<PAGE>
Dear Shareholder:
If I could relive 1998, I might have been inclined to work a lot less. Perhaps
I could have played some golf instead of digging through balance sheets, income
statement and difficult footnotes. The fact is, I don't play golf and even if I
did, without the advantage of hindsight, I do not believe I would have changed
any investment decision.
In 1998, all one needed to do to achieve superb performance was buy the 20 or 30
largest U.S. corporations or, if income was the primary objective, invest in 10
year U.S. Government bonds. For diversified equity or income portfolio
managers, it was nearly impossible to beat this simple formula. As 1998 came to
a close and as we begin 1999, this simplistic investment formula has now become
the conventional wisdom, expected to create great wealth for investors in the
months and years ahead.
An obvious exception to the new investment precept is The Maxus Laureate Fund.
Fund manager Alan Miller produced a 35% return in 1998 without owning one of the
30 corporate giants. Rather than buying and holding, Alan's formula is knowing
when to be in and out of the market. With a market as volatile as we have
experienced in recent months, Alan's exceptional talents were exercised to their
full potential, proving that hard work still has a place in the creation of
wealth.
The value style of investing, as characterized by the Maxus Equity, Maxus
Aggressive Value and Maxus Ohio Heartland Funds, was clearly out of favor in
1998, at least relative to the capitalization weighted S&P 500. Against the
benchmark of the Russell 2000, however, the Maxus Aggressive Value Fund had an
excellent year (measured from inception on March 1, 1998), and thus far in 1999,
Maxus Aggressive Value is showing up near the top of all national microcap
mutual funds.
Investors always have choices. The current wisdom suggests that investors
should pay 30 to 80 times earnings for companies whose earnings growth is
projected to be no more than 15% annually by analysts who almost always err on
the high side. Our formula is to seek out companies whose current market values
are less than their private market values and whose prospects for greater
success are exceptionally high.
During the past several months I have come to sense that the more sophisticated
investors are moving away from last year's overvalue approach and toward the
value style. If this trend continues, the Maxus Funds are exceptionally poised
to outperform the competition. Whatever the prospects for the immediate future,
however, the record shows that long term investors focused on value have always
outperformed other investors and investment styles.
/s/ Richard A Barone
Richard A Barone
<PAGE>
Maxus Income Fund
Schedule of Investments
December 31, 1998
Shares/Principal Amount Market Value % of Assets
Common Stock - Real Estate
20,000 Boykin Lodging 247,500 0.62%
Closed End Bond Funds
200,000 Blackrock Income 1,387,500
70,000 Blackrock North American Government 708,750
120,000 Debt Strategies II 982,500
50,000 Debt Strategies III 453,125
244,200 Hyperion 1999 1,755,188
185,000 Kemper Multi Market 1,711,250
20,000 Lincoln National Conv 280,000
300,000 MFS Government + Markets 1,968,750
230,000 MFS Intermediate 1,566,875
30,000 MFS Multimarket 193,125
32,300 Preferred Income Management 423,937
11,431,000 28.52%
Closed End Global Bond Funds
70,000 Dreyfus Strategic Governments 638,750
180,000 First Commonwealth 1,923,750
170,000 Kleinwort Benson Australian 1,115,625
170,000 Strategic Global 1,997,500
50,000 Templeton Global Governments 331,250
150,000 Templeton Global Income * 1,059,375
7,066,250 17.64%
Corporate Bonds
150,000 AES Corp 8%, 12-31-08 146,057 0.36%
Corporate Bond Equivalents
10,000 American General 8.45% MIPs 260,625
10,000 American Re 8.5% QUIPs 258,984
10,000 Bank One 250,625
10,000 Bear Stearns Cap Trust II 249,531
13,000 BF Goodrich 8.3% 332,312
7,000 Chase Cap V 7.03% 177,187
15,000 Conagra Capitol Ser B Adj Rate 300,000
10,000 Conseco Financing 9.16% 255,000
5,000 Donaldson Lufkin 8.42% 128,438
12,000 NWPS Capital Financing 8.125% 307,500
21,000 Pacificorp 8.55% QUIDs 531,563
15,000 RJR Nabisco Holdings 10.00% 376,875
10,000 Seagram 8% QUIDs 252,500
5,000 Shaw Communications 8.50% 125,313
15,500 Southern Company 7.75% 403,969
30,000 Texaco Cap Adj Rate 645,000
10,000 Time Warner 8.875% 259,375
10,000 Torchmark 9.18% MIPs 256,250
5,371,047 13.40%
*Non-income producing securities.
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
Preferred Shares
5,000 Associated Estates $2.43 113,438
10,000 Crown American $5.50 488,750
10,000 Developers Diversified $2.36 B 247,500
15,000 Gabelli Global Multimedia $1.98 390,000
5,000 Great Lakes REIT $2.43 125,000
10,000 New Plan Excel Realty $2.15 247,500
20,000 Public Storage $2.22 G 505,000
48,500 Royce Value Trust $2.00 1,273,125
10,000 Simon Debartolo $2.18 255,625
11,000 Source Capital $2.40 328,625
3,974,563 9.92%
Convertible Bonds
223,000 Inco 7.75%, 3-15-16 199,585
350,000 United States Filter 4.5%, 12-15-01 327,145
526,730 1.31%
Convertible Preferred Shares
11,000 Armco $3.625 B 478,500
25,000 Camden Ppty $2.25 592,187
8,000 Chiquita Brands $2.88 281,000
50,000 Equity Residential $1.81 1,025,000
50,000 Glenborough Realty $1.94 912,500
4,600 Premier Farnell $1.35 72,737
17,000 USX $3.25 712,938
4,074,862 10.17%
U.S. Government Securities
5,000,000 US Treas 0%, 11-15-12 2,385,650
2,000,000 US Treas 11.75%, 02-15-01 2,282,188
4,667,838 11.65%
Cash Equivalents
2,645,535 Star Bank Treasury 2,645,535 6.60%
Total Investments (Cost - $40,724,486) 40,151,382 100.19%
Other Assets Less Liabilities (75,631) -0.19%
Net Assets - Equivalent 40,075,751 100.00%
*Non-income producing securities.
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
Statement of Assets & Liabilities
Maxus Income Fund December 31, 1998
Income Fund
Assets:
Investment Securities at Market Value 40,151,382
(Identified Costs - $40,724,486)
Cash 17,582
Receivables:
Receivable for investment securities sold 34,898
Dividends and interest receivable 362,425
Unamortized organization costs -
Total Assets 40,566,287
Liabilities:
Payable for investment purchased 389,075
Payable for shareholder distributions -
Accrued Expenses 101,461
Total Liabilities 490,536
Net Assets 40,075,751
Net Assets Consist Of:
Capital Paid In 41,560,999
Undistributed Net Investment Income (133,597)
Accumulated Realized Gain (Loss) on Investments - Net (778,547)
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net (573,104)
Net Assets 40,075,751
Net Assets:
Investors Shares 39,649,753
Institutional Shares 425,998
Total 40,075,751
Shares of capital stock
Investors Shares 3,738,530
Institutional Shares 40,118
Total 3,778,648
Net asset value per share
Investors Shares $10.61
Institutional Shares $10.62
Morgan FunShares, Inc.
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
Statement of Operations
Maxus Income Fund December 31, 1998
Income Fund
Investment Income:
Dividend income $2,487,395
Interest income 879,374
Total Income 3,366,769
Expenses:
Investment advisory fees (Note 2) 396,884
Distribution fees (Investor shares) 199,302
Distribution fees (Institutional shares) -
Custodial fees 23,721
Organization costs -
Transfer agent fees/Accounting and Pricing 40,603
Legal 22,571
Audit 15,625
Registration and filing fees 11,797
Trustee fees 1,400
Printing & Other Miscellaneous 38,532
Total Expenses 750,435
Net Investment Income (Loss) 2,616,334
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investments 705,637
Distribution of Realized Capital Gains from other Investment Companies -
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments (1,963,997)
Net Realized and Unrealized Gain (Loss) on Investments (1,258,360)
Net Increase (Decrease) in Net Assets from Operations $1,357,974
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
Statement of Changes in Net Assets
Maxus Income Fund December 31, 1998
Maxus Income Fund
01/01/98 01/01/97
to to
12/31/98 12/31/97
From Operations:
Net Investment Income 2,616,334 2,217,642
Net Realized Gain (Loss) on Investments 705,637 927,701
Net Unrealized Appreciation (Depreciation) (1,963,997) 804,642
Increase (Decrease) in Net Assets from Operations 1,357,974 3,949,985
Distributions to investor shareholders:
Net Investment Income (2,740,775) (2,215,429)
Net Realized Gain (Loss) from
Security Transactions (1,162,678) -
Distributions to institutional shareholders:
Net Investment Income (11,770) -
Net Realized Gain (Loss) from
Security Transactions (7,639) -
Change in net assets from distributions (3,922,862) (2,215,429)
From Capital Share Transactions:
Proceeds from sale of shares 12,000,632 8,907,950
Dividend reinvestment 3,238,389 1,680,395
Cost of shares redeemed (11,218,520) (9,430,667)
Change in net assets from capital transactions 4,020,501 1,157,678
Change in net assets 1,455,613 2,892,234
Net Assets:
Beginning of period 38,620,138 35,727,904
End of period 40,075,751 38,620,138
Share Transactions:
Issued 1,075,539 799,064
Reinvested 295,087 151,394
Redeemed (1,005,874) (850,768)
Net increase (decrease) in shares 364,752 99,690
Shares outstanding beginning of period 3,413,896 3,314,206
Shares outstanding end of period 3,778,648 3,413,896
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
Financial Highlights
Maxus Income Fund Investor Shares
Selected data for a share of capital stock
outstanding throughout the period indicated
<TABLE>
<S> <C> <C> <C> <C> <C>
01/01/98 01/01/97 01/01/96 01/01/95 01/01/94
to to to to to
12/30/98 12/31/97 12/31/96 12/31/95 12/31/94
Net Asset Value -
Beginning of Period 11.31 10.78 10.54 9.73 10.94
Net Investment Income 0.72 0.67 0.70 0.72 0.74
Net Gains or Losses on Securities
(realized and unrealized) (0.33) 0.53 0.24 0.81 (1.22)
Total from Investment Operations 0.39 1.20 0.94 1.53 (0.48)
Distributions
Net investment income (0.72) (0.67) (0.70) (0.72) (0.73)
Capital gains (0.37) - - - -
Return of capital - - - - -
Total Distributions (1.09) (0.67) (0.70) (0.72) (0.73)
Net Asset Value -
End of Period $10.61 $11.31 $10.78 $10.54 $9.73
Total Return * 3.49% 11.47% 9.20% 16.15% -4.39%
Ratios/Supplemental Data:
Net Assets at end of period (thousands) 39,650 38,620 35,728 37,387 33,425
Ratio of expenses to average net assets * 1.87% 1.91% 1.92% 1.90% 1.81%
Ratio of net income to average net assets * 6.52% 6.08% 6.50% 7.01% 7.10%
Portfolio turnover rate * 59% 70% 78% 121% 138%
</TABLE>
Institutional Shares
02/01/98
to
12/31/98
Net Asset Value -
Beginning of Period 11.31
Net Investment Income 0.33
Net Gains or Losses on Securities
(realized and unrealized) (0.50)
Total from Investment Operations (0.17)
Distributions
Net investment income (0.33)
Capital gains (0.19)
Return of capital -
Total Distributions (0.52)
Net Asset Value-
End of Period $10.62
Total Return * 3.54%
Ratios/Supplemental Data:
Net Assets at end of period (thousands) 426
Ratio of expenses to average net assets * 1.37%
Ratio of net income to average net assets * 7.02%
Portfolio turnover rate * 59%
* Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
Notes to Financial Statements
Maxus Income Fund
December 31, 1998
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. The Fund pursues this objective by investing
primarily in 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
fiscal 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 $396,884 in investment advisory fees during the fiscal year ending
December 31, 1998. Maxus Securities, who served as the national distributor of
the Fund's shares, was reimbursed $199,302 for distribution expenses. Maxus
Information Systems, who provides accounting and shareholder services,
received fees totaling $40,603 for services rendered to the Fund for the
fiscal year ending December 31, 1998. 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 $173,226 for the fiscal year ending December 31, 1998.
<PAGE>
At December 31, 1998, 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 $100 per meeting.
4.) CAPITAL STOCK AND DISTRIBUTION
At December 31, 1998 an indefinite number of shares of capital stock ($.10 par
value) were authorized, and paid-in capital amounted to $41,560,999.
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 fiscal year ending December 31, 1998, purchases and sales of
investment securities other than U.S. Government obligations and short-term
investments aggregated $29,620,894 and $26,122,576 respectively. Purchases and
sales of U.S. Government obligations aggregated $2,972,950 and $4,534,030
respectively.
6.) FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments which have any off-balance sheet
risk as of December 31, 1998.
7.) SECURITY TRANSACTIONS
For Federal income tax purposes, the cost of investments owned at December 31,
1998 was the same as identified cost.
At December 31, 1998, 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)
915,817 (1,488,921) (573,104)
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Trustees
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,
1998, 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 periods then
ended, and financial highlights for each of the five years in the periods 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, 1998, 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, 1998, 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 12, 1999
<PAGE>
