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KENWOOD LOGO
KENWOOD GROWTH & INCOME FUND
10 SOUTH LASALLE STREET
SUITE 3610
CHICAGO, ILLINOIS 60603
1-888-KENFUND
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PROSPECTUS
MAY 1, 1996
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The Kenwood Growth & Income Fund (the "Fund") is the only series of The
Kenwood Funds, which is organized as a Delaware business trust (the "Trust").
The Fund's objective is capital appreciation and current income. It invests
primarily in equity securities.
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This Prospectus sets forth concisely information about the Fund that you
should know before investing. Please retain it for future reference. A Statement
of Additional Information dated May 1, 1996, has been filed with the Securities
and Exchange Commission and is incorporated into this Prospectus by reference.
You may obtain a copy of the Statement of Additional Information free of charge
by writing or calling the Fund at the address or phone number on the cover of
this Prospectus.
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SHARES IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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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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TABLE OF CONTENTS
<TABLE>
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SUMMARY................................................................................ 2
FUND EXPENSES.......................................................................... 3
INVESTMENT OBJECTIVE AND POLICIES...................................................... 4
THE ADVISER............................................................................ 6
MAJOR SHAREHOLDERS..................................................................... 8
SERVICES ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT.................. 8
DISTRIBUTION OF SHARES................................................................. 8
BUYING SHARES.......................................................................... 9
TELEPHONE TRANSACTIONS................................................................. 10
EXCHANGING SHARES...................................................................... 10
REDEEMING SHARES....................................................................... 11
NET ASSET VALUE........................................................................ 12
DIVIDENDS AND DISTRIBUTIONS............................................................ 13
TAXES.................................................................................. 13
RETIREMENT PLANS....................................................................... 14
FUND PERFORMANCE....................................................................... 14
ORGANIZATION OF THE FUND............................................................... 14
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SUMMARY
THE FUND. The Fund is the only series of The Kenwood Funds, an open-end
management investment company (a mutual fund) organized in 1996 as a Delaware
business trust.
INVESTMENT OBJECTIVE. The Fund's objective is capital appreciation and
current income. The Fund invests primarily in equity securities. See "Investment
Objective and Policies."
PURCHASES AND REDEMPTIONS. Shares of the Fund are sold and redeemed at net
asset value. No sales load or redemption fee is charged by the Fund. The
Transfer Agent charges a nominal transaction fee for telephone exchanges and
wire redemptions (See "Exchanging Shares" and "Redeeming Shares"). The minimum
initial investment is $2,000 and subsequent investments are $100 or more. These
minimum investment amounts may be waived or reduced for participants in certain
retirement plans. See "Buying Shares" for more information on how to invest.
Shares are redeemable by mail or by wire to a predesignated bank account. See
"Selling Shares" for details.
THE ADVISER. The Kenwood Group, Inc. serves as the Fund's investment
adviser (the "Adviser"), and receives fees for managing the Fund's investments
and performing certain administrative and management services for the Fund. See
"The Adviser."
THE DISTRIBUTOR. AmeriPrime Financial Securities, Inc. serves as the Fund's
principal underwriter and distributes the Fund's shares (the "Distributor"). The
Fund pays the Distributor Rule 12b-1 distribution fees. See "Distribution of
Shares."
INVESTMENT FACTORS TO CONSIDER. As with any mutual fund investment,
purchasing shares of the Fund involves risks. The securities in which the Fund
invests are subject to the risk of price fluctuations reflecting both market
evaluations of the businesses involved and general changes in the securities
markets. There is no assurance that the investment objective will be achieved.
The Fund's return and net asset value will fluctuate.
SHAREHOLDER INQUIRIES. Call toll-free, 1-888-KENFUND (888-536-3863) from
8:00 a.m. - 7:00 p.m. Central Time for prompt service on any questions about
your account. During unusual market conditions, the Fund may experience
difficulty in accepting telephone inquiries. In such circumstances, you should
contact the Fund directly at (312) 368-1666 weekdays from 9:00 a.m. - 5:00 p.m.
Central Time or by mail at 10 South LaSalle Street, Suite 3610, Chicago, IL
60603.
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FUND EXPENSES
The following tables are intended to help you understand the various
expenses that you as an investor will bear.
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Shareholder Transaction Expenses:
Maximum Sales Load Imposed on Purchases...................................... None
Redemption Fee............................................................... None*
Sales Load on Reinvested Dividends........................................... None
Exchange Fee................................................................. None**
Deferred Sales Load.......................................................... None
</TABLE>
*For each wire redemption, the transfer agent will charge a fee which, as of
the date of this prospectus, is $10.00.
**For each telephone exchange, the transfer agent will charge a fee which, as of
the date of this prospectus, is $5.00.
Annual Fund Operating Expenses After Fee Waivers and Expense Reimbursements
(as a percentage of average net assets):
<TABLE>
<S> <C>
Management Fees, after fee waiver(1)................................... 0.00%
12b-1 Fees(2).......................................................... 0.25%
Other Expenses(1)(3)................................................... 0.67%
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Total Operating Expenses(1)....................................... 0.92%
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</TABLE>
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(1) The Adviser has agreed to waive the management fee and to reimburse certain
other expenses for the Fund's first fiscal year. Without the fee waiver, the
Management Fees would be 0.75%. Without the expense reimbursement, the Other
Expenses would be 2.42% and the Total Operating Expenses would be 3.42%.
(2) The effect of a Rule 12b-1 plan is that long-term shareholders may pay more
than the economic equivalent of the maximum front-end sales charge permitted
under applicable rules of the National Association of Securities Dealers,
Inc.
(3) This information is based on estimated amounts for the Fund's current fiscal
year.
EXAMPLE:
We can illustrate these expenses with the examples below. You would pay the
following expenses on a $1,000 investment (assuming a 5% annual return and
redemption at the end of each period):
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One Year.................................................................... $ 9.00
Three Years................................................................. $29.00*
</TABLE>
* Note: The Adviser has agreed to waive the management fee for the Fund's first
fiscal year. Expenses are likely to be higher in future years when the Adviser
charges its management fee and no longer reimburses certain expenses.
THE 5% ANNUAL RETURN USED IN THE EXAMPLE ABOVE IS ONLY FOR ILLUSTRATION AND IS
NOT INTENDED TO BE INDICATIVE OF THE FUTURE PERFORMANCE OF THE FUND, WHICH MAY
BE MORE OR LESS THAN THE ASSUMED RATE. FUTURE EXPENSES MAY BE MORE OR LESS THAN
THOSE SHOWN.
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INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. The Fund's investment objective is capital
appreciation and current income. The Fund invests primarily in U.S. domestic
equity securities and, under normal market conditions, at least 85% of its total
assets will be invested in equity securities. Equity securities include common
stock, preferred stock, and securities convertible into common stock. Common
stock in which the Fund may invest may be either growth or income oriented. The
Fund normally may invest up to 15% of its total assets in other securities,
including debt securities. See "Debt Securities."
The Fund will invest primarily in mid-cap stocks. Mid-cap stocks are
defined by the Adviser as securities of companies having a market capitalization
between $200 million and $6.5 billion. In the Adviser's judgment, this market
niche tends to be more liquid than the small-cap market, and thus may represent
lower risks, while offering comparable returns to the small-cap market. In
addition, the mid-cap market may provide potentially greater returns than the
large-cap market without significantly greater risks.
The Adviser attempts to select equity securities that will provide a
combination of capital appreciation and income which will result in a high
overall total return while attempting to assume relatively low risks. "Low
risks" means that in the Adviser's judgment the risks of investing in the
securities in the Fund's portfolio present no additional risks than those
inherent in the market. The Adviser makes ongoing portfolio selections, in light
of current and reasonably anticipated future financial conditions. As these
conditions change, the Adviser adjusts the portfolio in order to maintain a
reasonable balance over time between risk and potential return.
The Adviser takes a long-term position in the market and seeks to identify
securities of companies that are temporarily undervalued but which have
potential for growth and which may provide a good stream of dividend income. The
Adviser evaluates the long-term potential of the stocks it purchases through
examination of each company's strategic plans, corporate history and industry
dynamics.
Rigorous fundamental analysis is central to the Adviser's investment
strategy. An in-depth knowledge of the fundamentals of each company under
consideration is developed before it is added to the Fund's portfolio. A key
element of the selection process is a close examination of each company's
management decisions and future strategies. Performance is closely evaluated for
consistency with stated goals and strategies.
DEBT SECURITIES. The Fund may invest in fixed income securities for income
or as a defensive strategy when the Adviser believes adverse economic or market
conditions exist. When appropriate, the Fund's assets may be invested without
limitation in cash, short-term obligations issued or guaranteed by the U.S.
Government, its agencies and/or instrumentalities ("U.S. Government Securities")
or high quality money market instruments such as notes, certificates of deposit
or bankers' acceptances. However, the Adviser does not intend to invest more
than 15% of the Fund's assets in securities other than equities under normal
market conditions.
The value of fixed income securities is sensitive to interest rate changes
as well as the financial strength of the issuer. When interest rates go down,
debt securities in the portfolio tend to appreciate in value. Conversely, when
interest rates go up, such securities tend to depreciate in value. Generally,
the debt securities in which the Fund may invest are investment-grade
securities. These are securities rated in the four highest grades assigned by
Moody's Investors Service, Inc. or Standard and Poor's Corporation or that are
unrated but deemed to be of comparable quality by the Adviser. The lowest of
these grades has speculative characteristics; changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments. The Fund will not invest in debt securities
(including convertible securities)
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rated below investment grade (so called "junk bonds"). In the event of a
downgrade of a debt security held by the Fund to below investment grade, the
Fund is not required to sell the issue, but the Adviser will consider the
downgrade in determining whether to hold the security. However, if such a
downgrade would cause more than 5% of net assets to be invested in debt
securities below investment grade, portfolio sales will be made as soon as
practicable to reduce the proportion of debt below investment grade to 5% of net
assets or less.
LENDING PORTFOLIO SECURITIES. For income purposes, the Fund may lend its
portfolio securities. However, the Fund does not currently intend to lend
portfolio securities if it would cause more than 5% of its net assets to be
subject to such loans.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements, but
normally will not enter into repurchase agreements maturing in more than seven
days. A repurchase agreement involves a sale of securities (usually U.S.
Government Securities) to the Fund with the concurrent agreement of the seller
(a member bank of the Federal Reserve System or securities dealer which the
Adviser determines to be financially sound at the time of the transaction) to
repurchase the securities at the same price plus an amount equal to accrued
interest at an agreed-upon interest rate, within a specified time, usually less
than one week, but occasionally, at a later time. The repurchase obligation of
the seller is, in effect, secured by the underlying securities. In the event of
a bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience delays in liquidating the underlying securities and losses,
including possible declines in the value of the collateral during the period in
which the Fund seeks to enforce its rights, and the possible loss of all or a
part of the income during such period and expenses of enforcing its rights.
BORROWING. The Fund may not borrow money except for temporary or emergency
purposes, and then only from banks in an amount not exceeding 33 1/3% of the
value of the Fund's total assets (including the amount borrowed). The Fund will
not purchase securities when its borrowings, less amounts receivable on sales of
portfolio securities, exceed 5% of the value of the Fund's total assets.
PORTFOLIO TRANSACTIONS. In seeking the Fund's objective, the Fund may trade
to some degree in securities for the short term if the Adviser believes that the
growth potential of a security no longer exists, considers that other securities
have more growth potential, or otherwise believes that such trading is
advisable. The Fund's portfolio turnover rate will vary but the Adviser does not
expect it to exceed 100%. The higher the turnover rate, the more brokerage
commissions the Fund will pay. In placing portfolio transactions, the Fund may
take into account the sale of shares by the broker and research services
provided to the Adviser.
RESTRICTED AND ILLIQUID SECURITIES. The Fund will not purchase or hold
illiquid securities if more than 15% of the Fund's net assets would then be
illiquid. If at any time more than 15% of the Fund's net assets are illiquid,
sales will be made as soon as practicable to reduce the percentage of illiquid
assets to 15% or less. The Fund may purchase restricted securities which are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act of
1933 ("Rule 144A Securities"). This Rule permits certain qualified institutional
buyers, such as the Fund, to trade in privately placed securities. Investing in
Rule 144A Securities could have the effect of increasing the amount of
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. However, the Fund will not purchase
illiquid Rule 144A Securities. In addition, the Fund will not purchase liquid
Rule 144A Securities if such purchase would cause more than 5% of the Fund's
assets to be invested in such securities.
DIVERSIFICATION AND INDUSTRY CONCENTRATION. As to 75% of its total assets,
the Fund will not (i) make any investment that would cause more than 5% of its
total assets to be invested in any one issuer; and (ii) purchase the securities
of any company if after such purchase the Fund would then own more than 10% of
such company's voting securities. The remaining 25% of the Fund's total assets
are not so limited which would
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allow the Adviser to invest up to 25% of the Fund's total assets in a single
issuer. In the event that the Adviser chooses to make such an investment, it may
expose the Fund to greater risk. However, as a matter of operating policy, the
Adviser does not intend to make an investment that would cause more than 15% of
the Fund's total assets to be invested in any one issuer. In addition, the Fund
will not make any investment which would cause 25% or more of its total assets
to be invested in any one industry. U.S. Government Securities are not subject
to these limitations.
FUNDAMENTAL AND NON-FUNDAMENTAL POLICIES. The investment restrictions set
forth in the Statement of Additional Information as fundamental are fundamental
policies which cannot be changed without a vote of the shareholders. The
investment objective and all other investment policies of the Fund are not
fundamental and may be changed without shareholder approval. In the event the
Fund's investment objective should ever be changed, such change may result in an
objective different from the objective the shareholder considered appropriate at
the time of investment in the Fund. Except for the limitations on borrowing and
investments in illiquid securities, any percentage restrictions set forth in the
Prospectus or in the Statement of Additional Information apply as of the time of
investment without regard to later increases or decreases in the value of
securities or total or net assets.
THE ADVISER
The Kenwood Group, Inc., an Illinois corporation with offices at 10 South
LaSalle Street, Suite 3610, Chicago, Illinois 60603, serves as the Fund's
investment adviser. The Adviser does not advise other mutual funds, but has
since 1990, acted as investment adviser to institutional investors. As of
December 31, 1995, the Adviser had $200 million in assets under management.
Barbara L. Bowles is the controlling shareholder of the Adviser. The Adviser has
not previously acted as an investment adviser to a mutual fund.
The Adviser manages the investment and reinvestment of the assets of the
Fund. The Adviser furnishes continuous advice concerning the Fund's investments.
In addition, the Adviser provides office space for the Fund and pays the
salaries, fees and expenses for all Fund officers and directors who are
employees of the Adviser.
For such services, the Fund pays the Adviser advisory fees monthly based
upon the Fund's average daily net assets at the following annual rate: 0.75% on
the first $500 million of average net assets, 0.70% on the next $500 million of
average daily net assets, and 0.65% on average daily net assets over $1 billion.
The fees paid to the Adviser are higher than the fees paid by many investment
companies but are not necessarily higher than that paid by funds with a similar
objective. The Adviser has agreed to waive the management fee and to reimburse
certain other expenses for the Fund's first fiscal year.
Barbara L. Bowles is the Fund's principal portfolio manager and has served
in such capacity since the Fund's inception. She has served as President and
Chief Investment Officer for The Kenwood Group since its inception. She is also
the President of the Fund.
HISTORICAL INVESTMENT RESULTS OF THE INVESTMENT ADVISER
Set forth below is certain performance data provided by the Adviser
relating to annual average investment results of a composite of all client
accounts whose portfolios were managed by the Adviser continuously over a period
of five years. These advisory accounts ("Advisory Accounts") had the same
investment objective as the Fund and were managed using substantially similar,
though not necessarily identical, investment strategies and techniques as those
contemplated by the Fund. Because of the similarities in investment strategies
and
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techniques, the Adviser believes that the Advisory Accounts are sufficiently
comparable to the Fund to make the performance data listed below relevant to
investors in the Fund. The results presented may not necessarily equate with the
returns experienced by the Fund, due to differences in brokerage commissions,
management fees, the size of positions taken in relation to account size and
diversification of securities, as well as other costs, such as registration fees
borne by the Fund but not incurred by the Advisory Accounts. Different methods
of determining the performance from those described in the footnote to the chart
below may result in different performance figures. An investor should not rely
on the following performance figures as an indication of the future performance
of either the Adviser's separate Advisory Accounts or the Fund.
THE KENWOOD GROUP COMPOSITE
HISTORICAL PERFORMANCE
<TABLE>
<CAPTION>
BEFORE AFTER
PERIOD (YEAR ENDED) ADVISORY FEES ADVISORY FEES
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1990................................................... (7.33) (8.08)
1991................................................... 19.26 18.51
1992................................................... 18.49 17.74
1993................................................... 6.60 5.85
1994................................................... 7.40 6.65
1995................................................... 30.92 30.17
</TABLE>
ANNUALIZED PERFORMANCE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
BEFORE AFTER
ADVISORY FEES ADVISORY FEES
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1 YEAR....................................................... 30.92% 30.17%
3 YEARS...................................................... 14.44% 13.69%
5 YEARS...................................................... 16.20% 15.45%
Since inception (6 years).................................... 11.90% 11.15%
</TABLE>
Notes: Performance figures are asset-weighted, average annual investment results
expressed as a percentage return. "After Advisory Fees" performance includes
reinvested dividends, capital gains and losses, and deducts advisory fees of
0.75%, which is the rate the Fund will pay to the Adviser. Numbers in
parentheses denote a loss. These numbers were prepared in accordance with the
Performance Presentation Standards developed by the Association for Investment
Management and Research ("AIMR"). Past performance is not necessarily indicative
of future results nor can it be assumed that any recommendations will be
profitable.
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MAJOR SHAREHOLDERS
The following table sets forth as of April 12, 1996, the name and holdings
of each person known by the Fund to be a record holder of more than 5% of its
outstanding shares. As of such date there were 10,001 shares outstanding.
<TABLE>
<CAPTION>
% OF
NUMBER OF OUTSTANDING
NAME AND ADDRESS SHARES OWNED SHARES
------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Barbara L. Bowles............................................ 10,001 100%
The Kenwood Group
10 South LaSalle Street
Chicago, IL 60603
</TABLE>
SERVICES ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTANT
Firstar Trust Company ("Firstar") 615 East Michigan Street, Milwaukee, WI
53202, serves as the Fund's Administrator and, pursuant to an Administration
Services Agreement, receives fees monthly for its services as described below,
based upon the Fund's average daily net assets at the following annual rate:
0.05% on the first $100 million of average net assets, 0.04% on the next $400
million of average daily net assets, and 0.03% on average daily net assets over
$500 million. The Administration Agreement provides for payment to the
Administrator of a minimum annual fee of $20,000. Firstar generally provides for
the administration of the Fund, including the coordination and monitoring of any
third parties furnishing services to the Fund, the preparation and maintenance
of financial and accounting records and the provision of the necessary office
space, equipment and personnel to perform administrative and clerical functions.
Firstar also serves as the Fund's Custodian, Transfer Agent and Fund
Accountant. In its capacity as Transfer Agent, Firstar maintains the records of
each shareholder's account, processes purchases and redemptions of the Fund's
shares, acts as dividend and distribution disbursing agent and performs other
shareholder servicing functions.
DISTRIBUTION OF SHARES
AmeriPrime Financial Securities, Inc. (the "Distributor"), 1793 Kingswood
Drive, Suite 200, Southlake, Texas 76092, serves as the principal underwriter to
distribute the Fund's shares. Pursuant to an Underwriting Agreement with the
Fund, the Distributor will be paid a fee monthly equal to an annual rate of
0.05% of the Fund's average daily net assets, with a minimum annual fee of
$18,000. Pursuant to the Distribution Plan adopted by the Fund pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "Plan"), the Fund is
authorized to expend up to 0.25% annually of the Fund's average daily net assets
to cover expenses incurred in connection with the distribution of the Fund's
shares, including the Distributor's fee. Rule 12b-1 regulates the manner in
which a mutual fund may assume the costs of distributing and promoting the sale
of its shares. Under the Plan, the Distributor is appointed the Fund's agent to
distribute shares and provides office space and equipment, personnel, literature
distribution and advertising to promote the sale of the Fund's shares. Payments
under the Plan are made to compensate the Distributor for its services, to
reimburse the Distributor for its expenses and for the fees it pays to dealers
and other firms for selling Fund shares, servicing shareholders and maintaining
shareholder accounts. The 12b-1 fee may also be used to defray the costs of
advertising, sales literature and sales meetings. In addition, the Plan also
provides that the Adviser, in its sole
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discretion, may utilize its own resources, including profits from its advisory
fees, for distributing and promoting sales of Fund shares.
Shares of the Fund may also be sold through banks or bank-affiliated
brokers. Any determination that such banks or bank-affiliated brokers are
prohibited from selling shares of the Fund under the Glass-Steagall Act would
have no material adverse effects on the Fund. State securities laws may require
such firms to be licensed as securities dealers in order to sell shares of the
Fund.
BUYING SHARES
GENERAL. You can purchase shares of the Fund from any dealer or other
person having a sales agreement with the Distributor or you can purchase shares
directly from the Fund. No matter how you purchase your shares, you pay no sales
load. You buy shares at the net asset value computed after your purchase order
is received and accepted as described below. Shares purchased through a
Qualified Dealer may be subject to administrative charges or transaction fees
imposed by the Dealer.
The minimum initial investment is $2,000 and subsequent investments are
$100 or more. The minimum initial investment for retirement plans not funded by
a payroll deduction is $250. The Fund reserves the right to waive the minimum
investment requirement for retirement plans funded by payroll deduction plans.
There are three ways to make an initial investment in the Fund. One way is
to fill out the Application Form included in this Prospectus and mail it to
Firstar at the address on the Form. You must enclose a check payable as
indicated on the Form.
Another way to make an initial investment is to have your dealer order and
pay for the shares. In this case, you must pay your dealer. The dealer can order
the shares from the Adviser by telephone or wire. Your dealer may charge you a
fee for this service.
The third way to purchase shares is by wire. Shares may be purchased at any
time by wiring federal funds directly to Firstar Trust Company. Prior to an
initial investment by wire, the shareholder should telephone Firstar to advise
them of the investment and to obtain an account number and instructions. A
completed Application Form should be mailed to Firstar after the initial wire
purchase. To assure proper credit, the wire instructions should be made as
follows:
Firstar Bank
Milwaukee, WI 53201
Federal Routing Number 075000022
Firstar Trust MFS A/C Number 112-952-137
THE KENWOOD FUNDS
KENWOOD GROWTH & INCOME FUND
Shareholder Name,
Shareholder Account Number
After your initial investment, you can make additional investments of at
least $100. Simply mail a check payable to "Firstar Trust Company," c/o The
Kenwood Funds, P.O. Box 701, Milwaukee, WI 53201. You can also send a check via
overnight courier to Firstar Trust Company, 615 E. Michigan Street, Milwaukee,
WI 53202. The check should be accompanied by a form which Firstar will provide
after each purchase. If you do not have a form, you should tell Firstar that you
want to invest the check in shares of the Fund. If you know your account number,
you should also give it to Firstar.
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The Fund does not issue certificates for shares in the Fund. Instead,
shares purchased are automatically credited to an account maintained for you on
the books of the Fund by Firstar. You receive a statement showing the details of
the transaction and any other transactions you had during the current year each
time you add to or withdraw from your account.
TELEPHONE TRANSACTIONS
If you have telephone transaction privileges, you may redeem or exchange
shares by telephone. You automatically have telephone privileges unless you
elect otherwise. By exercising the telephone privilege to sell or exchange
shares, you agree that the Fund shall not be liable for following telephone
instructions reasonably believed to be genuine. Reasonable procedures will be
employed to confirm that such instructions are genuine and, if not employed, the
Fund may be liable for unauthorized instructions. Such procedures may include a
request for personal identification (account or social security number) and tape
recording of the instructions. Please note that exchanges by phone may be made
by any person, not just the shareholder of record. You should verify the
accuracy of telephone transactions immediately upon receipt of your confirmation
statement. The Fund reserves the right to terminate, suspend or modify telephone
transaction privileges. During unusual conditions, the Fund may have difficulty
accepting telephone transactions, in which case you should mail your
instructions to the Fund c/o Firstar Trust Company at 615 E. Michigan Street,
Milwaukee, WI 53202.
EXCHANGING SHARES
As a service to our shareholders, The Kenwood Funds have established a
program whereby our shareholders can exchange their shares for shares of the
Portico Money Market Funds. These funds are no-load money market funds managed
by Firstar which offer check-writing privileges. The Portico Funds are unrelated
to The Kenwood Funds.
You may exchange your shares in the Fund for shares of the Portico Money
Market Funds at no additional charge. The Portico Funds consist of the Money
Market Fund (which is a general money market fund), U.S. Treasury Money Market
Fund, U.S. Government Money Market Fund, and Tax-Exempt Money Market Fund. This
exchange privilege is a convenient way to buy shares in a money market fund in
order to respond to changes in your goals or in market conditions. Before
exchanging into any of the Portico Funds, read the applicable prospectus. To
obtain a prospectus for the Portico Funds, call toll-free 1-888-KENFUND
(888-536-3863). There is no charge for exchange transactions which are requested
by mail. Firstar will charge a fee for each exchange transaction that is
executed over the phone. This fee is currently $5.00. See "Other Information
About Exchanging Shares" below for information on the limits imposed on
exchanges.
BY MAIL. To exchange your shares of the Fund into any of the Portico Funds,
complete and sign an application and mail it to:
Firstar Trust Company,
P.O. Box 701
Milwaukee, WI 53201
You may also send the application via overnight courier to Firstar Trust
Company at 615 E. Michigan Street, Milwaukee, WI 53202.
BY TELEPHONE. If you have authorized telephone transaction privileges in
your application, you may also make exchanges by calling toll-free 1-888-KENFUND
(888-536-3863). Exchanges made over the phone
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may be made by any person, not just the shareholder of record. Certain other
limitations and conditions apply to all telephone transactions. See "Telephone
Transactions."
OTHER INFORMATION ABOUT EXCHANGING SHARES. All accounts opened as a result
of using the exchange privilege must be registered in the same name and taxpayer
identification number as your existing account with the Fund. Because of the
time needed to transfer money between the Fund and the Portico Money Market
Funds, you may not exchange into and out of the same fund on the same or
successive days; there must be at least one day between exchange transactions.
You may exchange your shares of the Fund only for shares that have been
registered for sale in your state. Remember that each exchange represents the
sale of shares of one fund and the purchase of shares of another. Therefore, you
could realize a taxable gain or loss on the transaction. If your account is
subject to backup withholding, you may not open another account using the
exchange privilege. Because excessive trading can hurt the Fund's performance
and shareholders, the Fund reserves the right to temporarily or permanently
terminate the exchange privilege of any investor who makes excessive use of the
exchange privilege (more than five exchanges per calendar year). Your exchanges
may be restricted or refused by the Adviser if the Fund receives or anticipates
simultaneous orders affecting significant portions of the Fund's assets. In
particular, a pattern of exchanges with a "market timing" strategy may be
disruptive to the Fund. The Fund reserves the right to terminate or modify the
exchange privilege upon at least 60 days' written notice to shareholders. A
signature guarantee is not required except in cases where shares are also
redeemed for cash at the same time. The restriction or termination of the
exchange privilege does not affect the rights of shareholders to redeem shares
as discussed below. See "Redeeming Shares -- Signature Guarantees" for more
information.
REDEEMING SHARES
You may redeem your shares through your securities dealer (who may charge
you a fee for this service) or directly by using one of the methods described
below. The price you will receive for any shares you redeem will be the next net
asset value of the shares redeemed computed after we have received your order to
redeem in proper form. See "Net Asset Value" for more information. Normally,
payment by check is made within seven days after the redemption request is
received with all required documents in proper form. However, if any of the
shares redeemed were recently purchased (i.e. within 15 days) and payment was
made by personal check, payment to you for those shares may be delayed until
your purchase check has cleared. These restrictions are not applicable to shares
purchased with a certified or cashier's check or by bank wire or federal funds.
BY MAIL. You may redeem shares by sending your written request to redeem
your shares to our Transfer Agent at Firstar Trust Company, P.O. Box 701,
Milwaukee, WI 53201. You may also send the request via overnight courier to
Firstar Trust Company at 615 E. Michigan Street, Milwaukee, WI 53202. This
written request must: 1) be signed by all account owners exactly as the account
is registered (both parties must sign in the case of joint accounts), 2) state
the dollar amount or number of shares to be redeemed and 3) specify your account
number. Please remember that you cannot place any conditions on your request.
BY TELEPHONE. You may redeem shares by calling us toll-free at
1-888-KENFUND (888-536-3863). We will then send the proceeds to you by mail.
However, please keep in mind the following: the check can only be issued for up
to $25,000; the check can only be issued to the registered owner (who must be an
individual); the check can only be sent to the address of record; and your
current address of record must have been on file for 15 days. See "Telephone
Transactions."
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<PAGE> 13
BY WIRE. You can redeem your shares by wire if you have selected this
option in your application and have named a commercial bank or savings
institution with a Federal Reserve Bank routing number. Once you have applied
for the wire redemption privilege, you can redeem shares in your account by
calling, toll-free, 1-888-KENFUND (888-536-3863) and providing your account
number. You may also use your wire privilege by mailing a signed request to the
Fund that includes your account number and the amount you wish to have wired.
The proceeds will be sent only to the financial institution you have designated
on your application. You may terminate the wire redemption privilege by
notifying us in writing. Changes in your bank account ownership or bank account
number (including the name of the financial institution) may be made by written
notice to us with your signature and those of any new owner guaranteed. See
"Signature Guarantees" below. Additional documents may be required when shares
are held by a corporation, partnership, executor, administrator, trustee or
guardian. The Transfer Agent charges a fee for each wire transfer which is
currently $10.00.
REDEMPTIONS BY THE FUND. The Fund reserves the right to redeem any single
shareholder account that falls below $2,000 due to shareholder redemptions.
However, before your account is redeemed, you will be notified in writing and we
will allow you 60 days to make additional share purchases to bring your account
value up to the minimum level.
OTHER LIMITATIONS. Redemptions may be suspended or payment dates postponed
when (i) the New York Stock Exchange is closed (or when trading is restricted)
for any reason other than its customary weekend or holiday closing; (ii) an
emergency exists as a result of which (A) disposal by the Fund of securities
owned by it is not reasonably practical or (B) it is not reasonably practical
for the Fund fairly to determine the value of its net assets; or (iii) under any
emergency circumstances as determined by the Securities and Exchange Commission.
In case of suspension of the right of redemption, you may either withdraw your
request for redemption or, if your request is not withdrawn, receive payment
based on the next net asset value computed after termination of the suspension.
SIGNATURE GUARANTEES. For our mutual protection, we may require a signature
guarantee on certain transaction requests. A signature guarantee verifies the
authenticity of your signature, and may be obtained from any bank, trust
company, savings and loan association, credit union, broker-dealer firm or
member of a domestic stock exchange. A signature guarantee cannot be provided by
a notary public. If redemption proceeds or amounts exchanged are $25,000 or less
and are to be paid or credited to an individual shareholder of record at the
address of record, a signature guarantee is not required (unless there has been
an address change within 15 days). All other redemption or exchange requests
must have signatures guaranteed. Certain shareholders, such as corporations,
trusts and estates, may be required to submit additional documents.
NET ASSET VALUE
The net asset value per share is computed by dividing the total value of
the assets of the Fund, minus its liabilities, by the total number of its shares
outstanding. The net asset value is determined on each day the New York Stock
Exchange is open, at the earlier of the close of the Exchange or 4:00 p.m. New
York time. The price per share for purchases or redemptions made directly
through the Transfer Agent is such value next computed after the Transfer Agent
receives the purchase order or redemption request. Note that in the case of
redemptions and repurchases of shares owned by corporations, trusts or estates,
the Transfer Agent may require additional documents to effect the redemption and
the applicable price will be that next determined following the receipt of the
required documentation.
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<PAGE> 14
The Fund values its security holdings on the basis of market value. Certain
fixed-income securities may be valued based on market prices provided by a
pricing service. Fixed-income securities maturing within 60 days are normally
valued on the basis of amortized cost. If no market value is readily available,
such securities will be valued at a fair value determined by the Board of
Directors.
DIVIDENDS AND DISTRIBUTIONS
The Fund pays any income and capital gains distributions at least annually.
Distributions from the Fund will automatically be reinvested for you on the
payment date as additional shares of the Fund, unless you request payment by
check on your Application Form or make such a request later by writing to the
Fund. Your request will be effective for the current dividend or distribution if
it is received before the record date. Requests received after that time will be
effective beginning with the next dividend or distribution.
As a protection, if two of your dividend checks are returned as
undeliverable, those undelivered dividends will be invested in additional shares
at the then current net asset value, and the account will be redesignated as a
dividend reinvestment account.
TAXES
This section is not intended to be a full discussion of all the aspects of
tax law and its effects on the Fund and its shareholders. Shareholders may be
subject to state and local taxes on distributions. Each investor should consult
a tax advisor regarding the effect of federal, state and local taxes on an
investment in the Fund.
The Fund intends to qualify and remain qualified as a "regulated investment
company" under the Internal Revenue Code (the "Code"). The Fund will distribute
all of its taxable net income and net realized capital gains to shareholders so
that it will not itself have to pay any income taxes.
During its initial operations, the Fund may be a personal holding company
("PHC") under the Code due to substantial ownership of the Fund's shares by a
few shareholders. In that event, the Fund intends to distribute all its PHC
income so that there is no PHC tax imposed on the Fund.
Distributions of net investment income from the Fund are taxable to
shareholders as ordinary income. A portion of the income dividends received by
the Fund from U.S. corporations may qualify for the "dividends received"
deduction available to corporate shareholders. Distributions from net long-term
capital gains are taxable as long-term capital gains regardless of how long Fund
shares are owned. Distributions from net short-term capital gains are taxable as
ordinary income. Shareholders are informed annually of the amount and nature of
any income or gain. Distributions are taxable whether received in cash or
reinvested in additional shares. If the Fund distributes less than the amount it
is required to distribute during any year, a 4% excise tax will be imposed on
the undistributed amount. The Fund intends to declare and distribute dividends
during each year sufficient to prevent imposition of the excise tax.
A dividend received shortly after the purchase of shares reduces the net
asset value of the shares by the amount of the dividend, and although in effect
a return of capital, such dividend will be taxable to the shareholder. If a
shareholder realizes a loss on the sale or exchange of any shares held for six
months or less and if the shareholder received a capital gain distribution
during such six-month period, then the loss is treated as a long-term capital
loss to the extent of the capital gain distribution.
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<PAGE> 15
If for any reason you don't provide the Fund with your correct Social
Security or Tax I.D. number (or certify that you are not subject to backup
withholding), the Fund is required by the Code to withhold 31% of taxable
dividends and proceeds of certain exchanges and redemptions.
RETIREMENT PLANS
The Fund offers a prototype Individual Retirement Account (IRA). The Fund's
Custodian, Firstar, acts as the custodian under the IRA plan. For information on
fees and necessary forms, please call toll-free 1-888-KENFUND (888-536-3863) or
write to the Fund. Please do not use the application included with this
prospectus to open your retirement plan account. Instead call 1-888-KENFUND
(888-536-3863) for a retirement plan account application. Please consult your
tax advisor to determine the effect of any of the plans on your financial
situation. In the future, the Fund may offer Simplified Employee Pension ("SEP")
Plans and model 403(b) plans for charitable, educational and governmental
entities. For more information, please call or write to the Fund.
FUND PERFORMANCE
In reports or other communications to shareholders and in advertising
material, the Fund may compare its performance to recognized unmanaged indexes
or stock market averages such as the Standard & Poor's 500 Index, Dow Jones
Industrial Average and New York Stock Exchange Composite Index. Also, the Fund
may compare its performance with that of other mutual funds of comparable size
and objectives as listed in the rankings prepared by Lipper Analytical Services,
Inc., or similar independent services which monitor the performance of mutual
funds or other industry or financial publications. The Fund may also include
evaluations published by nationally recognized ranking services and by financial
publications such as Business Week, Forbes, Kiplinger's, Institutional Investor
and Money Magazine. The Fund's past performance should not be considered
representative of future performance of the Fund.
The Fund's average annual total return is computed by determining the
average annual compounded rate of return for a specified period that, if applied
to a hypothetical $1,000 initial investment, would produce the redeemable value
of the investment at the end of the period, assuming reinvestment of all
dividends and distributions and with recognition of all recurring charges. The
Fund may also utilize a total return for differing periods computed in the same
manner but without annualizing the total return.
The Fund's performance is a function of conditions in the securities
markets, portfolio management and operating expenses, and past results are not
necessarily indicative of future results. Performance information supplied by
the Fund may not provide a basis for comparison with other investments using
differing reinvestment assumptions or time periods.
ORGANIZATION OF THE FUND
The Kenwood Funds (the "Trust") is a Delaware business trust organized
January, 1996. The Trust is registered as a diversified, open-end management
investment company. The Trust currently issues one series of shares, The Kenwood
Growth & Income Fund. Shares of the Trust are fully paid, non-assessable, and
freely transferable when issued, have equal noncumulative voting rights and
equal rights with respect to dividends, assets and liquidation. The Board of
Trustees may in the future create additional series of shares, each of which
would represent an interest in a separate portfolio with its own investment
objective and policies.
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<PAGE> 16
The Trust does not hold annual shareholder meetings, but does hold special
shareholder meetings when the Board of Trustees believes it is necessary or when
required by law. The Trust will hold a special meeting when requested in writing
by the holders of at least 10% of the shares eligible to vote at a meeting. In
addition, subject to certain conditions, shareholders of the Fund may apply to
the Fund to communicate with other shareholders to request a shareholders'
meeting to vote upon the removal of a Trustee or Trustees.
CERTAIN PROVISIONS OF THE TRUST INSTRUMENT. Under Delaware law, the
shareholders of the Fund are not personally liable for the obligations of the
Fund; a shareholder is entitled to the same limitation of personal liability
extended to shareholders of corporations.
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<PAGE> 17
TO OPEN AN ACCOUNT OR REQUEST INFORMATION
PLEASE CALL TOLL-FREE 1-888-KENFUND
INVESTMENT ADVISER
The Kenwood Group, Inc.
10 South LaSalle Street, Suite 3610
Chicago, IL 60603
(312) 368-1666
ADMINISTRATOR, TRANSFER AGENT, SHAREHOLDER
SERVICING AGENT & CUSTODIAN
Firstar Trust Company
Mutual Fund Services
P.O. Box 701
Milwaukee, WI 53201-0701
(888) 536-3863
DISTRIBUTOR KENWOOD LOGO
AmeriPrime Financial Securities, Inc.
1793 Kingswood Drive, Suite 200 PROSPECTUS
Southlake, TX 76092
MAY 1, 1996
TRUSTEES
Barbara L. Bowles
Patty Litton Delony
Lester J. Dugas, Jr.
Reynaldo P. Glover
Challis M. Lowe
COUNSEL
D'Ancona & Pflaum
30 North LaSalle Street, Suite 2900
Chicago, IL 60602
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
411 East Wisconsin Avenue
Milwaukee, WI 53202
<PAGE> 18
THE KENWOOD FUNDS
10 South LaSalle Street
Suite 3610
Chicago, Illinois 60603
1-888-KENFUND
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1996
This Statement provides information concerning the Growth & Income Fund
(the "Fund") which is a series of The Kenwood Funds. This Statement is not a
Prospectus and should be read in conjunction with the Fund's Prospectus dated
May 1, 1996, which may be obtained from the Fund. This Statement includes the
Fund's audited balance sheet as of April 11, 1996.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TOPIC PAGE
<S> <C>
FUNDAMENTAL INVESTMENT RESTRICTIONS....................................... 2
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS................................... 2
LENDING PORTFOLIO SECURITIES.............................................. 4
NET ASSET VALUE........................................................... 4
TRUSTEES AND OFFICERS..................................................... 5
TRUSTEE COMPENSATION...................................................... 6
THE ADVISER............................................................... 6
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTING AGENT....................... 7
AUDITORS.................................................................. 7
DISTRIBUTION PLAN......................................................... 7
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 7
SHAREHOLDER MEETINGS...................................................... 8
PERFORMANCE DATA.......................................................... 8
</TABLE>
<PAGE> 19
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions enumerated below are fundamental and may not be
changed without the approval of the holders of the lesser of (i) 67% of the
eligible votes, if the holders of more than 50% of the eligible votes are
present in person or by proxy or (ii) more than 50% of the eligible votes.
(1) COMMODITIES. The Fund may not purchase or sell commodities or
commodity contracts except in respect to financial futures or
currencies.
(2) REAL ESTATE. The Fund may not purchase real estate.
(3) DIVERSIFICATION OF FUND INVESTMENTS.
(a) Fund Assets. With respect to 75% of the value of its total
assets, the Fund may not buy the securities of any issuer if more than
5% of the value of the Fund's total assets would then be invested in
that issuer. Securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities and repurchase agreements involving
such securities ("U.S. Government Securities"), are not subject to
this limitation.
(b) Securities of Issuers. With respect to 75% of the value of its
total assets, the Fund may not purchase the securities of any issuer
if after such purchase the Fund would then own more than 10% of such
issuer's voting securities. U.S. Government Securities are not
subject to this limitation.
(4) INDUSTRY CONCENTRATION. The Fund may not purchase the securities of
companies in any one industry if 25% or more of the value of the
Fund's total assets would then be invested in companies having their
principal business activity in the same industry. U.S. Government
Securities are not subject to this limitation.
(5) SENIOR SECURITIES; BORROWING. The Fund may not issue senior
securities except as permitted under the Investment Company Act of
1940. The Fund may not pledge or hypothecate any of its assets, except
in connection with permitted borrowing. Transfers of assets in
connection with currency transactions are not subject to these
limitations if appropriately covered.
(6) UNDERWRITING. The Fund does not engage in the underwriting of
securities. (This does not preclude it from selling restricted
securities in its portfolio.)
(7) LENDING MONEY OR SECURITIES. The Fund may not lend money, except that
it may buy debt securities publicly distributed or traded or privately
placed and may enter into repurchase agreements. The Fund may lend
its portfolio securities subject to having 100% collateral in cash or
U.S. Government Securities. The Fund will not lend securities if such
a loan would cause more than 20% of the value of its total assets to
then be subject to such loans.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
In addition to the Fund's investment objective set forth in the Prospectus,
the Fund has adopted the following non-fundamental policies which may be changed
by the Board of Directors without shareholder approval.
(1) BORROWING. The Fund may not purchase securities when money borrowed
exceeds 5% of its total assets.
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<PAGE> 20
(2) ILLIQUID AND RESTRICTED SECURITIES.
(a) The Fund may not purchase or hold illiquid securities if, as a
result, more than 15% of its net assets would be invested in such
securities.
(b) The Fund may not purchase restricted securities which are not
eligible for resale under Rule 144A under the Securities Act of 1933
("Rule 144A Securities"). In addition, the Fund may not purchase
illiquid Rule 144A Securities and may not purchase liquid Rule 144A
Securities if such purchase would cause more than 5% of the Fund's
total assets to be invested in restricted securities.
(3) INVESTMENT COMPANIES. The Fund may not purchase securities of
open-end or closed-end investment companies except in compliance with
the Investment Company Act of 1940 and then only if no more than 5% of
the Fund's net assets would be so invested.
(4) LENDING PORTFOLIO SECURITIES. The Fund will not lend portfolio
securities if it causes more than 5% of its net assets to be subject
to such loans.
(5) MARGIN. The Fund may not purchase securities on margin, except
for use of short-term credit necessary for clearance of purchases of
portfolio securities.
(6) MORTGAGING. The Fund may not mortgage, pledge, hypothecate or, in any
manner, transfer any security owned by the Fund as security for
indebtedness except as may be necessary in connection with permissible
borrowings and other permissible investments or investments for
currency transactions and then such mortgaging, pledging or
hypothecating may not exceed 33 1/3% of the Fund's total assets at the
time of borrowing or investment.
(7) OIL AND GAS PROGRAMS. The Fund may not purchase participations
or other direct investments or enter into leases with respect to oil,
gas, or other mineral exploration or development programs.
(8) OWNERSHIP OF PORTFOLIO SECURITIES BY OFFICERS AND DIRECTORS.
The Fund may not purchase or retain the securities of any issuer if,
to the knowledge of the Fund's management, those officers and
directors of the Fund, and of the Adviser, who each own beneficially
more than 0.5% of the outstanding securities of such issuer, together
own beneficially more than 5% of such securities.
(9) SHORT SALES. The Fund may not effect short sales of securities unless
it owns or has the right to obtain securities equivalent in kind and
amount to the securities sold short. This restriction does not apply
to financial futures or currency transactions.
(10) UNSEASONED ISSUERS. The Fund may not purchase the securities (other
than U.S. Government Securities) of any issuers which at the time of
purchase had been in operation for less than three years (for this
purpose, the period of operation of any issuer shall include the
period of operation of any predecessor or unconditional guarantor of
such issuer).
(11) WARRANTS. The Fund may not invest in warrants if, as a result
thereof, more than 2% of the value of the total assets of the Fund
would be invested in warrants which are not listed on the New York
Stock Exchange, the American Stock Exchange, or a recognized foreign
exchange, or more than 5% of the value of the total assets of the Fund
would be invested in warrants whether or not so listed. For purposes
of these percentage limitations, the warrants will be valued at the
lower of cost or market and warrants acquired by the Fund in units or
attached to securities may be deemed to be without value.
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<PAGE> 21
(12) OPTIONS AND FUTURES CONTRACTS. The Fund may not engage in
transactions in futures or options except that this does not prohibit
the Fund from engaging in transactions in warrants as described above.
STATE UNDERTAKINGS. As a matter of non-fundamental policy, the Fund has
voluntarily undertaken with the State of Ohio to restrict investments in other
investment companies to purchases in the open market where no commission or
profit to a sponsor or dealer results from the purchase other than the customary
broker's commission, or except when the purchase is part of a plan of merger,
consolidation, reorganization or acquisition. This undertaking may be changed
without shareholder approval.
Except for limitations on borrowing and investment in illiquid securities,
any percentage restrictions contained in any fundamental or nonfundamental
restrictions apply as of the time of investment without regard to later
increases or decreases in the values of securities or total or net assets.
LENDING PORTFOLIO SECURITIES
Securities of the Fund may be lent to member firms of the New York Stock
Exchange and commercial banks with assets. Any such loans must be secured
continuously in the form of cash or cash equivalents, such as U.S. Treasury
bills. The amount of the collateral must, on a current basis, equal or exceed
the market value of the loaned securities and must be terminable upon notice, at
any time. The Fund will exercise its right to terminate a securities loan in
order to preserve its right to vote upon matters of importance affecting holders
of the securities. The fundamental investment restrictions state that the Fund
may not loan securities if the value of the securities loaned from the Fund
exceed 20% of the value of the Fund's total assets. However, as a matter of
non-fundamental policy, the Fund may not loan portfolio securities if it would
cause more than 5% of the Fund's net assets to be subject to such loans.
The advantage of such loans would be that the Fund continues to receive the
equivalent of the interest earned or dividends paid by the issuer on the loaned
securities while at the same time earning interest on the cash or equivalent
collateral.
Securities loans would be made to broker dealers and other financial
institutions to facilitate their deliveries of such securities. As with any
extension of credit there may be risks of delay in recovery and possibly loss of
rights in the loaned securities should the borrower of the loaned securities
fail financially. However, loans will be made only to those firms that the
Adviser deems creditworthy and only on such terms as the Adviser believes should
compensate for such risk. On termination of the loan the borrower is obligated
to return the securities to the Fund; any gain or loss in the market value of
the security during the loan period will inure to the Fund. Custodial fees may
be paid in connection with the loan.
NET ASSET VALUE
Net asset value per share is determined by calculating the total value of
the Fund's assets, deducting total liabilities, and dividing the result by the
number of shares outstanding. The Fund does not price its shares or accept
orders for purchases or redemptions on days when the New York Stock Exchange
(the "Exchange") is closed. Such days are the following holidays: New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. On each day the New York Stock Exchange
(the "Exchange") is open for trading, the net asset value is determined as of
the earlier of 4:00 p.m. New York time or the close of the Exchange.
Portfolio securities traded on a securities exchange (including options on
indexes so traded) or securities listed on the NASDAQ National Market are valued
at the last sale price on the exchange or market where primarily traded or
listed or, if there is no recent sale price available, at the last current bid
quotation. Securities not so traded
4
<PAGE> 22
or listed are valued at the last current bid quotation if market quotations are
available. Money market instruments maturing in 60 days or less are normally
valued at amortized cost. Money market securities having maturities over 60
days or for which amortized cost is not deemed to reflect fair value, may be
priced by independent pricing services that use prices provided by market makers
or estimates of market values obtained from yield data relating to instruments
or securities with similar characteristics. Other securities, including
restricted securities, and other assets are valued at fair value as determined
in good faith by the Board of Trustees.
TRUSTEES AND OFFICERS
Information about the trustees and officers, including age as of March 18,
1996 and principal occupations during the past 5 years, is shown below.
*BARBARA L. BOWLES, 48 - Trustee and President of the Fund. Ms. Bowles is
the President of The Kenwood Group, Inc., the Adviser to the Fund. Ms. Bowles
is a board member of Black & Decker Corporation, the Hyde Park Bank and Trust
Company, the Chicago Urban League, the Children's Memorial Hospital of Chicago
and a lifetime member of the NAACP. Prior to founding The Kenwood Group in
1989, Ms. Bowles was Corporate Vice President of Kraft, Inc. and was previously
employed by Beatrice Companies and First National Bank of Chicago. Her address
is 10 South LaSalle Street, Chicago, Illinois 60603.
PATTY LITTON DELONY, CFA, 47 - Trustee. Ms. Delony is a Principal of
Delony Associates Inc., a business consulting firm established in 1988,
specializing in research, analysis and writing. Formerly, she was a vice
president of Sara Lee Corporation. Her address is 20 E. Cedar Street, Chicago,
Illinois 60611.
LESTER J. DUGAS, JR., 71 - Trustee. Mr. Dugas is presently a Senior
Consultant to Summit Consulting Group, consultants in health care, finance and
education. He is a consultant to MORLES Enterprises, Ltd., marketers of
generating equipment, and a Senior Direct Distributor for NSA, Inc.,
manufacturers of water purification equipment, air filters and juicer products.
He is also on the Board of Directors of several charities. His address is 5000
S. Woodlawn Avenue, Chicago, Illinois 60615.
*REYNALDO P. GLOVER, 53 - Trustee. Mr. Glover is the Executive Vice
President-General Counsel of TLC Beatrice International Holding Company and of
counsel to the law firm Rudnick & Wolfe. He also acts as general counsel for
the Adviser. From 1991 until 1994, Mr. Glover was a partner with the law firm
of Miller, Shakman, Hamilton, Kurtzon & Schlifke. From 1987 until 1991, Mr.
Glover was a partner with the law firm of Jenner & Block. From August, 1988
until September 1991, Mr. Glover also served as Chairman of the Board of
Trustees of the City Colleges of Chicago. In addition, he is active in many
civic, professional and social organizations. His address is 203 N. LaSalle
Street, Chicago, Illinois 60601.
CHALLIS M. LOWE, 50 - Trustee. Ms. Lowe is Executive Vice President,
responsible for Human Resources and Communications for Heller International
Corporation, a financial services company. She has been with Heller since 1993.
Formerly, she was a Senior Vice President-Chief Administrative Officer for Sanwa
Business Credit Corporation. Her address is 500 W. Monroe Street, Chicago,
Illinois 60661.
SHARON MORROW, 41 - Vice President and Secretary. Ms. Morrow is the Vice
President of Marketing/Client Services for The Kenwood Group. Prior to joining
The Kenwood Group in 1995, Ms. Morrow was Vice President of Marketing for Pierce
& Company L.P./M.O.S.A.I.C. Investment Advisers. Formerly, Ms. Morrow was the
Director of the District of Columbia Department of Finance and Revenue. Ms.
Morrow has passed the Series 6 and 63 examinations. Her address is 10 South
LaSalle Street, Chicago, Illinois 60603.
- ---------------
*Barbara Bowles is considered to be an "interested person" of the Fund, as
defined in the Investment Company Act of 1940 due to her relationship with the
Adviser. Reynaldo Glover is considered to be an "interested person" of the
Fund solely because of his role as attorney for the Adviser. The Fund does not
pay any direct compensation to employees of the Adviser.
5
<PAGE> 23
CYNTHIA HARDY, 29 - Assistant Secretary. Ms. Hardy has been the Director
of Administration at The Kenwood Group since 1991. Prior to joining The Kenwood
Group, she was an accounting intern at Carr & Associates, a public accounting
and management consulting firm. Ms. Hardy has passed the Series 6 and 63
examinations. Her address is 10 South LaSalle Street, Chicago, Illinois
60603.
JOSEPH NEUBERGER, 34 - Assistant Secretary. Mr. Neuberger has been a Vice
President at Firstar Trust Company since 1994. Prior to joining Firstar, he was
a Manager with Arthur Andersen & Company LLP. His address is 615 E. Michigan
Street, Milwaukee, Wisconsin 53202.
SHELDON R. STEIN, 67 - Assistant Secretary. Mr. Stein is a partner at the
firm of D'Ancona & Pflaum, legal counsel to the Fund. His address is 30 North
LaSalle Street, Chicago, Illinois 60602.
TRUSTEE COMPENSATION
The compensation paid to the Trustees of the Trust is set forth in the
following table:
<TABLE>
<CAPTION>
Pension or Total Compensation
Aggregate Retirement Benefits Estimated Annual From the Trust (the
Compensation From Accrued As Part of Benefits Upon Trust is not in a
Name the Trust(1) Trust Expenses Retirement Fund Complex)(1)
- ---- -------------------- -------------------- ---------------- --------------
<S> <C> <C> <C> <C>
Patty Litton Delony $2,250 0 0 $2,250
Lester J. Dugas $2,250 0 0 $2,250
Reynaldo P. Glover $2,250 0 0 $2,250
Challis M. Lowe $2,250 0 0 $2,250
</TABLE>
(1) Estimated for the first fiscal year of the Fund's operations.
THE ADVISER
The Kenwood Group, Inc., an Illinois corporation located at 10 South
LaSalle Street, Chicago, Illinois 60603, serves as the Fund's Adviser.
Barbara L. Bowles is the controlling shareholder of the Adviser. The Adviser
receives advisory fees monthly based upon the Fund's average daily net assets at
the following annual rate: 0.75% on the first $500 million of average net
assets, 0.70% on the next $500 million of average daily net assets, and 0.65% on
average daily net assets over $1 billion. The Adviser may waive all or a part
of its fee, at any time, and at its sole discretion, but such action shall not
obligate the Adviser to waive any fees in the future.
In addition to the services described in the Fund's prospectus, the
Adviser will compensate all personnel, officers and trustees of the Fund if
such persons are employees of the Adviser.
The Fund pays all other Fund expenses including its organizational
expenses, except to the extent that the Adviser pays or reimburses such
expenses. If the total expenses of the Fund (as determined under applicable
statutes or regulations) exceed any applicable expense limitation prescribed by
any statute or regulatory authority of a jurisdiction in which the Fund's
shares are qualified for offer and sale, the Adviser will reimburse the Fund in
the amount of such excess to the extent required by such securities law or
regulation. California and South Dakota are currently
6
<PAGE> 24
the only states which have such limitations. California's limitation is 2.5% of
the first $30 million of average net assets, 2.0% of the next $70 million of
average net assets and 1.5% of the remaining average net assets. South Dakota's
limitation is 2.5% of average net assets. The Adviser has agreed to waive the
management fee and to reimburse certain other expenses for the Fund's first
fiscal year.
Under the Advisory Agreement between the Fund and the Adviser, in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties, the Adviser will not be liable for any act or omission
in the cause of, or connected with, rendering service under the Advisory
Agreement or for any losses that may be sustained in the purchase, holding or
sale of any security.
The Adviser has adopted a Code of Ethics which regulates the personal
securities transactions of the Adviser's investment personnel and other
employees and affiliates with access to information regarding securities
transactions of the Fund. The Code of Ethics requires investment personnel to
disclose personal securities holdings upon commencement of employment and all
subsequent trading activity to the Adviser's Compliance Officer. Investment
personnel are prohibited from engaging in any securities transactions, including
the purchase of securities in a private offering, without the prior consent of
the Compliance Officer. Additionally, such personnel are prohibited from
purchasing securities in an initial public offering and are prohibited from
trading in any securities (i) for which the Fund has a pending buy or sell
order, (ii) which the Fund is considering buying or selling, or (iii) which the
Fund purchased or sold within seven calendar days.
CUSTODIAN, TRANSFER AGENT AND FUND ACCOUNTING AGENT
Firstar Trust Company ("Firstar"), 615 East Michigan Street, Milwaukee, WI
53202, serves as the Fund's custodian, transfer, fund accounting, shareholder
servicing and dividend-paying agent. The custodian has custody of all
securities and cash of the Fund. The custodian attends to the collection of
principal and income and the payment for, and the collection of proceeds of,
securities bought and sold by the Fund. Firstar also acts as the Fund's
Administrator pursuant to an Administration Agreement with the Fund as
described in the prospectus.
AUDITORS
The Fund's auditors are Coopers & Lybrand L.L.P., The 411 E. Wisconsin
Building, Milwaukee, WI 53202. The services of the auditors include an audit
of annual financial statements included in the annual reports to shareholders,
a review of amendments to the registration statement filed with the Securities
and Exchange Commission, consultation on financial accounting and reporting
matters, and meeting with the Audit Committee of the Board of Trustees. In
addition, the auditors may provide assistance in preparation of the federal and
state income tax returns and related forms.
DISTRIBUTION PLAN
AmeriPrime Financial Securities, Inc., 1793 Kingswood Drive, Suite 200,
Southlake, Texas 76092, serves as the principal underwriter to distribute the
Fund's shares. Pursuant to the Distribution Plan adopted by the Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940, the Fund is authorized
to expend up to 0.25% annually of the Fund's average daily net assets to pay
distribution fees and to cover certain expenses incurred in connection with the
distribution of the Fund's shares. Rule 12b-1 permits an investment company to
finance, directly or indirectly, any activity which is primarily intended to
result in the sale of its shares only if it does so in accordance with the
provisions of the Rule. The Board of Trustees has determined that there is a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
7
<PAGE> 25
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Fund's securities trading and brokerage policies and procedures are
reviewed by and subject to the supervision of the Board of Trustees. The
Fund's policy is to seek to place portfolio transactions with those brokers or
dealers who will execute transactions as efficiently as possible and at
favorable prices. Many of these transactions involve the payment of brokerage
commissions by the Fund. In some cases, transactions are with firms that act
as principal for their own account. In effecting transactions in
over-the-counter securities, the Fund deals with market makers unless it
appears that better prices and execution are available elsewhere.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers or dealers or
negotiating the commissions to be paid, the Adviser considers the firm's
financial responsibility and reputation, range and quality of services made
available to the Fund, and the professional services provided, including
execution, clearance procedures, wire service quotations, and ability to provide
supplemental performance, statistical and other research information for
consideration, analysis and evaluation by the staff of the Adviser. In
accordance with this policy, the Fund does not execute brokerage transactions
solely on the basis of the lowest commission rate available for a particular
transaction. Subject to the requirements of favorable price and efficient
execution, placement of orders by securities firms for the purchase of shares of
the Fund may be taken into account as a factor in the allocation of portfolio
transactions.
In addition, there may be times when an investment decision may be made to
purchase or sell the same security for the Fund and one or more clients of the
Adviser. If the Fund and the Adviser on behalf of other clients simultaneously
engage in the purchase or sale of the same security, the transactions will be
allocated as to amount and price in a manner considered equitable to each. In
some instances, this procedure could adversely affect the Fund but the Fund
deems that any disadvantage in the procedure would be outweighed by the
increased selection and the increased opportunity to engage in volume
transactions.
Research services furnished by brokers used by the Fund for portfolio
transactions may be utilized by the Adviser in connection with its investment
services for other accounts and, likewise, research services provided by brokers
used for transactions of other accounts may be utilized by the Adviser in
performing its services for the Fund. The Adviser determines the reasonableness
of the commissions paid in relation to its view of the value of the brokerage
and research services provided, considered in terms of the particular
transaction and its overall responsibilities with respect to all accounts as to
which it exercises investment discretion. As any particular research obtained
by the Adviser may be useful to the Fund, the Board of Trustees, in considering
the reasonableness of the commissions paid by the Fund, will not attempt to
allocate, or require the Adviser to allocate, the relative costs or benefits of
research.
SHAREHOLDER MEETINGS
The Fund does not hold annual shareholder meetings, but does hold special
shareholder meetings when the Board of Trustees believes it is necessary or when
required by law. The Fund will hold a special meeting when requested in writing
by the holders of at least 10% of the shares eligible to vote at a meeting.
Trustees may be removed from office by a vote of the holders of a majority
of the outstanding shares at a meeting called for that purpose, which meeting
shall be held upon the written request of the holders of not less than 10% of
the outstanding shares. Upon the written request of ten or more shareholders
who have been such for at least six months and who hold shares constituting the
lesser of $25,000 or 1% of the outstanding shares of the Fund stating that such
shareholders wish to communicate with the other shareholders for the purpose of
obtaining the signatures necessary to demand a meeting to consider removal of a
trustee, the Fund has undertaken to disseminate appropriate materials at the
expense of the requesting shareholders.
8
<PAGE> 26
PERFORMANCE DATA
Average annual total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in the Fund's investment portfolio.
The Fund's average annual total return figures are computed in accordance with
the standardized method prescribed by the Securities and Exchange Commission by
determining the average annual compounded rates of return over the periods
indicated, that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the period of a
hypothetical $1,000 payment made at the beginning of
such period
This calculation (i) assumes all dividends and distributions are
reinvested at net asset value on the appropriate reinvestment dates as
described in the Prospectus, and (ii) deducts all recurring fees, such as
advisory fees, charged as expenses to all shareholder accounts.
Total return is the cumulative rate of investment growth which assumes
that income dividends and capital gains are reinvested. It is determined by
assuming a hypothetical investment at the net asset value at the beginning of
the period, adding in the reinvestment of all income dividends and capital
gains, calculating the ending value of the investment at the net asset value as
of the end of the specified time period, subtracting the amount of the original
investment, and dividing this amount by the amount of the original investment.
This calculated amount is then expressed as a percentage by multiplying by 100.
9
<PAGE> 27
THE KENWOOD FUNDS - KENWOOD GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 11, 1996
<TABLE>
<S> <C>
Assets:
Cash $100,010
Prepaid registration fees 11,135
--------
Total assets 111,145
Liabilities:
Due to Shareholder 11,135
--------
Net assets:
Net assets applicable to 10,001 issued and outstanding
shares with no par value; unlimited shares authorized $100,010
========
Net asset value:
Net asset value; redemption price and offering
price per share ($100,010/10,001) $ 10.00
========
</TABLE>
See notes to financial statement.
10
<PAGE> 28
THE KENWOOD FUNDS - KENWOOD GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENT
1. ORGANIZATION:
The Kenwood Funds (the "Trust") is organized as a Delaware business trust.
The Trust has registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Trust may establish
multiple series; currently one series has been established, The Kenwood Growth
& Income Fund (the "Fund"). All 10,001 initial shares were issued to the
President of the Fund (the "Shareholder").
2. ORGANIZATIONAL COSTS:
The Shareholder has absorbed $75,000 of costs incurred by the Fund in
connection with its organization and public offering of shares. Any additional
organizational costs will be borne by the Fund and amortized over a period of
not more than five years beginning with the date of sales of shares to the
public. The proceeds of any redemption of the initial shares by any holder
thereof will be reduced by any unamortized deferred organizational costs borne
by the Fund in the same proportion as the number of initial shares being
redeemed bears to the number of initial shares outstanding at the time of such
redemption.
11
