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ANNUAL REPORT
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THE KENWOOD FUNDS
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The Kenwood Growth & Income Fund
April 30, 1999
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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
Report of Independent Accountants ................ 11
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.
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<PAGE>
May 28, 1999
Dear Fellow Shareholder:
The twelve months ending April 30, 1999, included a strong price recovery
beginning in the month of April. The market may be resuming a historical trend
where value stocks are performance leaders. Our mid-cap style was once again
invigorated by the resurgence of companies selling at reasonable prices, with
good fundamentals, strong management and low risk. All are key elements of The
Kenwood Growth and Income Fund.
The Kenwood Growth and Income Fund returned 10.00% for the quarter ending April
30, 1999, and the one year return was -4.44%. Cumulative total return for the
Fund since inception (May 1, 1996) was 47.17%. Performance data quoted presents
past performance, which is not an indication of future performance.
Many of our holdings are emerging from profit difficulties which occurred in
1998 including Asian problems, Latin America currency weakness and the Russian
defaults on government bonds. Our companies are striving to improve performance
and shareholder value by implementing strategies that include reducing costs,
entering new markets, and selling assets. We believe the value based strategy,
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 over a long period of time.
During the past fiscal year, the number of shareholders increased by 21% and
assets under management continued to grow. The Fund reached $3.7 million by
April 30, 1999.
We appreciate the confidence expressed by our shareholders.
Sincerely,
/s/ Barbara L. Bowles
AmeriPrime Financial Securities, Inc., Distributor
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THE KENWOOD GROWTH & INCOME FUND
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PERFORMANCE SUMMARY
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Total Returns
Kenwood Growth & Income Fund S&P MidCap 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
Nov-98 13,738 15,313
Dec-98 13,856 17,163
Jan-99 13,379 16,495
Feb-99 12,948 15,631
Mar-99 13,111 16,067
Apr-99 14,717 17,335
<TABLE>
Average Annual Average Annual Cumulative
1 Year ended 3 Years ended Since Inception Since Inception
Total Return April 30, 1999 April 30, 1999 May 1, 1996 May 1, 1996
=====================================================================================================================
<S> <C> <C> <C> <C>
The Kenwood Growth & Income Fund -4.44% 13.75% 13.75% 47.17%
S&P MidCap 400 Stock Index *<F1> 6.43% 20.13% 20.13% 73.35%
=====================================================================================================================
</TABLE>
*<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 weighted average market
value of $3.8 billion as of April 30, 1999. 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.
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THE KENWOOD GROWTH & INCOME FUND
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STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999
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ASSETS:
Investments, at value
(Cost of $3,545,936) $3,751,671
Income receivable 5,367
Receivable for capital shares sold 200
Receivable for securities sold 50,346
Prepaid expenses 6,129
Receivable from Adviser 22,783
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Total assets 3,836,496
----------------
LIABILITIES:
Accrued expenses and other liabilities 47,479
Payable for securities purchased 96,623
----------------
Total liabilities 144,102
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NET ASSETS $3,692,394
================
NET ASSETS CONSIST OF:
Capital stock $3,507,064
Undistributed net investment income 13,396
Accumulated net realized loss on investments (33,801)
Net unrealized appreciation on investments 205,735
================
Total Net Assets $3,692,394
================
Shares outstanding
(unlimited amount of shares authorized) 291,962
Net Asset Value and Redemption Price Per Share $12.65
================
See Notes to the Financial Statements
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<PAGE>
================================================================================
THE KENWOOD GROWTH & INCOME FUND
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STATEMENT OF OPERATIONS
For the Year ended April 30, 1999
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INVESTMENT INCOME:
Dividend income $54,319
Interest income 12,684
--------------
Total investment income 67,003
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EXPENSES:
Professional fees 25,003
Shareholder servicing fees 24,910
Investment advisory fees 22,704
Fund accounting fees 22,009
Administration fees 20,016
Federal and state registration fees 16,608
Custody fees 9,295
Distribution fees 7,568
Trustees' fees and expenses 7,515
Reports to shareholders 2,576
Other 1,205
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Total expenses before voluntary waiver and reimbursement 159,409
Less: Voluntary waiver of expenses and reimbursement
from Adviser (129,137)
--------------
Net expenses 30,272
--------------
NET INVESTMENT INCOME 36,731
--------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized gain (loss) on investments 68,811
Change in unrealized appreciation on investments (173,465)
--------------
Net realized and unrealized loss on investments (104,654)
--------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($67,923)
==============
See Notes to the Financial Statements
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<PAGE>
================================================================================
THE KENWOOD GROWTH & INCOME FUND
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STATEMENTS OF CHANGES IN NET ASSETS
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-------------- --------------
Year Year
ended ended
April 30, April 30,
1999 1998
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OPERATIONS:
Net investment income $36,731 $20,397
Net realized gain on investments 68,811 221,113
Change in unrealized appreciation on
investments (173,465) 355,978
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Net increase (decrease) in net assets from
operations (67,923) 597,488
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DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (29,079) (18,982)
Distributions from net realized gains (183,501) (155,240)
-------------- --------------
Total distributions (212,580) (174,222)
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CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 964,678 1,413,437
Proceeds from shares issued to shareholders
in reinvestment of dividends 211,962 173,632
Cost of shares redeemed (309,490) (175,190)
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Net increase in net assets resulting
from capital share transactions 867,150 1,411,879
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TOTAL INCREASE IN NET ASSETS 586,647 1,835,145
NET ASSETS:
Beginning of year 3,105,747 1,270,602
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End of year (including undistributed net
investment income of $13,396 and
$5,744, respectively) $3,692,394 $3,105,747
============== ==============
See Notes to the Financial Statements
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================================================================================
THE KENWOOD GROWTH & INCOME FUND
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FINANCIAL HIGHLIGHTS
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----------- ----------- -----------
Year Year Year
ended ended ended
April 30, April 30, April 30,
1999 1998 1997
----------- ----------- -----------
SELECTED PER SHARE DATA1<F2>:
NET ASSET VALUE, BEGINNING OF YEAR $14.18 $11.20 $10.00
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.14 0.09 0.14
Net realized and unrealized gain (loss)
on investments (0.82) 3.82 1.21
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Total from investment operations (0.68) 3.91 1.35
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LESS DISTRIBUTIONS:
Dividends from net investment income (0.12) (0.10) (0.10)
Distributions from net realized gains (0.73) (0.83) (0.05)
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Total distributions (0.85) (0.93) (0.15)
----------- ----------- -----------
NET ASSET VALUE, END OF YEAR $12.65 $14.18 $11.20
=========== =========== ===========
TOTAL RETURN (4.44%) 35.66% 13.52%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year $3,692,394 $3,105,747 $1,270,602
Ratio of net expenses to average
net assets2<F3> 1.00% 0.99% 0.92%
Ratio of net investment income to
average net assets2<F3> 1.21% 0.97% 1.85%
Portfolio turnover rate 70.66% 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> Without voluntary expense reimbursements and waivers of $129,137, $127,451
and $113,568, the ratio of expenses to average net assets would have been
5.26%, 7.06% and 26.06%, and the ratio of net investment income to average
net assets would have been (3.05)%, (5.10)% and (23.29)%, respectively,
for the years ended April 30, 1999, April 30, 1998 and April 30, 1997.
See Notes to the Financial Statements
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<PAGE>
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THE KENWOOD GROWTH & INCOME FUND
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SCHEDULE OF INVESTMENTS - April 30, 1999
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Shares Value
------------------------------------------------
COMMON STOCKS - 94.2%
------------------------------------------------
AUTOS & TRANSPORTATION - 4.7%
890 AMR Corporation $ 62,133
723 Canadian National Railway Company 45,639
310 FDX Corporation *<F4> 34,894
545 Kansas City Southern Industries, Inc. 32,462
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175,128
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BANKING/SAVINGS & LOANS - 12.4%
1,200 BankBoston Corporation 58,800
1,701 Bank One Corporation 100,359
7,000 Colonial BancGroup, Inc. 86,625
8,020 Sovereign Bancorp, Inc. 109,273
4,720 Washington Federal, Inc. 104,461
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459,518
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BROADCAST SERVICES & PROGRAMMING - 1.9%
2,000 King World Productions, Inc.*<F4> 70,500
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BUSINESS SERVICES - 3.3%
10,500 Modis Professional Services, Inc.*<F4> 121,406
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CONSUMER DISCRETIONARY - 6.1%
4,605 American Greetings Corporation - Class A 120,593
2,400 St. John Knits, Inc. 65,250
900 The Limited, Inc. 39,375
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225,218
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ELECTRONIC EQUIPMENT - 6.3%
2,900 Avnet, Inc. 123,069
4,466 CommScope, Inc. *<F4> 108,859
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231,928
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ENGINES - 1.2%
800 Cummins Engine Company, Inc. 42,800
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FINANCIAL SERVICES - 6.0%
2,250 The PMI Group, Inc. 125,578
4,200 United Asset Management Corporation 94,763
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220,341
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FOOD & BEVERAGES - 4.6%
4,800 Interstate Bakeries Corporation 106,800
2,300 Wendy's International, Inc. 62,244
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169,044
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HEALTHCARE - 5.3%
5,788 Foundation Health Corporation *<F4> 79,947
3,300 Mallinckrodt, Inc. 115,706
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195,653
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INTEGRATED OILS - 7.3%
2,970 Occidental Petroleum Corporation 59,957
4,570 Ultramar Diamond Shamrock Corporation 105,396
2,500 Unocal Corporation 103,906
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269,259
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See Notes to the Financial Statements
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THE KENWOOD GROWTH & INCOME FUND
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SCHEDULE OF INVESTMENTS - April 30, 1999 (continued)
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Shares Value
LEISURE & ENTERTAINMENT - 7.6%
4,500 Brunswick Corporation $ 108,000
1,800 Hasbro, Inc. 61,425
4,300 Mattel, Inc. 111,307
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280,732
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MATERIALS & PROCESSING - 3.9%
1,850 Fluor Corporation 61,743
2,250 Nalco Chemical Company 82,266
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144,009
------------------
PRINTING - 4.8%
6,200 Bowne & Co., Inc. 116,250
3,600 John H. Harland Company 59,625
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175,875
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REAL ESTATE INVESTMENT TRUSTS (REITS) - 3.0%
4,500 Arden Realty, Inc. 112,500
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RETAIL - 5.9%
7,700 Borders Group, Inc.*<F4> 111,169
7,200 KMart Corporation *<F4> 107,192
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218,361
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SECURITY SERVICES - 1.4%
2,000 Pittston Brink's Group 52,750
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SOFTWARE - 4.7%
6,200 Sterling Software, Inc.*<F4> 128,262
2,300 Symantec Corporation*<F4> 45,788
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174,050
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TECHNOLOGY - 1.1%
265 Adobe Systems, Inc. 16,794
1,005 Novell, Inc. *<F4> 22,361
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39,155
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UTILITIES - 2.7%
3,510 Interstate Energy Corp. 101,132
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TOTAL COMMON STOCKS (Cost of $3,273,624) 3,479,359
Principal
Amount
------------------------------------------------
SHORT-TERM INVESTMENTS - 7.4%
------------------------------------------------
VARIABLE RATE DEMAND NOTES - 7.4%
$125,309 General Mills, Inc., 4.51% 125,309
147,003 Wisconsin Corporate Central Credit Union, 4.57% 147,003
------------------
272,312
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TOTAL SHORT-TERM INVESTMENTS (Cost of $272,312) 272,312
------------------
TOTAL INVESTMENTS - 101.6% (Cost of $3,545,936) 3,751,671
Liabilities, less Other Assets - (1.6)% (59,277)
------------------
TOTAL NET ASSETS - 100.0% $3,692,394
==================
*<F4> Non-income producing security.
See Notes to the Financial Statements
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<PAGE>
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THE KENWOOD GROWTH & INCOME FUND
================================================================================
NOTES TO THE FINANCIAL STATEMENTS
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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 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 on the
trade date. The Fund determines the gain or loss realized from 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 Year
ended ended
April 30, 1999 April 30, 1998
----------------- -----------------
Shares sold 78,586 104,639
Shares issued to owners in
reinvestment of dividends 17,797 13,387
----------------- -----------------
96,383 118,026
Shares redeemed (23,486) (12,443)
----------------- -----------------
Net increase 72,897 105,583
================= =================
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<PAGE>
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THE KENWOOD GROWTH & INCOME FUND
================================================================================
NOTES TO THE FINANCIAL STATEMENTS - cont'd.
================================================================================
4). INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding
short-term investments, for the Fund for the year ended April 30, 1999, were as
follows:
Purchases Sales
------------------------------
U. S. Government -- --
Other $2,565,364 $1,978,847
At April 30, 1999, gross unrealized appreciation and depreciation
of investments for federal income tax purposes was as follows:
Appreciation $488,585
(Depreciation) (303,603)
---------
Net unrealized appreciation
on investments $184,982
=========
At April 30, 1999, the cost of investments for federal income tax
purposes was $3,566,689.
Kenwood has elected to treat $33,801 of net capital losses
incurred in the six month period ended April 30, 1999 as having been incurred in
the following fiscal year.
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, 1999 was $129,137.
The Trust has entered into a distribution agreement with Unified
Financial Services, 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 58,348 shares or 20.0% of
the outstanding shares of the Fund as of April 30, 1999.
- 10 -
<PAGE>
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
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statement of operations, statements
of changes in net assets and financial highlights present fairly, in all
material respects, the financial position of The Kenwood Funds - The Kenwood
Growth & Income Fund (the "Fund"), at April 30, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the three years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at April 30, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 17, 1999
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