THE MAXUS FUNDS
Dear Shareholder:
Judging from the performance of the S&P 500 Index alone, it would be easy to
conclude that the first half of 1996 was an extension of the wonderful bull
market of 1995. The capitalization weighted S&P advanced 10%, and, if you owned
a big capitalization stock fund, or knew a broker who could give you a few
shares of a hot new issue, you might easily conclude that it does not take a
genius to make money in the stock market.
Under the surface, however, the picture does not appear nearly as bright. While
the S&P has advanced, the substantial portion of that advance occurred between
January 10 and February 15. During most of the first half of 1996, the market
had been struggling against a number of deteriorating fundamentals, not the
least of which is a full percentage point gain in the interest rate on the 30
year U.S. Treasury Bond to the 7% level. Portfolios centered around certain
areas of high technology, for example, declined significantly during the first
six months of 1996; and those investors who believed that the country's largest
mutual fund, the very broadly based Fidelity Magellan Fund, would surely keep
pace, saw their equity increase a mere 2.8 % for the six month period.
Income investors did even worse. The one percent increase in interest rates on
the 30-year Treasury corresponds to an approximate 13% decline in market value.
While most income investors do not own many bonds with 30 year maturities,
almost all experienced declines in the value of their bond portfolios similar to
the decline in the Ryan Government Index, which covers a broad range of
maturities. That Index had a total return of -3.03%.
The Maxus Funds ended the first half of 1996 with good returns. The Maxus Equity
Fund advanced 5.57% for the period, although it held a fair amount of cash and
very few of the big capitalization names. The Maxus Income Fund produced a total
return of 3.59% in spite of the aforementioned decline in bond indices. And The
Maxus Laureate Fund, under the direction of portfolio manager, Alan G. Miller,
advanced 11.91% for the period.
Going forward, both the stock and bond markets will have to contend with a
number of troublesome statistics. For example, consumer debt levels and
subsequent delinquencies have been rising, suggesting that not only are "lending
based" industries getting into trouble, but total consumer demand may soon be
waning. On top of this,"wage-based" inflation, often associated with cost-push
inflation, is beginning to show signs of life after many years of hibernation.
Historically, this kind of inflationary pressure has been very hard to control
and its cyclical pattern has been very extended in time. Even the stronger
dollar, while comforting to long term market bulls, generally means leaner
profit margins for companies doing business offshore.
But the two most important barometers of stock and bond prices, i.e. interest
rates and corporate profits, pose the greatest concern. It is here that we must
focus our attention if we are to get a better understanding of the markets'
potential risks and rewards.
1
<PAGE>
Interest rates, of course, have been responding to the current increased
inflationary fears, but pure logic suggests that continuation of the long term
downward trend in rates, which began in 1981 from the 16% level in 30-year
Treasuries, clearly ended in 1993 when rates broke below 5 3/4%. Since the end
of 1993, rates have been within a 2 1/2 percentage point range, between 5 3/4%
and 8 1/4%, with current yields in the middle at 7%. In my view, interest rates
have clearly seen their lows. The best we can hope, from this point forward, is
for rates to remain a neutral influence on equity prices. Certainly long term
bulls should not expect interest rates to play a major role in their market
forecasts.
<PAGE>
Corporate profits, on the other hand, have clearly been the dominant force in
the post-1993 extended bull market in stocks. Low interest rates, refinancings,
restructurings, downsizing and the application of high technology to the
assembly line, have all led to increases in profit margins and bottom line
results. One major problematic result revolves around the fact that very little
of this success has been shared with middle-class America in the form of higher
wages. Even excepting the ultimate influence this may have on aggregate demand,
proponents of "spreading the wealth" are clearly being heard.
This is really to say that the free market system has its own way of dealing
with imbalances. Market bulls will tell you that stocks are not really
overvalued based upon the "price to earnings" or P/E ratio, even though dividend
yields are historically low at 2.5%, and price to book values are historically
high at 4 times. Traditionally, each have signaled a major market top. In
comparative terms, we might say that the party has been extended into morning
hours since no one wants to go home as long as the drinks keep coming and the
band keeps playing. And, no one wants to consider how quickly the room will
empty out once the bar is closed and the fat lady begins singing.
The textbook example of free market dynamics is the current devastation in the
semi-conductor industry. Strong demand for chips and substantial decreases in
the costs of production have led to exploding profit margins. This, in turn, led
producers to increase their investment in productive capacity in order to
capture more of this booming market. As capacity came on-line and supply began
filling the pipeline, price cutting emerged at the margin in order to unload a
swelling inventory. The ultimate result has been substantially decreased profit
margins and collapsing stock prices.
While semiconductor chips and breakfast cereals may not make or break the
market, they do signify what can happen. As investors, it would be foolish to
ignore these market dynamics and their effect on corporate profits. After all,
absent meaningful increases in aggregate demand, or meaningful declines in
interest rates, stock market bulls will need to rely almost totally upon
continued increases in productivity and the ability of corporate America to hold
prices. Otherwise, inflation will be the least of our worries.
Richard A. Barone
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MAXUS EQUITY FUND
The Maxus Equity Fund began the year with a high relative cash position
averaging 25% of the portfolio. On June 30, that position was unchanged. The
decision to maintain cash during this six month period was partly based upon the
fact that stocks generally appeared to be expensive, and continued to get more
expensive during this period relative to their historical evaluations.
Stocks generally appreciated during the first half of 1996, with the large
capitalization companies advancing during the first three months, and smaller
capitalization companies advancing during the April through June period. The
Maxus Equity Fund which holds a variety of large capitalization as well as small
capitalization companies, continued to focus on value across the broad market
spectrum, but investments which meet my strict value-oriented criteria were
difficult to find.
Investing in closed-end investment companies, however, became attractive once
again, as discounts widened across the board. At this writing I have invested
approximately 10% of our portfolio in closed-end equity funds, up from 5% at
June 30, and 3% at the end of 1995. Moreover, one year ago, I would have never
believed that high technology stocks would be attractive value investments, but
today I have been adding to the "Information Technology" portion of our
portfolio as each month passes.
Finally, I have noticed a concerted effort on behalf of corporate America to
reduce their product line offerings to those which management believes have the
greatest market advantages. This has led to continued corporate restructurings,
many in the form of split-ups and spin-offs. I believe that a careful analysis
of these opportunities may uncover a number of companies in which the pieces may
well trade at higher aggregate evaluations than the whole. I will continue to
look for companies which are both "value plays" and "event driven" at the same
time.
Richard A. Barone
3
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MAXUS EQUITY FUND
Schedule of Investments
June 30, 1996 (unaudited)
================================================================================
% of
Quantity Security Cost Market Value Assets
- --------------------------------------------------------------------------------
BASIC MATERIALS
23,000 Ensearch 357,443 500,250
60,000 Hanson PLC 881,381 851,250
60,000 Horsham 858,125 832,500
10,000 Mineral Technologies 344,400 342,500
--------- ---------
2,441,349 2,526,500 7.05%
CLOSED END EQUITY FUNDS
40,000 Pilgrim Amer Bank & Thrift 502,646 505,000 1.41%
CLOSED END GLOBAL EQUITY FUNDS
17,200 Emerging Markets Telecommunications 289,645 309,600
45,000 Emerging Mkts Infrastructure 477,138 511,875
32,000 First Australia 294,383 294,000
40,000 GT Global Developing Market 415,650 445,000
30,000 New Germany 359,225 378,750
--------- ---------
1,836,041 1,939,225 5.41%
CONSUMER PRODUCTS
107,700 Michael Anthony Jewelers* 305,539 356,756
10,000 RJR Nabisco Hldgs 291,850 317,500
200,000 Royal Appliance Mfg* 610,810 1,150,000
--------- ---------
1,208,199 1,824,256 5.09%
ENTERTAINMENT
30,000 Brunswick 641,800 600,000
1,200,000 Time Warner 0.00% 06-22-13 542,128 493,500
--------- ---------
1,183,928 1,093,500 3.05%
ENVIRONMENT
21,600 Browning Ferris 645,046 626,400
20,000 Dionex* 319,560 645,000
25,000 International Technology Conv Pfd* 417,125 462,500
--------- ---------
1,381,731 1,733,900 4.84%
FINANCIAL SERVICES
15,000 American Express 634,075 669,375
6,000 Cincinnati Financial 348,845 344,250
21,720 First Chicago NBD 571,080 849,795
10,000 Salomon 361,300 440,000
40,000 USF&G 568,550 650,000
--------- ---------
2,483,850 2,953,420 8.25%
The accompanying notes are an integral part of the financial statements.
4
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MAXUS EQUITY FUND
Schedule of Investments
June 30, 1996 (unaudited)
================================================================================
% of
Quantity Security Cost Market Value Assets
- --------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS
15,000 Armco 3.625% Cum Conv Pfd 750,038 710,625
10,000 Ferro 225,600 265,000
14,000 Quaker Chemical 178,680 178,500
20,000 Timken 722,675 775,000
15,000 WHX Corp Conv Ser A 648,881 626,250
--------- ---------
2,525,874 2,555,375 7.13%
INFORMATION TECHNOLOGY
41,000 American Power Conversion* 391,867 420,250
10,000 Bellsouth 265,450 420,000
10,000 KLA Instruments 240,350 232,500
12,000 Tech Sym 370,470 357,000
10,000 Tencor Instruments 166,225 188,750
5,000 Unisys Conv Pfd 38,451 152,500
10,000 VLSI Technology 136,200 138,750
--------- ---------
1,609,013 1,909,750 5.33%
INFRASTRUCTURE
10,000 Ameron 340,225 395,000
100,000 L.B. Foster* 388,028 400,000
--------- ---------
728,253 795,000 2.22%
MACHINERY & EQUIPMENT
15,000 Ingersoll Rand 581,525 656,250 1.83%
MEDICAL SERVICES & SUPPLIES
10,000 Becton Dickinson 359,650 802,500
5,000 Bristol Myers Squibb 284,200 450,000
20,000 Hauser Chemical 90,600 135,000
35,000 Maxxim Medical* 473,125 599,375
--------- ---------
1,207,575 1,986,875 5.55%
PRODUCT DISTRIBUTION
16,350 Bell Industries 338,449 273,863
7,000 CTS 217,101 329,000
300,000 Petrie Stores Liquidating Trust* 1,008,463 825,000
24,000 Pioneer Standard 265,193 318,000
--------- ---------
1,829,206 1,745,863 4.87%
REAL ESTATE
100,000 Crown American Realty Trust 822,625 775,000
150,000 First Union Real Estate 1,101,449 975,000
35,000 MGI Properties 480,393 599,375
25,000 Public Storage Inc 8.25% Conv Pfd X 652,478 868,750
16,000 St Joe Paper 939,120 1,032,000
--------- ---------
3,996,065 4,250,125 11.86%
The accompanying notes are an integral part of the financial statements.
5
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MAXUS EQUITY FUND
Schedule of Investments
June 30, 1996 (unaudited)
================================================================================
% of
Quantity Security Cost Market Value Assets
- --------------------------------------------------------------------------------
UTILITIES
50,000 Centerior Energy 368,625 375,000
20,000 Niagara Mohawk Power 135,950 155,000
--------- ---------
504,575 530,000 1.48%
U.S. GOVERNMENT SECURITIES
4,000,000 U.S. Treasury 6.00% 08-31-97 4,009,688 4,001,250
4,000,000 U.S. Treasury 5.38% 11-30-97 3,970,625 3,966,250
--------- ---------
7,980,313 7,967,500 22.24%
TOTAL INVESTMENTS $32,000,143 $34,972,539 97.61%
Other Assets Less Liabilities 854,735 2.39%
Net Assets Equivalent to $15.25 per share on
2,350,054 shares of capital stock outstanding $35,827,274 100.00%
* Non-income producing
The accompanying notes are an integral part of the financial statements.
6
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MAXUS EQUITY FUND
Statement of Assets & Liabilities
June 30, 1996 (unaudited)
Assets:
Investment Securities at Market Value
(Identified Cost - $32,000,143) ....................... $ 34,972,539
Cash ................................................... 443,857
Receivables:
Investment Securities Sold ............................ 365,172
Dividends and Interest ................................ 192,068
---------
Total Assets ........................................ 35,973,636
Liabilities
Payables:
Investment Securities Purchased ....................... 80,849
Dividends Payable to Shareholders ..................... 17,651
Accrued Expenses ...................................... 47,862
---------
Total Liabilities ................................... 146,362
Net Assets ............................................... $ 35,827,274
Net Assets Consist of:
Capital Paid In ........................................ 31,875,856
Undistributed Net Investment Income .................... 3,442
Accumulated Realized Gain (Loss) on Investments - Net .. 975,580
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net ......... 2,972,396
---------
Net Assets, for 2,350,054 Shares Outstanding ............. $ 35,827,274
Net Asset Value and Redemption Price
Per Share ($35,827,274/2,350,054 shares) .............. $15.25
Offering Price Per Share ................................ $15.25
Statement of Operations
January 1 through June 30, 1996 (unaudited)
Investment Income:
Dividends .............................................. $ 375,896
Interest ............................................... 260,304
---------
Total Investment Income ............................. 636,200
Expenses
Registration Expense ................................... 14,182
Trustee Fees (Note 3) .................................. 1,700
Transfer Agent and Pricing ............................. 20,463
Custody ................................................ 5,675
Distribution Plan Expenses ............................. 88,520
Accounting ............................................. 5,746
Legal .................................................. 8,084
Management Fees (Note 2) ............................... 175,045
Printing & Other Miscellaneous ......................... 8,728
---------
Total Expenses ...................................... 328,143
Net Investment Income .................................... $ 308,057
Realized and Unrealized Gain (Loss) on Investments
Realized Gain (Loss) on Investments .................... 1,005,791
Unrealized Gain (Loss) from
Appreciation (Depreciation) on Investments .......... 550,486
---------
Net Realized and Unrealized Gain (Loss) on Investments ... 1,556,277
Net Increase (Decrease) in Net Assets from Operations .... $ 1,864,334
The accompanying notes are an integral part of the financial statements.
7
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MAXUS EQUITY FUND
Statement of Changes in Net Assets
January 1 through June 30, 1996 (unaudited)
01/01/96 01/01/95
to to
06/30/96 12/31/95
From Operations:
Net Investment Income ....................... $ 308,057 $ 505,329
Net Realized Gain (Loss) on Investments ..... 1,005,791 2,096,323
Net Unrealized Appreciation (Depreciation) .. 550,486 1,976,461
----------- -----------
Increase (Decrease) in Net
Assets from Operations ...................... 1,864,334 4,578,113
From Distributions to Shareholders
Net Investment Income (Loss)................. (304,615) (509,760)
Net Realized Gain (Loss) from
Security Transactions ..................... 0 (2,058,315)
----------- -----------
Net Increase (Decrease) from Distributions .. (304,615) (2,568,075)
From Capital Share Transactions:
Proceeds From Sale of 549,702 Shares ........ 8,267,005 13,187,714
Net Asset Value of 17,631 Shares Issued
on Reinvestment of Dividends .............. 267,553 2,211,574
Cost of 384,870 Shares Redeemed ............. (5,854,254) (2,839,852)
----------- -----------
2,680,304 12,559,436
Net Increase in Net Assets ..................... 4,240,023 14,569,474
Net Assets at Beginning of Period (including
undistributed net investment income
of $0 and $385, respectively) .............. 31,587,251 17,017,777
Net Assets at End of Period (including
undistributed net investment income
of $3,442 and $0, respectively) ............. $ 35,827,274 $ 31,587,251
=========== ===========
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
to to to to to
06/30/96 12/31/95 12/31/94 12/31/93 12/31/92
Net Asset Value -
Beginning of Period ........... $ 14.57 $ 12.95 $ 13.60 $ 12.29 $ 11.41
Net Investment Income ........... 0.12 0.30 0.25 0.13 0.14
Net Gains or Losses on Securities
(realized and unrealized) ..... 0.63 2.60 (0.17) 3.13 1.91
------ ------ ------ ------ ------
Total from Investment Operations. 0.75 2.90 0.08 3.26 2.05
Dividends
(from net investment income) .. (0.07) (0.27) (0.22) (0.12) (0.14)
Distributions (from capital gains) 0.00 (1.01) (0.51) (1.83) (1.03)
Return of Capital ............... 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total Distributions ........... (0.07) (1.28) (0.73) (1.95) (1.17)
Net Asset Value -
End of Period ................. $ 15.25 $ 14.57 $ 12.95 $ 13.60 $ 12.29
Total Return .................... 5.57% 22.43% 0.59% 24.51% 13.56%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) ..... 35,827 31,576 17,018 11,343 5,962
Ratio of Expenses to
Average Net Assets ............ 1.08% 1.96% 2.00% 2.61% 2.89%
Ratio of Net Income to
Average Net Assets ............ 0.87% 2.01% 1.82% 0.91% 0.80%
Portfolio Turnover Rate ......... 0.49 1.73 1.84 1.75 1.87
Average Commission Rate Paid .... $0.0493
*Weighted Average Used
The accompanying notes are an integral part of the financial statements.
8
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MAXUS EQUITY FUND
Notes to Financial Statements
June 30, 1996 (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 July 12, 1989. 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.
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 Inc was paid $175,045 in investment advisory fees during the six
months ended June 30, 1996. Maxus Securities Corp, who served as the national
distributor of the Fund's shares, was reimbursed $88,520 for distribution
expenses. Maxus Information Systems Inc, who provides accounting and
shareholder services, received fees totaling $20,463 for services rendered to
the Fund for the six months ended June 30, 1996. Maxus Securities Corp is a
registered broker-dealer. Maxus Securities Corp effected substantially all of
the investment portfolio transactions for the Fund. For this service Maxus
Securities Corp received commissions of $128,283 for the six months ending
June 30, 1996.
At June 30, 1996, Maxus Securities Corp owned 10,000 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 $100 per meeting.
9
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MAXUS EQUITY FUND
Notes to Financial Statements
June 30, 1996 (unaudited)
4.)CAPITAL STOCK AND DISTRIBUTION
At June 30, 1996 an indefinite number of shares of capital stock ($.10 par
value) were authorized, and paid-in capital amounted to $31,875,856.
Transactions in common stock were as follows:
Shares sold .................................................. 549,702
Shares issued to shareholders in reinvestment of dividends.... 17,631
---------
567,333
Shares redeemed .............................................. 384,870
---------
Net Increase ................................................. 182,463
Shares Outstanding:
Beginning of Period ........................................ 2,167,591
---------
End of Period .............................................. 2,350,054
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. Discounts and premiums on securities purchased are
amortized over the life of the respective securities.
6.)PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 1996, purchases and sales of investment
securities other than U.S. Government obligations and short-term investments
aggregated $21,028,190 and $17,323,569 respectively. Purchases and sales of
U.S. Government obligations aggregated $7,980,313 and $8,000,000
respectively.
7.)FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments which have any off-balance
sheet risk as of June 30, 1996.
8.)SECURITY TRANSACTIONS
For Federal income tax purposes, the cost of investments owned at June 30,
1996 was the same as identified cost. At June 30, 1996, 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)
3,705,851 (733,455) 2,972,396
10
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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
