MORGAN FUNSHARES ANNUAL REPORT - LETTER TO SHARHOLDERS
Dear Fellow Shareholder:
The basic principles of this fund are showing positive results. These basic
principles are as follows:
Following the success of Warren Buffet, we buy and hold. Fun Shares has not yet
sold any of its holdings.
We have so far purchased shares in companies with low priced, habit-forming
commodities and good trade names; the purpose being to have a fund that lasts
through the years.
Since we are not selling investments, there are not funds available to buy
shares in new companies. This reduces the cost of transaction costs.
Although the fund is small, it has attracted a lot of attention. In fact, Sir
John Templeton, the founder of The Templeton Funds, wrote me a personal note
congratulating me on the fact for a moment at least Fun Shares was the
outstanding performer in the closed-end mutual fund category.
Sincerely,
/s/ Burton D. Morgan
Burton D. Morgan
Morgan FunShares, Inc.
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Schedule of Investments
December 31,1998
Current % of
Shares/Units Cost Value Assets
Beverage Alcoholic
6,000 Anheuser Busch 101,236 393,750
10,000 Seagrams 246,643 380,000
347,879 773,750 8.53%
Beverage Non-Alcoholic
8,000 Coca Cola 113,295 536,000
10,000 PepsiCo 142,480 408,750
255,775 944,750 10.41%
Consumer Products - Retail
4,000 Eastman Kodak 192,390 288,000
3,000 Fortune Brands 88,421 94,875
280,811 382,875 4.22%
Consumer Products - Paper
8,000 Kimberly Clark 126,220 436,000 4.81%
Consumer Products - Food
480 EarthGrains 4,218 14,850
3,200 McDonalds 141,680 245,800
6,000 RJR Nabisco 203,925 178,125
1,000 Tricon Global Restaurants* 11,708 50,125
5,000 Wrigley Co. 230,330 447,813
591,861 936,713 10.33%
Drugs & Toiletries
10,000 Carter Wallace 126,301 196,875 2.17%
Entertainment
10,344 AMC Entertainment 133,490 217,870
5,000 Harrah's Entertainment* 93,851 78,438
400 Schweitzer-Mauduit 3,529 6,175
20,000 Time Warner 206,446 1,241,250
9,000 Walt Disney 123,565 270,000
560,881 1,813,733 19.99%
Gaming
11,000 Circus Circus Enterprises* 292,182 124,437
10,000 International Gaming Tech 225,628 243,125
517,810 367,562 4.05%
Healthcare Products
6,000 Bristol Myers Squibb 161,167 802,875
8,000 Gillette Co. 167,590 382,500
12,000 Johnson & Johnson 202,705 1,006,500
531,462 2,191,875 24.16%
Tobacco
3,000 Gallaher Group PLC 51,529 81,562
15,000 Phillip Morris 243,684 802,500
295,213 884,062 9.75%
Total of Securities** $3,634,213 $8,928,195 98.42%
112,508 Star Bank Treasury 112,508 112,508 1.24%
Total Investments $3,746,721 $9,040,703 99.66%
Other Assets Less Liabilities 31,053 0.34%
Net Assets Equivalent to $7.71 per
share on 1,175,990 shares of capital
stock outstanding $9,071,756 100.00%
* 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).
The Accompanying Notes are an Integral part of the Financial
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Morgan FunShares, Inc.
Statement of Assets & Liabilities
December 31, 1998
Assets:
Investment Securities at Market Value $9,040,703
(Identified Cost - $3,746,721) 100
Cash
Receivables:
Dividends and Interest 15,096
From related party 42,193
Total Assets 9,098,092
Liabilities
Payables: 26,336
Accrued expenses 26,336
Total Liabilities 9,071,756
Net Assets
Net Assets Consist of:
Capital Paid In 3,934,193
Undistributed Net Investment Income 0
Accumulated Realized (Loss) on Investments - Net (156,419)
Unrealized Appreciation in Value of Investments
Based on Identified Cost - Net 5,293,982
Net Assets, for 1,175,990 Shares Outstanding $9,071,756
Net Asset Value ($9,071,756/1,175,990) $7.71
Statement of Operations
December 31, 1998
Investment Income:
Dividends 3,472
Interest 123,911
Total Investment Income 127,383
Expenses
Registration Expense 9,633
Trustee Fees (Note 3) 2,000
Accounting and Pricing 39,929
Custody 5,792
Audit 9,777
Legal 32,013
Management Fees (Note 2) 84,730
Printing & Other Miscellaneous 13,432
Total Expenses 197,306
Reimburse of Management Fees (Note 2) (34,827)
Total Expenses (after reimbursement) 162,479
Net Investment Income (Loss) (35,096)
Realized Gain (Loss) on Investments 0
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments 1,473,215
Net Realized and Unrealized Gain
(Loss) on Investments 1,473,215
Net Increase (Decrease) in Net Assets from Operations $1,438,119
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
01/01/98 01/01/97
to to
12/31/98 12/31/97
From Operations:
Net Investment Income (35,096) $40,398
Net Realized Gain (Loss) on Investments 0 (113,600)
Net Unrealized Appreciation (Depreciation) 1,473,215 1,437,098
Increase (Decrease) in Net Assets
from Operations 1,438,119 1,363,896
From Distributions to Shareholders
Net Investment Income 0 (40,395)
Net Realized Gain (Loss) from
Security Transactions 0 0
Net Increase (Decrease) from Distributions 0 (40,395)
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 $1,438,119 $1,323,501
Net Assets at Beginning of Period (including
undistributed net investment income of $0). $7,633,637 $6,310,136
Net Assets at End of Period (including
undistributed net investment income of $0) $9,071,756 $7,633,637
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
<TABLE>
<S> <C> <C> <C> <C> <C>
01/01/98 1/01/97* 1/01/96* 1/01/95* 6/22/94*
to to to to to
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
Net Asset Value Beginning of Period $6.49 $5.37 $4.67 $3.66 $3.65
Net Investment Income (0.03) 0.04 (0.04) 0.03 0.02
Net Gains or Losses on Securities
(realized and unrealized) 1.25 1.12 0.74 1.01 0.01
Total from Investment Operations 1.22 1.16 0.70 1.04 0.03
Dividends
(from net investment income) 0.00 (0.04) 0.00 (0.03) (0.02)
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 (0.04) 0.00 (0.03) (0.02)
Net Asset Value -
End of Period $7.71 $6.49 $5.37 $4.67 $3.66
Total Return 18.80% 21.61% 15.01% 28.29% 0.68%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 9,072 7,634 6,310 5,486 4,306
Ratio of Expenses to Average Net Assets
(before reimbursements) 2.43 1.99 2.80 2.04 1.06
Ratio of Expenses to Average Net Assets
(after reimbursements) 2.00 1.31 2.80 2.04 1.06
Ratio of Net Income to Average Net Assets
(before reimbursements) (0.86) (0.11) (0.71) 0.59 0.47
Ratio of Net Income to Average Net Assets
(after reimbursements) (0.43) 0.58 (0.71) 0.59 0.47
Portfolio Turnover Rate 0% 0% 0% 2% 6%
</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
December 31, 1998
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 war paid $49,903 during 1998 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.
<PAGE>
Morgan FunShares, Inc.
Notes to Financial Statements
December 31, 1998
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, 1998.
4.Capital Stock and Distribution At December 31, 1998, 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 issued by 2 for 1 stock split 587,995
Shares retired
0
Net Increase 587,955
Shares Outstanding:
Beginning of Period 587,995
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 period ended December 31, 1998,
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 December 31, 1998.
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,
1998 was the same as identified cost.
At December 31, 1998, 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)
5,502,940 (208,958) 5,293,982
9.Reclassification
In accordance with AICPA Statement of Position 93-2, the components of the net
assets of the Fund have been reclassified to the extent that the net
investment loss of ($35,096) sustained during the fiscal year ended December
31, 1998, which represents a permanent difference for income tax purposes, has
been reclassified as a decrease in the net capital paid in.
<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, 1998, 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 four 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, 1998, by correspondence with the custodian.
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 Morgan
FunShares, Inc. as of December 31, 1998, 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 four years in
the periods then ended and for the period from June 22, 1994 (commencement of
operations) to December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ McCurdy & Associates
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 25, 1999
