ANNUAL REPORT
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Morgan FunShares, Inc.
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June 30, 2000
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MORGAN FUNSHARES SEMI-ANNUAL REPORT - LETTER TO SHAREHOLDERS
Dear Shareholder:
Our basic philosophy in Morgan FunShares is to own stocks in well know companies
making habit forming commodities. It has been our thought to stick with this
philosophy through both good and bad times. At the moment, on a relative basis,
we are going through some bad times when compared to the performance of the
stocks of the new internet and technology companies.
People are actually selling their shares in many established, profitable
companies to buy shares in these high flyers. It is our opinion that this
investment style will end soon and we will return to a more rational approach to
investing.
I hope all of our shareholders agree with our philosophy. We believe that our
approach is much more stable and long-lasting.
If any of our shareholders would like to submit a company for our consideration
as our next purchase, we would be delighted to hear from you.
Best regards,
Burton D. Morgan
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MORGAN FUNSHARES
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Schedule of Investments
June 30, 2000 (Unaudited)
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Shares/Principal Amount Market Value % of Assets
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Beverage Alcoholic
6,000 Anheuser Busch 448,125
10,000 Seagrams 580,000
---------
1,028,125 11.32%
Beverage Non-Alcoholic
8,000 Coca Cola 459,500
10,000 PepsiCo 444,375
---------
903,875 9.96%
Consumer Products -Retail
4,000 Eastman Kodak 238,000 2.62%
Consumer Products -Paper
8,000 Kimberly Clark Corp. 459,000 5.06%
Consumer Products -Food
6,400 McDonalds Corp. 210,800
6,000 Nabisco Group 155,625
1,000 Tricon Global Restaurants* 28,250
5,000 Wrigley Jr. Co. 400,938
---------
795,613 8.76%
Drugs & Toiletries
10,000 Carter Wallace 201,250 2.22%
Entertainment
5,000 Harrah's Entertainment* 104,688
20,000 Time Warner Inc. 1,520,000
9,000 Walt Disney Co. 349,312
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1,974,000 21.74%
Gaming
11,000 Mandalay Resort Group 220,000
10,000 International Game Technology 265,000
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485,000 5.34%
Healthcare Products
12,000 Bristol Myers Squibb Co. 699,000
8,000 Gillette Co, 279,500
12,000 Johnson & Johnson 1,222,500
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2,201,000 24.24%
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Tobacco
3,000 Gallaher Group PLC 64,313
15,000 Phillip Morris Companies Inc. 398,437
2,000 RJR Reynold Tobacco 55,875
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518,625 5.71%
Total Common Stocks 8,804,488 96.98%
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Bonds
100,000 Federal National Mortgage 96,370 1.06%
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Cash and Equivalents
171,892 Firstar Treasury Fund 171,892 1.89%
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Total Investments 9,072,750 99.94%
Other Assets Less Liabilities 5,678 0.06%
Net Assets 9,078,428 100.00%
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MORGAN FUNSHARES
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Statement of Assets and Liabilites
June 30, 2000 (Unaudited)
Assets:
Investment Securities at Market Value 9,072,750
(Identified Cost - 3,675,069)
Cash 100
Receivables:
Dividends and Interest 8,681
Other Assets -
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Total Assets 9,081,531
Liabilities
Payables:
Shareholder Distributions -
Accrued Expenses 3,103
---------
Total Liabilities 3,103
Net Assets 9,078,428
Net Assets Consist of:
Capital Paid In 3,887,652
Undistributed Net Investment Income (174,691)
Accumulated Realized Gain (Loss) on Investments - Net (32,214)
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net 5,397,681
---------
Net Assets, for 118,487 Shares Outstanding 9,078,428
Net Asset Value and Redemption Price
Per Share ($1,441,748/118,487 shares)
7.72
Offering Price Per Share 7.72
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MORGAN FUNSHARES
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Statement of Operations
For six months ending June 30, 2000 (Unaudited)
Investment Income:
Dividends 57,348
Interest 8,279
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Total Investment Income 65,627
Expenses
Management Fees (Note 2) 42,157
Custodial Fee 1,906
Legal fees 4,827
Transfer Agent Fees 20,447
Board of Dir fees 700
Regsrtation Fees 2,000
Audit 4,800
Other expenses 7,292
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Total Expenses 84,129
Net Investment Income (18,502)
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investments (32,214)
Unrealized Gain (Loss) from
Appreciation (Depreciation) on Investments 480,687
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Net Realized and Unrealized Gain (Loss) on Investments 448,473
Net Increase (Decrease) in Net Assets from Operations 429,971
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MORGAN FUNSHARES
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<TABLE>
<CAPTION>
Statement of Changes in Net Assets (Unaudited)
1/01/00 1/01/99
to to
6/30/00 12/31/99
<S> <C> <C>
From Operations:
Net Investment Income (18,502.00) (46,311.00)
Net Realized Gain (Loss) on Investments (32,214.00) 0.00
Net Unrealized Appreciation (Depreciation) 480,687.00 (376,988.00)
------------- -------------
Increase (Decrease) in Net Assets from Operations 429,971.00 (423,299.00)
From Distributions to Shareholders
Net Investment Income 0.00 0.00
Net Realized Gain (Loss) from Security Transactions 0.00 0.00
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Net Increase (Decrease) from Distributions 0.00 0.00
From Capital Share Transactions:
Proceeds From Sale of 0 Shares 0.00 0.00
Net Asset Value of 0 Shares Issued on Reinvestment of Dividends 0.00 0.00
Cost of 0 Shares Redeemed 0.00 0.00
------------- -------------
0.00 0.00
Net Increase in Net Assets 429,971.00 (423,299.00)
Net Assets at Beginning of Period 8,648,457.00 9,071,756.00
Net Assets at End of Period 9,078,428.00 8,648,457.00
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</TABLE>
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MORGAN FUNSHARES
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<TABLE>
<CAPTION>
Financial Highlights (Unaudited)
Selected data for a share of common stock 1/01/00 1/01/99 1/01/98 1/01/97 1/01/96
outstanding throughout the period: to to to to to
6/30/00 12/31/99 12/31/98 12/31/97 12/31/96
<S> <C> <C> <C> <C> <C>
Net Asset Value -
Beginning of Period $7.35 $7.71 $6.49 $5.37 $4.67
Net Investment Income/Loss (0.02) (0.04) (0.03) 0.04 (0.04)
Net Gains or Losses on Securities
(realized and unrealized) 0.39 (0.32) 1.25 1.12 0.74
------ ------ ------ ------ ------
Total from Investment Operations 0.37 (0.36) 1.22 1.16 0.70
Dividends
(from net investment income) 0.00 0.00 0.00 (0.04) 0.00
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 0.00 (0.04) 0.00
Net Asset Value
End of Period $7.72 $7.35 $7.71 $6.49 $5.37
Total Return 36.08% (4.67)% 18.80% 21.61% 15.01%
Ratios/Supplemental Data
Net Assets - End of Period (Thousands) 9,078 8,648 9,072 7,634 6,310
Ratio of Expenses to Average Net Assets (before reimbursements) 1.13% 1.98% 2.43% 1.99% 2.80%
Ratio of Expenses to Average Net Assets (after reimbursements) 1.13% 1.98% 2.00% 1.31% 2.80%
Ratio of Net Income to Average Net Assets(before reimbursements) (0.71)% (0.51)% (0.86)% (0.11)% (0.71)%
Ratio of Net Income to Average Net Assets(after reimbursements) (0.71)% (0.51)% (0.43)% 0.58 % (0.71)%
Portfolio Turnover Rate 1.14% 0.00% 0.00% 0.00% 0.00%
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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 $42,157 during the six months
ending June 30, 2000 net of reimbursements.
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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 $3,097 for the six months ending June 30, 2000.
4. Capital Stock and Distribution
At June 30, 2000, 2,500,000 shares of capital stock without par value were
authorized, and paid-in capital amounted to $3,887,652. Transactions in
common stock were as follows:
Shares sold 0
Shares retired 0
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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, 2000, purchases and sales of
investment securities other than U.S. Government obligations and short-term
investments aggregated $0 and $197,443 respectively. Purchases and sales of
U.S. Government obligations aggregated $98,437 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 June 30,
2000 was the same as identified cost.
At June 30, 2000, 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)
5,518,163 (120,482) 5,397,681
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Morgan FunShares, Inc.
1301 East Ninth St.
Suite 3600
Cleveland, OH 44114
(216)687-1000
Investment Advisor
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Burton D. Morgan
10 West Streetsboro Street
Hudson, OH 44236
Board of Directors
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Keith Brown
William K. Cordier
J. Martin Erbaugh
James M. Hojnacki
Burton D. Morgan
Robert F. Pincus
Officers
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Burton D. Morgan, Chairman
Robert F. Pincus, President
James C. Onorato, Vice-President
Catherine Kantorowski, Secretary
Custodian
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Firstar Bank, N.A.
425 Walnut Street
P.O. Box 1118
Cincinnati, Ohio 45201-1118
Transfer Agent
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Firstar Bank, N.A.
425 Walnut Street
P.O. Box 1118
Cincinnati, Ohio 45201-1118
Legal Counsel
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Buckingham, Doolittle & Burroughs
One Cleveland Center, Suite 1700
1375 East Ninth Street
Cleveland, Ohio 44114-1724
Auditor
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McCurdy & Associates CPA's Inc.
27955 Clemens Raod
Westlakes, Ohio 44145
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