Ratio of net investment income 5.79% 5.92% 6.24% 5.94% 4.75% 4.94%+
Ratio of expenses* 1.01% 1.03% ** ** ** **
Ratio of net investment income* 5.78% 5.91% ** ** ** **
Portfolio turnover rate(3) 114% 135% 166% 124% 126% 1%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the period, there were no waivers and/or reimbursements.
(1) The Investment Class date of initial public investment was November 25,
1992.
(2) Calculation does not include sales charge that was previously applicable
for Investment Shares. Such sales charge was discontinued as of May 1,
1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
18
21
INTERMEDIATE BOND FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 10.12 $ 9.29 $ 10.18 $ 10.00 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment
Operations:
Net investment income 0.59 0.60 0.65 0.56 0.51 0.08
Net realized and unrealized gains
(losses) on investments 0.14 (0.32) 0.81 (0.88) 0.32 **
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment
Operations: 0.73 0.28 1.46 (0.32) 0.83 0.08
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.59) (0.61) (0.63) (0.54) (0.51) (0.08)
In excess of net investment income -- (0.03) -- (0.01) ** **
Net realized gains on investments -- -- -- (0.02) (0.14) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.59) (0.64) (0.63) (0.57) (0.65) (0.08)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.14 (0.36) 0.83 (0.89) 0.18 --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.90 $ 9.76 $ 10.12 $ 9.29 $ 10.18 $ 10.00
===========================================================================================================================
TOTAL RETURN 7.80% 3.01% 16.18% (3.19)% 8.42% 0.83%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $ 762,740 $769,395 $854,801 $ 977,865 $ 434,264 $203,129
Ratios to average net assets:
Ratio of expenses 0.75% 0.77% 0.77% 0.80% 0.85% 0.15%++
Ratio of net investment income 6.03% 6.18% 6.50% 6.03% 5.03% 5.32%+
Ratio of expenses* 0.76% 0.78% *** *** *** ***
Ratio of net investment income* 6.02% 6.17% *** *** *** ***
Portfolio turnover rate(2) 114% 135% 166% 124% 126% 1%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Amount is less than $0.005.
*** During the period, there were no waivers and/or reimbursements.
(1) The Institutional Class commenced operations on November 2, 1992.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
19
22
SHORT TERM BOND FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.74 $ 9.95 $ 9.52 $ 9.91 $10.02 $ 9.99
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.57 0.59 0.52 0.47 0.38 0.02
Net realized and unrealized gains
(losses) on investments 0.02 (0.20) 0.44 (0.37) (0.08) 0.01
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.59 0.39 0.96 0.10 0.30 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.59) (0.54) (0.53) (0.48) (0.41) --
In excess of net investment income -- (0.06) -- (0.01) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.59) (0.60) (0.53) (0.49) (0.41) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value -- (0.21) 0.43 (0.39) (0.11) 0.03
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.74 $ 9.74 $ 9.95 $ 9.52 $ 9.91 $10.02
===========================================================================================================================
TOTAL RETURN(2) 6.26% 4.06% 10.30% 1.01% 3.04% 0.30%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $7,433 $1,667 $1,634 $1,649 $1,427 $ 111
Ratios to average net assets:
Ratio of expenses 0.88% 0.85% 0.91% 0.74% 1.24% 0.12%++
Ratio of net investment income 5.75% 6.02% 5.40% 4.79% 3.91% 3.31%+
Ratio of expenses* 0.99% 0.96% ** ** ** **
Ratio of net investment income* 5.64% 5.91% ** ** ** **
Portfolio turnover rate(3) 89% 32% 75% 56% 50% 5%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** During the period, there were no waivers and/or reimbursements.
(1) The Investment Class date of initial public investment was December 4, 1992.
(2) Calculation does not include sales charge that was previously applicable for
Investment Shares. Such sales charge was discontinued as of May 1, 1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
20
23
SHORT TERM BOND FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.75 $ 9.96 $ 9.52 $ 9.91 $ 9.99 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.61 0.61 0.55 0.48 0.42 0.07
Net realized and unrealized gains
(losses) on investments -- (0.21) 0.43 (0.38) (0.09) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.61 0.40 0.98 0.10 0.33 0.06
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.61) (0.61) (0.54) (0.49) (0.41) (0.07)
In excess of net investment income -- -- -- ** -- **
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.61) (0.61) (0.54) (0.49) (0.41) (0.07)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value -- (0.21) 0.44 (0.39) (0.08) (0.01)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.75 $ 9.75 $ 9.96 $ 9.52 $ 9.91 $ 9.99
===========================================================================================================================
TOTAL RETURN 6.42% 4.22% 10.53% 1.03% 3.36% 0.53%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $139,739 $235,430 $310,680 $176,765 $255,892 $186,124
Ratios to average net assets:
Ratio of expenses 0.72% 0.70% 0.77% 0.73% 0.81% 0.14%++
Ratio of net investment income 6.04% 6.17% 5.60% 4.75% 4.24% 4.05%+
Ratio of expenses* 0.73% 0.70% *** *** *** ***
Ratio of net investment income* 6.03% 6.17% *** *** *** ***
Portfolio turnover rate(2) 89% 32% 75% 56% 50% 5%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
** Amount is less than $0.005.
*** During the period, there were no waivers and/or reimbursements.
(1) The Institutional Class commenced operations on November 2, 1992.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
21
24
[THIS PAGE INTENTIONALLY LEFT BLANK]
22
25
TAX-FREE INCOME FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, Year ended December 31,
------------------------------------- ---------------------------------------
1997 1996 1995(1) 1997 1996 1995(2)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $10.29 $10.52 $10.00 $ 10.27 $ 10.49 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment
Operations:
Net investment income 0.42 0.41 0.31 0.45 0.46 0.36
Net realized and unrealized
gains (losses) on investments
and futures contracts 0.42 (0.05) 0.51 0.41 (0.06) 0.49
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.84 0.36 0.82 0.86 0.40 0.85
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions
from:
Net investment income (0.42) (0.43) (0.30) (0.45) (0.46) (0.36)
In excess of net investment
income (0.01) -- -- -- -- --
Net realized gains on
investments and futures
contracts (0.03) (0.12) -- (0.03) (0.16) --
In excess of net realized gains -- (0.04) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and
Distributions: (0.46) (0.59) (0.30) (0.48) (0.62) (0.36)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.38 (0.23) 0.52 0.38 (0.22) 0.49
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.67 $10.29 $10.52 $ 10.65 $ 10.27 $ 10.49
===========================================================================================================================
TOTAL RETURN(3) 8.32% 3.53% 8.34%++ 8.59% 3.92% 8.64%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period
(000's) $1,712 $ 936 $ 529 $116,652 $109,948 $121,855
Ratios to average net assets:
Ratio of expenses 1.04% 1.07% 0.95%+ 0.79% 0.82% 0.73%+
Ratio of net investment income 4.05% 4.14% 4.25%+ 4.32% 4.38% 4.44%+
Ratio of expenses* 1.05% 1.07% 1.17%+ 0.80% 0.82% 0.91%+
Ratio of net investment income* 4.04% 4.14% 4.03%+ 4.31% 4.38% 4.26%+
Portfolio turnover rate(4) 16% 40% 10% 16% 40% 10%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(1) The Investment Class date of initial public investment was March 22, 1995.
(2) The Institutional Class commenced operations on March 20, 1995.
(3) Calculation does not include sales charge that was previously applicable
for Investment Shares. Such sales charge was discontinued as of May 1,
1997.
(4) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
23
26
INTERMEDIATE TAX-FREE FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.42 $10.52 $ 9.74 $10.45 $10.04 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment
Operations:
Net investment income 0.43 0.42 0.42 0.40 0.36 **
Net realized and unrealized gains
(losses) on investments 0.26 (0.09) 0.79 (0.71) 0.46 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment
Operations: 0.69 0.33 1.21 (0.31) 0.82 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.43) (0.41) (0.42) (0.39) (0.33) --
In excess of net investment income -- (0.02) (0.01) (0.01) (0.03) --
Net realized gains on investments -- -- -- -- (0.05) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.43) (0.43) (0.43) (0.40) (0.41) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.26 (0.10) 0.78 (0.71) 0.41 0.04
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.68 $10.42 $10.52 $ 9.74 $10.45 $10.04
===========================================================================================================================
TOTAL RETURN(2) 6.80% 3.17% 12.66% (3.03)% 8.29% 0.40%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $3,534 $3,368 $3,807 $4,505 $3,307 $ 92
Ratios to average net assets:
Ratio of expenses 0.97% 0.98% 0.97% 0.79% 1.08% 0.10%++
Ratio of net investment income 4.06% 4.09% 4.13% 3.99% 3.44% 1.37%+
Ratio of expenses* 0.98% 0.98% 0.97% 0.79% 1.08% 0.10%++
Ratio of net investment income* 4.05% 4.09% 4.13% 3.99% 3.44% 1.37%+
Portfolio turnover rate(3) 23% 35% 6% 36% 14% 0%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was December 18,
1992.
(2) Calculation does not include sales charge that was previously applicable
for Investment Shares. Such sales charge was discontinued as of May 1,
1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
24
27
INTERMEDIATE TAX-FREE FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.42 $ 10.52 $ 9.74 $ 10.45 $ 10.02 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) from Investment
Operations:
Net investment income 0.45 0.44 0.45 0.40 0.37 0.01
Net realized and unrealized gains
(losses) on investments 0.26 (0.08) 0.79 (0.71) 0.47 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Investment
Operations: 0.71 0.36 1.24 (0.31) 0.84 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.45) (0.46) (0.45) (0.39) (0.36) (0.01)
In excess of net investment income -- ** (0.01) (0.01) -- (0.01)
Net realized gains on investments -- -- -- -- (0.05) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.45) (0.46) (0.46) (0.40) (0.41) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.26 (0.10) 0.78 (0.71) 0.43 0.02
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.68 $ 10.42 $ 10.52 $ 9.74 $ 10.45 $ 10.02
===========================================================================================================================
TOTAL RETURN 7.07% 3.41% 12.90% (3.00)% 8.51% 0.40%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $275,641 $285,674 $283,733 $380,715 $135,862 $36,938
Ratios to average net assets:
Ratio of expenses 0.72% 0.73% 0.72% 0.78% 0.84% 0.11%++
Ratio of net investment income 4.31% 4.34% 4.39% 4.07% 3.62% 1.77%+
Ratio of expenses* 0.73% 0.73% 0.72% 0.78% 0.84% 0.11%++
Ratio of net investment income* 4.30% 4.34% 4.39% 4.07% 3.62% 1.77%+
Portfolio turnover rate(2) 23% 35% 6% 36% 14% 0%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on December 16, 1992.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
25
28
MICHIGAN MUNICIPAL BOND FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.07 $10.11 $ 9.72 $10.08 $10.02
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.39 0.38 0.37 0.35 0.21
Net realized and unrealized gains (losses)
on investments 0.14 (0.05) 0.40 (0.34) 0.07
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations: 0.53 0.33 0.77 0.01 0.28
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.40) (0.35) (0.37) (0.34) (0.21)
In excess of net investment income -- (0.02) (0.01) (0.03) **
Net realized gains on investments -- -- -- -- (0.01)
In excess of net realized gains -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.40) (0.37) (0.38) (0.37) (0.22)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.13 (0.04) 0.39 (0.36) 0.06
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.20 $10.07 $10.11 $ 9.72 $10.08
===========================================================================================================================
TOTAL RETURN(2) 5.38% 3.36% 8.01% 0.16% 2.85%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $4,413 $2,422 $1,900 $1,980 $ 283
Ratios to average net assets:
Ratio of expenses 0.84% 0.85% 0.83% 0.49% 0.25%+
Ratio of net investment income 3.88% 3.68% 3.68% 3.80% 3.43%+
Ratio of expenses* 0.95% 0.95% 0.85% 0.68% 1.08%+
Ratio of net investment income* 3.77% 3.58% 3.67% 3.61% 2.60%+
Portfolio turnover rate(3) 13% 24% 42% 27% 10%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was on May 11, 1993.
(2) Calculation does not include sales charge that was previously applicable
for Investment Shares. Such sales charge was discontinued as of May 1,
1997.
(3) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
26
29
MICHIGAN MUNICIPAL BOND FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.08 $ 10.12 $ 9.72 $ 10.06 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.41 0.39 0.39 0.37 0.23
Net realized and unrealized gains (losses) on
investments 0.13 (0.04) 0.39 (0.34) 0.07
- ---------------------------------------------------------------------------------------------------------------------------
Total Income from Investment Operations: 0.54 0.35 0.78 0.03 0.30
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.41) (0.39) (0.37) (0.36) (0.22)
In excess of net investment income -- -- (0.01) (0.01) (0.01)
Net realized gains on investments -- -- -- -- (0.01)
In excess of net realized gains -- -- -- -- **
- ---------------------------------------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.41) (0.39) (0.38) (0.37) (0.24)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value 0.13 (0.04) 0.40 (0.34) 0.06
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.21 $ 10.08 $ 10.12 $ 9.72 $ 10.06
===========================================================================================================================
TOTAL RETURN 5.52% 3.51% 8.20% 0.36% 3.06%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $111,735 $152,623 $185,466 $118,485 $74,647
Ratios to average net assets:
Ratio of expenses 0.69% 0.70% 0.69% 0.49% 0.24%+
Ratio of net investment income 4.04% 3.83% 3.81% 3.74% 3.34%+
Ratio of expenses* 0.70% 0.70% 0.70% 0.74% 0.84%+
Ratio of net investment income* 4.03% 3.83% 3.80% 3.50% 2.74%+
Portfolio turnover rate(2) 13% 24% 42% 27% 10%
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Institutional Class commenced operations on May 3, 1993.
(2) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
27
30
[THIS PAGE INTENTIONALLY LEFT BLANK]
28
31
LIMITED TERM TAX-FREE FUND
(For a share outstanding throughout each period)
- ----------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ----------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------------
1997 1996 1995 1994(1)
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.20 $ 10.24 $ 9.81 $ 9.87
- ----------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.38 0.37 0.37 0.06
Net realized and unrealized gains
(losses) on investments 0.08 (0.02) 0.44 (0.06)
- ----------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.46 0.35 0.81 --
- ----------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.38) (0.35) (0.38) (0.06)
In excess of net investment income -- (0.03) -- --
Net realized gains on investments (0.05) (0.01) -- --
- ----------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.43) (0.39) (0.38) (0.06)
- ----------------------------------------------------------------------------------------------
Net change in net asset value 0.03 (0.04) 0.43 (0.06)
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.23 $ 10.20 $ 10.24 $ 9.81
==============================================================================================
TOTAL RETURN(3) 4.61% 3.51% 8.40% 0.03%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $ 474 $ 106 $ 54 $ 7
Ratios to average net assets:
Ratio of expenses 0.93% 0.87% 0.84% 0.87%+
Ratio of net investment income 3.67% 3.69% 3.69% 3.86%+
Ratio of expense* 1.04% 0.97% 0.85% 0.98%+
Ratio of net investment income* 3.56% 3.59% 3.69% 3.75%+
Portfolio turnover rate(4) 29% 32% 51% 10%
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ----------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------
1997 1996 1995 1994(2)
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.16 $ 10.22 $ 9.80 $ 10.00
- ----------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.40 0.39 0.39 0.13
Net realized and unrealized gains
(losses) on investments 0.08 (0.04) 0.42 (0.21)
- ----------------------------------------------------------------------------------------------
Total Income from Investment
Operations: 0.48 0.35 0.81 (0.08)
- ----------------------------------------------------------------------------------------------
Less Dividends and Distributions from:
Net investment income (0.40) (0.40) (0.39) (0.12)
In excess of net investment income -- ** -- --
Net realized gains on investments (0.05) (0.01) -- --
- ----------------------------------------------------------------------------------------------
Total Dividends and Distributions: (0.45) (0.41) (0.39) (0.12)
- ----------------------------------------------------------------------------------------------
Net change in net asset value 0.03 (0.06) 0.42 (0.20)
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.19 $ 10.16 $ 10.22 $ 9.80
==============================================================================================
TOTAL RETURN(3) 4.78% 3.54% 8.43% (0.77)%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $36,023 $41,472 $55,347 $43,497
Ratios to average net assets:
Ratio of expenses 0.76% 0.75% 0.69% 0.79%+
Ratio of net investment income 3.86% 3.84% 3.87% 3.81%+
Ratio of expense* 0.77% 0.75% 0.74% 0.96%+
Ratio of net investment income* 3.85% 3.84% 3.82% 3.64%+
Portfolio turnover rate(4) 29% 32% 51% 10%
- ----------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Amount is less than $0.005.
(1) The Investment Class date of initial public investment was November 1,
1994.
(2) The Institutional Class commenced operations on September 1, 1994.
(3) Calculation does not include sales charge that was previously applicable
for Investment Shares. Such sales charge was discontinued as of May 1,
1997.
(4) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
29
32
MONEY MARKET FUND
(For a share outstanding throughout each period)
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- -------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.05 0.05 0.05 0.04 0.03 --
- -------------------------------------------------------------------------------------------------------------------------
Less Dividends from:
Net investment income (0.05) (0.05) (0.05) (0.04) (0.03) --
- -------------------------------------------------------------------------------------------------------------------------
Net change in net asset value -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=========================================================================================================================
TOTAL RETURN 5.23% 5.06% 5.56% 3.71% 2.67% 0.27%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $1,179 $ 804 $1,227 $ 369 $ 593 $ 11
Ratios to average net assets:
Ratio of expenses 0.52% 0.52% 0.55% 0.63% 0.63% 0.63%+
Ratio of net investment income 5.11% 4.94% 5.41% 3.58% 2.63% 3.30%+
Ratio of expenses* 0.62% 0.62% 0.62% 0.68% 4.49% 0.68%+
Ratio of net investment income (loss)* 5.01% 4.84% 5.33% 3.53% (1.24)% 3.25%+
- -------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(1) The Investment Class date of initial public investment was December 9,
1992.
30
33
MONEY MARKET FUND (CONTINUED)
(For a share outstanding throughout each period)
- -----------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.05 0.05 0.05 0.04 0.03 0.03
- --------------------------------------------------------------------------------------------------------------------------
Less Dividends from:
Net investment income (0.05) (0.05) (0.05) (0.04) (0.03) (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Net change in net asset value -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================================================================
TOTAL RETURN 5.23% 5.06% 5.58% 3.75% 2.68% 3.40%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $474,378 $483,919 $424,815 $323,539 $359,624 $220,508
Ratios to average net assets:
Ratio of expenses 0.52% 0.52% 0.55% 0.60% 0.60% 0.60%
Ratio of net investment income 5.11% 4.95% 5.45% 3.65% 2.65% 3.23%
Ratio of expenses* 0.62% 0.62% 0.63% 0.65% 0.68% 0.91%
Ratio of net investment income* 5.01% 4.85% 5.37% 3.59% 2.57% 2.92%
- --------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------
INSTITUTIONAL SHARES
- ----------------------------------------------------------------
Year ended December 31,
------------------------
1991 1990(1)
- ----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ----------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.06 0.01
- ----------------------------------------------------------------
Less Dividends from:
Net investment income (0.06) (0.01)
- ----------------------------------------------------------------
Net change in net asset value -- --
- ----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
================================================================
TOTAL RETURN 5.65% 0.60%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $ 28 $ 23
Ratios to average net assets:
Ratio of expenses 0.60% 0.60%+
Ratio of net investment income 5.53% 7.27%+
Ratio of expenses* 0.92% 1.02%+
Ratio of net investment income* 5.21% 6.84%+
- ----------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(1) The Institutional Class commenced operations on December 3, 1990.
31
34
[THIS PAGE INTENTIONALLY LEFT BLANK]
32
35
GOVERNMENT MONEY MARKET FUND
(For a share outstanding throughout each period)
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES INSTITUTIONAL SHARES
- ------------------------------------------------------------------------------------------------------------------
Period Ended Period Ended
December 31, 1997(1) DECEMBER 31, 1997(1)
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.03 0.03
- ------------------------------------------------------------------------------------------------------------------
Less Dividends from:
Net investment income (0.03) (0.03)
- ------------------------------------------------------------------------------------------------------------------
Net change in net asset value -- --
- ------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $1.00 $ 1.00
==================================================================================================================
TOTAL RETURN 3.06%++ 3.10%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $ 2 $94,624
Ratios to average net assets:
Ratio of expenses 0.43%+ 0.35%+
Ratio of net investment income 5.17%+ 5.23%+
Ratio of expenses* 0.77%+ 0.69%+
Ratio of net investment income* 4.83%+ 4.89%+
- ------------------------------------------------------------------------------------------------------------------
+ Annualized
++ Not Annualized
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
(1) The Fund commenced operations June 2, 1997.
33
36
MICHIGAN MUNICIPAL MONEY MARKET FUND
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.03 0.03 0.03 0.02 0.02 **
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends from:
Net investment income (0.03) (0.03) (0.03) (0.02) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset value -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================================================================
TOTAL RETURN 3.31% 3.11% 3.48% 2.38% 1.98% 0.03%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period (000's) $ 289 $ 782 $1,603 $ 379 $ 149 ***
Ratios to average net assets:
Ratio of expenses 0.52% 0.54% 0.54% 0.63% 0.63% 0.00%+
Ratio of net investment income 3.22% 3.06% 3.48% 2.47% 2.01% 2.92%+
Ratio of expenses* 0.63% 0.64% 0.62% 0.73% 3.77% 0.00%+
Ratio of net investment income (loss)* 3.11% 2.96% 3.39% 2.37% (1.13)% 2.92%+
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the ratios would have been as indicated.
** Amount is less than $0.005.
*** Amount is less than $1,000.
(1) The Investment Class date of initial public investment was December 15,
1992.
34
37
MICHIGAN MUNICIPAL MONEY MARKET FUND (CONTINUED)
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(1)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from Investment
Operations:
Net investment income 0.03 0.03 0.03 0.02 0.02 0.03 0.02
- ---------------------------------------------------------------------------------------------------------------------------
Less Dividends from:
Net investment income (0.03) (0.03) (0.03) (0.02) (0.02) (0.03) (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in net asset
value -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
===========================================================================================================================
TOTAL RETURN 3.31% 3.11% 3.50% 2.40% 2.00% 2.63% 2.37%++
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of period
(000's) $211,682 $155,424 $145,215 $128,164 $183,366 $72,906 $49,618
Ratios to average net
assets:
Ratio of expenses 0.52% 0.54% 0.56% 0.60% 0.60% 0.60% 0.60%+
Ratio of net investment
income 3.27% 3.06% 3.45% 2.33% 1.96% 2.56% 4.03%+
Ratio of expenses* 0.63% 0.64% 0.65% 0.70% 0.69% 0.86% 0.77%+
Ratio of net investment
income* 3.16% 2.96% 3.36% 2.23% 1.87% 2.29% 3.93%+
- ---------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not Annualized.
* During the period, certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred, the
ratios would have been as indicated.
(1) The Institutional Class commenced operations on June 3, 1991.
35
38
FUND CHOICES
----------------------------------------------------------------------------
WHAT FUNDS ARE OFFERED?
The Trust currently offers fourteen Funds, each of which is described below.
Each Fund's investment objective is considered "fundamental" and may not be
changed by a Fund without the approval of its shareholders. Unless expressly
identified as "fundamental," the other investment policies described below,
including the dollar-weighted average portfolio maturity range of each Bond and
Municipal Bond Fund, are not considered "fundamental" and may be changed by the
Trust's Board of Trustees without shareholder approval.
EQUITY FUNDS
The Trust currently offers the four Equity Funds described below.
GROWTH AND INCOME FUND
OBJECTIVE: The Fund's primary objective is long-term capital growth with current
income as a secondary goal.
PRINCIPAL INVESTMENTS: Under ordinary circumstances, the Fund intends to invest
at least 65% of its total assets in U.S. companies with at least $100 million in
net capitalization which are listed on the NYSE or American Stock Exchange or
are traded over the counter. The Fund intends to invest in companies which Lyon
Street believes have potential primarily for capital growth and secondarily for
income, and which may potentially provide a return greater than the S&P 500. Up
to 10% of the Fund's assets may also be invested in foreign securities and
American Depository Receipts ("ADRs"). A portion of the Fund's assets may be
invested in preferred stock or bonds convertible into common stock. The Fund
will purchase only convertible bonds having a rating in one of the four highest
rating categories by a nationally recognized statistical rating organization (a
"NRSRO") or those which, if not rated, are of comparable quality as determined
by Lyon Street. Bonds in the fourth highest rating category may have speculative
characteristics. The Fund expects to earn current income mainly from stock
dividends and interest on convertible bonds.
INDEX EQUITY FUND
OBJECTIVE: The Fund seeks investment results which mirror the capital
performance and dividend income of the S&P 500.
PRINCIPAL INVESTMENTS: The Fund invests in common stock issued by the companies
comprising the S&P 500 in approximately the same proportions as which such
companies comprise the S&P 500. Because of the difficulty and expense of
executing relatively small stock transactions, the Fund may not always be
invested in the less heavily weighted S&P 500 stocks, or may be invested in
stocks in different proportions than the S&P 500, especially when the Fund has a
low level of assets. Lyon Street will generally try to match the industry
composition of the S&P 500 exactly. The Fund will try to achieve a correlation
between the performance of its portfolio and that of the S&P 500 of at least
0.95 (not accounting for expenses). A correlation of 1.0 would mean that the
Fund's NAV (including the value of its dividends and capital gains
distributions) increases or decreases in exact proportion to changes in the S&P
500. Several factors may affect the Fund's ability to exactly track the S&P
500's performance, including the timing of purchases and redemptions, changes in
securities markets and the level of the Fund's assets.
SMALL COMPANY GROWTH FUND
OBJECTIVE: The Fund seeks long-term capital appreciation by investing in equity
securities of small companies.
PRINCIPAL INVESTMENTS: Under ordinary circumstances, the Fund intends to invest
at least 65% of its total assets in a diverse group of small U.S. companies,
which are companies whose market capitalizations are
36
39
less than $1 billion. The Fund intends to purchase common stock issued by each
NYSE company that meets the above criteria. The amount of each NYSE company's
common stock purchased will be based on the company's capitalization relative to
all of the other eligible NYSE companies. Lyon Street may elect to exclude an
eligible NYSE company from the Fund's portfolio if it believes the company is in
financial difficulty. Lyon Street will consider selling a stock if the issuer's
market capitalization increases to the point that it is ranked in the top half
of all NYSE companies. The Fund may also purchase stocks which are listed on
other U.S. securities exchanges or which are traded over the counter.
INTERNATIONAL GROWTH FUND
OBJECTIVE: The Fund seeks long-term growth of capital and additional
diversification for U.S. investors by investing in a varied portfolio of foreign
equity securities.
PRINCIPAL INVESTMENTS: The Fund will invest mostly in common and preferred
stocks. Under ordinary circumstances, the Fund intends to invest at least 65% of
its total assets in at least 3 countries other than the United States, including
(but not limited to) Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Italy, Japan, Malaysia, the Netherlands, New Zealand,
Norway, Singapore, Spain, Sweden, Switzerland and the United Kingdom. The Fund
uses the Morgan Stanley Europe, Australia and Far East Index (the "EAFE Index")
as its benchmark for performance. Lyon Street believes that the EAFE Index is
generally representative of the performance of the common stocks of large
companies in industrialized countries traded outside of the United States taken
as a whole. Stocks are included in the EAFE Index based on national and industry
representation and are weighted according to their relative market values. In
allocating the Fund's portfolio between different countries, Lyon Street will
consider a country's Gross Domestic Product compared with that of other
industrialized countries (other than the United States), as well as a country's
weighting in the EAFE Index, and will from time to time shift the allocation of
the Fund's assets from countries that it considers overvalued to countries that
it considers undervalued. The Fund may also invest in ADRs and enter into
currency and other futures contracts and related options for hedging purposes.
BOND FUNDS
The Trust currently offers the three Bond Funds described below.
OBJECTIVES AND MATURITIES: The INCOME FUND seeks a high level of current income
by investing in a broad range of investment quality debt securities and will
maintain a dollar-weighted average portfolio maturity between seven and twenty
years. The INTERMEDIATE BOND FUND seeks current income by investing primarily in
a broad range of investment quality debt securities and will maintain a
dollar-weighted average portfolio maturity between three and ten years. The
SHORT TERM BOND FUND seeks current income by investing primarily in a limited
range of investment quality fixed income securities and will maintain a
dollar-weighted average portfolio maturity between one and three years. Each
Bond Fund seeks preservation of capital as a secondary goal.
PRINCIPAL INVESTMENTS: Under ordinary circumstances, each Bond Fund intends to
invest at least 65% of its total assets in debt securities. In addition, the
Income Fund intends to invest at least 65% of its total assets in a combination
of (i) corporate debt obligations that are rated in one of the three highest
rating categories by a NRSRO (for example, A or higher by Standard & Poor's
Ratings Group ("S&P") or by Moody's Investors Service, Inc. ("Moody's")) or, if
unrated, will be deemed to be of comparable quality by Lyon Street, or (ii)
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Debt securities, other than securities known as zero coupon
bonds, pay interest at set times, at either a fixed (set) rate or a variable
(changing) rate. Debt securities purchased by the Bond Funds may include
corporate debt obligations, U.S. Government securities, stripped securities,
variable and floating rate securities, mortgage-backed securities, custodial
receipts for Treasury certificates, zero-coupon bonds, asset-backed securities,
equipment trust certificates and certain so-called "derivative securities." Each
Bond Fund may also invest a portion of its assets in bonds convertible into
common stock.
Debt securities purchased by the Bond Funds will be rated in one of the four
highest rating categories by an NRSRO (for example, BBB or higher by S&P, or Baa
or higher by Moody's) or, if unrated, will be deemed to be of comparable quality
by Lyon Street. Obligations rated in the fourth highest rating category are
considered to
37
40
have speculative characteristics. See Appendix A to the SAI for a description of
applicable S&P, Moody's and other NRSRO ratings.
When a Bond Fund purchases debt securities, Lyon Street will consider the NRSRO
ratings assigned to such securities. In making its investment decisions, Lyon
Street will also consider many other factors, including, without limitation,
current yield, preservation of capital, potential for realizing capital
appreciation, maturity and yield to maturity. Each Bond Fund will adjust its
investments in particular securities or in types of securities in response to
Lyon Street's appraisal of changing economic conditions and trends. A Bond Fund
may sell one security and purchase another security of comparable quality and
maturity to take advantage of what Lyon Street believes to be short-term
differentials in market values or yield disparities. Subsequent to its purchase
by a Bond Fund, a security rated in one of the top four rating categories may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase by such Fund. Lyon Street will consider such an event in
determining whether the Bond Fund should continue to hold the security.
MUNICIPAL BOND FUNDS
The Trust currently offers the four Municipal Bond Funds described below.
OBJECTIVES AND MATURITIES: The TAX-FREE INCOME FUND seeks to provide as high a
level of interest income exempt from Federal income tax as is consistent with
prudent investing, while preserving capital, and will maintain a dollar-weighted
average portfolio maturity between ten and twenty-five years. The INTERMEDIATE
TAX-FREE FUND seeks current income exempt from Federal income tax, while
preserving capital, and will maintain a dollar-weighted average portfolio
maturity between three and ten years. The MICHIGAN MUNICIPAL BOND FUND seeks
current income exempt from Federal income and State of Michigan personal income
taxes, while preserving capital, and will maintain a dollar-weighted average
portfolio maturity between three and five years. No obligation held by such Fund
will have a remaining maturity of more than ten years. The LIMITED TERM TAX-
FREE FUND seeks current income exempt from Federal income tax, while preserving
capital, and will maintain a dollar-weighted average portfolio maturity between
one and three years. No obligation held by such Fund will have a remaining
maturity of more than ten years.
PRINCIPAL INVESTMENTS: Each Municipal Bond Fund intends to invest at least 80%
of its net assets in federally tax-exempt obligations, except during periods of
unusual market conditions. This policy is a fundamental policy which cannot be
changed by a Municipal Bond Fund without the approval of its shareholders. In
calculating the 80% limitation, for all Municipal Bond Funds other than Michigan
Municipal Bond Fund, a security whose interest is treated as a specific tax
preference item under the Federal alternative minimum tax is considered taxable.
Federally tax-exempt obligations consist of municipal bonds, notes and
commercial paper issued by states, territories or possessions of the United
States, the District of Columbia and their political subdivisions, agencies and
instrumentalities, the interest on which is, in the opinion of counsel to the
issuer of such obligations, exempt from Federal income taxes. Under ordinary
circumstances, at least 65% of the Michigan Municipal Bond Fund's total assets
will be invested in municipal obligations issued by the State of Michigan or its
political subdivisions, authorities or corporations. The Michigan Municipal Bond
Fund may invest up to 100% of its total assets for temporary defensive purposes
in municipal bonds the income on which is exempt from Federal income tax but not
exempt from Michigan personal income taxes.
The Municipal Bond Funds will principally invest in municipal bonds which are
issued by state or local governments typically for general funding purposes or
to finance specific projects. General obligation securities are backed by the
full faith, credit and taxing power of the municipality. Revenue securities are
backed only by the revenues from a particular facility or facilities or other
specific revenue sources. Private activity bonds, which are revenue securities
issued by industrial development authorities, are issued to finance privately
owned facilities and are backed by private entities. The credit quality of
private activity bonds is usually related to the creditworthiness of the private
entity using the facility involved. Moral obligation securities, which are
typically issued by special purpose public authorities, are backed by a reserve
fund which the issuer may draw on if it is unable to pay its debt service
obligations, but the issuer and the state or municipality which created the
issuer have no legal obligation to restore the reserve fund.
38
41
The amount of information regarding the financial condition of issuers of
municipal obligations may be less extensive than the information for public
corporations, and the secondary market for municipal obligations may be less
liquid than that for taxable obligations. Accordingly, the ability of a
Municipal Bond Fund to buy and sell municipal obligations may, at any particular
time and with respect to any particular securities, be limited. In addition,
municipal obligations purchased by the Municipal Bond Funds include obligations
backed by letters of credit and other forms of credit enhancement issued by
domestic and foreign banks, as well as other financial institutions and
corporations. Adverse changes in the credit quality of these institutions could
cause loss to a Municipal Bond Fund and affect its share price.
Municipal obligations purchased by the Municipal Bond Funds will be rated in one
of the four highest rating categories by an NRSRO (for example, BBB or higher by
S&P, or Baa or higher by Moody's) or, if unrated, will be deemed to be of
comparable quality by Lyon Street. Obligations rated in the fourth highest
rating category are considered to have speculative characteristics. See Appendix
A to the SAI for a description of applicable S&P, Moody's and other NRSRO
ratings.
When a Municipal Bond Fund purchases municipal obligations, Lyon Street will
consider the NRSRO ratings assigned to such securities. In making its investment
decisions, Lyon Street will also consider many other factors, including, without
limitation, current yield, preservation of capital, potential for realizing
capital appreciation, maturity and yield to maturity. Each Municipal Bond Fund
will adjust its investments in particular securities or in types of securities
in response to Lyon Street's appraisal of changing economic conditions and
trends. A Municipal Bond Fund may sell one security and purchase another
security of comparable quality and maturity to take advantage of what Lyon
Street believes to be short-term differentials in market values or yield
disparities. Subsequent to its purchase by a Municipal Bond Fund, a security
rated in one of the top four rating categories may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by such
Fund. Lyon Street will consider such an event in determining whether the
Municipal Bond Fund should continue to hold the security.
MONEY MARKET FUNDS
The Trust currently offers the three Money Market Funds described below. Money
market funds typically seek to maintain a stable net asset value of $1.00 per
share, although there is no guarantee that their net asset value will not vary.
The Money Market Funds, in general, will only purchase U.S. dollar-denominated
"Eligible Securities" (as defined by the Commission), which are generally
securities that either (i) have short-term debt ratings when purchased in the
two highest rating categories by at least two NRSROs, or (ii) are unrated, but
are deemed by Lyon Street to be of comparable quality pursuant to guidelines
approved by the Board of Trustees. The dollar-weighted average maturity of each
Money Market Fund's portfolio will not exceed 90 days and with certain
exceptions, the Money Market Funds will not purchase any securities which mature
in more than 397 days from the date of purchase. All securities purchased by the
Money Market Funds will be determined by Lyon Street, under guidelines
established by the Board of Trustees, to present minimal credit risks.
MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income from short-term securities while
preserving capital and maintaining liquidity.
PRINCIPAL INVESTMENTS: The Fund invests in a broad range of government, bank and
commercial obligations. These instruments primarily include obligations of banks
having total assets in excess of $1 billion at the time of purchase and
commercial paper that matures in 13 months or less. The Fund may also invest in
short-term obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities.
GOVERNMENT MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income from short-term U.S. Government
securities while preserving capital and maintaining liquidity.
39
42
PRINCIPAL INVESTMENTS: The Fund will invest exclusively in U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, repurchase agreements with respect to such
securities and shares of registered money market investment companies that
invest in such securities.
MICHIGAN MUNICIPAL MONEY MARKET FUND
OBJECTIVE: The Fund seeks current income exempt from Federal and State of
Michigan personal income taxes from short-term securities, while preserving
capital and maintaining liquidity.
PRINCIPAL INVESTMENTS: At least 80% of the Fund's net assets will be invested in
federally tax-exempt obligations, except during periods of unusual market
conditions. This policy is a fundamental policy which cannot be changed by the
Fund without the approval of its shareholders. Federally tax-exempt obligations
consist of municipal bonds, notes and commercial paper issued by states,
territories or possessions of the United States, the District of Columbia and
their political subdivisions, agencies and instrumentalities, the interest on
which is, in the opinion of counsel to the issuer of such obligations, exempt
from Federal income taxes. Under ordinary circumstances, the Fund intends to
invest at least 65% of its total assets in municipal obligations issued by the
State of Michigan or its political subdivisions, authorities or corporations.
From time to time on a temporary defensive basis due to market conditions, the
Fund may hold uninvested cash reserves or invest in short-term taxable money
market obligations that are permissible investments for the Money Market Fund
and the Government Money Market Fund (except guaranteed investment contracts and
custodial receipts), in such proportions as, in the opinion of Lyon Street,
prevailing market or economic conditions warrant. Taxable obligations acquired
by the Fund will not exceed 20% of the Fund's net assets at the time of purchase
under normal market conditions.
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WHAT INSTRUMENTS DO THE FUNDS INVEST IN?
The Funds may also invest in the securities and use the investment techniques
described below, except that the Government Money Market Fund will purchase only
U.S. Treasury bills, notes and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, repurchase agreements with
respect to such securities and shares of registered money market investment
companies that invest in such securities. Each of these securities and
techniques is described in more detail under "Investment Policies" in the SAI.
Each Fund may purchase U.S. GOVERNMENT OBLIGATIONS, which are obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the Government National Mortgage Association, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others are
supported only by the credit of the instrumentality. No assurance can be given
that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
The Bond and Money Market Funds may also purchase "STRIPPED" U.S. TREASURY
OBLIGATIONS offered under the Separate Trading of Registered Interest and
Principal Securities ("STRIPS") program or Coupon Under Bank-Entry Safekeeping
("CUBES") program or other stripped securities issued directly by agencies or
instrumentalities of the U.S. Government. STRIPS and CUBES represent either
future interest or principal payments and are direct obligations of the U.S.
Government that clear through the Federal Reserve System. The Bond and Money
Market Funds may also purchase U.S. Treasury and agency securities that are
stripped by brokerage firms and custodian banks and sold under proprietary
names. These stripped securities are resold in custodial receipt programs with a
number of different names (such as TIGRs and CATS) and are not considered U.S.
Government securities for purposes of the Investment Company Act of 1940, as
amended (the "1940 Act"). Stripped securities are issued at a discount to their
"face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
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Each Fund may enter into REPURCHASE AGREEMENTS. Under a repurchase agreement, a
Fund agrees to purchase securities from a seller and the seller agrees to
repurchase the securities at a later time, typically within seven days, at a set
price. During the term of the agreement, the seller is required to set aside
collateral equal to the price it has to pay to repurchase the securities. This
is intended to ensure that the Fund will receive the purchase price at the time
it is due, but if the seller defaults or declares bankruptcy, the Fund will bear
the risk of possible loss due to adverse market action or delays in liquidating
the underlying obligation. The Funds will not enter into repurchase agreements
with Lyon Street or its affiliates. Repurchase Agreements are considered to be
loans under the 1940 Act.
Each Fund may also borrow money for temporary or emergency purposes by entering
into REVERSE REPURCHASE AGREEMENTS. Under these agreements, a Fund sells
portfolio securities to financial institutions and agrees to buy them back at an
agreed upon time and price. Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the price of
the securities the Fund is obligated to repurchase. Reverse Repurchase
Agreements are considered to be borrowings under the 1940 Act.
Each Fund may LEND SECURITIES to broker-dealers and other financially sound
institutional investors who will pay the Fund for the use of the securities. The
borrower must set aside cash or liquid assets equal to the value of the
securities borrowed at all times during the term of the loan. Loans will not
exceed one-third of the value of a Fund's total assets. Risks involved in such
transactions include possible delay in recovering the loaned securities and
possible loss of the securities or the collateral if the borrower becomes
insolvent or declares bankruptcy.
Each Fund may invest in MONEY MARKET INSTRUMENTS, which are high-quality,
short-term instruments including, among other things, commercial paper, bankers'
acceptances and negotiable certificates of deposit of banks or savings and loan
associations, short-term corporate obligations and short-term obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities. When
Lyon Street determines that market conditions are appropriate, each of the
Equity, Bond and Municipal Bond Funds may, for temporary defensive purposes,
invest up to 100% of its assets in money market instruments. Each of the Bond
and Municipal Bond Funds may also shorten its dollar-weighted average maturity
below its normal range if such action is deemed appropriate by Lyon Street for
temporary defensive purposes. If a Fund is investing defensively, it will not be
pursuing its investment objective.
COMMERCIAL PAPER issues include securities issued by corporations without
registration under the Securities Act of 1933, as amended (the "1933 Act"), in
reliance on the exemption in Section 3(a)(3), and commercial paper issued in
reliance on the so-called "private placement" exemption in Section 4(2)
("SECTION 4(2) PAPER"). Section 4(2) Paper is restricted as to disposition under
the Federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers which make a
market in Section 4(2) Paper, thus providing liquidity. For purposes of each
Fund's limitation on purchases of illiquid instruments, Section 4(2) Paper will
not be considered illiquid if Lyon Street has determined, in accordance with
guidelines approved by the Board of Trustees, that an adequate trading market
exists for such securities.
Each Fund may buy shares of registered MONEY MARKET INVESTMENT COMPANIES. The
Funds will bear a portion of the expenses of any investment company whose shares
they purchase, including operating costs and investment advisory, distribution
and administration fees. These expenses would be in addition to the Fund's own
expenses.
Each Fund may agree to purchase securities on a "WHEN ISSUED" basis and may
purchase or sell securities on a "FORWARD COMMITMENT" basis. These transactions
involve a commitment by a Fund to purchase or sell particular securities with
payment or delivery taking place at a future date, sometimes a month or more
after the date of the agreement. The value of the securities may change between
the time the price is set and the time the price is paid. The Funds do not
intend to purchase securities for future delivery for speculative purposes.
Each Equity, Bond and Municipal Bond Fund may buy OPTIONS giving it the right to
require a buyer to buy securities held by the Fund (put options) or buy options
giving it the right to require a seller to sell securities to the Fund (call
options) during a set time period at a set price. Each such Fund may also sell
(write) options giving a buyer the right to require the Fund to buy securities
from the buyer (put options) and options giving a buyer the right to require the
Fund to sell securities to the buyer (call options). These options will relate
to stock or bond
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indices, individual securities and, with respect to the International Growth
Fund, foreign currencies. These options will be used only for hedging purposes;
that is, to try to reduce potential losses to the Fund due to currency or market
value fluctuations or other factors. Buying and selling options is a specialized
investment technique which entails greater than ordinary investment risk. A Fund
will not purchase put or call options where the aggregate premiums on
outstanding options exceed 5% of the Fund's net assets and will not write
options on more than 25% of the value of its net assets.
The Equity, Bond and Municipal Bond Funds may also purchase FUTURES CONTRACTS,
which are contracts in which a Fund agrees, at maturity, to take or make
delivery of certain securities, other financial instruments, the cash value of a
specified index or, in the case of the International Growth Fund, a stated
quantity of foreign currency. The Equity, Bond and Municipal Bond Funds may also
purchase and sell put and call options on futures contracts traded on an
exchange or board of trade. Futures may be used for hedging purposes or to
provide liquid assets. A Fund will not enter into a futures contract unless
immediately after any such transaction the aggregate amount of margin deposits
on its existing futures positions plus premiums paid for related options is less
than 5% of the Fund's net assets.
The Municipal Bond Funds and Michigan Municipal Money Market Fund may also enter
into STAND-BY COMMITMENTS under which a dealer agrees when requested by the Fund
to purchase a municipal obligation from the Fund at a set price. Stand-by
Commitments will be used to provide portfolio liquidity and the Funds do not
intend to use them for trading purposes. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the municipal
obligation to which such commitment relates.
The Bond, Municipal Bond and Money Market Funds may purchase rated and unrated
VARIABLE AND FLOATING RATE INSTRUMENTS. These instruments may include variable
amount master demand notes that permit the amount of indebtedness to vary in
addition to providing for periodic adjustments in the interest rate. Such notes
are direct lending arrangements between the Fund and a borrower and, therefore,
the notes generally are not traded and there is no market in which to sell them
to third parties. A Fund could suffer a loss if, for example, the borrower
defaults on the note. This type of note will be subject to a Fund's limitations
on illiquid investments if the Fund cannot demand payment of the principal
amount of the note within seven days. The absence of an active secondary market
with respect to particular variable and floating rate instruments could make it
difficult for a Fund to dispose of the instruments if the issuer defaulted on
its payment obligation or during periods that the Fund is not entitled to
exercise demand rights, and a Fund could, for these or other reasons, suffer a
loss with respect to such instruments. Each Money Market Fund may purchase
variable and floating rate instruments which may have a stated maturity in
excess of 13 months but will, in any event, permit a Fund to demand payment of
the principal of the instrument at least once every 13 months upon not more than
thirty days' notice (except for certain instruments issued or guaranteed by the
U.S. Government or an agency or instrumentality thereof).
Each Bond Fund and the Money Market Fund may invest in MORTGAGE-RELATED
SECURITIES issued by the U.S. Government, its agencies or instrumentalities or
issued by private companies. Each such Fund may also purchase ASSET-BACKED
SECURITIES, which are securities backed by installment contracts, credit card
receivables or other assets. The average life of mortgage-related and
asset-backed securities varies with the maturities of the underlying
instruments, and may be less than the original maturity of the assets underlying
the securities as a result of prepayments. In periods of falling interest rates,
the rate of prepayments tends to increase. During these periods, the
reinvestment of prepayment proceeds by a Fund will generally be at lower rates
than the rates on the prepaid obligations.
The Equity Funds may purchase AMERICAN DEPOSITORY RECEIPTS, which are receipts,
usually issued by a U.S. bank or trust company, which represent ownership of
underlying foreign securities held on deposit. Many of the risks associated with
foreign securities may also apply to ADRs. The Equity Funds may also purchase
WARRANTS, which are rights to purchase securities at a specific price over a
specific period of time.
The International Growth Fund may try to offset the impact of changes in
currency exchange rates by entering into CURRENCY HEDGES such as forward
currency exchange contracts and currency swaps. A forward currency exchange
contract is an obligation of the Fund to purchase or sell a specific currency or
currencies at a future date at a set price. Such contracts may decrease the loss
to the Fund due to a drop in the value of a foreign currency, but they also
limit gains if the value of the foreign currency increases. The Fund may engage
in cross-hedging by
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using forward contracts in one foreign currency to hedge against fluctuations in
the value of securities denominated in a different currency if Lyon Street
believes there is a pattern of correlation between the two currencies. The Fund
may also enter into forward currency exchange contracts relating to a "basket"
consisting of specified amounts of more than one currency. This particular type
of contract will be used to hedge against fluctuations in more than one currency
through the purchase of a single forward currency exchange contract. It is
possible that the composition of the "basket" will not match exactly the Fund's
exposure to each of the currencies in the basket. In a currency swap, the
International Growth Fund will exchange with another party the right to make or
receive payments in certain foreign currencies.
Each Bond Fund and the Money Market Fund may acquire GUARANTEED INVESTMENT
CONTRACTS ("GICs"). Under a GIC, the Fund gives cash to an insurance company
which credits the Fund with the amount given plus interest based on a certain
index, which interest is guaranteed to be not less than a certain minimum rate.
An active secondary market for GICs does not exist. Therefore, GICs are
considered to be illiquid investments and will be purchased only if after the
purchase 10% or less of the Fund's net assets would be invested in illiquid
securities.
LOAN PARTICIPATION NOTES, which represent participation in a loan by a
commercial bank to a corporation, may be purchased by the Money Market Fund. The
notes must have a remaining maturity of one year or less and the bank issuing
the notes must have assets of at least $1 billion. The Fund bears the risks that
the corporate borrower or lending bank will become insolvent. The secondary
market for loan participations is very limited and loan participations are
considered illiquid.
The Funds also have in place certain fundamental investment limitations that
cannot be changed for a Fund without the approval of a "majority" (as defined in
the SAI) of that Fund's outstanding shares. Some of these limitations are
summarized below. A complete list of the fundamental investment limitations for
the Funds is contained in the SAI.
1. With respect to 75% of each Fund's total assets, a Fund cannot invest more
than 5% of its total assets in any one issuer (other than the U.S.
Government, its agencies and instrumentalities). In addition, a Fund cannot
invest more than 25% of its total assets in a single industry. These
restrictions require the Funds to be more diversified in order to lower the
risk to a Fund of an economic setback for any one issuer or in any one
industry.
2. Each Fund may only borrow money for temporary or emergency purposes, and
such borrowing is limited to an amount not greater than one-third of the
Fund's net assets, provided that while borrowings from banks exceed 5% of a
Fund's net assets, any such borrowings will be repaid before additional
investments are made. The limits on the amount each Fund can borrow prevent
the Funds from significantly leveraging their assets.
3. Each Money Market Fund may not invest more than 10% of its net assets in
illiquid securities, and each of the other Funds may not invest more than
15% of their respective net assets in illiquid securities. Typically, there
is no ready market for such securities, which inhibits a Fund's ability to
sell the securities.
As a matter of non-fundamental policy, in order to comply with Commission
regulations relating to money market funds, the Money Market Fund and the
Government Money Market Fund will limit their investments in securities of any
one issuer (other than U.S. Government securities and repurchase agreements
collateralized by the same) to not more than 5% of the value of their respective
total assets at the time of purchase, except for 25% of their total assets,
which may be invested in securities of a single issuer for a period of up to
three business days. The Money Market Funds are also permitted to invest in
excess of 25% of their respective total assets in obligations of U.S. banks and
domestic branches of foreign banks that are subject to the same regulations as
U.S. banks.
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WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?
GENERAL
By itself, no Fund constitutes a balanced investment program. There is no
guarantee that any Fund will achieve its investment objective since there is
uncertainty in every investment. When you sell your shares in the Funds, they
may be worth more or less than the amount you paid.
EQUITY FUNDS
Investing in the Equity Funds may be less risky than investing in individual
stocks due to the diversification of investing in a portfolio containing many
different stocks; however, such diversification does not eliminate all risks.
Because the Equity Funds invest mostly in stocks, rises and falls in the stock
market in general, as well as the particular stocks held by the Equity Funds,
can affect a Fund's performance. The net asset value of the Equity Funds will
change daily and you might not recoup the amount you invest. The Equity Funds
are not meant to provide a vehicle for playing short-term swings in the stock
market. Consistent with a long-term investment approach, investors in the Equity
Funds should be prepared and able to maintain their investments during periods
of adverse market conditions.
SMALL COMPANY GROWTH FUND
Lyon Street believes that smaller companies can provide greater growth potential
and potentially higher returns than larger, older firms. Investing in smaller
companies, however, is riskier than investing in larger companies. The stock of
smaller companies may trade infrequently and in lower volume, making it more
difficult for the Fund to sell the stocks of smaller companies when it chooses.
Smaller companies may have limited product lines, markets, financial resources
and distribution channels, which makes them more sensitive to changing economic
conditions. Stocks of smaller companies historically have had larger
fluctuations in price than stocks of larger companies included in the S&P 500.
INTERNATIONAL GROWTH FUND
Investing in the International Growth Fund, with its internationally varied
portfolio, may involve more risk than investing in a U.S. equity fund for the
following reasons: (1) there may be less public information available about
foreign companies than is available about U.S. companies; (2) foreign companies
are not generally subject to the uniform accounting, auditing and financial
reporting standards and practices applicable to U.S. companies; (3) foreign
stock markets have less volume than the U.S. market, and the securities of some
foreign companies are less liquid and more volatile than the securities of
comparable U.S. companies; (4) there may be less government regulation of stock
exchanges, brokers, listed companies and banks in foreign countries than in the
U.S.; (5) the Fund may incur fees on currency exchanges when it changes
investments from one country to another; (6) the Fund's foreign investments
could be affected by expropriation, confiscatory taxation, nationalization of
bank deposits, establishment of exchange controls, political or social
instability or diplomatic developments; (7) fluctuations in foreign exchange
rates will affect the value of the Fund's portfolio securities, the value of
dividends and interest earned, gains and losses realized on the sale of
securities, net investment income and unrealized appreciation or depreciation of
investments; and (8) possible imposition of dividend or interest withholding by
a foreign country. The Fund may at times invest more than 25% of its assets in a
particular foreign country. A concentration of investments in any one country
will cause the Fund's performance to be particularly vulnerable to the political
and economic climate of that country.
BOND AND MUNICIPAL BOND FUNDS
The value of the shares of each Bond and Municipal Bond Fund, like the value of
most securities, will rise and fall in response to changes in economic
conditions, interest rates and the market's perception of the underlying
securities held by such Funds. Investing in the Bond and Municipal Bond Funds
may be less risky than investing in individual debt instruments due to the
diversification of investing in a portfolio containing many different debt
instruments; however, such diversification does not eliminate all risks. The
Funds invest mostly in corporate or
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municipal debt instruments, which have values that typically rise when interest
rates fall and fall when interest rates rise. Bonds with shorter maturities
(time period until repayment) tend to be less affected by interest rate changes,
but generally offer lower yields than bonds with longer maturities. Current
yield levels should not be considered representative of yields for any future
time. Securities with variable interest rates and derivative securities may
exhibit greater price variations than ordinary securities.
MONEY MARKET FUNDS
Although each Money Market Fund seeks to maintain a stable net asset value per
share of $1.00, there is no assurance that they will be able to do so. The Money
Market Funds invest mostly in short-term debt instruments, which have values
that typically rise when interest rates fall and fall when interest rates rise.
The Funds buy bonds with shorter maturities, which tend to be less affected by
interest rate changes, but generally offer lower yields than bonds with longer
maturities. Current yield levels should not be considered representative of
yields for any future time.
MICHIGAN MUNICIPAL BOND FUND AND MICHIGAN MUNICIPAL MONEY MARKET FUND
The Michigan Municipal Bond Fund and Michigan Municipal Money Market Fund are
concentrated in securities issued by the State of Michigan and entities within
the State of Michigan and, therefore, an investment in these Funds may be
riskier than an investment in other types of funds. The performance of such
Funds is closely tied to conditions within the State of Michigan. The economy of
Michigan is principally dependent on three sectors -- manufacturing
(particularly durable goods, automotive products and office equipment), tourism
and agriculture. Michigan encountered financial difficulties during the 1980s,
largely as a result of cyclical conditions in the automotive industry. Michigan
recovered from the downturn in the early 1990s. Structural changes in Michigan's
economy and in the automotive industry have given the Michigan economy greater
financial stability. Michigan's economy currently is in good condition, and a
Budget Stabilization Fund that exceeded $1.1 billion at September 30, 1997
should help Michigan weather an economic downturn.
The market value and the marketability of bonds issued by local units of
government in Michigan may be affected adversely by the same factors that affect
Michigan's economy in general. The ability of Michigan and its local units of
government to pay the principal of and interest on their bonds may also be
affected by such factors and by certain constitutional, statutory and charter
limitations.
Municipal securities purchased by the Michigan Municipal Money Market Fund
include obligations backed by letters of credit and other forms of credit
enhancement issued by domestic and foreign banks, as well as other financial
institutions and corporations. Changes in the credit quality of these
institutions could cause loss to the Michigan Municipal Money Market Fund.
For additional information on the specific risks associated with the Michigan
Municipal Bond Fund and Michigan Municipal Money Market Fund, see Appendix B to
the SAI.
YEAR 2000 RISKS
Like other investment companies, financial and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by Lyon Street and the Funds' other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Problem." Lyon
Street is taking steps to address the Year 2000 Problem with respect to the
computer systems that it uses and to obtain assurance that comparable steps are
being taken by the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Funds as a result of the Year 2000 Problem.
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PERFORMANCE
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HOW IS THE FUNDS' PERFORMANCE CALCULATED?
There are various ways in which the Funds may calculate and report their
performance. Performance is calculated separately for Investment Shares and
Institutional Shares.
One method is to show a Fund's total return. CUMULATIVE TOTAL RETURN is the
percentage change in the value of an amount invested in a Fund over a stated
period of time and takes into account reinvested dividends. Although cumulative
total return most closely reflects the actual performance of a Fund, a
shareholder who opts to receive dividends in cash will have a different return
than the reported performance. AVERAGE ANNUAL TOTAL RETURN refers to the average
annual compounded rates of return over a specified period on an investment in
shares of a Fund determined by comparing the initial amount invested to the
ending redeemable value of such amount, taking into account reinvested
dividends.
Each BOND FUND and MUNICIPAL BOND FUND may also publish its CURRENT YIELD, which
is the net investment income generated by a share of the Fund during a 30-day
period divided by the maximum offering price on the 30th day.
Each MONEY MARKET FUND may advertise "yield" and "effective yield." The "yield"
advertised by the Money Market Funds refers to the income generated by a class
of shares over a specified seven-day period. This income is then annualized.
That is, the amount of income generated by the shares during that week is
assumed to be generated each week over a 52-week period and is shown as a
percentage of the investment. "Effective yield" is calculated similarly but,
when annualized, the income earned is assumed to be reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment.
In addition, each MUNICIPAL BOND FUND and the MICHIGAN MUNICIPAL MONEY MARKET
FUND may advertise "tax equivalent yield." Tax equivalent yield is, in general,
the yield divided by a factor equal to one minus a stated income tax rate and
reflects the yield a taxable investment would have to achieve in order to equal
on an after-tax basis a tax-exempt yield.
All yield figures are based on historical earnings and are not intended to
indicate future performance. You should be aware that (i) past performance does
not indicate how a Fund will perform in the future and (ii) each Fund's return
and, in the case of the Equity, Bond and Municipal Bond Funds, net asset value
will fluctuate, so you cannot necessarily use a Fund's performance data to
compare it to investments in certificates of deposit, savings accounts or other
investments that provide a fixed or guaranteed yield. Investment Shares
generally have higher fees and expenses than Institutional Shares, so the total
return and yield of Investment Shares will be generally lower than that of
Institutional Shares.
Each Fund may compare its performance to that of other mutual funds, such as the
performance of similar funds prepared by Lipper Analytical Services, Inc. or
information reported in national financial publications (such as Money Magazine,
Forbes, Barron's, The Wall Street Journal and The New York Times) or in local or
regional publications. Each Equity Fund may also compare its total return to
indices such as the S&P 500, the Russell 2000 Index and the EAFE Index. Each of
the Bond and Municipal Bond Funds may also compare its total return to indices
such as the S&P 500, Merrill Lynch Bond indices and Lehman Brothers Bond
indices. These indices show the value of selected portfolios of securities
(assuming reinvestment of dividends and interest payments) which are not managed
by a portfolio manager. The Funds may also report how they are performing in
comparison to the Consumer Price Index, an indication of inflation reported by
the U.S. Government.
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WHERE CAN I OBTAIN PERFORMANCE DATA?
The Wall Street Journal and certain local newspapers report information on the
performance of mutual funds. In addition, performance information is contained
in the Funds' annual report dated December 31 of each year (the Trust's fiscal
year end) and semi-annual report dated June 30 of each year, which will
automatically be mailed to shareholders. To obtain copies of financial reports
or performance information, call 1-800-633-KENT (5368).
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EXPENSE INFORMATION
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WHAT ARE THE FUNDS' EXPENSES?
A pro rata portion of certain expenses of the Trust are allocated to each Fund
and to each class of shares and will be reflected in the value of your shares.
Such expenses are not paid directly by shareholders.
TRUST EXPENSES. Expenses charged at the Trust level include fees paid to
Trustees, legal counsel and auditors and administration fees. BISYS is entitled
to receive, for its administration services, an annual fee equal to 0.185% of
the aggregate net assets of the Trust up to $5 billion; 0.165% of the Trust's
aggregate net assets between $5 and $7.5 billion; and 0.135% of the Trust's
aggregate net assets over $7.5 billion; provided, however, that such annual fee
shall be subject to an annual minimum of $45,000 per fund that is applicable to
certain funds of the Trust.
FUND EXPENSES. Most expenses will be charged at the Fund level, including
investment advisory fees, Securities and Exchange Commission registration fees,
transfer agency fees, custody fees, brokerage commissions, interest charges and
taxes. Old Kent, the Trust's former investment adviser, received from each Fund
during the fiscal year ended December 31, 1997, an annual advisory fee at the
following rates, calculated daily and paid monthly, based on each Fund's average
daily net assets: Growth and Income Fund, 0.70%; Index Equity Fund, 0.27%; Small
Company Growth Fund, 0.70%; International Growth Fund, 0.75%; Income Fund,
0.60%; Intermediate Bond Fund, 0.55%; Short Term Bond Fund, 0.50%; Tax-Free
Income Fund, 0.55%; Intermediate Tax-Free Fund, 0.50%; Michigan Municipal Bond
Fund, 0.45%; Limited Term Tax-Free Fund, 0.45%; Money Market Fund, 0.40%;
Government Money Market Fund, 0.20%; and Michigan Municipal Money Market Fund,
0.40%. Lyon Street, the Trust's current investment adviser, is entitled to
receive the advisory fee amounts set forth above pursuant to its contract with
the Trust, except that, with respect to the Index Equity Fund and Government
Money Market Fund, Lyon Street is entitled to receive an annual fee at the
following rates, calculated daily and paid monthly, based on each Fund's average
daily net assets: Index Equity Fund, 0.30%; and Government Money Market Fund,
0.40%. The advisory fee payable by the International Growth Fund is higher than
most mutual funds, but comparable to other global and international funds. Lyon
Street may rebate advisory fees to certain institutional customers in accordance
with Federal and state law.
CLASS EXPENSES. Expenses allocated at the class level include printing and
mailing expenses and expenses payable under the Trust's Distribution Plan. The
Distribution Plan provides that each Fund may spend, in one year, up to 0.25% of
the average daily net assets of the Fund's Investment Shares to finance sales
activities of the Investment Shares, including marketing and advertising shares,
maintaining account records, issuing confirmation statements and providing
sub-accounting. Banks, broker-dealers and other organizations may also receive
payments for providing support and/or distribution services to the Funds'
shareholders who are their customers. Federal banking law currently limits the
securities activities of banks. If a bank was not allowed to provide support
and/or distribution services, the Funds would find another organization to
provide such services and no shareholder should suffer any financial loss. The
Funds do not reimburse the Distributor for any distribution expenses in excess
of the payments received by the Distributor under the Distribution Plan or for
its overhead expenses. None of the Money Market Funds currently charges any fees
under the Distribution Plan.
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PURCHASES OF SHARES
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WHO MAY WANT TO INVEST IN THE FUNDS?
Investment Shares may be purchased by individual investors and Institutional
Shares may be purchased only by financial and other institutions for the benefit
of fiduciary, agency or custodial accounts.
The EQUITY FUNDS are designed for investors who desire potentially high capital
appreciation with moderate to low income and who can accept short-term
fluctuations in the market in exchange for potentially greater returns over the
long term. Investors who have a short time horizon for their investments may
wish to invest in other portfolios of the Trust which are designed for
short-term investors.
The BOND FUNDS are designed for investors who seek current income but desire
potentially higher returns than more conservative fixed rate investments or
money market funds. The MUNICIPAL BOND FUNDS are designed for investors who seek
tax-exempt current income but desire potentially higher returns than more
conservative fixed rate investments or money market funds. When you choose among
the Bond Funds or the Municipal Bond Funds, you should consider both the
expected yield of the Funds and potential changes in each Fund's share price.
The yield and potential price changes of such Funds' shares depend on the
quality and maturity of the obligations in their portfolios, as well as on other
market conditions.
The MONEY MARKET FUNDS, are designed for investors who primarily seek to
preserve their capital. The instruments in which the Money Market Funds invest
may not earn as high a level of current income as longer term or lower quality
securities, which generally have less liquidity, greater market risk and more
price fluctuation. Investors who desire higher returns and can risk a potential
loss of capital may wish to invest in the other portfolios of the Trust, which
have fluctuating net asset values and typically higher returns than the Money
Market Funds.
Shares of the MUNICIPAL BOND FUNDS and the MICHIGAN MUNICIPAL MONEY MARKET FUND
would not be suitable for tax-exempt institutions and may not be suitable for
certain retirement plans which are unable to benefit from such Funds' tax-exempt
dividends. In addition, the Municipal Bond Funds and the Michigan Municipal
Money Market Fund may not be appropriate investments for entities which are
substantial users of the facilities financed by industrial development bonds or
related persons thereof. Such investors may wish to consider instead an
investment in one of the other Funds.
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WHEN CAN I PURCHASE SHARES?
Shares can be purchased on any day that both the NYSE and Bankers Trust Company,
the Funds' custodian (the "Custodian"), are open for business. Currently one or
both of these institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day (observed).
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WHAT IS THE MINIMUM REQUIRED INVESTMENT?
An investor must initially invest at least $1,000 ($100 for IRAs) in Investment
Shares and at least $100,000 in Institutional Shares. Subsequent investments may
be made in any amount. The investment minimums may be waived for purchases by
employees of Lyon Street and Old Kent, participants in tax-sheltered plans and
certain qualified retirement accounts.
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HOW CAN I PURCHASE SHARES?
INVESTMENT SHARES
For your convenience, the Funds offer a wide variety of methods to purchase
Investment Shares.
- - THROUGH A BROKER. Any broker authorized by the Distributor can sell you
Investment Shares of the Funds. Please note that such brokers may charge you
fees for their services.
- - BY MAIL. You may open an account by mailing a completed application and a
check (payable to the applicable Fund) to: THE KENT FUNDS, P.O. Box 182201,
Columbus, Ohio 43218-2201.
- - BY TELEPHONE. You may call 1-800-633-KENT (5368) to open an account and
electronically transfer money to the account, followed by a completed
application.
- - BY CHECK. Subsequent purchases of Investment Shares can be made by mailing a
check to the address listed above.
- - BY FEDERAL FUNDS WIRE. Subsequent purchases of Investment Shares can be made
via a federal funds wire. You should call 1-800-633-KENT (5368) for complete
wire instructions. You should be aware that banks may charge fees for sending
wires. The Distributor has the right to charge fees for receiving wires,
although it does not currently do so.
- - THROUGH AN AUTOMATED CLEARING HOUSE. Subsequent purchases of Investment Shares
can be made via Automated Clearing House. Call 1-800-633-KENT (5368) to
request the forms necessary to establish Automated Clearing House purchases.
- - THROUGH AN AUTOMATIC INVESTMENT PLAN.
1. Call 1-800-633-KENT (5368) to establish an Automatic Investment Plan.
2. Invest at least $1,000 in an Investment Share account.
3. On the fifth day of each month, your checking account will be debited
(minimum of $50) and Investment Shares will be purchased and held in
your account.
To change the amount invested each month in Investment Shares, or to stop the
Automatic Investment Plan, call 1-800-633-KENT (5368), or write to: THE KENT
FUNDS, P.O. Box 182201, Columbus, Ohio 43218-2201 at least five days before a
scheduled investment.
- - THROUGH DIRECT DEPOSIT. You may authorize direct deposit of your payroll,
Social Security or Supplemental Security Income checks. Call 1-800-633-KENT
(5368) to receive the necessary form.
- - THROUGH A TAX-SHELTERED PLAN. Investment Shares of certain Funds may be
purchased through IRAs and Rollover IRAs, which are available through the
Trust. For details and application forms, call 1-800-633-KENT (5368) or write
to: THE KENT FUNDS, P.O. Box 182201, Columbus, Ohio 43218-2201.
INSTITUTIONAL SHARES
You can purchase Institutional Shares by taking the following steps:
1. To open an account, call 1-800-633-KENT (5368) to obtain an account or wire
identification number and to place a purchase order.
2. Wire federal funds no later than the day after the purchase order is placed.
You should note that (i) a purchase of Institutional Shares will not be
completed until the Trust receives the purchase proceeds and (ii) banks may
charge for wiring federal funds to the Trust. You may obtain information on how
to wire funds from any national bank and certain state banks.
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EXCHANGE PRIVILEGE
You may acquire Investment or Institutional Shares of a Fund (the "new fund") by
exchanging shares of another Fund (the "old fund") for shares of the new fund.
Shares of the new fund will be of the same class as the shares of the old fund.
In effect, you would be redeeming (reselling to the fund) shares of the old fund
and purchasing shares of the new fund. To determine the price at which shares
are redeemed, see "What Price Do I Receive for Shares?" and to determine the
price at which shares are purchased, see "What Price Do I Pay for Shares?" To
effect an exchange:
1. Call 1-800-633-KENT (5368) or write to: THE KENT FUNDS, P.O. Box 182201,
Columbus, Ohio 43218-2201 to place an order to exchange shares. Purchases of
shares of a new fund must meet the minimum purchase requirement of that fund.
All exchanges will be effected based on the relative net asset value next
determined after the exchange order is received.
2. If a shareholder does not have an account with the new fund, a new account
will be established with the same reinvestment options for distributions as
the account for the old fund, unless the shareholder writes to the Trust to
change the option.
IMPORTANT INFORMATION ABOUT EXCHANGES. IF SHARES OF A FUND ARE PURCHASED BY
CHECK, SUCH SHARES CANNOT BE EXCHANGED UNTIL SUCH CHECK HAS BEEN COLLECTED. THIS
COULD TAKE 10 DAYS OR MORE. THE TRUST MAY DISALLOW EXCHANGES OF SHARES IF A
SHAREHOLDER HAS MADE MORE THAN FIVE EXCHANGES BETWEEN INVESTMENT PORTFOLIOS
OFFERED BY THE TRUST IN A YEAR, OR MORE THAN THREE EXCHANGES IN A CALENDAR
QUARTER. ALTHOUGH UNLIKELY, THE TRUST MAY REJECT ANY EXCHANGES OR CHANGE OR
TERMINATE RIGHTS TO EXCHANGE SHARES. THE EXCHANGE PRIVILEGE IS AVAILABLE ONLY IN
STATES WHERE SHARES OF THE NEW FUND MAY BE SOLD.
In order to make an exchange, shareholders will be required to maintain the
applicable minimum account balance in each investment portfolio of the Trust in
which shares are owned. Institutional Shares of a Fund may be exchanged for
Investment Shares of the same Fund when the Institutional Shares are distributed
to the underlying beneficial owners of trust accounts, 401(k) plans and other
fiduciary or agency accounts.
Investors should note that each Fund has the right to stop offering its shares,
to reject purchase orders and to suspend the exchange privilege, although such
actions are unlikely. The Distributor may require additional documents prior to
accepting a purchase, redemption or exchange.
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WHAT PRICE DO I PAY FOR SHARES?
Shares are sold at the "net asset value next determined" by the Funds. This term
is explained below. You should be aware that broker-dealers (other than the
Funds' Distributor) may charge investors additional fees if shares are purchased
through them.
NET ASSET VALUE ("NAV"). Except in certain limited circumstances, at 4:00 p.m.
Eastern Time on each day the NYSE is open for trading (2:00 p.m. Eastern Time
for the Money Market Fund and Government Money Market Fund and 12:00 noon
Eastern Time for the Michigan Municipal Money Market Fund) each Fund determines
its NAV. NAV is calculated separately for the Investment Shares and
Institutional Shares of each Fund. The "net asset value next determined" is the
NAV calculated at 4:00 p.m. Eastern Time (or 2:00 p.m. or 12:00 noon Eastern
Time) on the day a purchase order for shares is received, if the purchase order
is received prior to or at 4:00 p.m. Eastern Time (or 2:00 p.m. or 12:00 noon
Eastern Time), and is the net asset value calculated at 4:00 p.m. Eastern Time
(or 2:00 p.m. or 12:00 noon Eastern Time) on the next business day, if the
purchase order is received after 4:00 p.m. Eastern Time (or 2:00 p.m. or 12:00
noon Eastern Time). NAV is calculated by totaling the value of all of the assets
of a Fund allocated to a particular class of shares, subtracting the Fund's
liabilities and expenses allocated to that class, and dividing the result by the
number of shares of that class outstanding.
EQUITY FUNDS, BOND FUNDS AND MUNICIPAL BOND FUNDS
When market quotations are readily available, the Funds' assets are valued at
market value. Debt instruments with maturities of 60 days or less are valued at
amortized cost, unless the Board of Trustees determines that this does not
result in a fair value. All other assets are valued at fair value as determined
by or under the direction of the Board of Trustees. The Funds may use pricing
services to help determine the value of securities.
MONEY MARKET FUNDS
The Money Market Funds' assets are valued on the basis of amortized cost,
meaning that instruments are valued at their acquisition cost, as adjusted for
amortization of premium or discount, rather than at current market value.
Material deviations in the difference between amortized cost and market value of
the Money Market Funds' assets will be addressed by the Board of Trustees.
REDEMPTIONS (SALES) OF SHARES
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WHEN CAN I REDEEM SHARES?
You can redeem shares on any day that both the NYSE and the Custodian are open
for business. Shares will not be redeemed by a Fund unless all required
documents have been received by the Trust. A Fund may temporarily stop redeeming
shares when the NYSE is closed or trading on the NYSE is restricted, when an
emergency exists and the Fund cannot sell its assets or accurately determine the
value of its assets or if the Securities and Exchange Commission orders the Fund
to stop redemptions. If you intend to redeem shares worth more than $1,000,000,
you should notify the Fund at least one day in advance.
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HOW CAN I REDEEM SHARES?
INVESTMENT SHARES
Investment Shares may be redeemed in several ways.
- - BY MAIL. You may mail your redemption notice to: THE KENT FUNDS, P.O. Box
182201, Columbus, Ohio 43218-2201. The redemption notice should state the
amount of money or number of shares to be redeemed, and the account name and
number. If a stock certificate has been issued to you, you must endorse (sign
the back of) the stock certificate and return it to the Trust together with
the written redemption notice.
IMPORTANT INFORMATION REGARDING STOCK CERTIFICATES AND REDEMPTION NOTICES FOR
INVESTMENT SHARES. SIGNATURES ON ALL REDEMPTION NOTICES AND STOCK CERTIFICATES
MUST BE
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GUARANTEED BY A U.S. STOCK EXCHANGE MEMBER, A U.S. COMMERCIAL BANK OR TRUST
COMPANY OR OTHER ENTITY APPROVED BY THE TRUST, UNLESS THE AMOUNT REDEEMED IS
LESS THAN $50,000 AND THE ACCOUNT ADDRESS HAS BEEN THE SAME FOR AT LEAST 90
DAYS. THE TRUST CAN CHANGE THE ABOVE REQUIREMENTS OR REQUIRE ADDITIONAL
DOCUMENTS AT ANY TIME.
- - BY TELEPHONE. You can redeem up to $50,000 worth of Investment Shares by
calling 1-800-633-KENT (5368). If the amount redeemed is less than $2,500,
then a check will be mailed to you and if equal to or greater than $2,500,
then the proceeds will be mailed or sent by wire or electronic funds transfer
to the bank listed on your account application.
- - THROUGH A BROKER. Investment Shares can be redeemed through a broker. The
broker should send the redemption notice and any other required documents to
the Trust, which will send the proceeds to the broker or directly to you, at
your option. The Trust does not charge a fee for this service, but the broker
might.
- - THROUGH AN AUTOMATIC WITHDRAWAL PLAN. Under the Plan, a shareholder with an
account worth at least $10,000 may redeem, either monthly or quarterly, fixed
dollar amounts of Investment Shares. Each payment must be at least $100 and
can be no more than 1.5% per month, or 4.5% per quarter, of the value of the
shareholder's Investment Shares when the Automatic Withdrawal Plan was opened.
The proceeds can be mailed or sent by electronic funds transfer to the bank
listed on your account application.
INSTITUTIONAL SHARES
You can redeem Institutional Shares by mail, by telephone or through a broker by
following the procedures described for Investment Shares. Redemption proceeds
will be wired in federal funds only to the commercial bank and account number
listed on your account application. To change the bank account, you should call
the Funds at 1-800-633-KENT (5368) and request the appropriate form.
GENERAL REDEMPTION INFORMATION
DURING PERIODS OF UNUSUAL MARKET ACTIVITY IT MAY BE DIFFICULT TO REACH THE TRUST
BY TELEPHONE. IN SUCH CASES, SHAREHOLDERS SHOULD FOLLOW THE PROCEDURES FOR
REDEEMING BY MAIL OR THROUGH A BROKER. NEITHER THE TRUST NOR ANY OF ITS SERVICE
PROVIDERS WILL BE LIABLE FOR FOLLOWING TELEPHONE INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNLESS IT ACTS WITH WILLFUL MISFEASANCE, BAD FAITH OR
GROSS NEGLIGENCE. IN THIS REGARD THE TRUST AND ITS TRANSFER AGENT WILL EMPLOY
PROCEDURES DESIGNED TO PROVIDE REASONABLE ASSURANCE THAT INSTRUCTIONS BY
TELEPHONE ARE GENUINE. SUCH PROCEDURES WILL INCLUDE THE REQUIREMENT THAT
PERSONAL IDENTIFICATION BE PROVIDED BEFORE ACCEPTING A TELEPHONE REDEMPTION.
EACH FUND RESERVES THE RIGHT TO REDEEM AN ACCOUNT IF ITS VALUE FALLS BELOW
$1,000 ($100 FOR IRA ACCOUNTS) FOR INVESTMENT SHARES AND $100,000 FOR
INSTITUTIONAL SHARES AS A RESULT OF REDEMPTIONS (BUT NOT AS A RESULT OF A
DECLINE IN NET ASSET VALUE). A SHAREHOLDER WILL BE NOTIFIED IN WRITING AND
ALLOWED 60 DAYS TO INCREASE THE VALUE OF THE ACCOUNT TO THE MINIMUM INVESTMENT
LEVEL.
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WHAT PRICE DO I RECEIVE FOR SHARES?
You will receive the NAV next determined for each share you wish to redeem. See
"Purchases of Shares -- What Price Do I Pay for Shares?" for an explanation of
how the NAV next determined is calculated.
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WHEN WILL I RECEIVE REDEMPTION MONEY?
Redemption proceeds are typically sent to shareholders within seven business
days after a request for redemption is made. You should be sure that you submit
all proper documents for redemption; otherwise, the payment of redemption
proceeds may be delayed. You may call 1-800-633-KENT (5368) to be sure that you
have proper documents for redemption. If you purchase shares with a check and
try to redeem shares a short time later, the Fund may delay paying redemption
proceeds until the check has been collected, although the amount to be paid for
the shares will be calculated when the redemption notice is received. The delay
could take 10 days or more.
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To avoid a delay in receiving redemption proceeds, you should purchase shares
through a bank wire or electronic funds transfer. Information on wires can be
obtained from all national and many state banks.
STRUCTURE AND MANAGEMENT OF THE FUNDS
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HOW ARE THE FUNDS STRUCTURED?
The Trust is an open-end management investment company, which is a mutual fund
that sells and redeems shares every day that it is open for business. The Trust
was organized on May 9, 1986 as a Massachusetts business trust. The Trust is
governed by a Board of Trustees. The Trustees are responsible for the overall
management of the Trust and retain and supervise the Funds' Adviser,
Administrator, Distributor, Transfer Agent and Custodian. Currently, the Trust
has fourteen portfolios, each of which offers two classes of shares.
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WHO MANAGES AND SERVICES THE FUNDS?
INVESTMENT ADVISER. The Funds are advised by Lyon Street, a wholly-owned
subsidiary of Old Kent. Effective as of March 2, 1998, Lyon Street assumed the
investment advisory responsibilities for each of the Funds from the Investment
Management Group of Old Kent ("IMG"). This change did not involve a change in
control or management of the investment adviser or a change in the Funds'
portfolio managers. Lyon Street maintains offices at 111 Lyon Street, N.W.,
Grand Rapids, Michigan 49503. Old Kent is a wholly-owned subsidiary of Old Kent
Financial Corporation, which is a financial services company with total assets
as of December 31, 1997 of approximately $13.8 billion. Old Kent currently has
the right to vote a majority of the Trust's outstanding shares on behalf of its
underlying customer accounts and therefore it is considered to be a controlling
person of the Trust.
Lyon Street employs an experienced staff of professional investment analysts,
portfolio managers and traders, and uses several proprietary computer-based
systems in conjunction with fundamental analysis to identify investment
opportunities. Lyon Street has several portfolio managers committed to the
day-to-day management of the Funds. Joseph T. Keating, President and Chief
Investment Officer at Lyon Street, is responsible for developing and
implementing the Funds' investment policies. Mr. Keating has over twenty-one
years of investment experience, including ten years with IMG. Allan J. Meyers,
CFA, Director of Active Equity Management at Lyon Street, is co-portfolio
manager for the Growth and Income Fund. Mr. Meyers has over twenty-two years of
investment experience, including thirteen years with IMG. Mr. Meyers has been
co-portfolio manager for the Growth and Income Fund since November 10, 1997.
David C. Eder, Director of Structured Equity Management at Lyon Street, is
co-portfolio manager for the Index Equity, Small Company Growth and
International Growth Funds. Mr. Eder has over five years of investment
experience with IMG and, prior to his current position, worked as an Analyst for
IMG. He has been co-portfolio manager of the Index Equity Fund and International
Growth Fund since January, 1995. He has been co-portfolio manager of the Small
Company Growth Fund since August, 1996. Robert Cummisford, CFA, is co-portfolio
manager for the Growth and Income, Index Equity, Small Company Growth and
International Growth Funds. Mr. Cummisford has over five years of investment
experience, including over one year with IMG. Prior to joining Old Kent, he was
Senior Consultant with Ibbotson Associates. Mitchell L. Stapley, CFA, Director
of Taxable Fixed Income Management at Lyon Street, is the portfolio manager of
the Income Fund and Intermediate Bond Fund, which he has managed since their
inception, and the Short Term Bond Fund, which he has managed since November
1996. He has over fourteen years of investment experience, including ten years
with IMG. Michael J. Martin, CFA, Director of Tax-Free Fixed Income Management
at Lyon Street, is co-portfolio manager for each of the Municipal Bond Funds and
is responsible for their day-to-day management. Mr. Martin has managed the
Tax-Free Income Fund and Intermediate Tax-Free Fund since November 10, 1997. He
has been co-portfolio manager for the Michigan Municipal Bond Fund and Limited
Term Tax-Free Fund since January 1995. Mr. Martin has over eight years of
experience with IMG. Sarah M. Quirk has been co-portfolio manager for each of
the Municipal Bond Funds since May 1, 1998. Prior to joining Lyon Street, she
was a Retail Trader-Fixed Income Securities at Tucker Anthony, Inc.
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Lyon Street selects broker-dealers to execute portfolio transactions for the
Funds based on best price and execution terms. Lyon Street may consider as a
factor the number of shares of the Funds sold by the broker-dealer. The
broker-dealers may be affiliated with the Trust or its service providers or
their affiliates, subject to any limitations imposed by applicable securities
laws and regulations.
ADMINISTRATOR. BISYS provides management and administrative services to the
Funds, including providing office space, equipment and clerical personnel to the
Funds and supervising custodial, auditing, valuation, bookkeeping, legal and
dividend dispersing services. BISYS Fund Services, Inc., an affiliate of BISYS,
acts as the fund accountant, transfer agent and dividend paying agent of the
Funds. BISYS and BISYS Fund Services, Inc. are each located at 3435 Stelzer
Road, Columbus, Ohio 43219.
Old Kent provides certain administrative services to the Funds pursuant to a
Sub-Administration Agreement between Old Kent and BISYS. BISYS has agreed to pay
Old Kent a fee, calculated daily and paid monthly, at an annual rate of up to
0.05% of each Fund's average daily net assets. The fees paid to Old Kent by
BISYS for such administrative services come out of BISYS' administration fee and
are not an additional charge to the Funds.
DISTRIBUTOR. BISYS is also the distributor of the Funds' shares. BISYS may, from
time to time, provide promotional incentives to certain dealers whose
representatives have sold or are expected to sell significant amounts of
Investment Shares. BISYS may provide written information to dealers with whom it
has dealer agreements that relate to sales incentive campaigns conducted by such
dealers for their representatives. In addition, BISYS may similarly provide
financial assistance in connection with pre-approved seminars, conferences and
advertising. No such programs or additional compensation will be offered to the
extent that they are prohibited by the laws of any state or any self-regulatory
agency, such as the NASD.
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WHAT ARE MY RIGHTS AS A FUND SHAREHOLDER?
As a shareholder of a Fund, you have the right to vote on certain matters
affecting the Fund, such as elections of Trustees and approval of advisory
contracts and distribution arrangements. The Trust will not have annual
shareholder meetings, but special meetings may be held at the request of
investors holding 10% of the shares for the purpose of removing a Trustee. You
are entitled to one vote for each share you hold and a fractional vote for each
fraction of a share you hold. You will be asked to vote only on matters
affecting the Trust as a whole and your particular Fund and class of shares, and
not on matters only affecting other Funds or classes of shares. You should be
aware that under Massachusetts law it is possible that a shareholder may be
personally liable for the Trust's obligations. If a shareholder were required to
pay a debt of a Fund, however, the Trust has committed to reimburse the
shareholder in full from its assets.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
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WHEN WILL I RECEIVE DISTRIBUTIONS FROM THE FUNDS?
The Funds will distribute substantially all of their net investment income and
long-term capital gains to shareholders each year. Each Fund will declare and
pay dividends monthly, with the exception of the International Growth Fund,
which pays such dividends annually, and the Money Market Funds which declare
dividends daily and pay dividends monthly. Each Fund will distribute realized
long-term capital gains, if any, at least once a year.
You should be aware that each time a distribution is made from a Fund, the
Fund's net asset value is reduced by the amount of the distribution. Therefore,
if you buy shares just before a distribution is made, you will pay full price
for the shares and then receive a portion of the price back as a taxable
distribution.
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HOW WILL DISTRIBUTIONS BE MADE?
Dividend and capital gains distributions will be paid in additional shares of
the Funds. If you wish to receive distributions in cash, notify the Fund at
1-800-633-KENT (5368) and a check will be mailed to you each time a distribution
is made. Your distributions may also be sent by electronic funds transfer
directly to your designated bank account. Shareholders in IRA accounts and
participants in certain tax-qualified plans cannot receive distributions in
cash.
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WHAT ARE THE TAX IMPLICATIONS OF MY INVESTMENTS IN THE FUNDS?
Because the Funds each intend to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), they generally
will not be required to pay Federal income taxes on their income and capital
gains. Dividends of investment company income by each Equity Fund, each Bond
Fund, the Money Market Fund and the Government Money Market Fund will be taxable
to you as ordinary income, unless you are exempt from Federal income taxes. In
general, a Fund's investment company taxable income will be its taxable income
(including interest and short-term capital gains, if any) subject to certain
adjustments and excluding the excess of any net long-term capital gain for the
taxable year over the net short-term capital loss, if any, for such year.
Capital gains distributions will be taxed to you as long-term capital gains
(regardless of how long you have held the shares). Please note that the above
tax treatment applies regardless of whether you receive your distributions in
cash or in additional shares. Federal income taxes for distributions to an IRA
or to a qualified retirement plan are deferred. Dividends will qualify for the
dividends received deduction for corporations to the extent of the total
qualifying dividends received by the distributing Fund from domestic
corporations for the year. Any distribution that is declared in October,
November or December but not actually paid until January of the following year
will be taxable in the year declared.
The Municipal Bond Funds and the Michigan Municipal Money Market Fund intend to
distribute monthly net tax-exempt income (such distributions are known as
"exempt-interest dividends") and any investment company taxable income.
Exempt-interest dividends may be treated by you as items of interest excludable
from your gross income under Section 103(a) of the Code, unless under the
circumstances applicable to you the exclusion would be disallowed. See the SAI
under "Dividends and Taxes." Shareholders receiving Social Security benefits
should note that all exempt-interest dividends will be taken into account in
determining the taxability of such benefits. To the extent, if any, dividends
paid to you are derived from taxable income or from net long-term capital gains,
such dividends will not be exempt from Federal income tax, whether they are paid
in cash or reinvested in additional shares, and may also be subject to state and
local taxes.
When you redeem, transfer or exchange shares of a Fund, you may have a taxable
gain or loss depending on whether the price you receive for the shares is higher
or lower than your tax basis in the shares. If you hold shares for six months or
less, and during that time you received a capital gain dividend, any loss you
realize on the sale of those shares will be treated as a long-term capital loss
to the extent of the earlier distribution.
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The exemption of interest on municipal bonds for Federal income tax purposes
does not necessarily result in an exemption under the income, corporate or
personal property tax laws of any state or city. Generally, you are afforded
tax-exempt treatment at the state and local levels for distributions derived
from interest on municipal securities of your state of residency. Potential
investors should consult their tax advisors with reference to their own tax
situations.
Dividends paid by the Michigan Municipal Bond Fund and the Michigan Municipal
Money Market Fund which are derived from interest attributable to tax-exempt
Michigan municipal obligations will generally be exempt from Michigan state and
local taxes, even though the dividends may not be exempt for Federal income tax
purposes. These Funds are unable to predict in advance the portion of their
dividends that will be derived from interest on Michigan municipal obligations,
but will notify shareholders each year as to the interest derived from Michigan
municipal obligations.
Distributions of taxable income and taxable capital gains by the Michigan
Municipal Bond Fund and the Michigan Municipal Money Market Fund are taxable for
Michigan taxation purposes when received by you, except that distributions which
are reinvested by you in shares of the Fund are exempt from the Michigan
intangibles tax. Except as noted above with respect to Michigan income taxation,
distributions of net income may be taxable to investors as dividend income under
other state or local laws even though a substantial portion of such
distributions may be derived from interest on tax-exempt obligations which, if
realized directly, would be exempt from such income taxes.
You will receive from each Fund in which you are a shareholder shortly after the
end of each year a statement of the amount and nature of distributions made to
you during the year. You will also receive a confirmation statement shortly
after disposing of shares showing the amount and value of the disposition.
Dividends and certain interest income from foreign securities earned by the
Growth and Income Fund and International Growth Fund may be subject to foreign
withholding or other taxes. In certain circumstances, the International Growth
Fund may choose to treat certain foreign taxes paid by it as paid by its
shareholders, in which case you may either credit such taxes against your income
tax liabilities or deduct such taxes from your taxable income (if you itemize
your deductions).
You should note that in certain cases (i) the Funds will be required to withhold
31% of dividends or sale proceeds otherwise due to you and (ii) in addition to
Federal taxes, state and local taxes may apply to transactions in shares.
THIS SECTION CONTAINS A BRIEF SUMMARY OF THE TAX IMPLICATIONS OF OWNERSHIP OF
THE FUNDS' SHARES. A LENGTHIER DESCRIPTION OF TAXES IS CONTAINED IN THE SAI. YOU
SHOULD CONSULT YOUR TAX ADVISER REGARDING THE IMPACT OF OWNING THE FUNDS' SHARES
ON YOUR OWN PERSONAL TAX SITUATION, INCLUDING THE APPLICABILITY OF ANY STATE AND
LOCAL TAXES.
ADDITIONAL INFORMATION
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WHERE DO I GET ADDITIONAL INFORMATION ABOUT
MY ACCOUNT AND THE FUNDS?
For more information, call 1-800-633-KENT (5368) or write to the Funds at: THE
KENT FUNDS, P.O. Box 182201, Columbus, Ohio 43218-2201.
EXCEPT AS OTHERWISE STATED IN THIS PROSPECTUS OR REQUIRED BY LAW, THE TRUST
RESERVES THE RIGHT TO CHANGE THE TERMS OF ANY OFFER STATED IN THIS PROSPECTUS
WITHOUT SHAREHOLDER APPROVAL, INCLUDING THE RIGHT TO CHARGE CERTAIN FEES FOR
SERVICES PROVIDED. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, OR IN THE SAI, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS OR THEIR DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUNDS OR BY THEIR DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
56
59
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[LOGO]
KENT FUNDS
INVESTMENT ADVISER
LYON STREET ASSET MANAGEMENT COMPANY
111 LYON STREET, N.W.
GRAND RAPIDS, MICHIGAN 49503
Not FDIC Insured No Bank Guarantee May Lose Value
DISTRIBUTOR
BISYS FUND SERVICES
3435 STELXER ROAD
COLUMBUS, OH 43219-3035
KKF-0390 5/98
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60
THE KENT FUNDS
Supplement dated September 24, 1998
to the Prospectus dated May 1, 1998
On September 21, 1998, during a Special Meeting of Shareholders (the "Meeting"),
the shareholders of the Kent Funds approved the redesignation of each Fund's
investment objective from a fundamental policy to a non-fundamental policy.
Accordingly, the following paragraph replaces the first paragraph on page 36
within the section entitled "FUND CHOICES - Which Funds are Offered?":
The Trust currently offers fourteen Funds, each of which is described
below. Each Fund's investment objective is considered "non-fundamental"
and may be changed by a Fund without the approval of its shareholders.
Unless expressly identified as "fundamental," the other investment
policies described below, including the dollar-weighted average
portfolio maturity range of each Bond and Municipal Bond Fund, are also
considered "non-fundamental" and may be changed by the Trust's Board of
Trustees without shareholder approval.
The shareholders also approved during the Meeting the redesignation of certain
investment restrictions applicable to the Funds from fundamental to
non-fundamental. Accordingly, the following paragraph replaces the third full
paragraph on page 43 within the section entitled "FUND CHOICES - What
Investments do the Funds Invest In?":
The Funds also have in place various investment restrictions. Certain
of these investment restrictions have been designated as "fundamental,"
which means that they cannot be changed for a Fund without the approval
of a "majority" (as defined in the SAI) of that Fund's outstanding
shares. Other investment restrictions have been designated as
"non-fundamental" and may be changed by the Trust's Board of Trustees
without shareholder approval. Some of these fundamental and
non-fundamental restrictions are set forth below. The first two
restrictions are fundamental. The third restriction is non-fundamental.
A complete list of investment restrictions for the Funds is contained
in the SAI.
61
The section entitled "STRUCTURE AND MANAGEMENT OF THE FUNDS - Who Manages and
Services the Funds?" is being revised as a result of an addition to the
portfolio management staff at Lyon Street Asset Management Company. The second
paragraph under the heading "INVESTMENT ADVISER" on page 53 shall be amended by
adding the following at the end of the paragraph:
Brian J. Smolinski has been co-portfolio manager for the Index Equity,
Small Company Growth and International Growth Funds since June, 1998.
Mr. Smolinski is also responsible for developing and maintaining
proprietary software that is used in researching structured equity
investments. Prior to joining IMG, Mr. Smolinski worked as an
Applications Business Analyst at Old Kent for nine years.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT
WITH THE PROSPECTUS FOR FUTURE REFERENCE
-2-
62
THE KENT FUNDS
Supplement dated January 5, 1999
to the Prospectus dated May 1, 1998
(as supplemented on September 24, 1998)
Proposed Plan of Reorganization
The Board of Trustees has approved a Plan of Reorganization whereby the assets
and liabilities of the Limited Term Tax-Free Fund would be transferred to the
Intermediate Tax-Free Fund. Proxy materials will be mailed to shareholders of
the Limited Term Tax-Free Fund seeking approval of the proposed reorganization.
If the reorganization is approved by the shareholders of the Limited Term
Tax-Free Fund, shareholders of the Limited Term Tax-Free Fund will become
shareholders of the Intermediate Tax-Free Fund upon consummation of the
reorganization.
Modification of Investment Policy - Government Money Market Fund
The following paragraph replaces the paragraph entitled "PRINCIPAL INVESTMENTS"
within the section entitled "What Funds are Offered? - Government Money Market
Fund":
PRINCIPAL INVESTMENTS: The Fund will invest exclusively in U.S.
Treasury bills, notes and other obligations issued by the U.S.
Government, its agencies or instrumentalities, repurchase agreements
with respect to such securities and shares of registered money market
investment companies that invest exclusively in such securities.
The following paragraph replaces the first paragraph under the section entitled
"What Instruments Do the Funds Invest In?":
The Funds may also invest in the securities and use the investment
techniques described below, except that the Government Money Market
Fund will purchase only U.S. Treasury bills, notes and other
obligations issued by the U.S. Government, its agencies or
instrumentalities, repurchase agreements with respect to such
securities and shares of registered money market investment companies
that invest exclusively in such securities. Each of these securities
and techniques is described in more detail under "Investment Policies"
in the SAI.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT
WITH THE PROSPECTUS FOR FUTURE REFERENCE