BDI INVESTMENT CORPORATION
--------------------------
REPORT ON AUDITED FINANCIAL STATEMENTS
For the Year Ended June 29, 1996 and July 2, 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
BDI Investment Corporation
We have audited the accompanying statement of assets and liabilities of BDI
Investment Corporation, including the schedule of portfolio investments as of
June 29, 1996, 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 Company's management. Our responsibility is to express an
opinion on these financial statements 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 confirmations of investments owned as of
June 29, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as wee 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 BDI
Investment Corporation as of June 29, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting procedures.
Coopers & Lybrand L.L.P.
San Diego, California
July 26, 1996
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
June 29, 1996
---------
ASSETS AND LIABLILITES
<S> <C>
Assets:
Investments, at value (cost: $13,499,000)(Notes 2 and 6) ... $13,236,000
Cash and cash equivalents .................................. 86,000
Interest receivable ........................................ 259,000
Other assets ............................................... 9,000
-----------
Total assets: ............................. 13,590,000
Liabilities:
Payable to affiliate ....................................... 11,000
Accrued expenses ........................................... 10,000
Dividend payable ........................................... 288,000
-----------
Total liabilities: ........................ 309,000
-----------
NET ASSETS
Net assets (Note 8) ............................................. $13,281,000
===========
Net asset value per share (based on 1,421,551
shares outstanding) .......................................... $ 9.34
===========
</TABLE>
The accompanying notes are an intregal part
of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended June 29, 1996
----------
<S> <C>
Imvestment income:
Tax-exempt interest .......................................... $ 792,000
Taxable dividends ............................................ 2,000
Tax-exempt dividends ......................................... 32,000
----------
826,000
Expenses:
Bookkeeping .................................................. 23,000
Professional fees ............................................ 14,000
Directors' fees .............................................. 13,000
Transfer agent fees .......................................... 3,000
Other operating .............................................. 5,000
----------
58,000
----------
Net investment income ....................... 768,000
----------
Realized and unrealized gains on investments:
Proceeds from sales and bond redemptions ..................... 1,711,000
Cost of investments sold and redeemed (identified cost basis) 1,636,000
----------
Net realized gain on investments transactions ................ 75,000
Net change in unrealized appreciation in investments ......... 150,000
----------
Net realized/unrealized gains on investments 225,000
----------
Change in net assets resulting from operations .................... $ 993,000
==========
</TABLE>
The accompanying notes are an intregal part
of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 29, 1996 and July 2, 1995
---------
1996 1995
---- ----
<S> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income ............................... $ 768,000 $ 798,000
Net realized gain (loss) from investment transactions 75,000 (59,000)
Net change in unrealized appreciation on investments 150,000 227,000
------------ ------------
Change in net assets resulting
from operations .................... 993,000 966,000
Distributions to shareholders from net investment income . (707,000) (808,000)
------------ ------------
Change in net assets ............... 286,000 158,000
Net assets:
Beginning of period ................................. 12,995,000 12,837,000
------------ ------------
End of period (including undistributed
net investment income of $609,000 - 1996 and
$548,000 - 1995) ................................. $ 13,281,000 $ 12,995,000
============ ============
</TABLE>
The accompanying notes are an intregal part
of the financial statements.
<PAGE>
BDI INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
---------
1. General
On January 10, 1984, BDI Investment Corporation (the "Company") filed a
Registration Statement on Form N-2 with the Securities and Exchange
Commission to register under the Investment Company Act of 1940 as a
closed-end diversified management investment company.
2. Summary of Significant Accounting Policies:
Cash Equivalents
Cash equivalents represent highly liquid money market funds.
Investments
The investment portfolio consists primarily of tax-exempt bonds which
are valued at the last bid price on the last business day of the
quarter.
Income Recognition
Security transactions are recorded on the trade date. Purchases of
securities are recorded at cost. Any premiums paid or discounts received
are recognized in the determiniation of realized gain or loss. The
company amortizes bond premiums over the life of the bond using the
effective yield method. Bond discounts are not amortized. Purchased
interest income is accrued and recorded based upon settlement dates.
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 abd liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from estimates.
Continued
<PAGE>
BDI INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
---------
2. Summary of Significant Accounting Policies, Continued:
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure About Fair Value of Financial Instruments", defines the fair
value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties The
carrying value of cash, interest receivable, accounts payable, accrued
liabilities and payable to affiliate approxiamate fair value because of
the short maturity of those instruments.
Taxes
The Company has qualified as a Regulated Investment Company under
certain provisions of the Internal Revenue Code beginning with the
fiscal year starting July 1, 1984. Under such provisions, the Company
will not be subject to federal income tax on income which it receives
and distributes to its shareholders, provided that it distributes
substantially all such income. As a Regulated Investment Company, the
Company "passes through" to its shareholders character of the income
which it receives.
Distributions
It is the Company's policy to record distributions to shareholders as of
the earlier of the date they are declared by the Board of Directors or
the record date. All dividends declared during the current year
represent distributions from net investment income.
Distributions during 1996 and 1995 consisted of one $.0473, one $.20 and
one $.25; and two $.13, one $.25 and one $.0588 dividends, respectively.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest the end of June.
The current year presented represents a 52 week year.
3. Concentration of Credit Risk:
The Company invests primarily in California state and municipal bonds,
most of which are guarenteed by the state or are privately insured. At
June 29,1996, the value of such bonds was approximately $12,262,000. In
addition, the Company's cash and cash equivalents consist of uninsured
deposits with a major broker-dealer.
Continued
<PAGE>
BDI INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
---------
4. Directors' Fees:
The Company pays fees and provides expense reimbursement to members of
the Board of Directors who are not officers of the Company. Directors
fees for the year ended June 29, 1996 were $13,000.
5. Related Party Transaction:
The Company pays an affiliate for bookkeeping services. Fees for the
year ended June 29, 1996 were approximately $23,000.
Investment management services are provided to the Company by its chief
executive officer and principal shareholder. The Company's chief
executive officer does not charge fees for these services because he is
the majority shareholder.
Certain legal services are provided to the Company by the secretary of
the Company. Fees paid for these services aggregated $800 during 1996.
6. Purchases and Sales of Securities:
For the year ending June 29, 1996, the aggregate cost of security
purchases was $1,842,000, of which $168,000 consisted of U.S. Government
securities and the aggregate proceeds from sales or redemptions of
securities was $1,711,000, of which $170,000 consisted of U.S.
Government securities.
No fees are charged by the securities custodian, a customary practice
when securities transactions occur with that institution.
7. Income Taxes:
For the year ended June 29, 1996, no income tax expense was incurred due
to the Company's qualification as a Regulated Investment Companyh and
the distribution of substantially all its income for the current fiscal
year to its shareholders (see Note 2). At June 29, 1996, the Company has
capital loss carryovers totaling $101,000 which expire in the years 2000
to 2003.
Continued
<PAGE>
BDI INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
---------
8. Net Assets:
As of June 29, 1996, net assets consist of:
<TABLE>
<CAPTION>
<S> <C>
Preferred stock, without par value: authorized,
500,000 shares; issued, none ................. $ --
Common stock, par value $.10 per share: authorized,
4,500,000 shares; issued, 1,425,151 .......... 143,000
Less treasury stock at cost, 3,600 shares . (22,000)
Additional paid-in capital ........................ 3,673,000
Accumulated undistributed net investment income ... 609,000
Accumulated undistributed net realized losses ..... (101,000)
Unrealized depreciation on investments ............ (263,000)
Retained earnings at June 30, 1984 ................ 9,242,000
------------
$ 13,281,000
============
</TABLE>
Retained earnings at June 30, 1984 represents cumulative undistributed
earnings of the Company prior to its qualification as a regulated
investment company (see Note 1).
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF PORTFOLIO INVESTMENTS
June 29, 1996
---------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (98% of Investment Portfolio)
----------------------------------------------
California
<S> <C> <C> <C>
$34,000 Anaheim, California; Electric Revenue $35,000 $36,000
Bond; 6.700%, October 1, 1998
103,000 Anaheim, California; Water Revenue; 100,000 101,000
6.000%, July 1, 2003
100,000 Associated Bay Area Government; 100,000 99,000
Certificate of Participation, 5.625%;
October 1, 1998
100,000 Associated Bay Area Government; 100,000 100,000
Certificate of Participation, 5.900%;
October 1, 1999
253,000 Associated Bay Area Government; 255,000 252,000
Certificate of Participation, 6.100%;
October 1, 2000
200,000 Bakersfield, California; Public 200,000 202,000
Financing Authority Revenue;
Series A; 5.800%, September 15, 2006
124,000 Banning, California; Community 130,000 134,000
Redevelopment Agency; 7.000%;
March 1, 2020
263,000 Buena Park, California; Community 265,000 265,000
Redevelopment Agency; 6.300%;
September 1, 1999
258,000 Buena Park, California; Community 260,000 260,000
Redevelopment Agency; 6.300%;
March 1, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF PORTFOLIO INVESTMENTS, CONTINUED
June 29, 1996
---------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (98% of Investment Portfolio), Continued
---------------------------------------------------------
<S> <C> <C> <C>
$67,000 California Educational Facilities $65,000 $67,000
Authority Revenue Refunding,
Pepperdine University; 6.750%;
January 15, 2006
100,000 California Health Facilities Financing 100,000 103,000
Authority Revenue, Refunding AIDS
Healthcare Foundation; 5.900%;
September 1, 2002
202,000 California Health Facilities Financing 200,000 206,000
Authority Revenue, Refunding AIDS
Healthcare Foundation; 6.000%;
September 1, 2003
53,000 California Health Facilities Financing 50,000 54,000
Authority Revenue, Refunding Kaiser
Permanente; Series A; 7.000%;
October 1, 2008
25,000 California Housing Finance Agency 25,000 26,000
Revenue, Home Mortgage; Series C;
6.250%; February 1, 2006
192,000 California; Special District 190,000 192,000
Fiancial Authority; Certificate of
Participation; 8.000%; July 1, 1998
149,000 California; State Public Works Board; 150,000 150,000
Lease; RFDG - Long Beach and
San Luis Obispo Series B; 5.600%;
April 1, 2006
101,000 California; State Public Works Board; 100,000 105,000
Series 1991 A; Lease Revenue Bonds,
Department of Correction; 6.400%;
September 1, 2008
</TABLE>
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<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF PORTFOLIO INVESTMENTS, CONTINUED
June 29, 1996
---------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (98% of Investment Portfolio), Continued
---------------------------------------------------------
<S> <C> <C> <C>
$175,000 California State Depatment of $175,000 $177,000
Veteran Co; 7.000%; April 1, 2016
417,000 California; Statewide Community 425,000 406,000
Development, Certificate of Participation,
San Gabriel Valley; 5.375%, September 1, 2007
100,000 Compton, California; Community 100,000 109,000
Redevelopment Agency; RFTG T/A
Walnut Industrial Series B;
7.700%, August 1, 1999
325,000 Compton, California; Community 325,000 362,000
Redevelopment Agency; RFTG T/A
Walnut Industrial Series B;
7.800%, August 8, 2001
100,000 Contra Costa County, California; 100,000 105,000
CTFS PTRN; 6.200%, August 1, 2008
172,000 Contra Costa County, California; 165,000 172,000
CTFS PTRN; Merrithew Memorial
Hospital replacement Project;
6.400%, November 1, 2005
243,000 East Municipal Water & Sewer 250,000 240,000
District of California; 5.375%;
July 1, 2013
349,000 El Dorado Hills, California; 340,000 360,000
Community Service Center; 7.900%;
June 1, 2008
337,000 Emeryville, California 340,000 337,000
Public Financing Authority; Revenue
Bond; 5.700%; September 1, 2007
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF PORTFOLIO INVESTMENTS, CONTINUED
June 29, 1996
---------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (98% of Investment Portfolio), Continued
---------------------------------------------------------
<S> <C> <C> <C>
$51,000 Los Angeles County, California; $50,000 $52,000
Multi-Family Housing Revenue;
FHA; 7.300%; July 1, 2011
192,000 Metro Water Dist R.G.O.; 225,000 211,000
5.250%, March 1, 2022
500,000 Metro Water District; Waterworks 500,000 490,000
Revenue; 5.400%; July 1, 2010
48,000 Metro Water District; Waterworks 50,000 47,000
Revenue; 5.500%; July 1, 2019
588,000 Metro Water District; Waterworks 600,000 576,000
Revenue; 5.500%; July 1, 2013
341,000 Metro Water District; Waterworks 350,000 305,000
Revenue; 5.000%; July 1, 2020
150,000 Midpeninsula Regional Open Space 150,000 164,000
District; 6.950%; September 1, 2008
24,000 Montclair, California; 7.750% 25,000 27,000
October 1, 2011
70,000 Morgan Hill, California; 70,000 71,000
Redevelopment Agency Tax
Allocation; 5.250%; March 1, 1998
111,000 Northern California Power 115,000 106,000
Agency; Public Power Revenue;
5.000%, July 1, 2009
125,000 Oakland, California; YMCA; 125,000 133,000
7.400%, June 1, 2010
43,000 Palmdale, California; Single 45,000 49,000
Family Mortgage Revenue;
7.000%, September 1, 2011
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF PORTFOLIO INVESTMENTS, CONTINUED
June 29, 1996
---------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (98% of Investment Portfolio), Continued
---------------------------------------------------------
<S> <C> <C> <C>
$600,000 Placer Co., California Water Agency; $600,000 $594,000
5.500%, July 1, 2010
152,000 Pleasanton, California; Certificate 145,000 154,000
Participation CTFS Partnership; 6.700%;
October 1, 2006
36,000 Redding, California; School District; 40,000 35,000
5.000%, March 1, 2019
235,000 Riverside County, California; Asset 235,000 236,000
Leasehold Revenue Hospital;
6.000%, June 1, 2007
567,000 Riverside City, California; 600,000 543,000
Electric RFDG Revenue; 5.000%;
October 1, 2013
52,000 Sacramento, California; New Public 50,000 52,000
Housing Authority; 6.000%, December 1, 2007
190,000 San Clemente, California; LMTD 190,000 197,000
Obligation Wastewater Treatment
Plant; 7.900%; September 1, 1999
158,000 San Francisco, California; City and 155,000 161,000
County General Obligation; 6.100%;
June 15, 2007
98,000 San Francisco, California; Port 100,000 100,000
Commission; 5.500%; July 1, 2004
50,000 San Francisco, California; New Public 50,000 48,000
Housing Authority; 5.125%;
August 1, 2010
200,000 San Joaquin, California; General 200,000 196,000
Hospital Revenue; 5.9000%;
September 1, 2003
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF PORTFOLIO INVESTMENTS, CONTINUED
June 29, 1996
---------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (98% of Investment Portfolio), Continued
---------------------------------------------------------
<S> <C> <C> <C>
$100,000 San Luis Obisbo, California; $100,000 $100,000
Water Treatment Plant;
5.375%; June 1, 2008
105,000 San Luis Obisbo, California; 105,000 104,000
Water Treatment Plant;
5.500%, June 1; 2009
581,000 Santa Maria, California; 600,000 534,000
Redevelopment; 5.000%;
June 1, 2016
85,000 Santa Margarita, California; 85,000 87,000
Water Districts #3 and #4;
7.500%; November 1, 2011
193,000 Sierra Unified School District, 200,000 194,000
California; CTFS PARTN Financing;
6.160%; March 1, 2004
99,000 Sonoma, California; Community 100,000 102,000
Redevelopment Agency; Tax Allocation
7.900%; August 1, 2014
246,000 Tahoe Forest Hospital District, 250,000 255,000
California; Insured Health Facility
Revenue; 5.850%; August 1, 2004
593,000 Tehachapi School District; 600,000 555,000
6.300%; August 1, 2021
102,000 Temecula Valley Unified School 100,000 97,000
District Financing Project; California;
5.900%; September 1, 2004
80,000 Thousand Oaks, Califonria; 80,000 82,000
Redevelopment Agency; Single
Family Residential Mortgage
Revenue; 7.900%; January 1, 2016
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF PORTFOLIO INVESTMENTS, CONTINUED
June 29, 1996
---------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (98% of Investment Portfolio), Continued
---------------------------------------------------------
<S> <C> <C> <C>
$129,000 University of California, Revenue $130,000 $127,000
Bond, Series B; 5.875%;
September 1, 2008
574,000 Vallejo, California; Mortgage 575,000 541,000
Revenue; 5.650%; May 1, 2027
335,000 Westminister City, California; 335,000 318,000
Certificate pf Participation - Public
Improvement Project; 5.750%;
June 1, 2009
---------- ---------- ----------
12,345,000 12,475,000 12,263,000
---------- ---------- ----------
Puerto Rico
344,000 Puerto Rico; HFC SFM Mortgage 335,000 353,000
Revenue; 7.500%; April 1, 2022
314,000 Puerto Rico; Housin and Financial 305,000 319,000
Corporation; GNMA; 7.650%;
October 15, 2022
----------- ----------- ----------
13,003,000 $13,115,000 12,935,000
----------- =========== ----------
Tax Exempt Funds (2% of Investment Portfolio)
496,000 Dean Witter Coldwell Banker Tax 24,875 301,000
Exempt Mortgage Fund
----------- -----------
$13,499,000 $13,236,000
=========== ===========
</TABLE>
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<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
FINANCIAL HIGHLIGHTS
For the Years Ended June 29, 1996, July 2,
1995, July 3, 1994,
June 27, 1993 and June 29, 1992
Selected data for each share of common stock follows:
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment income $0.58 $0.61 $0.64 $0.72 $0.77
Expenses 0.04 0.05 0.05 0.05 0.08
----- ----- ----- ----- ----
Net investment income 0.54 0.56 0.59 0.67 0.69
Distributions from net investment
income (0.50) (0.57) (0.59) (0.69) (0.73)
Net realized and unrealized gain (loss)
on investments 0.16 0.12 (0.64) 0.15 0.06
----- ----- ------ ----- ----
Net increase (decrease) in
net asset value 0.20 0.11 (0.64) 0.13 0.02
Net asset value:
Beginning of period 9.14 9.03 9.67 9.54 9.52
----- ----- ----- ----- ----
End of period $9.34 $9.14 $9.03 $9.67 $9.54
------ ------ ------ ------ -----
Total return 7.66% 7.53% -0.52% 8.60% 7.88%
===== ===== ====== ===== =====
Ratio of expenses to
average net assests 0.44% 0.50% 0.55% 0.48% 0.82%
===== ===== ===== ===== =====
Ratio of net investment
income to average net assets 5.76% 6.29% 6.15% 6.97% 7.27%
===== ===== ===== ===== =====
Market price at end of period * * * * *
Portfolio turnover 12.92% 15.47% 24.36% 35.72% 19.43%
====== ====== ====== ====== ======
Number of shares outstanding at the
end of each period 1,421,551 1,421,551 1,421,551 1,421,551 1,421,551
========= ========= ========= ========= =========
</TABLE>
* Due to the limited market that currently exists for the Company's common
stock, there is is no established market price.
<PAGE>
BDI INVESTMENT CORPORATION
CORPORATE DATA
---------
Chairman of the Board of Directors, Arthur Brody
Chief Executive Officer, President
and Treasurer
Director Edward Kane
Director Michael Stolper
Secretary Donald Brody
Counsel Lowenstein, Sandler, Kohl,
Fisher and Boylan
Auditors Coopers & Lybrand L.L.P.
Transfer agent Registrar & Transfer Company
Custodian Dean Witter Reynolds, Inc.
