Dear Shareholder:
The Maxus Funds have once again shown exceptional relative performance for the
first six months of 1999. As usual, the stock market has demonstrated its
ability to confuse investors with conflicting signals and divergent trends. For
example, while the S&P 500 index turned in a respectable 8.09 %, the Dow Jones
Industrials, with its more cyclical stock weighting, leaped ahead over 16%. Even
more pronounced was the technology heavy NASDAQ 100, which advanced over 23%
while the small cap Russell 2000, managed only 5.41% gain. All of this was
occurring at the same time that the Salomon Broad Investment Grade bond index, a
proxy for the bond market, turned in a negative total return of -2.8%.
I believe that making sense of these divergent trends is a key element in
determining if your investment portfolio is headed in the right direction during
the next several years. While you can count on the fact that history rarely
repeats itself, it does offer excellent clues as to where and how investors
should position themselves today.
Those of you who have followed the Maxus investment philosophy already know that
we believe most of the large capitalization growth companies are significantly
overvalued based upon any reasonable prospect for growth in future years.
Overvaluation, however, does not necessarily give you any insight as to the
immediate direction of stock prices. There are much better indicators to follow.
The best indicator hands down is the direction and level of interest rates.
Since the beginning of the year rates have advanced over 100 basis points to
over 6% on longer term Treasury bonds. Although stock prices have struggled with
the increase, the general market continues to act well, seemingly to suggest
that interest rates don't count.
While there is no hard and fast rule, bear markets of the past have generally
started only when rates have risen approximately 30% from their lows. In the
current environment, rates would have to exceed 7% before the market would
approach any real trouble. Our estimate, as well as those of most economic
forecasters, is that long rates will not exceed 7% in the near future, despite
any increases in short term rates by the Federal Reserve. There are two
important things to keep in mind, however.
First, once the direction in interest rates is set in motion, it tends to remain
in motion until there is an economic resolution. The only problem with this
forecast is the timing is always an unknown. Significant rate increases may take
several years to appear. The second historically meaningful fact is that any
increase in interest rates tend to negatively impact high price to earnings
stocks more than low price to earnings stocks, i. e. value stocks are more
likely to outperform growth stocks. Without exploring the economic rationale, it
is generally accepted that the absolute level of interest rates relates directly
to the price to earnings multiple of the general market, i.e. the higher
interest rates, the lower the price to earnings ratio.
A price to earnings multiple is less meaningful in analyzing value stocks since
current earnings and the prospects for future earnings are only two components
in the analysis. For growth stocks they are the only components. With the
increase in interest rates during the first six months of 1998, I believe the
movement toward value stocks has begun and is apt to continue for some time. For
example, The Maxus Equity Fund advanced 19.3% during this period against the
Russell 3000 benchmark which increased 12.7%, while The Maxus Aggressive Value
Funds, which consists exclusively of micro-cap companies, advanced 27.5% against
the small cap Russell 2000 which chalked up 9.28% for the period.
Alan Miller continued his winning ways with a 13.2% increase for the Maxus
Laureate Fund, while the Maxus Income Fund produced a total return of 2.2 % and
scored significantly over the Ryan Labs government bond index which declined -
5.40%. Even the Maxus Ohio Heartland Fund, which advanced 2.1%, did considerably
better than competing funds with the same narrow focus.
Investors who still care about a company's fundamentals and underlying business
values should consider the Maxus Funds in their investment program. I believe we
are in an excellent position to capitalize on the changing environment already
taking shape in the stock and bond markets.
Sincerely,
Richard Barone
President
<PAGE>
Maxus Income Fund
Schedule of Investments
June 30, 1999 (unaudited)
Shares/Principal Amount Market Value % of Assets
Closed End Bond Funds
150,000 ACM Government Spectrum 871,875
200,000 Blackrock Income 1,337,500
100,000 Blackrock North American Government 1,000,000
160,000 Debt Strategies II 1,360,000
54,800 Debt Strategies III 503,475
218,300 Hyperion 1999 1,555,387
129,700 Hyperion 2002 1,086,237
148,600 Kemper Multi Market 1,355,975
34,100 Lincoln National Conv 477,400
300,000 MFS Government 1,875,000
230,000 MFS Intermediate 1,480,625
12,903,474 38.86%
Closed End Global Bond Funds
70,000 Dreyfus Strategic Governments 603,750
147,200 First Commonwealth 1,554,800
100,000 Kleinwort Benson Australian 675,000
170,000 Strategic Global 1,901,875
17,600 Templeton Global Governments 117,700
100,000 Templeton Global Income 656,250
5,509,375 17.62%
Corporate Bond Equivalents
10,000 American General 8.45% MIPs 252,500
10,000 American Re 8.5% QUIPs 254,375
5,000 Bear Stearns 7.5% Cap Trust II 121,562
18,000 BF Goodrich 8.3% 448,875
15,800 Conagra Capitol Ser B Adj Rate 316,000
5,000 Conseco Financing 9.16% 127,500
12,000 NWPS Capital Financing 8.125% 299,250
21,000 Pacificorp 8.55% QUIDs 525,000
10,000 Seagram 8% QUIDs 250,000
5,000 Shaw Communications 8.50% 122,500
15,000 Southern Company 7.75% 375,000
30,000 Texaco Cap Adj Rate 594,375
10,000 Time Warner 8.875% 257,500
10,000 Torchmark 9.18% MIPs 252,500
4,196,937 12.64%
Preferred Shares
5,000 Alexandria Real Estate $2.37 124,063
7,500 Crown American $5.50 353,437
10,300 Developers Diversified $2.36 258,144
15,000 Gabelli Global Multimedia $1.98 376,875
5,000 Great Lakes REIT $2.43 125,000
5,000 Lehman Brother $1.97 123,750
5,000 New Plan Excel Realty $2.15 123,750
20,000 Public Storage $2.22 498,750
50,000 Royce Value Trust $2.00 1,262,500
7,500 Simon Debartolo $2.18 577,500
11,800 Source Capital $2.40 332,613
4,156,382 12.52%
The accompanying notes are an integral part of the financial statements.
<PAGE>
Maxus Income Fund
Schedule of Investments
June 30, 1999 (unaudited)
Shares/Principal Amount Market Value % of Assets
Convertible Bonds
223,000 Inco 7.75%, 3-15-16 199,864 0.60%
Convertible Preferred Shares
11,000 Armco $3.625 B 552,750
25,000 Camden Ppty $2.25 626,562
5,000 Chiquita Brands $2.88 172,500
50,000 Equity Residential $1.81 1,190,625
50,000 Glenborough Realty $1.94 950,000
10,000 Kimco $2.37 245,000
2,800 Simon Debartolo $6.50 70,000
17,000 USX $3.25 775,625
4,583,062 13.80%
U.S. Government Securities
500,000 US Treas 11.75%, 02-15-01 547,422 1.65%
Cash Equivalents
925,821 Firstar Bank Treasury 925,821 2.79%
Total Investments (Cost - $33,774,918) 33,022,337 99.44%
Other Assets Less Liabilities 186,721 0.56%
Net Assets - Equivalent to $10.51 per share 33,209,058 100.00%
based on 3,119,694 shares of capital
stock outstanding (Note 4)
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Assets & Liabilities
Maxus Income Fund June 30, 1999 (unaudited)
Income
Fund
Assets:
Investment Securities at Market Value 33,022,337
(Identified Costs - $33,774,918)
Cash 7,151
Receivables:
Receivable for investment securities sold 100,466
Dividends and interest receivable 233,062
Unamortized organization costs -
Total Assets 33,363,016
Liabilities:
Payable for investment purchased -
Payable for shareholder distributions 49,647
Accrued Expenses 104,311
Total Liabilities 153,958
Net Assets 33,209,058
Net Assets Consist Of:
Capital Paid In 35,050,252
Undistributed Net Investment Income 337,406
Accumulated Realized Gain (Loss) on
Investments - Net (1,426,019)
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net (752,581)
Net Assets 33,209,058
Net Assets:
Investors Shares 32,772,713
Institutional Shares 436,345
Total 33,209,058
Shares of capital stock
Investors Shares 3,119,694
Institutional Shares 41,416
Total 3,161,110
Net asset value per share
Investors Shares $10.51
Institutional Shares $10.54
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Operations
Maxus Income Fund June 30, 1999 (unaudited)
Income
Fund
Investment Income:
Dividend income $1,320,368
Interest income 567,074
Total Income 1,887,442
Expenses:
Investment advisory fees (Note 2) 178,489
Distribution fees (Investor shares) 88,174
Distribution fees (Institutional shares) -
Custodial fees 12,399
Organization costs -
Transfer agent fees/Accounting and Pricing 20,446
Legal 17,408
Audit 7,000
Registration and filing fees 11,800
Trustee fees 2,600
Printing & Other Miscellaneous 19,004
Total Expenses 357,320
Net Investment Income (Loss) 1,530,122
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investments (647,472)
Distribution of Realized Capital Gains from other
Investment Companies -
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments (179,477)
Net Realized and Unrealized Gain (Loss) on Investments (826,949)
Net Increase (Decrease) in Net Assets from Operations $703,173
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Changes in Net Assets
Maxus Income Fund June 30, 1999 (unaudited)
Maxus Income Fund
01/01/99 01/01/98
to to
06/30/99 12/31/98
From Operations:
Net Investment Income 1,530,122 2,616,334
Net Realized Gain (Loss) on Investments (647,472) 705,637
Net Unrealized Appreciation (Depreciation) (179,477) (1,963,997)
Increase (Decrease) in Net Assets from Operations 703,173 1,357,974
Distributions to investor shareholders:
Net Investment Income (1,045,783) (2,740,775)
Net Realized Gain (Loss) from Security
Transactions - (1,162,678)
Distributions to institutional shareholders:
Net Investment Income (13,336) (11,770)
Net Realized Gain (Loss) from Security
Transactions - (7,639)
Change in net assets from distributions (1,059,119) (3,922,862)
From Capital Share Transactions:
Proceeds from sale of shares 4,518,907 12,000,632
Dividend reinvestment 824,269 3,238,389
Cost of shares redeemed (11,853,923) (11,218,520)
Change in net assets from capital transactions (6,510,747) 4,020,501
Change in net assets (6,866,693) 1,455,613
Net Assets:
Beginning of period 40,075,751 38,620,138
End of period 33,209,058 40,075,751
Share Transactions:
Issued 427,019 1,075,539
Reinvested 78,432 295,087
Redeemed (1,122,989) (1,005,874)
Net increase (decrease) in shares (617,538) 364,752
Shares outstanding beginning of period 3,778,648 3,413,896
Shares outstanding end of period 3,161,110 3,778,648
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
01/01/99 01/01/98 01/01/97 01/01/96 01/01/95
to to to to to
06/30/99 12/30/98 12/31/97 12/31/96 12/31/95
Net Asset Value -
Beginning of Period 10.61 11.31 10.78 10.54 9.73
Net Investment Income 0.50 0.72 0.67 0.70 0.72
Net Gains or Losses on Securities
(realized and unrealized) (0.27) (0.33) 0.53 0.24 0.81
Total from Investment Operations 0.23 0.39 1.20 0.94 1.53
Distributions
Net investment income (0.33) (0.72) (0.67) (0.70) (0.72)
Capital gains - (0.37) - - -
Return of capital - - - - -
Total Distributions (0.33) (1.09) (0.67) (0.70) (0.72)
Net Asset Value -
End of Period $10.51 $10.61 $11.31 $10.78 $10.54
Total Return 2.16% 3.49% 11.47% 9.20% 16.15%
Ratios/Supplemental Data:
Net Assets at end of period
(thousands) 32,773 39,650 38,620 35,728 37,387
Ratio of expenses to average
net assets * 1.98% 1.87% 1.91% 1.92% 1.90%
Ratio of net income to average
net assets * 8.50% 6.52% 6.08% 6.50% 7.01%
Portfolio turnover rate * 34% 55% 70% 78% 121%
Institutional Shares
01/01/99 02/01/98
to to
06/30/99 12/31/98
Net Asset Value -
Beginning of Period 10.62 11.31
Net Investment Income 0.52 0.33
Net Gains or Losses on Securities
(realized and unrealized) (0.27) (0.50)
Total from Investment Operations 0.25 (0.17)
Distributions
Net investment income (0.33) (0.33)
Capital gains - (0.19)
Return of capital - -
Total Distributions (0.33) (0.52)
Net Asset Value -
End of Period $10.54 $10.62
Total Return 2.35% 3.54%
Ratios/Supplemental Data:
Net Assets at end of period (thousands) 436 426
Ratio of expenses to average net assets * 1.48% 1.37%
Ratio of net income to average
net assets * 9.00% 7.02%
Portfolio turnover rate * 34% 55%
* Annualized
The accompanying notes are an integral part of the financial statements.
<PAGE>
Notes to Financial Statements
Maxus Income Fund
June 30, 1999 (unaudited)
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 that 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 $178,489 in investment advisory fees during the six months ending June
30, 1999. Maxus Securities, who served as the national distributor of the
Fund's shares, was reimbursed $88,174 for distribution expenses. Maxus
Information Systems, who provides accounting and shareholder services,
received fees totaling $20,446 for services rendered to the Fund for the six
months ending June 30, 1999. 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 $51,527 for the six months ending June 30, 1999.
<PAGE>
At June 30, 1999, 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 $100 per meeting.
4.) CAPITAL STOCK AND DISTRIBUTION
At June 30, 1999 an indefinite number of shares of capital stock ($.10 par
value) were authorized, and paid-in capital amounted to $35,050,252.
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 six months ending June 30, 1999, purchases and sales of investment
securities other than U.S. Government obligations and short-term investments
aggregated $5,942,321 and $7,033,394 respectively. Purchases and sales of U.S.
Government obligations aggregated $0 and $3,949,597 respectively.
6.) FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments that have any off-balance sheet
risk as of June 30, 1999.
7.) SECURITY TRANSACTIONS
For Federal income tax purposes, the cost of investments owned at June 30,
1999 was the same as identified cost.
At June 30, 1999, 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)
537,042 (1,289,623) (752,581)
<PAGE>
