THE MAXUS FUNDS
Dear Shareholder:
What a difference a year makes. The 1994 bear market in bonds gave way to a
renewed bull market in 1995; and while stocks never experienced anything close
to a bear market in 1994, it sure seems as if they did compared to the 30% plus
returns in the Dow Jones Industrials and S&P 500 in 1995. By year end, the Dow
had stampeded through the 5000 mark while the S&P 500 managed to close above
600, both historical records.
The Maxus Income Fund managed to post a total return of 16.15% for 1995, which
was a welcome balance to the negative return of 1994. The strategic positioning
of the portfolio at the end of 1994 enabled the Fund to post this return in
spite of its exceptionally short maturity mix and conservative approach to the
bond market in general. The strategy continues to pay off as The Maxus Income
Fund has continued to advance through the first several weeks of 1996, while the
bond market has remained relatively flat.
The Maxus Equity Fund posted a 22.43% total return for 1995. While this result
was clearly less than the S&P 500, it was in line with funds having a general
value-oriented philosophy. Moreover, The Maxus Equity Fund's very cautious
approach, generally high cash position, and low volatility (beta) relative to
the market, place it in a somewhat unique category relative to all funds in
general. In spite of its continuing conservative posture, The Maxus Equity Fund
continued to outperform the S&P 500 during the five year period which ended last
December.
With the spectacular results of 1995 in both stock and bonds now behind us, the
continued momentum in the early weeks of 1996 would give reason to suspect that
a market correction may be near at hand. With an increasing number of advisors
becoming bullish (generally a sign of market top), secular trend watchers are
becoming increasingly suspicious that the market can maintain this upward
thrust.
Other signs of a top also may be beginning to appear. As I pointed out in the
1995 semi-annual report, the strong upward path of both the stock and bond
markets have been sustained for over 12 years by regular reductions in interest
rates and inflation, while corporate profits have benefited by increases in
productivity due to technological advancements and downsizing, and a generally
weak dollar vis-a-vis the major world currencies.
Both interest rates and inflation have been unable to break the lows set nearly
two years ago, and while there is some speculation that rates will decline
further in the coming months, it is exceedingly clear that the opportunity for a
continued decline in these rates, compared to their secular highs set in the
early 1980's, has been pretty much exhausted. Moreover, it is now clear that the
rate of increase in corporate profits appears to be slowing significantly. That
rate has declined in each succeeding quarter of 1995, and forecasts call for
further declines in 1996. Lastly, the dollar has advanced recently in relation
to major world currencies, and this advance is bound to negatively affect the
profitability of certain foreign source revenue.
1
It now appears that the latest estimates from the Bureau of Labor Statistics
indicate that productivity increases are also slowing significantly, advancing a
paltry 1.4% annual rate in the third quarter of 1995. The implication is that it
will be increasingly difficult for the economy to grow at more than 2% annually
without increases in both interest rates and inflation. The recent increases in
the price of gold and other key commodities may be indicative of these problems
down the road.
The short term implications for stock prices are always unclear. For now, the
great rush to own stocks fueled by the market performance of 1995, continues to
push prices higher. Econometric models produced by Elaine Garzarelli suggest
that interest rates and other key indicators will need to advance significantly
before the market runs into trouble. The ongoing sector corrections within the
market may also suggest that stock prices are not overly speculative, and until
increased speculation develops, a major correction is not at hand.
The danger signals, then, seem to be appearing only on the economic front. It is
no wonder that good economists do not make good money managers. For example, I
consider Robert Guilliet to be among the most insightful economists of our time.
Yet Dr. Guilliet has been suggesting for the past several years that economic
conditions are (or soon will be) ripe for the market to turn negative. He has
always qualified his remarks by pointing out that an overvalued market says
nothing about market timing, i.e. markets may be overvalued for indefinite
periods of time.
My position is more moderate. I do not believe that the market is excessively
overvalued and a bear market is about to begin nor do I believe that interest
rates and various other key indicators must advance significantly before stocks
begin to decline. Rather, it seems to me that the major stock and bond market
advance which began in the early 1980's is firmly behind us and that long term
investors should lower their expectations with regard to the years immediately
ahead.
Richard A. Barone
2
The Maxus Equity Fund
For all of 1995, The Maxus Equity Fund has maintained a relatively high cash
position in its portfolio ranging from under 10% at the beginning of 1995
to over 25% at year end. The decision to hold cash levels this high was partly
based upon the fact that stock prices were becoming increasingly expensive in
1995, the further implication being that investments which meet my strict
value-oriented criteria were becoming more difficult to find. It has been my
experience that holding firm to the value disciplines has served investors well
over an entire market cycle. As 1995 ended, the major focus of the portfolio
continued to be information technology, medical services and supplies, financial
services and product distribution. The recent correction in technology stocks
gave us the opportunity to add to this portion of the portfolio, while the
advancing stock market provided the window to profitably exit all of our
closed-end investment companies. The continued recent advances in stock prices,
especially those of large capitalization companies, makes it more difficult to
find values among the S&P 500 companies, and tends to increase our focus on the
smaller companies. We have stepped up our effort to identify turn-around
situations by keeping better in touch with corporate managers and watching
insider activity more closely. Ultimately, we believe once correctly identified,
good companies will produce good results, in spite of what direction the stock
market ultimately goes.
Richard A. Barone
3
Maxus Equity Fund
Schedule of Investments
December 31, 1995
================================================================================
Shares/Principal Amount Cost Market Value % of Assets
- --------------------------------------------------------------------------------
Agribusiness
20,000 Alexander & Baldwin ........... 434,950 460,000
15,000 St. Joe Paper ................. 901,350 825,000
------- -------
1,336,300 1,285,000 4.07%
Basic Materials
25,000 Enserch ....................... 387,303 406,250
40,000 Horsham ....................... 542,675 520,000
35,000 Int'l Colin Energy* ........... 175,560 166,250
30,000 Sun Co. $1.80 Cv Pfd .......... 817,175 832,500
10,000 Unocal ........................ 258,100 291,250
------- -------
2,180,813 2,216,250 7.02%
Closed-End Equity Funds
37,200 Alliance Global Environment* .. 340,742 376,650
20,000 Baker Fentress ................ 298,050 335,000
10,300 Emerging Germany .............. 72,589 74,675
10,600 First Australia ............... 87,953 87,450
150,000 Royce Value Trust
Cv 5.75% 6/30/04 ............ 145,040 152,250
------- -------
944,374 1,026,025 3.25%
Consumer Products
68,000 Acme Utd Corp* ................ 226,958 263,500
52,000 Michael Anthony Jewelers*...... 148,537 136,500
10,000 RJR Nabisco ................... 291,850 307,500
100,000 Royal Appliance* .............. 295,560 250,000
10,000 Universal Electronics*......... 68,600 75,000
------ ------
1,031,505 1,032,500 3.27%
Entertainment
30,000 Brunswick ..................... 544,300 720,000
1,200,000 Time Warner Cv 0.00% 6/22/13... 536,398 492,000
------- -------
1,080,698 1,212,000 3.84%
Environment
10,000 Dionex* ....................... 319,560 567,500
25,000 Groundwater Technology* ....... 306,135 350,000
20,000 International Technology* ..... 333,700 352,500
------- -------
959,395 1,270,000 4.02%
Financial Services
21,720 First Chicago ................ 571,080 857,940
30,000 PNC Financial ................ 698,675 967,500
17,000 Salomon ...................... 612,730 601,375
30,000 USF&G ........................ 414,225 506,250
------- -------
2,296,710 2,933,065 9.29%
Industrial Production
7,500 Armco $3.625 Cv Pfd .......... 381,988 373,125
10,000 Ferro ........................ 225,600 233,750
15,000 Timken ....................... 534,250 573,750
6,000 WHX $3.25 Cv Pfd ............. 260,514 264,000
------- -------
1,402,352 1,444,625 4.57%
4
================================================================================
Shares/Principal Amount Cost Market Value % Asset
- --------------------------------------------------------------------------------
Information Technology
15,300 American Power Conversion* ... 144,825 145,350
10,000 Bellsouth .................... 265,450 432,500
15,000 DSC Communication Corp* ...... 508,250 553,125
10,000 Motorola ..................... 558,748 568,750
10,000 Telxon ....................... 209,350 226,250
5,000 Unisys $3.75 Cv Pfd .......... 38,451 134,375
------ -------
1,725,074 2,060,350 6.52%
Infrastructure
12,000 Ameron ....................... 413,125 451,500
85,000 Foster L. B.* ................ 329,452 361,250
------- -------
742,577 812,750 2.57%
Medical Services & Supplies
10,000 Becton Dickinson ............. 359,650 750,000
5,000 Bristol Myers ................ 284,200 429,375
15,000 Lumex* ....................... 155,827 140,625
35,000 Maxxim Medical* .............. 473,125 586,250
14,500 Medex ........................ 152,690 163,125
------- -------
1,425,492 2,069,375 6.55%
Product Distribution
7,000 CTS .......................... 217,100 264,250
10,000 Getty Petroleum .............. 115,575 133,750
12,000 Hughes Supply ................ 229,732 337,500
300,000 Petrie Stores ................ 1,008,463 825,000
--------- -------
1,570,870 1,560,500 4.94%
Real Estate
70,000 Crown American Realty Trust .. 588,700 551,250
150,000 First Union Real Estate ...... 1,101,449 1,050,000
35,000 MGI Properties ............... 480,392 586,250
25,000 Public Storage $2.06 Cv Pfd .. 652,478 812,500
------- -------
2,823,019 3,000,000 9.50%
U.S. Government Securities
8,000,000 U.S. Treasury 0% 05/15/96..... 7,834,951 7,853,600 24.86%
Total Investments ............ 27,354,130 29,776,040 94.27%
Other Assets Less Liabilities ............ 1,811,211 5.73%
Net Assets-Equivalent to $14.57
per share on 2,167,591 shares of
capital stock outstanding ................ 31,587,251 100.00%
==========
* Non-Income Producing
The accompanying notes are an integral part of the financial statements.
5
Maxus Equity Fund
Statement of Assets & Liabilities
December 31,1995
Assets:
Investment Securities at Market Value
(Identified Cost - $27,354,130) .............................. $29,776,040
Cash ........................................................ 2,076,269
Receivables:
Investment Securities Sold .................................. 0
Dividends and Interest ...................................... 57,062
-----------
Total Assets ............................................ $31,909,371
Liabilities
Payables:
Investment Securities Purchased ............................. $271,821
Shareholder Distributions ................................... 0
Accrued Expenses ............................................ 50,299
-----------
Total Liabilities ....................................... 322,120
Net Assets ..................................................... $31,587,251
Net Assets Consist of:
Capital Paid In .............................................. 29,195,552
Undistributed Net Investment Income .......................... 0
Accumulated Realized Gain (Loss) on Investments - Net ........ (30,211)
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net ............... 2,421,910
-----------
Net Assets, for 2,167,591 Shares Outstanding ................... $31,587,251
Net Asset Value and Redemption Price
Per Share ($31,587,251/2,167,591 shares) ................... $14.57
Offering Price Per Share ....................................... $14.57
Statement of Operations
December 31, 1995
Investment Income:
Dividends .................................................. $553,251
Interest.................................................... 439,341
--------
Total Investment Income ................................. $992,592
Expenses
Registration Expense ........................................ 18,174
Trustee Fees (Note 3) ....................................... 1,300
Accounting and Pricing ...................................... 33,438
Custody ..................................................... 17,497
Distribution Plan Expenses .................... ............. 125,164
Audit ....................................................... 12,214
Legal ....................................................... 11,553
Management Fees (Note 2) .................................... 250,329
Printing & Other Miscellaneous .............................. 17,594
-------
Total Expenses .......................................... 487,263
Net Investment Income .......................................... 505,329
Realized and Unrealized Gain (Loss) on Investments
Realized Gain (Loss) on Investments ......................... 2,096,323
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments ................................ 1,976,461
----------
Net Realized and Unrealized Gain (Loss) on Investments ......... $4,072,784
Net Increase (Decrease) in Net Assets from Operations .......... $4,578,113
==========
The accompanying notes are an integral part of the financial statements
6
Maxus Equity Fund
Statement of Changes in Net Assets
01/01/95 01/01/94
to to
12/31/95 12/31/94
-------- --------
From Operations:
Net Investment Income ......................... $505,329 $282,321
Net Realized Gain (Loss) on Investments ....... 2,096,323 561,303
Net Unrealized Appreciation (Depreciation) .... 1,976,461 (750,330)
--------- ---------
Increase(Decrease)in Net Assets from Operations 4,578,113 93,294
From Distributions to Shareholders
Net Investment Income ......................... (509,760) (275,727)
Net Realized Gain (Loss) from Security
Transactions ................................. (2,058,315) (632,442)
Net Increase (Decrease) from
Distributions ................................. (2,568,075) (908,169)
From Capital Share Transactions:
Proceeds From Sale of 895,656 Shares ......... 13,187,714 8,397,240
Net Asset Value of 151,150 Shares Issued
on Reinvestment of Dividends .................. 2,211,574 835,822
Cost of 193,439 Shares Redeemed ................ (2,839,852) (2,743,119)
12,559,436 6,489,943
Net Increase in Net Assets ........................ 14,569,474 5,675,068
Net Assets at Beginning of Period
(including undistributed net investment
income of $385 and $658, respectively) ........ 17,017,777 11,342,709
Net Assets at End of Period (including
undistributed net investment income
of $0 and $385, respectively) ................. $31,587,251 $17,017,777
Financial Highlights
Selected data for a share of common stock outstanding throughout the period:
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
to to to to to
12/31/95 12/31/94 12/31/93 12/31/92* 12/31/91*
--------------------------------------------------
Net Asset Value -
Beginning of Period ..... $12.95 $13.60 $12.29 $11.41 $8.73
Net Investment Income ....... 0.30 0.25 0.13 0.14 0.06
Net Gains or Losses
on Securities
(realized and unrealized). 2.60 (0.17) 3.13 1.91 3.22
---- ------ ---- ---- ----
Total from Investment
Operations .............. 2.90 0.08 3.26 2.05 3.28
Dividends
(from net investment income) (0.27) (0.22) (0.12) (0.14) (0.06)
Distributions
(from capital gains) ..... (1.01) (0.51) (1.83) (1.03) (0.54)
Return of Capital ........... 0.00 0.00 0.00 0.00 0.00
---- ---- ---- ---- ----
Total Distributions ..... (1.28) (0.73) (1.95) (1.17) (0.60)
Net Asset Value -
End of Period ........... $14.57 $12.95 $13.60 $12.29 $11.41
Total Return ................ 22.43% 0.59% 24.51% 13.56% 36.45%
Ratios/Supplemental Data
Net Assets -
End of Period (Thousands) 31,576 17,018 11,343 5,962 3,081
Ratio of Expenses to
Average Net Assets ...... 1.96% 2.00% 2.61% 2.89% 3.94%
Ratio of Net Income to
Average Net Assets ...... 2.01% 1.82% 0.91% 0.80% 0.52%
Portfolio Turnover Rate ..... 1.73 1.84 1.75 1.87 1.89
*Weighted Average Used
The accompanying notes are an integral part of the financial statements.
7
Maxus Equity Fund
Notes to Financial Statements
December 31, 1995
1.) SIGNIFICANT ACCOUNTING POLICIES The Fund is a diversified, open-end
management investment company, organized as a Trust under the laws of the
State of Ohio by a Declaration of Trust dated July 12, 1989. Significant
accounting policies of the Fund are presented below:
SECURITY VALUATION: The Fund intends to invest in a wide variety of equity
and debt securities. 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. Short-term investments are valued
at amortized cost, which approximates market. The cost of securities sold
is determined on the identified cost basis. 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.
INCOME TAXES:
It is the fund's policy to distribute annually, prior to the end of the
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-endaccumulated 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.
2.) INVESTMENT ADVISORY AGREEMENT The Fund has entered into an investment
advisory and administration agreement with Maxus Asset Management Inc. a
wholly owned subsidiary of Resource Management Inc. The Investment Advisor
receives from the Fund as compensation for its services to the Fund an
annual fee of 1% on the first $150,000,000 of the Fund's net assets, and
0.75% of the Fund's net assets in excess of $150,000,000.
3.) RELATED PARTY TRANSACTIONS Resource Management, Inc. has three wholly
owned subsidiaries which provide services to the Fund. These subsidiaries
are Maxus Asset Management Inc, Maxus Securities Corp, and Mutual +
Shareholder Services Corporation. Maxus Asset Management was paid $250,329
in investment advisory fees during the twelve months ended December 31,
1995. Maxus Securities, who served as the national distributor of the
Fund's shares, was reimbursed $125,164 for distribution expenses. Mutual +
Shareholder Services received fees totaling $33,438 for services rendered
to the Fund for the twelve months ended December 31, 1995. Maxus Securities
is a registered broker-dealer. Maxus Securities effected substantially all
of the investment portfolio transactions for the Fund. For this service
Maxus Securities received commissions of $233,530 for the twelve months
ending December 31, 1995.
At December 31, 1995, Resource Management owned 10,000 shares in the Fund.
Certain officers and/or trustees of the Fund are officers and/or directors
of the Investment Advisor and Administrator. Each director who is not an
"affiliated person" receives an attendance fee of $100 per meeting.
8
Maxus Equity Fund
Notes to Financial Statements
December 31, 1995
4.) CAPITAL STOCK AND DISTRIBUTION At December 31, 1995 an indefinite
number of shares of capital stock ($.10 par value) were authorized, and
paid-in capital amounted to $29,179,420. Transactions in common stock were
as follows:
Shares sold ............................ 895,656
Shares issued to shareholders
in reinvestment of dividends....... 151,150
-------
1,046,806
Shares redeemed ........................ 193,439
-------
Net Increase ........................... 853,367
Shares Outstanding:
Beginning of Period ................. 1,314,224
---------
End of Period ....................... 2,167,591
=========
Distributions to shareholders are recorded on the ex-dividend date.
Payments in excess of net investment income or of accumulated net realized
gains reported in the financial statements are due primarily to book/tax
differences. 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.) 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.
6.) PURCHASES AND SALES OF SECURITIES During the twelve months ended
December 31, 1995, purchases and sales of investment securities other than
U.S. Government obligations and short-term investments aggregated
$34,415,420 and $31,872,621 respectively. Purchases and sales of U.S.
Government obligations aggregated $10,607,290 and $4,989,010 respectively.
7.) FINANCIAL INSTRUMENTS DISCLOSURE There are no reportable financial
instruments which have any off-balance sheet risk as of December 31, 1995.
8.) SECURITY TRANSACTIONS For Federal income tax purposes, the cost of
investments owned at December 31, 1995 was the same as identified cost.
At December 31, 1995, 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)
------------ -------------- -------------------------------
3,044,256 (622,346) 2,421,910
9.) RECLASSIFICATION OF CAPITAL ACCOUNTS The Fund has adopted Statement of
Position 93-2, Determination, Disclosure and Financial Statement
Presentation of Income, Capital Gain and Return of Capital Distributions by
Investment Companies. As a result of this statement, the Fund changed the
classification of distributions to shareholders to better disclose the
differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly,
undistributed net investment loss has been adjusted to paid in capital as
of December, 1995 in the following amounts. These restatements did not
affect net investment income, net realized gain (loss) or net assets for
the year ended December 31, 1995.
Capital Paid In Undistributed Net Investment Gain
--------------- ---------------------------------
(4,046) 4,046
9
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and
Board of Directors
Maxus Equity Fund
We have audited the accompanying statement of assets and liabilities of Maxus
Equity Fund, including the schedule of portfolio investments, as of December 31,
1995, 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 five years in the period 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, 1995, by correspondence with the custodian and
brokers. 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 Maxus
Equity Fund, as of December 31, 1995, 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 five years in
the period then ended, in conformity with generally accepted accounting
principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 22, 1996
10
The Maxus Funds
28601 Chagrin Boulevard, Cleveland, Ohio 44122
(216) 292-3434
Investment Advisor
Maxus Asset Management Inc
28601 Chagrin Boulevard
Cleveland, Ohio 44122
Board of Trustees
Richard A. Barone
N. Lee Dietrich
Sanford A. Fox, D.D.S.
Burton D. Morgan
Michael A. Rossi
Robert A. Schenkelberg, Jr.
F. Carl Walter
Officers
Richard A. Barone, Chairman
James C. Onorato, Vice-President
Robert W. Curtin, Secretary
Custodian
Star Bank, N. A.
425 Walnut Street
P. O. Box 1118
Cincinnati, Ohio 45201-1118
Transfer Agent
Maxus Information Systems Inc
28601 Chagrin Boulevard
Cleveland, Ohio 44122
Distributor
Maxus Securities Corp
28601 Chagrin Boulevard
Cleveland, Ohio 44122
Legal Counsel
Benesch, Friedlander, Coplan & Aronoff
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Auditor
McCurdy & Associates CPA's Inc
27955 Clemens Road
Westlake, Ohio 44145
11