PMD INVESTMENT COMPANY
Financial Statements for the
Year Ended December 31, 1998 and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders and
Board of Directors
PMD Investment Company
Omaha, Nebraska
We have audited the accompanying statement of assets and liabilities of PMD
Investment Company, including the schedule of investments, as of December 31,
1998, 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 selected per share data and ratios for each of the five years in
the period then ended. These financial statements and per share data and ratios
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and per share data and ratios
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 per share data
and ratios 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 securities owned as of
December 31, 1998, by correspondence with 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 and selected per share data and ratios
referred to above present fairly, in all material respects, the financial
position of PMD Investment Company as of December 31, 1998, 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 selected per share data and
ratios for each of the five years in the period then ended, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
January 26, 1999
<PAGE>
PMD INVESTMENT COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in securities, at fair value,
amortized cost of $13,491,071 $13,978,790
Investment in tax-exempt money market fund 648,382
-----------
Total Investments 14,627,172
Interest receivable 208,542
-----------
Total Assets 14,835,714
LIABILITIES:
Accrued expenses 19,445
-----------
Commitments and contingencies
NET ASSETS (equivalent to $4.36 per share based on 3,398,855 shares
of common stock outstanding at December 31, 1998) $14,816,269
===========
</TABLE>
See notes to financial statements.
2
<PAGE>
PMD INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amortized Fair
Amount Cost Value
<S> <C> <C> <C>
Abbey National PLC Sub, 6.69%, due October 17,
2005 $ 550,000 $ 554,586 $ 579,590
Austin, Texas, Independent School District, 4.75%,
due August 1, 2008 500,000 496,381 517,500
Clark County, Washington Public Utilities District #1
Electric Revenue, 6.3%, due January 1, 2004,
callable January 1, 2001 250,000 249,542 265,625
Denver Metropolitan Major League Baseball Stadium
District Colorado, 6.35%, due October 1, 2003 250,000 250,000 269,650
Federal Home Loan Mortgage Corporation, 7.0%,
due June 1, 2024 1,516,714 1,522,496 1,545,380
Federal National Mortgage Association, 6.5%,
due January 1, 2024 898,352 886,781 904,012
Federal National Mortgage Association, 7.8%,
due March 29, 2005, callable March 29, 2000 1,000,000 1,016,972 1,033,000
Florida State, General Services Revenues,
6%, due July 1, 2001 220,000 219,860 232,430
Grand Island, Nebraska Sanitary Sewer Revenue,
4.8%, due April 1, 2000 400,000 400,000 405,920
Hanover County, Virginia IDA Public Facilities
Lease Revenue, 6.75%, due July 15, 2007 150,000 150,000 161,565
Jefferson County, West Virginia Residential
Mortgage Revenue, Refunding Series A, 7.75%
due January 1, 2012, callable January 1, 2001 65,000 65,237 68,640
King County, Washington School District, 4.3%,
due June 1, 2010, callable June 1, 2008 500,000 495,557 489,600
Lincoln, Nebraska Water Revenue, 6.7%, due
November 1, 2000 250,000 250,000 264,100
Mecklenburg County, North Carolina Public
Service, 4.4%, due February 1, 2011, callable
February 1, 2008 500,000 491,057 501,650
Memphis, Tennessee, 4.65%, due July 1, 2007,
callable July 1, 2005 500,000 498,389 519,300
Minneapolis, Minnesota Refunding Service, 4.25%,
due December 1, 2008 500,000 504,060 504,650
</TABLE>
See notes to financial statements.
3
<PAGE>
PMD INVESTMENT COMPANY
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998 (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amortized Fair
Amount Cost Value
<S> <C> <C> <C>
Nebraska Investment Finance Authority, 6.9%,
due March 15, 2000 $ 205,000 $ 205,000 $ 209,777
Ohio State Highway Capital Imports, Series B,
4.5%, due May 1, 2024 500,000 498,858 515,300
Omaha Public Power District, Nebraska Electric
Revenue, Series B, 5.9%, due February 1, 2006 450,000 450,000 497,790
Omaha Public Power District, Nebraska Electric
Revenue, Series A, 5%, due January 1, 2001 500,000 504,523 512,900
Sabine River Authority, Texas Water Supply
Facility, Lake Fork Project, 6.5%, due
December 1, 2001 265,000 264,624 279,734
Citigroup Inc., Serial Note, 9.5%, due
March 1, 2002 550,000 587,383 607,475
Tucson, Arizona, G.O., Ref. 5.8%, due July 1, 2002 10,000 9,977 10,841
Tucson, Arizona, G.O., Ref. 5.8%, due July 1, 2005 240,000 239,449 257,688
University of Nebraska Facilities Corp., 7.2%,
due July 1, 2004, callable July 1, 2000 250,000 250,000 265,800
Utah State, 4.9%, due July 1, 2009, callable
July 1, 2007 500,000 498,090 524,850
Vermont State, Series B, 5.7%, due August 1, 2005 400,000 398,160 439,880
Virginia State, G.O., 4%, due June 1, 2003 500,000 502,836 504,750
Wake City, North Carolina, 4.5%, due March 1,
2011, callable March 1, 2008 500,000 487,978 506,350
Washington State, Series A and AT-6, 5.8%, due
February 1, 2003 250,000 248,134 266,125
Wisconsin Housing and Economic Development,
Series 1, 7%, due October 1, 2003 295,000 295,139 316,920
----------- ----------- -----------
Totals $13,465,066 $13,491,071 $13,978,790
=========== =========== ===========
</TABLE>
See notes to financial statements.
4
<PAGE>
PMD INVESTMENT COMPANY
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- -------------------------------------------------------------------------------
Interest Income:
From investments $837,605
Expenses:
Investment advisory fee 31,839
Custodian fees 3,200
Professional fees 41,902
Shareholders' servicing costs 4,907
Directors' fees 15,000
Other 4,250
--------
Total Expenses 101,098
--------
Net Investment Income 736,507
Realized and unrealized gain on sales of investments:
Net realized gain on sale of investments 17,920
Change in unrealized appreciation of investments 58,649
--------
76,569
--------
Net increase in Net Assets Resulting from Operations $813,076
========
See notes to financial statements.
5
<PAGE>
PMD INVESTMENT COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Undistributed Realized Unrealized
Common Stock Net Gain (Loss) Appreciation
$.50 Par Retained Investment on Sale of (Depreciation)
Shares Value Earnings Income Securities of Invest- Total
ments
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Net investment income - $ - $ - $759,368 $ - $ - $ 759,368
Net realized gain from securities transactions - - - - 9,323 - 9,323
Change in unrealized appreciation of investments - - - - - 163,427 163,427
--------- ---------- ----------- --------- -------- -------- -----------
Increase in net assets from operations - - - 759,368 9,323 163,427 932,118
Dividends - $.239 per share - - - (818,877) (9,229) - (828,106)
Common stock redeemed (143,022) (71,511) (543,760) - - - (615,271)
--------- ---------- ----------- --------- -------- -------- -----------
Total decrease in net assets (143,022) (71,511) (543,760) (59,509) 94 163,427 (511,259)
Net assets on January 1, 1997 3,596,795 1,798,397 13,567,042 (105,048) (36,231) 265,643 15,489,803
--------- ---------- ----------- --------- -------- -------- -----------
Net assets on December 31, 1997 3,453,773 $1,726,886 $13,023,282 $(164,557) $(36,137) $429,070 $14,978,544
========= ========== =========== ========= ======== ======== ===========
Year ended December 31, 1998:
Net investment income $ - $ - $ - $ 736,507 $ - $ - $ 736,507
Net realized gain from securities transactions - - - - 17,920 - 17,920
Change in unrealized appreciation of investments - - - - - 58,649 58,649
--------- ---------- ----------- --------- -------- -------- -----------
Increase in net assets from operations - - - 736,507 17,920 58,649 813,076
Dividends - $.217 per share - - - (727,782) (9,229) - (737,011)
Common stock redeemed (54,918) (27,459) (210,881) - - - (238,340)
--------- ---------- ----------- --------- -------- -------- -----------
Total decrease in net assets (54,918) (27,459) (210,881) 8,725 8,691 58,649 (162,275)
Net assets on January 1, 1998 3,453,773 1,726,886 13,023,282 (164,557) (36,137) 429,070 14,978,544
--------- ---------- ----------- --------- -------- -------- -----------
Net assets on December 31, 1998 3,398,855 $1,699,427 $12,812,401 $(155,832) $(27,446) $487,719 $14,816,269
========= ========== =========== ========= ======== ======== ===========
</TABLE>
See notes to financial statements.
6
<PAGE>
PMD INVESTMENT COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
PMD Investment Company (the Company) is registered under the Investment
Company Act of 1940, as amended, as a closed-end diversified management
investment company. The following is a summary of significant accounting
policies followed by the Company in the preparation of its financial
statements.
Investment Securities - Investments in securities are valued at fair value
as determined by the Company's investment advisor at December 31, 1998.
Securities Transactions - Securities transactions are recorded on a trade
date basis. Cost of securities sold is determined using the identified
cost method.
Interest Income - Interest income, adjusted for amortization of premium or
accretion of discounts on investments in municipal bonds and notes, is
earned from settlement date and recorded on the accrual basis.
Distributions to Shareholders - Dividends to shareholders are recorded on
the ex-dividend date.
Income Taxes - It is the Company's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies
and to distribute substantially all of its income, including capital
gains, to its shareholders. No income tax provision has been made since
substantially all the income and capital gains are reported by the
shareholders on their own tax returns.
Management and Service Fees - The investment advisory fee, which is
payable monthly, is based on the value of net assets at each month-end at
the annual rate of .25 percent on the first $10,000,000 of the net asset
value and .15 percent of the net asset value in excess of $10,000,000,
with a minimum fee of $10,000 per year. Fees for the services of each of
the directors of the Company are $5,000 annually with an additional $500
for each board or committee meeting attended in excess of four meetings
each year. No additional compensation or benefits are paid to officers or
directors of the Company.
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.
B. REDEMPTION OF SHARES
At December 31, 1998, the Company had authorized 20,000,000 shares of $.50
par value common stock.
Shareholders may redeem shares of stock and receive the net asset value
per share on any December 31 or June 30 by tendering the shares to be
redeemed 30 days prior to the intended redemption date.
7
<PAGE>
C. CONTINGENT LIABILITIES
On January 15, 1981, the Company sold substantially all of its assets
which had been used in its former operations as a discount store business.
Although the purchaser of the Company's operating assets assumed
substantially all of the Company's liabilities and obligations as part of
the purchase transaction, the Company remains contingently liable for such
liabilities and obligations, including obligations under long-term real
estate and equipment leases and real estate mortgages until released by
the obligees or until such liabilities and obligations have been satisfied
or discharged. The total of such liabilities and obligations not released
by the obligees amounted to approximately $6,682,994 as of December 31,
1998, the most recent date for which such information is available.
D. PURCHASES AND SALES OF SECURITIES
The following summarizes the approximate value of securities transactions
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------------- -------------------------
Purchases Sales Purchases Sales
<S> <C> <C> <C> <C>
Tax Exempt:
Municipal bonds and notes $1,976,055 $1,364,787 $1,990,035 $1,528,900
Taxable:
Government agency 504,060 1,190,827 -- 292,410
---------- ---------- ---------- ----------
2,480,115 2,555,614 1,990,035 1,821,310
Other tax-exempt short-term
investments 3,367,242 3,485,820 2,240,565 3,078,243
---------- ---------- ---------- ----------
$5,847,357 $6,041,434 $4,230,600 $4,899,553
========== ========== ========== ==========
</TABLE>
Net realized gain on sale of investments was $17,920 and $9,323 for the
years ended December 31, 1998 and 1997, respectively.
The diversification of investments based on fair value at December 31,
1998 is as follows:
State and municipal tax-exempt bonds 63.7%
U.S. government agency bonds 23.8
Corporate bonds 8.1
Short-term tax-exempt money market fund 4.4
------
100.0%
======
8
<PAGE>
E. DISTRIBUTIONS TO SHAREHOLDERS
On December 23, 1998, a quarterly income distribution of $0.056496 per
share aggregating $192,000 and a distribution of $0.003372 per share
aggregating $11,459 was declared from net realized gains from investment
transactions during 1998. The dividend was paid on January 11, 1999 to
shareholders of record on January 4, 1999.
F. SUPPLEMENTARY INFORMATION - SELECTED PER SHARE DATA AND RATIO
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding 3,432,115 3,537,042 3,626,328 3,825,907 3,988,480
========= ========= ========= ========= =========
Interest income $0.244 $0.243 $0.251 $0.240 $0.255
Expenses 0.030 0.028 0.030 0.024 0.025
--------- --------- --------- --------- ---------
Net investment income 0.214 0.215 0.221 0.216 0.230
Distribution from net investment
income (0.215) (0.234) (0.262) (0.228) (0.243)
Increase (decrease) in unrealized
appreciation of investments 0.017 0.047 (0.094) 0.098 (0.244)
Net realized gain (loss) from securities
transactions 0.005 0.003 0.010 0.051 --
--------- --------- --------- --------- ---------
Increase (decrease) in net assets 0.021 0.031 (0.125) 0.137 (0.257)
Net asset value at beginning of period 4.337 4.306 4.431 4.294 4.551
--------- --------- --------- --------- ---------
Net asset value at end of period $4.358 $4.337 $4.306 $4.431 $4.294
========= ========= ========= ========= =========
Ratio of expenses to average net assets 0.7% 0.7% 0.7% 0.5% 0.6%
Ratio of net investment income to
average net assets 5.0% 5.0% 5.0% 4.9% 5.2%
Portfolio turnover 16.6% 12.0% 19.8% 59.6% 2.3%
Number of shares outstanding at
end of period (in thousands) 3,399 3,454 3,597 3,805 3,979
</TABLE>
