<PAGE> 1
THE KENWOOD FUNDS
THE KENWOOD GROWTH & INCOME FUND
SEMI-ANNUAL REPORT
OCTOBER 31, 1996
Shareholder Letter..........................................................1
Statement of Assets and Liabilities.........................................2
Statement of Operations.....................................................2
Statement of Changes in Net Assets..........................................3
Financial Highlights........................................................3
Schedule of Investments.....................................................4
Notes to the Financial Statements...........................................5-6
This report is authorized for distribution only when preceded or
accompanied by a current prospectus.
<PAGE> 2
December 6, 1996
Dear Fellow Shareholders,
I would like to welcome you as a shareholder of The Kenwood Growth & Income
Fund. We appreciate your vote of confidence. As you may know, one of my
personal goals was to create an investment vehicle which would enable
individuals and institutions to have their money managed by the Kenwood Group,
Inc. without having to meet our minimum asset size requirements.
The Kenwood Growth & Income Fund, which began accepting investments May 1st,
had 40 initial investors with an average account value of approximately $10,000
as of October 31, 1996. We anticipate new accounts which will put us in reach
of our year-end goal of $1,000,000 from investors. Our marketing plan for
1997 includes targeting 401K Plans in companies with less than 50 employees,
encouraging potential clients to transfer IRA Accounts, and having
representatives of the Fund speak about the importance of investing in the
stock market utilizing mutual funds at public and private gatherings.
As the investment adviser, The Kenwood Group, Inc., employs a bottom-up
approach. Rigorous fundamental analysis is central to our strategy. Key
elements of the evaluation process is close examination of each company's
management decisions and to monitor performance for consistency with stated
goals. We tend to take a contrarian approach with a preference for
well-managed companies that are priced below their inherent value. Utilizing
these strategies, the performance for the first six months was 2.9%,
representing a net asset value per share of $10.29. Performance was positively
affected by overweighed positions in retail and financial companies.
Technology stocks in general continued to underperform the market.
The Kenwood Group continues to view the market as quite uncertain. Recently, we
reduced the riskiness of the portfolio because of our continued caution
regarding the economic outlook. The mid-year correction that we expected "came
and went" all during the 3rd quarter. We are concerned that the recovery was
too rapid and, thus, have become cautious about the next several months.
We believe that mutual funds are the best vehicle to grow equity
investments for busy people. Funds should be invested for a period of three
years or more to benefit from a full market cycle. Our well diversified
portfolio includes stocks with investment returns that we hope meets your
personal goals. We look forward to a long and profitable relationship with you.
Sincerely,
Barbara L. Bowles
President
<PAGE> 3
THE KENWOOD GROWTH & INCOME FUND
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
(Unaudited)
<S> <C>
ASSETS:
Investments, at value (cost $382,930) $387,191
Income receivable 708
Receivable from Adviser 37,227
---------
Total Assets 425,126
---------
LIABILITIES:
Payable for securities purchased 6,562
Accrued expenses 38,064
---------
Total Liabilities 44,626
---------
NET ASSETS $380,500
=========
NET ASSETS CONSIST OF:
Capital stock $371,763
Undistributed net investment income 2,539
Undistributed accumulated net realized
gains on investments 1,936
Unrealized net appreciation on
investments 4,262
---------
Total Net Assets $380,500
=========
Shares outstanding
(unlimited amount of shares
authorized) 36,983
Net asset value and redemption
price per share $10.29
=========
<CAPTION>
STATEMENT OF OPERATIONS
May 1, 1996 (1) through October 31, 1996
(Unaudited)
<S> <C>
INVESTMENT INCOME:
Dividend income $2,420
Interest income 1,315
---------
3,735
---------
EXPENSES:
Investment advisory fees 967
Administration fees 9,754
Shareholder servicing and accounting costs 20,979
Distribution fees 322
Custody fees 2,047
Federal and state registration fees 6,283
Professional fees 8,866
Reports to shareholders 2,919
Trustees' fees and expenses 4,628
Other 588
---------
Total expenses before waiver and reimbursement 57,353
Less: Waiver of expenses and reimbursement (56,157)
---------
Net Expenses 1,196
---------
NET INVESTMENT INCOME 2,539
----------
REALIZED AND UNREALIZED GAINS:
Net realized gain on investments: 1,936
Change in unrealized appreciation
on investments 4,262
----------
Net gain on investments 6,198
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $8,737
==========
(1) Commencement of operations.
</TABLE>
See notes to the financial statements.
<PAGE> 4
THE KENWOOD GROWTH & INCOME FUND
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS FINANCIAL HIGHLIGHTS
May 1, 1996 (1) through October 31, 1996 May 1, 1996 (1) through October 31, 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
OPERATIONS:
Per share data:
Net investment income $2,539 Net asset value, beginning of period $10.00
Net realized gain
on investments 1,936
Change in unrealized
appreciation Income from investment operations:
on investments 4,262 Net investment income 0.07
------
Net increase in net assets Net realized and unrealized gains (losses)
resulting from
operations 8,737 on securities 0.22
------ ------
CAPITAL SHARE TRANSACTIONS: Total from investment operations 0.29
Shares sold 371,825 Less Distributions:
Shares issued to owners
in reinvestment of Dividends from net investment income -
dividends --- Distributions from capital gains -
------- ------
371,825 Total distributions -
Shares redeemed (62) Net asset value, end of period $10.29
------- ======
Net Increase 371,763
Total Return 2.90%
TOTAL INCREASE
IN NET ASSETS Supplemental data and ratios:
380,500 Net assets, end of period $380,500
NET ASSETS: Ratio of net expenses to average net
assets(2) 0.92%
Ratio of net investment income
Beginning of period --- to average net assets (2) 1.95%
------- Portofolio turnover rate (3) 8.30%
End of period (including Average Commission Rate Paid $ 0.0600
undistributed net
investment income
of $2,539) $380,500
======== (1) Commencement of operations.
(1) Commencement of operations. (2) Annualized. Without expense reimbursements of $56,157 for the period,
the ratio of expenses to average net assets would have been 44.11% and
the ratio of net investment income to average net assets would have
been (41.24)%.
(3) Not annualized.
</TABLE>
See notes to the financial statements.
<PAGE> 5
THE KENWOOD GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Number of Market Number of Market
Shares Value Shares Value
- ---------- --------- ---------- --------
<S> <C> <C> <C>
COMMON STOCKS 91.7% PRODUCER DURABLES 2.9%
560 Amphenol Corporation * $11,130
AUTOS & TRANSPORTATION 6.5% --------
100 AMR Corporation * $8,400 TECHNOLOGY 11.4%
55 Federal Express Corporation * 4,428 185 Adobe Systems, Inc. 6,406
250 Kansas City Southern Industries, Inc. 11,750 430 Autodesk, Inc. 9,836
-------- 460 DSC Communications Corporation * 6,383
24,578 385 Helix Technology Corporation 10,251
-------- 1,145 Novell, Inc. * 10,591
--------
CONSUMER DISCRETIONARY 17.6% 43,467
690 ADT Ltd. * 13,628 --------
285 American Greetings Corporation 8,354
100 Circuit City Stores, Inc. 3,275 UTILITIES 9.5%
300 Mattel, Inc. 8,662 200 Century Telephone Enterprises 6,425
695 The Limited, Inc. 12,771 360 Entergy Corporation 10,080
265 Time Warner, Inc. 9,871 100 People's Energy Corporation 3,525
200 Tupperware Corporation 10,275 135 Unicom Corporation 3,510
-------- 455 WPL Holdings, Inc. 12,797
66,836 --------
-------- 36,337
--------
CONSUMER STAPLE 4.6%
680 A.T. Cross Company 7,735 Total Common Stock (Cost $344,713) 348,975
125 CPC International, Inc. 9,859 --------
--------
17,594
--------
Principal Market
FINANCIAL SERVICES 13.5% Amount Value
200 Allstate Corporation 11,225 ---------- -------
100 First Chicago NBD Corporation 5,100 SHORT-TERM INVESTMENTS 10.1%
240 H. F. Ahmanson & Company 7,530 VARIABLE RATE DEMAND NOTES 10.1%
200 Student Loan Marketing Assoociation 16,550 551 American Family Financial Services, Inc. 551
200 St. Paul Companies, Inc. 10,875 18,833 Johnson Controls 18,833
-------- 18,833 Wisconsin Electric Power Co. 18,833
51,280 --------
--------
Total Short-Term Investments (Cost $38,217) 38,217
--------
HEALTHCARE 8.4%
160 Baxter International, Inc. 6,660
300 Foundation Health Corporation* 8,962 Total Investments (Cost $382,930) 387,192
241 MedPartners, Inc. * 5,091 --------
740 Mylan Laboratories 11,193
--------
31,906 Liabilities, less Other Assets (1.8%) (6,692)
-------- --------
TOTAL NET ASSETS 100.0% $380,500
========
INTEGRATED OILS 5.0%
485 Occidental Petroleum Corporation 11,882
200 Unocal Corporation 7,325
-------- * non-income producing
19,207
--------
MATERIALS & PROCESSING 12.3%
610 Ball Corporation 14,716
200 Corning, Inc. 7,750
110 Fluor Corporation 7,205
200 Morton International, Inc. 7,875
250 Nalco Chemical Company 9,094
--------
46,640
--------
</TABLE>
See notes to the financial statements.
<PAGE> 6
THE KENWOOD GROWTH & INCOME FUND
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
1). ORGANIZATION
The Kenwood Growth & Income Fund (the "Fund") is a mutual fund created by
The Kenwood Funds (the "Trust") which was organized as a business trust under
the laws of Delaware on January 9, 1996. The Fund is the sole series issued by
the Trust, which is an open-end management investment company registered under
the Investment Company Act of 1940 ("1940 Act"), as amended. The Fund issued
and sold 10,001 shares of its capital stock at $10 per share on April 11, 1996.
The Fund commenced operations on May 1, 1996. The objective of the Fund is
capital appreciation and current income.
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles.
a). Investment Valuation - Securities which are traded on a securities exchange
(including options on indexes so traded) or securities listed on the NASDAQ
National Market are valued at the last 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 or listed are valued
at the 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 as determined in good faith by the Board of Trustees.
b). Federal Income Taxes - No provision for federal income taxes or excise
taxes has not been made since the Fund has elected to be taxed as a "regulated
investment company" and intends to distribute substantially all taxable income
to its shareowners and otherwise comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies.
c). Income and Expenses - The Fund is charged for those expenses that are
directly attributable to the portfolio, such as advisory, administration and
certain shareowner service fees.
d). Distributions to Shareowners - Dividends from net investment income are
declared and paid at least annually. Distributions of net realized capital
gains, if any, will be declared at least annually.
e). Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
f). Other - Investment and shareowner transactions are accounted for no later
than the first business day after trade date. The Fund determines the gain or
loss realized from the investment transactions by comparing the original cost of
the security lot sold with the net sales proceeds. Dividend income is
recognized on the ex-dividend date and interest income is recognized on an
accrual basis.
<PAGE> 7
3). CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
May 1, 1996 (inception)
to October 31, 1996
-----------------------
Amount Shares
-------- -------
Shares sold $371,825 36,989
Shares issued to owners in
reinvestment of dividends - -
-------- ------
371,825 36,989
Shares redeemed (62) (6)
-------- ------
Net increase $371,763 36,983
4). INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the period May 1, 1996 (inception) through
October 31, 1996, were as follows:
Purchases Sales
------------------
U. S. Government -- --
Other $359,705 $16,929
At October 31, 1996, gross unrealized appreciation and depreciation of
investment for federal income tax purposes was as follows:
Appreciation $23,898
(Depreciation) (19,636)
-------
Net unrealized appreciation
on investments $ 4,262
=======
At October 31, 1996, the cost of investments for federal income tax
purposes was $382,930.
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Trust has entered into an investment advisory agreement with The
Kenwood Group, Inc. (the "Adviser"). Pursuant to its Advisory Agreement with the
Fund, the Adviser is entitled to receive a fee, calculated daily and payable
monthly, at the annual rate of 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
the average daily net assets over $1 billion. The Adviser has agreed to waive
the management fee for the Fund's first fiscal year. The Adviser has also
agreed to reimburse certain other expenses to the extent that total operating
expenses (exclusive of interest, taxes, brokerage commissions and other
costs incurred in connection with the purchase or sale of portfolio securities
and extraordinary items) exceed the annual rate of 0.92% of the average net
assets of the Fund, computed on a daily basis.
The Trust has entered into a distribution agreement with AmeriPrime
Financial Securities, Inc. (the "Distributor"). 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 Fund accrued
$322 for the period May 1, 1996 to October 31, 1996, pursuant to the Plan.
