<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
REGISTRATION NO. 333-1171
PRE-EFFECTIVE AMENDMENT NO. 2
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
REGISTRATION NO. 811-7521
AMENDMENT NO. 2
THE KENWOOD FUNDS
77 West Washington Street
Chicago, Illinois 60602
312-368-1666
Agent for Service:
Sheldon Stein
D'Ancona & Pflaum
30 North LaSalle Street
Chicago, Illinois 60602
(312) 580-2014
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
------------------------------------
Registrant hereby registers an indefinite number of its shares of beneficial
interest, pursuant to Rule 24f-2(a)(1) under the Investment Company Act of
1940, as amended
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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FORM N-1A
THE KENWOOD FUNDS
REGISTRATION STATEMENT NO. 333-1171 UNDER THE
SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 2
AND REGISTRATION STATEMENT NO. 811-7521 UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A
ITEM NO. Prospectus Caption or Placement
- -------- -------------------------------
<S> <C>
1 Front Cover
2 Fund Expenses
3 (Not Applicable)
4 Investment Objective and Policies; Organization of the Fund
5 Investment Objective and Policies; The Adviser; Services Administrator, Custodian and Transfer Agent
6 Organization of the Fund; Major Shareholders; Summary; Dividends and Distributions; Taxes
7 Buying Shares; Distribution of Shares; Net Asset Value
8 Redeeming Shares
9 (Not Applicable)
PART B CAPTION OR PLACEMENT
---------------------------
10 Cover Page
11 Table of Contents
12 (Not Applicable)
13 Fundamental Investment Restrictions; Non-Fundamental Investment Restrictions; Lending Portfolio Securities;
See also Prospectus - Investment Objectives and Policies
14 Trustees and Officers
15 See Prospectus-Major Shareholders
16 The Adviser; Custodian and Transfer Agent; Auditors
17 Portfolio Transactions and Brokerage
18 See Prospectus-The Fund
19 Distribution Plan; See also Prospectus - Calculation of Net Asset Value
20 Federal Taxes; See also Prospectus-Dividends and Taxes
21 (Not Applicable)
22 Performance Data
23 Financial Statements
</TABLE>
<PAGE> 3
Subject to completion dated April 22, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any State.
THE KENWOOD FUNDS
Kenwood Growth & Income Fund
77 West Washington Street
Suite 1615
Chicago, Illinois 60602
1-888-KENFUND
PROSPECTUS
______________, 1996
The Kenwood Growth & Income Fund (the "Fund") is a 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.
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 ____________, 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.
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.
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.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY .................................................................... 3
FUND EXPENSES .............................................................. 4
INVESTMENT OBJECTIVE AND POLICIES .......................................... 5
THE ADVISER ................................................................ 7
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 ................................................ 12
TAXES ...................................................................... 13
RETIREMENT PLANS ........................................................... 13
FUND PERFORMANCE ........................................................... 13
ORGANIZATION OF THE FUND ................................................... 14
</TABLE>
2
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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 77 West Washington Street, Suite 1615, Chicago, IL
60602.
3
<PAGE> 6
FUND EXPENSES
The following tables are intended to help you understand the various
expenses that you as an investor will bear.
<TABLE>
<S> <C>
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> <C>
Management Fees, after fee waiver(1) 0.00%
12b-1 Fees(2) 0.25%
Other Expenses(1)(3) 0.67%
-----
Total Operating Expenses(1) 0.92%
=====
</TABLE>
(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):
<TABLE>
<S> <C>
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.
4
<PAGE> 7
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.
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) 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
5
<PAGE> 8
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 331/3%
of the value of the Fund's total assets (including the amount borrowed)
calculated as of the time of borrowing. 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, when the Fund
desires to sell all or a portion of such holdings, 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 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 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.
6
<PAGE> 9
THE ADVISER
The Kenwood Group, Inc., an Illinois corporation with offices at 77
West Washington Street, Chicago, Illinois 60602, serves as the Fund's
investment Adviser. The Adviser does not advise other mutual funds, but has,
since its inception in 1989, acted as investment adviser to individuals and
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 affiliated with 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 in 1989. 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 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, INC.
KENWOOD GROUP COMPOSITE
HISTORICAL PERFORMANCE
<TABLE>
<CAPTION>
PERIOD (year ended) BEFORE AFTER ADVISORY
ADVISORY FEES FEES
<S> <C> <C>
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>
7
<PAGE> 10
ANNUALIZED PERFORMANCE
PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
BEFORE AFTER
ADVISORY FEES ADVISORY FEES
<S> <C> <C>
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.
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%
77 West Washington
Chicago, IL 60602
</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.
8
<PAGE> 11
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 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 receipt of
your investment as described below. You are deemed to be a shareholder as of
the first business day following the day Firstar receives payment for your
shares. 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:
9
<PAGE> 12
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.
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.
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<PAGE> 13
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 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
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<PAGE> 14
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."
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
exemptions. 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. The Fund may suspend the right of redemption or
delay payment (a) during any period when the New York Stock Exchange is closed
(other than customary weekend and holiday closings), (b) when trading in the
markets that a Fund normally utilizes is restricted, or an emergency exists as
determined by the Securities and Exchange Commission so that the disposal of
any of a Fund's investments or the determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit for protection of a Fund's
shareholders. 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.
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
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<PAGE> 15
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.
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,
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<PAGE> 16
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
pursuant to a Trust Instrument dated January 9, 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.
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
THE KENWOOD FUNDS
77 West Washington Street
Suite 1615
Chicago, Illinois 60602
1-888-KENFUND
STATEMENT OF ADDITIONAL INFORMATION
_______________________, 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
_________________, 1996, which may be obtained from the Fund. This Statement
is accompanied by includes the Fund's audited balance sheet as of
April 11, 1996.
TABLE OF CONTENTS
<TABLE>
<S> <C>
TOPIC PAGE
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> 18
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 as
sets, 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 Act. 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> 19
(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 percentages 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> 20
(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.
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 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.
4
<PAGE> 21
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 77 West Washington Street, Chicago, Illinois 60602.
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. Her address is 77 West Washington Street, Chicago, Illinois
60602. Ms. Morrow has passed the series 6 and 63 examinations.
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 77 West Washington Street, Chicago,
Illinois 60602.
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.
____________________________________
*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
5
<PAGE> 22
Adviser. The Fund does not pay any direct compensation to employees of the
adviser.
TRUSTEE COMPENSATION
The compensation paid to the trustees of the trust is set forth in the
following table:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT ESTIMATED TOTAL COMPENSATION
BENEFITS ANNUAL BENEFITS FROM TRUST (THE
AGGREGATE ACCRUED AS UPON TRUST IS NOT IN A
COMPENSATION FROM PART OF TRUST RETIREMENT FUND COMPLEX)(1)
NAME TRUST(1) EXPENSES
- -----------------------------------------------------------------------------------------------------
<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 77 West
Washington Street, Chicago, Illinois 60602, 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 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 or, 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.
6
<PAGE> 23
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> 24
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> 25
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
<TABLE>
<S> <C> <C>
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
</TABLE>
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> 26
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.
2
<PAGE> 27
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.
3
<PAGE> 28
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Included in Part B:
Statement of Assets and Liabilities.
Notes to Financial Statements.
Report of Coopers & Lybrand, L.L.P., Independent
Auditors.
(b) Exhibits:
*1. Declaration of Trust, incorporated by reference to
Registrant's Registration Statement on Form N-1A.
*2. By-Laws, incorporated by reference to Registrant's
Registration Statement on Form N-1A.
3. Not Applicable.
4. Not Applicable.
*5. Investment Advisory Agreement, incorporated by
reference to Registrant's Registration Statement on Form N-1A.
6. Underwriting Agreement, as amended.
7. Not Applicable.
*8a. Custodian Agreement, incorporated by reference to
Registrant's Registration Statement on Form N-1A.
*8b. Transfer Agency Contract, incorporated by reference
to Registrant's Registration Statement on Form N-1A.
9. Not Applicable.
*10. Opinion and Consent of Counsel as to Legality of
Shares Being Registered, incorporated by reference to
Registrant's Registration Statement on Form N-1A.
11. Consent of Independent Auditors to Use of Report.
12. Not Applicable.
13. Financial Statements, included in Statement of
Additional Information.
14. Retirement Plans.
*15. Rule 12b-1 Distribution Plan, incorporated by
reference to Registrant's Registration Statement on Form N-1A.
16. Schedule for Computation of Performance Quotation.
<PAGE> 29
17. Not Applicable.
*18. Powers of Attorney, incorporated by reference to
Registrant's Registration Statement on Form N-1A.
- -------------------------------
*Filed in a previous filing.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of April 12, 1996 there was one holder of record of Registrant's
shares.
ITEM 27. INDEMNIFICATION
Reference is made to Article VIII of the Declaration of Trust of the
Registrant, filed as Exhibit 1 to Registrant's Initial Registration Statement
which provides the following:
No Trustee or officer of the Trust, when acting in such capacity,
shall be personally liable to any person other than the Trust or a beneficial
owner for any act, omission or obligation of the Trust or any Trustee. No
Trustee or officer shall be liable for any act or omission in his or her
capacity as Trustee or officer, or for any act or omission of any officer or
employee of the Trust or of any other person or party, provided that nothing
contained herein or in the Delaware Business Trust Act shall protect any
Trustee or officer against any liability to the Trust or to Shareholders to
which such Trustee or officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee or as an officer.
The Trust shall indemnify each of its Trustees against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, in which said Trustee may be involved or
with which said Trustee may be threatened, while as a Trustee or thereafter, by
reason of being or having been such a Trustee except with respect to any matter
as to which said Trustee shall have been adjudicated to have acted in bad faith
or with willful misfeasance, gross negligence or reckless disregard of the
duties of office; provided that as to any matter disposed of by a compromise
payment by such person, pursuant to a consent decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from
independent legal counsel approved by the Trustees to the effect that if either
the matter of willful misfeasance, gross negligence or reckless disregard of
duty, or the matter of bad faith had been adjudicated, it would in the opinion
of such counsel have been adjudicated in favor of such person. The rights
accruing to any person under these provisions shall not exclude any other right
to which such person may be lawfully entitled; provided that no person may
satisfy any right of indemnity or reimbursement hereunder except out of the
property of the Trust. The Trustees may make advance payments in connection
with the indemnification under this Section 8.2; provided that the indemnified
person shall have given a written undertaking to reimburse the Trust in the
event it is subsequently determined that such person is not entitled to such
indemnification.
<PAGE> 30
The Trust shall indemnify officers, and shall have the power
to indemnify representatives and employees of the Trust, to the same extent
that Trustees are entitled to indemnification pursuant to this Section 8.2.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The Kenwood Group, Inc., the Registrant's investment adviser, renders
investment advisory services to individual, institutional and pension and
profit-sharing plan accounts. None of the officers or directors of the Adviser
have been engaged in other professions and/or employment capacities during the
past two fiscal years except as follows: Sharon Morrow - Vice President of
Marketing/Client Services joined The Kenwood Group in 1995. Prior to joining
the Kenwood Group, Ms. Morrow was Vice President of Marketing for Pierce &
Company L.P./M.O.S.A.I.C. Investment Advisers. Prior to that she was the
Director of the District of Columbia Department of Finance and Revenue.
ITEM 29. PRINCIPAL UNDERWRITERS
Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All documents and records related to portfolio transactions are
located at The Kenwood Funds, 77 W. Washington Street, Suite 1615, Chicago, IL
60602
All other documents and records are located at Firstar Trust
Company, 615 East Michigan Street, Milwaukee, WI 53202.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to file a post-effective amendment with
financial statements, which need not be certified, within four to six months
from the effective date of Registrant's Registration Statement under the
Securities Act of 1933.
Commencing with Registrant's annual report to shareholders for the
year ending April 30, 1997, Registrant undertakes to furnish to each person to
whom a Prospectus is delivered, a copy of the Registrant's latest Annual Report
to Shareholders, upon request and without charge.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE> 31
THE KENWOOD FUNDS
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the
Investment Company Act of 1940, the Registrant certifies that it has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and State of
Illinois on the 22nd day of April, 1996.
THE KENWOOD FUNDS
By: /s/Jessica R. Droeger
---------------------
Jessica R. Droeger,
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by Barbara L. Bowles in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Barbara L. Bowles* Chief Executive and April 22, 1996
- --------------------- Principal Financial Officer
Barbara L. Bowles and Trustee
*Jessica R. Droeger signs this document on behalf of the Registrant and
Barbara L. Bowles pursuant to the Powers of Attorney filed as Exhibit 18 to
Registrant's Registration Statement on Form N-1A.
/s/Jessica R. Droeger
---------------------
Jessica R. Droeger,
Attorney-in-Fact
<PAGE> 32
THE KENWOOD FUNDS
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Patty Litton Delony* Trustee April 22, 1996
- --------------------
Patty Litton Delony
Lester J. Dugas, Jr.* Trustee April 22, 1996
- --------------------
Lester J. Dugas, Jr.
Reynaldo P. Glover* Trustee April 22, 1996
- --------------------
Reynaldo P. Glover
Challis M. Lowe* Trustee April 22, 1996
- --------------------
Challis M. Lowe
*Jessica R. Droeger signs this document on behalf of each of the
foregoing persons pursuant to the Powers of Attorney filed as Exhibit 18 to
Registrant's Registration Statement on Form N-1A.
/s/Jessica R. Droeger
---------------------
Jessica R. Droeger,
Attorney-in-Fact
<PAGE> 1
EXHIBIT 6
UNDERWRITING AGREEMENT
THIS AGREEMENT is made on April 8, 1996, by and between THE KENWOOD FUNDS,
a Delaware business trust (the "Trust"), and AMERIPRIME FINANCIAL SECURITIES,
INC., a Texas corporation ("Underwriter").
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, Underwriter is a broker-dealer registered with the Securities and
Exchange Commission and a member of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WHEREAS, the Trust and Underwriter are desirous of entering into an
agreement providing for the distribution by Underwriter of shares of beneficial
interest (the "Shares") of THE KENWOOD FUNDS.
NOW, THEREFORE, in consideration of the promises and agreements of the
parties contained herein, the parties agree as follows:
1. Appointment. The Trust hereby appoints Underwriter as its
exclusive agent for the distribution of the Shares, and the Underwriter hereby
accepts such appointment under the terms of this Agreement. While this
Agreement is in force, the Trust shall not sell any Shares except on the terms
set forth in this Agreement. Notwithstanding any other provision hereof, the
Trust may terminate, suspend or withdraw the offering of Shares of any Series
whenever, in its sole discretion, it deems such action to be desirable.
2. Compensation. For the services to be performed and the obligations
to be assumed by Underwriter under this Agreement, compensation shall be paid by
the Trust as set forth in Exhibit A attached hereto.
3. Sale and Repurchase of Shares
(a) Underwriter will have the right, as agent for the Trust, to
enter into dealer agreements with responsible investment dealers, and to sell
Shares to such investment dealers against orders therefor at the public
offering price (as defined in subparagraph 2(e) hereof) less a discount
determined by Underwriter, which discount shall not exceed the amount of the
sales charge stated in the Trust's effective Registration Statement on Form
N-1A under the Securities Act of 1933, as amended, including the then current
prospectus and statement of additional information (the "Registration
Statement"). Upon receipt of an order to purchase Shares from a dealer with
whom Underwriter has a dealer agreement, Underwriter will promptly cause such
order to be filled by the Trust.
(b) Underwriter will have the right, as agent for the Trust, to
sell such Shares to the public against orders therefor at the public
offering price.
<PAGE> 2
(c) Underwriter will also have the right, as agent for the Trust,
to sell shares at their net asset value to such persons as may be approved by
the Trustees of the Trust, all such sales to comply with the provisions of the
Act and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
(d) Underwriter will also have the right to take, as agent for
the Trust, all actions which, in Underwriter's judgment, are necessary to
carry into effect the distribution of the Shares.
(e) The public offering price for the Shares of each Series
(and, with respect to each Series offering multiple classes of Shares, the
Shares of each Class of such Series) shall be the respective net asset value of
the Shares of that Series (or Class of that Series) then in effect, plus any
applicable sales charge determined in the manner set forth in the Registration
Statement or as permitted by the Act and rules and regulations of the
Securities and Exchange Commission promulgated thereunder. In no event shall
any applicable sales charge exceed the maximum sales charge permitted by the
Rules of Fair Practice of the NASD.
(f) The net asset value of the Shares of each Series (or Class
of a Series) shall be determined in the manner provided in the Registration
Statement, and when determined shall be applicable to transactions as provided
for in the Registration Statement. The net asset value of the Shares of each
Series (or each Class of a Series) shall be calculated by the Trust or by
another entity on behalf of the Trust. Underwriter shall have no duty to
inquire into or liability for the accuracy of the net asset value per share as
calculated.
(g) On every sale, the Trust shall receive the applicable net
asset value of the Shares promptly, but in no event later than the tenth
business day following the date on which Underwriter shall have received an
order for the purchase of the Shares.
(h) Upon receipt of purchase instructions, Underwriter will
transmit such instructions to the Trust or its transfer agent for
registration of the Shares purchased.
(i) Nothing in this Agreement shall prevent Underwriter or any
affiliated person (as defined in the Act) of Underwriter from acting as
underwriter or distributor for any other person, firm or corporation (including
other investment companies) or in any way limit or restrict Underwriter or any
such affiliated person from buying, selling or trading any securities for
its or their own account or for accounts of others for whom it or they may be
acting' provided, however, that Underwriter expressly represents that it will
undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
(j) Underwriter, as agent of and for the account of the Trust
may repurchase the Shares at such prices and upon such terms and conditions
as shall be specified in the Registration Statement.
4. Sales of Shares by the Trust. The Trust reserves the right to issue
any Shares at any time directly to the holders of Shares ("Shareholders"), to
sell Shares to its Shareholders or to other persons approved by Underwriter at
not less than net asset value and to issue Shares, at a price to be solely
determined by the Trust, in exchange for substantially all the assets of any
corporation or trust or for the shares of any corporation or trust.
<PAGE> 3
5. Basis of Sales of Shares. Underwriter does not agree to sell any
specific number of Shares. Underwriter, as agent for the Trust, undertakes to
sell Shares on a best efforts basis only against orders therefor.
6. Compliance with NASD and Government Rules.
(a) Underwriter will conform to the Rules of Fair Practice of
the NASD and the securities laws of any jurisdiction in which it sells,
directly or indirectly, and Shares.
(b) Underwriter, at its own expense, will pay the costs
incurred in establishing and maintaining its relationship with the dealers
selling the Shares. Underwriter will require each dealer with who Underwriter
has a dealer agreement to conform to the applicable provisions hereof and
the Registration Statement, and neither Underwriter nor any such dealers shall
withhold the placing of purchase orders so as to make a profit thereby.
(c) Underwriter agrees to furnish to the Trust sufficient
copies of any agreements, plans or other materials it intends to use in
connection with any sales of Shares in adequate time for the Trust to file
and clear them with the proper authorities before they are put in use, and not
to use them until so filed and cleared.
(d) Underwriter, at its own expense, will qualify as dealer or
broker, or otherwise, under all applicable State or federal laws required in
order that Shares may be sold in such States as may be mutually agreed
upon by the parties.
(c) Underwriter shall not make, or permit any representative,
broker or dealer to make, in connection with any sale or solicitation of a sale
of the Shares, any representations concerning the Shares except those contained
in the then current prospectus and statement of additional information covering
the Shares and in printed information approved the Trust as information
supplemental to such prospectus and statement of additional information. Copies
of the then effective prospectus and statement of additional information and
any such printed supplemental information will be supplied by the Trust to
Underwriter in reasonable quantities upon request.
7. Records to be Supplied by Trust. The Trust shall furnish to
Underwriter copies of all information, financial statements and other papers
which Underwriter may reasonably request for use in connection with the
distribution of the Shares, and this shall include, but shall not be limited
to, one certified copy, upon request by Underwriter, of all financial
statements prepared for the Trust by independent public accountants.
8. Expenses to be Borne by Trust. The Trust will bear the following
expenses:
(a) preparation, setting in type, printing of sufficient copies
of the prospectus and statement of additional information for distribution to
shareholders, and the distribution to shareholders of the prospectus and
statement of additional information;
(b) preparation, printing and distribution of reports and other
communications to shareholders;
(c) registration of the Shares under the federal securities law;
<PAGE> 4
(d) qualification of the Shares for sale in the jurisdictions
as agreed between Underwriter and the Trust;
(e) qualification of the Trust as a dealer or broker under the
laws of jurisdictions designated by Underwriter as well as qualification of the
Trust to do business in any jurisdiction, if Underwriter and the Trust's
legal counsel determine that such qualification is necessary or desirable for
the purpose of facilitating sales of the Shares;
(f) maintaining facilities for the issue and transfer of the
Shares;
(g) supplying information, prices and other data to be
furnished by the Trust under this Agreement; and
(h) any original issue taxes or transfer taxes applicable to
the sale or delivery of the Shares of certificates therefor.
9. Services to and Actions for Trust, Not Underwriter. Any person, even
though also a director, officer, employee, shareholder or agent of Underwriter,
who may be or become an officer, trustee, employee or agent of the Trust, shall
be deemed, when rendering services to the Trust or acting on any business of
the Trust (other than services or business in connection with Underwriter's
duties hereunder), to be rendering such services to or acting solely for the
Trust and not as a director, officer, employee, shareholder or agent, or one
under the control or direction of Underwriter, even though paid by it.
10. The Trust agrees to indemnify, defend and hold Underwriter, its
several officers and directors, and any person who controls the Underwriter
within the meaning of Section 15 of the Securities Act of 1933 (the "1933
Act"), free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which Underwriter, its officers or directors, or any such
controlling person may incur, under the 1933 Act or under common law or
otherwise, arising out of or based upon (i) a breach by the Trust of its
obligations under this Agreement or (ii) any alleged untrue statement of a
material fact contained in the Registration Statement, Prospectus or Statement
of Additional Information of the Trust or arising out of or based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that in no
event shall anything contained in this Agreement be construed so as to protect
Underwriter against any liability to the Trust or its shareholders to which
Underwriter would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence, in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this Agreement.
11. Underwriter agrees to indemnify, defend and hold the Trust, its
several officers and directors, and any person who controls the Trust within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or
directors, or any such controlling person may incur, under the 1933 Act or
under common law or otherwise, arising out of or based upon (i) a breach by
Underwriter of its obligations under this agreement or (ii) any alleged untrue
statement of a material fact contained in information furnished in writing by
Underwriter to the Trust
<PAGE> 5
for use in the Registration statement, Prospectus or Statement of Additional
Information of a Fund or arising out of or based upon any alleged omission to
state a material fact in connection with such information required to be stated
in the Registration Statement, Prospectus or Statement of Additional
Information or necessary to make such information not misleading.
12. Termination and Amendment of this Agreement. This Agreement shall
automatically terminate, without the payment of any penalty, in the event of
its "assignment" (as defined under the Investment Company Act of 1940. This
Agreement may be amended only if such amendment is approved (i) by Underwriter,
(ii) either by action of the Board of Trustees of the Trust or at a meeting of
the Shareholders of the Trust by the affirmative vote of a majority of the
outstanding Shares, and (iii) by a majority of the Trustees of the Trust who
are not interested persons of the Trust or of Underwriter, by vote cast in
person at a meeting called for the purpose of voting on such approval. Either
the Trust or Underwriter may at any time terminate this Agreement on sixty (60)
days' written notice delivered or mailed by registered mail, postage prepaid,
to the other party.
13. Effective Period of this Agreement. This Agreement shall take effect
upon its execution and shall remain in full force and effect for a period of
two years from the date of its execution (unless terminated automatically as
set forth in Paragraph 12, and from year to year thereafter), subject to annual
approval (i) by Underwriter, (ii) by the Board of Trustees of the Trust or a
vote of a majority of the outstanding Shares, and (iii) by a majority of the
Trustees of the Trust who are not interested persons of the Trust or of
Underwriter, by vote cast in person at a meeting called for the purpose of
voting on such approval.
14. Limitation of Trust's Liability. It is expressly agreed that the
obligations of the Trust hereunder shall not be binding upon any of the
Trustees, Shareholders, nominees, officers, agents or employees of the Trust,
personally, but bind only the trust property of the Trust, as provided in the
Declaration of Trust of the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees and Shareholders of the Trust
and signed by the officers of the Trust, acting as such, and neither such
authorization by such Trustees and Shareholders nor such execution and delivery
by such officers shall be deemed to have been made by any of them individually
or to impose any liability on them personally, but shall bind only the trust
property of the Trust as provided in its Declaration of Trust. A copy of the
Certificate of Trust of the Trust is on file with the Secretary of State of the
State of Delaware.
15. New Series. The terms and provisions of this Agreement shall become
automatically applicable to any additional series of the Trust established
during the initial or renewal term of this Agreement.
16. Successor Investment Company. Unless this Agreement has been
terminated in accordance with Paragraph 13, the terms and provisions of this
Agreement shall become automatically applicable to any investment company which
is a successor to the Trust as a result of a reorganization, recapitalization
or change of domicile.
17. Severability. In the event any provision of this Agreement is
determined to be void or unenforceable, such determination shall not affect the
remainder of this Agreement, which shall continue to be in force.
<PAGE> 6
18. Questions of Interpretation.
(a) This Agreement shall be governed by the internal laws of
the State of Illinois.
(b) Any questions of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the Act shall be resolved by reference to such term or provision
of the Act and to interpretation thereof, if any, by the United states courts
or in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued
pursuant to said Act. In addition, where the effect of a requirement of the
Act, reflected in any provision of this Agreement is revised by rule,
regulation or order of the Securities and Exchange Commission, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
19. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that for this purpose the
address of the Trust is 77 West Washington Street, Chicago, Illinois 60602
and of the Underwriter shall be 1793 Kingswood Drive, Suite 200, Southlake,
Texas 76092.
20. Counterparts. This Agreement may be in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
21. Binding Effect. Each of the undersigned expressly warrants and
represents that he has the full power and authority to sign this Agreement on
behalf of the party indicated, and that his signature will operate to bind the
party indicated to the foregoing terms.
22. Force Majeure. If either party shall be delayed in its performance
of services or prevented entirely or in part from performing services due to
causes or events beyond its control, including and without limitation, acts of
God, interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
<PAGE> 7
IN WITNESS WHEREOF, the Trust and Underwriter have each caused this
Agreement to be signed on its behalf, all as of the day and year first above
written.
THE KENWOOD FUNDS
BY:
-------------------------------
BARBARA L. BOWLES, PRESIDENT
AMERIPRIME FINANCIAL SECURITIES, INC.
BY:
----------------------------------
KENNETH D. TRUMPFHELLER, PRESIDENT
<PAGE> 8
EXHIBIT A
The compensation to be paid for the services to be performed on behalf of the
Kenwood Growth & Income Fund (the "Fund") under the Underwriting Agreement
between The Kenwood Funds and AmeriPrime Financial Securities, Inc. shall be
the greater of $18,000 or 0.05% of average daily net assets of the Fund per
each fiscal year to be computed as follows:
$1500 per month or .004167% of average daily net assets paid monthly, such that
at the end of each quarter, the average net assets to date for the current
fiscal year will be computed and any amounts to be added or reimbursed will be
reflected in the next month.
<PAGE> 1
EXHIBIT 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholder
The Kenwood Funds -
Kenwood Growth & Income Fund
We have audited the accompanying statement of assets and liabilities of The
Kenwood Funds - Kenwood Growth & Income Fund as of April 11, 1996. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit of
the statement of assets and liabilities provides a reasonable basis for our
opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of The
Kenwood Funds - Kenwood Growth & Income Fund as of April 11, 1996, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
-------------------------
Coopers & Lybrand LLP
Milwaukee, Wisconsin
April 16, 1996
1
<PAGE> 2
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 2 to the
Registration Statement on Form N-1A of The Kenwood Funds - Kenwood Growth &
Income Fund (the "Fund") of our report dated April 16, 1996 on our audit of the
statement of assets and liabilities of the Fund as of April 11, 1996. We also
consent to the reference to our Firm under the caption "Independent
Accountants" in the Statement of Additional Information.
/s/ Coopers & Lybrand LLP
-------------------------
Coopers & Lybrand LLP
Milwaukee, Wisconsin
April 19, 1996
<PAGE> 1
EXHIBIT 17
THE KENWOOD FUNDS
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
Please read the following information together with the
Individual Retirement Account Custodial Agreement and the Prospectus(es) for
the fund(s) you select for investment of your IRA contributions.
You may revoke this account any time within seven calendar
days after it is established by mailing or delivering a written request for
revocation to: The Kenwood Funds, c/o Firstar Trust Company, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701, Attention: Mutual Fund Services
(1-888-KENFUND). If your revocation is mailed, the date of the postmark (or
the date of certification if sent by certified or registered mail) will be
considered your revocation date. Upon proper revocation, you will receive a
full refund of your initial contribution, without any adjustments for items
such as administrative fees or fluctuations in market value.
1. General. Your IRA is a custodial account created for
your exclusive benefit, and Firstar Trust Company serves as custodian. Your
interest in the account is nonforfeitable.
2. Investments. Contributions made to your IRA will be
invested in accordance with your election in the Kenwood Growth & Income Fund
and/or any other regulated investment company of the Trust commonly known as
The Kenwood Funds. The Kenwood Group serves as investment advisor or any other
regulated investment company designated by No part of your account may be
invested in life insurance contracts; further, the assets of your account may
not be commingled with other property.
3. Eligibility. Employees and self-employed individuals
are eligible to contribute to an IRA. (You may also make a contribution to an
IRA out of alimony you receive.) Employers may also contribute to
employer-sponsored IRAs established for the benefit of their employees. You
may also establish an IRA to receive rollover contributions and transfers from
another IRA custodian or trustee or from certain other retirement plans.
4. Time of Contribution. You may make regular
contributions to your IRA any time up to and including the due date for filing
your tax return for the year, not including extensions. You may continue to
make regular contributions to your IRA up to (but not including) the calendar
year in which you reach 70-1/2. Employer contributions to a SEP - IRA plan may
be continued after you attain age 70-1/2. Rollover contributions and transfers
may be made at any time, including after you reach age 70-1/2.
5. Amount of Contribution. You may make annual regular
contributions to an IRA in any amount up to 100% of your compensation for the
year or $2,000, whichever is less. Qualifying rollover contributions and
transfers are not subject to this limitation.
6. Spousal IRA. If you are married and your spouse is
not employed (or if your employed spouse elects to be treated as having no
compensation), you may make contributions to a spousal IRA in addition to your
own IRA. The maximum amount contributed to both your own and to your spouse's
IRA may not exceed 100% of your compensation or $2,250, whichever is less. The
contribution may be split between the IRAs as you elect. In no event, however,
may the annual contribution to either your account or your spouse's account
exceed $2,000.
7. Rollovers and Transfers. You are allowed to "roll
over" a distribution or transfer your assets from one individual retirement
account to another without any tax liability. Rollovers between IRAs may be
made once per year and must be accomplished within 60 days after the
distribution. There is no limit on direct transfers of IRA assets from one IRA
custodian or trustee to another. Also, under certain conditions, you may roll
over (tax free) all or a portion of a distribution received from a qualified
plan or tax-sheltered annuity in which you participate or in which your
deceased spouse
<PAGE> 2
participated. However, strict limitations apply to such rollovers, and you
should seek competent advice in order to comply with all of the rules governing
rollovers.
Effective January 1, 1993, most distributions from qualified
retirement plans will be subject to a 20% withholding requirement. The 20%
withholding can be avoided by directly transferring the amount of the
distribution to an individual retirement account or to certain other types of
retirement plans. You should receive more information regarding these new
withholding rules and whether your distribution can be transferred to an IRA
from the plan administrator prior to receiving your distribution.
8. Tax Deductibility of Annual Contributions. Although
you may make an IRA contribution within the limitations described above, all or
a portion of your contribution may be nondeductible. No deduction is allowed
for a rollover contribution or transfer. If you are not married and are not an
"active participant" in an employer-sponsored retirement plan, you may make a
fully deductible IRA contribution in any amount up to $2,000 or 100% of your
compensation for the year, whichever is less. The same limits apply if you are
married and file a joint return with your spouse and neither you nor your
spouse is an "active participant" in an employer-sponsored retirement plan.
An employer-sponsored retirement plan includes any of the
following types of retirement plans:
-- a qualified pension, profit-sharing, or stock bonus
plan established in accordance with IRC 401(a) or
401(k),
-- a Simplified Employee Pension Plan (SEP)
(IRC 408(k)),
-- a deferred compensation plan maintained by a
governmental unit or agency,
-- tax-sheltered annuities and custodial accounts
(IRC 403(b) and 403(b)(7)),
-- a qualified annuity plan under IRC Section 403(a).
Generally, you are considered an "active participant" in a
defined contribution plan if an employer contribution or forfeiture was
credited to your account during the year. You are considered an "active
participant" in a defined benefit plan if you are eligible to participate in a
plan, even though you elect not to participate. You are also treated as an
"active participant" if you make a voluntary or mandatory contribution to any
type of plan, even if your employer makes no contribution to the plan.
If you (or your spouse, if filing a joint tax return) are
covered by an employer-sponsored retirement plan, your IRA contribution is
fully deductible if your adjusted gross income (or combined income if you file
a joint tax return) does not exceed certain limits. For this purpose adjusted
gross income is not modified to take into account any deduction for IRA
contributions, but does take into account the passive loss limitations under
Code Section 86 and any taxable benefits under the Social Security Act and the
Railroad Retirement Act.
If you (or your spouse, if filing a joint tax return) are
covered by an employer-sponsored retirement plan, the deduction for your IRA
contribution is reduced proportionately for adjusted gross income which exceeds
the applicable dollar amount. The applicable dollar amount for an individual
is $25,000 and $40,000 for married couples filing a joint tax return. The
applicable dollar limit for married individuals filing separate returns if $0.
If your adjusted gross income exceeds the applicable dollar amount by $10,000
or less, you may make a deductible IRA contribution. The deductible amount,
however, will be less than $2000.
To determine the amount of your deductible contribution, use
the following calculations:
1) Subtract the applicable dollar amount from your
adjusted gross income. If the result is $10,000 or
more, you can only make a nondeductible contribution
to your IRA.
2
<PAGE> 3
2) Divide the above figure by $10,000, and multiply that
percentage by $2,000.
3) Subtract the dollar amount (result from #2 above)
from $2,000 to determine the amount which is
deductible.
If the deduction limit is not a multiple of $10 then it should
be rounded up to the next $10. There is a $200 minimum floor on the deduction
limit if your adjusted gross income does not exceed $35,000 (for a single
taxpayer), $50,000 (for married taxpayers filing jointly) or $10,000 (for a
married taxpayer filing separately).
Even if your income exceeds the limits described above, you
may make a contribution to your IRA up to the contribution limitations
described in Section 5 above. To the extent that your contribution exceeds the
deductible limits, it will be nondeductible. However, earnings on all IRA
contributions (including non-deductible contributions) are tax deferred until
distribution.
9. Excess Contributions. Contributions which exceed the
allowable maximum for federal income tax purposes are treated as excess
contributions. A nondeductible penalty tax of 6% of the excess amount
contributed will be added to your income tax for each year in which the excess
contribution remains in your account.
10. Correction of Excess Contribution. If you make a
contribution in excess of your allowable maximum, you may correct the excess
contribution and avoid the 6% penalty tax for that year by withdrawing the
excess contribution and its earnings on or before the date, including
extensions, for filing your tax return for the tax year for which the
contribution was made. Any earnings on the withdrawn excess contribution will
be taxable in the year the excess contribution was made and may be subject to a
10% early distribution penalty tax if you are under age 59 1/2. In addition,
in certain cases an excess contribution may be withdrawn after the time for
filing your tax return. Finally, excess contributions for one year may be
carried forward and applied against the contribution limitation in succeeding
years.
11. Simplified Employee Pension Plan. Your IRA may be
used as part of a Simplified Employee Pension Plan established by your
employer. Your employer may contribute to your IRA/SEP up to a maximum of 15%
of your compensation or $30,000, whichever is less. If your SEP Plan permits,
you may also elect to have your employer make salary reduction contributions of
up to $9,500 for 1996 (adjusted periodically for cost of living increases) per
year to your IRA. However, the combination of the employer's contributions and
your salary reduction contributions may not exceed the lesser of 15% of your
compensation or $30,000. It is your responsibility and that of your employer
to see that contributions in excess of normal IRA limits are made under a valid
Simplified Employee Pension Plan and are, therefore, proper.
12. Form of Distributions. Distributions may be made in
any one of three methods:
(a) a lump-sum distribution,
(b) installments over a period not extending
beyond your life expectancy (as determined by actuarial tables), or
(c) installments over a period not extending
beyond the joint life expectancy of you and your designated beneficiary (as
determined by actuarial tables).
You may also use your account balance to purchase an
annuity contract payable over your life expectancy or the joint life expectancy
of you and your beneficiary, in which case your custodial account will
terminate.
13. Latest Time to Withdraw. You must begin receiving
the assets in your account no later than April 1 following the calendar year in
which you reach age 70-1/2 (your "required beginning date"). In general, the
minimum
3
<PAGE> 4
amount that must be distributed each year is equal to the amount obtained by
dividing the balance in your IRA on the last day of the prior year (or the last
day of the year prior to the year in which you attain age 70-1/2) by your life
expectancy, the joint life expectancy of you and your beneficiary, or the
specified payment term, whichever is applicable. A federal tax penalty may be
imposed against you if the required minimum distribution is not made for the
year you reach age 70-1/2 and for each year thereafter. The penalty is equal
to 50% of the amount by which the actual distribution is less than the required
minimum.
Unless you or your spouse elects otherwise, your life
expectancy and/or the life expectancy of your spouse will be recalculated
annually. An election not to recalculate life expectancy(ies) is irrevocable
and will apply to all subsequent years. The life expectancy of a nonspouse
beneficiary may not be recalculated.
If you have two or more IRAs, you may satisfy the minimum
distribution requirements by receiving a distribution from one of your IRAs in
an amount sufficient to satisfy the minimum distribution requirements for your
other IRAs. You must still calculate the required minimum distribution
separately for each IRA, but then such amounts may be totalled and the total
distribution taken from one or more of your individual IRAs.
Distribution from your IRA must satisfy the special
"incidental death benefit" rules of the Internal Revenue Code. These
provisions set forth certain limitations on the joint life expectancy of you
and your beneficiary. If your beneficiary is not your spouse, your beneficiary
will be generally considered to be no more than 10 years younger than you for
the purpose of calculating the minimum amount that must be distributed.
14. Distribution of Account Assets After Death. If you
die before receiving the balance of your account, distribution of your
remaining account balance is subject to several special rules. If you die on
or after your required beginning date, distribution must continue in a method
at least as rapid as under the method of distribution in effect at your death.
If you die before your required beginning date, your remaining interest will,
at the election of your beneficiary or beneficiaries, (i) be distributed by
December 31 of the year in which occurs the fifth anniversary of your death, or
(ii) commence to be distributed by December 31 of the year following your death
over a period not exceeding the life or life expectancy of your designated
beneficiary or beneficiaries.
Two additional distribution options are available if your
spouse is the beneficiary: (i) payments to your spouse may commence as late as
December 31 of the year you would have attained age 70-1/2 and be distributed
over a period not exceeding the life or life expectancy of your spouse, or (ii)
your spouse can simply elect to treat your IRA as his or her own, in which case
distributions will be required to commence by April 1 following the calendar
year in which your spouse attains age 70-1/2.
This explanation only summarizes the minimum distribution
rules. Other rules and exceptions may apply to you that are not discussed in
this summary, including rules which, in some cases would prevent you from using
certain options described above. You should consult your personal tax advisor
or IRS Publication 590 for more detailed information.
15. Tax Treatment of Distributions. Amounts distributed
to you are generally includable in your gross income in the taxable year you
receive them and are taxable as ordinary income. To the extent, however, that
any part of a distribution constitutes a return of your nondeductible
contributions, it will not be included in your income. The amount of any
distribution excludable from income is the portion that bears the same ratio as
your aggregate nondeductible contributions bear to the balance of your IRA at
the end of the year (calculated after adding back distributions during the
year). For this purpose, all of your IRAs are treated as single IRA.
Furthermore, all distributions from an IRA during a taxable year are to be
treated as one distribution. The aggregate amount of distributions excludable
from income for all years cannot exceed the aggregate nondeductible
contributions for all calendar years.
4
<PAGE> 5
No distribution to you or anyone else from your account can
qualify for capital gains treatment under the federal income tax laws.
Similarly, you are not entitled to the special five- or ten-year averaging rule
for lump-sum distributions available to persons receiving distributions from
certain other types of retirement plans. All distributions are taxed to the
recipient as ordinary income except the portion of a distribution which
represents a return of nondeductible contributions.
Any distribution which is properly rolled over will not be
includable in your gross income.
There is a 15% excise tax assessed against annual
distributions from tax-favored retirement plans, including IRAs, which exceed
$155,000 (adjusted periodically for cost of living increases). To determine
whether you have distributions in excess of this limit, you must aggregate the
amounts of all distributions received by you during the calendar year from all
retirement plans, including IRAs. Certain special rules and exemptions may
apply. Please consult with your tax advisor for more complete information.
16. Early Distributions. Distributions from your IRA
made before age 59-1/2 will be subject to a 10% nondeductible penalty tax
unless the distribution is a return of nondeductible contributions or is made
because of your death, disability, as part of a series of substantially equal
periodic payments over your life expectancy or the joint life expectancy of you
and your beneficiary, or the distribution is an exempt withdrawal of an excess
contribution. The penalty tax may also be avoided if the distribution is
rolled over to another individual retirement account.
17. Qualification of Plan. Your Individual Retirement
Account Plan has been approved as to form by the Internal Revenue Service. The
Internal Revenue Service approval is a determination only as to the form of the
Plan and does not represent a determination of the merits of the Plan as
adopted by you. You may obtain further information with respect to your
Individual Retirement Account from any district office of the Internal Revenue
Service.
18. Prohibited Transactions. If you engage in a
"prohibited transaction," as defined in section 4975 of the Internal Revenue
Code, your account will be disqualified, and the entire balance in your account
will be treated as if distributed to you and will be taxable to you as ordinary
income. Examples of prohibited transactions are:
(a) the sale, exchange, or leasing of any property
between you and your account,
(b) the lending of money or other extensions of credit
between you and your account,
(c) the furnishing of goods, services, or facilities
between you and your account.
If you are under age 59-1/2, you may also be subject to the 10% penalty tax on
early distributions.
19. Penalty for Pledging Account. If you use (pledge)
all or part of your IRA as security for a loan, then the portion so pledged
will be treated as if distributed to you and will be taxable to you as ordinary
income during the year in which you make such pledge. The 10% penalty tax on
early distributions may also apply.
20. Reporting for Tax Purposes. Deductible contributions
to your IRA may be claimed as a deduction on your IRS form 1040 for the taxable
year contributed. If any nondeductible contributions are made by you during a
tax year, such amounts must be reported on Form 8606 and attached to your
Federal Income Tax Return for the year contributed. If you report a
nondeductible contribution to your IRA and do not make the contribution, you
will be subject to a $100 penalty for each overstatement unless a reasonable
cause is shown for not contributing. Other reporting will be required by you
in the event that special taxes or penalties described herein are due. You
must also file Treasury Form 5329 with the IRS for each taxable year in which
the contribution limits are exceeded, a premature distribution takes place, or
less than the required minimum amount is distributed from your IRA.
5
<PAGE> 6
21. Allocation of Earnings. The method of computing and
allocating annual earnings is set forth in Article VIII, Section 1 of the
Individual Retirement Account Custodial Agreement. The growth in value of your
IRA is neither guaranteed or projected.
22. Income Tax Withholding. You must indicate on
distribution requests whether or not federal income taxes should be withheld.
Redemption request not indicating an election not to have federal income tax
withheld will be subject to withholding.
23. Other Information. Information about the shares
of each mutual fund available for investment by your IRA must be furnished to
you in the form of a prospectus governed by rules of the Securities and
Exchange Commission. Please refer to the prospectus for detailed information
concerning your mutual fund. You may obtain further information concerning
IRAs from any District Office of the Internal Revenue Service.
Fees and other expenses of maintaining your account may be
charged to you or your account. The Custodian's fee schedule as of the date
you establish the IRA is included as part of these materials.
6
<PAGE> 7
THE KENWOOD FUNDS
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The following constitutes an agreement establishing an
Individual Retirement Account (under Section 408(a) of the Internal Revenue
Code) between the Depositor and the Custodian.
ARTICLE I
The Custodian may accept additional cash contributions on
behalf of the Depositor for a tax year of the Depositor. The total cash
contributions are limited to $2,000 for the tax year unless the contribution is
a rollover contribution described in Section 402(c) (but only after December
31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a
simplified employee pension plan as described in Section 408(k). Rollover
contributions before January 1, 1993, include rollovers described in Section
402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described in
Section 408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in
life insurance contracts, nor may the assets of the custodial account be
commingled with other property except in a common trust fund or common
investment fund (within the meaning of Section 408(a)(5)).
2. No part of the custodial funds may be invested in
collectibles (within the meaning of Section 408(m)) except as otherwise
permitted by Section 408(m)(3) which provides an exception for certain gold and
silver coins and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to
the contrary, the distribution of the Depositor's interest in the custodial
account shall be made in accordance with the following requirements and shall
otherwise comply with Section 408(a)(6) and Proposed Regulations Section
1.408-8, including the incidental death benefit provisions of Proposed
Regulations Section 1.401(a)(9)-2, the provisions of which are herein
incorporated by reference.
2. Unless otherwise elected by the time distributions
are required to begin to the Depositor under Paragraph 3, or to the surviving
spouse under Paragraph 4, other than in the case of a life annuity, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Depositor and the surviving spouse and shall apply to all
subsequent years. The life expectancy of a nonspouse beneficiary may not be
recalculated.
3. The Depositor's entire interest in the custodial
account must be, or begin to be, distributed by the Depositor's required
beginning date, April 1 following the calendar year end in which the Depositor
reaches age 70 1/2. By that date, the Depositor may elect, in a manner
acceptable to the Custodian, to have the balance in the custodial account
distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or
substantially equal monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or
substantially equal monthly, quarterly, or annual payments over the joint and
last survivor lives of the Depositor and his or her designated beneficiary.
<PAGE> 8
(d) Equal or substantially equal annual payments over a
specified period that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a
specified period that may not be longer than the joint life and last survivor
expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire
interest is distributed to him or her, the entire remaining interest will be
distributed as follows:
(a) If the Depositor dies on or after distribution of his
or her interest has begun, distribution must continue to be made in accordance
with Paragraph 3.
(b) If the Depositor dies before distribution of his or
her interest has begun, the entire remaining interest will, at the election of
the Depositor or, if the Depositor has not so elected, at the election of the
beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year
containing the fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal
payments over the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the year of the
Depositor's death. If, however, the beneficiary is the Depositor's surviving
spouse, then this distribution is not required to begin before December 31 of
the year in which the Depositor would have turned age 70 1/2.
(c) Except where distribution in the form of an annuity
meeting the requirements of Section 408(b)(3) and its related regulations has
irrevocably commenced, distributions are treated as having begun on the
Depositor's required beginning date, even though payments may actually have
been made before that date.
(d) If the Depositor dies before his or her entire
interest has been distributed and if the beneficiary is other than the
surviving spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of a distribution over life expectancy in
equal or substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the custodial
account as of the close of business on December 31 of the preceding year by the
life expectancy of the Depositor (or the joint life and last survivor
expectancy of the Depositor and the Depositor's designated beneficiary, or the
life expectancy of the designated beneficiary, whichever applies). In the case
of distributions under Paragraph 3, determine the initial life expectancy (or
joint life and last survivor expectancy) using the attained ages of the
Depositor and designed beneficiary as of their birthdays in the year the
Depositor reaches age 70 1/2. In the case of a distribution in accordance with
Paragraph 4(b)(ii), determine life expectancy using the attained age of the
designated beneficiary as of the beneficiary's birthday in the year
distributions are required to commence.
6. The owner of two or more individual retirement
accounts may use the "alternative method" described in Notice 88-38, 1988-1
C.B. 524, to satisfy the minimum distribution requirements described above.
This method permits an individual to satisfy these requirements by taking from
one individual retirement account the amount required to satisfy the
requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with
information necessary for the Custodian to prepare any reports required under
Section 408(i) and Regulations Section 1.408-5 and 1.408-6.
2
<PAGE> 9
2. The Custodian agrees to submit reports to the
Internal Revenue Service and the Depositor prescribed by the Internal Revenue
Service.
ARTICLE VI
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through III and this sentence will
be controlling. Any additional articles that are not consistent with Section
408(a) and related regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply
with the provisions of the Code and related regulations. Other amendments may
be made with the consent of the persons whose signatures appear below.
ARTICLE VIII
1. Investment of Account Assets. (a) All contributions
to the custodial account shall be invested in the shares of the Kenwood Growth
& Income Fund and/or any other regulated investment company of the series of
funds commonly known as The Kenwood Funds ("Investment Company"). Shares of
stock of an Investment Company shall be referred to as "Investment Company
Shares." To the extent that two or more funds are available within The
Kenwood Funds, contributions shall be invested in accordance with the
Depositor's investment election.
(b) Each contribution to the custodial account shall
identify the Depositor's account number and be accompanied by a signed
statement directing the investment of that contribution. The Custodian may
return to the Depositor, without liability for interest thereon, any
contribution which is not accompanied by adequate account identification or an
appropriate signed statement directing investment of that contribution.
(c) Contributions shall be invested in whole and
fractional Investment Company Shares at the price and in the manner such shares
are offered to the public. All distributions received on Investment Company
Shares, including both dividends and capital gains distributions, held in the
custodial account shall be reinvested in like shares. If any distribution of
Investment Company Shares may be received in additional like shares or in cash
or other property, the Custodian shall elect to receive such distribution in
additional like Investment Company Shares.
(d) All Investment Company Shares acquired by the
Custodian shall be registered in the name of the Custodian or its nominee. The
Depositor shall be the beneficial owner of all Investment Company Shares held
in the custodial account and the Custodian shall not vote any such shares,
except upon written direction of the Depositor, timely received, in a form
acceptable to the Custodian. The Custodian agrees to forward to the Depositor
each prospectus, report, notice, proxy and related proxy soliciting materials
applicable to Investment Company Shares held in the custodial account received
by the Custodian.
(e) The Depositor may, at any time, by written notice to
the Custodian, in a form acceptable to the Custodian, redeem any number of
shares held in the custodial account and reinvest the proceeds in the shares of
any other Investment Company upon the terms and within the limitations imposed
by the then current prospectus of such other Investment Company in which the
Depositor elects to invest. By giving such instructions, the Depositor will be
deemed to have acknowledged receipt of such prospectus. Such redemptions and
reinvestments shall be done at the price and in the manner such shares are then
being redeemed or offered by the respective Investment Company.
2. Amendment and Termination. (a) The Kenwood Group,
Inc., the investment advisor for The Kenwood Funds, may amend the Custodial
Account (including retroactive amendments) by delivering to the Custodian and
to the Depositor written notice of such amendment setting forth the substance
and effective date of the amendment. The Custodian and the Depositor shall be
deemed to have consented to any such amendment not objected to in writing by
the Custodian or Depositor, as applicable, within thirty (30) days of receipt
of the notice, provided that no amendment shall
3
<PAGE> 10
cause or permit any part of the assets of the custodial account to be diverted
to purposes other than for the exclusive benefit of the Depositor or his or her
beneficiaries.
(b) The Depositor may terminate the custodial account at
any time by delivering to the Custodian a written notice of such termination.
(c) The custodial account shall automatically terminate
upon distribution to the Depositor or his or her beneficiaries of its entire
balance.
3. Taxes and Custodial Fees. Any income taxes or other
taxes levied or assessed upon or in respect of the assets or income of the
custodial account and any transfer taxes incurred shall be paid from the
custodial account. All administrative expenses incurred by the Custodian in
the performance of its duties, including fees for legal services rendered to
the Custodian in connection with the custodial account, and the Custodian's
compensation shall be paid from the custodial account, unless otherwise paid by
the Depositor or his or her beneficiaries. Sufficient shares shall be
liquidated from the custodial account to pay such fees and expenses.
The Custodian's fees are set forth in a schedule provided to
the Depositor. Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by the schedule will be subject to such
additional charges as will reasonably compensate the Custodian. Fees for
refund of excess contributions, transferring to a successor trustee or
custodian, or redemption/reinvestment of Investment Company Shares will be
deducted from the refund or redemption proceeds and the remaining balance will
be remitted to the Depositor, or reinvested or transferred in accordance with
the Depositor's instructions.
4. Reports and Notices. (a) The Custodian shall keep
adequate records of transactions it is required to perform hereunder. After
the close of each calendar year, the Custodian shall provide to the Depositor
or his or her legal representative a written report or reports reflecting the
transactions effected by it during such year and the assets and liabilities of
the Custodial Account at the close of the year.
(b) All communications or notices shall be deemed to be
given upon receipt by the Custodian at Post Office Box 701, Milwaukee,
Wisconsin 53201-0701 or the Depositor at his most recent address shown in the
Custodian's records. The Depositor agrees to advise the Custodian promptly, in
writing, of any change of address.
5. Designation of Beneficiary. The Depositor may
designate a beneficiary or beneficiaries to receive benefits from the custodial
account in the event of the Depositor's death. In the event the Depositor has
not designated a beneficiary, or if all beneficiaries shall predecease the
Depositor, the following persons shall take in the order named:
(a) The spouse of the Depositor;
(b) If the spouse shall predecease the Depositor or if
the Depositor does not have a spouse, then to the Depositor's estate.
The Depositor may also change or revoke any previously made
designation of beneficiary. Any designation or change or revocation of a
designation shall be made by written notice in a form acceptable to and filed
with the Custodian, prior to the complete distribution of the balance in the
custodial account. The last such designation on file at the time of the
Depositor's death shall govern. If a beneficiary dies after the Depositor, but
prior to receiving his or her entire interest in the custodial account, the
remaining interest in the custodial account shall be paid to the beneficiary's
estate.
6. Multiple Individual Retirement Accounts. In the
event the Depositor maintains more than one individual retirement account (as
defined in Section 408(a)) and elects to satisfy his or her minimum
distribution requirements described in Article IV above by making a
distribution for another individual retirement account in accordance with
Paragraph 6 thereof, the Depositor shall be deemed to have elected to calculate
the amount of his or her minimum
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<PAGE> 11
distribution under this custodial account in the same manner as under the
individual retirement account from which the distribution is made.
7. Inalienability of Benefits. Neither the benefits
provided under this custodial account nor the assets held therein shall be
subject to alienation, assignment, garnishment, attachment, execution or levy
of any kind and any attempt to cause such benefits or assets to be so subjected
shall not be recognized except to the extent as may be required by law.
8. Rollover Contributions and Transfers. The Custodian
shall have the right to receive rollover contributions and to receive direct
transfers from other custodians or trustees. All contributions must be made in
cash or check.
9. Conflict in Provisions. To the extent that any
provisions of this Article VIII shall conflict with the provisions of Articles
IV, V and/or VII, the provisions of this Article VIII shall govern.
10. Applicable State Law. This custodial account shall
be construed, administered and enforced according to the laws of the State of
Wisconsin.
11. Resignation or Removal of Custodian. The Custodian
may resign at any time upon thirty (30) days notice in writing to the
Investment Company. Upon such resignation, the Investment Company shall notify
the Depositor, and shall appoint a successor custodian under this Agreement.
The Depositor or the Investment Company at any time may remove the Custodian
upon 30 days written notice to that effect in a form acceptable to and filed
with the Custodian. Such notice must include designation of a successor
custodian. The successor custodian shall satisfy the requirements of section
408(h) of the Code. Upon receipt by the Custodian of written acceptance of
such appointment by the successor custodian, the Custodian shall transfer and
pay over to such successor the assets of and records relating to the Custodial
Account. The Custodian is authorized, however, to reserve such sum of money as
it may deem advisable for payment of all its fees, compensation, costs and
expenses, or for payment of any other liability constituting a charge on or
against the assets of the Custodial Account or on or against the Custodian, and
where necessary may liquidate shares in the Custodial Account for such
payments. Any balance of such reserve remaining after the payment of all such
items shall be paid over to the successor Custodian. The Custodian shall not
be liable for the acts or omissions of any predecessor or successor custodian
or trustee.
12. Limitation on Custodian Responsibility. The
Custodian will not under any circumstances be responsible for the timing,
purpose or propriety of any contribution or of any distribution made hereunder,
nor shall the Custodian incur any liability or responsibility for any tax
imposed on account of any such contribution or distribution. Further, the
Custodian shall not incur any liability or responsibility in taking or
omitting to take any action based on any notice, election, or instruction or
any written instrument believed by the Custodian to be genuine and to have
been properly executed. The Custodian shall be under no duty of inquiry with
respect to any such notice, election, instruction, or written instrument, but
in its discretion may request any tax waivers, proof of signatures or other
evidence which it reasonably deems necessary for its protection. The
Depositor and the successors of the Depositor including any executor or
administrator of the Depositor shall, to the extent permitted by law,
indemnify the Custodian and its successors and assigns against any and all
claims, actions or liabilities of the Custodian to the Depositor or the
successors or beneficiaries of the Depositor whatsoever (including without
limitation all reasonable expenses incurred in defending against or settlement
of such claims, actions or liabilities) which may arise in connection with this
Agreement or the Custodial Account, except those due to the Custodian's own bad
faith, gross negligence or willful misconduct. The Custodial shall not be
under any duty to take any action not specified in this Agreement, unless the
Depositor shall furnish it with instructions in proper form and such
instructions shall have been specifically agreed to by the Custodian, or to
defend or engage in any suit with respect hereto unless it shall have first
agreed in writing to do so and shall have been fully indemnified to its
satisfaction.
5
<PAGE> 1
Exhibit 16
KENWOOD GROWTH & INCOME FUND
Computation of One Year Hypothetical
Average Annual Total Return
Form N-1A Part C Item 16
<TABLE>
<CAPTION>
Initial NAV Shares Reinvested Dividend Rate Reinvest
Investment Outstanding Shares Amount Price
---------- ----------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
5/1/96 1,000.00 10.00 100.000
101.990 1.990 20.00 0.20 10.05
4/30/97 1,047.44 10.07 104.016 2.026 20.40 0.20 10.07
</TABLE>
HYPOTHETICAL TOTAL RETURN CALCULATION
P(1+T)*n=ERV
1,000(1+T)*1=1,047.44
T=4.74%
