BDI INVESTMENT CORPORATION
__________
REPORT ON AUDITED FINANCIAL STATEMENTS
For the Years Ended June 28, 1997 and June 29, 1996
__________
<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 28, 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 Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of June
28, 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 BDI
Investment Corporation as of June 28, 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.
/s/Coopers & Lybrand L.L.P.
---------------------------
Coopers & Lybrand L.L.P.
San Diego, California
July 28, 1997
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<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
June 28, 1997
----------
ASSETS AND LIABILITIES
<S> <C>
Assets:
Investments, at value (cost: $13,670,000) (Notes 2 and 6) $13,869,000
Cash and cash equivalents ............................... 82,000
Interest receivable ..................................... 253,000
Other assets ............................................ 11,000
-----------
Total assets .......................... 14,215,000
Liabilities:
Payable to affiliate .................................... 12,000
Accrued expenses ........................................ 10,000
Dividend payable ........................................ 501,000
-----------
Total liabilities ..................... 523,000
NET ASSETS
Net assets (Note 8) .............................................. $13,692,000
===========
Net asset value per share (based on 1,421,551 shares outstanding) $ 9.63
===========
The accompanying notes are an integral part
of the financial statements.
</TABLE>
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<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENT OF OPERATIONS
For the Year Ended June 28, 1997
----------
<S> <C>
Investment income:
Tax-exempt interest ................................................... $782,000
Partnership distribution .............................................. 34,000
Tax-exempt dividends .................................................. 3,000
--------
819,000
Expenses:
Bookkeeping ........................................................... 26,000
Professional fees...................................................... 14,000
Directors' fees ....................................................... 13,000
Transfer agent fees ................................................... 4,000
Other operating ....................................................... 7,000
--------
64,000
--------
Net investment income ............................... 755,000
--------
Realized and unrealized gain on investments:
Proceeds from sales and bond redemptions .............................. 710,000
Cost of investments sold and redeemed (identified cost basis)........ 714,000
--------
Net realized loss on investments transactions.......................... (4,000)
Net change in unrealized appreciation on investments................... 462,000
--------
Net gain on investments ............................. 458,000
--------
Net increase in net assets resulting from operations............................ $1,213,000
==========
The accompanying notes are an integral part
of the financial statements.
</TABLE>
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<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended June 28, 1997 and June 29, 1996
----------
1997 1996
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets from operations:
Net investment income ............................... $ 755,000 $ 768,000
Net realized gain (loss) on investments ............. (4,000) 75,000
Net change in unrealized appreciation on investments 462,000 150,000
------------ ------------
Change in net assets resulting
from operations ................... 1,213,000 993,000
Distributions to shareholders from net investment income ..... (802,000) (707,000)
------------ ------------
Change in net assets .............. 411,000 286,000
Net assets:
Beginning of period ................................. 13,281,000 12,995,000
------------ ------------
End of period (including undistributed
net investment income of $563,000 - 1997 and
$609,000 - 1996) ........................... $ 13,692,000 $ 13,281,000
============ ============
The accompanying notes are an integral part
of the financial statements.
</TABLE>
<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. The Company initiated operations as a regulated
investment company on June 30, 1984.
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.
Gross unrealized appreciation and depreciation on investments on a federal
income tax basis as of June 28, 1997 were $388,000 and $(189,000), respectively.
The aggregate cost of securities for federal income tax purposes approximates
amortized cost.
Income Recognition
Security transactions are recorded on the trade date. Any premiums paid or
discounts received are recognized in the determination 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. The difference
between amortized cost and value is reflected as unrealized appreciation
(depreciation) on investments.
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 revenue and expense during the reporting period. Actual
results could differ from estimates.
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 and cash
equivalents, interest receivable, other assets, accrued expenses, dividends
payable and payable to affiliate approximate fair value because of the short
maturity of those instruments.
<PAGE>
BDI INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
----------
2. Summary of Significant Accounting Policies, Continued:
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 the
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 1997 and 1996 consisted of one $.0848, one $.1300 and one
$.3500; and one $.0473, one $.20 and one $.25 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. Off Balance Sheet Risk and Concentration of Credit Risk:
The Company invests primarily in California state and municipal bonds, most of
which are guaranteed by the state or privately insured. At June 28, 1997, the
value of such bonds was approximately $13,433,000. In addition, the Company's
cash and cash equivalents consist of uninsured deposits with a major
broker-dealer. The Company holds financial instruments with off balance sheet
risk in the normal course of business, specifically relating to bonds with call
provisions. Such bonds are recorded at value in the amount of $4,160,000 which
is in excess of stated call value of $3,993,000 at year end.
4. Director's 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 28, 1997 were $13,000.
<PAGE>
BDI INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
----------
5. Related Party Transactions:
The Company pays an affiliate for bookkeeping services. Fees for the year ended
June 28, 1997 were approximately $26,000.
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 $200 during 1997.
6. Purchases and Sales of Securities:
For the year ended June 28, 1997, the aggregate cost of security purchases was
$894,000, and the aggregate proceeds from sales or redemptions of securities was
$710,000.
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 28, 1997, no income tax expense was incurred due to the
Company's qualification as a Regulated Investment Company and the distribution
of substantially all of its income for the current fiscal year to its
shareholders (see Note 2). At June 28, 1997, the Company has capital loss
carryovers totaling $105,000 which expire in the years 2000 to 2003.
<PAGE>
BDI INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
----------
8. Net Assets:
As of June 28, 1997, 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 .............. 563,000
Accumulated undistributed net realized losses ................ (106,000)
Unrealized appreciation on investments ....................... 199,000
Retained earnings at June 30, 1984 ........................... 9,242,000
------------
$ 13,692,000
============
</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
SCHEDULE OF PORTFOLIO INVESTMENTS
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio)
California
----------
<S> <C> <C> <C>
$ 103,000 Anaheim, California; Water Revenue; $ 100,000 $ 106,000
6.000%; July 1, 2003
100,000 Associated Bay Area Government; 100,000 100,000
Certificate of Participation; 5.625%;
October 1, 1998
100,000 Associated Bay Area Government; 100,000 101,000
Certificate of Participation;
5.900%; October 1, 1999
253,000 Associated Bay Area Government; 255,000 258,000
Certificate of Participation;
6.100%; October 1, 2000
200,000 Bakersfield, California; Public 200,000 205,000
Financing Authority Revenue;
Series A; 5.800%; September 15, 2006
110,000 Banning, California; Community 115,000 119,000
Redevelopment Agency; 7.000%;
March 1, 2020
263,000 Buena Park, California; Community 265,000 270,000
Redevelopment Agency; 6.300%;
September 1, 1999
258,000 Buena Park, California; Community 260,000 265,000
Redevelopment Agency; 6.300%;
March 1, 1999
</TABLE>
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<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio), Continued
<S> <C> <C> <C>
$ 138,000 California Educational Facilities Authority $ 135,000 $ 144,000
Revenue Refunding, Harvey Mudd College;
6.050%; December 1, 2008
100,000 California Health Facilities Financing 100,000 105,000
Authority Revenue, Refunding AIDS
Healthcare Foundation; 5.900%;
September 1, 2002
202,000 California Health Facilities Financing 200,000 212,000
Authority Revenue, Refunding AIDS
Healthcare Foundation; 6.000%;
September 1, 2003
52,000 California Health Facilities Financing 50,000 54,000
Authority Revenue, Refunding Kaiser
Permanente; Series A; 7.000%;
October 1, 2008
200,000 California Higher Education Loan Authority, 200,000 200,000
Inc.; Student Refunding Senior Lien;
3.950%; April 1, 2000
25,000 California Housing Finance Agency 25,000 26,000
Revenue, Home Mortgage; Series C;
6.250%; February 1, 2006
135,000 California; Special District 135,000 138,000
Financial Authority; Certificate
of Participation; 8.000%; July 1, 1998
149,000 California; State Public Works Board; 150,000 157,000
Lease; RFDG - Long Beach and
San Luis Obispo Series B; 5.600%;
April 1, 2006
101,000 California; State Public Works Board; 100,000 109,000
Series 1991 A; Lease Revenue Bonds,
Department of Correction; 6.400%;
September 1, 2008
</TABLE>
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<CAPTION>
BDI INVESTMENT CORPORATION
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio), Continued
<S> <C> <C> <C>
$ 100,000 California State General Obligations; $ 100,000 $ 100,000
6.500%; August 1, 1997
175,000 California State Department of 175,000 176,000
Veteran General Obligation, 7.000%;
April 1, 2016
417,000 California; Statewide Community Development 425,000 429,000
Certificate of Participation, San Gabriel Valley,
5.375%; September 1, 2007
100,000 Compton, California; Community 100,000 107,000
Redevelopment Agency; RFTG T/A
Walnut Industrial Series B;
7.700%; August 1, 1999
325,000 Compton, California; Community 325,000 354,000
Redevelopment Agency; RFTG T/A
Walnut Industrial Series B;
7.800%; August 1, 2001
100,000 Contra Costa County, California; 100,000 107,000
CTFS PTRN; 6.200%; August 1, 2008
171,000 Contra Costa County, California; 165,000 183,000
CTFS PTRN; Merrithew Memorial
Hospital replacement Project;
6.400%; November 1, 2005
100,000 Corona, California; Single Family 100,000 101,000
Mortgage Revenue Service; 5.500%;
November 1, 2010
100,000 Duarte, California; Redevelopment 100,000 104,000
Agency; Tax Allocation; 5.950%;
September 1, 2004
</TABLE>
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<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio), Continued
<S> <C> <C> <C>
$ 242,000 East Municipal Water & Sewer $ 250,000 $ 249,000
District of California; 5.375%;
July 1, 2013
337,000 Emeryville, California; 340,000 345,000
Public Financing Authority; Revenue Bond;
5.700%; September 1, 2007
75,000 Escondido, California; Multi-Family Housing 75,000 75,000
Revenue; FNMA; 5.250%; January 1, 2005
51,000 Los Angeles County, California; 50,000 52,000
Multi-Family Housing Revenue;
FHA; 7.300%; July 20, 2011
192,000 Metro Water District R.G.O.; 225,000 222,000
5.250%; March 1, 2022
500,000 Metro Water District; Waterworks 500,000 502,000
Revenue 5.400%; July 1, 2010
49,000 Metro Water District; Waterworks 50,000 49,000
Revenue; 5.500%; July 1, 2019
588,000 Metro Water District; Waterworks 600,000 600,000
Revenue; 5.500%; July 1, 2013
341,000 Metro Water District; Waterworks 350,000 318,000
Revenue; 5.000%; July 1, 2020
150,000 Midpeninsula Regional Open 150,000 169,000
Space District; 6.950%;
September 1, 2008
24,000 Montclair, California; 7.750%; 25,000 29,000
October 1, 2011
</TABLE>
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<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio), Continued
<S> <C> <C> <C>
$ 70,000 Morgan Hill, California; $ 70,000 $ 71,000
Redevelopment Agency Tax
Allocation; 5.250%; March 1, 1998
125,000 Oakland, California; YMCA; 125,000 138,000
7.400%; June 1, 2010
43,000 Palmdale, California; Single 45,000 48,000
Family Mortgage Revenue;
7.000%; September 1, 2011
600,000 Placer Co., California Water Agency; 600,000 612,000
5.500%; July 1, 2010
151,000 Pleasanton, California; Certificate of 145,000 157,000
Participation CTFS Partnership; 6.700%;
October 1, 2006
36,000 Redding, California; School District; 40,000 37,000
5.000%; March 1, 2019
235,000 Riverside County, California; Asset 235,000 248,000
Leasehold Revenue Hospital;
6.000%; June 1, 2004
567,000 Riverside City, California; 600,000 567,000
Electric RFDG Revenue; 5.000%;
October 1, 2013
106,000 Rossmoor Community Services District; 105,000 107,000
5.800%; September 2, 2005
52,000 Sacramento, California; New Public Housing 50,000 52,000
Authority; 6.000%; December 1, 2007
</TABLE>
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<CAPTION>
BDI INVESTMENT CORPORATION
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio), Continued
<S> <C> <C> <C>
$ 190,000 San Clemente, California; LMTD $ 190,000 $ 197,000
Obligation Wastewater Treatment
Plant; 7.900%; September 2, 1999
158,000 San Francisco, California; City and 155,000 163,000
County General Obligation; 6.100%;
June 15, 2007
98,000 San Francisco, California; Port 100,000 103,000
Commission; 5.500%; July 1, 2004
50,000 San Francisco, California; New Public 50,000 50,000
Housing Authority; 5.125%;
August 1, 2010
200,000 San Joaquin, California; General 200,000 208,000
Hospital Revenue; 5.900%;
September 1, 2003
100,000 San Luis Obisbo, California; 100,000 102,000
Water Treatment Plant;
5.375%; June 1, 2008
105,000 San Luis Obisbo, California; 105,000 107,000
Water Treatment Plant;
5.500%; June 1, 2009
581,000 Santa Maria, California; Redevelopment; 600,000 558,000
5.000%; June 1, 2016
85,000 Santa Margarita, California; Water Districts 85,000 86,000
#3 and #4; 7.500%; November 1, 2011
193,000 Sierra Unified School District, California; 200,000 198,000
CTFS PARTN Financing; 5.65%;
March 1, 2004
</TABLE>
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<TABLE>
<CAPTION>
BDI INVESTMENT CORPORATION
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio), Continued
<S> <C> <C> <C>
$ 94,000 Sonoma, California; Community $ 95,000 $ 97,000
Redevelopment Agency, Tax Allocation;
7.900%; August 1, 2014
246,000 Tahoe Forest Hospital District, California; 250,000 262,000
Insured Health Facility Revenue;
5.850%; August 1, 2004
593,000 Tehachapi School District; 6.300%; 600,000 609,000
August 1, 2021
102,000 Temecula Valley Unified School District 100,000 105,000
Financing Project; California; 5.900%;
September 1, 2004
45,000 Thousand Oaks, California; Redevelopment 45,000 46,000
Agency, Single Family Residential Mortgage
Revenue; 7.900%; January 1, 2016
129,000 University of California, Revenue Bond, Series B; 130,000 135,000
5.875%; September 1, 2008
575,000 Vallejo, California; Mortgage Revenue; 575,000 566,000
5.650%; May 1, 2027
335,000 Westminister City, California; Certificate of 335,000 340,000
Participation - Public Improvement Project;
5.750%; June 1, 2009
----------- ----------- -----------
12,490,000 12,625,000 12,809,000
----------- ----------- -----------
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<CAPTION>
BDI INVESTMENT CORPORATION
SCHEDULE OF PORTFOLIO INVESTMENTS, CONTINUED
June 28, 1997
----------
Value at
Cost Issuer and Title of Issue Par Value Year End
---- ------------------------- --------- --------
Tax Exempt Bonds (97% of Investment Portfolio), Continued
Puerto Rico
-----------
<S> <C> <C> <C>
$ 343,000 Puerto Rico; HFC SFM Mortgage Revenue; 7.500%; $ 335,000 $ 352,000
April 1, 2022
267,000 Puerto Rico; Housing and Financial Corporation; 260,000 273,000
GNMA; 7.650%; October 15, 2022
---------- ----------- -----------
610,000 595,000 625,000
---------- ----------- -----------
13,100,000 $13,220,000 13,434,000
========== =========== ==========
<CAPTION>
Partnership Interest Funds
(3% of Investment Portfolio) Units
---------------------------- -----
<S> <C> <C> <C>
570,000 Dean Witter Coldwell Banker Tax Exempt 29,875 435,000
Mortgage Fund
---------- -----------
$13,670,000 $13,869,000
=========== ===========
</TABLE>
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<CAPTION>
BDI INVESTMENT CORPORATION
FINANCIAL HIGHLIGHTS
For the Years Ended June 28, 1997, June 28, 1997, July 2, 1995,
July 3, 1994 and June 27, 1993
----------
Selected data for each share of common stock follows:
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Investment income ..................... $ .58 $ .58 $ .61 $ .64 $ .72
Expenses .............................. .05 .04 .05 .05 .05
--------- --------- --------- --------- ---------
Net investment income .53 .54 .56 .59 .67
Distributions from net investment
income ....................... (.56) (.50) (.57) (.59) (.69)
Net realized and unrealized gain (loss)
on investments ............... .32 .16 .12 (.64) .15
--------- --------- --------- --------- ---------
Net increase (decrease) from investment
operations ................... .29 .20 .11 (.64) .13
Net asset value:
Beginning of period .......... 9.34 9.14 9.03 9.67 9.54
End of period ................ $ 9.63 $ 9.34 $ 9.14 $ 9.03 $ 9.67
========= ========= ========= ========= =========
Total return .......................... 7.81% 7.66% 7.53% (.52)% 8.60%
========= ========= ========= ========= =========
Ratio of expenses to
average net assets ........... .47% .44% .50% .55% .48%
========= ========= ========= ========= =========
Ratio of net investment
income to average net
assets ....................... 5.60% 5.76% 6.29% 6.15% 6.97%
========= ========= ========= ========= =========
Portfolio turnover .................... 5.24% 12.92% 15.47% 24.36% 35.72%
========= ========= ========= ========= =========
Number of shares outstanding
at end of period 1,421,551 1,421,551 1,421,551 1,421,551 1,421,551
========= ========= ========= ========= =========
</TABLE>
<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 and Transfer Company
Custodian Dean Witter Reynolds, Inc.
