As Filed with the Securities and Exchange Commission July 10, 2003
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7521
The Kenwood Funds
(Exact name of registrant as specified in charter)
10 South LaSalle Street, Suite 3610, Chicago, IL 60603
(Address of principal executive offices) (Zip code)
Arthur Don
D'Ancona & Pflaum LLC
111 E. Wacker Drive, Suite 2800
Chicago, IL 60601
312-602-2048
(Name and address of agent for service)
1-888-KENFUND (888-536-3863)
Registrant's telephone number, including area code
Date of fiscal year end: April 30, 2003
Date of reporting period: April 30, 2003
Item 1. Report to Stockholders.
ANNUAL REPORT
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THE KENWOOD FUNDS
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The Kenwood Growth & Income Fund
April 30, 2003
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TABLE OF CONTENTS
Page
----
Shareholder Letter.......................................... 1
Performance Summary......................................... 2
Statement of Assets and Liabilities......................... 3
Statement of Operations..................................... 4
Statement of Changes in Net Assets.......................... 5
Financial Highlights........................................ 6
Schedule of Investments..................................... 7-10
Notes to the Financial Statements...........................11-13
Report of Independent Accountants........................... 14
Trustees and Officers.......................................15-17
NOTICE TO INVESTORS
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, nor are they insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other agency.
An investment in the Fund involves risk, including possible loss of
principal, due to fluctuation in the Fund's net asset value.
This report must be accompanied or preceded by a prospectus of the Fund.
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Dear Shareholder,
For the 12-month period ended April 30, 2003, The Kenwood Growth and Income Fund
had performance of -19.01% compared to -13.49% for the Russell Midcap Value
Index and -17.51% for the S&P MidCap 400 Index.
The markets' shift away from small capitalization stocks continued during the
12-month period ended April 30, 2003. Mid and large cap indexes both
outperformed the small cap indexes by more than 100 basis points.
Near their valuation peak in March 1999, large cap stocks were selling at more
than a 50% premium to the small and mid cap segments of the market as measured
by the relevant S&P indexes on a trailing price/earnings basis (excluding
companies with negative earnings). Small and mid cap stocks soon began
outperforming the large cap indexes. While a large cap premium may be justified
given higher capital returns and less earnings variability, clearly the
valuation gap was too large at the end of the nineties, in our opinion.
It does appear that a substantial portion of the corrective action at the
smaller end of the market has already occurred. After the first quarter of 2003,
large cap stocks were selling at a 10% premium to mid cap stocks and a 20%
premium to the small cap stocks, suggesting that the smaller end of the market
may have had much of its run.
The most interesting note is that mid cap stocks seem to have benefited whether
the momentum has been behind small or large cap stocks. We believe that the mid
cap sector has offered investors more opportunities to discover undervalued
stocks relative to the closely followed large cap arena without the liquidity
premium demanded by investing in higher risk, smaller cap issues.
We continue to believe that the U.S. economy is moving forward at a 2 - 2.5% GDP
clip but this growth rate may be masking "true" demand because of delays in
spending by both the industrial sector and consumers. Clearly, the war had a
negative impact on both the top and bottom line of many companies. Consumers
have been hesitant to spend as unemployment rates tick up while corporations
delayed their capital investment spending plans until they could ascertain what
demand for their products would be after the Iraq war was over. Raw material
costs, meanwhile, have increased in response to higher energy input costs with
limited pricing flexibility to pass them on. The result has been a sluggish
restart in earnings growth for many companies.
We appreciate the confidence expressed by our shareholders.
Sincerely,
/S/ Barbara L. Bowles
- ---------------------
Barbara L. Bowles
President
Past performance is not indicative of future results. Investing in midcap stocks
may be more risky and volatile than investing in large cap stocks.
Quasar Distributors, LLC, Distributor.
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THE KENWOOD GROWTH & INCOME FUND
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PERFORMANCE SUMMARY
[GRAPH]]
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Kenwood Growth & Russell Midcap S&P MidCap
Income Fund Value Index 400 Index
Apr-96 10,000 10,000 10,000
May-96 10,330 10,095 10,135
Jun-96 10,390 10,106 9,983
Jul-96 9,600 9,625 9,307
Aug-96 9,850 10,028 9,844
Sep-96 10,400 10,396 10,273
Oct-96 10,290 10,670 10,303
Nov-96 10,890 11,340 10,883
Dec-96 10,815 11,292 10,895
Jan-97 11,220 11,647 11,304
Feb-97 11,372 11,844 11,211
Mar-97 11,302 11,484 10,733
Apr-97 11,352 11,773 11,011
May-97 12,335 12,468 11,974
Jun-97 12,660 12,930 12,310
Jul-97 13,237 13,890 13,529
Aug-97 13,308 13,727 13,513
Sep-97 13,866 14,578 14,290
Oct-97 13,450 14,135 13,668
Nov-97 13,613 14,611 13,870
Dec-97 14,086 15,171 14,409
Jan-98 13,391 14,877 14,135
Feb-98 14,672 15,870 15,305
Mar-98 15,259 16,688 15,996
Apr-98 15,400 16,594 16,288
May-98 15,052 16,206 15,555
Jun-98 15,357 16,258 15,653
Jul-98 14,423 15,434 15,046
Aug-98 11,990 13,264 12,246
Sep-98 11,990 14,037 13,388
Oct-98 12,946 14,946 14,585
Nov-98 13,738 15,471 15,313
Dec-98 13,856 15,941 17,163
Jan-99 13,379 15,570 16,495
Feb-99 12,948 15,227 15,631
Mar-99 13,111 15,445 16,067
Apr-99 14,717 16,908 17,335
May-99 15,263 16,979 17,409
Jun-99 15,624 17,172 18,341
Jul-99 15,484 16,743 17,952
Aug-99 14,821 16,164 17,336
Sep-99 14,018 15,346 16,800
Oct-99 13,786 15,799 17,657
Nov-99 13,704 15,509 18,584
Dec-99 14,276 15,925 19,688
Jan-00 13,011 14,973 19,133
Feb-00 12,589 14,347 20,472
Mar-00 13,893 16,086 22,186
Apr-00 13,791 16,150 21,412
May-00 13,957 16,428 21,144
Jun-00 13,778 15,815 21,455
Jul-00 13,599 16,185 21,794
Aug-00 14,557 17,177 24,228
Sep-00 14,391 17,342 24,063
Oct-00 14,596 17,672 23,248
Nov-00 13,829 17,442 21,492
Dec-00 14,405 18,980 23,137
Jan-01 15,285 18,912 23,653
Feb-01 15,195 18,833 22,302
Mar-01 14,793 18,311 20,645
Apr-01 15,829 19,318 22,922
May-01 16,296 19,867 23,456
Jun-01 16,412 19,603 23,362
Jul-01 16,399 19,524 23,012
Aug-01 16,309 19,167 22,259
Sep-01 14,495 17,338 19,490
Oct-01 14,677 17,431 20,352
Nov-01 15,920 18,651 21,866
Dec-01 16,671 19,424 22,995
Jan-02 16,959 19,620 22,876
Feb-02 16,920 19,939 22,904
Mar-02 17,848 20,958 24,541
Apr-02 17,521 20,944 24,427
May-02 17,534 20,913 24,015
Jun-02 16,371 19,979 22,257
Jul-02 14,004 18,023 20,101
Aug-02 14,213 18,233 20,202
Sep-02 12,566 16,392 18,574
Oct-02 13,272 16,913 19,379
Nov-02 14,331 17,978 20,501
Dec-02 13,887 17,550 19,658
Jan-03 13,492 17,064 19,084
Feb-03 13,096 16,781 18,630
Mar-03 13,175 16,838 18,786
Apr-03 14,191 18,119 20,150
This chart assumes a hypothetical investment of $10,000 made on May 1, 1996
(commencemnt of operations). Returns shown include the reinvestment of all
dividends and capital gains. This chart and table do not reflect the deduction
of taxes that a shareholder would pay on Fund distributions or the redemption of
Fund shares.
Annualized
1 Year Ended 5 Year Ended Since Inception
Total Return April 30, 2003 April 30, 2003 May 1, 1996
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The Kenwood Growth
& Income Fund -19.01% -1.62% 5.12%
Russell Midcap Value Index * -13.49% 1.77% 8.84%
S&P MidCap 400 Index ** -17.51% 4.35% 10.47%
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* The Russell Midcap Value Index measures the performance of small and
mid-sized companies with lower price-to-book ratios and lower
price-to-earnings ratio. One cannot invest directly in an index.
** The Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index) is a
capital-weighted index, representing the aggregate market value of the
common equity of 400 stocks chosen by Standard & Poor's with a weighted
average market value of $2.6 billion as of April 30, 2003.
Past performance is not predictive of future performance. Investment return and
principal value will fluctuate, so that shares, when redeemed, may be worth more
or less than the original cost.
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THE KENWOOD GROWTH & INCOME FUND
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STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003
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ASSETS:
Investments, at value (Cost of $3,049,814) $3,031,025
Receivable for securities sold 33,660
Receivable from Adviser 18,577
Prepaid expenses 7,370
Income receivable 2,638
Receivable for Fund shares sold 300
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Total assets 3,093,570
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LIABILITIES:
Accrued expenses and other liabilities 57,024
Payable for securities purchased 15,016
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Total liabilities 72,040
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NET ASSETS $3,021,530
=============
NET ASSETS CONSIST OF:
Capital stock $3,465,906
Undistributed net investment income 9,596
Accumulated net realized loss on investments (435,183)
Net unrealized depreciation on investments (18,789)
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NET ASSETS $3,021,530
=============
Shares outstanding (unlimited amount of shares authorized) 280,774
Net asset value, offering and redemption price per share $ 10.76
=============
See Notes to the Financial Statements.
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THE KENWOOD GROWTH & INCOME FUND
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STATEMENT OF OPERATIONS
For the Year Ended April 30, 2003
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INVESTMENT INCOME:
Dividends $ 58,773
Interest 2,735
-----------
Total investment income 61,508
-----------
EXPENSES:
Shareholder servicing fees 41,149
Professional fees 40,578
Administration fees 32,363
Fund accounting fees 29,153
Investment advisory fees 24,835
Federal and state registration fees 19,206
Custody fees 11,485
Distribution fees 8,279
Trustees' fees and expenses 5,123
Reports to shareholders 2,562
Other 4,256
-----------
Total expenses before voluntary waiver and reimbursement 218,989
Less: Voluntary waiver and reimbursement from Adviser (185,875)
-----------
Net expenses 33,114
-----------
NET INVESTMENT INCOME 28,394
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (347,583)
Change in unrealized appreciation (depreciation) on investments (504,604)
-----------
Net realized and unrealized loss on investments (852,187)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (823,793)
===========
See Notes to the Financial Statements.
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THE KENWOOD GROWTH & INCOME FUND
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STATEMENT OF CHANGES IN NET ASSETS
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For the Year For the Year
Ended Ended
April 30, 2003 April 30, 2002
-------------- --------------
OPERATIONS:
Net investment income $ 28,394 $ 31,537
Net realized gain (loss) on investments (347,583) 133,403
Change in unrealized appreciation (depreciation)
on investments (504,604) 232,010
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Net increase (decrease) in net assets resulting
from operations (823,793) 396,950
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DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income (27,156) (36,776)
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Total distributions (27,156) (36,776)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from shares sold 169,667 1,190,247
Shares issued on reinvestment of dividends and
distributions 26,875 36,258
Cost of shares redeemed (547,304) (708,587)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions (350,762) 517,918
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,201,711) 878,092
NET ASSETS:
Beginning of period 4,223,241 3,345,149
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End of period (including undistributed net investment
income of $9,596 and $9,272, respectively) $ 3,021,530 $ 4,223,241
============ ============
See Notes to the Financial Statements.
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THE KENWOOD GROWTH & INCOME FUND
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FINANCIAL HIGHLIGHTS
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For the Year Ended April 30,
2003 2002 2001 2000 1999
------------ ---------- ------------ ---------- ----------
SELECTED PER SHARE DATA(1):
NET ASSET VALUE - BEGINNING OF YEAR $13.40 $12.22 $10.79 $12.65 $14.18
------------ ---------- ------------ ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.10(2) 0.10(2) 0.15(2) 0.17 0.14
Net realized and unrealized gain (loss)
on investments (2.65) 1.20 1.43 (0.93) (0.82)
------------ ---------- ------------ ---------- ----------
Total income (loss) from
investment operations (2.55) 1.30 1.58 (0.76) (0.68)
------------ ---------- ------------ ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.09) (0.12) (0.15) (0.13) (0.12)
Distributions from net realized gain - - - (0.97) (0.73)
------------ ---------- ------------ ---------- ----------
Total distributions (0.09) (0.12) (0.15) (1.10) (0.85)
------------ ---------- ------------ ---------- ----------
NET ASSET VALUE - END OF YEAR $10.76 $13.40 $12.22 $10.79 $12.65
============ ========== ============ ========== ==========
TOTAL RETURN -19.01% 10.69% 14.79% -6.29% -4.44%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year $ 3,021,530 $ 4,223,241 $ 3,345,149 $ 3,019,161 $ 3,692,394
Ratio of net expense to average net assets:
Before expense reimbursement 6.62% 4.95% 6.16% 5.13% 5.26%
After expense reimbursement 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average net
assets:
Before expense reimbursement (4.76)% (3.12)% (3.73)% (2.72)% (3.05)%
After expense reimbursement 0.86% 0.83% 1.35% 1.41% 1.21%
Portfolio turnover rate 65.51% 77.29% 109.25% 88.73% 70.66%
(1) Information presented relates to a share of beneficial interest of the Fund
outstanding for the entire year.
(2) Net investment income per share is calculated using ending balances prior
to consideration of adjustments for permanent book and tax differences.
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THE KENWOOD GROWTH & INCOME FUND
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SCHEDULE OF INVESTMENTS
April 30, 2003
- --------------------------------------------------------------------------------
Shares Value
- ------ -----
----------------------------------------------------------
COMMON STOCKS - 93.5%
----------------------------------------------------------
APPLIANCES - 1.2%
1,700 Maytag Corporation $ 35,428
-----------
AUDIO/VISUAL - 0.4%
200 Harman International Industries, Incorporated 13,318
-----------
BANKING/SAVINGS & LOANS - 10.9%
4,400 Banknorth Group, Inc. 105,072
1,600 First Tennessee National Corporation 70,080
2,484 FleetBoston Financial Corporation 65,876
3,000 Marshall & Ilsley Corporation 88,260
-----------
329,288
-----------
FINANCIAL SERVICES - 6.2%
6,700 Janus Capital Group Inc. 93,130
3,050 The PMI Group, Inc. 94,001
-----------
187,131
-----------
FOOD & BEVERAGES - 7.4%
3,100 McCormick & Company 76,849
1,900 PepsiAmericas, Inc. 23,731
3,400 Tyson Foods Inc. - Class A 32,742
3,100 Wendy's International, Inc. 90,024
-----------
223,346
-----------
HEALTHCARE - 5.1%
700 Barr Laboratories, Inc.* 38,920
2,400 Health Net Inc.* 62,616
1,600 Renal Care Group, Inc.* 51,840
-----------
153,376
-----------
HUMAN RESOURCES - 1.0%
900 Manpower Inc. 29,592
-----------
INSURANCE - 7.2%
2,100 Aon Corporation 46,536
3,400 Nationwide Financial Services, Inc. - Class A 95,710
2,600 Protective Life Corporation 74,698
-----------
216,944
-----------
See notes to financial statements
Shares Value
------ -----
INTEGRATED OILS - 5.9%
3,600 GlobalSantaFe Corporation f $ 76,176
2,600 Unocal Corporation 72,020
850 Valero Energy Corporation 31,237
-----------
179,433
-----------
LEISURE & ENTERTAINMENT - 0.9%
1,200 Mattel, Inc. 26,088
-----------
MANUFACTURING - DIVERSIFIED - 0.9%
900 Roper Industries, Inc. 27,531
-----------
MATERIALS & PROCESSING - 3.3%
4,100 CommScope, Inc.* 35,137
4,700 Smurfit-Stone Container Corporation* 66,129
-----------
101,266
-----------
MEDICAL INSTRUMENTS/SUPPLIES - 2.3%
2,000 Becton, Dickinson and Company 70,800
-----------
PRODUCER DURABLES - 4.7%
2,400 American Power Conversion Corporation* 37,392
3,000 Pitney Bowes Inc. 105,330
-----------
142,722
-----------
PUBLISHING - 2.5%
1,150 Knight-Ridder, Inc. 74,233
-----------
RAILROADS - 2.8%
2,600 CSX Corporation 83,148
-----------
REAL ESTATE INVESTMENT TRUSTS (REITS) - 3.1%
3,900 Arden Realty, Inc. 92,937
-----------
See Notes to the Financial Statements.
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Shares Value
------ -----
RETAIL - 8.1%
2,400 Duane Reade Inc.* $ 32,280
3,000 Jones Apparel Group, Inc.* 85,560
7,100 Limited Brands 103,234
800 Staples, Inc.* 15,232
300 The Neiman Marcus Group, Inc.* 9,615
-----------
245,921
-----------
SEMICONDUCTORS - 1.1%
3,900 Cypress Semiconductor Corporation* 34,008
-----------
SERVICES - DIVERSIFIED - 1.5%
1,300 Fluor Corporation 44,941
-----------
TECHNOLOGY - 7.0%
3,000 Computer Sciences Corporation* 98,850
600 Diebold, Incorporated 23,988
518 Symantec Corporation* 22,766
7,300 Tellabs, Inc.* 45,114
300 Zebra Technologies Corporation - Class A* 20,001
-----------
210,719
-----------
UTILITIES - 10.0%
1,500 CenturyTel, Inc. 44,175
1,900 DTE Energy Company 76,608
1,400 People's Energy Corporation 54,390
3,800 Puget Energy, Inc. 80,256
3,500 Xcel Energy, Inc. 47,320
-----------
302,749
-----------
TOTAL COMMON STOCKS (Cost of $2,843,708) 2,824,919
-----------
See Notes to the Financial Statements.
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Principal
Amount Value
- ---------- -----
----------------------------------------------------
SHORT-TERM INVESTMENTS - 6.8%
----------------------------------------------------
VARIABLE RATE DEMAND NOTES# - 4.5%
$ 90,920 American Family Financial Services Inc., 0.9112% $ 90,920
45,799 Wisconsin Corporate Central Credit Union, 0.9900% 45,799
------------
136,719
------------
MUTUAL FUNDS - 2.3%
69,387 Dreyfus Treasury Prime Cash Management 69,387
------------
TOTAL SHORT-TERM INVESTMENTS (Cost of $206,106) 206,106
------------
TOTAL INVESTMENTS - 100.3% (Cost of $3,049,814) 3,031,025
------------
Liabilities in excess of other assets - (0.3%) (9,495)
------------
TOTAL NET ASSETS - 100.0% $ 3,021,530
============
* Non-income producing security.
# Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates.
The rates listed above are as of April 30, 2003.
f Foreign.
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THE KENWOOD GROWTH & INCOME FUND
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NOTES TO THE FINANCIAL STATEMENTS
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1. ORGANIZATION
The Kenwood Growth & Income Fund (the "Fund") is a diversified mutual fund
created by The Kenwood Funds (the "Trust") which was organized as a
business trust under the laws of Delaware on January 9, 1996. The Fund is
the sole series issued by the Trust, which is an open-end management
investment company registered under the Investment Company Act of 1940
("1940 Act"), as amended. The Fund commenced operations on May 1, 1996. The
objective of the Fund is capital appreciation and current income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. These policies are
in conformity with accounting principles generally accepted in the United
States of America.
a) Investment Valuation - Securities listed on the NASDAQ National Market are
valued at the NASDAQ Official Closing Price ("NOCP"). Other securities
traded on a national securities exchange (including options on indices so
traded) are valued at the last sales price on the exchange where primarily
traded. Exchange-traded securities for which there were no transactions and
NASDAQ-traded securities for which there is no NOCP are valued at the last
bid price. Securities for which market quotations are not readily available
are valued at fair value as determined in good faith by the Board of
Trustees. Debt securities maturing in 60 days or less are valued at
amortized cost, which approximates fair value. Debt securities having
maturities over 60 days or for which amortized cost is not deemed to
reflect fair value may be priced by independent pricing services that use
prices provided by market makers or estimates of market values obtained
from yield data relating to instruments or securities with similar
characteristics.
b) Federal Income Taxes - No provision for federal income taxes has been made
since the Fund has elected to be taxed as a "regulated investment company"
and intends to distribute substantially all taxable income to its
shareholders and otherwise comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies.
c) Expenses - The Fund is charged for those expenses that are directly
attributable to the portfolio, such as advisory, administration and certain
shareholder service fees.
d) Distributions to Shareholders - Dividends from net investment income are
declared and paid at least annually. Distributions of net realized capital
gains, if any, will be declared and paid at least annually. Undistributed
income or net realized capital gains for financial statement purposes may
differ from federal income tax purposes due to differences in the timing,
recognition and characterization of income, expense and capital gain items
for financial statement and tax purposes. Where appropriate,
reclassifications between net asset accounts have been made for such
differences that are permanent in nature.
e) Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
f) Other - Investment and shareholder transactions are accounted for on the
trade date. The Fund determines the gain or loss realized from investment
transactions by comparing the original cost of the security lot sold with
the net sales proceeds. Dividend income is recognized on the ex-dividend
date and interest income is recognized on an accrual basis.
3. CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund were as follows:
For the Year For the Year
ended ended
April 30, 2003 April 30, 2002
---------------- -----------------
Shares sold 15,237 92,729
Shares issued on reinvestment of
dividends and distributions 2,577 2,848
---------------- -----------------
17,814 95,577
Shares redeemed (52,265) (54,119)
---------------- -----------------
Net increase (decrease) (34,451) 41,458
================ =================
4. INVESTMENT TRANSACTIONS AND INCOME TAX INFORMATION
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the year ended April 30, 2003, were as
follows:
Purchases Sales
-------------- -----------------
U.S. Government $ - $ -
Other 2,081,479 2,405,658
At April 30, 2003, gross unrealized appreciation and depreciation of
investments for federal income tax purposes was as follows:
Appreciation $ 251,815
(Depreciation) (331,032)
-----------------
Net unrealized depreciation on investments $ (79,217)
=================
At April 30, 2003, the cost of investments for federal income tax purposes
was $3,110,242.
The tax cost basis of the Fund's securities differs from the book cost
primarily as a result of the deferral of losses relating to wash sale
transactions and return of capital distributions from real estate
investment trusts. At April 30, 2003, the Fund had accumulated net realized
capital loss carryovers of $35,592 and $79,357, expiring in 2009 and 2011,
respectively. To the extent the Fund realizes future net capital gains,
taxable distributions to its shareholders will be offset by any unused
capital loss carryovers. As of April 30, 2003, the Fund had $256,771 of
Post-October losses, which will be treated as arising on May 1, 2003 for
tax purposes.
As of April 30, 2003, the components of distributable earnings on a tax basis
were as follows:
Undistributed income $ 6,561
Undistributed long-term gains -
-----------------
Total distributable earnings
on a tax basis $ 6,561
=================
The components of distributions on a tax basis were as follows:
For the Year For the Year
ended ended
April 30, 2003 April 30, 2002
----------------- -----------------
Income $ 27,156 $ 36,776
Long-term gains - -
----------------- -----------------
Total distributions paid $ 27,156 $ 36,776
================= =================
5. INVESTMENT ADVISORY AND OTHER AGREEMENTS
The Trust has entered into an investment advisory agreement with The
Kenwood Group, Inc. (the "Adviser"). Pursuant to its Advisory Agreement
with the Fund, the Adviser is entitled to receive a fee, calculated daily
and payable monthly, at the annual rate of 0.75% on the first $500 million
of average net assets, 0.70% on the next $500 million of average daily net
assets, and 0.65% on the average daily net assets over $1 billion. The
Adviser has voluntarily waived and reimbursed certain expenses to the
extent that total operating expenses (exclusive of interest, taxes,
brokerage commissions and other costs incurred in connection with the
purchase or sale of portfolio securities and extraordinary items) exceeded
the annual rate of 1.00% of the average net assets of the Fund, computed on
a daily basis. The total amount of fees waived and reimbursed by the
Adviser for the year ended April 30, 2003 was $185,875.
The Trust has entered into a distribution agreement with Quasar
Distributors, LLC (the "Distributor"). Pursuant to the Distribution Plan
adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, the Fund is
authorized to expend up to 0.25% annually of the Fund's average daily net
assets to pay distribution fees and to cover certain expenses incurred in
connection with the distribution of the Fund's shares. Rule 12b-1 permits
an investment company to finance, directly or indirectly, any activity
which is primarily intended to result in the sale of its shares only if it
does so in accordance with the provisions of Rule 12b-1.
6. RELATED PARTIES
Officers and Trustees of the Trust held 100,979 shares or 35.96% of the
outstanding shares of the Fund as of April 30, 2003.
Report of Independent Accountants
To the Board of Trustees and Shareholders of
The Kenwood Funds - The Kenwood Growth & Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Kenwood Funds - The Kenwood
Growth & Income Fund (the "Fund") at April 30, 2003, 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 its financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at April 30, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
June 13, 2003
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THE KENWOOD GROWTH & INCOME FUND
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TRUSTEES AND OFFICERS
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# of Portfolios
Positions in Fund Complex
Held With Principal Occupation During Overseen by Other Directorships
Name and Address Age Registrant Last Five Years Trustee Held by Trustee
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DISINTERESTED TRUSTEES
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Clark Burrus 74 Trustee Trustee, The Kenwood Funds, 1 The Kenwood Growth &
The Kenwood Funds 1998 to present. Income Fund, Cook County
10 S. LaSalle Street Deferred Compensation
Suite 3610 Committee, Chicago
Chicago, IL 60603 Council of Urban
Affairs, Roosevelt
University, Metropolitan
Planning Council.
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Patty Litton Delony, CFA 54 Trustee Trustee, The Kenwood Funds, 1 The Kenwood Growth &
The Kenwood Funds 1996 to present. Consultant, Income Fund, Delony
10 S. LaSalle Street Delony Associates, Inc., 1988 Associates, Inc.
Suite 3610 to present.
Chicago, IL 60603
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Challis M. Lowe 57 Trustee Trustee, The Kenwood Funds, 1 The Kenwood Growth &
The Kenwood Funds 1996 to present. Vice Income Fund, Gaylord
10 S. LaSalle Street President, Ryder System, Dorothy Donnelley
Suite 3610 Inc., 2000 to present. Foundation; Florida
Chicago, IL 60603 Executive Vice President, Memorial College.
Beneficial Management
Corporation, 1997 to 2000.
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Roger W. Spencer, CFA 69 Trustee Trustee, The Kenwood Funds, 1 The Kenwood Growth &
10 S. LaSalle Street 2000 to present. Income Fund, Village of
Suite 3610 Self-Employed Consultant, Beach Park.
Chicago, IL 60603 1997 to present.
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THE KENWOOD GROWTH & INCOME FUND
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TRUSTEES AND OFFICERS (Continued)
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# of
Portfolios in
Positions Fund Complex
Held With Principal Occupation During Overseen by Other Directorships
Name and Address Age Registrant Last Five Years Trustee Held by Trustee
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INTERESTED TRUSTEES
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Barbara L. Bowles, CFA* 55 President President and Principal 1 The Kenwood Growth &
The Kenwood Funds Financial Officer, The Kenwood Income Fund, The Kenwood
10 S. LaSalle Street Funds, 1996 to present. Group, Inc., Black &
Suite 3610 Chairman and CEO, The Kenwood Decker Corporation,
Chicago, IL 60603 Group Inc., 1989 to present. Georgia Pacific, Hyde
Park Bank and Trust
Company, Chicago
Urban League,
Children's Memorial
Hospital of Chicago,
Wisconsin Energy
Corporation, Dollar
General, NAACP.
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Reynaldo P. Glover* 60 Trustee Trustee, The Kenwood Funds, 1 The Kenwood Growth &
The Kenwood Funds 1996 to present. President, Income Fund, TLC-LC,
10 S. LaSalle Street TLC-LC, 2000 to present. Inc., Fisk University,
Suite 3610 Counsel, Piper Rudnick, 1997 Immigration and Refugee
Chicago, IL 60603 to present. Services of America.
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OFFICERS
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Mark Watson 39 Executive Executive Vice President, The 1 The Kenwood Growth &
The Kenwood Funds Vice Kenwood Funds, 2001 to Income Fund.
10 S. LaSalle Street President present. Managing Director,
Suite 3610 Equinox Capital Management,
Chicago, IL 60603 1996 to 2001.
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Yolanda Waggoner 28 Vice Vice President and Secretary 1 The Kenwood Growth &
The Kenwood Funds President of The Kenwood Growth & Income Income Fund.
10 S. LaSalle Street & Fund, 2002 to present.
Suite 3610 Secretary Director of Human Resources,
Chicago, IL 60603 Lutheran Family Mission, 1997
to 1999.
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Cynthia Hardy 36 Assistant Compliance Officer, The 1 The Kenwood Growth &
The Kenwood Funds Secretary Kenwood Funds, 1996 to Income Fund, Have a
10 S. LaSalle Street present. Vice President of Heart for Sickle Cell
Suite 3610 Administration, The Kenwood Anemia.
Chicago, IL 60603 Group, Inc., 1991 to present.
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* This individual is deemed an "interested person" of the Trust as that term
is defined under the 1940 Act.
The Statement of Additional Information includes additional information about
the Fund's Officers and Trustees and is available, without charge, upon request
by calling 1-888-536-3863.
Item 2. Code of Ethics.
Not applicable to annual reports filed for periods ending before July 15, 2003.
Item 3. Audit Committee Financial Expert.
Not applicable to annual reports filed for periods ending before July 15, 2003.
Item 4. Principal Accountant Fees and Services.
Not required for annual reports filed for periods ending before December 15,
2003.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to open-end investment companies.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) Based on their evaluation of the Registrant's Disclosure Controls and
Procedures as of a date within 90 days of the filing date, the Registrant's
President and Treasurer/CFO has determined that the Disclosure Controls and
Procedures (as defined in Rule 30a-2(c) under the Act) are designed to
ensure that information required to be disclosed by the Registrant is
recorded, processed, summarized and reported by the filing date, and that
information required to be disclosed in the report is communicated to the
Registrant's management, as appropriate, to allow timely decisions
regarding required disclosure.
(b) There were no significant changes in the Registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the date of their evaluation, and there were no corrective actions with
regard to significant deficiencies and material weaknesses.
Item 10. Exhibits.
(a) Any code of ethics or amendment thereto. Not applicable to annual reports
for periods ending before July 15, 2003.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Kenwood Funds
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By /s/ Barbara L. Bowles
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(Signature and Title) Barbara L. Bowles
President and Chief Financial Officer
Date 7/9/03
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