The Kenwood Funds
The Kenwood Growth & Income Fund
Annual Report
April 30, 1998
Shareholder Letter 1-2
Performance Summary 3
Statement of Assets and Liabilities 4
Statement of Operations 5
Statements of Changes in Net Assets 6
Financial Highlights 7
Schedule of Investments 8
Notes to the Financial Statements 9-10
Report of Independent Accountants 11
This report is authorized for distribution only when preceded or
accompanied by a current prospectus.
June 8, 1998
Dear Fellow Shareholders:
The twelve months ending April 30, 1998 produced an
unprecedented third consecutive year of very strong stock market
returns. We continue to strive toward our goal of providing you
with a high total rate of return, while assuming lower risks.
The portfolio is built to have strong value based fundamentals
so that, in our judgment, these stocks have reasonable prices at
purchase, are managed well by proven business leaders and that
the successful execution of each company's business plan will
likely lead to higher valuations in the market place over time.
It is especially important, in our view, that reasonable control
of risk be implemented closely when the stock market is selling
at historically high levels of price to book value and price to
earnings rations.
The Fund returned 35.66% for the twelve months ending April 30,
1998. The broad market indexes performed even better with a
41.07% increase for the S & P 500 and a 47.92% increase for the
S & P 400 Midcap Index. The market has been experiencing
stronger performance in larger sized companies. Also, some of
the more cyclical and growth oriented companies in the
mid-capitalization universe performed very well in the past
year. This accounted for much of the premium performance of the
indices versus the Fund. Global investors and other strategic
investors are not currently focused on value based judgments
when looking at the U.S. equity market in our opinion. These
powerful money flows are setting the tome for the larger company
bias in the market. We believe a value based strategy such as
that used by The Kenwood Growth and Income Fund will win in the
long term because it is constructed with lower inherent risk and
is not dependent upon projecting superior earnings expectations
out to infinity.
Performance was strong in the three month period ending April
30, 1998. The Fund returned 15.00% while the S&P 500 rose by
13.96% and the S&P 400 Midcap Index increased 11.01%. Winning
stocks in the quarter included Beneficial Corporation, Kmart
Corporation, and the Loewen Group, Inc. Weak performers
included DSC Corporation, Entergy Corporation and Mallinckrodt
Inc.
Assets under management in the Fund continue to grow. The Fund
reached $3.1 million on April 30, 1998. Two important
publishers of mutual fund data and statistical comparisons now
include The Kenwood Growth and Income Fund in their
publications. Investors are encouraged to track the Fund in
reports from Morningstar and Lipper Analytical Services.
In addition to investing directly by calling 1-(888)-KEN-FUND,
investors may now conveniently invest in The Kenwood Growth and
Income Fund through Charles Schwab's Mutual Fund OneSource
service. Simply call 1-(800)-435-4000 or visit a Charles Schwab
office for more information.
Long term investors should focus upon the continued favorable
stock market environment of lower interest rates, lower
inflation, lower capital gains taxes and sound fiscal and
monetary policies. The stock market is expected to continue to
be the best investment vehicle to build wealth and to meet your
long term financial needs such as retirement planning,
educational expenses and other goals.
We appreciate your confidence in choosing The Kenwood Group to
help you achieve your financial goals. We value you as clients
and look forward to a long-term relationship.
Sincerely
/s/ Barbara L. Bowles
Barbara L. Bowles, CFA
President
THE KENWOOD GROWTH & INCOME FUND
PERFORMANCE SUMMARY
Kenwood
Growth & S & P
Income MidCap
Date Fund 400 Index
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
May-97 12,335 11,974
Jun-97 12,660 12,310
Jul-97 13,237 13,529
Aug-97 13,308 13,513
Sep-97 13,866 14,290
Oct-97 13,450 13,668
Nov-97 13,613 13,870
Dec-97 14,086 14,409
Jan-98 13,391 14,135
Feb-98 14,672 15,305
Mar-98 15,259 15,996
Apr-98 15,400 16,288
Fiscal Year ended Average Annual
Total Return April 30, 1998 Since Inception 5/1/96
The Kenwood Growth &
Income Fund 35.66% 24.10%
S&P MidCap 400 Stock
Index*<F1> 47.92% 27.63%
*<F1>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 GROWTH & INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998
ASSETS:
Investments, at value (cost $2,937,133) $3,316,333
Income receivable 1,966
Receivable for capital shares sold 15,200
Receivable for securities sold 41,779
Prepaid expenses 6,262
Receivable from Adviser 30,671
Total Assets 3,412,211
LIABILITIES:
Accrued expenses and other liabilities 41,120
Payable for securities purchased 265,344
Total Liabilities 306,464
NET ASSETS $3,105,747
NET ASSETS CONSIST OF:
Capital stock $2,639,915
Undistributed net investment income 5,744
Undistributed accumulated net realized gains
on investments 80,888
Unrealized net appreciation on investments 379,200
Total Net Assets $3,105,747
Shares outstanding (unlimited amount of shares
authorized) 219,065
Net asset value and redemption price per share $14.18
See notes to the financial statements.
THE KENWOOD GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
For the Year ended April 30, 1998
INVESTMENT INCOME:
Dividend income $32,146
Interest income 9,114
EXPENSES:
Shareholder servicing fees 25,494
Professional fees 24,021
Fund accounting fees 20,009
Administration fees 19,002
Investment advisory fees 15,753
Federal and state registration fees 13,888
Custody fees 11,216
Trustees' fees and expenses 9,490
Distribution fees 5,251
Reports to shareholders 2,986
Other 1,204
Total expenses before voluntary waiver and
reimbursement 148,314
Less: Voluntary waiver of expenses and
reimbursement from Adviser (127,451)
Net expenses 20,863
NET INVESTMENT INCOME 20,397
REALIZED AND UNREALIZED GAINS:
Net realized gain on investments 221,113
Change in unrealized appreciation
on investments 355,978
Net gain on investments 577,091
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $597,488
See notes to the financial statements.
THE KENWOOD GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year ended April 30,
1998 1997
OPERATIONS:
Net investment income $20,397 $8,370
Net realized gain on
investments 221,113 17,142
Change in unrealized
appreciation on investments 355,978 23,222
Net increase in net assets
resulting from operations 597,488 48,734
CAPITAL SHARE TRANSACTIONS:
Shares sold 1,413,437 1,125,873
Shares issued to owners in
reinvestment of dividends 173,632 5,927
Shares redeemed (175,190) (3,774)
Net increase in net assets resulting
from capital share
transactions 1,411,879 1,128,026
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment
income (18,982) (4,041)
Distributions from net
realized capital gains (155,240) (2,127)
Total distributions (174,222) (6,168)
TOTAL INCREASE
IN NET ASSETS 1,835,145 1,170,592
NET ASSETS:
Beginning of year 1,270,602 100,010
End of year (including $3,105,747 $1,270,602
undistributed net investment
income of $5,744 and
$4,329, respectively)
See notes to the financial statements.
THE KENWOOD GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Year ended April 30,
1998 1997
SELECTED PER SHARE DATA (1)<F2>:
Net asset value, beginning of year $11.20 $10.00
Income from investment operations:
Net investment income 0.09 0.14
Net realized and unrealized
gains on securities 3.82 1.21
Total from investment
operations 3.91 1.35
Less distributions:
Dividends from net investment
income (0.10) (0.10)
Distributions from net
realized capital gains (0.83) (0.05)
Total distributions (0.93) (0.15)
Net asset value, end of year $14.18 $11.20
Total return 35.66% 13.52%
Supplemental data and ratios:
Net assets, end of year $3,105,747 $1,270,602
Ratio of net expenses to
average net assets (2)<F3> 0.99% 0.92%
Ratio of net investment income
to average net assets (2)<F3> 0.97% 1.85%
Portfolio turnover rate 73.27% 31.21%
Average commission rate paid $0.0596 $0.0600
(1)<F2> Information presented relates to a share of capital stock of
the Fund outstanding for the entire period.
(2)<F3> Without voluntary expense reimbursements and waivers of
$127,451 and $113,568, the ratio of expenses to average net
assets would have been 7.06% and 26.06%, and the ratio of net
investment income to average net assets would have been (5.10)%
and (23.29)%, respectively, for the years ended April 30, 1998
and April 30, 1997.
See notes to the financial statements.
THE KENWOOD GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS
April 30, 1998
Number of Market
Shares Value
COMMON STOCKS 96.5%
Autos & Transportation 6.9%
345 AMR Corporation *<F4> $52,569
1,310 FDX Corporation*<F4> 89,342
743 Illinois Central Corporation 29,534
945 Kansas City Southern Industries, Inc. 42,702
214,147
Banking 5.6%
1,900 Colonial BancGroup, Inc. 68,224
5,520 Sovereign Bancorp, Inc. 104,340
172,564
Computers 1.4%
800 Computer Sciences Corporation *<F4> 42,200
Consumer Discretionary 3.1%
905 American Greetings Corporation - Class A 41,856
600 Mattel, Inc. 22,988
950 The Limited, Inc. 32,334
97,178
Electronic Equipment 6.4%
1,900 Avnet, Inc. 117,268
4,966 CommScope, Inc.*<F4> 80,697
197,965
Engines 0.5%
300 Cummins Engine Company, Inc. 16,222
Financial Services 11.0%
100 Beneficial Corporation 13,038
800 First Chicago NBD Corporation 74,300
670 First Commerce Corporation 54,521
1,150 The PMI Group, Inc. 93,574
100 St. Paul Companies, Inc. 8,475
3,700 United Asset Management Corporation 97,748
341,656
Food & Beverages 4.6%
1,350 Bestfoods 73,987
2,900 Wendy's International, Inc. 69,781
143,768
Funeral Services 2.9%
3,200 The Loewen Group, Inc. 90,800
Healthcare 6.2%
205 Baxter International, Inc. 11,365
2,888 Foundation Health Corporation *<F4> 83,571
3,000 Maillinckrodt, Inc. 96,811
191,747
Integrated Oils 6.8%
1,370 Occidental Petroleum Corporation 40,329
2,770 Ultramar Diamond Shamrock Corporation 89,629
2,000 Unocal Corporation 81,875
211,833
Leisure & Entertainment 5.7%
3,150 Callaway Golf Company 85,838
2,500 Hasbro, Inc. 92,031
177,869
Materials & Processing 6.8%
1,250 Fluor Corporation 59,063
2,550 Nalco Chemical Company 101,411
1,800 Rubbermaid,Inc. 51,525
211,999
Photographic Equipment 1.3%
900 Polaroid Corporation 39,824
Printing 4.2%
1,600 Bowne & Co., Inc. 66,149
3,600 John H. Harland Company 64,125
130,274
Real Estate Investment Trusts (REITS) 3.2%
3,500 Arden Realty, Inc. 98,293
Retail 2.8%
5,000 KMart Corporation *<F4> 87,188
Security Services 3.4%
2,700 Pittston Brink's Group 105,638
Technology 6.0%
665 Adobe Systems, Inc. 33,292
5,260 DSC Communications Corporation *<F4> 94,849
5,905 Novell, Inc. *<F4> 59,050
187,191
Telecommunications 2.2%
3,000 General Instrument Corporation *<F4> 67,312
Utilities 5.5%
1,027 Century Telephone Enterprises 43,712
2,600 Entergy Corporation 64,675
2,010 Interstate Energy Corp. 63,441
171,828
Total Common Stocks (Cost $2,618,296) 2,997,496
Principal
Amount
SHORT-TERM INVESTMENTS 10.3%
Variable Rate Demand Notes 10.3%
$100,000 General Mills,Inc. 100,000
42,317 Johnson Controls, Inc. 42,317
76,520 Pitney Bowes Credit Corporation 76,520
100,000 Sara Lee Corporation 100,000
Total Short-Term Investments (Cost $318,837) 318,837
Total Investments (Cost $2,937,133) 106.8% 3,316,333
Liabilities, less Other Assets (6.8)% (210,586)
TOTAL NET ASSETS 100.0% $3,105,747
*<F4>non-income producing
See notes to the financial statements.
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 shareholders
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 shareholder service fees.
d). Distributions to Shareholders - Dividends from net
investment income are declared and paid at least annually.
Distributions of net realized capital gains, if any, will be
declared at least annually.
e). Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
f). Other - Investment and shareholder 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.
3). CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
Year ended April 30,
1998 1997
Shares sold 104,639 103,258
Shares issued to owners in
reinvestment of dividends 13,387 555
118,026 103,813
Shares redeemed (12,443) (332)
Net increase 105,583 103,481
4). INVESTMENT TRANSACTIONS
The aggregate purchases and sales of equity securities,
excluding short-term investments, for the Fund for the year
ended April 30, 1998, were as follows:
Purchases Sales
U. S. Government -- --
Other $2,843,200 $1,426,033
At April 30, 1998, gross unrealized appreciation and
depreciation of investments for federal income tax purposes was
as follows:
Appreciation $442,562
(Depreciation) (75,143)
Net unrealized appreciation
on investments $367,419
At April 30, 1998, the cost of investments for federal income
tax purposes was $2,948,914.
5). INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Trust has entered into an investment advisory agreement
with The Kenwood Group, Inc. (the "Adviser"). Pursuant to its
Advisory Agreement with the Fund, the Adviser is entitled to
receive a fee, calculated daily and payable monthly, at the
annual rate of 0.75% on the first $500 million of average net
assets, 0.70% on the next $500 million of average daily net
assets, and 0.65% on the average daily net assets over $1
billion. The Adviser has voluntarily waived and reimbursed
certain expenses to the extent that total operating expenses
(exclusive of interest, taxes, brokerage commissions and other
costs incurred in connection with the purchase or sale of
portfolio securities and extraordinary items) exceeded the
annual rate of 1.00% 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, 1998 was
$127,451.
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 1940 Act, 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.
6). RELATED PARTIES
Officers and Trustees of the Trust held 49,900 shares or 22.8%
of the outstanding shares of the Fund as of April 30, 1998.
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, 1998, and the related statement of operations for the
year then ended and the statements of changes in net assets and
the financial highlights for each of the two years in the period
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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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, 1998 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 audits provide 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,
1998, the results of its operations for the year then ended and
the changes in its net assets and the financial highlights for
each of the two years in the period then ended in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Milwaukee, Wisconsin
May 15, 1998
