<PAGE> 1
------------------------------
M.S.B.
FUND, INC.
------------------------------
ANNUAL REPORT
.....................
December 31, 1995
<PAGE> 2
INVESTMENT ACHIEVEMENT
The following information is a statement of the past record of the Fund and
should not be construed as a representation or prediction of future results. The
investment return and principal value of an investment in the Fund will
fluctuate with changing market conditions so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The total return(1) of the Fund for various periods is compared with the
Standard & Poor's 500 Composite Stock Price Index (S&P 500), and the Dow Jones
Industrial Average (DJIA), which are groups of unmanaged securities, and with
Lipper Growth & Income Funds Average which includes, for the one, three, five
and ten years ended December 31, 1995, 438, 259, 192 and 119 mutual funds,
respectively, and is a broad equity fund measurement. The S&P 500 and DJIA do
not include a reduction of return for expenses. These results should be
considered in light of the makeup of each index, the investment objectives and
portfolio composition of the Fund and the periods indicated.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------------
PERIODS ENDING 12/31/95
----------------------------------------
1 Year 3 Years 5 Years 10 Years
Ended Ended Ended Ended
------ ------- ------- --------
<S> <C> <C> <C> <C>
M.S.B. Fund, Inc......... 25.0% 14.0% 13.9% 11.4%
Lipper Growth & Income
Funds Average.......... 30.8 13.3 15.5 12.8
S&P 500.................. 37.5 15.3 16.6 14.9
DJIA..................... 36.9 18.9 17.6 16.5
</TABLE>
(1) Reflects the assumption that all dividends and distributions have been
reinvested. Average annual returns are stated for periods greater than one
year.
2
<PAGE> 3
The following graph shows that an investment of $10,000 in the Fund on
December 31, 1985 would have been worth $29,493 on December 31, 1995 assuming
all dividends and distributions have been reinvested. A similar investment in
the S&P 500, over the same period, would have grown to $39,892.
M.S.B. FUND
CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MSB S&P
<S> <C> <C>
1985 10000 10000
1986 11276 11860
1987 11806 12477
1988 12961 14535
1989 16598 19129
1990 15373 18536
1991 17981 24170
1992 19898 26007
1993 24004 28634
1994 23600 29006
1995 29493 39892
</TABLE>
M.S.B. FUND
TOTAL RETURN COMPARISON
<TABLE>
<CAPTION>
MSB Fund, Inc.
MSB S&P
<S> <C>
1985 0.00% 0.00%
1986 12.76% 18.60%
1987 4.70% 5.20%
1988 9.78% 16.50%
1989 28.06% 31.60%
1990 -7.38% -3.10%
1991 16.97% 30.40%
1992 10.66% 7.60%
1993 20.64% 10.10%
1994 -1.68% 1.30%
1995 24.97% 37.53%
</TABLE>
3
<PAGE> 4
MESSAGE FROM THE PRESIDENT
Dear Shareholder:
The M.S.B. Fund enjoyed a total return of 24.97% in 1995. This advance
helped to bring our Fund's three year average annual return to 14.02% and the
five year average annual return to 13.92%. In addition, if a shareholder had
invested $1,000 in the Fund at inception in 1964 and reinvested all capital
gains and dividends in the Fund, the shareholder's investment would have grown
to $26,786 at year-end 1995.
Fortunately, the public's knowledge of mutual funds and equity investing
continues to expand. Many investors now realize that common stocks over time
outperform both money market and bond investments. They are also aware that an
efficient way to create wealth over time is to marry a long term goal such as
retirement income or a child's college tuition with a long term, dollar-cost
averaging common stock investment plan. By investing equal dollar amounts on a
regular basis (weekly, bi-weekly, monthly, quarterly, etc.) more shares are
purchased when the price is lower and fewer shares when the price is higher.
Also, a regular investment plan helps to avoid market timing. Trying to
accurately forecast when to get into the market and when to get out is quite
difficult, especially when most of the market's gains usually occur in short
quick spurts. The Standard and Poor's 500 Stock Index for example, had an
average annual gain of 14.5% for the decade ended December 1994. This gain,
however, drops to just 3.8% when the best twelve months of performance are
excluded.
The public's increased knowledge of equity investing has come at an
opportune time. For the last two years the World Economic Forum has concluded
that the United States economy is the industrialized world's most competitive
nation. American industry deserves much credit for getting itself into shape in
the 1980's to meet the global challenges of the 1990's and beyond. However,
while many of the economic consequences of global competition, such as low
inflation, declining interest rates and limited wage increases are good for both
our economy and corporate profits, some of the
4
<PAGE> 5
consequences also cause job insecurity and reduced consumer confidence.
To remain competitive it is inevitable that American industry for the next
several years, on balance, will continue to substitute technology for human
effort, to export jobs to low wage countries and to substitute defined
contribution plans such as 401k's for defined benefit plans. Consequently,
employees will have to take more control over their financial destiny. Our
Fund's investment philosophy of creating wealth over time and our investment
discipline of only investing in companies with strong balance sheets that can
also produce rising earnings and cash flow should help investors achieve their
goals.
Sincerely,
/s/ David Freer Jr.
- - ---------------------
David Freer, Jr.,
President
5
<PAGE> 6
INVESTMENT RESULTS, OUTLOOK AND
STRATEGIES
M.S.B. FUND, INC.
The M.S.B. Fund provided a total return to its shareholders of 24.97% for
the twelve month period ending December 31, 1995. Total return reflects the
reinvestment of all dividends and capital gains, as well as the change in net
asset value for the period. The Fund's net asset value per share on December 31,
1995 was $13.63, versus $13.39 on December 31, 1994. Shareholders received
distributions from dividend income of $0.0814 per share and capital gains of
$2.9320 per share during fiscal 1995.
1995 proved to be a very profitable year for investors in the domestic
equity markets. The Dow Jones Industrial Average ended the year in record
territory, surpassing both the 4000 and 5000 milestones. The Standard & Poor's
500 Index also ended the year in record territory well above the 600 level.
Strong corporate earnings, low inflation, declining interest rates and record
cash inflows into equity mutual funds were largely responsible for the gains.
Investors commonly calculate the value of a company by estimating future cash
flows and discounting them back to the present using an appropriate discount
rate. As corporate profits strengthened and interest rates fell during the year,
cash flow estimates increased and discount rates were lowered. As a result, the
present value of these cash flows increased, causing stock market participants
to bid up prices.
Securities held in the M.S.B. Fund that contributed at least one percentage
point to the total return during 1995 included (in descending order) Wendy's
International, Inc., IBP, Inc., Reynolds & Reynolds Co., Hewlett-Packard Co. and
Clayton Homes, Inc. There were no securities that detracted more than one
percentage point from the Fund's 1995 total return and only one that reduced the
Fund's return by more than 1/2 of 1 percentage point, namely Brown Group, Inc.
The second poorest contributor was Toys "R" Us, which decreased the Fund's total
return by just under 1/2 of 1 percentage point. Brown Group was eliminated from
the portfolio earlier in the year while Toys "R" Us continues to be a holding in
the Fund. Retail stocks in general performed poorly during the year and even
those with strong balance sheets and solid management teams were not immune to
the difficult operating environment.
6
<PAGE> 7
The investment management team was quite active during the year. As
investors' attentions were focused on the hot technology and financial sectors,
we maintained our disciplined approach of buying equity securities that appear
relatively undervalued in the marketplace. As a result, the Fund was under-
weighted in these two sectors of the market, which may have adversely affected
our relative returns in the short-term. However, we were able to accumulate many
high quality stocks that have demonstrated the ability to grow their cash flows
and earnings in a consistent manner over long periods of time. These steady
growers were not the market favorites this past year, providing us with the
opportunity to accumulate positions at prices we considered to be attractive
relative to the prevailing market conditions. Most of the securities we
eliminated from the portfolio during the year were the result of reaching fair
market values or a relative decline in their financial prospects compared to
alternative opportunities.
The Fund's value philosophy consists of stringent investment guidelines
which enable Shay Assets Management Co. (the "Investment Adviser") to identify
companies with strong balance sheets and the potential for improvement in cash
flows and earnings that are currently undervalued by the equity market. This
"bottoms-up" approach seeks to identify attractive stock candidates on a
company-by-company basis. Industry sector outlook and general stock market
conditions are secondary considerations. The principal characteristics that the
Investment Adviser continually searches for include: improving cash flow return
on investment resulting largely from the efficient use of capital, lean cost
structures and continual margin improvement coupled with attractive stock
valuations. The universe of potential equity investments is continually screened
for companies meeting these parameters, thereby providing the opportunity to
enhance shareholder value.
7
<PAGE> 8
M.S.B. FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
- - ------------------------------------------------------------------------
- - ------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK--96.12%: VALUE
SHARES -----------
- - ------ (NOTE 1)
<C> <S> <C>
AUTO PARTS--3.40%
22,800 Cooper Tire & Rubber Co. ............ $ 561,450
14,900 Echlin, Inc. ........................ 543,850
----------
1,105,300
BEVERAGES--2.79%
12,200 Coca-Cola Company.................... 905,850
BEVERAGES--ALCOHOLIC--2.59%
12,600 Anheuser-Busch Companies, Inc. ...... 842,625
BUILDING MATERIALS--4.20%
15,500 National Service Industries.......... 501,812
21,200 Sherwin-Williams Co. ................ 863,900
----------
1,365,712
CHEMICALS--3.16%
14,000 Morton International, Inc. .......... 502,250
11,500 PPG Industries, Inc. ................ 526,125
----------
1,028,375
CHEMICALS--SPECIALTY--3.32%
11,800 Avery Dennison Corp. ................ 591,475
8,700 Nordson Corp. ....................... 489,375
----------
1,080,850
COMPUTER SOFTWARE & SERVICES--3.20%
14,000 Automatic Data Processing, Inc. ..... 1,039,500
COMPUTER SYSTEMS--1.57%
6,100 Hewlett-Packard Co. ................. 510,875
CONTAINERS--1.70%
21,600 Bemis Company, Inc. ................. 553,500
ELECTRICAL EQUIPMENT--7.95%
7,700 Emerson Electric Co. ................ 629,475
11,700 Grainger (W.W.), Inc. ............... 775,125
8,200 Hubbell, Inc. ....................... 539,150
26,100 Premier Industrial Corp. ............ 639,450
----------
2,583,200
</TABLE>
See Accompanying Notes to Financial Statements.
8
<PAGE> 9
- - ------------------------------------------------------------------------
- - ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
----------
SHARES (NOTE 1)
<C> <S> <C>
ENTERTAINMENT--1.83%
10,100 Walt Disney Co. ..................... $ 595,900
FOODS--7.42%
29,100 Hormel Foods Corp. .................. 716,587
22,600 Lancaster Colony Corp. .............. 841,850
26,800 Sara Lee Corp. ...................... 854,250
----------
2,412,687
FURNISHINGS & APPLIANCES--2.13%
28,500 Leggett & Platt, Inc. ............... 691,125
HEALTH CARE--DRUGS--4.79%
66,250 Mylan Laboratories................... 1,556,875
HEALTH CARE--HOSP. MGMT.--2.07%
19,200 Manor Care, Inc. .................... 672,000
HEAVY DUTY TRUCKS & PARTS--1.52%
19,700 Donaldson Company, Inc. ............. 494,963
HOUSEHOLD PRODUCTS--2.58%
11,700 Clorox Co. .......................... 838,013
MANUFACTURED HOUSING--1.58%
24,093 Clayton Homes, Inc. ................. 514,988
MANUFACTURING--1.89%
15,000 Teleflex, Inc. ...................... 615,000
OFFICE EQUIPMENT & SUPPLIES--2.92%
12,500 Reynolds & Reynolds Co. Class A...... 485,937
23,100 Standard Register Co. ............... 464,888
----------
950,825
PUBLISHING--NEWSPAPERS--6.07%
16,400 Gannett Company, Inc. ............... 1,006,550
27,400 Lee Enterprises, Inc. ............... 630,200
1,200 Washington Post Co. Class B.......... 338,400
----------
1,975,150
</TABLE>
9
<PAGE> 10
M.S.B. FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1995
- - ------------------------------------------------------------------------
- - ------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
-----------
SHARES (NOTE 1)
- - ------
<C> <S> <C>
RAILROADS--1.88%
15,900 Illinois Central Corp. Series A...... $ 610,162
RESTAURANTS--1.93%
29,500 Wendy's International, Inc. ......... 626,875
RETAIL--DEPT. STORES--2.11%
16,200 May Department Stores Co. ........... 684,450
RETAIL--DRUG CHAINS--3.54%
9,950 Arbor Drugs, Inc. ................... 208,950
31,500 Walgreen Company..................... 941,063
-----------
1,150,013
RETAIL--FOOD CHAINS--6.45%
44,500 Albertson's, Inc. ................... 1,462,938
25,700 Hannaford Brothers Co. .............. 632,862
-----------
2,095,800
RETAIL--GENERAL MERCHANDISE--3.58%
52,000 Wal-Mart Stores, Inc. ............... 1,163,500
RETAIL--SPECIALTY STORES--1.87%
14,500 Gap, Inc. ........................... 609,000
SPECIALIZED SERVICES--1.73%
25,400 Rollins, Inc. ....................... 561,975
TOBACCO--2.84%
10,200 Philip Morris Companies, Inc. ....... 923,100
TOYS--1.51%
22,500 Toys "R" Us, Inc.#................... 489,375
-----------
Total Common Stock
(cost $26,584,700)............... 31,247,563
-----------
</TABLE>
See Accompanying Notes to Financial Statements.
10
<PAGE> 11
- - ------------------------------------------------------------------------
- - ------------------------------------------------------------------------
COMMERCIAL PAPER--5.62%:
<TABLE>
<CAPTION>
VALUE
-----------
PRINCIPAL (NOTE 1)
AMOUNT
- - --------
<C> <S> <C> <C>
$900,000 Associates Credit Corp., 5.60%,
due 01/02/96.................... $ 900,000
926,000 Household Finance Corp., 5.65%,
due 01/02/96.................... 926,000
-----------
Total Commercial Paper
(cost $1,826,000)............... 1,826,000
-----------
Total Investments
(cost $28,410,700*)..... 101.74% 33,073,563
Liabilities in excess of
other assets............ (1.74)% (564,429)
------ -----------
Net Assets................ 100.00% $32,509,134
====== ===========
</TABLE>
# Non-income producing security.
* Aggregate cost for Federal income tax purposes is identical. At December 31,
1995, the net unrealized appreciation for all securities of $4,662,863
consists of gross unrealized appreciation of $5,190,416 and gross unrealized
depreciation of $527,553.
11
<PAGE> 12
M.S.B. FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- - ------------------------------------------------------------------------
- - ------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER
31,
1995
-----------
<S> <C>
ASSETS:
Common stock--at value (cost $26,584,700).................. $31,247,563
Commercial paper--at value (cost $1,826,000)............... 1,826,000
-----------
Total Investments--at value (cost $28,410,700)............. 33,073,563
Cash....................................................... 234
Receivable for securities sold............................. 340,703
Receivable for fund shares sold............................ 5,926
Dividends and interest receivable.......................... 58,072
Prepaid expenses........................................... 13,432
-----------
Total assets.......................................... 33,491,930
-----------
LIABILITIES:
Dividend payable........................................... 875,006
Payable for fund shares redeemed........................... 5,351
Accrued expenses payable................................... 86,660
Investment advisory fees payable........................... 15,779
-----------
Total liabilities..................................... 982,796
-----------
NET ASSETS applicable to 2,385,057 shares
of Class A $.001 par value stock, 5,000,000 shares
authorized............................................... $32,509,134
===========
NET ASSETS:
Par value of capital shares................................ $ 2,385
Additional paid in capital................................. 26,861,496
Undistributed net realized gains........................... 905,009
Undistributed net investment income........................ 77,381
Net unrealized appreciation of investments................. 4,662,863
-----------
NET ASSETS................................................. $32,509,134
===========
NET ASSET VALUE, offering and redemption price
per share ($32,509,134 / 2,385,057 shares)............... $ 13.63
===========
</TABLE>
- - -------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
12/13
<PAGE> 13
M.S.B. FUND, INC.
STATEMENT OF OPERATIONS
- - ------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
----------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.......................................... $690,276
Interest........................................... 105,881 $ 796,157
--------
EXPENSES:
Investment advisory fees (Note 3).................. 264,070
Legal.............................................. 134,774
Administration fees (Note 3)....................... 49,782
Directors' fees.................................... 44,398
Printing........................................... 37,148
Insurance.......................................... 30,396
Audit.............................................. 29,000
Transfer agent (Note 3)............................ 25,401
Registration fees.................................. 12,583
Custody (Note 3)................................... 12,515
Miscellaneous...................................... 15,835 655,902
--------
Fee waivers (Note 3)............................... (62,036)
----------
Net expenses....................................... 593,866
----------
Net investment income............................ 202,291
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain.................................. 6,187,058
Net change in unrealized appreciation.............. 1,481,873
----------
Net realized and unrealized gain................... 7,668,931
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.................................. $7,871,222
==========
</TABLE>
- - ------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
14/15
<PAGE> 14
M.S.B. FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- - ------------------------------------------------------------------------
- - ------------------------------------------------------------------------
<TABLE>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1994
----------- ------------
<S> <C> <C>
DECREASE IN NET ASSETS:
Operations:
Net investment income.................................... $ 202,291 $ 389,757
Net realized gain........................................ 6,187,058 7,793,646
Net change in unrealized appreciation.................... 1,481,873 (8,734,691)
----------- ------------
Net increase (decrease) in net assets resulting
from operations.......................................... 7,871,222 (551,288)
Net equalization........................................... (6,750) 3,441
Distributions to shareholders from:
Net investment income.................................... (188,986) (422,335)
Net realized gains....................................... (6,209,959) (6,665,862)
----------- ------------
Total distributions to shareholders........................ (6,398,945) (7,088,197)
Net decrease from capital share transactions
(Note 4)................................................. .(3,978,291) (2,547,057)
----------- ------------
Total decrease in net assets............................... (2,512,764) (10,183,101)
NET ASSETS:
Beginning of year.......................................... 35,021,898 45,204,999
----------- ------------
End of year (including undistributed net investment
income of $77,381 and $6,763, respectively).............. $32,509,134 $ 35,021,898
----------- ------------
----------- ------------
</TABLE>
- - ------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
16/17
<PAGE> 15
M.S.B. FUND, INC.
FINANCIAL HIGHLIGHTS
- - ------------------------------------------------------------------------
- - ------------------------------------------------------------------------
Selected Data for Each Share of Capital Stock
Outstanding Throughout Each Year
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
------- -------
<S> <C> <C>
NET ASSET VALUE, beginning of year.............. $ 13.39 $ 16.79
INCOME FROM OPERATIONS:
Net investment income......................... 0.08 0.16
Net realized and unrealized gain (loss)....... 3.17 (0.44)
------- -------
Total from investment operations........... 3.25 (0.28)
DISTRIBUTIONS:
From net investment income.................... (0.08) (0.18)
From net realized gains....................... (2.93) (2.94)
------- -------
Total distributions........................ (3.01) (3.12)
------- -------
NET ASSET VALUE, end of year.................... $ 13.63 $ 13.39
======= =======
Total return.................................... 24.97% (1.70)%
Ratio of expenses to average net assets......... 1.69%(1) 1.28%(1)
Ratio of net investment income to average
net assets.................................... 0.57% 0.97%
Portfolio turnover rate......................... 68% 62%
NET ASSETS, end of year (000's)................. $32,509 $35,022
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1992
------- -------
<S> <C> <C>
NET ASSET VALUE, beginning of year.............. $ 15.67 $ 14.62
INCOME FROM OPERATIONS:
Net investment income......................... 0.18 0.22
Net realized and unrealized gain (loss)....... 3.04 1.33
------- -------
Total from investment operations........... 3.22 1.55
DISTRIBUTIONS:
From net investment income.................... (0.17) (0.28)
From net realized gains....................... (1.93) (0.22)
------- -------
Total distributions........................ (2.10) (0.50)
------- -------
NET ASSET VALUE, end of year.................... $ 16.79 $ 15.67
======= =======
Total return.................................... 20.6% 10.7%
Ratio of expenses to average net assets......... 1.12% 1.13%
Ratio of net investment income to average
net assets.................................... 1.01% 1.43%
Portfolio turnover rate......................... 26% 13%
NET ASSETS, end of year (000's)................. $45,205 $40,790
<CAPTION>
YEAR ENDED DECEMBER 31,
1991
-------
<S> <C>
NET ASSET VALUE, beginning of year.............. $ 14.54
INCOME FROM OPERATIONS:
Net investment income......................... 0.22
Net realized and unrealized gain (loss)....... 2.18
-------
Total from investment operations........... 2.40
DISTRIBUTIONS:
From net investment income.................... (0.21)
From net realized gains....................... (2.11)
-------
Total distributions........................ (2.32)
-------
NET ASSET VALUE, end of year.................... $ 14.62
=======
Total return.................................... 17.0%
Ratio of expenses to average net assets......... 1.86%
Ratio of net investment income to average
net assets.................................... 1.36%
Portfolio turnover rate......................... 17%
NET ASSETS, end of year (000's)................. $41,346
</TABLE>
- - ------------------------------------------------------------------------
(1) Without fee waivers for the M.S.B. Fund, Inc. for the years ended December
31, 1995 and 1994, the ratio of expenses to average net assets would have
been 1.86% and 1.39%, respectively.
See Accompanying Notes to Financial Statements.
18/19
<PAGE> 16
M.S.B. FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
The M.S.B. Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as a diversified open-end management investment
company. The primary investment objective of the Fund is to achieve capital
appreciation for its shareholders. The objective of income is secondary.
NOTE 1--Summary of Significant Accounting Policies
A--Security Valuation--Securities traded on national exchanges are valued at the
closing prices or, in the case of over-the-counter securities, at the mean
between closing bid and asked prices. Short-term investments are valued at
amortized cost.
B--Security Transactions and Related Investment Income--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. The specific
identification method is used in the determination of realized gains and losses
on the sale of securities.
C--Federal Income Taxes--No provision has been made for Federal income tax,
since it is the intention of the Fund to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders.
In accordance with Statement of Position 93-2, "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies," book and tax basis differences relating
to shareholder distributions and other permanent book and tax differences are
reclassified to paid in capital. As of December 31, 1995, the Fund reclassified
$18,295 from undistributed net realized gains to paid in capital and $64,063 to
undistributed net investment income from paid in capital. Net investment income,
net realized gains and net assets were not affected by this change.
20
<PAGE> 17
NOTE 1-- Summary of Significant Accounting Policies (continued)
D--Equalization--Through July 31, 1995, the Fund followed the accounting
practice known as equalization, by which a portion of the proceeds from sales
and costs of repurchases of capital shares, equivalent on a per share basis to
the amount of undistributed net investment income on the date of the
transaction, was credited or charged to undistributed net investment income.
Commencing August 1, 1995, the Fund ceased accounting for share transactions in
this manner. The change had no effect on the Fund's total net assets.
NOTE 2--Purchases and Sales of Securities
The cost of purchases and the proceeds from sales of investments, exclusive of
short-term investments, during the year ended December 31, 1995 were $22,493,254
and $33,126,938, respectively.
NOTE 3--Fees
Shay Assets Management Co. (the "Investment Adviser") was appointed as the
Fund's investment adviser effective May 19, 1995 and approved by shareholder
vote in June 1995. The Investment Adviser is a general partnership that consists
of two general partners, Shay Assets Management, Inc. and ACB Assets Management,
Inc., each of which holds a fifty-percent interest in the Investment Adviser.
Shay Assets Management, Inc. is controlled by Rodger D. Shay, Vice President of
the Fund. ACB Assets Management, Inc. is an indirect wholly-owned subsidiary of
America's Community Bankers.
The Investment Adviser receives a fee from the Fund computed at the annual rate
of 0.75% of the first $100,000,000 of the Fund's average daily net assets and
0.50% of average daily net assets in excess of $100,000,000. The fee payable to
the Investment Adviser is reduced (but not below zero) to the extent expenses of
the Fund (exclusive of professional fees, such as legal and audit fees,
directors' fees and expenses, and distribution expenses, if any, payable
21
<PAGE> 18
M.S.B. FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Fees (continued)
under Rule 12b-1) exceed 1.10% of the Fund's average daily net assets for any
fiscal year during the term of the Fund's agreement with the Investment Adviser.
The Investment Adviser waived approximately 7% of its fee for the period from
May 19, 1995 to December 31, 1995. The waiver amounted to $12,002.
Effective May 19, 1995, PFPC Inc. (PFPC) was appointed the Fund's administrator
and transfer agent and PNC Bank NA (PNC) was appointed the Fund's custodian.
PFPC and PNC are affiliates of PNC Bank Corp.
As compensation for its administrative services, the Fund pays PFPC a minimum
monthly fee of $6,700 (exclusive of out-of-pocket expenses). PFPC waived
approximately 21% of its administrative fee for the period from May 19, 1995 to
December 31, 1995. The waiver amounted to $10,291.
As compensation for its services as transfer agent, the Fund pays PFPC a minimum
monthly fee of $1,500 (exclusive of out-of-pocket expenses). PFPC waived
approximately 9% of its transfer agent fee for the period from May 19, 1995 to
December 31, 1995. The waiver amounted to $2,326.
As compensation for its custodial services, the Fund pays PNC a minimum monthly
fee of $500 (exclusive of out-of-pocket expenses). PNC waived approximately 1%
of its custodial fee for the period from May 19, 1995 to December 31, 1995. The
waiver amounted to $153.
Prior to May 19, 1995, Nationar was the Fund's investment adviser,
administrator, transfer agent and custodian. For the investment advisory,
administrative, transfer agency and custodial services provided prior to May 19,
1995, the Fund paid Nationar a quarterly fee at an annual rate of 0.75% of the
first $75,000,000 of its average daily net assets, 0.625% of the next
$25,000,000 of average daily net assets, 0.50% of the next $50,000,000 of
average daily net assets and 0.25% of average daily net assets in excess
22
<PAGE> 19
M.S.B. FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Fees (continued)
of $150,000,000. Nationar waived approximately 36% of its fee for the period
from January 1, 1995 to May 18, 1995. The waiver amounted to $37,264.
The investment advisory fees shown on the Statement of Operations include
administration, transfer agent and custody fees charged by Nationar for the
period January 1, 1995 through May 18, 1995.
NOTE 4--Capital Stock
At December 31, 1995 there were 5,000,000 shares of $.001 par value capital
stock authorized. Transactions in capital stock for the years ended December 31,
1995 and 1994, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
(000) (000)
------------- -------------------
1995 1994 1995 1994
----- ----- -------- --------
<S> <C> <C> <C> <C>
Shares sold............ 84 137 $ 1,260 $ 2,308
Shares issued in
reinvestment of
dividends............ 392 442 5,364 5,976
----- ----- -------- ---------
476 579 6,624 8,284
Shares redeemed........ (706) (657) (10,602) (10,831)
----- ----- -------- ---------
Net decrease......... (230) (78) $ (3,978) $ (2,547)
===== ===== ======== =========
</TABLE>
23
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
M.S.B. Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of M.S.B. Fund, Inc. as of December 31,
1995 and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the years in the five-year
period then ended. These financial statements and the 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.
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 the 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 confirmation of the investments owned as of
December 31, 1995, by correspondence with the custodian. 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 the financial highlights
referred to above present fairly, in all material respects, the financial
position of M.S.B. Fund, Inc. as of December 31, 1995 and the results of its
operations for the year then ended, and the changes in its net assets for each
of the years in the two-year period then ended and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
February 9, 1996
24
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25
<PAGE> 22
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26
<PAGE> 23
M.S.B.
FUND, INC.
OFFICERS
<TABLE>
<S> <C>
David Freer, Jr. Gilbert O. Robert
President First Vice President
Ian D. Smith Rodger D. Shay
Second Vice President Vice President and
Edward E. Sammons, Jr. Assistant
Vice President and Secretary
Secretary John J. McCabe
Mark F. Trautman Vice President
Vice President Jay F. Nusblatt
Treasurer
BOARD OF DIRECTORS
Malcolm J. Delaney George J. Kelly
Joseph R. Ficalora William A. McKenna, Jr.
David Freer, Jr. Gilbert O. Robert
Michael J. Gagliardi Norman W. Sinclair
Ian D. Smith
</TABLE>
<PAGE> 24
M.S.B.
FUND, INC.
M.S.B. FUND, INC.
c/o Shay Financial Services Co.
111 East Wacker Drive
Chicago, Illinois 60601
Telephone 800-661-3938
INVESTMENT ADVISOR
Shay Assets Management Co.
26 Broadway
Suite 400
New York, New York 10004
DISTRIBUTOR
Shay Financial Services Co.
111 East Wacker Drive
Chicago, Illinois 60601
ADMINISTRATOR, TRANSFER AGENT,
REGISTRAR AND DIVIDEND PAYING AGENT
PFPC Inc.
103 Bellevue Parkway
Wilmington, Delaware 19809
CUSTODIAN
PNC Bank, NA
17th & Chestnut Streets
Philadelphia, Pennsylvania 19101
LEGAL COUNSEL
Hughes Hubbard & Reed
One Battery Park Plaza
New York, New York 10004
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
