KENILWORTH FUND, INC.
21 S. Clark Street
Suite 2594
Chicago, IL 60614
ANNUAL REPORT
December 31, 1999
Dear Fellow Shareholders,
The net asset value of your Fund ended 1999 at $27.45 after
distributing a total long-term capital
gain of $0.365 per share. Having started the year at $21.91,
the closing net asset value of $27.45
plus the distribution, amounts to a 26.95% total return for the
Kenilworth Fund, Inc. in 1999. In
comparison, the theoretical total return of the S&P 500 Index
was 21.04%. In the Large-Cap Value
category of mutual funds, where we have been placed by Lipper
Inc., the average for 1999 was
11.23%. Thus, in a year when most value managers were
questioning their approach, we stuck to
our philosophy of conservative, reasonable growth, and exceeded
our category by 15.72% in 1999.
We are proud that in the five years ending December 31, 1999,
our Fund's average annual return
was over 25%, thus enabling a shareholder to more than triple the
value of their assets invested in
our Fund. All of you who have been with us during the past five
years and since inception, July 1,
1993, are aware that our expectation was to earn a double-digit
rate of return on an annual basis,
exceeding the long-run historical average of around 11% per year.
This internal growth in net assets from investments, coupled with
net new sales to new and existing
shareholders, resulted in total net assets at year end of $15.7
million from $12.2 million at the
beginning of the year. We continue to keep a tight control on
expenses as witnessed by our Fund's
total expense ratio of 1.41% from the 1.70% that we are allowed
according to our Prospectus.
In November, we sent you two newspaper article reprints, one from
Barron's listing our Fund as the
best among all Large-Cap Value Funds for the quarter ending
September 30, 1999, and another from
The Wall Street Journal listing our Fund in the top-10 in the
Large-Cap Value category for the year
ending October 31, 1999. Subsequently, we are happy to report
that The Wall Street Journal listed
our Fund again in the top-10 of the Large-Cap Value category for
the year ending November 30,
1999, as well as for the year ending December 31, 1999. Many of
you may remember the similar
listings of our Fund in the Growth category in The Wall Street
Journal in 1997. Despite such
recognition, our Fund does not come under the radar screens of
financial planners and other media
because our Fund is not listed on Nasdaq. Nasdaq conditions for
listing are an asset size of $25
million or 1000 shareholders. We are very confident that with
your help we will hit that target fairly
soon.
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 thirty-one years.
Prior to portfolio management he taught investment theory at the
university level.
<PAGE>
<PAGE>
INVESTMENT PERSPECTIVE - JANUARY 18, 2000
DJIA: 11,497.12 (12/31/99)
S & P 500: 1,469.25
ECONOMIC AND INVESTMENT
HIGHLIGHTS:
With all the hoopla of the millennium and the
uncertainty of the Y2K problem, 1999 drew to a
close with nary a problem and all major equity
averages registering record highs. The Dow
Jones Industrial Average (DJIA) closed up
27.21% and the S&P 500 21.04%, and unlike
1998, most of Latin America, emerging markets,
and the Pacific region all recorded substantial
gains. Most impressive was the technology heavy
Nasdaq Index that gained over 85% during the
year.
Our Federal Reserve in late 1998 initiated three
separate interest rate cuts and increased the
available credit, to avoid a meltdown of the
worldwide financial system after the Russian debt
default, and slumping Japanese and other Asian
economies. Other central banks around the world
also pumped massive liquidity into the financial
system.
This easy money policy led to an economic
resurgence around the world faster than what
most analysts, including us, forecasted in early
1999. Concurrently, the explosive growth of
technology, telecommunications and acceptance
of the internet by businesses turbo-charged our
economy through 1999. It is now widely believed
that technology investments by businnesses have
increased productivity significantly in the last
many years. Also, the above average rise in stock
market and home values in the previous few
years, prompted very strong spending by both the
business and consumer sector. The flight to
safety by foreign capital during the currency
meltdown in 1998, and anticipation of currency
instability in 1999 due to Y2K uncertainties, led
to the strengthening of the dollar and dollar
based assets. This had a restraining influence on
domestic inflation.
The strong growth led the Federal Reserve to
raise interest rates three times starting in June
1999. Speculation was rife that the Fed would
become still more restrictive for the balance of
the year. Thus, during the three months after
the DJIA made new highs in August, the
markets promptly fell by over 1,000 points or
10% from August to October 15. However, the
Fed went on to advertise that they were flooding
the system with further liquidity to meet plausible
Y2K financial disruptions, and hence there would
be no more rate hikes for the balance of the year.
Since then, the technology and
telecommunications stocks whose glowing
prospects attracted this liquidity with their prices
soaring, busted all reasonable valuation measures
and pushed major market indices to their highs.
The indices are capitalization weighted and
heavily influenced by these technology and
telecommunications stocks. Thus, in the last
quarter of the year, the markets rose by 15% with
two-thirds of the rise due to PE multiple
expansion.
We have had an unprecedented five consecutive
years of 20% annual growth in equity markets.
Also, just as in 1998, the rise in 1999 was very
narrowly based. Only 30 companies of the S&P
500 stocks gave that 20% annual return with all
the other 470 cancelling each other out in
performance. Of the thirty, 16 were technology
companies contributing over 56%. Among the
non-technology companies, General Electric,
Wal-Mart and Alcoa contributed to the bulk of
the balance.
OUTLOOK FOR 2000:
Consensus forecast for 1999 is for U.S. real
growth to decelerate from around 4.25% to
around 2.5% to 3.5%. We believe with
unemployment at 4.2%, strong consumer
spending, and very strong export demand for our
technology and telecommunications products,
<PAGE>
growth this year will be around 4%. The Fed will
be forced to raise interest rates by 50 basis points
(half of 1%) and sop-up the liquidity. (Of
course, all bets are off, if the Federal Reserve
raises rates more than 50 basis points causing the
markets to sell off thereby triggering a recession!
In an election year this is highly unlikely).
As all costs (labor, health, oil and commodities)
are generally rising with hardly any pricing power,
corporate profits will rise only moderately at
around 7% from the 14% for the S&P 500 last
year. We will see greater volatility in the market
and maybe only a modest rise in market averages
(around 7%), consistent with the growth in
profits. We do expect that the broader markets
will participate this year as there exist compelling
values.
Kenilworth Fund, Inc.:
With a gain of 26.95% in 1999, our Fund
outperformed the benchmark S&P 500 by nearly
7%. Just like the S&P 500 we registered over
20% annual growth, consecutively during the last
five years. Thus, our Fund with 25% annual
growth has allowed the shareholders to more
than triple their assets in the last five years. We
are also pleased to report that the tax liability
generated by our Fund is an insignificant $.07
per share (or less than a quarter of one percent)
as against many other prominent value funds.
(The maximum tax on the Fund's long-term
capital gain distribution of $.365 per share is 20%
or $.07.)
<PAGE>
Nearly two-thirds of the Fund's assets were in
eleven stocks that appreciated by over twice as
much as the 21.04% of the S&P 500. (One stock
nearly quadrupled, two nearly tripled and three
others more than doubled). Specifically, the
gains were as follows: Oracle (+290%), Applied
Materials (+197%), Adaptec (+184%), Intuit
(+148%), Cisco (+131%), EMC (+109%), ADC
Telecommunications (+109%), Citigroup
(+68%), Hewlett Packard (+67%), General
Electric (+52%), and finally Intel (+39%).
All through the year, however, we were aware
that the pharmaceutical and finance stocks in our
portfolio, clouded by political and interest rate
concerns, would perform poorly. We did not
want to liquidate as these companies continue to
report double-digit earnings growth and were
selling at half the market multiple, then around
30. These are compelling values and likely to
appreciate sometime in the not too distant future.
Again specifically, they were as follows: Freddie
Mac (-27%), Schering-Plough (-23%), Fannie
Mae (-16%), Ford (-9%), Merck (-9%) Wells
Fargo (-9%) and Bristol-Myers (-4%). All these
except Schering Plough had great embedded
capital gains for the Fund. We feel confident
that fine tuning the current portfolio of stocks
through the year, will allow us to register another
double-digit gain during the year 2000.
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, 1999 your investment
in the Fund would be $29,830 as compared to a theoretical
investment in the S&P 500 which would have
grown to $37,566. This performance includes the reinvestment of
dividends.
Cumulative Total Returns
Periods ended December 31, 1999
Past 1 Year Past 5 Years Life of Fund
Kenilworth Fund, Inc. 26.95% 206.21% 198.31%
S&P 500 21.04% 251.12% 274.64%
Cumulative total returns reflect the Fund's actual performance
over a set period. The Fund began operations on July 1, 1993.
Average Annual Returns
Periods ended December 31, 1999
Past 1 Year Past 5 Years Life of Fund
Kenilworth Fund, Inc. 26.95% 25.08% 18.31%
S&P 500 21.04% 28.56% 22.54%
Average annual returns take the Fund's cumulative returns 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>
KENILWORTH FUND, INC.
INVESTMENTS IN SECURITIES
December 31, 1999
Market
COMMON STOCKS 100%a Shares Value
Auto 5.45%
Ford Motor 5,500 $293,216
General Motors 7,000 508,809
Banks 4.88%
Citigroup, Inc. 10,000 556,870
Wells Fargo & Co. 4,000 161,748
Computer-Semiconductor 19.15%
Intel Corp. 20,000 1,646,240
Applied Materials, Inc.* 5,000 633,435
International Business Machines 5,000 539,375
Computer Software 17.56%
Adaptec, Inc.* 8,400 418,950
Oracle Systems, Inc.* 7,000 784,434
Intuit, Inc.* 15,000 899,055
Cisco Systems* 4,500 482,062
Computer Systems 10.32%
Hewlett-Packard 10,000 1,137,500
EMC Corporation* 3,500 382,375
Drugs 9.53%
Merck & Co. 8,500 571,090
Bristol-Myers Squibb 10,000 641,870
Schering-Plough 4,500 190,688
Electrical Equipment6.31%
General Electric 6,000 928,500
<PAGE>
KENILWORTH FUND, INC.
INVESTMENTS IN SECURITIES
December 31, 1999
Market
COMMON STOCKS Shares Value
Finance 10.29%
Federal National Mortgage 9,200 574,420
Federal Home Loan Mortgage 20,000 941,240
Insurance 5.14%
American International Group 7,000 756,875
Telecommunications 6.53%
ADC Telecommunication* 12,000 870,744
Corning, Inc. 700 90,256
Utilities-Telephone 4.84%
Lucent Technologies 9,500 712,500
Total Investments 100% $14,722,252
(Cost $5,900,449)
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
Year Ended
INVESTMENT INCOME December 31, 1999
INCOME:
Dividends $106,744
Interest 10,008
Total Income 116,752
EXPENSES:
Investment Advisory Fees 130,585
Administrative and Management Fees 40,000
Registration Fees 2,054
Auditing 6,240
Insurance and Other Expenses 5,733
Total Expenses 184,612
NET INVESTMENT LOSS: (67,860)
NET REALIZED GAIN ON INVESTMENTS 264,929
NET INCREASE IN UNREALIZED APPRECIATION
ON INVESTMENTS 3,124,150
NET REALIZED GAIN AND UNREALIZED APPRECIATION
ON INVESTMENTS 3,389,079
NET INCREASE IN NET ASSETS FROM OPERATIONS $3,321,219
The accompanying notes are an integral part of these financial
statements.
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
Year Ended
ASSETS December 31, 1999
Investments in securities, at value
(identified cost $5,900,449) $14,722,252
Cash 865,452
Receivables
Dividends 9,815
Investment securities sold 174,872
Total Assets 15,772,391
LIABILITIES
Payables
Investment securities purchased 99,375
Other 7,320
Total Liabilities 106,695
NET ASSETS
Net Assets (equivalent to $27.45 per share based on
570,712.062 shares of capital stock outstanding)$15,665,696
The accompanying notes are an integral part of these financial
statements.
<PAGE>
KENILWORTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
OPERATIONS: December 31, 1999 December 31, 1998
Net Investment Loss ($67,860) ($25,253)
Net Realized Gain (Loss)
on Investments 264,929 (8,169)
Net Increase in Unrealized
Appreciation on Investments 3,124,150 2,109,675
Increase in Net Assets
from Operations 3,321,219 2,076,253
DISTRIBUTIONS To SHAREHOLDERS:
Distributions from
Net Investment Income --- ---
Distributions from Net Realized
Gains on Investments (206,564) ---
Decrease in Net Assets
resulting from Distributions (206,564) ---
CAPITAL SHARE TRANSACTIONS:
Proceeds From Shares Issued
(15,745 and 24,894 shares,
respectively) 365,475 462,667
Cost of Shares Redeemed
(6,466 and 7,957 shares,
respectively) (146,765) (150,454)
Reinvested Dividends (5,612 and 0 shares,
respectively) 154,056 ---
Increase in Net Assets from
Capital Share Transactions 372,766 312,213
Total Increase in Net Assets 3,487,421 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 YEAR
(570,712 and 555,821 shares outstanding,
respectively) $15,665,696 $12,178,275
The accompanying notes are an integral part of these financial
statements.
<PAGE>
KENILWORTH FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Years Ended December 31
1999 1998 1997 1996 1995 1994 1993a
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Per-Share Data
Net Asset Value,
beginning of period $21.91 $18.17 $15.43 $11.93 $9.64 $10.31 $10.00
Income from Investment Operations
Net Investment
Income (Loss). .(0.12) (0.04) (0.05) 0.01 0.06b 0.06b 0.05
Net Realized and Unrealized
Gain (Loss)
on Investments. 6.02 3.78 3.24 3.51 2.64 (0.67) 0.31
Total . . . 5.90 3.74 3.19 3.52 2.70 (0.61) 0.36
Less Distributions
From Net
Investment Income 0.00 0.00 0.00 0.01 0.06 0.06 0.05
From Net Realized
Gains.......... 0.36 0.00 0.45 0.01 0.35 0.00 0.00
Total ..... 0.36 0.00 0.45 0.02 0.41 0.06 0.05
Net Asset Value,
end of period. . $27.45 $21.91 $18.17 $15.43 $11.93 $9.64 $10.31
Total Return . . . 26.95% 20.58% 20.67% 29.48% 28.03% (5.95%) 7.16%c
Ratios and Supplemental Data
Net Assets,
end of period
(in thousands). . . $15,666 $12,178 $9,790 $7,222 $5,099 $3,530 $2,840
Ratio of Net Expenses
to Average
Net Assets. . . 1.41% 1.42% 1.52% 1.51% 1.69%b 1.70%b 0.52%
Ratio of Net Investment Income
to Average
Net Assets. .....(0.52%) (0.24%) (0.29%) 0.06% 0.54%b 0.67%b 0.65%
Portfolio Turnover
Rate..............38.29% 70.28% 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>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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, 1999, purchases and sales of investment securities
were $5,011,188 and $5,439,219 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, 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 an annual
administrative and management services fee of $40,000. 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, 1999, the sources of net assets were as
follows:
Fund shares issued and outstanding $6,886,810
Unrealized Appreciation of Investments 8,821,803
Accumulated Undistributed Investment Loss-Net (93,113)
Accumulated Undistributed Net Realized
Gains on Investment Transactions 50,196
Total $15,665,696
Aggregate Net Unrealized Appreciation as of December 31, 1999
consisted of the following:
Aggregate gross unrealized appreciation $8,865,340
Aggregate gross unrealized deprecation (43,537)
Net unrealized appreciation $8,821,803
At December 31, 1998, the Fund had tax basis capital losses of
$8,169 which were carried over in 1999 to offset short term
capital gains.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Kenilworth Fund, Inc.
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments in securities,
of Kenilworth Fund, Inc. as of December 31, 1999, and the related
statements of operations and changes in net assets for
the year then ended, and financial highlights for the year 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 audit. The statement of
changes in net assets for the year ended December 31, 1998,
and the financial highlights for the years ended December 31,
1998, 1997, and 1996, were audited by other auditors whose
report dated January 8, 1999, expressed an unqualified opinion.
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 audit 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, 1999. 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 audit provides 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, 1999, the results of its operations and changes in
its net assets for the year then ended, and financial highlights
for the year then ended, in conformity with generally accepted
accounting principles.
Grant Thornton LLP
Chicago, Illinois
January 7, 2000
<TABLE> <S> <C>
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<NAME> KENILWORTH FUND, INC.
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 5,900,449
<INVESTMENTS-AT-VALUE> 14,722,252
<RECEIVABLES> 184,687
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<OTHER-ITEMS-LIABILITIES> 7,320
<TOTAL-LIABILITIES> 106,695
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<PAID-IN-CAPITAL-COMMON> 6,886,810
<SHARES-COMMON-STOCK> 570,712
<SHARES-COMMON-PRIOR> 555,821
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<NET-ASSETS> 15,665,696
<DIVIDEND-INCOME> 106,744
<INTEREST-INCOME> 10,008
<OTHER-INCOME> 0
<EXPENSES-NET> 184,612
<NET-INVESTMENT-INCOME> (67,860)
<REALIZED-GAINS-CURRENT> 264,929
<APPREC-INCREASE-CURRENT> 3,124,150
<NET-CHANGE-FROM-OPS> 3,321,219
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 206,564
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,745
<NUMBER-OF-SHARES-REDEEMED> 6,466
<SHARES-REINVESTED> 5,612
<NET-CHANGE-IN-ASSETS> 3,487,421
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 130,585
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 13,086,267
<PER-SHARE-NAV-BEGIN> 21.91
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> 6.02
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .36
<RETURNS-OF-CAPITAL> 0
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<EXPENSE-RATIO> 1.41
</TABLE>
