THE MAXUS FUNDS
Dear Shareholder:
What a difference a year makes. The 1994 bear market in bonds gave way to a
renewed bull market in 1995; and while stocks never experienced anything close
to a bear market in 1994, it sure seems as if they did compared to the 30% plus
returns in the Dow Jones Industrials and S&P 500 in 1995. By year end, the Dow
had stampeded through the 5000 mark while the S&P 500 managed to close above
600, both historical records.
The Maxus Income Fund managed to post a total return of 16.15% for 1995, which
was a welcome balance to the negative return of 1994. The strategic positioning
of the portfolio at the end of 1994 enabled the Fund to post this return in
spite of its exceptionally short maturity mix and conservative approach to the
bond market in general. The strategy continues to pay off as The Maxus Income
Fund has continued to advance through the first several weeks of 1996, while the
bond market has remained relatively flat.
The Maxus Equity Fund posted a 22.43% total return for 1995. While this result
was clearly less than the S&P 500, it was in line with funds having a general
value-oriented philosophy. Moreover, The Maxus Equity Fund's very cautious
approach, generally high cash position, and low volatility (beta) relative to
the market, place it in a somewhat unique category relative to all funds in
general. In spite of its continuing conservative posture, The Maxus Equity Fund
continued to outperform the S&P 500 during the five year period which ended last
December.
With the spectacular results of 1995 in both stock and bonds now behind us, the
continued momentum in the early weeks of 1996 would give reason to suspect that
a market correction may be near at hand. With an increasing number of advisors
becoming bullish (generally a sign of market top), secular trend watchers are
becoming increasingly suspicious that the market can maintain this upward
thrust.
Other signs of a top also may be beginning to appear. As I pointed out in the
1995 semi-annual report, the strong upward path of both the stock and bond
markets have been sustained for over 12 years by regular reductions in interest
rates and inflation, while corporate profits have benefited by increases in
productivity due to technological advancements and downsizing, and a generally
weak dollar vis-a-vis the major world currencies.
Both interest rates and inflation have been unable to break the lows set nearly
two years ago, and while there is some speculation that rates will decline
further in the coming months, it is exceedingly clear that the opportunity for a
continued decline in these rates, compared to their secular highs set in the
early 1980's, has been pretty much exhausted. Moreover, it is now clear that the
rate of increase in corporate profits appears to be slowing significantly. That
rate has declined in each succeeding quarter of 1995, and forecasts call for
further declines in 1996. Lastly, the dollar has advanced recently in relation
to major world currencies, and this advance is bound to negatively affect the
profitability of certain foreign source revenue.
1
<PAGE>
It now appears that the latest estimates from the Bureau of Labor Statistics
indicate that productivity increases are also slowing significantly, advancing a
paltry 1.4% annual rate in the third quarter of 1995. The implication is that it
will be increasingly difficult for the economy to grow at more than 2% annually
without increases in both interest rates and inflation. The recent increases in
the price of gold and other key commodities may be indicative of these problems
down the road.
The short term implications for stock prices are always unclear. For now, the
great rush to own stocks fueled by the market performance of 1995, continues to
push prices higher. Econometric models produced by Elaine Garzarelli suggest
that interest rates and other key indicators will need to advance significantly
before the market runs into trouble. The ongoing sector corrections within the
market may also suggest that stock prices are not overly speculative, and until
increased speculation develops, a major correction is not at hand.
The danger signals, then, seem to be appearing only on the economic front. It is
no wonder that good economists do not make good money managers. For example, I
consider Robert Guilliet to be among the most insightful economists of our time.
Yet Dr. Guilliet has been suggesting for the past several years that economic
conditions are (or soon will be) ripe for the market to turn negative. He has
always qualified his remarks by pointing out that an overvalued market says
nothing about market timing, i.e. markets may be overvalued for indefinite
periods of time.
My position is more moderate. I do not believe that the market is excessively
overvalued and a bear market is about to begin nor do I believe that interest
rates and various other key indicators must advance significantly before stocks
begin to decline. Rather, it seems to me that the major stock and bond market
advance which began in the early 1980's is firmly behind us and that long term
investors should lower their expectations with regard to the years immediately
ahead.
Richard A. Barone
2
<PAGE>
THE MAXUS FUNDS
There appears to be a general consensus that interest rates will continue to
decline during 1996 as a result of the Federal Reserve's initiative to continue
to make credit available. In fact, FED policy to increase the money supply in
order to accommodate business needs and stimulate consumer demand has not worked
as anticipated. A large part of this credit has turned up as excess liquidity
and found its way into the stock and bond markets.
Moreover, any continued movement toward lower rates may only influence long term
rates for a brief period of time, the ultimate result being a steeper yield
curve with short rates lower and long rates higher. Since it is the long rates
which will ultimately determine the direction of The Maxus Income Fund, we are
continuing our cautious approach. This has not diminished our focus on special
situation income investments such as closed-end investment companies. In fact,
The Maxus Income Fund continues to show returns which exceed the market
primarily because of this strategic positioning.
However, the recent trend in closed-end funds is toward a narrowing in the
discount, and while this has positively impacted our results, we have been
reducing our ownership of this sector accordingly. Preferred shares, especially
those of real estate investment trusts, appear to be good values, and we are
increasing our position in a number of higher quality companies. Overall,
however, there does not appear to be exceptional value on the longer end of the
maturity range, and we have begun again to reduce the average duration of the
portfolio.
Richard A. Barone
3
<PAGE>
Maxus Income Fund
Schedule of Investments
December 31, 1995
================================================================================
Shares/Principal Amount Cost Market Value % of Assets
- --------------------------------------------------------------------------------
U.S. Government Securities
6,000,000 U.S.Treasury
Notes 7.50% 1/31/97 ...................... 6,071,472 6,140,628
1,000,000 U.S.Treasury
Strips 0% 11/15/97 ....................... 876,941 908,100
2,000,000 U.S.Treasury
Notes 7.125% 10/15/98..................... 2,032,850 2,095,626
--------- ---------
8,981,263 9,144,354 24.46%
Convertible Bonds
350,000 Consolidated Natural Gas
7.25% 12/15/15 .................. 348,907 362,688
223,000 Inco 7.75% 03/15/16............... 226,493 238,610
1,000,000 Royce Value Trust 5.75% 06/30/04 . 970,686 1,015,000
150,000 Storage Technologies 8.00% 5/31/15 145,272 146,250
700,000 Time Warner 8.75% 01/10/15 ....... 713,247 725,375
------- -------
2,404,605 2,487,923 6.65%
Corporate Bonds
300,000 RJR Nabisco 9.25% 08/15/13........ 275,286 307,875
455,000 Unisys 10.625% 10/01/99 .......... 455,242 406,799
------- -------
730,528 714,674 1.91%
Convertible Preferreds
22,000 Oasis Residential $2.25 ........ 552,912 566,500
10,000 Phoenix Duff & Phelps $1.50..... 250,850 252,500
19,800 Sun Co. $1.80 .................. 520,938 549,450
10,000 USX Corp $3.25 ................. 473,400 476,250
12,000 WHX $3.75 ...................... 515,459 510,000
45,000 Wellsford Residential $1.75..... 858,802 883,125
------- -------
3,172,361 3,237,825 8.66%
Preferred Stock
10,000 American General $2.11 MIPS..... 250,000 267,500
10,000 American Re Capital $2.12 ...... 250,000 263,750
10,000 BF Goodrich $2.07 .............. 254,350 258,750
15,000 Comsat Cap $2.03 MIPS .......... 368,400 386,250
10,000 Equity Residential $2.34 A ..... 252,475 258,750
50,000 Ford Holdings $2.03 ............ 1,278,875 1,262,500
15,400 NWPS Capital Financing $2.03.... 382,849 400,400
25,000 Public Storage $2.50 E ......... 643,725 687,500
15,000 Public Storage $2.30 B ......... 366,620 386,250
15,000 Public Storage $2.44 F ......... 387,775 408,750
10,000 RJR Nabisco $2.50 .............. 254,350 260,000
10,000 Rouse Cap $2.31 ................ 249,050 247,500
33,400 Source Capital $2.40 ........... 918,309 951,900
10,000 Torchmark Corp $2.29 MIPS ...... 250,000 271,250
20,000 Williams $2.40 ................. 526,162 522,500
------- -------
6,632,940 6,833,550 18.28%
4
<PAGE>
Schedule of Investments
December 31, 1996
================================================================================
Shares/Principal Amount Cost Market Value % of Assets
- --------------------------------------------------------------------------------
Closed-End Income Funds - Domestic
70,000 All American Term .................. 856,100 892,500
50,000 Americas Income Trust .............. 339,875 337,500
30,000 Blackrock Income Trust ............. 190,800 191,250
59,500 Current Income Shares .............. 674,005 706,562
140,000 Kemper Intermediate Gov't .......... 1,014,213 1,015,000
200,000 MFS Government Mkts ................ 1,328,569 1,275,000
154,500 MFS Intermediate ................... 1,105,609 1,023,563
50,000 Preferred Income ................... 681,625 675,000
50,000 Preferred Income Management ........ 631,625 618,750
40,000 Preferred Income Opportunity ....... 426,900 415,000
120,000 Putnam Dividend .................... 1,113,925 1,125,000
--------- ---------
8,363,246 8,275,125 22.13%
Closed-End Income Funds - Global
50,000 Dreyfus Strategic Governments ...... 458,625 456,250
170,000 MFS Multimarket Income ............. 1,110,169 1,105,000
34,100 RCM Strategic Global ............... 338,357 341,000
100,000 Strategic Global ................... 1,090,406 1,137,500
185,000 Templeton Global ................... 1,390,662 1,295,000
--------- ---------
4,388,219 4,334,750 11.59%
Common Stock
Environment
18,000 Groundwater Tech.................. 246,291 252,000 0.67%
Real Estate Investment Trusts
54,900 Berkshire Realty.................. 537,595 528,412 1.41%
Total Investments................. 35,457,048 35,808,613 95.78%
Other Assets Less Liabilities................... 1,578,228 4.22%
=========
Net Assets - Equivalent to $10.54 per share on
3,547,139 shares of capital stock outstanding... 37,386,841 100.00%
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Maxus Income Fund
Statement of Assets & Liabilities
December 31, 1995
Assets:
Investment Securities at Market Value
(Identified Cost - $35,457,048)........................ $35,808,613
Cash..................................................... 1,372,104
Receivables:
Investment Securities Sold.............................. $626,089
Dividends and Interest.................................. 387,139
-------
Total Assets............................................ $38,193,945
Liabilities
Payables:
Investment Securities Purchased......................... $745,027
Shareholder Distributions............................... 0
Accrued Expenses........................................ 62,077
------
Total Liabilities................................... 807,104
Net Assets................................................. $37,386,841
Net Assets Consist of:
Capital Paid In.......................................... 38,851,851
Undistributed Net Investment Income...................... 3,140
Accumulated Realized Gain on Investments - Net........... 1,819,715
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net .......... 351,565
-------
Net Assets, for 3,547,139 Shares Outstanding............... $37,386,841
Net Asset Value and Redemption Price
Per Share ($37,386,841/3,547,139 shares)............... $10.54
Offering Price Per Share................................... $10.54
Statement of Operations
December 31, 1995
Investment Income:
Dividends ............................................ $2,150,179
Interest ............................................. 1,035,114
---------
Total Investment Income .......................... $3,185,293
Expenses:
Registration Expense .................................... 18,907
Trustee Fees (Note 3) ................................... 1,300
Accounting and Pricing .................................. 38,184
Custody ................................................. 22,337
Distribution Plan Expenses .............................. 179,189
Audit ................................................... 16,109
Legal ................................................... 11,367
Management Fees (Note 2) ................................ 358,378
Printing & Other Miscellaneous .......................... 32,595
------
Total Expenses ...................................... 678,366
Net Investment Income ...................................... 2,506,927
Realized and Unrealized Gain (Loss) on Investments
Realized Gain (Loss) on Investments ....................... (673,078)
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments ............................ 3,484,108
---------
Net Realized and Unrealized Gain (Loss) on Investments...... $2,811,030
Net Increase (Decrease) in Net Assets from Operations....... $5,317,597
==========
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Maxus Income Fund
Statement of Changes in Net Assets
01/01/95 01/01/94
to to
12/31/95 12/31/94
-------- --------
From Operations:
Net Investment Income ......................... $2,506,927 $2,546,992
Net Realized Gain (Loss) on Investments ....... (673,078) (1,023,586)
Net Unrealized Appreciation (Depreciation) .... 3,484,108 (3,230,212)
---------- -----------
Increase (Decrease) in Net Assets from
Operations .................................... 5,317,957 (1,706,806)
From Distributions to Shareholders
Net Investment Income (Loss) .................. (2,513,294) (2,537,485)
Net Realized Gain (Loss)from Security
Transactions .................................. 0 0
Net Increase (Decrease) from Distributions .... (2,513,294) (2,537,485)
------------ ------------
From Capital Share Transactions:
Proceeds From Sale of 800,650 Shares .......... 8,297,341 13,341,130
Net Asset Value of 202,212 shares issued on
Reinvestment of Dividends ..................... 2,098,884 2,262,878
Cost of 891,472 Shares Redeemed ............... (9,238,866) (14,082,169)
------------ ------------
1,157,359 1,521,839
Net Increase in Net Assets ........................ 3,962,022 (2,722,452)
Net Assets at Beginning of Period (including
undistributed net investment income of
$9,507 and $1,852, respectively) ................. 33,424,819 36,147,271
Net Assets at End of Period (including
undistributed net investment income
of $3,140 and $9,507, respectively) ............... $37,386,841 $33,424,819
============ ============
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
to to to to to
12/31/95 12/31/94 12/31/93 12/31/92* 12/31/91
-------------------------------------------------
Net Asset Value -
Beginning of Period ....... $9.73 $10.94 $10.88 $10.98 $9.94
Net Investment Income ....... 0.72 0.74 0.68 0.42 0.80
Net Gains or Losses on
Securities
(realized and unrealized) .. 0.81 (1.22) 0.22 (0.01) 1.05
---- ------ ---- ------ ----
Total from Investment
Operations ................ 1.53 (0.48) 0.90 0.41 1.85
Dividends
(from net investment income) (0.72) (0.73) (0.68) (0.42) (0.81)
Distributions
(from capital gains) ....... 0.00 0.00 (0.16) (0.09) 0.00
Return of Capital ........... 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Total Distributions ....... (0.72) (0.73) (0.84) (0.51) (0.81)
Net Asset Value -
End of Period ............. $10.54 $9.73 $10.94 $10.88 $10.98
Total Return ................ 16.15% (4.39)% 8.74% 7.89% 19.27%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) . 37,387 33,425 36,147 28,591 18,200
Ratio of Expenses to
Average Net Assets ........ 1.90% 1.81% 1.90% 1.94% 2.00%
Ratio of Net Income to
Average Net Assets ........ 7.01% 7.10% 6.06% 7.18% 7.59%
Portfolio Turnover Rate ..... 1.21 1.38 0.88 0.91 1.08
*Weighted Average Used
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Maxus Income Fund
Notes to Financial Statements
December 31, 1995
1.) SIGNIFICANT ACCOUNTING POLICIES The Fund is a diversified, open-end
management investment company, organized as a Trust under the laws of the
State of Ohio by a Declaration of Trust dated October 31, 1984. Significant
accounting policies of the Fund are presented below:
SECURITY VALUATION: The Fund intends to invest in a wide variety of equity
and debt securities. The investments in securities are carried at market
value. The market quotation used for common stocks, including those listed
on the NASDAQ National Market System, is the last sale price on the date on
which the valuation is made or, in the absence of sales, at the closing bid
price. Over-the-counter securities will be valued on the basis of the bid
price at the close of each business day. Short-term investments are valued
at amortized cost, which approximates market. The cost of securities sold
is determined on the identified cost basis. Securities for which market
quotations are not readily available will be valued at fair value as
determined in good faith pursuant to procedures established by the Board of
Directors.
INCOME TAXES: It is the Fund's policy to distribute annually, prior to the
end of the calendar year, dividends sufficient to satisfy excise tax
requirements of the Internal Revenue Service. This Internal Revenue Service
requirement may cause an excess of distributions over the book year-end
accumulated income. In addition, it is the Fund's policy to distribute
annually, after the end of the calendar year, any remaining net investment
income and net realized capital gains.
2.) INVESTMENT ADVISORY AGREEMENT The Fund has entered into an investment
advisory and administration agreement with Maxus Asset Management, Inc., a
wholly owned subsidiary of Resource Management Inc. The Investment Advisor
receives from the Fund as compensation for its services to the Fund an
annual fee of 1% on the first $150,000,000 of the Fund's net assets, and
0.75% of the Fund's net assets in excess of $150,000,000. The Investment
Advisor agrees to reimburse its fee to the Fund in the amount by which the
Fund expenses exceed 2% of average annual net assets.
3.) RELATED PARTY TRANSACTIONS Resource Management, Inc. has three wholly
owned subsidiaries which provide services to the Fund. These subsidiaries
are Maxus Asset Management Inc, Maxus Securities Corp, and Mutual +
Shareholder Services Corporation. Maxus Asset Management was paid $358,378
in investment advisory fees during the twelve months ended December 31,
1995. Maxus Securities, who served as the national distributor of the
Fund's shares, was reimbursed $179,189 for distribution expenses. Mutual +
Shareholder Services, who provides accounting and shareholder services,
received fees totaling $38,184 for services rendered to the Fund for the
twelve months ended December 31, 1995. Maxus Securities is a registered
broker-dealer. Maxus Securities effected substantially all of the
investment portfolio transactions for the Fund. For this service Maxus
Securities received commissions of $249,090 for the twelve months ending
December 31, 1995.
At December 31, 1995, Maxus Securities Corp owned 15,000 shares in the
Fund.
8
<PAGE>
Maxus Income Fund
4.) CAPITAL STOCK AND DISTRIBUTION At December 31, 1995 an indefinite
number of shares of capital stock ($.10 par value) were authorized, and
paid-in capital amounted to $38,567,797. Transactions in common stock were
as follows:
Shares sold...................................... 800,650
Shares issued to shareholders
in reinvestment of dividends................... 202,212
-------
1,002,862
Shares redeemed.................................. 891,472
-------
Net Increase (Decrease).......................... 111,390
Shares Outstanding:
Beginning of Period........................... 3,435,749
---------
End of Period................................. 3,547,139
=========
Distributions to shareholders are recorded on the ex-dividend date.
Payments in excess of net investment income or of accumulated net realized
gains reported in the financial statements are due primarily to book/tax
differences. Payments due to permanent differences have been charged to
paid in capital. Payments due to temporary differences have been charged to
distributions in excess of net investment income or realized gains.
5.) SECURITY TRANSACTION TIMING Security transactions are recorded on the
dates transactions are entered into (the trade dates). Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Interest income is recorded as earned. The Fund uses the identified cost
basis in computing gain or loss on sale of investment securities.
6.) PURCHASES AND SALES OF SECURITIES During the twelve months ended
December 31, 1995, purchases and sales of investment securities other than
U.S. Government obligations and short-term investments aggregated
$30,658,020 and $30,598,508 respectively. Purchases and sales of U.S.
Government obligations aggregated $6,920,670 and $7,198,140 respectively.
7.) FINANCIAL INSTRUMENTS DISCLOSURE There are no reportable financial
instruments which have any off-balance sheet risk as of December 31, 1995.
8.) SECURITY TRANSACTIONS For Federal income tax purposes, the cost of
investments owned at December 31, 1995 was the same as identified cost.
At December 31, 1995, the composition of unrealized appreciation (the
excess of value over tax cost) and depreciation (the excess of tax cost
over value) was as follows:
Appreciation (Depreciation) Net Appreciation (Depreciation)
------------ -------------- -------------------------------
747,552 (395,987) 351,565
9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors
Maxus Income Fund
We haveaudited the accompanying statement of assets and liabilities of Maxus
IncomeFund, including the schedule of portfolio investments, as of December 31,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held by
the custodian as of December 31, 1995, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements and
financial highlights referred to above present fairly, in all material respects,
the financial position of Maxus Income Fund, as of December 31, 1995, 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 the financial highlights
for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
44145 January 22, 1996
10
<PAGE>
The Maxus Funds
28601 Chagrin Boulevard, Cleveland, Ohio 44122
(216) 292-3434
Investment Advisor
Maxus Asset Management Inc
28601 Chagrin Boulevard
Cleveland, Ohio 44122
Board of Trustees
Richard A. Barone
N. Lee Dietrich
Sanford A. Fox, D.D.S.
Burton D. Morgan
Michael A. Rossi
Robert A. Schenkelberg, Jr.
F. Carl Walter
Officers
Richard A. Barone, Chairman
James C. Onorato, Vice-President
Robert W. Curtin, Secretary
Custodian
Star Bank, N. A.
425 Walnut Street
P. O. Box 1118
Cincinnati, Ohio 45201-1118
Transfer Agent
Maxus Information Systems Inc
28601 Chagrin Boulevard
Cleveland, Ohio 44122
Distributor
Maxus Securities Corp
28601 Chagrin Boulevard
Cleveland, Ohio 44122
Legal Counsel
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Auditor
McCurdy & Associates CPA's Inc
27955 Clemens Road
Westlake, Ohio 44145
11