MORGAN
FUNSHARES, INC
ANNUAL REPORT
1999
To Our Shareholders:
The underlying philosophy of Morgan FunShares is to purchase shares in
companies whose principal business or service is habit forming. Although
FunShares started with investments in tobacco companies, and we still hold most
of these investments, we have not made purchases in tobacco or liquor companies
in recent years. These original investments in tobacco companies were made when
our name was still "Sin Shares". Additionally, we want to invest in these
companies for the long term. Last year was a difficult year for most investors
if, like Morgan FunShares, you were not invested in technology companies. In
spite of the market conditions that were not kind to consumer companies, the
Morgan FunShares' annualized return is still 14.06% per year since inception.
As we begin the new millennium, we have decided to make a few minor changes
in the portfolio to better position the fund as we move forward. We will remain
true to the fund's objectives and will continue to follow Warren Buffett's
approach of buying low and holding for the long term.
Morgan FunShares is a small fund and we would be glad to hear from any of
our shareholders. We would also be interested in your suggestion for future
FunShares investments.
Regards
Burton D. Morgan
<PAGE>
SCHEDULE OF INVESTMENTS
DECEMBER 31,1999
Shares/Units Current Value % of Assets
Beverage Alcoholic
6,000 Anheuser Busch 425,250
10,000 Seagrams 449,375
---------
874,625 10.1%
Beverage Non-Alcoholic
8,000 Coca Cola 466,000
10,000 PepsiCo 352,500
---------
818,500 9.5%
Consumer Products - Retail
4,000 Eastman Kodak 265,000
3,000 Fortune Brands 99,188
---------
364,188 4.2%
Consumer Products - Paper
8,000 Kimberly Clark 522,000 6.0%
Consumer Products - Food
480 EarthGrains 7,740
6400 McDonalds 258,000
6,000 RJR Nabisco 63,750
1,000 Tricon Global Restaurants* 38,625
5,000 Wrigley Co. 414,688
--------
782,803 9.1%
Drugs & Toiletries
10,000 Carter Wallace 179,375 2.1%
Entertainment
10,344 AMC Entertainment* 89,217
5,000 Harrah's Entertainment* 132,188
20,000 Time Warner 1,448,750
9,000 Walt Disney 263,250
----------
1,933,405 22.4%
Gaming
11,000 Mandalay Resort Group* 221,375
10,000 International Game Tech 203,125
----------
424,500 4.9%
Healthcare Products
12,000 Bristol Myers Squibb 770,250
8,000 Gillette Co. 329,500
12,000 Johnson & Johnson 1,117,500
----------
2,217,250 25.6%
Tobacco
3,000 Gallaher Group PLC 46,123
15,000 Phillip Morris 347,813
2,000 RJR Reynold Tobacco 35,250
400 Schweitzer-Mauduit 5,375
----------
434,561 5.0%
Total of Securities** $8,551,207 98.9%
156,216 Firstar Treasury
Fund 4.51% 156,216 1.8%
Total Investments
(cost $3,790,429) $8,707,423 100.7%
Other Assets Less
Liabilities (58,966) (0.7)%
Net Assets Equivalent to
$7.35 per share on 1,175,990
shares of capital stock
outstanding $8,648,457 100.0%
* Non Income Producing
** Identified cost equals tax basis of securites
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1999
Assets:
Investment Securities at Market Value
(Identified Cost - $3,790,429) $8,707,423
Cash 100
Receivables:
Dividends and Interest 15,201
----------
Total Assets 8,722,724
Liabilities
Payables:
Accrued expenses 74,267
----------
Total Liabilities 74,267
Net Assets 8,648,457
Net Assets Consist of:
Capital Paid In 3,887,652
Accumulated Undistributed Realized
(Loss) on Investments - Net (156,189)
Unrealized Appreciation in Value of
Investments Based on Identified Cost - Net 4,916,994
-----------
Net Assets, for 1,175,990 Shares Outstanding $8,648,457
Net Asset Value ($8,648,457/1,175,990) $7.35
<PAGE>
STATEMENT OF OPERATIONS
DECEMBER 31, 1999
Investment Income:
Dividends 129,235
Interest 3,886
---------
Total Investment Income 133,121
Expenses
Management Fees (Note 2) 90,604
Accounting and Pricing 40,079
Legal 15,723
Audit 9,600
Printing & Other Miscellaneous 11,456
Custody/Transfer Agent 6,770
Registration Expense 4,000
Trustee Fees (Note 3) 1,200
---------
Total Expenses 179,432
Net Investment Income (Loss) (46,311)
Realized Gain (Loss) on Investments 0
Unrealized Appreciation (Depreciation) on Investments (376,988)
---------
Net Realized and Unrealized Gain (Loss) on Investments (376,988)
Net Increase (Decrease) in Net Assets from Operations $(423,299)
The Accompanying Notes are an Integral Part of the Financial Statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
DECEMBER 31, 1999
01/01/99 01/01/99
to to
12/31/99 12/31/99
From Operations:
Net Investment Income/Loss (46,311) (35,096)
Net Realized Gain/(Loss)
on Investments 0 0
Net Unrealized Appreciation
(Depreciation) (376,988) 1,473,215
Increase (Decrease) in Net -------- --------
Assets from Operations (423,299) 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 Shares 0 0
Cost of Shares Retired 0 0
-------- --------
0 0
Net Increase (decrease) in Net Assets $(423,299) $1,438,119
Net Assets at Beginning of Period $9,071,756 $7,633,637
Net Assets at End of Period (including
accumulated undistributed net investment
income of $0) $8,648,457 $9,071,756
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout the period:
01/01/99 01/01/98 01/01/97* 01/01/96* 01/01/95*
to to to to to
12/31/99 12/31/99 12/31/99 12/31/99 12/31/99
Net Asset Value Beginning
of Period $7.71 $6.49 $5.37 $4.67 $3.66
Net Investment Income
(loss) (0.04) (0.03) 0.04 (0.04) 0.03
Net Gains or Losses on
Securities (realized and
unrealized) (0.32) 1.25 1.12 0.74 1.01
Total from Investment ------ ------ ------ ------ ------
Operations (0.36) 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 $7.35 $7.71 $6.49 $5.37 $4.67
Total Return (4.67)% 18.80% 21.61% 15.01% 28.29%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 8,648 9,072 7,634 6,310 5,486
Ratio of Expenses to
Average Net Assets
(before reimbursements) 1.98 2.43 1.99 2.80 2.04
Ratio of Expenses to
Average Net Assets
(after reimbursements) 1.98 2.00 1.31 2.80 2.04
Ratio of Net Income to
Average Net Assets
(before reimbursements) (.51) (0.86) (0.11) (0.71) 0.59
Ratio of Net Income to
Average Net Assets
(after reimbursements) (.51) (0.43) 0.58 (0.71) 0.59
Portfolio Turnover Rate 0% 0% 0% 0% 2%
*Adjusted for a 2 for 1 stock split in 1998
The Accompanying Notes are an Integral part of the Financial Statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 non-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.
Identified cost equals tax basis of securities. The Fund has loss
carryover's of $156,189 that expire as follows: $16,097 in 2002, $26,492 in
2003, and $113,600 in 2005.
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 which cause the total expenses to exceed 2% of
average net assets. The Advisor was paid $90,604 during the year ending
December 31, 1999 net of reimbursements.
<PAGE>
3. Related Party Transactions
Certain officers and/or directors of the Fund are officers and/or directors
of Maxus Investment Group. Maxus Investment Group owns 49% of Mutual
Shareholder Services, which provides accounting 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 year ending December 31, 1999.
4. Capital Stock and Distribution
At December 31, 1999, 2,500,000 shares of capital stock without par value
were authorized, and paid-in capital amounted to $3,887,882. 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 year ending December 31, 1999, purchases and sales of investment
securities other than U.S. Government obligations and short-term
investments aggregated $0 and $0 respectively.
6. 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.
7. Security Transactions
For Federal income tax purposes, the cost of investments owned at December
31, 1999 was the same as identified cost.
At December 31, 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)
------------ ------------ ------------------------------
5,200,156 (283,162) 4,916,994
8. Reclassification In accordance with AICPA Statement of Position 93-2,
the components of the net assets of the Morgan Funshares have been
reclassified to the extent that the net investment loss of ($46,311)
sustained during the year ending December 31, 1999 and a net realized loss
of $230, which represents a permanent difference for income tax purposes,
have been reclassified as a decrease in the net paid-in-capital.
<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, 1999, 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 five years in the periods then
ended. 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, 1999, 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, 1999, 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 five years in
the periods then ended, in conformity with generally accepted accounting
principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 20, 2000
<PAGE>
Morgan FunShares, Inc.
28601 Chagrin Blvd., Cleveland, Ohio 44122
(216)292-3434
Investment Advisor
--------------------
Burton D. Morgan
10 West Streetsboro St.
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, Cairman
Robert F. Pincus, President
james C Onorato, Vice-President
Catherine Kantorowski, Secretary
Custodian
-----------
Star Bank, N.A.
425 Walnut St.
P.O. Box 1118
Cincinnati, Ohio 45201-1118
Legal Counsel
---------------
Buckingham, Doolittle & Burroughs
One Cleveland Center, Suite 1700
1375 East Ninth St.
Cleveland, Ohio 44114-1724
Auditor
---------
McCurdy & Associates CPA's Inc.
27955 Clemens Rd.
Westlake, Ohio 44145
