KENILWORTH FUND, INC.
One First National Plaza
Suite 2594
Chicago, Illinois 60603
(312)236-5388
SEMI-ANNUAL REPORT
June 30, 1999
(Unaudited)
Advisor's Perspective
June 30, 1999
DJIA: 10,970.80
S&P 500: 1,372.71
In our "A Chat with Shareholders" on March 31, 1999, we said that
we expected a 5% to 7% correction in the markets during the
second quarter. The DJIA declined from 11,107 on May 13th to a
low of 10,400 in early June, a decline of 6.4%. For the balance
of the year, we also said then, that we were cautiously
optimistic because of expectations of a strong surge in corporate
profits during the second and third quarters of this year.
The 15% growth in profits expected for the second quarter, and a
nearly 20% rise in the third quarter will compare very favorably
against those of last year, which experienced Asian economic
crisis and global financial meltdown anxieties. The U.S. economy
continues to grow at around 3 1/2% having slowed from the
extremely strong 5% rate of the previous two quarters. This
slowdown was caused by rising "high" interest rates (putting a
real damper on the housing sector), rising oil prices from $14 to
nearly $20 a barrel (due to the recovering foreign economies),
and tighter labor markets. The yield on 30-year U.S. Treasuries
rose from 5.1% to 6.1%. The Federal Reserve raised the Fed
Fund's rate by a quarter percentage point to 5%, but indicated a
neutral strategy until the next meeting in August implying no
more raises would occur. This action detonated a substantial
rally in market indices which we expect will continue during the
summer.
The NAV of our Fund grew by 7.17% from $21.91 to $23.48 during
the first six months of the year. The theoretical S&P 500,
registered a gain of 11.7% during the same period.
During the second quarter there was a noticeable shift in market
trends when many of the laggards of the last few years such as
oils, metals, papers, chemicals and such other economically
sensitive cyclical sectors participated in the market rise. This
is in striking contrast to 1998 when almost all of the gain in
the S&P 500 and Nasdaq were confined to the top 50 and 20 names,
respectively.
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In terms of "styles" of investing, the first quarter rise was
mostly confined to high P/E growth stocks and the second quarter
was confined largely to value stocks with low P/E ratios. One of
the prominent casualties during this entire period was the
pharmaceutical sector. There is new talk about including drug
benefits in medicare programs and attempts to see how much
pharmaceutical companies can be squeezed to subsidize this
benefit. Thus, even though this sector continues to produce
consistent double-digit growth in profits, the stocks of major
companies such as Merck, Pfizer, Warner-Lambert and
Schering-Plough have declined by 30-40% from their highs. The
other two prominent stocks under political attack in a
non-related sector are Fannie Mae and Freddie Mac.
These two government sponsored enterprises with consistent and
stellar growth records, are for the first time facing a very
powerful lobby formed by various trade associations and
prominent companies (such as Chase Manhattan Bank, GE and Wells
Fargo, to name a few). This lobby as well as the Congress are
trying to increase the cost of doing business for these two
entities and curb their growth.
The Fund was adversely impacted by both of these political
developments. After selling a few thousand shares (at huge
profits) the Fund as of June 30, still had 8.8% of its assets in
Freddie Mac and 4.8% in Fannie Mae, which declined by 10% and
7.8%, respectively. Similarly, 12% of the Fund was in
pharmaceuticals such as: Merck, Bristol-Myers Squibb and
Schering-Plough. We believe these are short-term negatives
and the stocks will continue to register double-digit growth in
due course. Intel, our largest holding at 9.28% of the total,
barely grew by 0.04% in this period due to concerns about their
lower priced Celeron chips making up a larger fraction of the
revenue base as against the high priced Pentium chips. This
exemplary leader in technology has successfully reduced its cost
structure and will soon introduce a very profitable Merced chip
for the computer server market. We try to be a very tax
efficient fund. Our cost per share for Intel is $10.24 as
against its market price of $59.50. Liquidating such holdings
incurs substantial capital gains with the concurrent tax
liability for the shareholders.
These negatives were more than offset by substantial gains from
our other major holdings such as: Hewlett Packard (+47.1%),
American International Group (+21.35%), Lucent Technologies
(23.02%), GE (+9.68%), ADC Telecommunications (+31.1%), IBM
(+44.8%), Intuit (+24.3%), Citigroup (+43.4%), Applied Materials
(+73.06%) and finally with a spectacular gain of 101.07%, for a
relatively small holding of Adaptec. For the balance of the
year, we expect only a modest rise in equity averages as P/E
ratios are already at high levels (28x). The Federal Reserve may
have to raise rates by another 25 basis points (quarter of 1%)
before the end of the year as the economy is still far too
robust. As for the Fund, we hope to register another double
digit growth.
You can monitor the Fund by watching the NAV every Friday on our
web site: www.kenilworthfund.com.
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KENILWORTH FUND, INC.
FINANCIAL HIGHLIGHTS
(Unaudited)
Six Months Ended Year Ended
June 30, December 31,
1999 1998
Selected Per-Share Data
Net Asset Value, beginning of period. . . .$21.91 $18.17
Income from Investment Operations
Net Investment Loss. . . . . . . . . .(0.06) (0.04)
Net Realized and Unrealized
Gain on Investments . . . . . . . .1.63 3.78
Total. . . . . . . . . . . . . . .1.57 3.74
Less Distributions
From Net Investment Income . . . . . . .0.00 0.00
From Net Realized Gains. . . . . . . . .0.00 0.00
Total. . . 0.00 0.00
Net Asset Value, end of period. . . . . . .$23.48 $21.91
Total Return . . . . . . . . . . . . . . . . 7.17% 20.58%
Ratios and Supplemental Data
Net Assets, end of period (in thousands). $13,109 $12,178
Ratio of Net Expenses to Average Net Assets 0.74% 1.42%
Ratio of Net Investment Income to Average Net Assets. . .(0.28%)
(0.24%)
Portfolio Turnover Rate . . . . . . . . . .20.00% 70.28%
The accompanying notes are an integral part of these financial
statements.
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF NET ASSETS
June 30, 1999
(Unaudited)
Market
COMMON STOCKS 98.03%a Shares Value Percent
Autos 5.98%
Ford Motor 5,500 310,406 2.37
General Motors 6,000 396,000 3.02
Delphi Automotive Systems 4,192 77,552 0.59
Banks 4.45%
Citigroup, Inc. 9,000 427,500 3.26
Wells Fargo & Co. 1,500 64,125 0.49
Toronto-Dominion Bank 2,000 91,000 0.70
Computer-Semiconductor 15.57%
Intel Corp. 20,500 1,219,750 9.30
Applied Materials, Inc.* 5,000 369,375 2.82
International Business Machines3,500 452,375 3.45
Computers 0.03%
Dell Computer Corp. 100 3,700 0.03
Computer Software 9.36%
Adaptec, Inc.* 4,500 158,904 1.21
Oracle Systems, Inc.* 4,500 167,063 1.27
Intuit, Inc.* 5,000 450,625 3.44
Cisco Systems* 4,200 270,635 2.06
Microsoft* 2,000 180,374 1.38
Computer Systems 9.57%
Hewlett-Packard 10,000 1,005,000 7.67
EMC Corporation 3,000 165,000 1.26
Quantum Corp.* 3,500 84,438 0.64
Drugs 11.96%
Merck & Co. 8,500 625,812 4.77
Bristol-Myers Squibb 8,700 612,802 4.67
Schering-Plough 6,300 330,750 2.52
Electrical Equipment 5.17%
General Electric 6,000 678,000 5.17
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF NET ASSETS
June 30, 1999
(Unaudited)
Market
COMMON STOCKS Shares Value Percent
Finance 17.25%
Federal National Mortgage 9,200 627,900 4.79
Federal Home Loan Mortgage 20,000 1,160,000 8.85
Household International, Inc. 3,000 142,125 1.08
Associates First Capital Corp.7,506 331,202 2.53
Insurance 9.43%
American International Group 6,000 703,500 5.37
Transamerica Corp. 4,300 322,500 2.46
Hartford Life, Inc. 4,000 210,500 1.61
Telecommunications 4.10%
ADC Telecommunication* 1,800 537,632 4.10
Utilities-Telephone 5.15%
Lucent Technologies 10,000 674,370 5.15
Total Investments 12,850,912
(Cost $6,338,855)
CASH AND RECEIVABLES
NET OF LIABILITIES 1.97% 258,580
TOTAL NET ASSETS 100.00% $13,109,492
NET ASSET VALUE PER SHARE $23.48
(based on 558,280 shares of capital stock outstanding)
a Percentages for various classifications relate to total
net assets.
*Non-income producing security.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF OPERATIONS
(Unaudited)
Six Months Ended
INVESTMENT INCOME June 30, 1999
INCOME:
Dividends $51,702
Interest 5,372
Total Income 57,074
EXPENSES:
Investment Advisory Fees 62,159
Administrative and Management Fees 20,000
Registration Fees 1,172
Auditing 2,900
Insurance and Other Expenses 5,578
Total Expenses 91,809
NET INVESTMENT LOSS: (34,735)
NET REALIZED GAIN ON INVESTMENTS 96,551
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS 814,404
NET REALIZED GAIN AND UNREALIZED APPRECIATION
ON INVESTMENTS 910,955
NET INCREASE IN NET ASSETS FROM OPERATIONS $876,220
The accompanying notes are an integral part of these financial
statements.
<PAGE>
KENILWORTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
Six Months Ended Year Ended
OPERATIONS: June 30, 1999 December 31, 1998
Net Investment Loss ($34,735) ($25,253)
Net Realized Gain (Loss)
on Investments 96,551 (8,169)
Net Increase in Unrealized
Appreciation on Investments 814,404 2,109,675
Increase in Net Assets
from Operations 876,220 2,076,253
DISTRIBUTIONS To SHAREHOLDERS:
Distributions from Net
Investment Income --- ---
Distributions from Net
Realized Gains on Investments --- ---
Decrease in Net Assets
resulting from Distributions --- ---
CAPITAL SHARE TRANSACTIONS:
Proceeds From Shares Issued
(8,050 and 24,894 shares, respectively) 181,263 462,667
Cost of Shares Redeemed (5,591 and 7,957 shares, respectively)
(126,266) (150,454)
Reinvested Dividends (0 and 0 shares, respectively) ---
---
Increase in Net Assets from
Capital Share Transactions 54,997 312,213
Total Increase in Net Assets 931,217 2,388,466
NET ASSETS AT BEGINNING OF YEAR
(555,821 and 538,884
shares outstanding, respectively) 12,178,275 9,789,809
NET ASSETS AT END OF PERIOD
(558280 and 555,821
shares outstanding, respectively) $13,109,492 $12,178,275
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(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 period ended June 30, 1999, purchases and
sales of investment securities were $2,582,260 and $2,488,019
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, 1999 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 $40,000 per year payable on a yearly 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 as of June 30,
1999 consisted of the following:
Aggregate gross unrealized appreciation: $6,536,436
Aggregate gross unrealized deprecation: (24,379)
Net unrealized appreciation: $6,512,056
At June 30, 1999, the Fund has tax basis capital losses of
$8,169 which may be carried over to offset future capital gains.
Such losses expire in 2006.
<PAGE>
KENILWORTH FUND, INC.
One First National Plaza
Suite 2594
Chicago, Illinois 60603
(312)236-5388
SEMI-ANNUAL REPORT-SUPPLEMENT
June 30, 1999
RULE 30d-1(b) REPORT ON ANNUAL SHAREHOLDERS MEETING
Pursuant to Rule 30d-1(b) of the Investment Company Act of 1940,
the Kenilworth Fund, Inc., is required to report on the matters
voted upon at the Fund's annual shareholder meeting.
This year's annual meeting occurred on Thursday, March 11, 1999
at Maggiano's Little Italy. A brief description of the matters
voted upon, the number of votes cast for, against or withheld, as
well as the number of abstentions and broker non-votes as to each
such matter are listed below. The total number of shares
eligible to be voted were 553,176.
1. The election of the following five directors to serve
until the next Annual Meeting of Shareholders or until their
successors are elected and qualified:
Name of
Director Broker Shareholder
For Against Withheld Abstentions Non-Votes Non-Votes Percent
Mohini C. Pai 475,102 0 0 0 0 78,074 85.89%
B. Padmanabha Pai 475,102 0 0 0 0 78,074 85.89%
Savitri P. Pai 475,102 0 0 0 0 78,074 85.89%
Kirtna Pai 475,102 0 0 0 0 78,074 85.89%
Larry A. Sjaastad 475,102 0 0 0 0 78,074 85.89%
2. The ratification or rejection of the selection
of McGladrey & Pullen, L.L.P. as the independent public
accountants to audit and certify financial statements for the
fiscal year ending December 31, 1999:
Selection of
McGladrey &,
Pullen, L.L.P.
Broker Shareholder
For Against Withheld Abstentions Non-Votes Non-Votes Percent
475,102 0 0 0 0 78,074 85.89%
3. The ratification or rejection of the selection
of The Aurelius Group. P.C., as the independent public accountant
to conduct surprise custodial audits of the Fund's
securities and similar investments for the Fund's fiscal year
ending December 31, 1999:
Selection of
The Aurelius Group. P.C.
Broker Shareholder
For Against Withheld Abstentions Non-Votes Non-Votes Percent
475,102 0 0 0 0 78,074 85.89%
Respectfully Submitted,
Savitri P. Pai
Secretary/Treasurer
