THE MAXUS FUNDS
Dear Shareholder:
For the first six months of 1997, each of The Maxus Funds continued to
demonstrate excellent relative total return performance. At the same time, both
Alan Miller and I have been keenly aware that the most visible investment
markets , attracting both capital appreciation and income oriented investors,
appear to be exceeding most historic measures of value. Within the context of
the very positive global demand for all things American, and the exceptional
productivity of the American economy, we continue to remain cautious.
Why caution in the light of the very positive economic environment and
exceptional performance the markets have demonstrated for most of the past 15
years? My conclusions are based upon the relative comparisons between economic
growth and investor expectations, and the growing disparity I see in the
numbers.
The growth rate in gross domestic product alone is not the power point of
investor enthusiasm. The U.S. economy is growing at less than 3% annually and,
based upon the historic ratio between the annual growth in domestic product to
the level of stock prices, the expectation for the DJIA in 1997 should be more
like 4000 instead of 8000 or 9000. In fact, forecasters during most of the 20th
century would base their predictions of market performance on their forecast of
economic growth, i.e. the higher the growth rate, the higher earnings would apt
to be, and the higher the market should go. For example, in the late 1980's the
argument for 30 and 40 multiples in the Japanese stock market centered around
the 12% to 15% annual growth in the Japanese economy, and the extrapolation of
normalized earnings to the year 2000. When Japanese growth in domestic product
declined as competition heated up in the rest of Asia, the market fell
precipitously, and today, after nearly 10 years it still remains at only 60% of
an all-time high in 1989.
For the past five years, market forecasters here in the United States have based
their predictions primarily on the earnings growth resulting from increasing
productivity and increasing profit margins. Fed Chairman Greenspan has recently
stated what I have been saying all along, i.e. potential growth in GDP is higher
than the consensus forecast because of hidden productivity, and therefore price
inflation should continue to be subdued and profitability should continue to
increase. Unlike the topline growth in domestic product, however, productivity
gains, in and of themselves, create practical limitations on earnings growth and
extrapolating past earnings growth could be a very dangerous exercise for
investors.
<PAGE>
The gains in productivity have resulted primarily through corporate downsizing
and the replacement of antiquated machines and workers with high technology
capital. To date, neither labor nor the consumer have enjoyed much of the gain,
although price inflation has remained subdued and greater job opportunities has
resulted in the process. While American workers have been more concerned with
holding onto their jobs than with wage negotiations, sooner or later they are
apt to demand a greater piece of the pie. Likewise, while price inflation at the
consumer level appears almost non-existent across many industries, the entry of
additional players into high margin businesses and/or the competitive global
marketplace, should continue to put downward pressure on prices. Either way,
profit margins are apt to get squeezed and corporate profitably may well begin
to decline. Finally, downsizing almost by definition has its practical
limitations, and the cost benefits of replacing antiquated capital equipment
will begin to diminish over time, i.e. most equipment is depreciated over 5 to 7
years and replacing it before it is fully depreciated results in increasing
costs to corporations.
I have argued that much of the enthusiasm for stocks in recent years has been
the result of productivity increases and its effect of transforming the economy
from its historic cycles (where corporate earnings tend to fluctuate in a
cyclical pattern) to a more growth oriented trendline (where earnings tend to
rise every year). Growth tends to hold the market at a higher multiple, and low
interest rates tend to reinforce that multiple going forward. While this can
explain why the DJIA should be at 6000 instead of 4000, there isn't any good
explanation to explain why it should be at 8000 or 10000.
Moreover, the practical limitations imposed by downsizing and productivity gains
are already showing up. From 15% earnings gain for American corporations in
1996, the consensus forecast projects 10% gains in 1997. The best guess for 1998
is 5%. If we ignore this trend toward lower (or perhaps even negative) earnings
growth, and hold to the rosy scenario that growth will average 10% annually over
the next five years, corporate earnings will double their current level. In the
light of a low GDP growth, a fully employed economy and the ultimate profit
squeeze resulting from past productivity gains, it is hard to imagine that this
scenario will develop that smoothly. But I will make the assumption
nevertheless.
Anyone investing in today's market is doing so with a five year horizon. If the
expectation is for an annual 20% growth in the value of their portfolio, on June
30, 2002, the average market multiple for the S&P 500 will be over 40 times.
Even a 15% annual growth in portfolio value would be that multiple at 30 times.
This is a far cry from the 14 times multiple the stock market has averaged for
almost all of the 20th century, and places a great deal of faith in our
economy's ability to regain topline growth, keep global competitors out of our
markets and, to the exclusion of both labor and the consumer, maintain the
productivity gains for top executives and shareholders; then again, blind faith
is the stuff by which bull markets survive.
<PAGE>
The Maxus Funds will continue to look for investments which appear to be of high
quality, and where the underlying cash flow, earnings prospects and private
market evaluations all suggest that we are buying good value. At this juncture
our goal is to achieve, on a relative basis, a B+ in upward market spikes, an A
in flat markets, and an A+ if the market should decline.
Richard A Barone
<PAGE>
The Maxus Laureate Fund
For the first six months of 1997, the Maxus Laureate Fund achieved a total
return of 7.66%. Although the return fell short of our benchmarks, our cautious
approach to the equity market, in my opinion is warranted. Whether or not this
defensive stance will be vindicated or not is unclear.
We question whether the market is making a rational judgment based on the
fundamentals. We do not doubt that the fundamentals are good, if not great. Low
inflation, low interest rates, healthy, yet moderate economic growth and solid
earnings create a friendly environment for equities. What we question is whether
all these good economic factors are already discounted. It appears price is
being confused with value. The higher an item is priced, the more valuable it
must be! This thought process in the realm of investments can be dangerous to
one's financial health.
From a strategic perspective, going into the second half of 1997 we continue to
de-emphasize large cap growth and emphasize small cap growth and small cap
value. Also, we continue to overweight the technology industry. Early in the
third quarter, currency problems in Southeast Asia, especially in Thailand and
the Philippines, signaled us to move some monies to the sideline. Currently, I
find myself looking to protect the Laureate Fund in a declining market and have
already established a small position in Rydex Ursa - a mutual fund which shorts
the S & P 500.
We continue our commitment to diversification to better manage risk, while
seeking to increase shareholder wealth at an attractive rate. At every instance,
we remain committed to achieving our goal of steady, sustainable growth of our
shareholder assets.
In conclusion, we continue to adhere to our disciplined approach and remain
cognizant of the high stock market valuations and the corresponding risk.
Alan G Miller
<PAGE>
Maxus Laureate Fund
Schedule of Investments
June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Shares/Principal Amount Cost Market Value % of Assets
- --------------------------------------------------------------------------------
GROWTH
15,227 Rydex OTC 278,828 330,587 8.43%
SMALL CAP GROWTH / VALUE
137 Heartland Value 3,958 4,952
22,115 Mutual Series Discovery Class Z 432,629 432,795
22,806 Oakmark Small Cap 340,050 402,762
------- -------
776,637 840,509 21.42%
GROWTH & INCOME
15,451 Mutual Series Qualified Class Z 285,050 285,372
13,478 Mutual Series Shares Class Z 285,050 284,651
------- -------
570,100 570,023 14.53%
INTERNATIONAL STOCK
8,892 Acorn International 175,025 188,694
10,870 Janus Overseas 175,025 196,522
232 Mutual Series European Class Z 2,456 2,994
20,185 Vanguard World Fund Inter-
national Growth 350,025 387,341
24,964 Warburg Pincus Japan OTC 175,025 197,218
------- -------
877,556 972,769 24.80%
EMERGING MARKETS
6,805 Guinness Flight Asia Small Cap 105,025 113,370
6,462 Guinness Flight China and
Hong Kong 105,025 129,877
8,171 Lexington Crosby Small Cap
Asian Growth 105,025 115,868
10,986 Montgomery Emerging Asia 175,025 207,627
23,412 Montgomery Emerging Markets 350,050 394,484
17,757 SSgA Emerging Markets 220,025 232,785
------- -------
1,060,175 1,194,011 30.43%
INCOME
.3 Warburg Pincus Fixed Income 0 3 0.00%
Total Investments 3,563,296 3,907,902 99.61%
Other Assets Less Liabilities 15,460 .39%
Net Assets - Equivalent to $11.59 per share
on 338,442 shares of capital
stock outstanding 3,923,362 100.00%
========= =======
The accompanying notes are an integral part of the financial statements.
<PAGE>
Maxus Laureate Fund
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1997 (UNAUDITED)
Assets:
Investment Securities at Market Value
(Identified Cost - $3,563,296) $3,907,902
Cash 450,682
Receivables:
Investment Securities Sold 0
Dividends and Interest 17,611
Other Assets 4,028
----------
Total Assets 4,380,223
Liabilities
Payables:
Investment Securities Purchased 430,025
Shareholder Distributions 740
Accrued Expenses 26,096
-----------
Total Liabilities 456,861
Net Assets $3,923,362
Net Assets Consist of:
Capital Paid In 3,584,770
Undistributed Net Investment Income (7,450)
Accumulated Realized Gain (Loss) on Investments - Net 1,436
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net 344,606
-----------
Net Assets, for 338,442 Shares Outstanding $3,923,362
Net Asset Value and Redemption Price
Per Share ($3,923,362/338,442 shares) $11.59
Offering Price Per Share $11.59
STATEMENT OF OPERATIONS
JUNE 30, 1997 (UNAUDITED)
Investment Income:
Dividends $21,283
Interest 24,420
--------
Total Investment Income 45,703
Expenses:
Registration Expense 2,727
Amortization of Organization Expense 2,754
Trustee Fees (Note 3) 400
Accounting and Pricing 10,406
Custody 1,129
Distribution Plan Expenses 8,765
Audit 4,239
Legal 3,676
Management Fees (Note 2) 14,360
Printing & Miscellaneous 4,652
-------
Total Expenses 53,108
Net Investment Income (Loss) (7,405)
Realized and Unrealized Gain (Loss) on Investments
Realized Gain (Loss) on Investments 38,564
Capital Gains from Mutual Funds 260
Unrealized Gain (Loss) from Appreciation (Depreciation)
on Investments 238,605
--------
Net Realized and Unrealized Gain (Loss) on Investments 277,429
Net Increase (Decrease) in Net Assets from Operations $270,024
=========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Maxus Laureate Fund
STATEMENT OF CHANGES IN NET ASSETS
JUNE 30, 1997 (UNAUDITED)
01/01/97 01/01/96
to to
06/30/97 12/31/96
-------- --------
From Operations:
Net Investment Income (Loss) $(7,405) $(15,196)
Net Realized Gain (Loss) on Investments 38,824 304,352
Net Unrealized Appreciation (Depreciation) 238,605 113,913
------- -------
Increase (Decrease) in Net Assets from Operations 270,024 403,069
From Distributions to Shareholders
Net Investment Income (Loss) 0 0
Net Realized Gain (Loss) from Security Transactions (18,509) (289,117)
-------- ---------
Net Increase (Decrease) from Distributions (18,509) (289,117)
From Capital Share Transactions:
Proceeds From Sale of 131,071 Shares 1,457,274 1,869,913
Net Asset Value of 1,241 shares issued on
Reinvestment of Dividends 14,198 217,705
Cost of 85,537 Shares Redeemed (955,349) (555,837)
--------- ---------
516,123 1,531,781
Net Increase (Decrease) in Net Assets 767,638 1,645,733
Net Assets at Beginning of Period (including
undistributed net investment income of 0 and
$0, respectively) 3,155,724 1,509,991
Net Assets at End of Period (including
undistributed net investment incomeof $0 and
$0, respectively) $3,923,362 $3,155,724
========== ==========
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
06/30/97 12/31/96 12/31/95 12/31/94 12/31/93**
-------- -------- -------- -------- --------
Net Asset Value -
Beginning of Period $10.82 $9.82 $9.62 $9.96 $10.00
Net Investment Income (0.02) (0.08) (0.19) (0.08) (0.07)
Net Gains or (Losses) on Securities
(realized and unrealized) 0.84 2.14 1.57 (0.26) 1.16
---- ---- ---- ------ ----
Total from Investment Operations 0.82 2.06 1.38 (0.34) 1.09
Dividends
(from net investment income) 0.00 0.00 0.00 0.00 0.00
Distributions (from capital gains) (0.05) (1.06) (1.18) 0.00 (1.13)
Return of Capital 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ---- ------
Total Distributions (0.05) (1.06) (1.18) 0.00 (1.13)
Net Asset Value -
End of Period $11.59 $10.82 $9.82 $9.62 $9.96
Total Return 7.66% 21.03% 14.41% (3.41)% 8.62%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 3,923 3,156 1,510 1,998 2,114
Ratio of Expenses to Average Net Assets 2.99%* 3.92% 3.85% 3.60% 2.42%
Ratio of Net Income to Average Net Assets (0.42)%* (0.73)% (1.69)% (0.87)% (0.66)%
Portfolio Turnover Rate 1426%* 1267% 1377% 469% 152%
* Annualized
** Weighted Average Used
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Maxus Laureate Fund
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (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.
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 managment to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilites 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.
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 $14,360 in investment advisory fees during the six
months ended June 30, 1997. Maxus Securities, who served as the national
distributor of the Fund's shares, was reimbursed $8,765 for distribution
expenses. Maxus Information Systems, who provides accounting and
shareholder services, received fees totaling $10,406 for services rendered
to the Fund for the six months ended June 30, 1997. Maxus Securities is a
registered broker-dealer. Maxus Securities effected substantially all of
the investment portfolio transactions for the Fund. The fees collected by
Maxus Securities represent transaction charges imposed by the custodian.
Maxus Securities pays these charges to the custodian without a mark-up.
<PAGE>
At June 30, 1997, 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 $100 per meeting.
4. CAPITAL STOCK AND DISTRIBUTION
At June 30, 1997 an indefinite number of shares of capital stock ($.10 par
value) were authorized, and paid-in capital amounted to $3,584,770.
Transactions in common stock were as follows:
Shares sold 131,071
Shares issued to shareholders in reinvestment of dividends 1,241
-------
132,312
Shares redeemed 85,537
Net Increase (Decrease) 46,775
Shares Outstanding:
Beginning of Period 291,667
-------
End of Period 338,442
=======
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. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 1997 purchases and sales of investment
securities other than U.S. Government obligations and short-term
investments aggregated $25,827,730 and $25,364,314 respectively.
7. FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments which have any off-balance
sheet risk as of June 30, 1997.
8. SECURITY TRANSACTIONS
For Federal income tax purposes, the cost of investments owned at June 30,
1997 was the same as identified cost.
At June 30, 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)
345,053 (447) 344,606
<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
Jerry Murphy
Michael A. Rossi
Robert A. Schenkelberg, Jr.
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
<PAGE>
