SEMI-ANNUAL REPORT
THE KENWOOD FUNDS
The Kenwood Growth & Income Fund
October 31, 1998
TABLE OF CONTENTS
Page
Shareholder Letter ............................. 1
Performance Summary ............................ 2
Statement of Assets and Liabilities ............ 3
Statement of Operations ........................ 4
Statements of Changes in Net Assets ............ 5
Financial Highlights ........................... 6
Schedule of Investments ........................ 7-8
Notes to the Financial Statements .............. 9-10
NOTICE TO INVESTORS
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, nor are they insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
An investment in the Fund involves risk, including possible loss of
principal, due to fluctuation in the Fund's net asset value.
Dear Fellow Shareholders:
The twelve months ending November 30, 1998 included a strong recovery from
the summer market decline that reached the bottom on October 8, 1998. Our
mid sized value approach is the continuing focus in the portfolio. We
believe each company in the portfolio is well positioned to adjust to the
challenging current economic outlook and to prepare for the new global
environment. We remain fully invested in equities with cash positions
typically less than 5% for liquidity purposes and new investment ideas.
The Kenwood Growth and Income Fund total return since inception ranked
# 60 out of 200 mid cap value mutual funds as measured by Lipper Analytical
Services through November 30, 1998. Cumulative total return for this period
was 39.76%. The average return for this universe was 30.47%. Assets
under management in the Fund continue to increase. The Fund has grown
$1.9 million to $3.2 million during the past year.
For mutual fund investors with a long-term investment strategy, the
Individual Retirement Account (IRA) continues to be an attractive
investment vehicle. The Taxpayer Relief Act of 1997 enhanced the
value of owning an IRA. Some of the benefits of the Taxpayer Relief
Act were the reduction in capital gains, the income limits for fully
deductible IRA's will be increased over the next ten years, penalty-
free distributions from deductible IRA's and tax-free withdrawals from
non-deductible IRA's. You can make contributions to your 1998 Traditional
or Roth IRA until April 15, 1999. The IRA is one of the few tax
deferred investment instruments that remains. Please consult your
accountant or financial planner to determine if an IRA is a suitable
investment for you.
Enclosed is a copy of the 1998 Mutual Fund Tax Guide. It contains
detailed information regarding the new tax law changes for 1998 and
other useful information.
We are pleased to serve as your Fund Manager and appreciate your continued
vote of confidence. As we approach a new year we wish you the best and
look forward to assisting you in meeting your personal financial goals.
Sincerely,
/s/ Barbara L. Bowles
Barbara L. Bowles
12/98
THE KENWOOD GROWTH & INCOME FUND
PERFORMANCE SUMMARY
Kenwood
Growth & S & P
Income MidCap
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
May-98 15,052 15,555
Jun-98 15,357 15,653
Jul-98 14,423 15,046
Aug-98 11,990 12,246
Sep-98 11,990 13,388
Oct-98 12,946 14,585
Average
Annual
Six Months One Year Since
ended ended Inception
October 31, October 31, May 1,
Total Return 1998 1998 1996
The Kenwood Growth & Income Fund -15.94% -3.75% 10.86%
S&P MidCap 400 Stock Index*<F1> -10.46% 6.71% 16.27%
*<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
October 31, 1998
ASSETS:
Investments, at market value
(Cost of $2,971,316) $2,789,494
Income receivable 3,799
Receivable for capital shares sold 200
Receivable for securities sold 43,116
Prepaid expenses 10,153
Receivable from Adviser 22,809
Total assets 2,869,571
LIABILITIES:
Accrued expenses and other liabilities 41,052
Payable for securities purchased 26,869
Total liabilities 67,921
NET ASSETS $2,801,650
NET ASSETS CONSIST OF:
Capital stock $2,836,297
Accumulated undistributed net investment income 21,888
Accumulated undistributed net realized
gain on investments 125,287
Net unrealized (depreciation) on investments (181,822)
Total Net Assets $2,801,650
Shares outstanding
(unlimited amount of shares authorized) 234,974
Net Asset Value and Redemption Price Per Share $11.92
See Notes to the Financial Statements
THE KENWOOD GROWTH & INCOME FUND
STATEMENT OF OPERATIONS
For the Six Months ended October 31, 1998
INVESTMENT INCOME:
Dividend Income $25,609
Interest Income 5,300
Total investment income 30,909
EXPENSES:
Professional fees 12,604
Shareholder servicing fees 11,846
Fund accounting fees 11,095
Investment advisory fees 11,074
Administration fees 10,083
Federal and state registration fees 7,058
Custody fees 5,445
Distribution fees 3,691
Trustees' fees and expenses 3,390
Reports to shareholders 3,018
Other 607
Total expenses before voluntary waiver and reimbursement 79,911
Less: Voluntary waiver of expenses and reimbursement
from Adviser (65,146)
Net expenses 14,765
NET INVESTMENT INCOME 16,144
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 44,398
Change in unrealized depreciation on investments (561,022)
Net realized and unrealized loss on investments (516,624)
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($500,480)
See Notes to the Financial Statements
THE KENWOOD GROWTH & INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year
Six months ended
ended April 30,
Oct. 31, 1998 1998
OPERATIONS:
Net investment income $16,144 $20,397
Net realized gain on investments 44,398 221,113
Change in unrealized appreciation (depreciation)
on investments (561,022) 355,978
Net increase (decrease) in net assets from
operations (500,480) 597,488
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income 0 (18,982)
Distributions from net realized capital gains 0 (155,240)
Total Distributions 0 (174,222)
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 342,547 1,413,437
Proceeds from shares issued to shareholders in
reinvestment of dividends 0 173,632
Cost of shares redeemed (146,164) (175,190)
Net increase in net assets resulting
from capital share transactions 196,383 1,411,879
TOTAL INCREASE (DECREASE) IN NET ASSETS (304,097) 1,835,145
NET ASSETS:
Beginning of period 3,105,747 1,270,602
End of period (including undistributed net investment
income of $21,888 and $5,744, respectively) $2,801,650 $3,105,747
See Notes to the Financial Statements
THE KENWOOD GROWTH & INCOME FUND
FINANCIAL HIGHLIGHTS
Six
Months Year Year
ended ended ended
Oct. 31, April 30, April 30,
1998 1998 1997
SELECTED PER SHARE DATA(1)<F2>:
NET ASSET VALUE, BEGINNING OF PERIOD $14.18 $11.20 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.07 0.09 0.14
Net realized and unrealized gain (loss)
on investments (2.33) 3.82 1.21
Total from investment operations (2.26) 3.91 1.35
LESS DISTRIBUTIONS:
Dividends from net investment income 0.00 (0.10) (0.10)
Distributions from net realized capital gains 0.00 (0.83) (0.05)
Total distributions 0.00 (0.93) (0.15)
NET ASSET VALUE, END OF PERIOD $11.92 $14.18 $11.20
TOTAL RETURN(2)<F3> (15.94%) 35.66% 13.52%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $2,801,650 $3,105,747 $1,270,602
Ratio of net expenses to average
net assets(2),(3)<F3>,<F4> 1.00% 0.99% 0.92%
Ratio of net investment income
to average net assets(2),(3)<F3>,<F4> 1.09% 0.97% 1.85%
Portfolio turnover rate(2)<F3> 38.70% 73.27% 31.21%
(1)<F2>Information presented relates to a share of capital stock of the Fund
outstanding for the entire period.
(2)<F3>Not annualized for the period ended October 31, 1998.
(3)<F4>Without voluntary expense reimbursements and waivers of $65,146, $127,451
and $113,568, the ratio of expenses to average net assets would have been 5.41%,
7.06% and 26.06%, and the ratio of net investment income to average net assets
would have been (3.32)%, (5.10)% and (23.29)%, respectively, for the six months
ended October 31, 1998 and the years ended April 30, 1998 and April 30, 1997.
See Notes to the Financial Statements
THE KENWOOD GROWTH & INCOME FUND
SCHEDULE OF INVESTMENTS - October 31, 1998
Shares Value
COMMON STOCKS - 90.8%
AUTOS & TRANSPORTATION - 7.7%
890 AMR Corporation *<F5> $59,630
723 Canadian National Railway Company 36,466
1,710 FDX Corporation *<F5> 89,882
745 Kansas City Southern Industries, Inc. 28,776
214,754
BANKING/SAVINGS & LOANS - 13.1%
1,000 BankBoston Corporation 36,813
1,901 Bank One Corporation 92,911
5,700 Colonial BancGroup, Inc. 74,456
5,820 Sovereign Bancorp, Inc. 76,387
3,200 Washington Federal, Inc. 85,400
365,967
CONSUMER DISCRETIONARY - 5.7%
1,405 American Greetings Corporation - Class A 56,582
1,900 Mattel, Inc. 68,163
1,400 The Limited, Inc. 35,875
160,620
ELECTRONIC EQUIPMENT - 7.1%
2,100 Avnet, Inc. 104,475
6,866 CommScope, Inc. *<F5> 95,695
200,170
ENGINES - 2.4%
2,000 Cummins Engine Company, Inc. 68,250
FINANCIAL SERVICES - 6.2%
1,650 The PMI Group, Inc. 83,222
3,700 United Asset Management Corporation 89,725
172,947
FOOD & BEVERAGES - 4.0%
850 Bestfoods 46,325
3,100 Wendy's International, Inc. 65,100
111,425
FUNERAL SERVICES - 0.7%
2,300 The Loewen Group, Inc. 20,555
HEALTHCARE - 6.3%
6,588 Foundation Health Corporation *<F5> 76,607
3,500 Mallinckrodt, Inc. 99,750
176,357
INTEGRATED OILS - 7.0%
1,370 Occidental Petroleum Corporation 27,229
3,070 Ultramar Diamond Shamrock Corporation 82,698
2,500 Unocal Corporation 84,844
194,771
LEISURE & ENTERTAINMENT - 3.3%
1,750 Callaway Golf Company 19,031
2,100 Hasbro, Inc. 73,631
92,662
See Notes to the Financial Statements
MATERIALS & PROCESSING - 4.6%
1,050 Fluor Corporation $40,753
2,850 Nalco Chemical Company 88,172
128,925
PHOTOGRAPHIC EQUIPMENT - 0.5%
500 Polaroid Corporation 13,281
PRINTING - 4.6%
5,700 Bowne & Co., Inc. 76,594
3,600 John H. Harland Company 52,200
128,794
REAL ESTATE INVESTMENT TRUSTS (REITS) - 3.2%
4,200 Arden Realty, Inc. 90,825
RETAIL - 3.4%
6,800 KMart Corporation *<F5> 96,050
SECURITY SERVICES - 2.9%
2,700 Pittston Brink's Group 80,325
TECHNOLOGY - 3.5%
1,065 Adobe Systems, Inc. 39,538
4,005 Novell, Inc. *<F5> 59,574
99,112
TELECOMMUNICATIONS - 1.7%
952 Alcatel 20,944
1,000 General Instrument Corporation *<F5> 25,688
46,632
UTILITIES - 2.9%
2,610 Interstate Energy Corp. 80,747
TOTAL COMMON STOCKS (Cost of $2,724,991) 2,543,169
Principal
Amount
SHORT-TERM INVESTMENTS - 8.8%
VARIABLE RATE DEMAND NOTES - 8.8%
30,895 American Family Financial Services, Inc. 30,895
96,380 General Mills, Inc. 96,380
117,316 Pitney Bowes Credit Corporation 117,316
1,734 Wisconsin Electric Power Company 1,734
246,325
TOTAL SHORT-TERM INVESTMENTS (Cost of $246,325) 246,325
TOTAL INVESTMENTS - 99.6% (Cost of $2,971,316) 2,789,494
Other Assets, less Liabilities - 0.4% 12,156
TOTAL NET ASSETS - 100.0% $2,801,650
*<F5>Non-income producing security.
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
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:
Six Months Year
ended ended
Oct. 31, 1998 April 30, 1998
Shares sold 26,278 104,639
Shares issued to owners in
reinvestment of dividends 0 13,387
26,278 118,026
Shares redeemed (10,369) (12,443)
Net increase 15,909 105,583
NOTES TO THE FINANCIAL STATEMENTS - cont'd.
4). INVESTMENT TRANSACTIONS
The aggregate purchases and sales of equity securities,
excluding short-term investments, for the Fund for the six months
ended October 31, 1998, were as follows:
Purchases Sales
U. S. Government -- --
Other $1,085,622 $1,023,324
At October 31, 1998, gross unrealized appreciation and
depreciation of investments for federal income tax purposes was as
follows:
Appreciation $217,498
(Depreciation) (431,624)
Net unrealized appreciation
(depreciation) on investments ($214,126)
At October 31, 1998, the cost of investments for federal
income tax purposes was $3,003,620.
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
six months ended October 31, 1998 was $65,146.
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 53,517 shares or 22.8%
of the outstanding shares of the Fund as of October 31, 1998.
