<PAGE> 1
[THE KENWOOD FUNDS LETTERHEAD]
THE KENWOOD FUNDS
THE KENWOOD GROWTH & INCOME FUND
ANNUAL REPORT
APRIL 30, 1997
<TABLE>
<S> <C>
Shareholder Letter......................................... 1
Performance Summary........................................ 2
Statement of Assets and Liabilities........................ 3
Statement of Operations.................................... 3
Statement of Changes in Net Assets......................... 4
Financial Highlights....................................... 4
Schedule of Investments.................................... 5
Notes to the Financial Statements.......................... 6-7
Report of Independent Accountants.......................... 8
</TABLE>
This report is authorized for distribution only when preceded or
accompanied by a current prospectus.
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 2
[THE KENWOOD FUNDS LETTERHEAD]
June 12, 1997
Dear Fellow Shareholders,
Thank you for choosing The Kenwood Growth & Income Fund (the first in a
family of mutual funds to be offered by The Kenwood Group). We celebrated our
fund's one year anniversary on May 1, 1997. We are pleased to report a total
return for the fund of 13.52% versus 10.13% by our performance benchmark, the
S&P MidCap 400 Stock Index.
We have become more defensive in the structure of our portfolio. The
number of companies in our portfolio is at the high end of the range and the
capitalization weighting is slightly higher than normal. The portfolio
currently maintains greater emphasis in utilities, energy and noncyclicals.
Our cash position reflects our continued concerns regarding the volatility of
the market and the timing of client cash inflows.
Although we believe the Federal Reserve is likely to raise the fed
funds rate by only 25 basis points, possibly in July, the market has already
anticipated this. Currently the S&P 500 is selling at a multiple of nearly 19
times expected earnings and the largest 30 stocks are selling at even greater
multiples. This marks the third consecutive year where large cap shocks are
pacing the performance of the market, a trend we believe will not last much
longer.
Our interest rate outlook suggests that the long bond could continue to
trade in a range of 6.60% to 7.15%. Earnings growth started the year quite
strong, but some slowdown is expected as the year progresses. In our opinion,
the low unemployment rate does not tell the complete story about the job
market. New layoff announcements and involuntary part-time employment
indicate a more reasonable view of why labor costs are not rising as rapidly as
some economists expected. Economic weakness may continue in Europe while Latin
markets and Japan show some improvements. Because of these and other factors,
the dollar should remain strong versus most currencies.
For many people mutual funds continue to serve as the best means to
diversify investment risks and still receive great returns. We are pleased
with your confidence in our abilities as The Kenwood Growth & Income Fund has
grown to nearly $1.5 million is assets. We look forward to a positive ongoing
relationship with current and future shareholders and will continue to apply
our fundamentally driven approach to investing to protect your assets and
ensure your future.
Sincerely,
/s/ Barbara L. Bowles
Barbara L. Bowles
President
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 3
[THE KENWOOD FUNDS LETTERHEAD]
THE KENWOOD GROWTH & INCOME FUND
PERFORMANCE SUMMARY
[PERFORMANCE SUMMARY GRAPH]
<TABLE>
<CAPTION>
TOTAL RETURNS KENWOOD GROWTH & INCOME FUND S&P MIDCAP 400 INDEX
- -------------------------------------------------------------------------
<S> <C> <C>
Apr-96 10,000 10,000
May-96 10,330 10,135
Jun-96 10,390 9,983
Jul-96 9,600 9,307
Aug-96 9,850 9,844
Sep-96 10,400 10,273
Oct-96 10,290 10,303
Nov-96 10,890 10,883
Dec-96 10,815 10,895
Jan-97 11,220 11,304
Feb-97 11,372 11,211
Mar-97 11,302 10,733
Apr-97 11,352 11,013
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN ONE YEAR SINCE INCEPTION 5/1/96
- -----------------------------------------------------------------------------------------
<S> <C> <C>
The Kenwood Growth & Income Fund 13.52% 13.52%
S&P MidCap 400 Stock Index * 10.13% 10.13%
</TABLE>
*The Standard & Poor's MidCap 400 Index (S&P MidCap) is a
capital-weighted index, representing the aggregate market value of the common
equity of 400 stocks chosen by Standard & Poor's with a medium capitalization of
approximately $700 million. This chart assumes an initial investment of $10,000
made on May 1,1996 (commencement of operations). Returns shown include the
reinvestment of all dividends. Past performance is not predictive of future
performance. Investment return and principal value will fluctuate, so that your
shares, when redeemed, may be worth more or less than the original cost.
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 4
[THE KENWOOD FUNDS LETTERHEAD]
THE KENWOOD GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $1,267,647) $1,290,869
Income receivable 2,658
Prepaid expenses 3,960
Receivable from Adviser 41,314
----------
Total Assets 1,338,801
----------
LIABILITIES:
Accrued expenses and other liabilities 45,296
Payable for securities purchased 22,903
----------
Total Liabilities 68,199
----------
NET ASSETS $1,270,602
==========
NET ASSETS CONSIST OF:
Capital stock $1,228,036
Undistributed net investment income 4,329
Undistributed accumulated net realized gains
on investments 15,015
Unrealized net appreciation on investments 23,222
----------
Total Net Assets $1,270,602
==========
Shares outstanding
(unlimited amount of shares authorized) 113,482
Net asset value and redemption price per share $11.20
</TABLE>
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividend income $8,348
Interest income 4,168
-------
12,516
-------
EXPENSES:
Investment advisory fees 3,380
Administration fees 19,673
Shareholder servicing fees 20,642
Fund accounting fees 21,648
Distribution fees 1,127
Custody fees 4,129
Federal and state registration fees 12,672
Professional fees 18,036
Reports to shareholders 5,888
Trustees' fees and expenses 9,334
Other 1,185
-------
Total expenses before waiver and reimbursement 117,714
Less: Waiver of expenses and reimbursement
from Adviser (113,568)
-------
Net expenses 4,146
-------
NET INVESTMENT INCOME 8,370
-------
REALIZED AND UNREALIZED GAINS:
Net realized gain on investments 17,142
Change in unrealized appreciation
on investments 23,222
-------
Net gain on investments 40,364
-------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $48,734
=======
</TABLE>
See notes to the financial statements.
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 5
[THE KENWOOD FUNDS LETTERHEAD]
THE KENWOOD GROWTH & INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED APRIL 30, 1997
<TABLE>
<S> <C>
OPERATIONS:
Net investment income $8,370
Net realized gain on investments 17,142
Change in unrealized appreciation
on investments 23,222
----------
Net increase in net assets
resulting from operations 48,734
----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 1,125,873
Shares issued to owners in
reinvestment of dividends 5,927
Shares redeemed (3,774)
----------
Net increase in net assets resulting
from capital share transactions 1,128,026
----------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (4,041)
Distributions from net capital gains (2,127)
----------
Total distributions (6,168)
----------
TOTAL INCREASE
IN NET ASSETS 1,170,592
NET ASSETS:
Beginning of year 100,010
----------
End of year (including undistributed
net investment income of $4,329) $1,270,602
==========
</TABLE>
FINANCIAL HIGHLIGHTS
Year Ended April 30, 1997
<TABLE>
<S> <C>
PER SHARE DATA:
Net asset value, beginning of year $10.00
Income from investment operations:
Net investment income 0.14
Net realized and unrealized gains
on securities 1.21
------
Total from investment operations 1.35
------
Less distributions:
Dividends from net investment income (0.10)
Distributions from capital gains (0.05)
------
Total distributions (0.15)
------
Net asset value, end of year $11.20
======
Total return 13.52%
Supplemental data and ratios:
Net assets, end of year $1,270,602
Ratio of net expenses to average net assets (1) 0.92%
Ratio of net investment income
to average net assets (1) 1.85%
Portfolio turnover rate 31.21%
Average commission rate paid $0.0600
(1)Without expense reimbursements of $113,568 for the period, the ratio
of expenses to average net assets would have been 26.06% and the
ratio of net investment income to average net assets would have
been (23.29)%.
</TABLE>
See notes to the Financial Statements.
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 6
[THE KENWOOD FUNDS LETTERHEAD]
THE KENWOOD GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
APRIL 30, 1997
<TABLE>
<CAPTION>
Number of Market
Shares Value
- ---------- ----------
<S> <C>
COMMON STOCKS 79.0%
AUTOS & TRANSPORTATION 6.5%
145 AMR Corporation * $13,503
600 Breed Technologies, Inc. 10,875
110 Federal Express Corporation * 5,926
1,110 Illinois Central Corporation 36,907
315 Kansas City Southern Industries, Inc. 16,223
----------
83,434
----------
COSMETICS & SOAP 2.0%
1,635 Dial Corporation 25,342
----------
CONSUMER DISCRETIONARY 11.4%
490 ADT Ltd. * 13,414
505 American Greetings Corporation - Clas 16,160
1,450 Mattel, Inc. 40,419
1,250 The Limited, Inc. 22,656
325 Time Warner, Inc. 14,625
1,120 Tupperware Corporation 37,240
----------
144,514
----------
CONSUMER STAPLE 1.3%
680 A.T. Cross Company 6,715
125 CPC International, Inc. 10,328
----------
17,043
----------
FINANCIAL SERVICES 7.7%
200 First Chicago NBD Corporation 11,250
470 First Commerce Corporation 19,211
90 H. F. Ahmanson & Company 3,431
750 The PMI Group, Inc. 38,344
100 Student Loan Marketing Association 11,825
200 St. Paul Companies, Inc. 13,400
----------
97,461
----------
HEALTHCARE 6.4%
405 Baxter International, Inc. 19,389
488 Foundation Health Corporation * 13,176
961 MedPartners, Inc. * 17,538
2,610 Mylan Laboratories 31,320
----------
81,423
----------
INTEGRATED OILS 7.3%
1,870 Occidental Petroleum Corporation 41,374
870 Ultramar Diamond Shamrock Corporation 27,949
600 Unocal Corporation 22,875
----------
92,198
----------
MATERIALS & PROCESSING 11.7%
510 Ball Corporation 13,706
315 Corning, Inc. 15,199
750 Fluor Corporation 41,250
200 Morton International, Inc. * 8,375
900 Nalco Chemical Company 32,400
1,550 Rubbermaid, Inc. 37,200
----------
148,130
----------
PRINTING 1.6%
570 R.R.Donnelley & Sons Company $19,522
----------
PRODUCER DURABLES 1.1%
570 Amphenol Corporation * 14,464
----------
TECHNOLOGY 6.1%
565 Adobe Systems, Inc. 22,106
330 Autodesk, Inc. 11,715
860 DSC Communications Corporation * 17,522
455 Helix Technology Corporation 13,821
1,705 Novell, Inc. * 12,894
----------
78,058
----------
UTILITIES 15.9%
1,335 Century Telephone Enterprises 39,883
1,700 Entergy Corporation 39,738
2,400 LCI International, Inc. * 39,900
100 People's Energy Corporation 3,375
1,800 Unicom Corporation 39,150
1,460 WPL Holdings, Inc. 39,603
----------
201,649
----------
Total Common Stocks (Cost $980,016) 1,003,238
----------
<CAPTION>
Principal
Amount
- ---------
<S> <C>
SHORT-TERM INVESTMENTS 22.6%
VARIABLE RATE DEMAND NOTES 22.6%
$31,845 American Family Financial Services, Inc. 31,845
30,862 Eli Lilly & Company 30,862
42,842 General Mills, Inc. 42,842
51,578 Johnson Controls, Inc. 51,578
30,100 Pitney Bowes, Inc. 30,100
35,510 Sara Lee Corporation 35,510
25,600 Warner-Lambert Company 25,600
39,294 Wisconsin Electric Power Company 39,294
----------
Total Short-Term Investments (Cost $287,631) 287,631
----------
Total Investments 101.6% (Cost $1,267,647) 1,290,869
Liabilities, less Other Assets (1.6)% (20,267)
----------
TOTAL NET ASSETS 100.0% $1,270,602
==========
* non-income producing
</TABLE>
See notes to the Financial Statements.
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 7
[THE KENWOOD FUNDS LETTERHEAD]
THE KENWOOD GROWTH & INCOME FUND
NOTES TO THE FINANCIAL STATEMENTS
1). ORGANIZATION
The Kenwood Growth & Income Fund (the "Fund") is a mutual fund created
by The Kenwood Funds (the "Trust") which was organized as a business trust
under the laws of Delaware on January 9, 1996. The Fund is the sole series
issued by the Trust, which is an open-end management investment company
registered under the Investment Company Act of 1940 ("1940 Act"), as amended.
The Fund issued and sold 10,001 shares of its capital stock at $10 per share on
April 11, 1996. The Fund commenced operations on May 1, 1996. The objective
of the Fund is capital appreciation and current income.
2). SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
a). Investment Valuation - Securities which are traded on a securities
exchange (including options on indexes so traded) or securities listed on the
NASDAQ National Market are valued at the last 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. Debt securities maturing in 60 days or less are normally valued at
amortized cost. Debt 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.
b). Federal Income Taxes - No provision for federal income taxes or excise
taxes has been made since the Fund has elected to be taxed as a "regulated
investment company" and intends to distribute substantially all taxable income
to its shareowners and otherwise comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies.
c). Expenses - The Fund is charged for those expenses that are directly
attributable to the portfolio, such as advisory, administration and certain
shareowner service fees.
d). Distributions to Shareowners - Dividends from net investment income are
declared and paid at least annually. Distributions of net realized capital
gains, if any, will be declared at least annually.
e). Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the finan- cial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
f). Other - Investment and shareowner transactions are accounted for no later
than the first business day after trade date. The Fund determines the gain or
loss realized from the investment transactions by comparing the original cost
of the security lot sold with the net sales proceeds. Dividend income is
recognized on the ex-dividend date and interest income is recognized on an
accrual basis.
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 8
[THE KENWOOD FUNDS LETTERHEAD]
NOTES TO THE FINANCIAL STATEMENTS - cont'd.
3). CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
Year Ended
April 30, 1997
Amount Shares
----------------------
<S> <C> <C>
Shares sold $1,125,873 103,258
Shares issued to owners in
reinvestment of dividends 5,927 555
----------------------
1,131,800 103,813
Shares redeemed (3,774) (332)
----------------------
Net increase $1,128,026 103,481
======================
</TABLE>
4). INVESTMENT TRANSACTIONS
The aggregate purchases and sales of equity securities, excluding
short-term investments, for the Fund for the year ended April 30, 1997, were as
follows:
<TABLE>
<CAPTION>
Purchases Sales
-----------------------
<S> <C> <C>
U. S. Government -- --
Other $1,085,674 $122,800
</TABLE>
At April 30, 1997, gross unrealized appreciation and depreciation of
investments for federal income tax purposes was as follows:
<TABLE>
<S> <C>
Appreciation $67,991
(Depreciation) (45,418)
-------
Net unrealized appreciation
on investments $22,573
=======
</TABLE>
At April 30, 1997, the cost of investments for federal income tax
purposes was $1,268,296.
5). INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Trust has entered into an investment advisory agreement with The
Kenwood Group, Inc. (the "Adviser"). Pursuant to its Advisory Agreement with
the Fund, the Adviser is entitled to receive a fee, calculated daily and payable
monthly, at the annual rate of 0.75% on the first $500 million of average net
assets, 0.70% the next $500 million of average daily net assets, and 0.65% on
the average daily net assets over $1 billion. The Adviser waived the management
fee for the Fund's first fiscal year. The Adviser has also reimbursed certain
other expenses to the extent that total operating expenses (exclusive of
interest, taxes, brokerage commission and other costs incurred in connection
with the purchase or sale of portfolio securities and extraordinary items)
exceeded the annual rate of 0.92% of the average net assets of the Fund,
computed on a daily basis. The total amount of fees waived and reimbursed by
the Adviser for the year ended April 30, 1997 was $113,568.
The Trust has entered into a distribution agreement with AmeriPrime
Financial Securities, Inc. (the "Distributor"). Pursuant to the Distribution
Plan adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act
of 1940, the Fund is authorized to expend up to 0.25% annually of the Fund's
average daily net assets to pay distribution fees and to cover certain expenses
incurred in connection with distribution of the Fund's shares. Rule 12b-1
permits an investment company to finance, directly or indirectly any activity
which is primarily intended to result in the sale of its shares only if it does
so in accordance with the provisions of the Rule. The Fund accrued $1,127 for
the year ended April 30, 1997, pursuant to the Plan.
6). RELATED PARTIES
Officers and Trustees of the Trust held 16,877 shares or 14.9% of the
outstanding shares of the Fund as of April 30, 1997.
[THE KENWOOD GROUP INC. LOGO]
<PAGE> 9
THE KENWOOD GROWTH & INCOME FUND
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
The Kenwood Funds - The Kenwood Growth & Income Fund
We have audited the accompanying statement of assets and liabilities of
The Kenwood Funds - The Kenwood Growth & Income Fund (the "Fund"), including
the schedule of investments, as of April 30, 1997, and the related statement of
operations, the statement of changes in net assets and the financial highlights
for the year then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights 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 financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmations of
securities owned as of April 30, 1997 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial
position of the Fund as of April 30, 1997, and the results of its operations,
changes in net assets and the financial highlights for the year then ended in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
May 23, 1997
