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
2
<PAGE>
MAXUS LAUREATE FUND
We are pleased to report The Maxus Laureate Fund returned a very respectable
11.91% for the first six months of 1996. This return compares quite favorably
with the benchmark returns achieved by capital appreciation funds and
multi-asset global funds which we believe best represent the investment
strategies utilized in The Maxus Laureate Fund. Capital appreciation funds on
average gained 11.08% for the six month period while multi-asset global funds
increased 5.38%.
As we entered 1996, cash flows into mutual funds were close to historic
proportions. Corporate earnings looked promising and interest rates hovered
around 6%. Currently we have interest rates around 7%, cash flows showing a
noticeable slow down and corporate earnings deteriorating. With equity
valuations still appearing excessive, we suspect a very challenging second half
with increasing volatility.
Maintaining a diversified portfolio is the single most effective way to control
long term volatility. Also a portfolio diversified to include differing asset
classes has the potential to not only lower volatility but to increase returns
as well. We will continue to manage The Maxus Laureate Fund utilizing the
thematic approach discussed in the past Annual and Semi-Annual Reports.
Emphasis will be placed in emerging market mutual funds such as Pacific Rim and
Latin America, as well as the developed markets, both domestic and
international, during the next twelve to eighteen months. There is great growth
potential as our capitalistic system is adopted throughout almost all global
economies. Consumers now have a heightened awareness of what increased wealth
can mean to their standard of living.
Over the long term, I anticipate there will be attractive opportunities to
increase our shareholders' wealth. We will be proactive in our approach and
responsive to the vagaries of the financial markets.
We appreciate our shareholders' support and loyalty.
Alan G. Miller
3
<PAGE>
MAXUS LAUREATE FUND
Schedule of Investments
June 30, 1996 (unaudited)
================================================================================
% of
Quantity Security Cost Market Value Assets
- --------------------------------------------------------------------------------
AGGRESSIVE
GROWTH
4,768 Robertson Stephens Value Plus Growth 104,952 107,670
18,370 Rydex Nova 281,397 288,037
8,389 Van Wagoner Emerging Growth 120,050 125,584
--------- --------
506,399 521,291 26.78%
EMERGING MARKETS
16,005 Robertson Stephens Developing Countrie 160,050 159,251
14,329 Seven Seas Emerging Markets 160,050 160,773
9,455 Warburg Pincus Emerging Markets 125,025 125,000
--------- --------
445,125 445,024 22.86%
INTERNATIONAL STOCK
10,545 Neuberger & Berman Equity Int'l 120,025 128,436 6.60%
SMALL CAP GROWTH/VALUE
9,125 Heartland Value 288,983 289,167 14.85%
SPECIALTY/SECTOR
12,220 Robertson Stephens Information Age 123,670 130,751 6.72%
WORLD FUND
17,600 Montgomery Select 50 285,050 289,688 14.88%
TOTAL INVESTMENTS $1,769,252 $1,804,357 92.69%
Other Assets Less Liabilities 142,386 7.31%
Net Assets Equivalent to $10.99 per share on
177,058 shares of capital stock outstanding $1,946,743 100.00%
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Maxus Laureate Fund
Statement of Assets & Liabilities
June 30, 1996 (unaudited)
Assets:
Investment Securities at Market Value
(Identified Cost - $1,769,252) ........................ $ 1,804,357
Cash ................................................... 349,940
Receivables:
Investment Securities Sold ............................ 0
Dividends and Interest ................................ 847
Other Assets ........................................... 9,518
---------
Total Assets ........................................ 2,164,662
Liabilities
Payables:
Investment Securities Purchased ....................... 195,075
Dividends Payable to Shareholders ..................... 0
Accrued Expenses ...................................... 11,977
Other ................................................. 10,867
---------
Total Liabilities ................................... 217,919
Net Assets ............................................... $ 1,946,743
Net Assets Consist of:
Capital Paid In ........................................ 1,800,170
Undistributed Net Investment Income .................... (33,148)
Accumulated Realized Gain (Loss) on Investments - Net .. 144,616
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net ......... 35,105
---------
Net Assets, for 177,058 Shares Outstanding ............... $ 1,946,743
Net Asset Value and Redemption Price
Per Share ($1,946,743/177,058 shares) .................. $10.99
Offering Price Per Share ................................. $10.99
Statement of Operations
January 1 through June 30, 1996 (unaudited)
Investment Income:
Dividends .............................................. $ 0
Interest ............................................... 2,601
---------
Total Investment Income ............................. 2,601
Expenses:
Registration Expense ................................... 1,027
Trustee Fees (Note 3) .................................. 1,100
Transfer Agent and Pricing ............................. 5,023
Custody ................................................ 268
Distribution Plan Expenses ............................. 4,683
Amortization of Organization Expense ................... 3,176
Accounting ............................................. 4,080
Legal .................................................. 4,698
Management Fees (Note 2) ............................... 7,430
Printing & Miscellaneous ............................... 4,264
---------
Total Expenses ...................................... 35,749
Net Investment Income (Loss) ............................. $ (33,148)
Realized and Unrealized Gain (Loss) on Investments
Realized Gain (Loss) on Investments .................... 163,445
Unrealized Gain (Loss) from
Appreciation (Depreciation) on Investments ........... 43,151
---------
Net Realized and Unrealized Gain (Loss) on Investments ... 206,596
Net Increase (Decrease) in Net Assets from Operations .... $ 173,448
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
MAXUS LAUREATE 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 (Loss) ................ $ (33,148) $ (28,773)
Net Realized Gain (Loss) on Investments ..... 163,445 263,105
Net Unrealized Appreciation (Depreciation) .. 43,151 (12,316)
----------- -----------
Increase (Decrease) in Net Assets from Operations 173,448 222,016
From Distributions to Shareholders
Net Investment Income (Loss) ................ 0 0
Net Realized Gain (Loss) from Security Transactions 0 0
Net Increase (Decrease) from Distributions .. 0 (163,629)
From Capital Share Transactions:
Proceeds From Sale of 61,580 Shares ......... 651,109 121,069
Net Asset Value of 0 shares issued on
Reinvestment of Dividends ................ 0 147,644
Cost of 38,302 Shares Redeemed .............. (387,805) (815,064)
----------- -----------
263,304 (546,351)
Net Increase (Decrease) in Net Assets .......... 436,752 (487,964)
Net Assets at Beginning of Period (including
undistributed net investment
income of 0 and $0, respectively) ........... 1,509,991 1,997,955
Net Assets at End of Period (including
undistributed net investment income
of $(33,148) and $0, respectively) .......... $ 1,946,743 $ 1,509,991
=========== ===========
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
01/01/96 01/01/95 01/01/94 05/01/93
to to to to
06/30/96 12/31/95 12/31/94 12/31/93
Net Asset Value -
Beginning of Period ............. $ 9.82 $ 9.62 $ 9.96 $ 10.00
Net Investment Income ............. (.16) (0.19) (0.08) (0.07)
Net Gains or (Losses) on Securities
(realized and unrealized) ....... 1.33 1.57 (0.26) 1.16
------ ------ ------ -----
Total from Investment Operations .. 1.17 1.38 (0.34) 1.09
Dividends
(from net investment income) .... 0.00 0.00 0.00 0.00
Distributions (from capital gains) 0.00 (1.18) 0.00 (1.13)
Return of Capital ................. 0.00 0.00 0.00 0.00
------ ------ ------ -----
Total Distributions ............. 0.00 (1.18) 0.00 (1.13)
Net Asset Value -
End of Period ..................... $ 10.99 $ 9.82 $ 9.62 $ 9.96
Total Return ...................... 11.91% 14.41% (3.41)% 8.62%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) ....... 1,946 1,510 1,998 2,114
Ratio of Expenses to
Average Net Assets .............. 2.18% 3.85% 3.60% 2.42%
Ratio of Net Income to
Average Net Assets .............. (2.02)% (1.69)% (0.87)% (0.66)%
Portfolio Turnover Rate ........... 6.08 13.77 4.69 1.52
* Weighted average used
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
MAXUS LAUREATE 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 February 10, 1993. Significant accounting policies of the Fund are
presented below:
SECURITY VALUATION:
The Fund intends to invest exclusively in other open-end management
investment companies (mutual funds). The investments in mutual funds are
carried at market value. The market quotation used for mutual funds is the
net asset value on the date on which the valuation is made. The cost of
securities sold is determined on the identified cost basis.
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 $7,430 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 $4,683 for distribution
expenses. Maxus Information Systems Inc, who provides accounting and
shareholder services, received fees totaling $5,023 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 $3,349 for the six months ended 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 $100 per meeting.
7
<PAGE>
MAXUS LAUREATE FUND
Notes to Financial Statements
June 30, 1996 (unaudited)
4.)CAPITAL STOCK AND DISTRIBUTION
At June 30, 1996 an indefinite number of shares of capital stock ($.10 par
value) were authorized, and paid-in capital amounted to $1,800,170.
Transactions in common stock were as follows:
Shares sold ................................................... 61,580
Shares issued to shareholders in reinvestment of dividends .... 0
--------
61,580
Shares redeemed ............................................... 38,302
Net Increase (Decrease)........................................ 23,278
--------
Shares Outstanding:
Beginning of Period.......................................... 153,780
--------
End of Period ............................................... 177,058
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.)ORGANIZATION COSTS
Organization costs are being amortized on a straight line basis over a five
year period.
6.)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.
7.)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 $10,311,378 and $9,961,689 respectively.
8.)FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments which have any off-balance
sheet risk as of June 30, 1996.
9.)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)
36,283 (1,178) 35,105
8
<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
