KENILWORTH FUND, INC.
One First National Plaza . Suite 2594
21 South Clark Street
Chicago, Illinois 60603-2094
SEMI-ANNUAL REPORT
June 30, 1998
(Unaudited)
Advisor's Perspective
June 30, 1998
DJIA: 8,952.02
S&P 500: 1,133.84
In our Investment Perspective dated January 7, 1998 we said that
it would be a tough year in the markets with a great deal more
volatility than what we had seen in the last few years. Thus,
in the second quarter after making new highs in May, the Dow
Jones Industrial Average declined by more than 700 points or over
7% and the NASDAQ declined by nearly 11%. This was caused by
fears of further turmoil in Asia, as well as a possible meltdown
in Russia. So far the U.S. economy has seemed immune, as it
registered a very strong 5% growth in the first quarter largely
as a result of strong construction expenditures and consumer
spending induced by El Nino. The decline in the price of
commodities, specifically of oil, because of the fall-off in
demand from Asia with its concomitant effect on lower inflation
hence lower interest rates, was equivalent to a massive tax cut
for the U.S. However, the drag on corporate profits from lower
exports to Asia has already led to curtailing of capacity
utilization (from over 84% to around 81%) lower industrial
production, and declining hours in the manufacturing work week.
It has also restrained second quarter economic growth to
approximately 2 1/2%. Similarly, corporate profits have declined
to less than a 5% growth rate, after double-digit growth the last
few years.
In this context, the major market indices registered a modest
change of around 3%. During the quarter, the average growth
fund's total return was 1.85%, the average stock fund declined by
0.29%, and the theoretical total return of the S&P 500 was up
3.30% according to Lipper Analytical Services. There has been a
flight to quality as shown by the ever increasing P/E ratios of
the top fifty companies in the S&P 500 composite. Currently, the
total market capitalization of those fifty companies is
equivalent to that of all the rest in the S&P 500. The larger
universe of equities however, are still 20-30% lower than their
twelve-month highs.
Despite the high volatility of the markets, new money is
continuing to pour into the equity markets at a record pace. The
momentum seen in highly speculative internet stocks, P/E ratios
of 60-70 for stocks such as Lucent Technologies, Microsoft, Cisco
Systems, and Warner-Lambert all suggest the DJIA may well hit
10,000 by the end of the year. However, the rise in the equity
markets will be punctuated by sharp declines every other month as
new information regarding the Asian turmoil surfaces.
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KENILWORTH FUND, INC.
January 1, 1998 to June 30, 1998
NAV: $18.17......$19.25
The NAV of our fund grew by 6% from $18.17 to $19.25 during the
first six months of the year. The S&P 500 rose 17.2% in the same
period. After October 1997, when the Asian turmoil hit our
technology sector particularly hard, the Fund reduced its
technology holdings. During May and June, there was also concern
that U.S. interest rates might be raised because of very strong
growth (5.4%)in the first quarter of 1998. Nearly one fifth of
our portfolio in stocks such as ADCTelecommunications, Adaptec,
and Hewlett Packard actually declined (while Intel was up only a
meager 5%); however, another fifth comprised of American
International Group, Bristol-Myers Squibb, General Electric, and
Merck all appreciated from 21% to 35%. Interest sensitive stocks
Fannie Mae and Freddie Mac grew by 6 1/2% to 12%, respectively.
The spectacular rise of Dell Computers (+150%), Intuit (+48.5%)
and Network Associates (+35.8%) did help to mitigate the
decline in the earlier mentioned technology holdings. We do
expect the technology holdings to improve during the balance of
1998 and in the coming year. With the Russian bailout by the IMF
and the Japanese yen decline having been arrested, our foreign
holdings, namely Chilean Telephone and Grupo Televisa, should
appreciate and not hurt our performance as they did during the
first six months, due to fears of currency devaluation in our
southern hemisphere.
Given our style of investing with concentrated bets, a
non-diversified portfolio such as ours is likely
to have higher volatility and some periods of underperformance as
against some arbitrary yardsticks such as the S&P 500. Our
long-term objective remains the same, namely to achieve a
double-digit rate of return over a 3-5 year horizon and achieving
better than the historic 11% returns from the stock market as a
whole. We are happy to report that on this fifth anniversary the
Fund has grown over 15% annually.
You can monitor the Fund by watching the NAV every Friday on our
web site: http://www.kenilworthfund.com.
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KENILWORTH FUND, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
Six Months Ended Year Ended
June 30, December 31,
1998 1997
Selected Per-Share Data
Net Asset Value, beginning of period. . . .$18.17 $15.43
Income from Investment Operations
Net Investment Income (Loss) . . . . .(0.03) (0.05)
Net Realized and Unrealized
Gain on Investments . . . . . . . .1.11 3.24
Total. . . . . . . . . . . . . . .1.08 3.19
Less Distributions
From Net Investment Income . . . . . . .0.00 0.00
From Net Realized Gains. . . . . . . . .0.00 0.45
Total. . . . . . . . . . . . . . . 0.00 0.45
Net Asset Value, end of period. . . . . . .$19.25 $18.17
Total Return . . . . . . . . . . . . . . . . 5.94% 20.67%
Ratios and Supplemental Data
Net Assets, end of period (in thousands). $10,290 $9,790
Ratio of Net Expenses to Average Net Assets 0.74% 1.52%
Ratio of Net Investment Income to
Average Net Assets. . .(0.15%) (1.29%)
Portfolio Turnover Rate . . . . . . . . . .34.76% 76.99%
Average Commission Rate Paid . . . . . . . 0.066 0.067
The accompanying notes are an integral part of these financial
statements.
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KENILWORTH FUND, INC.
STATEMENT OF NET ASSETS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Market
COMMON STOCKS 93.17%a Shares Value Percent
<S> <C> <C> <C> <C>
Aircraft 1.55%
Boeing Corp. 3,700 $164,879 1.55
Autos 5.06%
Ford Motor 8,000 472,000 4.43
General Motors 1,000 66,812 0.63
Banks 6.91%
Norwest Corp. 5,000 187,500 1.76
J.P. Morgan 1,500 175,593 1.65
Citicorp 2,500 373,125 3.50
Computer-Semiconductor 9.31%
Intel Corp. 11,000 815,375 7.65
Applied Materials, Inc.*
6,000 177,000 1.66
Computers 0.87%
Dell Computer Corp.* 1,000 92,812 0.87
Computer Software 6.91%
Adaptec, Inc.* 8,000 114,496 1.08
Oracle Systems, Inc.* 3,750 92,108 0.86
Intuit, Inc.* 2,400 147,000 1.38
Network Associates, Inc.* 8,000 383,000 3.59
Computer Systems 6.59%
Hewlett-Packard 10,000 598,750 5.62
Quantum Corp.* 5,000 103,750 0.97
Drugs 11.34%
Merck & Co. 5,000 668,750 6.27
Bristol-Myers Squibb 4,700 540,204 5.07
Electrical Equipment 5.11%
General Electric 6,000 545,250 5.11
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KENILWORTH FUND, INC.
STATEMENT OF NET ASSETS
June 30, 1998
(Unaudited)
Market
COMMON STOCKS Shares Value Percent
Finance 21.83%
Federal National Mortgage 13,000 789,750 7.41
Federal Home Loan Mortgage 23,000 1,082,426 10.15
Household International, Inc. 4,500 223,875 2.10
Associates First Capital Corp.3,003 231,042 2.17
Insurance 7.18%
American International Group 3,500 511,000 4.79
RLI Corp. 2,500 101,718 0.95
Partner Re 3,000 153,000 1.44
Media 1.59%
Grupo Televisa 4,500 169,312 1.59
Oil & Gas 1.67%
Exxon Corp. 2,500 178,437 1.67
Retail 1.92%
Claire's Stores 10,000 205,000 1.92
Telecommunications 3.08%
ADC Telecommunication* 9,000 328,779 3.08
Utilities-Telephone 2.25%
Comp. De Telecomm. De Chile 7,725 156,910 1.47
Lucent Technologies 1,000 83,187 0.78
Total Investments 9,932,840
(Cost $5,904,871)
CASH AND RECEIVABLES
NET OF LIABILITIES 6.83% 728,666
TOTAL NET ASSETS 100.00% $10,661,506
NET ASSET VALUE PER SHARE $19.25
(based on 553,779 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>
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KENILWORTH FUND, INC.
STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended
INVESTMENT INCOME June 30, 1998
INCOME:
Dividends $50,566
Interest 9,389
Total Income 59,955
EXPENSES:
Investment Advisory Fees 51,385
Administrative and Management Fees 15,000
Auditing 2,670
Insurance 2,152
Registration Fees 1,179
Postage and Other Expenses 3,419
Total Expenses 75,805
NET INVESTMENT LOSS: (15,850)
NET REALIZED GAIN ON INVESTMENTS 175,303
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS 439,991
NET REALIZED GAIN AND UNREALIZED APPRECIATION
ON INVESTMENTS 615,294
NET INCREASE IN NET ASSETS FROM OPERATIONS $599,444
The accompanying notes are an integral part of these financial
statements.<PAGE>
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KENILWORTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
Six Months Ended Year Ended
OPERATIONS: June 30, 1998 December 1, 1997
Net Investment Income (Loss) ($15,850) ($26,744)
Net Realized Gain on Investments 175,303 264,438
Net Increase in Unrealized
Appreciation on Investments 439,991 1,320,457
Increase in Net Assets
from Operations 599,444 1,558,151
DISTRIBUTIONS To SHAREHOLDERS:
Distributions from
Net Investment Income 0 ---
Distributions from
Net Realized Gains on Investments 0 (237,694)
Decrease in Net Assets
resulting from Distributions 0 (237,694)
CAPITAL SHARE TRANSACTIONS:
Proceeds From Shares Issued
(22,229 and 75,696 shares, respectively) 411,707 1,338,097
Cost of Shares Redeemed
(7,334 and 14,740 shares, respectively) (139,454) (270,698)
Reinvested Dividends
(0 and 9,888 shares, respectively) 0 179,665
Increase in Net Assets from
Capital Share Transactions 272,253 1,247,064
Total Increase in Net Assets 871,697 2,567,521
NET ASSETS AT BEGINNING OF PERIOD
(538,884 and 468,040 shares
outstanding, respectively) 9,789,809 7,222,288
NET ASSETS AT END OF PERIOD
(553,779 and 538,884 shares
outstanding, respectively) $10,661,506 $9,789,809
The accompanying notes are an integral part of these financial
statements.
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NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
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 six months ended June 30, 1998, purchases and
sales of investment securities were $3,737,825 and $3,577,082
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 June 30, 1998 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. Aggregate Net Unrealized Appreciation
Aggregate Net Unrealized Appreciation as of June 30, 1998
consisted of the following:
Aggregate gross unrealized appreciation: 4,086,331
Aggregate gross unrealized depreciation: (58,361)
Net unrealized appreciation: 4,027,970
