KENILWORTH FUND, INC.
One First National Plaza
Suite 2594
Chicago, IL 60603
ANNUAL REPORT
December 31, 1998
Dear Fellow Shareholders,
The net asset value of your Fund ended 1998 at $21.91. Having
started the year at $18.17, the closing net asset value of $21.91
represents a 20.58% total return for the Kenilworth Fund, Inc. in
1998. In comparison, the theoretical total return of the Dow
Jones Industrial Average was 18.13%, and the S&P 500 Index was
28.72%. The average growth fund returned 22.86% while the
average growth and income fund returned 15.61%. Of particular
note with regard to the Fund's near 21% return is that the Fund
did not pay any income or capital gains dividends in 1998 thereby
relieving all shareholders of any tax liability related to their
21% capital growth.
In the year ending December 31, 1998, the Fund's total net assets
increased to $12.18 million from $9.79 million at the beginning
of the year. The growth in net assets resulted from the
approximately 21% total return of the Fund's investment portfolio
and a 3% gain in share purchases. We are pleased to report that
the Fund's increase in net assets as well as our efforts at
keeping a tight control on expenses has brought the Fund's
expense ratio down from 1.70% in 1994 to 1.42% at year end 1998.
We urge all shareholders to add to their holdings of the Fund
periodically, especially during sharp declines in the market
similar to the one during August through October of last year,
when the NAV declined by about 25%. Periodic Fund purchases
averages the cost per share, such that the purchase price is
neither at the Fund's highpoint, nor at its low point.
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-nine years. Prior to
portfolio management he taught investment theory at the
university level.
PAGE
<PAGE>
INVESTMENT PERSPECTIVE - JANUARY 14, 1999
DJIA: 9,181.43 (12/31/98)
S & P 500: 1,229.23
ECONOMIC AND INVESTMENT HIGHLIGHTS:
1998 faded into history with a strikingly divergent market
performance. The Dow Jones Industrial Average (DJIA) registered
a gain of 18.13%, the S&P 500 a gain of 28.72%, technology
heavy Nasdaq a very impressive 39.6%. The small-cap Russell 2000
with a loss of 3.5%, Latin American, emerging markets and the
Pacific region all experienced substantial declines. Basic
material stocks were down 7.4%, and the energy sector was down 2%
for the year. In the S&P 500, however, if we exclude the
performance of the largest 50 stocks that accounted for over 85%
of its gains, it would leave the rest of the 450 stocks with a
rise of a meager 1.5% in 1998. The median gain for an S&P 500
stock was a scant 2%. 1998 was a very volatile year especially
during its third quarter when all averages declined by nearly 20-
40%, this being the worst quarter since the 1987 third quarter
stock market crash.
The slumping demand in Asia and Latin America led to the collapse
of commodity prices such as oil, that declined from over $20 a
barrel to around $14. These declines were equivalent to a
massive tax cut for U.S. consumers along with continuing declines
in the consumer price index. That index rose just 1 1/2% in
1998. Declining mortgage rates and increased wealth resulting
from the previous three years' rise in stock market values, led
to very strong housing, auto and retail sectors. Thus, despite a
slowing manufacturing sector, the economy registered a strong 3
1/2% growth. Long-term interest rates (30-year U.S. Treasuries)
declined from around 5.62% to 5.16% at the end of the year, after
briefly touching 4.6% during the currency turmoil following
Russian debt default and ruble devaluation in August.
Our Federal Reserve followed with three interest rate cuts to
avoid massive failures among major financial institutions caused
by gargantuan leverage employed by Long-Term Capital Corporation
(a hedge fund) with its wrong bets on interest rates. Thirty
central banks around the world reduced interest rates sixty-one
times during the last four months of the year. Our stock
markets, which declined by almost 20% as measured by the S&P 500
and the DJIA, and over 30% by the Nasdaq index during the six
weeks ending October 8th, reflected the uncertainties caused by
recessions in most of the Asian and Latin American economies.
The massive liquidity pumped into the economy by the Federal
Reserve pushed up most of the stock market averages to new highs
in the fourth quarter of 1998.
OUTLOOK FOR 1999:
Consensus forecast for 1999 is for U.S. real growth to decelerate
to around 1 3/4 to 2%, with inflation modestly higher at 1 3/4%
and for corporate profits to recover in the second half of the
year to register a modest 5% growth. Many forecasters believe
that interest rates will be cut modestly by the Federal Reserve
during the second half of the year, when the slowdown in the
economy and concerns about the Year 2000 computer problem may
bring about a noticeable decline in capital spending.
With stock market valuations already at lofty levels as measured
by PE ratios (24 to 27 times depending, on how bullish profit
growth is expected), dividend yields (1.1%), and price to book
(7 times), we cannot expect to see another 20% gain in major
averages. Major problems of 1998, such as recessions in Japan
and the rest of Asia, Russia and worsening financial conditions
in Latin America still continue, despite all interest rate
reductions and monetary ease. In some countries such as South
Korea, conditions are improving, and among a few others they have
stabilized. Against this background, the Fed may more
aggressively reduce interest rates leading to a modest rise in
our equity averages at the end of this year.
We are inclined to think that after five years of
underperformance, the small stocks represented by the Russell
2000, much of the mid-cap sector and the smaller 450 of the S&P
500 index are likely to show a bigger rise, as their PE ratios
are considerably more attractive than the large-cap universe.
KENILWORTH FUND, INC.:
Despite our cautious outlook for 1998, the Fund went on to
register a gain of 20.58%, its fourth consecutive gain of over
20%. The Fund's NAV rose from $18.17 at the beginning of the
year to a peak of $20.51 on July 17th and made a low of $15.28
on October 8th, and went on to close at $21.91. The theoretical
total return of the S&P 500 index was 28.72% and that of the DJIA
only 18.13%. We are pleased to report that unlike most mutual
funds in our category we did not make any income or capital gains
distributions in 1998, thus absolving the shareholders of any tax
liability despite the growth of over 20% in the Fund's NAV.
Nearly two thirds of the Fund's assets were in 10 stocks that
appreciated between 9 1/2% to 87.9%. Specifically, the ten
largest holdings, with their gains, are as follows: Network
Associates (87.9%), Intel (68.8%), Freddie Mac (53.7%),
Bristol-Myers Squibb (41.1%), Merck (39.2%), General Electric
(39%), American International Group (33.3%), Lucent Technologies
(30.5%), Fannie Mae (29.7%) and Hewlett-Packard (9.5%), (all
percentages reported without dividend income). All our major
holdings substantially exceeded the 28.7% S&P 500 return except
for Hewlett-Packard.
The Fund began adding small amounts of small and mid-cap stocks
such as Frontier Insurance Group and Quantum Corporation during
the year, all of which we liquidated at losses after the Russian
ruble devaluation in August, the near bankruptcy of Long-Term
Capital Corporation and the subsequent debacle in the emerging
markets. We also suffered losses in some of the equities like
Citicorp and J.P. Morgan who were penalized by their dealings
with those countries.
For this year, we expect that the telecommunications and
technology sectors will continue to experience explosive growth
due to the phenomenal rise of the internet media. We also expect
strong growth to continue in the pharmaceutical and financial
services industries. Merger and acquisition activity will
continue to push up equity prices. All of these sectors where
the Fund is concentrated, hopefully will give us another year of
double-digit returns. We are pleased to report that we have
delivered on our attempts to provide you with a double-digit rate
of return over a three to five year period. For the three and
five year periods ending December 31, 1998, the Fund's average
annual returns were 23.51% and 17.80%, respectively.
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, 1998 your investment
in the Fund would be $23,498 as compared to a theoretical
investment in the S&P 500 which would have
grown to $31,036. This performance includes the reinvestment of
dividends.
<TABLE>
<CAPTION>
Cumulative Total Returns
Periods ended December 31, 1998
Past 1 Year Past 5 years Life of Fund
<S> <C> <C> <C>
Kenilworth Fund, Inc. 20.58% 126.85% 134.97
S&P 500 28.72% 194.24% 209.86
</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, 1998
Past 1 Year Past 5 Years Life of Fund
<S> <C> <C> <C>
Kenilworth Fund, Inc. 20.58% 17.80 16.80%
S&P 500 28.72% 24.09 22.82%
</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, 1998
<TABLE>
<CAPTION> Market
COMMON STOCKS 97.27%a Shares Value Percent
<S> <C> <C> <C>
Aircraft 1.07%
Boeing Corp. 4,000 $130,500 1.07
Autos 5.29%
Ford Motor 5,500 322,779 2.65
General Motors 4,500 322,029 2.64
Banks 4.90%
Wells Fargo & Co. 5,000 199,685 1.64
Citigroup, Inc. 8,000 397,496 3.26
Computer-Semiconductor 11.32%
Intel Corp. 10,000 1,185,620 9.74
Applied Materials, Inc.* 4,500 192,092 1.58
Computer Software 9.65%
Adaptec, Inc.* 5,000 87,810 0.72
Oracle Systems, Inc.* 2,250 97,031 0.80
Intuit, Inc.* 3,800 275,500 2.26
Network Associates, Inc.* 8,000 530,000 4.35
Cisco Systems 2,000 185,624 1.52
Computer Systems 6.48%
Hewlett-Packard 10,000 683,120 5.61
Quantum Corp.* 5,000 106,250 0.87
Drugs 14.28%
Merck & Co. 4,000 590,000 4.85
Bristol-Myers Squibb 4,600 615,535 5.05
Schering-Plough 6,000 331,500 2.72
Eli Lilly & Company 1,000 88,875 0.73
Warner-Lambert 1,500 112,781 0.93
Electrical Equipment 5.03%
General Electric 6,000 612,000 5.03
Finance 25.03%
Federal National Mortgage 13,500 999,000 8.20
Federal Home Loan Mortgage 23,500 1,514,269 12.44
Household International, Inc. 6,000 237,750 1.95
Associates First Capital Corp.7,006 296,879 2.44<PAGE>
</TABLE>
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION> Market
COMMON STOCKS Shares Value Percent
<S> <C> <C> <C>
Insurance 7.31%
American International Group 6,000 579,750 4.76
Conseco, Inc. 3,500 106,750 0.88
Transamerica Corp. 1,000 115,500 0.95
Hartford Life, Inc. 1,500 87,375 0.72
Telecommunications 2.85%
ADC Telecommunication* 10,000 579,750 4.76
Utilities-Telephone 4.06%
Lucent Technologies 4,500 494,716 4.06
Total Investments 11,845,716
(Cost $6,148,063)
CASH AND RECEIVABLES
NET OF LIABILITIES 2.73% 332,559
TOTAL NET ASSETS 100.00% $12,178,275
NET ASSET VALUE PER SHARE $21.91
(based on 555,821 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, 1998
INCOME:
Dividends $107,594
Interest 14,388
Total Income 121,982
EXPENSES:
Investment Advisory Fees 103,469
Administrative and Management Fees 30,000
Registration Fees 1,929
Auditing 5,604
Insurance and Other Expenses 6,233
Total Expenses 147,235
NET INVESTMENT LOSS: (25,253)
NET REALIZED LOSS ON INVESTMENTS (8,169)
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS 2,109,675
NET REALIZED LOSS AND UNREALIZED APPRECIATION
ON INVESTMENTS 2,101,506
NET INCREASE IN NET ASSETS FROM OPERATIONS $2,076,253
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, 1998 December 31,1997
<S> <C> <C>
Net Investment Loss ($25,253) ($26,744)
Net Realized Gain (Loss)
on Investments (8,169) 264,438
Net Increase in Unrealized
Appreciation
on Investments 2,109,675 1,320,457
Increase in Net Assets
from Operations 2,076,253 1,558,151
DISTRIBUTIONS To SHAREHOLDERS:
Distributions from
Net Investment Income --- ---
Distributions from Net Realized
Gains on Investments --- (237,694)
Decrease in Net Assets resulting
from Distributions --- (237,694)
CAPITAL SHARE TRANSACTIONS:
Proceeds From Shares Issued
(24,894 and 75,696 shares,
respectively) 462,667 1,338,097
Cost of Shares Redeemed
(7,957 and 14,740 shares,
respectively) (150,454) (270,698)
Reinvested Dividends
(0 and 9,888 shares,
respectively) --- 179,665
Increase in Net Assets from
Capital Share Transactions 312,213 1,247,064
Total Increase in
Net Assets 2,388,466 2,567,521
NET ASSETS AT BEGINNING OF YEAR
(538,884 and 468,040 shares
outstanding, respectively) 9,789,809 7,222,288
NET ASSETS AT END OF YEAR
(555,821 and 538,884 shares
outstanding, respectively) $12,178,275 $9,789,809
</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
1998 1997 1996 1995 1994 1993a
<S> <C> <C> <C> <C> <C> <C>
Selected Per-Share Data
Net Asset Value, beginning of period
$18.17 $15.43 $11.93 $9.64 $10.31 $10.00
Income from Investment Operations
Net Investment Income (Loss)
(0.04) (0.05) 0.01 0.06b 0.06b 0.05
Net Realized and Unrealized Gain (Loss) on Investments
3.78 3.24 3.51 2.64 (0.67) 0.31
Total....3.74 3.19 3.52 2.70 (0.61) 0.36
Less Distributions From Net Investment Income
0.00 0.00 0.01 0.06 0.06 0.05
From Net Realized Gains
0.00 0.45 0.01 0.35 0.00 0.00
Total....0.00 0.45 0.02 0.41 0.06 0.05
Net Asset Value,end of period
$21.91 $18.17 $15.43 $11.93 $9.64 $10.31
Total Return.....20.58% 20.67% 29.48% 28.03% (5.95%) 7.16%c
Ratios and Supplemental Data
Net Assets, end of period (in thousands)
$12,178 $9,790 $7,222 $5,099 $3,530 $2,840
Ratio of Net Expenses to Average Net Assets
1.42% 1.52% 1.51% 1.69%b 1.70%b 0.52%
Ratio of Net Investment Income to Average Net Assets
(0.24%) (0.29%) 0.06% 0.54%b 0.67%b 0.65%
Portfolio Turnover Rate
70.26% 76.99% 73.93% 82.17% 11.78% 0.00%
aJuly 1, 1993 (commencement of operations) to December 31, 1993
bNet of reimbursement of expenses by Advisor.
cAnnualized.
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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, 1998, purchases and sales of
investment securities were $7,869,601 and $7,282,167
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, 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. Sources of Net Assets:
As of December 31, 1998, the sources of net assets were as
follows:
Fund shares issued and outstanding $6,514,045
Unrealized Appreciation of Investments 5,697,652
Undistributed Investment Loss (25,253)
Accumulated Net Realized Loss (8,169)
Total $12,178,275
Aggregate Net Unrealized Appreciation as of December 31, 1998
consisted of the following:
Aggregate gross unrealized appreciation: $5,856,436
Aggregate gross unrealized deprecation: (158,784)
Net unrealized appreciation: $5,697,652
At December 31, 1998, 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
<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, 1998, and the related
statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the three years
in 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 financial highlights.
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 and financial highlights 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, 1998. 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, 1998, 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 financial highlights for each of the three
years in the period then ended, in conformity with generally
accepted accounting principles.
McGladrey & Pullen, LLP
Chicago, Illinois
January 8, 1999
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,148,063
<INVESTMENTS-AT-VALUE> 11,845,716
<RECEIVABLES> 10,220
<ASSETS-OTHER> 329,791
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,185,727
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,452
<TOTAL-LIABILITIES> 7,452
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,514,045
<SHARES-COMMON-STOCK> 555,821
<SHARES-COMMON-PRIOR> 538,884
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 12,178,275
<DIVIDEND-INCOME> 107,594
<INTEREST-INCOME> 14,388
<OTHER-INCOME> 0
<EXPENSES-NET> 147,235
<NET-INVESTMENT-INCOME> (25,253)
<REALIZED-GAINS-CURRENT> (8,169)
<APPREC-INCREASE-CURRENT> 2,109,675
<NET-CHANGE-FROM-OPS> 2,076,253
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,894
<NUMBER-OF-SHARES-REDEEMED> 7,957
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,388,466
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 103,469
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 147,235
<AVERAGE-NET-ASSETS> 10,361,400
<PER-SHARE-NAV-BEGIN> 18.17
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 3.78
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.91
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
