Morgan FunShares, Inc.
To Our Shareholders:
We have now been in business two years and have shown an increase in value of
21% each year. Our program of buying shares of companies with good trademarks
and selling low priced commodities that are essential to daily life is proving
worthwhile at this early stage. This policy has attracted a lot of publicity
since editors have picked up alcohol and tobacco and called it a "sin stock".
Hopefully, this heavy publicity will cause the market price to rise even if it
is not entirely correct.
In July we added McDonalds Corp and American Brands to the portfolio--two great
companies that fit nicely into the profile of Morgan FunShares' other
investments.
Burton D. Morgan
<PAGE>
Schedule of Investments
June 30, 1996 (unaudited)
- --------------------------------------------------------------------------------
% of
Shares/Units Cost Current Value Assets
================================================================================
Beverage Alcoholic
3,000 Anheuser Busch ..................... 105,454 225,000
10,000 Seagrams ........................... 246,643 336,250
-------- --------
352,097 561,250 9.04%
Beverage Non-Alcoholic
4,000 Coca Cola .......................... 113,295 392,000
5,000 PepsiCo ............................ 154,188 355,000
-------- --------
267,483 747,000 12.04%
Consumer Products - Retail
4,000 Eastman Kodak ...................... 192,390 311,000
6,666 Frederick's of Hollywood "A" ....... 89,528 33,330
13,332 Frederick's of Hollywood "B" ....... 179,056 59,994
-------- --------
460,974 404,324 6.52%
Consumer Products - Paper
4,000 Kimberly Clark ..................... 126,220 309,000 4.98%
Consumer Products - Food
6,000 RJR Nabisco ........................ 203,925 190,500
5,000 Wrigley Co. ........................ 230,330 252,500
-------- --------
434,255 443,000 7.14%
Drugs & Toiletries
10,000 Carter Wallace ..................... 126,301 146,250 2.36%
Entertainment
6,000 AMC Ent $1.75 CV Pfd ............... 133,490 285,750
5,000 Harrah's Entertainment* ............ 93,851 141,250
400 Schweitzer-Mauduit* ................ 3,529 11,250
10,000 Time Warner ........................ 206,446 392,500
3,000 Walt Disney ........................ 123,565 188,625
-------- --------
560,881 1,019,375 16.43%
Gaming
11,000 Circus Circus Enterprises* ......... 292,182 451,000
10,000 International Gaming Tech .......... 225,628 168,750
-------- --------
517,810 619,750 9.99%
Healthcare Products
3,000 Bristol Myers Squibb ............... 161,167 270,000
4,000 Gillette Co. ....................... 167,590 249,500
6,000 Johnson & Johnson .................. 202,705 594,000
-------- --------
531,462 1,113,500 17.94%
Tobacco
5,000 Phillip Morris ..................... 243,684 520,000 8.38%
Total** ............................ $3,621,167 $5,883,449 94.82%
Other Assets Less Liabilities ...... .......... $321,661 5.18%
Net Assets Equivalent to $10.55 per share on
587,995 shares of capital stock outstanding ... $6,205,110 100.00%
* Non Income Producing
** Identified cost equals tax basis of securities. Realized losses on
investments expire in 2002 ($16,097) and 2003 ($26,492).
The accompanying notes are an integral part of the financial statements.
<PAGE>
Morgan FunShares, Inc.
Statement of Assets & Liabilities
June 30, 1996 (unaudited)
Assets:
Investment Securities at Market Value
(Identified Cost - $3,621,167) ....................... $ 5,883,449
Cash ................................................... 326,207
Receivables:
Dividends and Interest ............................... 1,775
----------
Total Assets ....................................... 6,211,431
Liabilities
Payables:
Accrued Expenses ..................................... 6,321
----------
Total Liabilities .................................. 6,321
Net Assets ............................................... 6,205,110
Net Assets Consist of:
Capital Paid In ........................................ 4,011,457
Undistributed Net Investment Income .................... (26,040)
Accumulated Realized Gain on Investments - Net ......... (42,589)
Unrealized Appreciation in Value of Investments
Based on Identified Cost - Net ....................... 2,262,282
----------
Net Assets, for 587,995 Shares Outstanding ............... $ 6,205,110
Net Asset Value ($6,205,110 / 587,995) ................... $ 10.55
Statement of Operations
January 1 through June 30, 1996 (unaudited)
Investment Income:
Dividends .................................................. 37,305
Interest ................................................... 9,354
----------
Total Investment Income .................................. 46,659
Expenses
Registration Expense ....................................... 4,449
Transfer Agent and Pricing ................................. 8,639
Custody .................................................... 6,678
Audit ...................................................... 3,236
Legal ...................................................... 6,984
Management Fees (Note 2) ................................... 30,704
Advertising ................................................ 10,380
Printing & Other Miscellaneous ............................. 1,629
----------
Total Expenses ........................................... 72,699
Net Investment Income (Loss) ................................. (26,040)
Realized Gain (Loss) on Investments ........................ 0
Unrealized Gain (Loss) from
Appreciation (Depreciation) on Investments ............... 744,332
----------
Net Realized and Unrealized Gain (Loss) on Investments ....... 744,332
Net Increase (Decrease) in Net Assets from Operations ........ 718,292
==========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Statement of Changes in Net Assets
June 30, 1996 (unaudited)
01/01/96 01/01/95
to to
06/30/96 12/31/95
-------- --------
From Operations:
Net Investment Income ............................ 29,401 (26,040)
Net Realized Gain (Loss) on Investments .......... 0 (26,492)
Net Unrealized Appreciation(Depreciation) ........ 744,332 1,207,079
--------- ----------
Increase (Decrease) in Net Assets from Operations 718,292 1,209,988
From Distributions to Shareholders
Net Investment Income 0 (29,400)
Net Realized Gain (Loss) from Security Transactions 0 0
Net Increase (Decrease) from Distributions ....... 0 0
--------- ----------
0 (29,400)
From Capital Share Transactions:
Proceeds From Sale of 0 Shares ................... 0 0
Cost of Shares Retired ........................... 0 0
--------- ----------
0 0
Net Increase in Net Assets ......................... 718,292 1,180,588
Net Assets at Beginning of Period (including
undistributed net investment income
of $29,401 and $0, respectively) ................. 5,486,818 4,306,230
Net Assets at End of Period (including
undistributed net investment income
of ($26,040) and $0, respectively) ............... 6,205,110 5,486,818
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
01/01/96 01/01/95 06/22/94
to to to
06/30/96 12/31/95 12/31/94
Net Asset Value -
Beginning of Period ..................... $ 9.33 $ 7.32 $ 7.31
Net Investment Income ..................... (0.04) 0.05 0.04
Net Gains or Losses on Securities
(realized and unrealized) ............... 1.26 2.01 0.01
------ ------ ------
Total from Investment Operations .......... 1.22 2.06 0.05
Dividends (from net investment income) .... 0.00 (0.05) (0.04)
Distributions (from capital gains) ........ 0.00 0.00 0.00
Return of Capital ......................... 0.00 0.00 0.00
------ ------ ------
Total Distributions ..................... 0.00 (0.05) (0.04)
Net Asset Value -
End of Period ........................... $ 10.55 $ 9.33 $ 7.32
Total Return .............................. 13.08% 28.29% 0.68%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) ............... 6,205 5,487 4,306
Ratio of Expenses to Average Net Assets ... 1.23% 2.04% 1.06%
Ratio of Net Income to Average Net Assets . (0.44)% 0.60% 0.47%
Portfolio Turnover Rate ................... 0.00% 0.02% 0.06%
Average Commission Rate Paid .............. $ 0.0000
The accompanying notes are an integral part of the financial statements.
<PAGE>
Morgan FunShares, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited)
1.)Significant Accounting Policies
Morgan FunShares, Inc., (The Fund), a non-diversified, closed-end management
investment company, was incorporated under the laws of the State of Ohio,
registering under The Investment Company Act of 1940, as amended for years
ending after December 31, 1993. Significant accounting policies of the Fund
are presented below:
Securities Valuation:
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 or at fair value. Short-term investments are
valued at amortized cost, which approximates market value. 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 Burton D. Morgan. 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 $150,000,000.
3.)Capital Stock and Distribution
At June 30, 1996, 1,000,000 shares of common stock ($.10 par value) were
authorized, and paid-in capital amounted to $4,011,457. Transactions in
common stock were as follows:
Shares sold 0
Shares retired 0
Net Increase 0
Shares Outstanding:
Beginning of Period 587,995
--------
End of Period 587,995
========
<PAGE>
Morgan FunShares, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited)
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.
4.)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.
5.)Purchases and Sales of Securities
During the period ended June 30, 1996, purchases and sales of investment
securities other than U.S. Government obligations and short-term investments
aggregated $0 and $0 respectively.
6.)Financial Instruments Disclosure
There are no reportable financial instruments which have any off-balance
sheet risk as of June 30, 1996.
7.)Ownership-Control
Approximately 65% of the Fund's outstanding shares are owned by Burton Morgan
and his family. Burton Morgan is a Director of the Fund. Burton Morgan may be
deemed to be a controlling person.
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)
2,507,846 (245,564) 2,262,282
<PAGE>
Morgan FunShares, Inc.
28601 Chagrin Boulevard, Cleveland, Ohio 44122
(216) 292-3434
INVESTMENT ADVISOR
Burton D. Morgan
10 West Streetsboro Street
Hudson, Ohio 44236
BOARD OF DIRECTORS
Keith Brown
William K. Cordier
J. Martin Erbaugh
James M. Hojnacki
Burton D. Morgan
Robert F. Pincus
F. Carl Walter
OFFICERS
Burton D. Morgan, Chairman
Robert F. Pincus, President
James C. Onorato, Vice-President
Catherine Kantorowski, Secretary
CUSTODIAN
Star Bank, N. A.
425 Walnut Street
P. O. Box 1118
Cincinnati, Ohio 45201-1118
TRANSFER AGENT
Star Bank, N. A.
425 Walnut Street
P. O. Box 1118
Cincinnati, Ohio 45201-1118
LEGAL COUNSEL
Buckingham, Doolittle & Burroughs
One Cleveland Center, Suite 1700
1375 East Ninth Street
Cleveland, Ohio 44114-1724
AUDITOR
McCurdy & Associates CPA's Inc
27955 Clemens Road
Westlake, Ohio 44145
