STUART M. FRIED CPA
KALA INVESTMENT CORP.
REPORT TO STOCKHOLDERS
FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2000 AND 1999
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
REPORT TO STOCKHOLDERS
FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2000 AND 1999
CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT 1
STATEMENTS OF ASSETS, LIABILITIES AND
CAPITAL SECURITIES 2
STATEMENTS OF OPERATIONS, UNDISTRIBUTED NET
INCOME (LOSS) 3
STATEMENTS OF CHANGES IN NET ASSETS 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-13
STUART M. FRIED
CERTIFIED PUBLIC ACCOUNTANT
11 TWIN BROOK ROAD
WEST CALDWELL, N.J. 07006
973-226-4006
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and
Stockholders of Kala Investment Corp.
We have audited the accompanying statements of assets, liabilities and capital
securities of Kala Investment Corp. as of October 31, 2000 and 1999 ,and the
related statements of operations, undistributed net income (loss), statements
of changes in net assets and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
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 are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
The investment securities held in custody were confirmed to us by the
custodian. 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 referred to above present fairly,
in all material respects, the financial position of Kala Investment Corp. as
of October 31, 2000 and 1999, and the results of its operations and the
changes in its net assets for the years then ended in conformity with
generally accepted accounting principles.
STUART M. FRIED, CPA
West Caldwell, New Jersey
December 18, 2000
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
STATEMENTS OF ASSETS, LIABILITIES
AND CAPITAL SECURITIES
ASSETS
YEAR ENDED OCTOBER 31,
2000 1999
INVESTMENT IN SECURITIES, at
market value (amortized cost
$6,563,513 and $7,287,925 $6,485,124 $7,196,192
Investment in HSBC NY tax free fund
(average interest rate 3.56%) 964,278 249,227
Cash and cash equivalents 18,795 8,246
Interest receivable 136,916 144,101
Prepaid expense 3,820 3,883
$7,608,933 $7,601,649
LIABILITIES AND CAPITAL SECURITIES
LIABILITIES
Dividends payable $ 82,075 $ 94,145
Accrued expenses 7,959 4,762
$ 90,034 $ 98,907
NET ASSETS APPLICABLE TO OUTSTANDING CAPITAL SHARES:
CAPITAL SHARES
Class A common 200 shares
authorized and issued - no par
Class B common 40,000 shares
authorized, 26,622 issued - no par 34,627 34,627
Retained earnings 7,559,849 7,555,320
Undistributed net income 2,812 4,528
Unrealized appreciation (depreciation)
of investments (78,389) (91,733)
Total stockholders' equity
(equivalent to $280.32 per
share at 10/31/00 and $279.72
per share at 10/31/99) 7,518,899 7,502,742
$7,608,933 $7,601,649
The accompanying notes are an integral part of these financial statements.
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STUART M. FRIED, CPA
KALA INVESTMENT CORP.
STATEMENTS OF OPERATIONS,
UNDISTRIBUTED NET INCOME (LOSS)
YEAR ENDED OCTOBER 31,
2000 1999
INVESTMENT INCOME:
INCOME:
Interest income $ 314,504 $ 327,593
Dividend income-tax free 17,686 9,907
EXPENSES:
Custodial fees (note 4) 6,267 6,531
Audit fees 3,300 4,000
Legal fees 10,339 8,105
Taxes other than income taxes (net refund) 100 (546)
Office expense 6,500 6,153
Printing and stationery 1,002 687
Filing and director's fees 850 250
Insurance 4,018 4,000
32,376 29,180
INVESTMENT INCOME 299,814 308,320
Net realized gain (loss) from
investment transactions 2,600 6,500
NET INVESTMENT INCOME BEFORE
FEDERAL INCOME TAX 302,414 314,820
Less: Federal income taxes (refund) 0 (1,380)
NET INVESTMENT INCOME 302,414 316,200
Less: Dividends paid 299,602 311,672
UNDISTRIBUTED NET INCOME (LOSS) $ 2,812 $ 4,528
UNREALIZED APRECIATION (DEPRECIATION)
OF INVESTMENTS $( 78,389) $ (91,733)
The accompanying notes are an integral part of these financial statements.
-3-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED OCTOBER 31,
2000 1999
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Investment income - net $ 299,814 $ 309,700
Net realized gain (loss) on investments 2,600 6,500
Change in unrealized appreciation 13,345 (201,152)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 315,759 115,048
DISTRIBUTION TO SHAREHOLDERS FROM
NET INVESTMENT INCOME 299,602 311,672
TOTAL INCREASE (DECREASE) 16,157 (196,624)
NET ASSETS BEGINNING OF YEAR 7,502,742 7,699,366
NET ASSETS END OF YEAR (including
undistributed net income of $2,812 and
undistributed net loss of $4,528
respectively) $7,518,899 $7,502,742
DIVIDENDS PER SHARE $ 11.17 $ 11.62
See accompanying notes are an integral part of these financial statements.
-4-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 302,414 $ 316,200
Adjustments to reconcile net income
to net cash provided by operating activities:
Realized (gain) loss from investment
transactions included in net income (2,600) (6,500)
Changes in assets and liabilities:
(Increase) Decrease in securities
at fair market value 711,068 95,151
(Increase) Decrease in HSBC NY tax free fund (715,051) 95,140
(Increase) Decrease in interest receivable 7,185 417
(Increase) Decrease in prepaid expenses 63 (5)
Increase (Decrease) in accrued expenses 3,196 (5,326)
NET CASH PROVIDED BY OPERATING ACTIVITIES 306,275 495,077
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase (Decrease) in unrealized appreciation
of investments 13,345 (201,152)
Realized gain (loss) from investment transactions 2,600 6,500
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES 15,945 (194,652)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (311,671) (331,251)
NET (DECREASE) IN CASH
AND CASH EQUIVALENTS 10,549 (30,826)
CASH AND CASH EQUIVALENTS -
BEGINNING OF YEAR 8,246 39,072
CASH AND CASH EQUIVALENTS - END OF YEAR $ 18,795 $ 8,246
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 10 $ 0
The accompanying notes are an integral part of these financial statements.
-5-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Pursuant to the agreement and plan of merger dated October 31, 1991, M-L
Investment Corp., a Delaware corporation, was reincorporated in Maryland as
Kala Investment Corp. Kala Investment Corp. commenced operations as an
investment company investing at least 50% of the value of its total assets,
determined at the close of each quarter of its taxable year, in tax-exempt
state and local obligations, may distribute, as a tax-exempt dividend, to
its shareholders an amount equal to the interest earned on such tax exempt
obligations, provided it designates such dividends as tax exempt interest
dividends. It is the Company's intention to invest substantially all of its
assets, except such amounts as it may carry in demand deposits, in such
tax-exempt obligations and to distribute all of its net income, including
any net short-term capital gains, to its shareholders.
On July 26, 1990, the shareholders of the Company approved a change in the
investment objectives of the Company to include investments in U.S. Government
Securities, which would be taxable for federal income tax purposes.
The Company is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end investment company.
The Company has adopted a code of ethics (each, a "17j-1 Code") under Rule
17-j-1 under the Investment Company Act. The 17j-1 Code adopted by the
Company governs the manner and extent to which certain persons associated
with it may invest in securities for their own accounts.
The following is a summary of significant accounting policies followed by the
Company in the preparation of its financial statements:
(a) Investments are valued by the Custodian. These values may not necessarily
be bids or actual last sale prices, but are estimates of the fair value of
the investment securities, based upon prevailing interest rates,
applicable bond ratings and other factors influencing the markets in which
the investments are purchased and sold.
(b) It is the policy of the Company to continue to qualify as a regulated
investment company if such qualifications are in the best interests of its
shareholders, by complying with the provisions available under the Internal
Revenue Code, and to make distributions of taxable income sufficient to
relieve it from all, or substantially all, Federal income taxes.
Therefore, unless the Company has capital gains or interest on Treasury
Bills, no federal tax provision is required.
-6-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
(c) Realized gains and losses on investments are computed on the basis of the
identified cost of the specific securities sold.
(d) Securities transactions are recorded on the date the securities are
purchased or sold (the trade date). Interest income (net of premium
or discount amortization) is recorded as earned.
(e) Interest receivable on investment in securities is computed daily.
(f) Amortization Method - The municipal bonds are amortized over the life of
the bonds.
As of November 1, 1995 the bonds are amortized to the pre-refunded date,
if earlier.
(g) Unrealized appreciation (depreciation) of investments is stated as the
difference between amortized cost and fair market value at October 31, 2000:
Unrealized appreciation of bonds totaled $ 29,027
Unrealized depreciation of bonds totaled 107,416
Net unrealized depreciation of investments $ 78,389
2. PURCHASES, SALES AND REDEMPTIONS OF SECURITIES
Securities purchased by the Company amounted to $893,793 (which included
purchases of HSBC NY tax exempt fund of $893,793) for the year ended
October 31, 2000 and $1,964,313 (which included purchases of HSBC NY tax exempt
fund of $839,993) for the year ended October 31, 1999. Sales of securities
amounted to $704,743 (which included sales of HSBC NY tax exempt fund of
$124,743) for the year ended October 31, 2000 and $1,826,633 (which
included sales of HSBC NY tax exempt fund of $935,133) for the year ended
October 31, 1999.
-7-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
3. DISTRIBUTIONS
The Company distributed income of $299,602 ($11.17 per share) as of October
31, 2000 and $331,672 ($11.62 per share) for the year ended October 31, 1999
in the form of dividends.
4. CUSTODIAL FEES
On August 15, 1997, the custodial agreement was transferred to HSBC. HSBC (the
Custodian) will charge a custodial fee of:
.25% on the first $500,000 face value of bonds per $1,000
.125% on the next $1,000,000 face value of bonds per $1,000
.625% on amounts over $1,500,000 face value of bonds per $1,000
The minimum annual charge is $1,000. Additional charges will include $20 for
each security transaction.
During the year ended October 31, 2000, the Company was charged an
aggregate of $6,267 and $6,531 for the year ended October 31, 1999.
5. REMUNERATION
The Company's policy is not to pay, and for the periods reported did not pay,
remuneration to either officers or directors.
Independent outside directors were paid an aggregate of $600 and $0 for the
years ended October 31, 2000 and 1999.
6. CAPITAL PER SHARE AND RELATED INFORMATION
Selected data for a share of capital stock outstanding throughout each year:
-8-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
YEAR ENDED OCTOBER 31,
2000 1999
Investment income $ 12.38 $ 12.58
Operating expenses, net of tax refund 1.20 1.08
INVESTMENT INCOME BEFORE FEDERAL
INCOME TAX 11.18 11.50
FEDERAL INCOME TAX (REFUND) 0 (.05)
INVESTMENT INCOME - NET 11.18 11.55
Dividends to shareholders 11.17 11.62
.01 (.07)
Realized and unrealized gain
(loss) on investments - net .59 (7.28)
CHANGE IN NET VALUE .60 (7.35)
NET ASSET VALUE:
Beginning of year 279.72 287.07
End of year $280.32 $279.72
Ratio of operating expenses
to average net assets .004% .004%
Ratio of investment income
net to average net asset 4.0 4.39%
Portfolio turnover 0% 11.51%
Number of shares outstanding at end of period 26,822 26,822
-9-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
7. INVESTMENT IN SECURITIES
PRINCIPAL AMORTIZED MARKET
MUNICIPAL BONDS (99%) AMOUNT COST VALUE
ISSUE
Austin Tex Util Sys Rev MBIA
DTD 7/15/89 9.25% Due 11/15/01
Unrefunded balance-Comb Pr Lien
Non Callable $235,000 $246,136 $246,292
Austin Tex Util Sys Rev Ser A
DTD 4/15/86 8.00% Due 11/15/16
Comb Pr Lien
Prerefunded 8/15/01 @ 100.00 100,000 101,740 101,942
Bexar Cnty Tex CTFS Oblig Tax & Rev
DTD 6/15/92 6.20% Due 6/15/12
PRFD 6/15/02 @ 100.00 620,000 631,736 636,957
Dallas Tex Wtrwks & SWR Sys Rev
DTD 9/01/96 8.0% Due 10/01/01
RFD6 & Impt-Non Callable 250,000 257,027 257,870
Dallas Tex Wtrwks & SWR Sys Rev
DTD 4/01/95 7.5% 4/01/03
RFDG & Impt-Callable 4/01/02 @ 101.50 150,000 158,555 158,086
Garland Tex MB1A
DTD 3/15/97 7.125% Due 2/15/03
Book Entry Only-Non Callable 205,000 214,390 216,318
Illinois Health Facs Auth Rev
DTD 1/01/90 9.50% Due 11/15/19
Hinsdale Hosp-C-Book Entry Only
Prerefunded 11/15/00 @ 102.00 495,000 584,454 505,831
-10-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
PRINCIPAL AMORTIZED MARKET
MUNICIPAL BONDS (99%) AMOUNT COST VALUE
ISSUE
Laredo Texas Ser A MBIA
DTD 11/01/94 8.625% Due 8/15/03
Book Entry Only-Non Callable 295,000 319,874 326,235
Municipal Assistance Corp. for City
New York NY RFDG-SerL-Book Entry
DTD 6/15/97 6.00% Due 7/01/04
Non Callable 200,000 211,212 210,298
Nassau Cnty NY Rfdg-Comb Swr Dists
Ser F-MBIA Book Entry Only
DTD 6/10/93 5.30% Due 7/1/06
Non Callable 250,000 265,623 258,625
Nebo Utah Sch Dist FGIC
DTD 6/15/94 9.75% Due 6/15/01
Book Entry Only-Non Callable 210,000 214,778 216,739
New York City Mun Wtr Fin
Auth Wtr & Swr Sys Rev Ser A
DTD 8/16/95 6.00% Due 6/15/25
Callable 6/15/05 @101, 6/15/07 @100 190,000 207,445 203,475
New York NY City Mun Wtr Fin
Auth Wtr & Swr Sys Rev
DTD 11/17/93 Var rate
Due 6/15/09
Opt Put Subj no
Opt Rdmpt @100 250,000 250,000 250,000
New York New York Ser A-1
DTD 8/14/95 5.50% Due 8/01/01
Book Entry Only-Escrowed to Maty O.I.D 15,000 15,037 15,140
New York New York Ser A-1
DTD 8/14/95 5.50% Due 8/01/01
Book Entry Only-Non Callable O.I.D 85,000 85,228 85,716
-11-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
PRINCIPAL AMORTIZED MARKET
MUNICIPAL BONDS (99%) AMOUNT COST VALUE
ISSUE
New York St Crossover RFDG
DTD 7/15/92 7.50% Due 11/15/01
Book Entry Only-Non Callable 245,000 252,416 252,713
New York St Crossover RFDG
DTD 7/15/92 7.00% Due 11/15/02
Non-Callable Book Entry Only 175,000 184,503 183,741
New York St TWY Auth
HWY & Brdg TR FD
Ser A MBIA Book Entry Only
DTD 7/01/95 6.25% Due 4/01/04 250,000 266,614 264,025
New York NY
Ser A Book Entry Only
DTD 08/15/91 7.750% Due 8/15/05
Prerefunded 8/15/01 @ 101.5 100,000 108,174 104,156
New York NY Ser B Book Entry O.I.D.
DTD 10/29/92 7.00% Due 10/01/14
Prerefunded 10/01/02 @ 101.5 245,000 259,335 260,467
New York NY Ser B Book Entry O.I.D.
DTD 10/29/92 6.75% Due 10/01/15
Prerefunded 10/1/02 @ 101.5 235,000 247,048 248,677
New York St Loc Govt Assistance Corp.
DTD 02/01/91 7.00% Due 04/01/16
Ser A-MBIA-IBC O.I.D.
Prerefunded 4/1/01 @ 102.00 100,000 101,418 103,106
New York NY Ser F Book Entry O.I.D.
DTD 05/15/91 8.25% Due 11/15/16
Prerefunded 11/15/01 @ 101.5 100,000 104,338 105,475
New York St Loc Govt Assistance Corp
Ser D MBIA IBC MBIA IND OBD CTF OID
DTD 12/1/91 7.00% Due 4/1/18
Prerefunded 4/1/02 @ 102 110,000 114,908 116,137
-12-
STUART M. FRIED, CPA
KALA INVESTMENT CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
PRINCIPAL AMORTIZED MARKET
MUNICIPAL BONDS (99%) AMOUNT COST VALUE
ISSUE
New York St Dorm Auth Revs St
Univ EDL FACS-A-MBIA-IBC MBIA-
INSD BD CTF-O-O.I.D.
DTD 12/01/91 6.750% Due 05/15/21
Prerefunded 05/15/02 @ 102 190,000 197,998 200,503
New York St Dorm Auth Revs
Upstate Cmmty Colleges-Ser A
DTD 10/01/95 6.20% Due 07/01/15
Prerefunded 7/1/05 @ 102 250,000 275,524 272,527
New York St. Pwr Auth
Revs Gen Purp ser w-RFDG-O.I.D.
DTD 12/01/96 6.70% Due 01/01/04 100,000 107,975 106,752
New York St Dorm auth
Revs City Univ. Sys Cons-Ser I
DTD 10/15/97 5.5% Due 7/1/05
Non Callable 250,000 264,933 260,080
San Antonio Tex RFDG & Gen Impt
DTD 08/01/93 8.0% Due 8/1/02
Book Entry Only-Non Callable 300,000 315,094 317,241
Total Investment - 86.3% $6,200,000 $6,563,513 $6,485,124
Other Assets Less Liabilities - 13.7% 1,033,775
Net Assets - 100% $7,518,899
Net Asset Value Per Share $ 280.32
Outstanding shares at October 31, 2000 26,822
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