To Our Shareholders:
Our basic philosophy, which we state from Warren Buffet, makes for a
very dull report. His philosophy is to buy and hold good trade named
securities. You will be glad to know we have neither bought nor sold
securities in the last year.
With a rising market, our strong point, which is stability, has not
come into play, and maybe it never will. However, our strength is in
low cost commodities that are in essence habit forming.
One shareholder wrote to say that FunShares was the best bargain on
today's market due to its heavy discount of selling price to the market
value of the shares. We applaud his thinking.
Regards.
Burton D. Morgan
<PAGE>
Morgan FunShares, Inc.
Schedule of Investments
June 30, 1997 (unaudited)
Shares/Units Cost Current Value % of Assets
- --------------------------------------------------------------------------------
Beverage
Alcoholic
6,000 Anheuser Busch 101,236 251,625
10,000 Seagrams 246,643 402,500
------- -------
347,879 654,125 9.05%
Beverage
Non-Alcoholic
8,000 Coca Cola 113,295 546,000
10,000 PepsiCo 154,188 375,625
------- -------
267,483 921,625 12.75%
Consumer Products - Retail
4,000 Eastman Kodak 192,390 307,000
3,000 Fortune Brands 88,421 111,938
6,666 Frederick's of
Hollywood "A" 89,528 39,579
13,332 Frederick's of
Hollywood "B" 179,056 79,159
------- -------
549,395 537,676 7.44%
Consumer Products - Paper
4,000 Kimberly Clark 126,220 398,000 5.51%
Consumer Products - Food
120 EarthGrains 4,218 7,867
3,200 McDonalds 141,680 154,600
6,000 RJR Nabisco 203,925 198,000
5,000 Wrigley Co. 230,330 335,000
------- -------
580,153 695,467 9.62%
Drugs & Toiletries
10,000 Carter Wallace 126,301 181,250 2.51%
Entertainment
6,000 AMC Ent $1.75
CV Pfd 133,490 190,500
5,000 Harrah's
Entertainment* 93,851 90,000
400 Schweitzer-Mauduit* 3,529 15,000
10,000 Time Warner 206,446 482,500
3,000 Walt Disney 123,565 236,625
------- ---------
560,881 1,014,625 14.04%
Gaming
11,000 Circus Circus
Enterprises* 292,182 270,875
10,000 International
Gaming Tech 225,628 177,500
------- -------
517,810 448,375 6.20%
Healthcare Products
3,000 Bristol Myers Squibb 161,167 486,000
4,000 Gillette Co. 167,590 379,000
6,000 Johnson & Johnson 202,705 772,500
------- -------
531,462 1,637,500 22.66%
Tobacco
3,000 Gallaher Group PLC 51,529 55,313
5,000 Phillip Morris 243,684 665,625
------- -------
295,213 720,938 9.97%
Total** $3,902,797 $7,209,581
Other Assets Less Liabilities 18,253 0.25%
Net Assets Equivalent to $12.29
per share on 587,995 shares of
capital stock outstanding $7,227,834 100.00%
==========
* Non Income Producing
** Identified cost equals tax basis of
securities. Realized losses on investments
expire in 2002 ($16,097) and 2003 ($26,492).
<PAGE>
Morgan FunShares, Inc.
Statement of Assets & Liabilities
June 30, 1997 (unaudited)
Assets:
Investment Securities at Market Value
(Identified Cost - $3,902,797) $7,209,581
Cash 13,262
Receivables:
Dividends and Interest 14,405
----------
Total Assets 7,237,248
Liabilities
Payables:
Shareholder Distributions 0
Accrued Expenses 9,414
------
Total Liabilities 9,414
Net Assets 7,227,834
Net Assets Consist of:
Capital Paid In 3,969,286
Undistributed Net Investment Income (5,647)
Accumulated Realized Gain on Investments - Net (42,589)
Unrealized Appreciation in Value of Investments
Based on Identified Cost - Net 3,306,784
----------
Net Assets, for 587,995 Shares Outstanding $7,227,834
Net Asset Value ($7,227,834 / 587,995) $12.29
Statement of Operations
January 1 through June 30, 1997 (unaudited)
Investment Income:
Dividends $62,348
Interest 708
-------
Total Investment Income 63,056
Expenses
Registration Expense 4,000
Trustee Fees (Note 3) 1,800
Transfer Agent and Pricing 16,213
Custody 2,933
Audit 9,500
Legal 1,726
Management Fees (Note 2) 30,435
Proxy Solicitation 1,180
Printing & Other Miscellaneous 916
-------
Total Expenses 68,703
Net Investment Income (Loss) (5,647)
Realized Gain (Loss) on Investments 0
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments 923,345
--------
Net Realized and Unrealized Gain (Loss) on Investments 923,345
Net Increase (Decrease) in Net Assets from Operations $917,698
=========
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
Morgan FunShares, Inc.
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 (5,647) (42,171)
Net Realized Gain (Loss) on Investments 0 0
Net Unrealized Appreciation (Depreciation) 923,345 865,489
------- -------
Increase (Decrease) in Net Assets from Operations 917,698 823,318
From Distributions to Shareholders
Net Investment Income 0 0
Net Realized Gain (Loss) from Security Transactions 0 0
------- -------
Net Increase (Decrease) from Distributions 0 0
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 917,698 823,318
Net Assets at Beginning of Period (including
undistributed net investment income of $0) 6,310,136 5,486,818
Net Assets at End of Period (including
undistributed net investment income of $0) 7,227,834 6,310,136
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
01/01/97 01/01/96 01/01/95 06/22/94
to to to to
06/30/97 12/31/96 12/31/95 12/31/94
-------- -------- -------- --------
Net Asset Value -
Beginning of Period $10.73 $9.33 $7.32 $7.31
Net Investment Income (0.01) (0.07) 0.05 0.04
Net Gains or Losses on Securities
(realized and unrealized) 1.57 1.47 2.01 0.01
---- ---- ---- ----
Total from Investment Operations 1.56 1.40 2.06 0.05
Dividends
(from net investment income) 0.00 0.00 (0.05) (0.04)
Distributions (from capital gains) 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00
---- ---- ---- ----
Total Distributions 0.00 0.00 (0.05) (0.04)
Net Asset Value -
End of Period $12.29 $10.73 $9.33 $7.32
Total Return 14.54% 15.01% 28.29% 0.68%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 7,228 6,310 5,486 4,306
Ratio of Expenses to Average
Net Assets 1.13% 2.80% 2.04% 1.06%
Ratio of Net Income to Average
Net Assets (0.09)% (0.71)% 0.59% 0.47%
Portfolio Turnover Rate 0% 0% 2% 6%
Average Commission Rate Paid $0.0000 $0.0000 $0.0000 $0.0000
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
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, registered 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.
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 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 management 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 agreement with Burton D.
Morgan. The Investment Advisor receives from the Fund as compensation for
his services to the Fund an annual fee of 1% of the average value of the
Fund's net assets up to $150,000,000 and 0.75% of the average value of the
Fund's net assets in excess of $150,000,000.
<PAGE>
3. Related Party Transactions
Certain officers and/or directors of the Fund are officers and/or directors
of the parent company of Maxus Information Systems, Inc, which provides
administrative services to the Fund. Each director who is not an
"affiliated person" receives an attendance fee of $100 per meeting.
Maxus Securities is a registered broker dealer. Certain officers and/or
directors of the Fund are officers and/or directors of the broker dealer.
Maxus Securities effected substantially all of the investment portfolio
transactions for the Fund. For this service Maxus Securities received
commissions of $0 for the period ending June 30, 1997.
4. Capital Stock and Distribution
At June 30, 1997, 1,000,000 shares of capital stock ($.10 par value) were
authorized, and paid-in capital amounted to $3,969,286. 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
=======
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 period ended June 30, 1997, 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, 1997.
7. Ownership-Control
Approximately 65% of the Fund's outstanding shares are owned by Burton D.
Morgan and his family. Burton D. Morgan is a Director of the Fund and the
Fund's investment advisor. Burton D. Morgan may be deemed to be a
controlling person.
<PAGE>
Morgan FunShares
Notes to Financial Statements
June 30, 1997 (unaudited)
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)
------------ ------------- -------------------------------
3,535,842 (229,058) 3,306,784
9. Reclassification of Capital Accounts
The Fund has adopted Statement of Position 93-2, Determination, Disclosure
and Financial Statement Presentation of Income, Capital Gain and Return of
Capital Distributions by Investment Companies. As a result of this
statement, the Fund changed the classification of distributions to
shareholders to better disclose the differences between financial statement
amounts and distributions determined in accordance with income tax
regulations. Accordingly, undistributed net investment loss has been
adjusted to paid in capital as of December, 1996 in the following amounts.
These restatements did not affect net investment income, net realized gain
(loss) or net assets for the six months ending June 30, 1997.
Capital Paid In Undistributed Net Investment Loss
--------------- ---------------------------------
(42,171) 42,171
<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
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
<PAGE>
