BRIDGES INVESTMENT FUND, INC.
THIRTY-FIFTH
ANNUAL SHAREHOLDER REPORT
1997
CONTENTS OF REPORT
Pages 1 - 4 Shareholder Letter
Exhibit 1 Statement of Income and Expenses by
Page 5 Calendar Quarter for the Year Ended
December 31, 1997
Exhibit 2 Historical Financial Information
Pages 6 - 8
Exhibit 3 Portfolio Transactions During the Period From
Pages 9 - 10 October 1, 1997, through December 31, 1997
Exhibit 4 Reports to Stockholders of Management
Page 11 Companies
Page 12 Report of Independent Public Accountants
Pages 13 - 27 Audited Financial Statements for the
Year Ended December 31, 1997
MD&A 1 - 11 Management Discussion and Analysis
This report has been prepared for the information of the shareholders
of Bridges Investment Fund, Inc. and is under no circumstances to be
construed as an offering of shares of the Fund. Such offering is made only
by Prospectus, a copy of which may be obtained by inquiry to the Fund's
office.
BRIDGES INVESTMENT FUND, INC.
8401 West Dodge Road
Omaha, Nebraska 68114
Telephone 402-397-4700
Facsimile 402-397-8617
Directors
---------
Frederick N. Backer
Edson L. Bridges II
Edson L. Bridges III
N. P. Dodge, Jr.
John W. Estabrook
Jon D. Hoffmaster
John J. Koraleski
Roger A. Kupka
Gary L. Petersen
Roy A. Smith
L.B. Thomas
Officers
--------
Edson L. Bridges II - Chairman and
Chief Executive Officer
Edson L. Bridges III - President
Douglas P. Person - Vice President
Rosemary M. Teckmeyer - Vice President
Mary Ann Mason - Secretary
Kathleen J. Stranik - Assistant Secretary
Nancy K. Dodge - Treasurer
Auditor
-------
Arthur Andersen LLP
1700 Farnam Street
Omaha, Nebraska 68102
Corporate Counsel
-----------------
Baird, Holm, McEachen,
Pedersen, Hamann & Strasheim
1500 Woodmen Tower
Omaha, Nebraska 68102
BRIDGES INVESTMENT FUND, INC.
8401 WEST DODGE ROAD, SUITE 256
OMAHA, NEBRASKA 68114
JANUARY 22, 1998
DEAR SHAREHOLDER:
REVIEW OF 1997
- --------------
THE NET ASSET VALUE PER SHARE OF THE FUND WAS $29.02 ON DECEMBER 31, 1997,
EX-DIVIDEND $.115 PER SHARE. THIS PRICE WAS 18.2% HIGHER THAN THE $24.56 NET
ASSET VALUE PER SHARE AT YEAR-END 1996. THE CASH AMOUNTS DISTRIBUTED AND MADE
PAYABLE TO SHAREHOLDERS DURING 1997 ADDED UP TO $.81321 PER SHARE, CONSISTING OF
$.5075 IN DIVIDENDS AND $.30571 IN REALIZED CAPITAL GAINS. THUS, THE FUND'S
TOTAL RETURN COMPONENTS FOR 1997 WERE $4.46 IN PRICE APPRECIATION ($29.02 -
$24.56 = $4.46) AND $.81321 FOR A COMBINED VALUE IMPROVEMENT OF $5.27321 PER
SHARE. THIS $5.27321 PER SHARE INCREASE IN VALUE, WHEN COMPARED TO THE
BEGINNING NET ASSET VALUE OF $24.56, RESULTED IN A 21.47% TOTAL RETURN FOR THE
FUND DURING 1997.
THIS 21.47% TOTAL RETURN FOR 1997 EXTENDED TO 20 THE NUMBER OF CONSECUTIVE
YEARS IN WHICH THE FUND EARNED A POSITIVE TOTAL RETURN.
THE POPULAR STOCK MARKET AVERAGES, AS MEASURED BY THE DOW JONES INDUSTRIAL
AVERAGE AND THE STANDARD & POOR'S 500 COMPOSITE INDEX, WERE UP 24.94% AND 33.32%
RESPECTIVELY DURING 1997. THE STOCK MARKET'S PERFORMANCE IN 1997 WAS
EXTRAORDINARY IN THE SENSE THAT LARGE PRICE GAINS WERE ACHIEVED ON TOP OF A
PREVIOUS RECORD HIGH FOR THE STOCK MARKET. THE STOCK PRICE ADVANCES IN 1997
WERE JUSTIFIED ONCE AGAIN BY SOLID INCREASES IN EARNINGS PER SHARE. A FAVORABLE
INTEREST RATE ENVIRONMENT WAS A LESS DOMINANT FACTOR IN THE UPWARD PROGRESS FOR
STOCK PRICES DURING 1997.
FUND OPERATIONS
- ---------------
THE NET ASSETS OF THE FUND WERE $36,647,535 ON DECEMBER 31, 1997,
REPRESENTING THE HIGHEST LEVEL FOR NET ASSETS FOR ANY CALENDAR QUARTER REPORTING
DATE. DURING 1997, NET ASSETS GREW $7,398,047 OR 25.3% FROM THE $29,249,488
VALUE ON DECEMBER 31, 1996.
THERE WERE 1,262,818 SHARES OUTSTANDING ON DECEMBER 31, 1997. THIS
POSITION WAS THE HIGHEST LEVEL FOR SHARES OUTSTANDING FOR ANY FINANCIAL
STATEMENT REPORTING PERIOD FOR THE FUND. THE NET GAIN FOR SHARES OUTSTANDING
DURING 1997 WAS 71,987 UNITS, CONSTITUTING A 6.0% INCREASE COMPARED TO THE
1,190,831 EXTANT AT DECEMBER 31, 1996.
IN 1997, THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WAS
2.64%, THE RATIO OF OPERATING EXPENSES TO AVERAGE NET ASSETS WAS 0.81%, AND THE
PORTFOLIO TURNOVER RATE WAS 8%. THE NET INVESTMENT INCOME RATIO OF 2.64% WAS AT
THE LOWEST LEVEL IN OUR MEMORY, REFLECTING HISTORICALLY LOW CURRENT DIVIDEND
RETURNS FOR 1997 FOR COMMON STOCKS DUE TO SHARPLY ELEVATED STOCK PRICES. THE
0.81% RATIO OF OPERATING EXPENSES FOR 1997 WAS THE LOWEST COST IN THE 35 YEAR
HISTORY OF THE FUND. THE 8% PORTFOLIO TURNOVER RATE FOR 1997 WAS TYPICAL FOR
THE PAST FIVE YEARS, ALTHOUGH TRADING IN THE PORTFOLIO SECURITIES WAS WELL BELOW
THE 20%-30% NORMAL NET ASSET TURNOVER THAT PREVAILED FOR A TEN-YEAR OR LONGER
PERIOD OF TIME IN THE PAST. IN GENERAL, THE COMPANIES IN THE FUND'S PORTFOLIO
HAVE PERFORMED UP TO OR EXCEEDED THE EARNINGS EXPECTATIONS SET BY THE
MANAGEMENT, THEREBY QUALIFYING THEMSELVES AS OUTSTANDING HOLDINGS ON A LONG-TERM
BASIS.
Shareholder Letter -2- January 22, 1998
PLEASE REFER TO EXHIBITS 1 THROUGH 3, THE REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS, AND PAGES 13 THROUGH 27 IN THE ACCOMPANYING AUDITED FINANCIAL
STATEMENTS FOR THE YEAR ENDING DECEMBER 31, 1997, TO LOCATE THE SUPPORTING
DETAIL AND SUPPLEMENTARY INFORMATION ABOUT THE FUND'S OPERATIONS DURING 1997.
THE TEXT FOR THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS FOR
1997 AND THE INVESTMENT RETURNS FOR THE PREVIOUS ONE YEAR, FIVE YEAR, AND TEN
YEAR PERIODS ARE LOCATED IMMEDIATELY FOLLOWING PAGE 27 AT THE END OF THE AUDITED
FINANCIAL STATEMENTS. THE TEXT FOR MANAGEMENT'S DISCUSSION AND ANALYSIS IS
PROVIDED AS AN INTEGRAL PART OF THE FUND'S ANNUAL PROSPECTUS DISCLOSURES. THIS
INFORMATION IS INTENDED TO BE EXTENSIVE FOR A COMPLETE COMPREHENSION OF THE
FUND'S INVESTMENT POSITION AND PERFORMANCE.
DIVIDEND
- --------
ON DECEMBER 2, 1997, THE BOARD OF DIRECTORS DECLARED A REGULAR QUARTERLY
DIVIDEND AND A YEAR-END EXTRA DIVIDEND FROM THE NET INVESTMENT INCOME EARNED
DURING THE OCTOBER-DECEMBER QUARTER OF 1997 AND FROM ANY UNDISTRIBUTED NET
INVESTMENT INCOME EARLIER IN 1997. THIS DIVIDEND WAS MADE PAYABLE ON JANUARY
22, 1998, FROM NET INCOME ACCRUED THROUGH DECEMBER 31, 1997, TO SHAREHOLDERS OF
RECORD ON THE SAME DATE. THE DETERMINATION OF THE EXACT AMOUNT PER SHARE OF
THIS DIVIDEND WAS DELEGATED TO THE PRESIDENT AND TREASURER OF THE FUND AFTER THE
PRECISE NET INCOME OF THE FUND WAS ESTABLISHED ON THE RECORD DATE. THESE TWO
OFFICERS WERE CEDED THE AUTHORITY TO CLASSIFY INCOME PAYMENTS BETWEEN A REGULAR
QUARTERLY AMOUNT AND THE YEAR-END EXTRA AMOUNT.
THE PRESIDENT AND THE TREASURER DETERMINED THE ORDINARY INCOME REGULAR
DIVIDEND TO BE $.105 PER SHARE AND THE YEAR-END EXTRA AMOUNT TO BE $.01 PER
SHARE FOR A TOTAL OF $.115 PER SHARE TO BE PAID OUT UNDER THE DIVIDEND
RESOLUTION ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 2, 1997. THIS PAYMENT,
IN ADDITION TO THE $.125 PER SHARE PREVIOUSLY PAID AND DECLARED IN OCTOBER,
1997, BROUGHT THE TOTAL CASH DISTRIBUTIONS PAYABLE FROM ORDINARY INCOME EARNED
DURING THE FOURTH QUARTER OF 1997 AND THROUGHOUT THE ENTIRE YEAR OF 1997 TO $.24
PER SHARE. THE $.105 PER SHARE REGULAR AND $.01 EXTRA AMOUNTS DETERMINED BY THE
PRESIDENT AND TREASURER WERE CONFIRMED AND RATIFIED BY THE BOARD OF DIRECTORS AT
THEIR MOST RECENT REGULAR MEETING HELD ON JANUARY 13, 1998.
TAX INFORMATION
- ---------------
A LETTER OF EXPLANATION REGARDING THE TAXABILITY OF THE DIVIDEND AND
CAPITAL GAINS PAYMENTS MADE BY THE FUND DURING 1997 WILL ACCOMPANY THIS LETTER
TO YOU. YOU SHOULD PROVIDE A COPY OF THIS LETTER DATED JANUARY 22, 1998, WHICH
ADDRESSES THE PREPARATION OF INFORMATION FOR FEDERAL INCOME TAX RETURNS, TO YOUR
TAX PREPARER OR CONSULTANT.
FORM 1099-DIV
- -------------
BRIDGES INVESTOR SERVICES, INC. HAS PREPARED AND WILL ISSUE A FORM 1099-DIV
FOR 1997 FOR YOUR SHAREHOLDER ACCOUNT ON OR ABOUT JANUARY 31, 1998.
MARKET VALUE INFORMATION
- ------------------------
INVESTORS WHO OWN INDIVIDUAL RETIREMENT ACT AND STANDARD RETIREMENT PLAN
ACCOUNTS IN THE FUND WILL RECEIVE A SPECIAL MESSAGE ON THE ENCLOSED DIVIDEND
REINVESTMENT CONFIRMATION STATEMENT TO DISCLOSE THE MARKET VALUE OF YOUR ACCOUNT
AS OF DECEMBER 31, 1997. THIS INFORMATION WILL BE UTILIZED IN THE FILING OF THE
Shareholder Letter -3- January 22, 1998
FORM 5498 AND THE FORM 5500EZ REPORTS WITH THE APPROPRIATE FEDERAL AUTHORITIES
BY OUR PERSONNEL LATER ON IN 1998.
ANNUAL MEETING
- --------------
THE PROXY AND PROXY STATEMENT FOR THE THIRTY-FIFTH ANNUAL MEETING OF THE
SHAREHOLDERS OF THE FUND, TO BE HELD ON TUESDAY, FEBRUARY 17, 1998, AT 11:00
A.M., WILL ACCOMPANY THIS REPORT. SHAREHOLDERS ARE ENCOURAGED TO ATTEND THE
ANNUAL MEETING AT THE OFFICES OF THE FUND. IF YOU PLAN TO BE PRESENT, PLEASE
NOTIFY THE FUND'S CORPORATE SECRETARY, MRS. MARY ANN MASON, OR OUR TREASURER,
MRS. NANCY K. DODGE BY PHONE, BY LETTER, OR BY WRITTEN NOTE ON YOUR PROXY FORM.
UNDER FEDERAL REGULATIONS THAT BECAME EFFECTIVE ON NOVEMBER 23, 1994, THE
FUND MUST REPORT THE RESULTS OR TABULATION OF THE VOTES ON EACH MATTER AND
DIRECTOR NOMINEES IN THE NEXT SHAREHOLDER SEMI-ANNUAL AND ANNUAL COMMUNICATION
FOLLOWING THE SHAREHOLDER MEETING. THE RESULTS FOR THE LAST ANNUAL MEETING OF
THE SHAREHOLDERS OF THE FUND WERE PUBLISHED IN A LETTER DATED APRIL 25, 1997.
THIS SAME REPORT APPEARS AS EXHIBIT 4, ATTACHED HERETO, TO FULFILL THE ANNUAL
COMMUNICATION REQUIREMENT.
THE OUTLOOK
- -----------
IN 1997, COMMON STOCKS POSTED THEIR THIRD CONSECUTIVE YEAR OF SIGNIFICANTLY
ABOVE-AVERAGE TOTAL RETURNS. IN FACT, THE 1995-1997 TOTAL RETURN OF 125.49% FOR
THE S&P 500 (COMPOUND ANNUAL RETURN OF 31.07%) REPRESENTS THE BEST THREE-YEAR
RETURN FOR STOCKS THIS CENTURY AND THE ONLY TIME THE MARKET HAS RETURNED OVER
20% PER YEAR FOR THREE CONSECUTIVE YEARS.
THE STRONG PRICE ADVANCE FOR COMMON STOCKS DURING 1997 WAS DRIVEN BY A
CONTINUATION OF THE PRIMARY FACTORS WHICH HAVE PROPELLED EQUITIES SINCE DECEMBER
OF 1994 -- NAMELY, STRONG CORPORATE EARNINGS GROWTH, A BENIGN INTEREST RATE
ENVIRONMENT, AND A SEEMINGLY INSATIABLE DEMAND FOR EQUITY-ORIENTED MUTUAL FUNDS
ON THE PART OF INVESTORS. IT IS LIKELY THAT THE EVENTUAL END TO THE CURRENT
BULL MARKET WILL BE BROUGHT ON BY A SIGNIFICANT DETERIORATION IN ONE OR MORE OF
THESE THREE AREAS.
STOCK PRICES GENERALLY OUTPERFORMED CORPORATE EARNINGS GROWTH DURING 1997
(S&P 500 INDEX ADVANCED 31% IN PRICE WITH EARNINGS UP 15% YEAR OVER YEAR)
RESULTING IN AN APPRECIABLE INCREASE IN EQUITY VALUATIONS. CONSEQUENTLY, THE
RISK OF DISAPPOINTMENT IS PROBABLY AT THE HIGHEST LEVEL FOR STOCKS GENERALLY
SINCE THE SUMMER OF 1990. WITH EQUITY VALUATIONS SOMEWHAT EXTENDED, WE WOULD
ANTICIPATE THAT MARKET VOLATILITY WOULD BE HIGHER IN 1998 THAN HAS GENERALLY
BEEN THE CASE OVER THE PAST FIVE OR SIX YEARS, WHICH HAS BEEN A PERIOD OF TIME
CHARACTERIZED BY ABNORMALLY LOW EQUITY PRICE VOLATILITY. SHOULD VOLATILITY
INCREASE DURING 1998, WE WILL SEEK TO BE SOMEWHAT MORE OPPORTUNISTIC THAN HAS
BEEN THE CASE IN RECENT YEARS AND USE PERIODS OF BROAD PRICE WEAKNESS TO
CONCENTRATE HOLDINGS IN THOSE COMPANIES WHICH WE BELIEVE OFFER THE BEST
COMBINATION OF SUPERIOR LONG-TERM FUNDAMENTALS AND REASONABLE VALUATION
CHARACTERISTICS.
WHILE OUR EXPECTATIONS FOR THE NEAR TO INTERMEDIATE TERM ARE MODEST IN
RELATION TO THE SIGNIFICANT PROGRESS ACHIEVED BY EQUITIES OVER THE PAST THREE
YEARS, WE REMAIN CONSTRUCTIVE LONGER TERM ON THE OUTLOOK FOR COMMON STOCKS, AS
WE BELIEVE THEY WILL OFFER THE BEST TOTAL RETURNS IN A PERIOD WHICH IS LIKELY TO
BE CHARACTERIZED BY LOW INFLATION, INTENSE COMPETITION, AND AN INCREASED DESIRE
ON THE PART OF INVESTORS TO MAINTAIN ATTRACTIVE RETURNS FROM FINANCIAL ASSETS.
WE BELIEVE THIS ENVIRONMENT WILL REWARD THOSE COMPANIES WHICH HAVE THE STRONGEST
AND MOST EFFICIENT BUSINESS FRANCHISES AND WHICH ARE ABLE TO MAINTAIN GROWTH
Shareholder Letter -4- January 22, 1998
THROUGH INNOVATION AND THE ABILITY TO CREATE NEW PRODUCTS AND EVEN NEW MARKETS.
WE BELIEVE IT WILL BE DIFFICULT FOR THOSE COMPANIES WHICH HAVE HIGH COST
STRUCTURES OR WHICH ARE NOT MARKET LEADERS OR INNOVATORS TO PROVIDE MEANINGFUL
RETURNS TO SHAREHOLDERS.
PORTFOLIO CHANGES DURING 1997
- -----------------------------
PORTFOLIO CHANGES IN THE FUND DURING 1997 FOLLOWED SEVERAL BROAD THEMES:
FIRST, COMPANIES WHICH HAD DISAPPOINTING EARNINGS OVER THE PAST SEVERAL YEARS
WERE GENERALLY ELIMINATED FROM THE PORTFOLIO. EXAMPLES INCLUDED EASTMAN KODAK,
WASTE MANAGEMENT, AND DELUXE CORP.
SECOND, WE INCREASED OUR HOLDINGS IN COMPANIES WHICH EXPERIENCED
DISAPPOINTING STOCK PERFORMANCE BUT WHERE WE FELT LONG-TERM VALUE SIGNIFICANTLY
EXCEEDED CURRENT PRICE AND WHERE FUNDAMENTAL CORPORATE FINANCIAL PERFORMANCE WAS
STILL ABOVE AVERAGE AND HAD REASONABLE POTENTIAL FOR IMPROVEMENT OVER TIME.
EXAMPLES OF THIS THEME INCLUDED EAGLE USA, WEST TELESERVICES, NIKE, FIRST DATA
CORP., TRANSACTION SYSTEMS ARCHITECTS, AND MBIA. UNFORTUNATELY, OUR 1997
PERFORMANCE WAS HAMPERED BY DECLINES IN SOME OF THESE STOCKS, PARTICULARLY
DURING THE 4TH QUARTER. HOWEVER, WE WILL LIKELY CONTINUE TO ADD TO POSITIONS IN
THESE NAMES UNTIL SUCH TIME AS THEY RECOVER TO VALUATION LEVELS AT WHICH POINT
INCREMENTAL PURCHASES NO LONGER SEEM REASONABLE OR THE FUNDAMENTALS UNDERLYING
THE BUSINESSES PROVE TO BE AS POOR AS THE RECENT STOCK PRICE PERFORMANCE
SUGGESTS.
THE THIRD AREA OF PORTFOLIO CHANGES WAS THE ESTABLISHMENT OF A NUMBER OF
NEW POSITIONS IN COMPANIES WHICH WE FELT MERITED INCLUSION IN THE PORTFOLIO.
THESE INCLUDED CAPITAL ONE AND MBNA (WHICH WERE REPLACEMENTS FOR FIRST USA,
WHICH WAS SOLD AFTER A TAKEOVER BY BANC ONE THE FIRST HALF OF THE YEAR) AS WELL
AS MGIC CORP., CALENERGY, SOLECTRON, CLEAR CHANNEL COMMUNICATIONS, SLM HOLDING
CORP. (BETTER KNOWN AS SALLIE MAE), AND FEDERAL EXPRESS. WE WILL LOOK FOR
OPPORTUNITIES TO BUILD POSITIONS IN THESE NEWER HOLDINGS AS 1998 UNFOLDS.
OVERALL, CASH RESERVE POSITIONS WERE REDUCED DURING 1997 IN FAVOR OF
COMMITMENTS TOWARDS COMMON STOCKS THAT CARRY DYNAMIC ANNUAL LONG-TERM EARNINGS
GROWTH RATES. MANY OF THESE COMPANIES DO NOT PAY DIVIDENDS, WITH THE RESULT
THAT THE FUND'S REGULAR QUARTERLY DIVIDEND PAYMENTS ARE LIKELY TO BE
SIGNIFICANTLY LOWER IN 1998 AND FUTURE YEARS THAN IN OTHER FINANCIAL PERIODS
DURING THE 1990'S. CAPITAL GROWTH, OUR PRIMARY INVESTMENT OBJECTIVE, WILL
RECEIVE THE STRONGEST EMPHASIS FOR PORTFOLIO MANAGEMENT THIS YEAR.
APPRECIATION
- ------------
THE BOARD OF DIRECTORS AND THE OFFICERS OF THE FUND JOIN ME IN EXPRESSING
OUR CONTINUING APPRECIATION FOR YOUR INVESTMENT IN THE SHARES OF OUR COMPANY.
SINCERELY YOURS,
/s/ Edson L. Bridges II
EDSON L. BRIDGES II
CHAIRMAN
/s/ Edson L. Bridges III
EDSON L. BRIDGES III
PRESIDENT
ELBII:ELBIII:KJS
-5-
<TABLE>
Exhibit 1
---------
BRIDGES INVESTMENT FUND, INC.
-----------------------------
STATEMENT OF INCOME AND EXPENSES
BY CALENDAR QUARTER
FOR THE YEAR ENDED DECEMBER 31, 1997
<CAPTION>
March 31, June 30, September 30, December 31, Annual
<S> 1997 1997 1997 1997 Total
Investment Income: <C> <C> <C> <C> <C>
Interest $120,095 $129,171 $114,670 $ 99,512 $463,448
Dividends 108,948 105,657 114,081 106,669 435,355
-------- -------- -------- ------- --------
Total Investment Income $229,043 $234,828 $228,751 $206,181 $898,803
-------- -------- -------- -------- --------
Expenses:
Management fees $ 38,327 $ 41,537 $ 45,024 $ 45,440 $170,328
Custodian fees 10,007 10,809 6,428 6,468 33,712
Insurance 2,349 2,716 7,715 2,876 15,656
Bookkeeping services 3,609 4,476 3,434 3,647 15,166
Printing and supplies 4,413 2,070 2,128 2,314 10,925
Professional services 2,725 2,725 2,725 2,725 10,900
Dividend disbursing and
transfer agent fees 3,004 2,276 2,254 2,539 10,073
Computer programming 1,125 1,125 1,125 1,825 5,200
Foreign taxes paid on
dividends -- 985 331 -- 1,316
Taxes and licenses 266 266 267 266 1,065
-------- -------- -------- --------- ---------
Total Expenses $ 65,825 $ 68,985 $ 71,431 $ 68,100 $274,341
-------- -------- -------- -------- ---------
NET INVESTMENT INCOME $163,218 $165,843 $157,320 $138,081 $624,462
======== ======== ======== ======== ========
<FN>
Sources: Unaudited Quarterly Reports to the Shareholders of Bridges
Investment Fund, Inc. for the March 31, June 30, and September 30
periods. Audited information for the Annual Total.
</TABLE>
-6-
<TABLE>
Exhibit 2
---------
BRIDGES INVESTMENT FUND, INC.
-----------------------------
HISTORICAL FINANCIAL INFORMATION
<CAPTION>
Valuation Net Shares Net Asset Dividend/ Capital
Date Assets Outstanding Value/Share Share Gains/Share
- --------- ------ ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
07-01-63 $ 109,000 10,900 $10.00 $ - $ -
09-30-63 109,764 10,900 10.07 - -
12-31-63 159,187 15,510 10.13 .07 -
03-31-64 202,354 19,105 10.59 .07 -
06-30-64 253,932 23,438 10.83 .07 -
09-30-64 310,307 28,286 10.97 .07 -
12-31-64 369,149 33,643 10.97 .07 -
03-31-65 434,523 38,531 11.28 .075 .028
06-30-65 491,068 44,667 10.99 .07 -
09-30-65 558,913 47,710 11.71 .07 -
12-31-65 621,241 51,607 12.04 .07 -
03-31-66 661,711 55,652 11.89 .085 -
06-30-66 643,920 57,716 11.16 .07 -
09-30-66 592,628 58,610 10.11 .07 -
12-31-66 651,282 59,365 10.97 .07 -
03-31-67 728,115 60,181 12.10 .085 -
06-30-67 753,075 61,364 12.27 .07 -
09-30-67 823,967 62,810 13.12 .07 -
12-31-67 850,119 64,427 13.20 .07 -
03-31-68 812,416 65,607 12.38 .105 -
06-30-68 1,013,629 72,214 14.04 .07 -
09-30-68 1,046,852 72,633 14.41 .07 -
12-31-68 1,103,734 74,502 14.81 .07 -
03-31-69 1,083,278 77,393 14.00 .15 -
06-30-69 1,030,784 79,169 13.02 .07 -
09-30-69 1,063,290 83,291 12.77 .07 -
12-31-69 1,085,186 84,807 12.80 .07 -
03-31-70 1,061,534 87,349 12.15 .16 -
06-30-70 843,133 88,367 9.54 .07 -
09-30-70 959,114 89,417 10.73 .07 -
12-31-70 1,054,162 90,941 11.59 .07 -
03-31-71 1,168,919 91,819 12.73 .16 -
06-30-71 1,198,777 92,573 12.94 .07 -
09-30-71 1,200,753 92,723 12.95 .07 -
12-31-71 1,236,601 93,285 13.26 .07 -
03-31-72 1,285,684 93,661 13.73 .14 .08
06-30-72 1,228,951 93,834 13.10 .07 -
09-30-72 1,208,454 92,258 13.10 .07 -
12-31-72 1,272,570 93,673 13.59 .07 -
03-31-73 1,152,089 96,695 11.91 .13 .07
06-30-73 1,073,939 97,943 10.96 .07 -
09-30-73 1,131,789 99,353 11.39 .07 -
12-31-73 1,025,521 100,282 10.23 .07 -
-7-
EXHIBIT 2 - HISTORICAL FINANCIAL INFORMATION
Valuation Net Shares Net Asset Dividend/ Capital
Date Assets Outstanding Value/Share Share Gains/Share
- --------- ------ ----------- ----------- -------- ------------
03-31-74 988,697 101,763 9.72 .14 -
06-30-74 863,820 101,578 8.50 .07 -
09-30-74 667,051 101,292 6.59 .07 -
12-31-74 757,545 106,909 7.09 .07 -
03-31-75 909,125 106,162 8.56 .14 -
06-30-75 1,028,687 106,517 9.66 .07 -
09-30-75 954,187 107,651 8.86 .07 -
12-31-75 1,056,439 111,619 9.46 .07 -
03-31-76 1,230,953 115,167 10.69 .16 -
06-30-76 1,265,767 117,506 10.77 .07 -
09-30-76 1,313,363 121,229 10.83 .07 -
12-31-76 1,402,661 124,264 11.29 .08 -
03-31-77 1,335,592 126,714 10.54 .188 .062
06-30-77 1,456,451 134,575 10.82 .08 -
09-30-77 1,450,573 139,402 10.41 .08 -
12-31-77 1,505,147 145,252 10.36 .08 -
03-31-78 1,418,417 146,380 9.69 .211 .049
06-30-78 1,523,758 145,470 10.47 .09 -
09-30-78 1,672,364 150,729 11.10 .09 -
12-31-78 1,574,097 153,728 10.24 .09 -
03-31-79 1,724,695 162,627 10.61 .204 .051
06-30-79 1,773,427 163,640 10.84 .09 -
09-30-79 1,913,242 167,426 11.43 .09 -
12-31-79 1,872,059 165,806 11.29 .09 -
03-31-80 1,769,935 170,882 10.36 .25 .0525
06-30-80 1,974,288 169,675 11.64 .10 -
09-30-80 2,204,689 173,549 12.70 .10 -
12-31-80 2,416,997 177,025 13.65 .10 -
03-31-81 2,424,976 184,148 13.17 .29 .0868
06-30-81 2,356,007 186,307 12.65 .11 -
09-30-81 2,128,956 183,447 11.61 .11 -
12-31-81 2,315,441 185,009 12.52 .12 -
03-31-82 2,165,531 194,140 11.15 .39 .19123
06-30-82 2,074,816 190,067 10.92 .13 -
09-30-82 2,262,073 189,837 11.92 .13 -
12-31-82 2,593,411 195,469 13.27 .13 -
03-31-83 2,815,081 209,390 13.44 .40 .2500
06-30-83 3,030,744 212,068 14.29 .15 -
09-30-83 3,210,564 223,059 14.39 .15 -
12-31-83 3,345,988 229,238 14.60 .15 -
03-31-84 3,279,542 247,700 13.24 .32 .5000
06-30-84 3,322,155 262,695 12.65 .16 -
09-30-84 3,554,876 263,783 13.48 .16 -
12-31-84 3,727,899 278,241 13.40 .16 -
03-31-85 4,058,327 300,068 13.52 .22 .6800
06-30-85 4,351,707 305,496 14.24 .16 -
09-30-85 4,260,686 310,379 13.73 .16 -
12-31-85 4,962,325 318,589 15.58 .16 -
03-31-86 5,663,449 347,479 16.30 .208 .86227
06-30-86 6,174,120 365,531 16.89 .16 -
-8-
EXHIBIT 2 - HISTORICAL FINANCIAL INFORMATION
Valuation Net Shares Net Asset Dividend/ Capital
Date Assets Outstanding Value/Share Share Gains/Share
- --------- ------ ----------- ----------- -------- -----------
09-30-86 6,392,215 399,871 15.99 ,16 -
12-31-86 6,701,786 407,265 16.46 .16 -
03-31-87 8,766,205 491,228 17.85 .196 .79447
06-30-87 9,214,305 509,569 18.08 .16 -
09-30-87 9,921,139 530,566 18.70 .16 -
12-31-87 7,876,275 525,238 15.00 .14 .24513
03-31-88 8,649,901 565,608 15.29 .16 -
06-30-88 9,027,829 574,563 15.71 .15 -
09-30-88 8,986,977 575,956 15.60 .16 -
12-31-88 8,592,807 610,504 14.07 .38 1.10967
03-31-89 9,103,009 618,331 14.72 - -
06-30-89 9,531,124 614,861 15.50 .16 -
09-30-89 10,815,006 652,207 16.58 .16 -
12-31-89 10,895,182 682,321 15.97 .35 0.53769
03-31-90 11,000,740 695,558 15.82 - -
06-30-90 11,521,748 696,414 16.54 .16 0.02646
09-30-90 10,534,037 706,268 14.92 .16 -
12-31-90 11,283,448 744,734 15.15 .35 0.40297
03-31-91 12,685,391 759,477 16.70 - -
06-30-91 12,485,281 766,387 16.29 .16 -
09-30-91 13,225,379 780,213 16.95 .16 -
12-31-91 14,374,679 831,027 17.30 .34 0.29292
03-31-92 14,428,305 851,349 16.95 - -
06-30-92 14,691,191 863,019 17.02 .15 -
09-30-92 15,940,013 910,936 17.50 .16 -
12-31-92 17,006,789 971,502 17.51 .325 0.15944
03-31-93 18,071,613 1,008,275 17.92 - -
06-30-93 17,621,101 992,755 17.75 .15 -
09-30-93 17,949,559 999,163 17.96 .15 -
12-31-93 17,990,556 1,010,692 17.80 .3125 0.17075
03-31-94 17,777,177 1,021,219 17.41 - -
06-30-94 17,953,364 1,033,984 17.36 .14 -
09-30-94 18,472,176 1,036,473 17.82 .15 -
12-31-94 18,096,297 1,058,427 17.10 .30 0.17874
03-31-95 19,835,494 1,072,309 18.50 - -
06-30-95 21,416,325 1,076,463 19.90 .14 -
09-30-95 22,527,409 1,082,829 20.80 .14 -
12-31-95 24,052,746 1,116,620 21.54 .295 0.19289
03-31-96 26,025,304 1,148,429 22.66 - -
06-30-96 27,108,210 1,157,425 23.42 .1325 -
09-30-96 27,451,784 1,165,788 23.55 .1325 -
12-31-96 29,249,488 1,190,831 24.56 .285 0.25730
03-31-97 30,255,441 1,210,627 24.99 - -
06-30-97 34,567,391 1,229,643 28.11 .1325 -
09-30-97 36,500,979 1,242,731 29.37 .135 -
12-31-97 36,647,535 1,262,818 29.02 .24 0.30571
</TABLE>
-9-
<TABLE>
Exhibit 3
---------
BRIDGES INVESTMENT FUND, INC.
-----------------------------
PORTFOLIO TRANSACTIONS
DURING THE PERIOD FROM
OCTOBER 1, 1997, THROUGH DECEMBER 31, 1997
<CAPTION>
Bought or Held After
Received Transaction
Securities $1,000 Par $1,000 Par
Common Stocks Unless Value (M) Value (M)
Described Otherwise or Shares or Shares
------------------- ----------- -----------
<S> <C> <C>
AirTouch Communications, Inc. 5,000 5,000
CalEnergy Co., Inc. 1,000 6,000
CalEnergy Co., Inc. Notes - 7.63% 200M 200M
due 10/15/2007
CFB Capital II 5,000 5,000
8.20% Cumulative Preferred
(1)<F1> Cisco Systems, Inc. 1,000 3,000
Clear Channel Communications, Inc. 500 2,500
(2)<F2> EMC Corporation 1,000 2,000
Federal Express Corporation 5,000 6,000
First Data Corporation 1,000 8,000
(3)<F3> Gannett Co., Inc. 4,000 8,000
(4)<F4> Gap, Inc. 7,500 22,500
(5)<F5> Georgia-Pacific (Timber Group) 3,000 3,000
HNC Software, Inc. 1,000 6,000
(6)<F6> MBIA, Inc. 5,000 10,000
(7)<F7> MBNA Corporation 5,000 10,000
MGIC Investment Corporation 500 5,000
Nike, Inc. 1,000 6,000
(8)<F8> Norwest Corporation 6,000 12,000
Outdoor Systems, Inc. 3,000 3,000
SLM Holding Corporation 2,000 2,000
Schlumberger, Ltd. 1,000 1,000
The Charles Schwab Corporation 1,000 1,000
Transaction Systems Architects, Inc. 1,000 13,000
(9)<F9> Tricon Global Restaurants 2,400 2,400
West Teleservices Corporation 3,000 43,000
WorldCom, Inc. 13,000 13,000
Various issues of Commercial 15,537M 685M
Paper Notes Purchased during
4th Qtr., 1997
Refer to Notes (1) through (9) on the next page.
-10-
Exhibit 3
---------
BRIDGES INVESTMENT FUND, INC.
-----------------------------
PORTFOLIO TRANSACTIONS
DURING THE PERIOD FROM
OCTOBER 1, 1997, THROUGH DECEMBER 31, 1997
(Continued)
<CAPTION>
Sold or Held After
Exchanged Transaction
Securities $1,000 Par $1,000 Par
Common Stocks Unless Value (M) Value (M)
Described Otherwise or Shares or Shares
------------------- ----------- ----------
<S> <C> <C>
Eastman Kodak Company 7,000 --
Comcast Corp. Convertible 50M --
Debentures - 3.375%
due 9/9/2005
U.S. Treasury Notes - 8.875% 200M --
due 11/15/1997
Various issues of Commercial 16,842M --
Paper Notes maturing during
4th Qtr., 1997
<F1>(1) - Received 1,000 shares in a 3-for-2 stock split on December 17, 1997.
<F2>(2) - Received 1,000 shares in a 2-for-1 stock split on November 18, 1997.
<F3>(3) - Received 4,000 shares in a 2-for-1 stock split on October 6, 1997.
<F4>(4) - Received 7,500 shares in a 3-for-2 stock split on December 23, 1997.
<F5>(5) - Received in a 1-for-1 spin-off from Georgia Pacific Group on
December 17, 1997.
<F6>(6) - Received 5,000 shares in a 2-for-1 stock split on October 30, 1997.
<F7>(7) - Received 2,500 shares in a 3-for-2 stock split on October 1, 1997.
<F8>(8) - Received 6,000 shares in a 2-for-1 stock split on October 14, 1997.
<F9>(9) - Received in a .1-for-1 spin-off from PepsiCo. Inc. on
October 7, 1997.
</TABLE>
-11-
<TABLE>
Exhibit 4
---------
BRIDGES INVESTMENT FUND, INC.
-----------------------------
REPORTS TO STOCKHOLDERS OF MANAGEMENT COMPANIES
In Accordance With
Rule 30d-1(b) of the General Rules and Regulations Promulgated Under
The Investment Company Act of 1940 as Amended
"If any matter was submitted during the period covered by the shareholder
report to a vote of the shareholders, through the solicitation of proxies
or otherwise, furnish the following information:"
(1) Annual Meeting held on February 18, 1997, at 11:00 a.m.
(2) Election of Directors for one year terms (All Directors Stand for
Annual Election):
<CAPTION>
- - - - - -Votes Cast - - - - - -
Withhold
For All Authority
Names of Directors Nominees To Vote For
Elected at Meeting For Except All Nominees
- ------------------ --- -------- ------------
<S> <C> <C> <C>
Frederick N. Backer 1,057,757 None None
Edson L. Bridges II 1,057,757 None None
Edson L. Bridges III 1,057,757 None None
N. P. Dodge, Jr. 1,057,757 None None
John W. Estabrook 1,057,757 None None
Jon D. Hoffmaster 1,057,757 None None
John J. Koraleski 1,057,757 None None
Roger D. Kupka 1,057,757 None None
Gary L. Petersen 1,057,757 None None
Roy A. Smith 1,057,757 None None
L.B. Thomas 1,057,757 None None
</TABLE>
(3) A brief description for each matter voted upon at the meeting:
<TABLE>
<CAPTION>
Matters Voted Upon For Against Abstain
------------------ --- ------- -------
<S> <C> <C> <C>
(a) For a proposed investment 1,057,392 None 365
advisory contract which continues
the employment of Bridges
Investment Counsel, Inc. as
investment adviser to the Fund
for the period from April 17,
1997 through April 17, 1998
(b) For the ratification of the 1,046,483 None 11,274
selection of Arthur Andersen
LLP as independent auditors
of the Fund for the Fiscal
Year ending December 31, 1997
</TABLE>
-12-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and the Board of Directors of
Bridges Investment Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Bridges Investment Fund, Inc., including the schedule of portfolio investments,
as of December 31, 1997, and the related statement of operations for the year
then ended, the statements of changes in 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. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, 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
Bridges Investment Fund, Inc. as of December 31, 1997, 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.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
January 16, 1998
-13-
<TABLE>
BRIDGES INVESTMENT FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
DECEMBER 31, 1997
<CAPTION>
Number Market
Title of Security of Shares Value
<S> <C> <C>
COMMON STOCKS - (85.1%)
Advertising - 0.3%
Outdoor Systems, Inc.*<FN> 3,000 $ 115,500
Aircraft - Manufacturing - 1.6%
The Boeing Company 12,000 $ 587,250
Amusements - Recreation - Sporting Goods 0.6%
Nike, Inc. 6,000 $ 234,375
Banking and Finance - 7.5%
First National of Nebraska, Inc. 230 $ 851,000
MBNA Corporation 10,000 273,125
NationsBank Corporation 6,000 364,875
Norwest Corporation 12,000 465,000
The Charles Schwab Corporation 1,000 41,938
SLM Holding Corporation 2,000 278,250
State Street Corporation 8,000 465,500
-----------
$ 2,739,688
-----------
Beverages - Soft Drinks - 2.4%
PepsiCo, Inc. 24,000 $ 870,000
Building Materials - Forest Products - 0.7%
Georgia-Pacific Corporation 3,000 $ 182,250
Georgia-Pacific (Timber Group)*<FN> 3,000 68,062
-----------
$ 250,312
-----------
Chemicals - 4.6%
The Dow Chemical Company 7,000 $ 710,500
Du Pont (E.I.) De Nemours & Company 8,000 480,500
Monsanto Company 12,000 504,000
-----------
$ 1,695,000
-----------
Communications - Radio and Television - 0.5%
Clear Channel Communications, Inc.*<FN> 2,500 $ 198,594
<FN>*Nonincome-producing security
-14-
BRIDGES INVESTMENT FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
(Continued)
DECEMBER 31, 1997
<CAPTION>
Number Market
Title of Security of Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Computers - Hardware and Software - 8.7%
Cisco Systems, Inc.*<FN> 3,000 $ 167,250
Compaq Computer Corporation 1,000 56,500
Dell Computer Corporation *<FN> 1,000 84,000
EMC Corporation*<FN> 2,000 54,875
HNC Software, Inc.*<FN> 6,000 258,000
Hewlett-Packard Co. 12,000 748,500
International Business Machines Corporation 2,000 209,250
Microsoft Corporation*<FN> 7,500 969,375
Sun Microsystems, Inc.*<FN> 4,000 159,500
Transaction Systems Architects, Inc.*<FN> 13,000 494,000
-----------
$ 3,201,250
------------
Drugs - Medicines - Cosmetics - 8.8%
Abbott Laboratories 8,000 $ 524,000
Amgen, Inc.*<FN> 2,000 108,250
Bristol-Myers Squibb Co. 6,000 567,750
Elan Corporation PLC ADR*<FN> 6,000 307,125
Johnson & Johnson 10,000 658,750
Merck & Co., Inc. 10,000 1,060,000
-----------
$ 3,225,875
-----------
Electrical Equipment and Supplies - 2.4%
General Electric Co. 12,000 $ 880,500
Electronics - 3.3%
Intel Corporation 8,000 $ 562,000
Motorola, Inc. 8,000 457,500
Solectron Corporation *<FN> 5,000 207,812
-----------
$ 1,227,312
-----------
Energy - Alternate Sources - 0.5%
CalEnergy Co., Inc. *<FN> 6,000 $ 172,500
Finance - Real Estate - 3.4%
Freddie Mac 30,000 $ 1,258,125
Finance - Services - 2.4%
Capital One Financial Corporation 10,000 $ 541,875
First Data Corporation 8,000 234,000
Paymentech, Inc. *<FN> 7,000 103,250
-----------
$ 879,125
-----------
<FN>*Nonincome-producing security
-15-
BRIDGES INVESTMENT FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
(Continued)
DECEMBER 31, 1997
<CAPTION>
Number Market
Title of Security of Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Food - Miscellaneous Products - 3.7%
Philip Morris Companies, Inc. 30,000 $ 1,357,500
Forest Products & Paper - 0.8%
Kimberly-Clark Corporation 6,000 $ 295,875
Insurance - Mortgage - 0.9%
MGIC Investment Corporation 5,000 $ 332,500
Insurance - Multiline - 1.6%
American International Group, Inc. 1,500 $ 163,125
General Re Corp. 2,000 424,000
-----------
$ 587,125
-----------
Insurance - Municipal Bond - 1.8%
MBIA, Inc. 10,000 $ 668,125
Lumber and Wood Products - 0.7%
Weyerhaeuser Company 5,000 $ 245,313
Machinery - Construction & Mining - 0.8%
Caterpillar Inc. 6,000 $ 291,000
Medical - Services - 0.4%
HealthSouth Corporation *<FN> 5,000 $ 138,750
Metal Products - Miscellaneous - 0.7%
Nucor Corporation 5,500 $ 265,719
Motion Pictures and Theatres - 1.9%
The Walt Disney Company 7,000 $ 693,000
Oil Services - 0.2%
Schlumberger, Ltd. 1,000 $ 80,500
Petroleum Producing - 6.3%
Amoco Corporation 5,000 $ 425,625
Atlantic Richfield Company 4,000 320,500
Chevron Corporation 10,000 770,000
Exxon Corporation 8,000 489,500
Mobil Corporation 4,000 288,750
-----------
$ 2,294,375
-----------
<FN>*Nonincome-producing security
-16-
BRIDGES INVESTMENT FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
(Continued)
DECEMBER 31, 1997
<CAPTION>
Number Market
Title of Security of Shares Value
<S> <C> <C>
COMMON STOCKS (Continued)
Publishing - Newspapers - 1.4%
Gannett Co., Inc. 8,000 $ 494,500
Publishing - Electronic - 1.1%
Reuters Holdings PLC 6,000 $ 397,500
Restaurants - Retail - 0.2%
Tricon Global Restaurants*<FN> 2,400 $ 69,750
Retail Stores - Apparel and Clothing - 2.2%
Gap, Inc. 22,500 $ 797,344
Retail Stores - Building Materials and Home
Improvement - 0.9%
The Home Depot, Inc. 5,500 $ 323,812
Retail Stores - Department - 1.9%
Dayton Hudson Corporation 10,500 $ 708,750
Retail Stores - Variety - 0.8%
Albertson's Inc. 6,500 $ 307,125
Telecommunications - 5.8%
AirTouch Communications, Inc.*<FN> 5,000 $ 207,812
GTE Corporation 10,000 522,500
Sprint Corporation 8,000 469,000
West Teleservices Corporation*<FN> 43,000 516,000
WorldCom, Inc.*<FN> 13,000 393,250
-----------
$ 2,108,562
-----------
Transportation - Airfreight - 2.6%
Eagle USA Airfreight, Inc. *<FN> 20,000 $ 570,000
Federal Express Corporation *<FN> 6,000 366,375
-----------
$ 936,375
-----------
Transportation - Railroads - 0.7%
Union Pacific Corporation 4,000 $ 250,500
-----------
TOTAL COMMON STOCKS (Cost - $15,608,641) $31,179,406
-----------
<FN>*Nonincome-producing security
-17-
BRIDGES INVESTMENT FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
(Continued)
DECEMBER 31, 1997
<CAPTION>
Number of
Shares or
Principal Market
Title of Security Amount Value
<S> <C> <C>
PREFERRED STOCKS (1.2%)
Banking and Finance - 0.7%
CFC Capital Trust 9.375% Preferred, Series B 5,000 $ 132,500
CFB Capital II 8.20% Cumulative Preferred 5,000 128,125
-----------
$ 260,625
-----------
Telecommunications - 0.5%
AirTouch Communications, Inc. 4.25% Series C 3,000 $ 186,938
Convertible Preferred
------------
Total Preferred Stocks (Cost - $387,925) $ 447,563
-----------
Total Stocks (Cost - $15,996,566) $31,626,969
-----------
DEBT SECURITIES (13.6%)
Energy - Alternate Sources - 0.6%
CalEnergy Co., Inc., 7.63% Notes
due October 15, 2007 $200,000 $ 202,049
Food - Miscellaneous Products - 0.3%
Super Valu Stores, Inc., 8.875%
Promissory Notes, due June 15, 1999 $100,000 $ 103,756
Household Appliances and Utensils - 0.3%
Maytag Corp., 9.75% Notes,
due May 15, 2002 $100,000 $ 113,000
Office Equipment and Supplies - 0.3%
Xerox Corporation, 9.750% Notes
due March 15, 2000 $100,000 $ 107,417
Retail Stores - Department - 0.8%
Dillard Department Stores, Inc., 7.850%
Debentures, due October 1, 2012 $150,000 $ 168,665
Sears Roebuck & Co., 9.375% Debentures
due November 1, 2011 100,000 124,930
-----------
$ 293,595
-----------
-18-
BRIDGES INVESTMENT FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
(Continued)
DECEMBER 31, 1997
<CAPTION>
Principal Market
Title of Security Amount Value
<S> <C> <C>
DEBT SECURITIES (Continued)
Transportation - Railroads - 0.4%
Union Pacific Corporation 6.00%
Notes, due September 1, 2003 $150,000 $ 146,134
U.S. Government - 9.1%
U.S. Treasury, 9.000% Notes,
due May 15, 1998 $200,000 $ 202,468
U.S. Treasury, 9.125% Notes,
due May 15, 1999 200,000 209,000
U.S. Treasury, 8.750% Notes,
due August 15, 2000 200,000 214,719
U.S. Treasury, 8.000% Notes,
due May 15, 2001 200,000 213,875
U.S. Treasury, 7.500% Notes,
due May 15, 2002 200,000 213,500
U.S. Treasury, 10.750% Bonds
due February 15, 2003 200,000 243,813
U.S. Treasury, 7.250% Notes,
due May 15, 2004 300,000 323,719
U.S. Treasury, 7.500% Notes,
due February 15, 2005 300,000 329,765
U.S. Treasury, 9.375% Bonds,
due February 15, 2006 200,000 246,094
U.S. Treasury, 7.625% Bonds,
due February 15, 2007 300,000 318,516
U.S. Treasury, 8.750% Bonds,
due November 15, 2008 200,000 227,781
U.S. Treasury, 9.125% Bonds,
due May 15, 2009 200,000 233,750
U.S. Treasury, 7.500% Bonds,
due November 15, 2016 300,000 350,250
-----------
$ 3,327,250
-----------
-19-
BRIDGES INVESTMENT FUND, INC.
SCHEDULE OF PORTFOLIO INVESTMENTS
(Continued)
DECEMBER 31, 1997
<CAPTION>
Principal Market
Title of Security Amount Value
<S> <C> <C>
DEBT SECURITIES (Continued)
Commercial Paper - Short Term - 1.8%
Ford Motor Credit Corp.
Commercial Paper Note 6.10%
due January 2, 1998 $ 425,000 $ 425,000
Prudential Funding Corp.
Commercial Paper Note 5.77%
due January 6, 1998 260,000 260,000
-----------
$ 685,000
-----------
TOTAL DEBT SECURITIES (Cost - $4,812,041) $ 4,978,201
-----------
TOTAL INVESTMENTS IN SECURITIES
(Cost - $20,420,682) (99.9%) $36,605,170
CASH AND RECEIVABLES
LESS TOTAL LIABILITIES (0.1%) 42,365
-----------
NET ASSETS, December 31, 1997 (100.0%) $36,647,535
===========
</TABLE>
The accompanying notes to financial statements
are an integral part of this schedule.
-20-
<TABLE>
BRIDGES INVESTMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<CAPTION>
<S> Amount
ASSETS <C>
Investments, at market value
Common and preferred stocks
(cost $15,996,566) $31,626,969
Debt securities (cost $4,812,041) 4,978,201
-----------
Total Investments $36,605,170
Cash 101,921
Receivables
Dividends and interest 120,110
Subscriptions to capital stock 30,917
----------
TOTAL ASSETS $36,858,118
===========
LIABILITIES
Dividend distributions payable $ 145,224
Investment advisor, management and
service fees 47,978
Accrued operating expenses 17,381
----------
TOTAL LIABILITIES $ 210,583
-----------
NET ASSETS
Capital stock, $1 par value - Authorized
3,000,000 shares,less 742,636 shares
redeemed; 2,005,454 shares issued;
1,262,818 shares outstanding $ 1,262,818
Paid-in surplus -
Excess over par value of amounts
received from sale of 2,005,454 shares,
less amounts paid out in redeeming
742,636 shares 19,589,379
-----------
Net capital paid in on shares $20,852,197
Accumulated net realized loss on investment
transactions (6,462)
Net unrealized appreciation on investments 15,796,563
Accumulated undistributed net investment
income 5,237
-----------
TOTAL NET ASSETS $36,647,535
===========
NET ASSET VALUE PER SHARE $29.02
======
OFFERING PRICE PER SHARE $29.02
======
REDEMPTION PRICE PER SHARE $29.02
======
<FN>The accompanying notes to financial statements
are an integral part of this statement.
</TABLE>
-21-
<TABLE>
BRIDGES INVESTMENT FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<CAPTION>
Amount Amount
<S> <C> <C>
INVESTMENT INCOME
Interest $463,448
Dividends 435,355
--------
Total Investment Income $898,803
EXPENSES
Management fees $170,328
Custodian fees 33,712
Insurance 15,656
Bookkeeping services 15,166
Printing and supplies 10,925
Professional services 10,900
Dividend disbursing and transfer
agent fees 10,073
Computer programming 5,200
Foreign taxes paid on dividends 1,316
Taxes and licenses 1,065
--------
Total Expenses $ 274,341
---------
NET INVESTMENT INCOME $ 624,462
---------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on transactions in
investment securities $ 380,365
Net increase in unrealized
appreciation of investments 5,456,770
---------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $5,837,135
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,461,597
==========
<FN>The accompanying notes to financial statements
are an integral part of this statement.
</TABLE>
-22-
<TABLE>
BRIDGES INVESTMENT FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
INCREASE IN NET ASSETS
Operations -
Net investment income $ 624,462 $ 639,251
Net realized gain on transactions
in investment securities 380,365 310,925
------------ ----------
Net increase in unrealized
appreciation of investments 5,456,770 3,502,945
Net increase in net assets
resulting from operations $ 6,461,597 $4,453,121
Net equalization credits 3,157 4,640
Distributions to shareholders from -
Net investment income (624,462) (639,251)
Net realized gain from investment
transactions (383,918) (304,773)
Equalization (2,651) (4,109)
Net capital share transactions 1,944,324 1,687,114
----------- -----------
Total Increase in Net Assets $ 7,398,047 $5,196,742
NET ASSETS:
Beginning of year 29,249,488 24,052,746
----------- -----------
End of year (including accumulated
undistributed net investment income
of $5,237 and $4,732, respectively) $ 36,647,535 $29,249,488
============ ===========
<FN>The accompanying notes to financial statements
are an integral part of these statements.
</TABLE>
-23-
BRIDGES INVESTMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bridges Investment Fund, Inc. (Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The primary investment objective of the Fund is long-
term capital appreciation. In pursuit of that objective, the Fund invests
primarily in common stocks. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its financial statements. The policies are in conformity with generally
accepted accounting principles.
A. Investments -
Security transactions are recorded on the trade date at purchase
cost or sales proceeds. Dividend income is recognized on the ex-
dividend date, and interest income is recognized on an accrual basis.
Securities owned are reflected in the accompanying statement of
assets and liabilities and the schedule of portfolio investments at
quoted market value. Quoted market value represents the last recorded
sales price on the last business day of the calendar year for
securities traded on a national securities exchange. If no sales were
reported on that day, quoted market value represents the closing bid
price. The cost of investments reflected in the statement of assets
and liabilities and the schedule of portfolio investments is the same
as the basis used for Federal income tax purposes. The difference
between cost and quoted market value of securities is reflected
separately as unrealized appreciation (depreciation) as applicable.
<TABLE>
<CAPTION>
Net
1997 1996 Change
<S> <C> <C> <C>
Net unrealized appreciation
(depreciation):
Aggregate gross unrealized
appreciation on
securities $16,375,653 $10,462,757
Aggregate gross unrealized
depreciation on
securities (579,090) (122,964)
----------- -----------
Net $15,796,563 $10,339,793 $5,456,770
=========== =========== ==========
</TABLE>
The net realized gain (loss) from the sales of securities is
determined for income tax and accounting purposes on the basis of the cost
of specific securities. The gain computed on the basis of average cost
would have been substantially the same as that reflected in the
accompanying statement of operations.
-24-
B. Federal Income Taxes -
It is the Fund's policy to comply with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies, including the distribution of substantially all
taxable income including net realized gains on sales of investments.
Therefore, no provision is made for Federal income taxes.
C. Distribution To Shareholders -
The Fund accrues dividends to shareholders on the ex-dividend
date.
D. Equalization -
The Fund uses the accounting practice of equalization by which a
portion of the proceeds from sales and costs of redemption of capital
shares, equivalent on a per share basis to the amount of undistributed
net investment income on the date of the transactions, is credited or
charged to undistributed income. As a result, undistributed net
investment income per share is unaffected by sales or redemption of
capital shares.
E. Use of 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 CONTRACT
Under an Investment Advisory Contract, Bridges Investment Counsel,
Inc. (Investment Adviser) furnishes investment advisory services and
performs certain administrative functions for the Fund. In return, the
Fund has agreed to pay the Investment Adviser a fee computed on a quarterly
basis at the rate of 1/8 of 1% of the average net asset value of the Fund
during the quarter, equivalent to 1/2 of 1% per annum. Certain officers
and directors of the Fund are also officers and directors of the Investment
Adviser. These officers do not receive any compensation from the Fund
other than that which is received indirectly through the Investment
Adviser.
The contract between the Fund and the Investment Adviser provides that
total expenses of the Fund in any year, exclusive of stamp and other taxes,
but including fees paid to the Investment Adviser, shall not exceed, in
total, a maximum of 1 and 1/2% of the average month end net asset value of
the Fund for the year. Amounts, if any, expended in excess of this
limitation are reimbursed by the Investment Adviser as specifically
identified in the Investment Advisory Contract.
-25-
(3) DIVIDEND DISBURSING AND TRANSFER AGENT
Effective October 1, 1987, dividend disbursing and transfer agent
services are provided by Bridges Investor Services, Inc. (Transfer Agent).
The fees paid to the Transfer Agent are intended to approximate the cost to
the Transfer Agent for providing such services. Certain officers and
directors of the Fund are also officers and directors of the Transfer
Agent.
(4) SECURITY TRANSACTIONS
The cost of long-term investment purchases during the years ended
December 31, was:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
United States government obligations $ -- $ 915,945
Other Securities 6,360,243 1,597,324
---------- ----------
Total Cost $6,360,243 $2,513,269
========== ==========
</TABLE>
Net proceeds from sales of long-term investments during the years
ended December 31, were:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
United States government obligations $ 200,000 $ 423,528
Other Securities 2,388,453 1,567,634
---------- ----------
Total Net Proceeds $2,588,453 $1,991,162
========== ==========
Total Cost Basis of
Securities Sold $2,208,087 $1,680,237
========== ==========
</TABLE>
(5) NET ASSET VALUE
The net asset value per share represents the effective price for all
subscriptions and redemptions.
-26-
(6) CAPITAL STOCK
Shares of capital stock issued and redeemed are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Shares sold 95,567 88,405
Shares issued to shareholders in
reinvestment of net investment
income and realized gain from
security transactions 32,365 34,880
------- --------
127,932 123,285
Shares redeemed 55,945 49,074
------- -------
Net increase 71,987 74,211
====== ======
Value of capital stock issued and redeemed is as follows:
<CAPTION>
1997 1996
<S> <C> <C>
Shares sold 2,553,754 $1,992,810
Shares issued to shareholders in
reinvestment of net investment
income and realized gain from
security transactions 884,491 832,894
--------- ----------
3,438,245 $2,825,704
Shares redeemed 1,493,921 1,138,590
--------- ----------
Net increase $1,944,324 $1,687,114
========== ==========
(7) DISTRIBUTION TO SHAREHOLDERS
On December 2, 1997 a cash distribution was declared from net
investment income accrued through December 31, 1997. This distribution was
ultimately calculated as $.115 per share aggregating $145,224. (This
dividend includes $2,651 that represents a return of capital distribution
to shareholders for Federal income tax purposes.) The dividend will be
paid on January 22, 1998, to shareholders of record on December 31, 1997.
(8) DERIVATIVE FINANCIAL INSTRUMENTS
In October, 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119, Disclosure about
Derivative Financial Investments and Fair Value of Financial Instruments.
The Fund has not entered into any such investment or investment contracts.
A covered call option contract is a form of a financial derivative
instrument. The Fund's investment and policy restrictions do permit the
Fund to sell or write covered call option contracts under certain
circumstances and limitations as set forth in the Fund's prospectus.
-27-
FINANCIAL HIGHLIGHTS*
Per share income and capital changes for a share outstanding for each
of the last five years were:
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $24.56 $21.54 $17.10 $17.80 $17.51
Income From Investment Operations
Net Investment Income $ .51 $ .55 $ .58 $ .59 $ .61
Net Gains or (Losses) on Securities
(both realized and unrealized)
4.77 3.28 4.63 (.52) .46
---- ---- ---- ----- ----
Total From Investment Operations $ 5.28 $ 3.83 $ 5.21 $ .07 $ 1.07
Less Distributions
Dividends from net investment income $ (.51) $ (.55) $ (.58) $ (.59) $(.61)
Distributions from capital gains (.31) (.26) (.19) (.18) (.17)
------- ------- ------ ------ ------
Total Distributions $ (.82) $ (.81) $ (.77) $ (.77) $ (.78)
------- ------- ------- ------- -------
Net Asset Value, End of Period $29.02 $24.56 $21.54 $17.10 $17.80
====== ====== ====== ====== ======
Total Return 21.47% 17.78% 30.46% .39% 6.18%
Ratios/Supplemental Data
Net Assets, End of Period
(in thousands)
$36,648 $29,249 $24,052 $18,096 $17,991
Ratio of Expenses to Average
Net Assets**<F1>
.81% .87% .89% .90% .90%
Ratio of Net Income to
Average Net Assets **<F1>
2.64% 3.23% 3.80% 4.25% 4.32%
Portfolio Turnover Rate 8% 11% 7% 10% 11%
Avg. Commission Rate Paid ***<F2> .1003 .1900 .1222 .1470 .1253
<FN>* Per share income and capital change data is computed using the
weighted average number of shares outstanding method.
<F1>** Average net asset data is computed using monthly net asset value
figures.
<F2> *** Cents Per Share.
</TABLE>
Bridges Investment Fund, Inc. January 22, 1998
Shareholder Communication
Annual Report for 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction
- ------------
The following information is provided in response to Item 5 and Item 5A in
the Form N-1A to be filed annually under the Investment Company Act of 1940 with
the Securities and Exchange Commission in Washington, D.C. The Form N-1A
prescribes certain information that is to be included in the Prospectus for the
Fund.
Item 5(c)
- ---------
Item 5(c) requires the disclosure of the name and title of the person or
persons employed by or associated with the Fund's investment adviser, Bridges
Investment Counsel, Inc., who are primarily responsible for the day-to-day
management of the Fund's portfolio as well as the length of their service and
business experience during the past five years.
Mr. Edson L. Bridges III, President of the Fund and Executive Vice
President - Investments, of Bridges Investment Counsel, Inc., is responsible for
the day-to-day operation of the Fund's portfolio. Mr. Bridges III has dedicated
the last five years as a research person and portfolio manager for Bridges
Investment Counsel, Inc. Mr. Bridges III has been employed in these areas of
responsibility for all clients, including Bridges Investment Fund, Inc., for
more than 14 years.
Mr. Edson L. Bridges II, Chairman and Chief Executive Officer, served as
the portfolio manager for 34 years. He is available to be a back-up person to
Mr. Bridges III whenever the assumption of that responsibility is appropriate.
Item 5A.(a)
- -----------
The first response under this disclosure is Item 5A.(a) that requests the
management to briefly discuss those factors, including relevant market
conditions and the investment strategies and techniques pursued by the Fund's
investment adviser, that materially affected the performance of the Registrant
during the most recently completed fiscal year. The investment performance for
1997, the most recently completed fiscal year, developed a 22.29% total return
for a $10,000 investment with cash distributions reinvested in shares of capital
stock in the Fund. This number differs from the 21.47% total return reported on
page one of the cover letter to this Annual Report because that earlier
calculation did not reinvest dividends and the capital gains distribution and
did not include the cost of five reinvestment transaction fees.
The statistical information shown in Table 1 is taken from quarterly
appraisal reports prepared by Bridges Investment Counsel, Inc. for the
management and Directors of Bridges Investment Fund, Inc. These reports state
the investment position of the Fund's portfolio as of December 31, 1996, and
December 31, 1997. The changes in asset allocations by classes of securities
should be of assistance in identifying the factors that materially affected the
Fund's investment performance during 1997. Refer to Table 1, on pages 8 and 9.
Shareholder Communication MD&A-2 January 22, 1998
As shown on Table 1, the total market value of the Fund's portfolio grew
24.59% during 1997 to a new all-time high of $36,647,535. The book value or
investment cost basis paid for securities increased $1,775,600 to $20,850,972
for an increase of 9.31% for the twelve months ended December 31, 1997. At
year-end 1997, the estimated annual income for the Fund's portfolio securities
was $806,428, down 11.81% from the $914,451 forecast made one year earlier.
During 1997, cash reserves were decreased from $3,103,915 to $727,364. As
stated in the cover letter to this Annual Report, the main direction for the
cash reserves was to acquire dynamic growth stocks.
U.S. Treasury securities experienced a moderate liquidation from $3,423,919
in 1996 book value to $3,217,457. The interest income earned on book value
declined from 7.83% in 1996 to 7.78% in 1997. These rates are well above the
current market interest rates. The Fund has employed premium bonds to generate
cash flow to the portfolio. The unrealized appreciation in the U.S. Treasury
securities portfolio advanced about 1.6% during 1997 as a reflection of somewhat
lower interest rates: year-end 1996 to year-end 1997.
Our position in corporate bonds, debentures, and notes was increased by
$200,000 in par values during 1997, representing a 28.19% advance in committed
capital for this sector. The estimated annual interest income on book value for
these securities is 8.11% at December 31, 1997, compared to 8.25% one year
earlier. Maturities and calls for high coupon issues hindered the net
realization of interest income from this portfolio segment.
The convertible debentures sector of the portfolio was removed to place the
capital directly into common stocks to maximize the potential for long-term
capital gains from the dollars that were involved with the convertible debenture
securities.
New commitments to preferred stocks without the privilege of conversion to
the underlying common stocks were established during 1997. These purchases were
made to acquire above-average levels of dividend income. The expected current
return on these issues on the original cost is 8.78%. This new group developed
a 4.25% unrealized appreciation over the original investment cost or book value.
The one convertible preferred stock in the Fund's portfolio, 3,000 shares
of Airtouch Communications 4.25% Series C, recorded a 38.47% increase in market
value through 1997 on the strength of an approximate doubling of common earnings
per share between 1996 and 1997.
More than $4.2 million in book value was added to the common stock segment
of the total portfolio during 1997 -- an approximate 37% increase for the year.
Results for the new companies were mixed. However, many traditional common
stock holdings performed well. The leading companies in terms of their
threshold of 2% or more of the total portfolio market value were, ranked in
order of greatest annual price gain in percent terms: The Gap, up 76.5%;
Microsoft, up 56.4%; Freddie Mac, up 52.0%; General Electric, up 48.4%; Walt
Disney, up 41.9%; PepsiCo, up 34.1%; Merck & Co., up 33.1%; Hewlett Packard, up
24.1%; Philip Morris, up 20.1%; and Chevron, up 18.5%. Seven of the ten
companies outperformed the S&P 500 common stock index. With respect to
portfolio diversification, the most major changes between December 31, 1996, and
December 31, 1997, were: (1) the significant reduction in cash reserves; (2)
the large buildup of the total market value of common stocks. The Fund ended
the year with only 2% of market value in cash reserves and 85.1% in common
stocks.
Shareholder Communication MD&A-3 January 22, 1998
At year-end, the key characteristics of the Fund's common stock portfolio
that are indicators for future higher values for the next one-to-five years are
set forth below. The data is based on the dollar-weighted representation of
companies at market value in the portfolio:
<TABLE>
<CAPTION>
Sales Price/ Mean Est.
Indicator: 5 Yr. Earnings EPS EPS Historical LTD %
Growth Ratio Change Growth EPS 1996 of Total
Rate 1998 EPS '97-'98 Next 5 Yrs. Stability ROE Capital
<S> <C> <C> <C> <C> <C> <C> <C>
Indicator 16.0% 19.8x 15.0% 17.0% 16.0% 20.5% 25.0%
Value
<FN>
Definitions: EPS -- Earnings per share
ROE -- Net after-tax income return as a percent of common equity
LTD -- Long-term debt as a percent of total shareholder equity
and long-term liabilities
Stability -- Consistency of earnings per share on growth trend
line
</TABLE>
The five year sales growth rate of 16.0% per year reflects the orientation
of new portfolio common stock holdings towards dynamic growth areas and
companies. The similar figure for 1997 was 12.9%.
The present price/earnings ratio for the common stock portfolio based on
1998 earnings per share estimates is 19.8x earnings. The comparable projection
for 1997 was 19.6x earnings. Thus, the Fund's portfolio begins 1998 valued at
about the same level as was the case in early 1997.
The anticipated composite earnings per share gain for 1998 over 1997 is
15%. This forecast compares to an 18.2% potential for 1997 earnings per share
over the level achieved in 1996.
The mean estimate for earnings per share growth for the next five years
for common stocks held in the Fund's portfolio increased to 17% in early 1998
compared to a 14.8% number at the same point in time in 1997.
The historical earnings per share stability ratio is 16% at the present
time. This calculation is up from 9% last year. The purpose of the calculation
is to confirm the predictability of forecast earnings per share. The addition
of dynamic common stocks to the portfolio during 1997 increased the potential
volatility for common stocks on a positive basis, resulting in an upward
movement to the 16% ratio.
The rate of return on equity of 20.5% is favorable in comparison to the
19.3% number reported in this discussion one year ago. Lastly, the long-term
debt as a percent of total capital, defined as long-term indebtedness plus
shareholder equity divided into long-term debt, is 25% at the present time.
This number compares to 23.3% one year ago. In conclusion, the Fund's earnings
per share growth profile has been improved considerably throughout 1997, and the
Fund's portfolio is valued almost identically in terms of a price/earnings ratio
with 1997.
Shareholder Communication MD&A-4 January 22, 1998
Item 5A.(b)
- -----------
The Fund is required to provide a line graph comparing the initial account
value and subsequent account values at the end of each of the most recently
completed ten fiscal years of the Fund, assuming a $10,000 investment in the
Fund at the beginning of the first fiscal year to the same investment over the
same periods in an appropriate broad-based securities market index. In a table
placed within or contiguous to the graph, the Fund's average annual total
returns for the one, five, and ten-year periods ended on the last day of the
most recent fiscal year, computed in accordance with applicable SEC regulations
and guidelines, are provided.
This line graph appears on page MD&A 10. The information on the line graph
is set forth without amplifying commentary. However, the interpretative
discussion that precedes and follows in this section of the Annual Shareholder
Report for 1997 is an integral part of the overall presentation concerning
investment performance.
The assumptions for the preparation of data to compute performance for the
Standard & Poor's 500 Composite Index and for Bridges Investment Fund, Inc.,
along with other items of information and analysis, appear at pages MD&A 11.
The Standard & Poor's 500 Composite Stock Index was chosen as the
appropriate broad-based market index for comparison with our Fund for the
purpose of benchmarking the results of a 100% common stock investment as an
alternative to an investment in our Fund. Common stocks would average about 70%
of total market value in the Fund's portfolio over the last decade. This
observation means that our Fund's investment record cannot be expected to match
the results of a securities investment in the Standard & Poor's 500 Composite
Index because the same degree of risk/reward has not been assumed by the Fund.
Nevertheless, the S&P 500 has the best data for tracking the general price
trends for large capitalization, widely owned stocks, a representative list of
which is held by our Fund.
Item 5A.(c)
- -----------
This response addresses the impact that any policy or practice as to the
maintenance of a specified level of distributions to shareholders had on
investment strategies of the Fund and the per share net asset value during the
Fund's last fiscal year -- 1997.
The increase in common stock commitments to an 85% level of total market
value of the Fund's assets during 1997 has been accompanied by a decline in
fixed income resources, principally cash reserves, that will cause an
approximate 12% decline in net investment income that will be available for Fund
distributions. Some portion of this dividend loss may be made up with
distributions of realized capital gains in the portfolio, assuming such gains
are taken in the future.
The disclosures required for Item 5(c) and Item 5A.(a), (b), and (c)
conclude at this point in this text.
Further Observations by Management
- ----------------------------------
The Portfolio Manager's Views -- At no time has the portfolio manager
represented to the Board of Directors, the management of Bridges Investment
Counsel, Inc., or the shareholders of the Fund that our portfolio of securities
will be operated to match or exceed the investment results for any particular
securities price index or group of indices. The portfolio manager attempts to
be well invested in quality securities selected to achieve the long-term growth
of common stock values and the development of a modest amount of current income.
Shareholder Communication MD&A-5 January 22, 1998
Direction of Disclosures -- The direction of disclosures by mutual funds
------------------------
will be to provide a greater amount of information on investment results. Those
requirements placed upon fund management will intensify the need to develop
competitive returns to confirm management's ability and skill, or the search
will deepen to find or create a composite index that justifies the funds'
results as they unfold. Our Fund's disclosure for the 1997 Annual Report was
made on the same basis as in past years to the Standard & Poor's 500 Composite
Index even though the calculations present an unfavorable comparison because
management anticipates that the investment results for our Fund are well known
to its investors with or without the graphic presentations, and that a 13.65%
per ten year long-term annual return has been acceptable to our shareholders.
Board of Director Views -- The Fund's Board of Directors has discussed and
-----------------------
will continue to address the establishment of reasonable investment objectives
that should be reached regularly by management over a number of years. Those
targets may or may not be communicated to shareholders, as expectations should
not be raised to unrealistic levels, nor can such figures be used as a means of
encouraging or influencing a prospective investment in the Fund. The Board may
conclude that the Fund as operated should be classified as a balanced fund
rather than a growth and income fund, as total return comparisons are made for
the Board between our Fund and other small mutual funds in both the balanced and
growth and income categories. There were no resolutions adopted by the Fund's
Board of Directors with respect to a change in the representation of the Fund as
a growth and income open-end investment company during 1997.
The Board has heard reports from the management of the Fund that Bridges
Investment Counsel, Inc. or a new affiliate organization may sponsor several new
mutual funds to provide a range of choices for investment objectives, one of
which would be a fixed income alternative and the other a capital appreciation
common stock fund. In this possible environment, Bridges Investment Fund, Inc.
could be positioned in between the other two choices for prospective investors
as a balanced fund. No decisions have been made regarding any of these matters
other than to conduct research into these possible opportunities.
The Determinants of Investment Returns -- Investment returns are a function
--------------------------------------
of many variables. The governing factors are the beginning date for the
calculation, the ending date for the calculation, and the securities owned in
the subject portfolio for the intervening periods. The long-term investment
returns in our Fund were achieved without assuming a maximum risk/reward
position. Midstream in the 1984 to 1995 time frame, there was the most
significant market crash in October, 1987, since the famous October, 1929, crash
that was associated with the Great Depression of the 1930's. The Board of
Directors of the Fund requested the management of the Fund to invest more
conservatively in 1988 than in prior years. The result was a reduction of about
10% in the total assets committed to common equities. The value of $10,000
invested in our Fund versus the S&P 500 investment begins to trail the Composite
Index by a wider margin after 1988 than in earlier years. During 1997, a more
normal allocation of more than 80% of total portfolio assets committed to common
stocks has been restored.
History of Calculations for MD&A Page 10 -- The table that appears on page
----------------------------------------
10 sets forth the dollars reported for a $10,000 investment in Bridges
Investment Fund, Inc. and the Standard & Poor's 500 Composite Stock Index in the
one year, five year, and ten year illustrations. One purpose for this
presentation is to demonstrate the dynamics that result from dropping off the
base year and starting with a new one. The data for each Annual Shareholder
Report Management's Discussion and Analysis will be published to portray the
volatility and/or consistency of the returns as they develop over the years.
The level of prices at the opening of the investment and at the time of the last
calculation carry the dominant forces in the determination of the final results:
Shareholder Communication MD&A-6 January 22, 1998
<TABLE>
Value of a $10,000 Investment
-----------------------------
<CAPTION>
% Chg. % Chg. % Chg.
Annual Prior Prior Prior
Report Yr. Yr. Yr.
Year Investment 1 Yr. Disclo. 5 Yr. Disclo. 10 Yr. Disclo.
<S> <C> <C> <C> <C> <C> <C> <C>
1993 BIF, Inc. 10,618 N.C. 17,154 N.C. 27,656 N.C.
1994 BIF, Inc. 10,033 -5.5 13,882 -19.1 27,502 - 0.6
1995 BIF, Inc. 13,066 +30.2 18,031 +29.9 27,949 + 1.6
1996 BIF, Inc. 11,792 -9.8 17,566 -2.6 28,186 + 0.8
1997 BIF, Inc. 12,229 + 3.9 20,147 +14.7 35,959 +27.6
1993 S&P 500 11,010 N.C. 19,703 N.C. 39,656 N.C.
1994 S&P 500 10,122 -8.1 15,153 -23.1 37,800 - 4.7
1995 S&P 500 13,661 +35.0 21,334 +40.8 39,519 + 4.6
1996 S&P 500 12,229 -10.5 20,134 - 5.6 41,001 + 3.8
1997 S&P 500 13,332 + 9.0 25,112 +24.7 55,261 +34.8
<FN>
Sources: Graphs in MD&A Reports 1993 through 1997
N.C.: Not Calculated
</TABLE>
The change in the base year for the five year calculations was particularly
dramatic for the 1994 disclosure. With respect to the calculation for the
$10,000 investments in the S&P 500 Composite Index, the values calculated do not
have deductions for operating expenses and brokerage expenses that are reflected
in the values shown for an investment in the Fund. The values shown for the S&P
500 Composite Index may not be similar to data prepared by other issuers of this
type of information due to the methodology and timing for the reinvestment of
dividends received by S&P companies. Please refer to MD&A, page 11, for further
information.
Integrity and Trust -- In the final analysis, investors make judgments
-------------------
about organizations and the persons who manage and operate them. There can and
should be a strong faith and trust factor that develops over time. Our
investment record is based upon extensive research efforts and conservative
judgments. The process to improve efforts is a continuing one, particularly
with respect to addressing the implementation of what we know to the investment
selection process. The results of the changes in this direction will probably
be an increase in the portfolio turnover to adjust better to rapidly changing
market conditions. The management believes that its organization and people are
at the highest level of proficiency now than at any time in our entire
relationship with the Fund.
The Year 2000 Disclosures -- Staff Legal Bulletin No. 5, originally issued
-------------------------
by the Securities and Exchange Commission from the Divisions of Corporation
Finance and Investment Management on October 8, 1997, requires investment
advisers and investment companies to make statements regarding the Year 2000
issue.
Bridges Investment Counsel, Inc. on behalf of Bridges Investment Fund,
Inc. and Bridges Investor Services, Inc. adopted on January 16, 1998, a Year
2000 Operations Plan. This plan places specific emphasis on computer hardware
and software applications for the purpose of verifying compliance with a Year
2000 compatibility within the technology and software for those operations that
are controlled directly by Bridges Investment Counsel, Inc. and the data
interfaces for vendor organizations to the operating companies managed by
Bridges Investment Counsel, Inc. This plan includes statements of background
and fact regarding the current condition of the Bridges Investment Counsel, Inc.
mainframes, personal computer local area networks, and software that operates on
Shareholder Communication MD&A-7 January 22, 1998
those systems. The plan also has a stated objective, a plan description, a
definition of personnel assignments, and a description of the plan status.
Copies of this plan will be made available to shareholders of Bridges Investment
Fund, Inc. upon request to the corporate secretary.
The major elements of the Plan are:
1. Identify Potential Problems and Personnel;
2. Investigate the Problems Identified as Requiring Action;
3. Assess the Alternative Solutions;
4. Select Vendors and Consultants for Solutions;
5. Set Deadlines for Completion of Assignments and Installations;
6. Assign Internal Personnel to Tasks for Analysis and Supervision of
Plan Tasks;
7. Run New Features and Solutions in Tandem with Existing Modes;
8. Establish Verification Procedures and Documentation for Outside
Vendors;
9. Evaluate and Improve the Process;
10. Submit Reports on a Regular Basis to Board of Directors and Outside
Constituencies Including Auditors and Regulatory Authorities
With respect to the status of the plan, the potential problems have been
identified and investigated, the alternative solutions for any problems have
been structured, and the vendors for the possible solution have all submitted
proposals. For the most part, all software and hardware is currently compliant
with the Year 2000 issue. The one exception is custom software written in 1987
that is utilized by Bridges Investor Services, Inc. for transfer agent and
dividend disbursing activities. Bridges Investment Counsel, Inc. will undertake
an expenditure in the range of $20,000 to $50,000 to reprogram the existing
software, purchase a new software license from an outside vendor, or outsource
the transfer agency work to another transfer agent organization. The deadline
for the installation of the solution from these three choices is September 30,
1998. The deadline for verification of the efficacy of the new solution is
April 30, 1999.
Respectfully submitted,
\s\ Edson L. Bridges II
Edson L. Bridges II
Chairman
ELBII:kjs
Shareholder Communication MD&A-8 January 22,1998
<TABLE>
Table 1: Comparative Investment Positions of Bridges Investment Fund, Inc.
on December 31, 1996, and December 31, 1997
<CAPTION>
Numeric %
12/31/96 12/31/97 Change Change
<S> <C> <C> <C> <C>
Asset
Cash Reserves:
Market Value $ 3,103,915 $ 727,365 $(2,376,551) -76.57
Book Value 3,103,915 727,365 (2,376,551) -76.57
Unrealized Gain or (Loss) $ 0 $ 0 $ 0 0.00
Market Value/Book Value 100.00 100.00 0.00 0.00
Annual Income-Estimated $ 156,950 $ 40,927 $( 116,023) -73.92
U.S. Treasury Securities:
Market Value $ 3,485,000 $ 3,327,250 $( 157,750) -4.53
Book Value 3,423,919 3,217,457 ( 206,462) -6.03
Unrealized Gain or (Loss) $ 61,081 $ 109,793 $ 48,712 +79.75
Market Value/Book Value 101.78 103.41 1.63 + 1.60
Annual Income-Estimated $ 268,125 $ 250,375 $( 17,750) -6.62
Corp. Bonds, Debentures & Notes:
Market Value $ 750,511 $ 965,951 $ 215,440 +28.71
Book Value 709,584 909,584 200,000 +28.19
Unrealized Gain or (Loss) $ 40,927 $ 56,367 $ 15,440 +37.73
Market Value/Book Value 105.77 106.20 0.43 + 0.41
Annual Income-Estimated $ 58,525 $ 73,785 $ 15,260 +26.07
Convertible Debentures:
Market Value $ 291,375 $ 0 $ (291,375) N.M.
Book Value 299,265 0 (299,265) N.M.
Unrealized Gain or (Loss) $ ( 7,890) $ 0 $ ( 7,890) N.M.
Market Value/Book Value 97.36 0.00 -97.36 N.M.
Annual Income-Estimated $ 16,312 $ 0 $ ( 16,312) N.M.
Preferred Stock:
Market Value $ 0 $ 260,625 $ 260,625 +100.00
Book Value 0 250,000 250,000 +100.00
Unrealized Gain or (Loss) $ 0 $ 10,025 $ 10,025 +100.00
Market Value/Book Value 0.00 104.25 104.25 +100.00
Annual Income-Estimated $ 0 $ 21,950 $ 21,950 +100.00
Convertible Preferred Stock:
Market Value $ 135,000 $ 186,938 $ 51,938 +38.47
Book Value 137,925 137,925 0 0.00
Unrealized Gain or (Loss) $( 2,925) $ 49,013 $ 51,938 N.M.
Market Value/Book Value 97.68 135.54 37.86 +38.76
Annual Income-Estimated $ 6,375 $ 6,390 $ 15 + 0.24
Common Stock:
Market Value $21,649,358 $31,179,406 $9,530,048 +44.02
Book Value 11,400,758 15,608,641 4,207,883 +36.91
Unrealized Gain or (Loss) $10,248,600 $15,570,765 $5,322,165 +51.93
Market Value/Book Value 189.89 199.76 9.87 + 5.20
Annual Income-Estimated $ 408,164 $ 407,905 $( 259) - 0.06
Shareholder Communication MD&A-9 January 22, 1998
Table 1 (Continued)
Numeric %
12/31/96 12/31/97 Change Change
Total Portfolio:
Market Value $29,415,159 $36,647,535 $7,232,376 +24.59
Book Value 19,075,366 20,850,972 1,775,606 + 9.31
Unrealized Gain or (Loss) $10,339,793 $15,796,563 $5,456,770 +52.77
Market Value/Book Value 154.20 175.76 21.56 +13.98
Annual Income-Estimated $ 914,451 $ 806,428 $( 108,023) -11.81
<FN>
N.M. - Calculation Not Statistically Meaningful
Note: The statistics shown above are obtained from internal management reports that
may or may not precisely agree with audited financial data.
</TABLE>
[CAPTION]
12/31/96
12/31/97
Portfolio Diversification % of Mkt. Val. % of Mkt. Val.
[S] [C] [C]
Cash Reserves 10.5 2.0
U.S. Treasury Securities 11.8 9.1
Corp. Bonds, Deb. & Notes 2.6 2.6
Convertible Debentures 1.0 0.0
Preferred Stocks 0.0 0.7
Convertible Preferred Stocks 0.5 0.5
Common Stocks 73.6 85.1
Total 100.0 100.0
Shareholder Communication MD&A-10 January 22, 1998
Graph to demonstrate the "Comparison of Change in Value of a $10,000
Investment in Bridges Investment Fund, Inc. and the Standard and Poors
500 Index.
<TABLE>
<CAPTION>
Year BIF S & P 500
<S> <C> <C>
1987 10,000.00 10,000.00
1988 11,142.39 12,307.45
1989 13,648.11 16,193.56
1990 13,896.18 15,690.30
1991 16,816.99 20,450.20
1992 17,832.26 22,006.30
1993 18,954.63 24,210.15
1994 19,012.04 24,538.28
1995 24,898.08 33,725.36
1996 29,395.05 41,450.22
1997 35,959.32 55,261.41
<FN>(Amounts in table above represent year-end market values, and are plotted
as data points on a line graph in the actual annual shareholder report.)
<FN>Average Annual Total Return for Bridges Investment Fund, Inc.:
1 Year 22.29%
5 Year 15.04%
10 Year 13.65%
<FN>Past Performance is not predictive of future performance.
</TABLE>
SHAREHOLDER COMMUNICATION MD&A-11 JANUARY 22, 1998
INFORMATION SUPPORTING AND SETTING QUALIFICATIONS
FOR INVESTMENT RETURNS
ASSUMPTIONS
1.THE INITIAL INVESTMENT WAS MADE AT THE PUBLIC OFFERING PRICE LAST
CALCULATED ON THE BUSINESS DAY BEFORE THE FIRST DAY OF THE FIRST FISCAL
YEAR.
2.THE SUBSEQUENT ACCOUNT VALUES ARE BASED ON THE NET ASSET VALUES OF THE
FUND LAST CALCULATED ON THE LAST BUSINESS DAY OF THE FIRST AND EACH
SUBSEQUENT FISCAL YEAR.
3.THE CALCULATION FOR THE FINAL ACCOUNT VALUE ASSUMES THE ACCOUNT WAS CLOSED
AND THE REDEMPTION WAS AT THE PRICE LAST CALCULATED ON THE LAST BUSINESS
DAY OF THE MOST RECENT FISCAL YEAR.
4.ALL DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS BY THE FUND WERE REINVESTED
AT THE PRICE ON THE REINVESTMENT DATES. THE DIVIDEND FOR THE STANDARD &
POOR'S 500 COMPOSITE INDEX FOR THE PREVIOUS QUARTER WAS INVESTED AT THE
MONTH-END PRICE CLOSEST TO THE REINVESTMENT DATE FOR THE FUND.
5.REINVESTMENT FEES FOR DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS WERE
DEDUCTED BEFORE REINVESTMENT IN SHARES OF THE FUND. THE STANDARD & POOR'S
500 COMPOSITE INDEX WAS NOT CHARGED WITH ANY BROKERAGE COMMISSIONS,
REINVESTMENT FEES, OR OPERATING EXPENSES.
APPROPRIATE INDEX
- -----------------
THE FUND IS TO SELECT AN "APPROPRIATE BROAD-BASED SECURITIES MARKET INDEX"
THAT IS ADMINISTERED BY AN ORGANIZATION THAT IS NOT AN AFFILIATED PERSON OF THE
FUND OR ITS INVESTMENT ADVISER. THE SECURITIES INDEX CHOSEN MUST BE ADJUSTED TO
REFLECT REINVESTMENT OF DIVIDENDS ON SECURITIES IN THE INDEX, BUT NOT THE
EXPENSES OF THE FUND.
USE OF ADDITIONAL INDEXES
- -------------------------
IN ADDITION TO THE REQUIRED COMPARISON TO A BROADLY-BASED INDEX, MUTUAL
FUND REGISTRANTS WITH THE SECURITIES AND EXCHANGE COMMISSION ARE URGED TO
COMPARE THEIR PERFORMANCES TO OTHER MORE NARROWLY-BASED INDEXES THAT REFLECT THE
MARKET SECTORS IN WHICH THEY INVEST. MANAGEMENT HAS INVESTIGATED COMMERCIAL
PAPER, TREASURY BILL, TREASURY NOTE, TREASURY BOND, AND CORPORATE BOND INDEXES
TO COVER THOSE PORTFOLIO SEGMENTS NOT INVESTED IN THE COMMON STOCK MARKET. SOME
PROBLEMS WITH COMPARABLE INFORMATION HAVE BEEN ENCOUNTERED. THEREFORE, AT THIS
POINT IN TIME, THE FUND MANAGEMENT HAS DECIDED NOT TO PRESENT THE COMPARISONS TO
THE MORE NARROW INDICES.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Thirty-Fifth Annual Shareholder Report 1997 and is qualified in its entirety by
reference to such report.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 20,420,682
<INVESTMENTS-AT-VALUE> 36,605,170
<RECEIVABLES> 151,027
<ASSETS-OTHER> 101,921
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,858,118
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210,583
<TOTAL-LIABILITIES> 210,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,852,197
<SHARES-COMMON-STOCK> 1,262,818
<SHARES-COMMON-PRIOR> 1,190,831
<ACCUMULATED-NII-CURRENT> 5,237
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,462)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,796,563
<NET-ASSETS> 36,647,535
<DIVIDEND-INCOME> 435,355
<INTEREST-INCOME> 463,448
<OTHER-INCOME> 0
<EXPENSES-NET> 274,341
<NET-INVESTMENT-INCOME> 624,462
<REALIZED-GAINS-CURRENT> 380,365
<APPREC-INCREASE-CURRENT> 5,456,770
<NET-CHANGE-FROM-OPS> 6,461,597
<EQUALIZATION> 3,157
<DISTRIBUTIONS-OF-INCOME> 624,462
<DISTRIBUTIONS-OF-GAINS> 383,918
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 127,932
<NUMBER-OF-SHARES-REDEEMED> 55,945
<SHARES-REINVESTED> 32,365
<NET-CHANGE-IN-ASSETS> 7,398,047
<ACCUMULATED-NII-PRIOR> 4,732
<ACCUMULATED-GAINS-PRIOR> (2,910)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 170,328
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 274,341
<AVERAGE-NET-ASSETS> 34,065,520
<PER-SHARE-NAV-BEGIN> 24.56
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 4.77
<PER-SHARE-DIVIDEND> 0.51
<PER-SHARE-DISTRIBUTIONS> 0.82
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 29.02
<EXPENSE-RATIO> 0.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
