MORGAN FUNSHARES SEMI-ANNUAL REPORT - LETTER TO SHARHOLDERS
Dear Shareholders:
As you recall, the initial name of Morgan Fun Shares was Sin Shares. You will be
glad to know we have long passed the point where we thought that sin was the way
to prosperity. However, we have capitalized on the positive point of sin, which
is habit-forming commodities. These habit-forming commodities do not need to be
sinful, and we have stopped any purchase of shares representing sin and have
concentrated on low price, habit-forming commodities.
The number one habit forming commodity, of course, is toilet paper which people
are going to buy even if they are poor.
Although the real purpose of Fun Shares was to protect our investment in case of
hard times and massive unemployment, we have done well even tough we are living
in an era of unprecedented prosperity. We have also been guided by the success
of Warren Buffet who is reluctant to sell shares. You will be glad to know that
we have never sold any shares. This, of course, means we do not have many funds
to invest.
You may also be surprised to know that each of the directors has a source of
knowledge of different businesses and companies. At our meeting, each of us
comes up with a recommendation gathered from another source.
Some of our investors have questioned why we are a closed end fund. Again, the
purpose of being a closed end fund is safety and stability. If there should be a
heavy downturn in the market, it is possible that Fun Shares shareholders will
want to cash in their shares. Normally, the fund manager must provide this money
immediately and, therefore, he is forced to sell shares at a low price. This
cannot happen with a closed end fund. However, it is not as bad as it sounds.
There is a market in closed end funds, but it moves much slower, and in our
estimation it is able to withstand panic.
This is a tiny fund, and we would be glad to hear from any of our shareholders.
Sincerely,
/s/ Burton D. Morgan
Burton D. Morgan
Morgan FunShares, Inc
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Morgan FunShares, Inc.
Schedule of Investments
June 30,1999 (unaudited)
Shares/Units Current Value % of Assets
Beverage Alcoholic
6,000 Anheuser Busch 425,625
10,000 Seagrams 503,750
929,375 9.8%
Beverage Non-Alcoholic
8,000 Coca Cola 496,000
10,000 PepsiCo 386,875
882,875 9.3%
Consumer Products -Retail
4,000 Eastman Kodak 271,000
3,000 Fortune Brands 124,125
395,125 4.1%
ConsumerProducts -Paper
8,000 Kimberly Clark 456,000 4.8%
Consumer Products -Food
480 EarthGrains 12,390
6400 McDonalds 263,200
6,000 RJR Nabisco 117,375
1,000 Tricon Global Restaurants* 54,125
5,000 Wrigley Co. 445,937
893,027 9.4%
Drugs & Toiletries
10,000 Carter Wallace 181,875 1.9%
Entertainment
10,344 AMC Entertainment 199,122
5,000 Harrah's Entertainment* 110,312
20,000 Time Warner 1,452,500
9,000 Walt Disney 274,500
2,042,434 21.6%
Gaming
11,000 Circus Circus Enterprises* 233,062
10,000 International Gaming Tech 185,000
418,062 4.4%
Healthcare Products
12,000 Bristol Myers Squibb 845,250
8,000 Gillette Co. 328,000
12,000 Johnson & Johnson 1,176,000
2,349,250 24.9%
Tobacco
3,000 Gallaher Group PLC 73,313
15,000 Phillip Morris 602,813
2,000 RJR Reynold Tobacco 63,500
400 Schweitzer-Mauduit 6,000
745,626 7.9%
Total of Securities** $9,287,649 98.6%
123,832 Star Bank Treasury 123,832 1.3%
Total Investments $9,411,481 1.0%
(cost $3,758,045)
Other Assets Less Liabilities 55 0.0%
Net Assets Equivalent to
$8.00 per share on
1,175,990 shares of $9,411,536 100.0%
capital stock outstanding
* 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).
The Accompanying Notes are an Integral part of the Financial Statements.
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Morgan FunShares, Inc.
Statement of Assets & Liabilities
June 30, 1999 (unaudited)
Assets:
Investment Securities at Market Value
(Identified Cost - $3,758,045) $9,411,481
Cash 100
Receivables:
Dividends and Interest 14,664
From related party 42,193
Total Assets 9,468,438
Liabilities
Payables:
Accrued expenses 56,902
Total Liabilities 56,902
Net Assets 9,411,536
Net Assets Consist of:
Capital Paid In 3,934,193
Undistributed Net Investment Income (19,674)
Accumulated Realized (Loss) on Investments - Net (156,419)
Unrealized Appreciation in Value of Investments
Based on Identified Cost - Net 5,653,436
Net Assets, for 1,175,990 Shares Outstanding $9,411,536
Net Asset Value ($9,411,536/1,175,990) $8.00
Statement of Operations
June 30, 1999 (unaudited)
Investment Income:
Dividends 51,319
Interest 15,895
Total Investment Income 67,214
Expenses
Registration Expense 5,350
Trustee Fees (Note 3) 800
Accounting and Pricing 18,396
Custody 2,351
Audit 9,600
Legal 14,130
Management Fees (Note 2) 45,957
Printing & Other Miscellaneous 1,583
Total Expenses 98,167
Reimburse of Management Fees (Note 2) (11,279)
Total Expenses (after reimbursement) 86,888
Net Investment Income (Loss) (19,674)
Realized Gain (Loss) on Investments 0
Unrealized Gain (Loss) from Appreciation 359,454
(Depreciation) on Investments
Net Realized and Unrealized Gain (Loss) on 359,454
Investments
Net Increase (Decrease) in Net Assets from $339,780
Operations
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, 1998
01/01/99 01/01/98
to to
12/31/99 12/31/98
From Operations:
Net Investment Income (19,674) (35,096)
Net Realized Gain (Loss) on Investments 0 0
Net Unrealized Appreciation (Depreciation) 359,454 1,473,215
Increase (Decrease) in Net Assets
from Operations 339,780 1,438,119
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 $339,780 $1,438,119
Net Assets at Beginning of Period (including
undistributed net investment income of $0). $9,071,756 $7,633,637
Net Assets at End of Period (including
undistributed net investment income of $0) $9,411,536 $9,071,756
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
<TABLE>
<S> <C> <C> <C> <C> <C>
01/01/99 01/01/98 1/01/97* 1/01/96* 1/01/95*
to to to to to
06/30/99 12/31/98 12/31/97 12/31/96 12/31/95
Net Asset Value Beginning of Period $7.71 $6.49 $5.37 $4.67 $3.66
Net Investment Income (0.02) (0.03) 0.04 (0.04) 0.03
Net Gains or Losses on Securities
(realized and unrealized) .31 1.25 1.12 0.74 1.01
Total from Investment Operations .29 1.22 1.16 0.70 1.04
Dividends
(from net investment income) 0.00 0.00 (0.04) 0.00 (0.03)
Distributions (from capital gains) 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
Total Distributions 0.00 0.00 (0.04) 0.00 (0.03)
Net Asset Value -
End of Period $8.00 $7.71 $6.49 $5.37 $4.67
Total Return 7.52% 18.80% 21.61% 15.01% 28.29%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 9,412 9,072 7,634 6,310 5,486
Ratio of Expenses to Average Net Assets
(before reimbursements) 2.14 2.43 1.99 2.80 2.04
Ratio of Expenses to Average Net Assets
(after reimbursements) (0.67) 2.00 1.31 2.80 2.04
Ratio of Net Income to Average Net Assets
(before reimbursements) 1.89 (0.86) (0.11) (0.71) 0.59
Ratio of Net Income to Average Net Assets
(after reimbursements) (0.43) (0.43) 0.58 (0.71) 0.59
Portfolio Turnover Rate 0% 0% 0% 0% 2%
</TABLE>
*Adjusted for a 2 for 1 stock split in 1998
The Accompanying Notes are an Integral Part of the Financial Statements.
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Morgan FunShares, Inc.
Notes to Financial Statements
June 30, 1999 (unaudited)
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. The Advisor was
paid $34,678 during the six month period ending June 30, 1999 net of
reimbursements.
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.
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Morgan FunShares, Inc.
Notes to Financial Statements
June 30, 1999 (unaudited)
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 six months ending June 30, 1999.
4. Capital Stock and Distribution
At June 30, 1999, 2,500,000 shares of capital stock without 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 1,175,910
End of Period 1,175,910
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 six months ending June 30, 1999, 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, 1999.
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 June
30, 1999 was the same as identified cost.
At June 30, 1999, 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)
5,839,734 (186,298) 5,653,436
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