MORGAN FUNSHARES ANNUAL REPORT - LETTER TO SHAREHOLDERS
Dear Shareholders:
Mutual Fund Magazine continues to be our great supporter introducing us to
international media. Mutual Fund Magazine has again given us a tremendous
article on page 70 of their January, 1998 issue. The fund now has a reputation
for investing in habit forming, low priced commodities, which is our real
purpose. At the request of NASDAQ, we are splitting the shares 2 to 1, which
will be occurring, in our next Directors' Meeting.
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.
Sincerely,
Burton D. Morgan
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Morgan FunShares, Inc.
[CAPTION]
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<S> <C> <C> <C>
Schedule of Investments
December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Shares/Units Cost Current Value % of Assets
- -------------------------------------------------------------------------------------------------------------------
Beverage Alcoholic
6,000 Anheuser Busch 101,236 264,000
10,000 Seagrams 246,643 323,125
------- -------
347,879 587,125 7.69%
Beverage Non-Alcoholic
8,000 Coca Cola 113,295 533,500
10,000 PepsiCo 142,480 362,500
------- -------
255,775 896,000 11.74%
Consumer Products - Retail
4,000 Eastman Kodak 192,390 242,250
3,000 Fortune Brands 88,421 111,187
------ -------
280,811 353,437 4.63%
Consumer Products - Paper
8,000 Kimberly Clark 126,220 394,500 5.17%
Consumer Products - Food
240 EarthGrains 4,218 11,280
3,200 McDonalds 141,680 152,800
6,000 RJR Nabisco 203,925 225,000
1,000 Tricon Global Restaurants* 11,708 29,063
5,000 Wrigley Co. 230,330 397,812
------- -------
591,861 815,955 10.69%
Drugs & Toiletries
10,000 Carter Wallace 126,301 170,000 2.23%
Entertainment
6,000 AMC Ent $1.75 CV Pfd 133,490 231,000
5,000 Harrah's Entertainment* 93,851 94,375
400 Schweitzer-Mauduit 3,529 14,900
10,000 Time Warner 206,446 620,000
3,000 Walt Disney 123,565 297,000
------- -------
560,881 1,257,275 16.47%
Gaming
11,000 Circus Circus Enterprises* 292,182 225,500
10,000 International Gaming Tech 225,628 252,500
------- -------
517,810 478,000 6.26%
Healthcare Products
6,000 Bristol Myers Squibb 161,167 567,750
4,000 Gillette Co. 167,590 401,750
12,000 Johnson & Johnson 202,705 790,500
------- -------
531,462 1,760,000 23.05%
Tobacco
3,000 Gallaher Group PLC 51,529 63,938
15,000 Phillip Morris 243,684 678,750
------- -------
295,213 742,688 9.73%
Total of Securities** $3,634,213 $7,454,980 97.66%
145,993 Star Bank Treasury 145,993 145,993 1.91%
Total Investments $3,780,206 $7,600,973 99.57%
Other Assets Less Liabilities 32,664 0.43%
Net Assets Equivalent to $12.98 per share
on 587,995 shares of capital stock outstanding $7,633,637 100.00%
==========
* Non Income Producing
** Identified cost equals tax basis of securities.
Realized losses on investments expire in
2002 ($16,097), 2003 ($26,492) and 2005 ($113,600).
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The Accompanying Notes are an Integral part of the Financial Statements.
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Morgan FunShares, Inc.
Statement of Assets & Liabilities
December 31, 1997
Assets:
Investment Securities at Market Value
(Identified Cost - $3,780,206) $7,600,973
Cash 100
Receivables:
Dividends and Interest 16,891
From related party 47,767
Prepaid expenses 8,301
----------
Total Assets 7,674,032
Liabilities
Payables:
Shareholder Distributions 40,395
----------
Total Liabilities 40,395
Net Assets 7,633,637
Net Assets Consist of:
Capital Paid In 3,969,286
Undistributed Net Investment Income 3
Accumulated Realized Gain on Investments - Net (156,416)
Unrealized Appreciation in Value of Investments
Based on Identified Cost - Net 3,820,767
----------
Net Assets, for 587,995 Shares Outstanding $7,633,637
Net Asset Value ($7,633,637/587,995) $12.98
Statement of Operations
December 31, 1997
Investment Income:
Dividends $130,280
Interest 1,984
---------
Total Investment Income 132,264
Expenses
Registration Expense 5,275
Trustee Fees (Note 3) 2,800
Transfer Agent and Pricing 30,088
Custody 4,731
Audit 9,500
Legal 17,853
Management Fees (Note 2) 61,671
Proxy Solicitation 1,428
Printing & Other Miscellaneous 6,287
----------
Total Expenses 139,633
Reimburse of Management Fees (Note 2) (47,767)
----------
Total Expenses (after reimbursement) 91,866
Net Investment Income (Loss) 40,398
Realized Gain (Loss) on Investments (113,600)
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments 1,437,098
----------
Net Realized and Unrealized Gain (Loss) on Investments 1,323,498
Net Increase (Decrease) in Net Assets from Operations $1,363,896
===========
The Accompanying Notes are an Integral Part of the Financial Statements.
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Morgan FunShares, Inc.
Statement of Changes in Net Assets
December 31, 1997
01/01/97 01/01/96
to to
12/31/97 12/31/96
-------- --------
From Operations:
Net Investment Income $40,398 $(42,171)
Net Realized Gain (Loss) on Investments (113,600) 0
Net Unrealized Appreciation (Depreciation) 1,437,098 865,489
--------- ---------
Increase (Decrease) in Net Assets from Operations 1,363,896 823,318
From Distributions to Shareholders
Net Investment Income (40,395) 0
Net Realized Gain (Loss) from Security Transactions 0 0
--------- ---------
Net Increase (Decrease) from Distributions (40,395) 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 $1,323,501 $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) $7,633,637 $6,310,136
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
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<S> <C> <C> <C> <C>
01/01/97 01/01/96 01/01/95 06/22/94
to to to to
12/31/97 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 0.07 (0.07) 0.05 0.04
Net Gains or Losses on Securities (realized and unrealized) 2.25 1.47 2.01 0.01
-------- -------- -------- --------
Total from Investment Operations 2.32 1.40 2.06 0.05
Dividends
(from net investment income) (0.07) 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 (0.07) 0.00 (0.05) (0.04)
Net Asset Value -
End of Period $12.98 $10.73 $9.33 $7.32
Total Return 21.61% 15.01% 28.29% 0.68%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 7,634 6,310 5,486 4,306
Ratio of Expenses to Average Net Assets (before reimbursements) 1.99 2.80 2.04 1.06
Ratio of Expenses to Average Net Assets (after reimbursements) 1.31 2.80 2.04 1.06
Ratio of Net Income to Average Net Assets (before reimbursements)(0.11) (0.71) 0.59 0.47
Ratio of Net Income to Average Net Assets (after reimbursements) 0.58 (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
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Satements.
<PAGE>
Morgan FunShares, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Significant Accounting Policies
Morgan FunShares, Inc., (The Fund), a non-diversified, closed-end
management investment company that seeks appreciation of capital, primarily
through investments in equity securities of companies that derive 50% or
more of their revenues from the sale of consumer durable products and
entertainment. The Fund 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 liabilities 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. The advisor will reimburse the
fund for any management fees whish cause the total expenses to exceed 2% of
average net assets.
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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 $0 for the period ending December 31, 1997.
4. Capital Stock and Distribution
At December 31, 1997, 1,000,000 shares of capital stock ($.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 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, 1997, purchases and sales of
investment securities other than U.S. Government obligations and short-term
investments aggregated $0 and $154,985 respectively.
6. Financial Instruments Disclosure
There are no reportable financial instruments which have any off-balance
sheet risk as of December 31, 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.
8. Security Transactions
For Federal income tax purposes, the cost of investments owned at December
31, 1997 was the same as identified cost.
At December 31, 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)
3,887,449 (66,682) 3,820,767
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors:
Morgan FunShares, Inc.
We have audited the accompanying statement of assets and liabilities of Morgan
FunShares, Inc., including the schedule of portfolio investments, as of December
31, 1997, 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 period then
ended, and financial highlights for each of the three years in the period then
ended and for the period from June 22, 1994 (commencement of operations) to
December 31, 1994. 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, 1997, by correspondence with the custodian and
brokers. An audit also included 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 Morgan
FunShares, Inc. as of December 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended and for the period from June 22, 1994 (commencement of
operations) to December 31, 1994, in conformity with generally accepted
accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 21, 1998
<PAGE>
Morgan FunShares, Inc.
1301East Ninth Street, Suite 3600, Cleveland, Ohio 44114
(216) 687-1000
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
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