THE MAXUS FUNDS
Dear Shareholder:
Against the backdrop of increasing corporate profits and declining interest
rates, 1997 marked the third year in a row of superior returns in the financial
markets. The broad based Russell 3000 index of domestic equities gained 31.68%
while the Ryan Government Bond Index produced a total return of 9.43%.
With market conditions that favorable, The Maxus Equity Fund was able to advance
28.16% for 1997 in spite of my cautionary attitude during most of the year. The
relative valuation and asset allocation approach used by Maxus Equity produced a
portfolio with a relatively low correlation to market declines, while the
overall value style uncovered equities with superior returns. According to
Lipper Analytical Services, The Maxus Equity Fund ranked 12th in 1997 out of 196
mutual funds with similar characteristics.
The Maxus Income Fund, while receiving fewer accolades during 1997, had one of
its best years ever relative to other income funds with high quality, balanced
portfolios. For the year ending December 31, 1997, The Maxus Income Fund
produced a total return of 11.47%. Because of the hybrid nature of the portfolio
(high quality debt securities are held through conduits such as closed-end funds
and preferred shares), rating services such as Morningstar have the Maxus Income
Fund incorrectly categorized as an equity fund, in spite of the fact that it has
had virtually no recognizable correlation to the equity markets. Moreover, as an
important part of its overall performance, while the major advance in bond
prices came in longer duration securities (those with more risk when interest
rate rise), The Maxus Income Fund produced a very low correlation to long
duration bonds during periods of rising interest rates, i.e. bond market
declines.
The environment was tougher for The Maxus Laureate Fund, managed by Alan Miller,
which allocates its portfolio among the global equity markets. For all of 1997
Maxus Laureate produced a total return of 5.49%, and earned a four star ranking
by Morningstar for the one-year period ending December 31.
We continued to maintain our caution as we entered 1998. In spite of market
enthusiasm, it appears to me that the growth in corporate profitability, at
best, will lose momentum. Should profit margins come under pressure as
production costs increase and pricing power continues to erode, the financial
markets in 1998 will produce a much tougher environment in which to excel.
But we intend to do just that - offer our clients the best investment products
and superior performance. On February 1, The Maxus family of mutual funds became
larger. On that date, we introduced The Maxus Ohio Heartland Fund, managed by
Denis Amato, which will focus on investments in small to mid-capitalization
companies based in Ohio. Also on February 1, the Maxus Aggressive Value Fund
became a reality. This Fund, which I manage, will seek out investments in very
small companies (under $200 million in market capitalization) using a
disciplined value style.
<PAGE>
As Maxus Fund shareholders, I want to reiterate our commitment to providing you
with the highest possible level of investor service. In doing so, I would like
to encourage you to talk with your personal financial advisor or a Maxus
Financial Advisor about how any one or combination of our Funds may be able to
help secure your financial future.
Richard A Barone
<PAGE>
MAXUS INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Shares/Principal Amount Cost Market Value % of
Assets
- --------------------------------------------------------------------------------
COMMON STOCK - REAL ESTATE
15,000 Agree Realty 309,675 326,250
15,000 Boykin Lodging 300,925 396,563
10,000 Laser Mortgage Management 148,738 145,000
------- -------
759,338 867,813 2.25%
CLOSED END INCOME FUNDS
50,000 ACM Govt Opportunity 346,125 406,250
66,422 American Opportunity Income 371,078 402,683
33,319 American Strategic Income Port III 347,271 374,839
70,600 Americas Income Trust 482,746 569,212
170,000 Blackrock Income Trust 1,082,506 1,200,625
50,000 Blackrock North American Government 470,022 528,125
250,000 Hyperion 1999 Term Trust 1,716,769 1,734,375
250,000 MFS Govt Mkts 1,677,744 1,671,875
200,000 Putnam Intermediate Government 1,490,750 1,500,000
--------- ---------
7,985,011 8,387,984 21.72%
CLOSED END GLOBAL INCOME FUNDS
70,000 Dreyfus Strategic Governments 643,325 665,000
50,000 First Australia Prime Income 380,500 362,500
100,000 First Commonwealth 1,163,819 1,206,250
17,100 John Hancock Patriot Global Dividend 213,533 226,575
150,000 Kleinwort Benson Australian Income 1,314,683 1,153,125
60,000 Oppenheimer World Fund 480,206 476,250
100,000 Strategic Global Income 1,171,225 1,212,500
100,000 Templeton Global Income 730,644 750,000
--------- ---------
6,097,935 6,052,200 15.67%
PREFERRED SHARES
10,000 1st Indl Realty 8.75% B 250,000 258,125
10,000 American General 8.45% MIPs A 250,000 263,125
10,000 American Re 8.5% QUIPs 250,000 259,375
10,000 Associated Estates Rlty 9.75% A 251,850 263,750
31,900 Conagra Capitol Ser B Adj Rate 683,392 707,781
12,000 Crown American Rlty 11.00% 630,446 627,000
10,000 Developers Diversified Rlty B 9.44% 248,100 260,625
5,000 Duke Energy 7.20% QUIPs 125,000 127,500
11,000 Gabelli Global Multimedia 7.92% 271,785 279,812
12,000 HL&P 8.125% A 305,595 309,750
12,000 NWPS Capital Financing 8.125% A 297,220 310,500
10,000 Omega Healthcare 9.25% A 252,919 265,000
20,400 Pacificorp 8.55% QUIDs B 515,799 515,100
39,700 Public Storage 8.875% G 997,861 1,027,238
15,000 RJR Nabisco Holdings 10.00% 382,881 378,750
10,000 Rouse 9.25% QUIPs 249,050 261,875
42,600 Royce Value Trust 8.00% 1,070,981 1,096,950
15,000 Simon Debartolo 8.75% B 374,723 395,625
21,500 Source Capital $2.40 588,455 626,188
10,000 Time Warner 8.875% 261,850 264,375
10,000 Torchmark 9.18% MIPs 250,000 263,125
--------- ---------
8,507,907 8,761,569 22.69%
The accompanying notes are an integral part of the financial statements.
<PAGE>
MAXUS INCOME FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Shares/Principal Amount Cost Market Value % of
Assets
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SHARES
10,000 Armco $3.625 B 427,475 467,500
12,000 Equity Resident Pptys G 303,470 307,500
10,000 Excel Realty 8.5% 250,600 296,875
37,000 Oasis Residential 9.0% A 942,625 948,125
13,000 Phoenix Duff & Phelps 6% 317,995 372,125
10,000 Sea Containers 8% 448,100 557,500
18,000 USX 6.75% QUIPs 847,205 828,000
-------- --------
3,537,470 3,777,625 9.78%
CORPORATE BONDS
455,000 Unisys Senior Notes 10.625%, 10-1-99 455,106 460,237 1.19%
CONVERTIBLE BONDS
223,000 Inco 7.75%, 3-15-16 226,132 222,721 0.58%
U.S. GOVERNMENT SECURITIES
2,000,000 US Treasury 9.0%, 5-15-98 2,018,466 2,024,375
2,000,000 US Treasury 11.75%, 2-15-01 2,310,684 2,345,000
5,000,000 US Treasury 0%, 11-15-12 1,868,765 2,058,250
5,000,000 US Treasury 0%, 11-15-17 1,318,317 1,518,250
--------- ---------
7,516,232 7,945,875 20.57%
Star Bank Treasury 1,815,067 1,815,067 4.70%
Total Investments 36,900,198 38,291,091 99.15%
Other Assets Less Liabilities 329,047 0.85%
Net Assets - Equivalent to $11.31 per share on
3,413,896 shares of capital stock outstanding 38,620,138 100.00%
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
MAXUS INCOME FUND
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
Assets:
Investment Securities at Market Value
(Identified Cost - $36,900,198) $38,291,091
Cash 23,125
Receivables:
Investment Securities Sold 247,086
Dividends and Interest 318,958
------------
Total Assets $38,880,260
Liabilities
Payables:
Investment Securities Purchased $136,208
Shareholder Distributions 14,079
Accrued Expenses 109,835
------------
Total Liabilities 260,122
Net Assets $38,620,138
Net Assets Consist of:
Capital Paid In 37,540,498
Undistributed Net Investment Income 2,614
Accumulated Realized Gain (Loss) on Investments - Net (313,867)
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net 1,390,893
------------
Net Assets, for 3,413,896 Shares Outstanding $38,620,138
Net Asset Value and Redemption Price
Per Share ($38,620,138/3,413,896 shares) $11.31
Offering Price Per Share $11.31
STATEMENT OF OPERATIONS
DECEMBER 31, 1997
Investment Income:
Dividends $2,368,478
Interest 546,468
-----------
Total Investment Income $2,914,946
Expenses:
Registration Expense 17,483
Trustee Fees (Note 3) 1,500
Accounting and Pricing 41,545
Custody 17,041
Distribution Plan Expenses 181,784
Audit 14,987
Legal 8,000
Management Fees (Note 2) 364,175
Insurance 6,547
Printing & Other Miscellaneous 44,242
-----------
Total Expenses 697,304
Net Investment Income 2,217,642
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investments 880,505
Distribution of Realized Capital Gains from other
Investment Companies 47,196
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments 804,642
-----------
Net Realized and Unrealized Gain (Loss) on Investments $1,732,343
Net Increase (Decrease) in Net Assets from Operations $3,949,985
===========
The accompanying notes are an integral part of the
financial statements.
<PAGE>
MAXUS INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
01/01/97 01/01/96
to to
12/31/97 12/31/96
- --------------------------------------------------------------------------------
From Operations:
Net Investment Income $2,217,642 $2,363,428
Net Realized Gain (Loss) on Investments 927,701 578,147
Net Unrealized Appreciation (Depreciation) 804,642 234,686
Increase (Decrease) in Net Assets from Operations 3,949,985 3,176,261
From Distributions to Shareholders
Net Investment Income (Loss) (2,215,429) (2,363,027)
Net Realized Gain (Loss) from
Security Transactions 0 0
----------- -----------
Net Increase (Decrease) from Distributions (2,215,429) (2,363,027)
From Capital Share Transactions:
Proceeds From Sale of 799,064 Shares 8,907,950 6,179,798
Net Asset Value of 151,394 shares issued on
Reinvestment of Dividends 1,680,395 1,878,123
Cost of 850,768 Shares Redeemed (9,430,667) (10,530,092)
----------- ------------
1,157,678 (2,472,171)
Net Increase in Net Assets 2,892,234 (1,658,937)
Net Assets at Beginning of Period (including
undistributed net investment income of $3,541
and $3,140, respectively)
Net Assets at End of Period (including 35,727,904 37,386,841
undistributed net investment income of $2,614
and $3,541, respectively) $38,620,138 $35,727,904
=========== ============
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout the period:
<TABLE>
<S> <C> <C> <C> <C> <C>
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93
to to to to to
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
Net Asset Value -
Beginning of Period 10.78 10.54 9.73 10.94 10.88
Net Investment Income 0.67 0.70 0.72 0.74 0.68
Net Gains or Losses on Securities
(realized and unrealized) 0.53 0.24 0.81 (1.22) 0.22
Total from Investment Operations 1.20 0.94 1.53 (0.48) 0.90
Dividends
(from net investment income) (0.67) (0.70) (0.72) (0.73) (0.68)
Distributions (from capital gains) 0.00 0.00 0.00 0.00 (0.16)
Return of Capital 0.00 0.00 0.00 0.00 0.00
Total Distributions (0.67) (0.70) (0.72) (0.73) (0.84)
Net Asset Value -
End of Period 11.31 10.78 10.54 9.73 10.94
Total Return 11.47% 9.20% 16.15% (4.39)% 8.74%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 38,620 35,728 37,387 33,425 36,147
Ratio of Expenses to Average Net Assets 1.91% 1.92% 1.90% 1.81% 1.90%
Ratio of Net Income to Average Net Assets 6.08% 6.50% 7.01% 7.10% 6.06%
Portfolio Turnover Rate 70% 78% 121% 138% 88%
Average commission per share $0.05317 $0.05238
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
MAXUS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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. The Fund has an investment objective of
obtaining the highest total return, a combination of income and capital
appreciation, consistent with reasonable risk. Under normal circumstances,
at least 65% of the value of this Fund's total assets will consist of
income-producing securities. 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. 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.
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. Discounts and premiums on securities
purchased are amortized over the life of the respective securities.
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.
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 and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 Maxus Information Systems Inc. Maxus Asset
Management was paid $364,175 in investment advisory fees during the twelve
months ended December 31, 1997. Maxus Securities, who served as the
national distributor of the Fund's shares, was reimbursed $181,784 for
distribution expenses. Maxus Information Systems, who provides accounting
and shareholder services, received fees totaling $41,545 for services
rendered to the Fund for the twelve months ended December 31, 1997. 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 $159,476 for the
twelve months ending December 31, 1997.
<PAGE>
At December 31, 1997, Maxus Securities Corp owned 60,000 shares in the
Fund.
Certain officers and/or trustees of the Fund are officers and/or directors
of the Investment Advisor and Administrator. Each director who is not an
"affiliated person" receives an attendance fee of $100 per meeting.
4.)CAPITAL STOCK AND DISTRIBUTION
At December 31, 1997 an indefinite number of shares of capital stock ($.10
par value) were authorized, and paid-in capital amounted to $37,540,498.
Transactions in common stock were as follows:
Shares sold 799,064
Shares issued to shareholders in reinvestment of dividends 151,394
--------
950,458
Shares redeemed (850,768)
---------
Net Increase (Decrease) 99,690
Shares Outstanding:
Beginning of Period 3,314,206
----------
End of Period 3,413,896
==========
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.)PURCHASES AND SALES OF SECURITIES
During the twelve months ended December 31, 1997, purchases and sales of
investment securities other than U.S. Government obligations and short-term
investments aggregated $25,379,605 and $29,153,129 respectively. Purchases
and sales of U.S. Government obligations aggregated $7,579,962 and
$3,996,562 respectively.
6.)FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments which have any off-balance
sheet risk as of December 31, 1997.
7.)SECURITY TRANSACTIONS
For Federal income tax purposes, the cost of investments owned at December
31, 1997 was the same as identified cost.
At December 31, 1997, 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)
1,658,340 (267,447) 1,390,893
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors:
Maxus Income Fund
We have audited the accompanying statement of assets and liabilities of Maxus
Income Fund, including the schedule of portfolio investments, as of December 31,
1997, 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, 1997, by correspondence with the custodian and
brokers. An audit also included 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, 1997, 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
January 21, 1998
<PAGE>
THE MAXUS FUNDS
1301 East Ninth Street, Suite 3600, Cleveland, OH 44114
(216) 687-1000
INVESTMENT ADVISOR
Maxus Asset Management Inc
1301 East Ninth Street
Cleveland, Ohio 44114
BOARD OF TRUSTEES
Denis J. Amato
Richard A. Barone
Burton D. Morgan
Michael A. Rossi
Jerry Murphy
OFFICERS
Richard A. Barone, Chairman
Robert J. Conrad, 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
1301 East Ninth Street
Cleveland, Ohio 44114
DISTRIBUTOR
Maxus Securities Corp
1301 East Ninth Street
Cleveland, Ohio 44114
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
<PAGE>
