<PAGE> 1
JANUARY 21, 1997
MESSAGE FROM THE PRESIDENT
Dear Shareholder:
The M.S.B. Fund enjoyed a total return of 21.16% in 1996. This advance helped to
bring our Fund's three year average annual return to 14.18%, the five year
average annual return to 14.72% and the ten year average annual return to
12.23%. 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 $32,453 at year-end 1996.
Our democratic capitalistic system continues to be extremely efficient and
rewarding to investors, workers and society when inflation is under control.
Fortunately, we have been living in such an environment since November of 1982.
During this time period economic growth has been steady, inflation has been in
check, the Dow-Jones Industrial Average has risen over 700% and our economy has
incurred just one brief, seven month (August 1990 through February 1991)
recession.
Today, our economy is the world's strongest and most competitive. Our workers
are the most productive and our businesses, on balance, are the most profitable.
In addition, we are number one in job creation and we invest the most money in
technology.
Not everyone however, has fully participated in our country's economic
resurgence. Since 1982, the top 20% of our population has captured the majority
of wage gains and about 70% of all wealth creation. This uneven distribution is
reflected quite vividly in household savings. While the nation's household
savings rate is about 5%, households with incomes of $75,000 and higher save
about 27% of household income and those earning between $30,000 and $40,000, on
balance, do not save. Many of these households continue to take on additional
debt.
Ever rising payroll taxes for Social Security and Medicare along with the
rapidly rising cost of higher education are hindering many families from saving.
Today, about 65% of American workers pay more in payroll taxes than in income
taxes. A recent report from the General Accounting Office has shown that from
1980 through 1995, college tuition has risen 256% while family income has grown
93%. Inflation as measured by the consumer price index advanced 85%.
Happily during this time frame many Americans have taken more control over their
financial future and have increased their wealth through equity investing.
Currently, over 40% of American households own common stock either directly or
through mutual funds. The Investment Company Institute recently reported that at
the end of October 1996 there was $1.4 trillion invested in equity mutual funds,
up from $700 billion in 1994. In 1985, only about $60 billion was invested in
equity mutual funds.
The true bright spot for our economy lies in the international arena. The rapid
pace of industrialization in the developing world along with its population
growth has generated an increased appetite for American goods and services in
many developing countries. Demand has increased for telecommunications,
transportation, engineering and construction, technology, agriculture, health
care, education and consumer goods in particular.
Our M.S.B. Fund's investment philosophy of seeking to create wealth for its
shareholders over time and its investment discipline of investing only in
companies with strong balance sheets that are also believed to have the
capability of generating rising earnings and cash flow has led the Fund to
invest in a number of companies that should be well positioned to capitalize on
the emerging world economy. Already many of the companies in our Fund's
portfolio generate a significant portion of their earnings outside the United
States.
We have received many compliments for our Quarterly Investment Outlook and
Review publication. This informative and educational piece is especially
worthwhile for new investors and young people just beginning to learn about the
investment world. Young investors have a tremendous opportunity to create wealth
for themselves because of the powerful benefits of time and compounding.
Ibbotson Associates, a well regarded firm specializing in stock and bond market
statistics, has shown that if a 25 year old saved $2,000 a year for only 10
consecutive years and earned a portfolio return of 10%, at age 65 the portfolio
value would be $556,197.
Sincerely,
David Freer, Jr.
David Freer, Jr.
President
1
<PAGE> 2
M.S.B. FUND, INC.
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 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, 1996, 522, 329, 212, and 123 mutual funds,
respectively, and is a broad equity fund measurement. The S&P 500 and DJIA do
not include a reduction of total 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 12/31/96*
------------------------------------
Year 3 Years 5 Years 10 Years
Ended Ended Ended Ended
----- ------- ------- --------
<S> <C> <C> <C> <C>
M.S.B. Fund, Inc. ... 21.2% 14.2% 14.7% 12.2%
Lipper Growth &
Income Funds
Average............ 20.8 16.2 14.0 13.2
Standard & Poor's 500
Composite Stock
Price Index........ 23.0 19.7 15.2 15.3
Dow Jones Industrial
Average............ 28.9 22.9 18.4 16.7
</TABLE>
* Reflects the assumption that all dividends and distributions have been
reinvested and the deduction of all applicable fees and expenses. Average
annual total returns are stated for periods greater than one year.
The following graph shows that an investment of $10,000 in the Fund on December
31, 1986 would have been worth $31,689 on December 31, 1996, assuming all
dividends and distributions have been reinvested. A similar investment in the
S&P 500, over the same period, would have grown to $41,356.
M.S.B. FUND, INC.
CUMULATIVE TOTAL RETURN
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MSB S&P
<S> <C> <C>
1986 10000 10000
1987 10470 10520
1988 11494 12256
1989 14719 16129
1990 13633 15629
1991 15946 20380
1992 17646 21929
1993 21287 24143
1994 20929 24457
1995 26155 33636
1996 31689 41356
</TABLE>
M.S.B. FUND, INC.
TOTAL RETURN COMPARISON
[GRAPH]
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) MSB S&P
<S> <C> <C>
1987 4.7 5.2
1988 9.78 16.5
1989 28.06 31.6
1990 -7.38 -3.1
1991 16.97 30.4
1992 10.66 7.6
1993 20.64 10.1
1994 -1.68 1.3
1995 24.97 37.53
1996 21.16 22.995
</TABLE>
2
<PAGE> 3
INVESTMENT RESULTS, OUTLOOK AND STRATEGIES
M.S.B. FUND, INC.
The M.S.B. Fund's total return of 21.16% for the one year period ending December
31, 1996, marks the second year in a row of greater than 20% total returns.
Total return assumes the reinvestment of all dividends and capital gains and the
deduction of all applicable expenses incurred by the Fund. For the past five
years the Fund has provided shareholders with an average annual total return of
14.72%. This compares favorably to the one year total return of 20.78% and five
year average annual total return of 13.99% for the Lipper Growth & Income Funds
Average for the periods ending December 31, 1996. For further comparison, the
average equity fund, as measured by the Lipper All Equity Funds Average,
provided a one year total return of 17.04% and a five year average annual total
return of 13.09% as of December 31, 1996.
The Fund's net asset value per share on December 31, 1996 was $14.60 versus
$13.63 on December 31, 1995. Shareholders received distributions from dividend
income of $0.139, short-term capital gains of $0.569 and long-term capital gains
of $1.188 during the year. The March 1996 capital gains distributions of $0.096
short-term and $0.272 long-term resulted from undistributed realized capital
gains accumulated during 1995.
The equity markets continued their advance into record territory during 1996
with vigor reminiscent of 1995. The primary factors that led to the strong
advance in 1995 continued their influence in 1996, namely a slow growing economy
with little inflation, subdued interest rates and strong corporate profit
growth. The Standard & Poors 500 Index passed the 700 level, a major milestone,
early in the fourth quarter on its way to ending the year at 740. The Dow Jones
Industrial Average surpassed the 6000 level early in the fourth quarter ending
the year just shy of the 6500 mark. The advances made by these major indices
were amplified by the strong returns provided by large capitalization stocks
during the year. Small and medium capitalization issues did not perform nearly
as well during the year, as is evident by the 16.55% total return of the Russell
2000 Index, a small and medium capitalization index, for the one year period
ending December 31, 1996.
As indicated in last year's annual report to shareholders, the Fund's investment
management team was active in 1995 accumulating shares in high quality companies
that had demonstrated the ability to grow their cash flows and earnings
consistently over long periods of time at reasonable prices, while investors'
attentions were focused on the financial services and technology sectors which
were then in vogue. The timing of our commitment to the high quality, steady
growth area of the market was opportune in that these securities were the same
ones that led the market advance in 1996. We continued our focus during this
past year on the larger capitalization issues with steady cash flow and earnings
growth with the additions of Abbott Laboratories, Dover Corporation, Federal
Home Loan Mortgage Corp., Genuine Parts Company, Intel Corp., International
Flavors & Fragrances, Sysco Corp. and Wells Fargo & Co. We also eliminated many
of the smaller capitalization issues whose market prices reflected their full
potential in our opinion or whose fundamentals changed so that continued
ownership was not warranted.
The investment philosophy adhered to by the Fund's portfolio management team
consists of stringent investment guidelines focused on identifying companies
with stable cash flow and earnings growth with minimal capital expenditure
requirements, strong balance sheets and solid management at reasonable prices.
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.
Considering the M.S.B. Fund has served its investors well, you may want to
consider the Automatic Investment Plan for subsequent purchases into your
account. The Automatic Investment Plan (AIP) provides the option of having a
fixed amount automatically invested in your M.S.B. Fund account from your
checking or savings account. With the AIP plan, you can make monthly investments
for as little as $25 a month without the inconvenience of writing a check each
time.
3
<PAGE> 4
M.S.B. FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK-93.89%:
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
AUTO PARTS--AFTER MARKET-2.86%
24,000 Genuine Parts Company................ $ 1,068,000
BANKS-2.89%
4,000 Wells Fargo & Co. ................... 1,079,000
BEVERAGES--ALCOHOLIC-2.89%
27,000 Anheuser-Busch Companies, Inc. ...... 1,080,000
BEVERAGES--SOFT DRINKS-3.17%
22,500 Coca-Cola Company.................... 1,184,062
CHEMICALS--SPECIALTY-4.98%
21,500 International Flavors & Fragrances... 967,500
14,000 Nordson Corp. ....................... 892,500
-----------
1,860,000
COMPUTER SOFTWARE & SERVICES-3.16%
27,500 Automatic Data Processing, Inc. ..... 1,179,063
COMPUTER SYSTEMS-2.96%
22,000 Hewlett-Packard Co. ................. 1,105,500
DISTRIBUTOR--CONSUMER PRODUCTS-2.62%
30,000 Sysco Corp. ......................... 978,750
ELECTRICAL EQUIPMENT-8.85%
10,500 Emerson Electric Co. ................ 1,015,875
14,000 Grainger (W.W.), Inc. ............... 1,123,500
27,000 Hubbell, Inc. ....................... 1,167,750
-----------
3,307,125
ELECTRONICS & SEMICONDUCTORS-3.33%
9,500 Intel Corp. ......................... 1,243,906
ENTERTAINMENT-2.98%
16,000 Walt Disney Co. ..................... 1,114,000
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
FINANCIAL SERVICES-3.54%
12,000 Federal Home Loan Mortgage Corp. .... $ 1,321,500
FOODS-3.24%
32,500 Sara Lee Corp. ...................... 1,210,625
HEALTH CARE--DRUGS-5.90%
22,500 Abbott Laboratories.................. 1,141,875
63,500 Mylan Laboratories................... 1,063,625
-----------
2,205,500
HOUSEHOLD PRODUCTS-2.95%
11,000 Clorox Co. .......................... 1,104,125
MANUFACTURED HOUSING-2.76%
76,500 Clayton Homes, Inc. ................. 1,032,750
MANUFACTURING-4.92%
21,000 Dover Corporation.................... 1,055,250
15,000 Teleflex, Inc. ...................... 781,875
-----------
1,837,125
PUBLISHING--NEWSPAPERS-5.67%
14,000 Gannett Company, Inc. ............... 1,048,250
46,000 Lee Enterprises, Inc. ............... 1,069,500
-----------
2,117,750
RAILROADS-2.83%
33,000 Illinois Central Corp. Series A...... 1,056,000
RESTAURANTS-2.47%
45,000 Wendy's International, Inc. ......... 922,500
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
4
<PAGE> 5
M.S.B. FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK (CONTINUED):
SHARES VALUE
- ------ -----------
(NOTE 1)
<C> <S> <C>
RETAIL--DEPARTMENT STORES-2.44%
19,500 May Department Stores Co. ........... $ 911,625
RETAIL--DRUG CHAINS-2.68%
25,000 Walgreen Company..................... 1,000,000
RETAIL--FOOD CHAINS-3.10%
32,500 Albertson's, Inc. ................... 1,157,813
RETAIL--GENERAL MERCHANDISE-2.75%
45,000 Wal-Mart Stores, Inc. ............... 1,029,375
RETAIL--SPECIALTY STORES-3.43%
42,500 Gap, Inc. ........................... 1,280,312
TOBACCO-4.52%
15,000 Philip Morris Companies, Inc. ....... 1,689,375
-----------
Total Common Stock
(Cost $27,055,580)................. $35,075,781
-----------
</TABLE>
COMMERCIAL PAPER-5.90%:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- -----------
(NOTE 1)
<C> <S> <C> <C>
$ 952,000 American Express Credit
Corp., 6.75%, due
01/02/97................ $ 952,000
1,250,000 Ford Motor Credit Corp.,
5.92%, due 01/06/97..... 1,250,000
-----------
Total Commercial Paper
(Cost $2,202,000)....... 2,202,000
-----------
Total Investments (Cost
$29,257,580*)........... 99.79% 37,277,781
Other assets in excess of
liabilities............. 0.21% 80,114
------ -----------
Net Assets................ 100.00% $37,357,895
====== ===========
</TABLE>
* Aggregate cost for Federal income tax purposes is identical. At December 31,
1996, the net unrealized appreciation for all securities of $8,020,201
consists of gross unrealized appreciation of $8,252,956 and gross unrealized
depreciation of $232,755.
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
5
<PAGE> 6
M.S.B. FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS:
Investment in securities, at value (Cost $29,257,580)....... $37,277,781
Cash........................................................ 616
Receivable for fund shares sold............................. 7,143
Dividends and interest receivable........................... 85,446
Prepaid expenses............................................ 22,278
-----------
Total assets.............................................. 37,393,264
-----------
LIABILITIES:
Accrued expenses payable.................................... 35,369
-----------
NET ASSETS, applicable to 2,558,271 shares of Class A
$.001 par value stock, 5,000,000 shares authorized........ $37,357,895
===========
NET ASSETS:
Par value of capital shares................................. $ 2,558
Additional paid in capital.................................. 29,335,136
Net unrealized appreciation of investments.................. 8,020,201
-----------
NET ASSETS.................................................. $37,357,895
===========
NET ASSET VALUE, offering and redemption price
per share ($37,357,895 / 2,558,271 shares)................ $ 14.60
===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
6
<PAGE> 7
M.S.B. FUND, INC.
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $572,946
Interest.................................................. 182,272 $ 755,218
--------
EXPENSES:
Investment advisory fee................................... 267,615
Administration fees....................................... 80,400
Legal..................................................... 45,121
Transfer agent............................................ 40,872
Directors' fees........................................... 39,282
Audit..................................................... 24,642
Printing.................................................. 22,630
Insurance................................................. 22,527
Custody................................................... 16,428
Registration.............................................. 15,437 574,954
--------
Fee waivers............................................... (73,406)
----------
Net expenses.............................................. 501,548
----------
Net investment income.................................. 253,670
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain........................................... 3,295,884
Net change in unrealized appreciation....................... 3,357,338
----------
Net realized and unrealized gain............................ 6,653,222
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $6,906,892
==========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
7
<PAGE> 8
M.S.B. FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income..................................... $ 253,670 $ 202,291
Net realized gain on investments.......................... 3,295,884 6,187,058
Net change in unrealized appreciation..................... 3,357,338 1,481,873
----------- -----------
Net increase in net assets resulting from operations........ 6,906,892 7,871,222
Net equalization............................................ 0 (6,750)
Distributions to shareholders from:
Net investment income..................................... (338,202) (188,986)
Net capital gains......................................... (4,200,893) (6,209,959)
----------- -----------
Total distributions to shareholders......................... (4,539,095) (6,398,945)
Net increase (decrease) from capital share transactions (See
Note 4)................................................... 2,480,964 (3,978,291)
----------- -----------
Total increase (decrease) in net assets..................... 4,848,761 (2,512,764)
NET ASSETS:
Beginning of year......................................... 32,509,134 35,021,898
----------- -----------
End of year (including undistributed net investment income
of $77,381 at December 31, 1995)....................... $37,357,895 $32,509,134
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements.
8
<PAGE> 9
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,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, beginning of year............. $13.63 $13.39 $16.79 $15.67 $14.62
INCOME FROM OPERATIONS:
Net investment income........................ 0.11 0.08 0.16 0.18 0.22
Net realized and unrealized gain (loss) on
investments............................... 2.76 3.17 (0.44) 3.04 1.33
------- ------- ------- ------- -------
Total from investment operations.......... 2.87 3.25 (0.28) 3.22 1.55
DISTRIBUTIONS:
From net investment income................... (0.14) (0.08) (0.18) (0.17) (0.28)
From net realized gains...................... (1.76) (2.93) (2.94) (1.93) (0.22)
------- ------- ------- ------- -------
Total distributions....................... (1.90) (3.01) (3.12) (2.10) (0.50)
------- ------- ------- ------- -------
NET ASSET VALUE, end of year................... $14.60 $13.63 $13.39 $16.79 $15.67
======= ======= ======= ======= =======
Total return................................... 21.16% 24.97% (1.70%) 20.6% 10.7%
Ratio of expenses to average net assets........ 1.41%(1) 1.69%(1) 1.28%(1) 1.12% 1.13%
Ratio of net investment income to average net
assets....................................... 0.71% 0.57% 0.97% 1.01% 1.43%
Portfolio turnover rate........................ 45% 68% 62% 26% 13%
Average commission rate per share.............. $0.0443(2) -- -- -- --
NET ASSETS, end of year (000's)................ $37,358 $32,509 $35,022 $45,205 $40,790
</TABLE>
- --------------------------------------------------------------------------------
(1) Without fee waivers for the M.S.B. Fund, Inc. for the years ended December
31, 1996, 1995 and 1994, the ratio of expenses to average net assets would
have been 1.61%, 1.86% and 1.39%, respectively.
(2) Computed by dividing the total amount of brokerage commissions paid by the
total shares of investment securities purchased and sold during the year for
which commissions were charged, as required by the Securities and Exchange
Commission for fiscal years beginning after September 1, 1995.
See Accompanying Notes to Financial Statements.
9
<PAGE> 10
- --------------------------------------------------------------------------------
M.S.B. FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 Valuations--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 ordinary taxable income and net capital gains to
shareholders.
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 in this policy had no effect on the Fund's net assets.
E--Management Estimates--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 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.
NOTE 2--PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and the proceeds from sales of investments, exclusive of
short-term investments, during the year ended December 31, 1996 were $14,953,498
and $17,778,502, respectively.
NOTE 3--FEES
Shay Assets Management Co. (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, a 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 an 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 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. This
limitation
10
<PAGE> 11
M.S.B. FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
resulted in the Investment Adviser waiving approximately 19% of its fee for the
year ended December 31, 1996. The waiver amounted to $51,122.
PFPC Inc. (PFPC) is the Fund's administrator and transfer agent and PNC Bank NA
(PNC) is 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 22% of its administrative fee for the year ended December 31,
1996. The waiver amounted to $17,899.
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 10% of its transfer agent fee for the year ended December 31,
1996. The waiver amounted to $4,085.
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 2%
of its custodial fee for the year ended December 31, 1996. The waiver amounted
to $300.
NOTE 4--CAPITAL STOCK
At December 31, 1996, there were 5,000,000 shares of $.001 par value capital
stock authorized. Transactions in capital stock for the years ended December 31,
1996 and 1995, respectively, were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
(000) $(000)
------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares sold................................................. 251 84 $ 3,623 $ 1,260
Shares issued in reinvestment of dividends.................. 254 392 3,747 5,364
---- ---- ------- --------
505 476 7,370 6,624
Shares redeemed............................................. (332) (706) (4,889) (10,602)
---- ---- ------- --------
Net increase (decrease)................................... 173 (230) $ 2,481 $ (3,978)
==== ==== ======= ========
</TABLE>
NOTE 5--SHAREHOLDER VOTING RESULTS (UNAUDITED)
The Annual Meeting of the M.S.B. Fund, Inc. was held on March 21, 1996, at which
time the stockholders voted on two proposals. Each proposal and the results of
the voting are set forth below.
A--Election of Directors--The first proposal concerned the election of four
directors for a term of three years each, such term to expire in 1999. The
results of voting were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
Harry P. Doherty............................................ 1,351,795 18,257 4,772
Joseph R. Ficalora.......................................... 1,354,505 15,547 4,772
Michael J. Gagliardi........................................ 1,352,208 17,844 4,772
Gilbert O. Robert........................................... 1,344,888 23,480 6,456
</TABLE>
Mr. Robert is no longer on the Board of Directors.
11
<PAGE> 12
M.S.B. FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
In addition, Messrs. Malcolm J. Delaney, David Freer, Jr., George J. Kelly,
William A. McKenna, Jr., Norman W. Sinclair and Ian D. Smith continue as members
of the Board of Directors.
B--Ratification of Independent Auditors--The second proposal concerned the
ratification of the selection of KPMG Peat Marwick LLP as Independent Auditors
of the Fund for the fiscal year ending December 31, 1996. The results of voting
for the proposal were 1,351,381 for, 6,093 against, and 17,350 abstaining.
12
<PAGE> 13
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, 1996 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, 1996, 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 repects, the financial position of
M.S.B. Fund, Inc. as of December 31, 1996 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
Philadelphia, Pennsylvania
February 4, 1997
13
<PAGE> 14
M.S.B.
FUND, INC. LOGO
OFFICERS
David Freer, Jr.
President
Joseph R. Ficalora
First Vice President
Ian D. Smith
Second Vice President
Rodger D. Shay
Vice President and Assistant Secretary
Edward E. Sammons, Jr.
Vice President and Secretary
John J. McCabe
Vice President
Mark F. Trautman
Vice President
Jay F. Nusblatt
Treasurer
BOARD OF DIRECTORS
Malcolm J. Delaney
Harry P. Doherty
Joseph R. Ficalora
David Freer, Jr.
Michael J. Gagliardi
George J. Kelly
William A. McKenna, Jr.
Norman W. Sinclair
Ian D. Smith
<PAGE> 15
M.S.B.
FUND, INC. LOGO
ANNUAL REPORT
DECEMBER 31, 1996
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 ADVISER
Shay Assets Management Co.
200 Park Avenue
15th Floor
New York, New York 10166
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, DE 19809
CUSTODIAN
PNC Bank, NA
17th & Chestnut Streets
Philadelphia, Pennsylvania 19101
LEGAL COUNSEL
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
1600 Market Street
Philadelphia, Pennsylvania 19103
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