MORGAN FUNSHARES ANNUAL REPORT- LETTER TO SHAREHOLDERS
Dear Shareholder:
The year 1996 proved to be another good year for the value of the stocks in your
company. The Net Asset Value (NAV) of the Fund's shares increased by 14.9%
during 1996. The closing "Bid" price of the Fund's shares, as traded on the
NASDAQ Exchange, increased 17.2% over the same period. There was more interest
in the Fund's shares during the past year as was evidenced by the increase in
the average monthly volume from approximately 12,900 shares per month in 1995 to
approximately 23,900 shares per month in 1996.
The national media continues to portray the Fund as a "Sin" Fund due to our
holdings in liquor, tobacco and gambling companies. Although we do not
completely agree with this representation, it has continued to give us media
exposure. To the best of our knowledge, we remain the only Fund that invests in
companies whose principal product or service is a consumer non-durable that
tends to be habitual. We strongly believe that investing in these companies will
prove to be very rewarding over the long term. We look forward to the continued
media exposure based on our "Sin" stocks as we believe that this will continue
to generate interest in your Fund.
The Fund is closed-end for safety purposes to protect the assets in the case of
a heavy market downturn. If a large number of shareholders wanted to redeem
their shares, it could cause an open-end Fund Manager to engage in forced
selling at distressed prices; a closed-end Fund Manager is not subject to these
market pressures. A closed-end Fund shareholder could sell his individual shares
at a distressed price, but the Fund would not be forced to sell any of its
holdings.
The portfolio holdings of the Fund remained unchanged from holdings at the end
of June, 1996. The only two additions to the portfolio since the end of 1995 are
American Brands and McDonalds Corp. These two securities were added in the first
half of 1996.
Sincerely,
Burton D. Morgan
<PAGE>
MORGAN FUNSHARES, INC.
Schedule of Investments
December 31, 1996
- --------------------------------------------------------------------------------
Shares/Units Cost Current Value % of Assets
- --------------------------------------------------------------------------------
Beverage Alcoholic
6,000 Anheuser Busch 101,236 240,000
10,000 Seagrams 246,643 387,500
------- -------
347,879 627,500 9.95%
Beverage Non-Alcoholic
8,000 Coca Cola 113,295 421,000
10,000 PepsiCo 154,188 292,500
------- -------
267,483 713,500 11.31%
Consumer Products - Retail
4,000 Eastman Kodak 192,390 321,000
6,666 Frederick's of Hollywood "A" 89,528 27,497
13,332 Frederick's of Hollywood "B" 179,056 54,994
------- -------
460,974 403,491 6.39%
Consumer Products - Paper
4,000 Kimberly Clark 126,220 381,000 6.04%
Consumer Products - Food
120 EarthGrains 4,218 6,270
3,200 McDonalds 141,680 145,200
6,000 RJR Nabisco 203,925 204,000
5,000 Wrigley Co. 230,330 281,250
------- -------
580,153 636,720 10.09%
Drugs & Toiletries
10,000 Carter Wallace 126,301 156,250 2.48%
Entertainment
6,000 AMC Ent $1.75 CV Pfd 133,490 162,000
5,000 Harrah's Entertainment* 93,851 99,375
400 Schweitzer-Mauduit 3,529 12,650
10,000 Time Warner 206,446 375,000
3,000 Walt Disney 123,565 209,250
------- -------
560,881 858,275 13.60%
Gaming
11,000 Circus Circus Enterprises* 292,182 378,125
10,000 International Gaming Tech 225,628 182,500
------- -------
517,810 560,625 8.88%
Healthcare Products
3,000 Bristol Myers Squibb 161,167 327,000
4,000 Gillette Co. 167,590 311,000
12,000 Johnson & Johnson 202,705 597,000
------- -------
531,462 1,235,000 19.57%
Tobacco
3,000 American Brands 139,950 148,875
5,000 Phillip Morris 243,684 565,000
------- -------
383,634 713,875 11.31%
Total** $3,902,797 $6,286,236 99.62%
Other Assets Less Liabilities $23,900 0.38%
Net Assets Equivalent to $10.73
per share on 587,995 shares of
capital stock outstanding $6,310,136 100.00%
==========
*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
December 31, 1996
Assets:
Investment Securities at Market Value
(Identified Cost - $3,902,797) $6,286,236
Cash 20,524
Receivables:
Dividends and Interest 13,878
---------
Total Assets 6,320,638
Liabilities
Payables:
Shareholder Distributions 0
Accrued Expenses 10,502
---------
Total Liabilities 10,502
Net Assets 6,310,136
Net Assets Consist of:
Capital Paid In 4,011,457
Undistributed Net Investment Income (42,171)
Accumulated Realized Gain (Loss) on Investments - Net (42,589)
Unrealized Appreciation in Value of Investments
Based on Identified Cost - Net 2,383,439
----------
Net Assets, for 587,995 Shares Outstanding $6,310,136
Net Asset Value ($6,310,136 / 587,995) $10.73
Statement of Operations
December 31, 1996
Investment Income:
Dividends 114,527
Interest 10,489
-------
Total Investment Income 125,016
Expenses
Registration Expense 4,574
Trustee Fees (Note 3) 800
Accounting Pricing and Transfers 26,349
Custody 6,146
Audit 6,000
Legal 40,936
Management Fees (Note 2) 59,963
Proxy Solicitation 16,033
Printing & Other Miscellaneous 6,386
-------
Total Expenses 167,187
Net Investment Income (42,171)
Realized Gain (Loss) on Investments 0
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments 865,489
-------
Net Realized and Unrealized Gain (Loss) on Investments 865,489
Net Increase (Decrease) in Net Assets from Operations $823,318
========
The Accompanying Notes are an Integral
Part of the Finanacial Statements.
<PAGE>
MORGAN FUNSHARES, INC.
Statement of Changes in Net Assets
01/01/96 01/01/95
to to
12/31/96 12/31/95
From Operations:
Net Investment Income 29,401 (42,171)
Net Realized Gain (Loss) on Investments 0 (26,492)
Net Unrealized Appreciation (Depreciation) 865,489 1,207,079
------- ----------
Increase (Decrease) in Net Assets from Operations 823,318 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 (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 823,318 1,180,588
Net Assets at Beginning of Period (including
undistributed net investment income of $0) 5,486,818 4,306,230
Net Assets at End of Period (including
undistributed net investment income of $0). 6,310,136 5,486,818
Financial Highlights
01/01/96 01/01/95 06/22/94
Selected Data for a Share of Common to to to
Stock Outstanding Throughout the Period: 12/31/96 12/31/95 12/31/94
----------------------------------
Net Asset Value -
Beginning of Period $9.33 $7.32 $7.31
Net Investment Income (0.07) 0.05 0.04
Net Gains or Losses on Securities
(realized and unrealized) 1.47 2.01 0.01
---- ---- ----
Total from Investment Operations 1.40 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 $10.73 $9.33 $7.32
Total Return 15.01% 28.29% 0.68%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 6,310 5,486 4,306
Ratio of Expenses to Average Net Assets 2.80% 2.04% 1.06%
Ratio of Net Income to Average Net Assets (0.71%) 0.59% 0.47%
Portfolio Turnover Rate 0% 2% 6%
The Accompanying Notes are an Integral
Part of the Financial Statements.
<PAGE>
MORGAN FUNSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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>
MORGAN FUNSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 administative 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 $930 for the period ending
December 31, 1996.
4.) Capital Stock and Distribution
At December 31, 1996, 1,000,000 shares of capital stock ($.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 December 31, 1996, purchases and sales of
investment securities other than U.S. Government obligations and short-term
investments aggregated $281,630 and $0 respectively.
6.) Financial Instruments Disclosure
There are no reportable financial instruments which have any off-balance
sheet risk as of December 31, 1996.
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, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
8.) Security Transactions
For Federal income tax purposes, the cost of investments owned at December
31, 1996 was the same as identified cost.
At December 31, 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)
------------ -------------- -------------------------------
2,612,660 (229,221) 2,383,439
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 year ended December 31, 1996.
Capital Paid In Undistributed Net Investment Loss
--------------- ---------------------------------
(42,171) 42,171
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors:
Maxus Laureate Fund
We have audited the accompanying statement of assets and liabilities of Maxus
Laureate Fund, including the schedule of portfolio investments, as of December
31, 1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the periods then
ended, and financial highlights for each of the three years in the periods then
ended and for the period from May 1, 1993 (commencement of operations) to
December 31, 1993. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments and cash held by
the custodian as of December 31, 1996, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Maxus
Laureate Fund as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
periods then ended, and the financial highlights for each of the three years in
the periods then ended and for the period from May 1, 1993 to December 31, 1993,
in conformity with generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 15, 1997
<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
