KENILWORTH FUND, INC.
One First National Plaza
Suite 2594
Chicago, IL 60603
ANNUAL REPORT
December 31, 1997
Dear Fellow Shareholders,
1997 was another good year for your Fund with a 20.67% total
return. The Fund's net asset value began the year at $15.43 and
closed the year at $18.17 after a forty-five cent ($0.45)
dividend distribution. The total net assets of the Fund
increased to $9.8 million from $7.2 million at the
beginning of the year. The growth in net assets came about from
a 20.67% total return and $1.07 million of net new cash from
existing as well as thirty-seven (37) new shareholders. We now
have a total of one hundred and nineteen (119) shareholders.
Having outperformed the S&P 500 Index and average growth fund
through September 30, 1997, we were disappointed when the "Asian
Flu" suddenly hit our technology sector stocks hard and sliced
a full 10% from our performance. As a result, the Fund's
performance of 20.67% lagged the 25.30% total return of the
average growth fund as tracked by Lipper Analytical Services, as
well as the 33.36% theoretical total return of the S&P 500 Index.
However, our objective continues to be a double-digit annual rate
of return when viewed over a three to five year horizon. We are
pleased to report that the Fund's three year annualized total
return was 25.99%.
During 1997, your Fund twice appeared in The Wall Street Journal
as among the top fifteen Growth Funds in the country for a
52-week period. The Kenilworth Fund Inc. was also listed as a
1997 "All-Star Fund" by the widely popular publication: Mutual
Funds Magazine, and Dow Jones Investment Advisor magazine listed
your Fund as one of the top 12 "Large Blend" funds in the
country for a 12-month period ending July 31, 1997 with a 62.81%
total return. Finally, a human interest story on the Fund
appeared under the title: "Family Grows Investment Business" in
the Pioneer Press publications: Winnetka Talk, Wilmette Life, and
Glencoe News, to name a few. We expect the Fund's share price to
be quoted in the daily newspapers when the fund reaches an asset
size of $25 million.
We sincerely thank you for your continued support.
Ms. Mohini C. Pai, President
Ms. Savitri P. Pai, Secretary/Treasurer
Portfolio Manager: The Fund's portfolio manager, Mr. B.
Padmanabha Pai, founded Institutional Portfolio Services Ltd. an
investment advisory organization. He has been managing pension
funds,personal trusts, university endowments and funds for
wealthy individuals for the last twenty-eight years. Prior to
portfolio management he taught investment theory at the
university level.
PAGE
<PAGE>
INVESTMENT PERSPECTIVE - JANUARY 7, 1998
DJIA: 7,908.25 (12/31/97)
S & P 500: 970.43
ECONOMIC AND INVESTMENT
HIGHLIGHTS:
U.S. stock markets registered strong gains during
1997. The Dow Jones Industrial Average (DJIA)
experienced a total return of 24.87%, and the
theoretical total return on the S&P 500 was
33.36% for the year. Budget balancing, capital
gains and welfare reform legislation all helped in
this rise. The volatility increased sharply for the
first time since 1990, as we correctly anticipated.
The major averages declined by 9.8% when long-
term interest rates (30-year U.S. Treasuries) rose
from 6.75% to 7.1% at the end of the first
quarter, then in October the market averages fell
more than 10% in response to Southeast Asian
financial turmoil.
The economy was strong experiencing nearly
3.5% real growth, albeit the inflation rate
continued to be subdued at only around 1.7%.
Corporate profits surged at better than 14%.
However, after July, when a series of currency
devaluations in Southeast Asia burst their stock
market and property asset bubble, threatening the
Japanese economy (the major investor and
creditor to the region) as well as major U.S.
banks such as Citicorp and Chase Manhattan, our
own stock markets collapsed by 7.6% on October
27, 1997. Our technology sector was hit the
hardest during the October decline and never
quite recovered by year end.
The "Asian Tigers" (South Korea, Taiwan,
Singapore...) had major investments in chip
manufacturing, memory disk drives, and PC
production. The U.S. technology sector stands to
benefit from the lower cost of production in this
region, yet the demand for U.S. exports to the
region will be adversely impacted. This crisis
may cut the U.S. GDP growth by one-half to one
percentage point during 1998.
<PAGE>
OUTLOOK FOR 1998:
With U.S. economic growth in its seventh year,
labor markets very tight, health costs beginning to
rise, and the Southeast Asian turmoil, there are
indications the economy will slow to 2 - 2 1/2%
real growth this year. The strong dollar will
restrain corporate profit growth for all our multi-
national companies whose stocks comprise the
bulk of our market averages. Most analysts are
forecasting overall 5-8% growth in corporate
profits as against the double-digit experience of
the previous few years, and a modest rise in our
equity averages. It is going to be a tough year in
the markets with a lot more volatility than what
we have seen in the last few years.
There is general agreement that the beneficiaries
for the coming year are those domestic
companies such as insurance, home mortgage,
regional banks (without foreign exposure) and
other financial intermediaries. The technological
and telecommunications industries will continue
their rapid growth despite the uncertainties for
the next few quarters due to Southeast Asian
economic turmoil. Health care, especially
pharmaceuticals, will continue to be an attractive
growth area. Media/entertainment,
homebuilding, utilities (including telephone and
electric) are the other favored sectors.
KENILWORTH FUND, INC.:
The total return for our Fund was 20.67%. The
Fund's NAV rose from $15.43 at the beginning
of the year to a peak of $20.84 on October 7th,
a significant rise of 35.1% for the ten months,
substantially outperforming the average growth
fund as well as the S&P 500. However, the
Southeast Asian turmoil hit our technology sector
stocks particularly hard, and our NAV closed at
$18.17 after a forty-five cent ($.45) dividend<PAGE>
distribution. Unfortunately,
we lagged the average growth fund's total return of 25.30%, and
more significantly the theoretical total return of
24.87% for the DJIA and 33.36% for the S&P
500.
A substantial number of our holdings (comprising
nearly 42% of the total portfolio) did surpass the
S&P 500's 33.36% total return as seen from the
following: Bristol-Myers Squibb (+73.62%),
Applied Materials (+67.64), Norwest Corp.
(+53.5%), Freddie Mac (+51.98%), Fannie Mae
(+51.66%), Ford Motor (+50.6%), Intuit
(+49.35%), General Electric (+48.41%),
Compaq Computer (+39%), and
ADCTelecommunications (+34.14%) (stock
returns are without income). Our largest holding,
Intel, was up only 7.3% because of the
extraordinary consumer acceptance of the "sub-
$1,000" PCs where Intel rivals have an advantage.
We firmly believe that Intel will continue to enjoy
20-25% earnings growth for the next few years.
The new 64-bit chip called Merced being
developed with Hewlett-Packard, to be
introduced early next year, will come to dominate
the server market that is much larger and more
profitable than the current PC desktop business.
<PAGE>
We expect this investment to be very rewarding
even though it may not quintuple in the next four
years as it did for us in the last four.
During the year, as many of our large
capitalization issues became expensive, we took
partial profits and shifted our assets into mid-cap
issues, such as Quantum and Frontier Insurance.
The mid-cap sector, while significantly
outperforming the large cap sector between
March and October, never quite recovered after
the October 27th 554-point stock market decline.
All the gains that we had in the smaller issues
were lost in the final weeks of the year.
We are very pleased that in the last three years
the NAV has doubled, giving our shareholders a
compound return of 26% per year. The only way
to benefit from long-term investing is by being
fully invested through the ups and downs of the
market.
B. Padmanabha Pai, President
Institutional Portfolio Services, Ltd.
PAGE
<PAGE>
Performance: This graph shows the growth of a $10,000 investment
in your Fund and compares it to the
S&P 500 index. For the period beginning July 1, 1993 and ending
December 31, 1997 your investment
in the Fund would be $19,487 as compared to a theoretical
investment in the S&P 500 which would have
grown to $24,111. This performance includes the reinvestment of
dividends.
<TABLE>
<CAPTION>
Cumulative Total Returns
Periods ended December 31, 1997 Past 1 Year Life of Fund
<S> <C> <C>
Kenilworth Fund, Inc. 20.67% 94.86%
S&P 500 33.36% 141.11%
</TABLE>
Cumulative total returns reflect the Fund's actual performance
over a set period. The Fund began
operations on July 1, 1993.
<TABLE>
<CAPTION>
Average Annual Returns
Periods ended December 31, 1997 Past 1 Year Life of Fund
<S> <C> <C>
Kenilworth Fund, Inc. 20.67% 15.97%
S&P 500 33.36% 21.59%
</TABLE>
Average annual returns take the Fund's actual (or cumulative)
return and show you what would have
happened if the Fund had performed at a constant rate each year.
Total returns and yields are based on past results and are not
indicative of future performance.
PAGE
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION> Market
COMMON STOCKS 99.20%a Shares Value Percent
<S> <C> <C> <C>
Aircraft 2.63%
Boeing Corp. 5,200 $254,472 2.60
Raytheon, Cl. A 63 3,111 0.03
Autos 3.84%
Ford Motor 6,500 315,653 3.22
General Motors 1,000 60,750 0.62
Banks 2.97%
Norwest Corp. 7,500 290,625 2.97
Construction 0.67%
Empresas ICA Sociedad 4,000 65,748 0.67
Computer-Semiconductor 11.37%
Intel Corp. 14,000 983,500 10.05
Applied Materials, Inc.* 4,300 129,538 1.32
Computers 4.45%
Compaq Computer 4,000 226,000 2.31
Dell Computer Corp.* 2,500 210,000 2.14
Computer Software 12.13%
Adaptec, Inc.* 20,300 753,638 7.70
Oracle Systems, Inc.* 4,500 100,404 1.02
Intuit, Inc.* 2,700 111,375 1.14
Network Associates, Inc.* 4,200 222,075 2.27
Computer Systems 8.47%
Hewlett-Packard 12,000 748,500 7.65
Quantum Corp.* 4,000 80,248 0.82
Drugs 9.76%
Merck & Co. 5,000 530,000 5.41
Bristol-Myers Squibb 4,500 425,812 4.35
Electrical Equipment4.50%
General Electric 6,000 440,250 4.50
Finance 17.27%
Federal National Mortgage 12,000 684,744 6.99
Federal Home Loan Mortgage 24,000 1,006,488 10.28<PAGE>
</TABLE>
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF NET ASSETS
December 31, 1997
<TABLE>
<CAPTION> Market
COMMON STOCKS Shares Value Percent
<S> <C> <C> <C>
Insurance 3.51%
American International Group 2,700 293,625 3.00
RLI Corp. 1,000 49,812 0.51
Oils 2.06%
Exxon Corp. 3,300 201,917 2.06
Retail 1.19%
Claire's Stores 6,000 116,622 1.19
Telecommunications 5.80%
ADC Telecommunication* 10,800 450,900 4.61
Telecomun. Brasil-Telebras ADS 1,000 116,437 1.19
Utilities-Telephone 2.91%
Comp. De Telecom. De Chile 9,525 284,559 2.91
Investment Companies 5.67%
Smith Barney Money Market Funds554,955 554,955 5.67
Total Investments 9,711,758
(Cost $6,123,780)
CASH AND RECEIVABLES
NET OF LIABILITIES 0.80% 78,051
TOTAL NET ASSETS 100.00% $9,789,809
NET ASSET VALUE PER SHARE $18.17
(based on 538,884 shares of capital stock outstanding)
a Percentages for various classifications relate to total
net assets.
*Non-income producing security.
</TABLE>
The accompanying notes are an integral part of these financial
statements.
PAGE
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF OPERATIONS
Year Ended
INVESTMENT INCOME December 31, 1997
INCOME:
Dividends $94,994
Interest 16,940
Total Income 111,934
EXPENSES:
Investment Advisory Fees 90,314
Administrative and Management Fees 30,000
Registration Fees 7,639
Auditing 5,240
Insurance and Other Expenses 5,485
Total Expenses 138,678
NET INVESTMENT LOSS: (26,744)
NET REALIZED GAIN ON INVESTMENTS 264,438
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS 1,320,457
NET REALIZED GAIN AND UNREALIZED APPRECIATION
ON INVESTMENTS 1,584,895
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,558,151
The accompanying notes are an integral part of these financial
statements.
PAGE
<PAGE>
KENILWORTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
OPERATIONS: December 31, 1997 December 31,1996
<S> <C> <C>
Net Investment Income (Loss) ($26,744) $3,416
Net Realized Gain
on Investments 264,438 4,332
Net Increase in Unrealized
Appreciation
on Investments 1,320,457 1,578,426
Increase in Net Assets
from Operations 1,558,151 1,586,174
DISTRIBUTIONS To SHAREHOLDERS:
Distributions from
Net Investment Income --- (3,416)
Distributions from Net Realized
Gains on Investments (237,694) (4,332)
Decrease in Net Assets resulting
from Distributions (237,694) (7,748)
CAPITAL SHARE TRANSACTIONS:
Proceeds From Shares Issued
(75,696 and 48,376 shares,
respectively) 1,338,097 639,733
Cost of Shares Redeemed
(14,740 and 8,060 shares,
respectively) (270,698) (100,933)
Reinvested Dividends
(9,888 and 369 shares,
respectively) 179,665 5,693
Increase in Net Assets from
Capital Share Transactions 1,247,064 544,493
Total Increase in
Net Assets 2,567,521 2,122,919
NET ASSETS AT BEGINNING OF YEAR
(468,040 and 427,355 shares
outstanding, respectively) 7,222,288 5,099,369
NET ASSETS AT END OF YEAR
(538,884 and 468,040 shares
outstanding, respectively) $9,789,809 $7,222,288
</TABLE>
The accompanying notes are an integral part of these financial
statements.<PAGE>
<PAGE>
KENILWORTH FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31
1997 1996 1995 1994 1993a
<S> <C> <C> <C> <C> <C>
Selected Per-Share Data
Net Asset Value,
beginning of period...$15.43 $11.93 $9.64 $10.31 $10.00
Income from Investment
Operations
Net Investment
Income (Loss)........(0.05) 0.01 0.06b 0.06b 0.05
Net Realized and
Unrealized Gain (Loss)
on Investments........3.24 3.51 2.64 (0.67) 0.31
Total............3.19 3.52 2.70 (0.61) 0.36
Less Distributions
From Net Investment
Income...............0.00 0.01 0.06 0.06 0.05
From Net Realized
Gains................0.45 0.01 0.35 0.00 0.00
Total............0.45 0.02 0.41 0.06 0.05
Net Asset Value,
end of period.........$18.17 $15.43 $11.93 $9.64 $10.31
Total Return.............20.67% 29.48% 28.03% (5.95%) 7.16%c
Ratios and Supplemental
Data
Net Assets,
end of period
(in thousands)........$9,790 $7,222 $5,099 $3,530 $2,840
Ratio of Net Expenses
to Average Net Assets....1.52% 1.51% 1.69%b 1.70%b 0.52%
Ratio of Net Investment
Income
to Average Net Assets...(0.29%) 0.06% 0.54%b 0.67%b 0.65%
Portfolio Turnover Rate..76.99% 73.93% 82.17% 11.78% 0.00%
Average Commissions Paid
for Securities Purchased
and Sold................0.067 0.059
<FN>
<F1>
aJuly 1, 1993 (commencement of operations) to December 31, 1993
bNet of reimbursement of expenses by Advisor.
cAnnualized.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
The Kenilworth Fund, Inc., (the "Fund") is registered under the
Investment Company Act of 1940 as a no-load, open-end,
non-diversified management investment company.
1. Summary of Significant Accounting Policies
a. The Fund is registered under the Investment Company Act
of 1940 as a no-load, open-end, non-diversified management
investment company. The Fund's objective is long-term capital
appreciation which it seeks by investing primarily in a
non-diversified portfolio of common stocks, preferred stocks,
warrants to purchase common stocks, convertible bonds and
fixed-income obligations of corporations and the United States
government.
Its books and records are maintained on the accrual basis.
Securities are valued at their last sale price as reported on a
securities exchange, or at their last bid price as applicable.
Short term instruments are valued at cost which approximates
market value. Cost amounts, as reported on the statement of net
assets, are the same for federal income tax purposes. For the
year ended December 31, 1997, purchases and sales of
investment securities were $8,180,748 and $7,002,258
respectively.
b. Security transactions are accounted for on the trade
date and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis. Realized gains
and losses from security transactions are reported on an
identified cost basis.
c. Provision has not been made for federal income tax since
the Fund has elected to be taxed as a "regulated investment
company" and intends to distribute substantially all its income
to its shareholders and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment
companies.
d. As of December 31, 1997 there were 10,000,000 shares of
capital stock authorized.
e. 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 increases and decreases in
net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. Investment Adviser and Investment Advisory Agreement and
Transactions with Related Parties:
The Fund has signed two agreements with Institutional
Portfolio Services, Ltd., ("IPS"), with whom certain officers of
the Fund are affiliated. Under the terms of the first agreement
(the investment advisory agreement) the Fund will pay IPS a
monthly investment advisory fee at the annual rate of 1.0% of
the daily net assets of the Fund. Under the terms of the second
agreement (the administrative and management services agreement)
the Fund will pay IPS a yearly administrative and management
services fee of $30,000 per year payable on a quarterly basis.
The advisory agreement requires the adviser to reimburse the Fund
in the event that the expenses of the Fund in any fiscal year
exceed 1.7%.
3. Sources of Net Assets:
As of December 31, 1997, the sources of net assets were as
follows:
Fund shares issued and outstanding $6,201,831
Unrealized Appreciation of Investments 3,587,978
Total $9,789,809
Aggregate Net Unrealized Appreciation as of December 31, 1997
consisted of the following:
Aggregate gross unrealized appreciation: $3,590,065
Aggregate gross unrealized deprecation: (2,087)
Net unrealized appreciation: $3,587,978
PAGE
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of the
Kenilworth Fund, Inc.
Chicago, Illinois
We have audited the accompanying statement of net assets of
Kenilworth Fund, Inc. as of December 31, 1997, and the related
statements of operations for the year then ended, and changes in
net assets, and financial highlights for each of the two years
and 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. The financial highlights of Kenilworth Fund,
Inc. for periods prior to December 31, 1996, were audited by
other auditors, whose report, dated January 15, 1996, expressed
an unqualified opinion on those statements.
We conducted our audits 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 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 verification by examination
of securities owned and confirmation with securities brokers as
of December 31, 1997. 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 Kenilworth Fund, Inc. as of December
31, 1997, the results of its operations for the year then ended,
and changes in its net assets, and financial highlights for each
of the two years for the period then ended, in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
Chicago, Illinois
January 7, 1998
PAGE
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000899772
<NAME> KENILWORTH FUND, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 6,123,780
<INVESTMENTS-AT-VALUE> 9,711,758
<RECEIVABLES> 39,620
<ASSETS-OTHER> 336,888
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 376,508
<PAYABLE-FOR-SECURITIES> 290,833
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,623
<TOTAL-LIABILITIES> 298,456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,201,831
<SHARES-COMMON-STOCK> 538,884
<SHARES-COMMON-PRIOR> 468,040
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,320,457
<NET-ASSETS> 9,789,809
<DIVIDEND-INCOME> 94,994
<INTEREST-INCOME> 16,940
<OTHER-INCOME> 0
<EXPENSES-NET> 138,678
<NET-INVESTMENT-INCOME> (26,744)
<REALIZED-GAINS-CURRENT> 264,438
<APPREC-INCREASE-CURRENT> 1,584,895
<NET-CHANGE-FROM-OPS> 1,558,151
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 237,694
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 75,696
<NUMBER-OF-SHARES-REDEEMED> 14,740
<SHARES-REINVESTED> 9,888
<NET-CHANGE-IN-ASSETS> 2,567,521
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 90,314
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 138,678
<AVERAGE-NET-ASSETS> 9,094,990
<PER-SHARE-NAV-BEGIN> 15.43
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> 3.24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .45
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.17
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
