PHILLIPS CAPITAL INVESTMENTS, INC.
ANNUAL REPORT TO SHAREHOLDERS
FOR THE PERIOD ENDED
DECEMBER 31, 1996
<PAGE>
CONTENTS
Independent Auditors' Report.....................................Page 1
Statement of Assets and Liabilities.............................. 2
Investment in Securities as of December 31, 1996................. 3 - 5
Statement of Operations.......................................... 6
Statement of Changes in Net Assets............................... 7
Notes to Financial Statements.................................... 8 - 9
Supplementary Information -
Selected Per-Share Data and Ratios........................... 10
<PAGE>
McCARTHY, ROSE & MILLS, L.L.P.
Certified Public Accountants
600 North Pearl Street, Suite 440
Dallas, Texas 75201-7465
Tel: (214) 969-0400 Fax (214) 855-0366
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Phillips Capital Investments, Inc.
Dallas, Texas
We have audited the statement of assets and liabilities of Phillips
Capital Investments, Inc., including the schedule of portfolio investments, as
of December 31, 1996 and 1995, and the related statements of operations and
changes in net assets for the years then ended, and 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 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 standards established by the
American Institute of Certified Public Accountants. 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, 1996 and 1995, 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 selected per share data
and ratios referred to above present fairly, in all material respects, the
financial position of Phillips Capital Investments, Inc. as of December 31, 1996
and 1995, and, the results of its operations and the changes in its net assets
for the years then ended, and 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/ McCarthy, Rose & Mills, L.L.P.
January 29, 1997
Dallas, Texas
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Assets:
Investments in securities, at value -
amortized cost $3,550,952.16 in 1996 and
$3,590,222.63 in 1995 - Note A $4,503,809.98 $4,844,148.96
Cash 353,107.63 509,731.11
Receivables - Note A
Interest 23,092.02 29,283.85
Dividends 8,545.69 4,578.55
Investment securities sold - 32,440.00
Deferred registration expenses - Note B 1,336.97 675.97
Prepaid insurance 391.80 391.80
------------- -------------
Total assets 4,890,284.09 5,421,250.24
------------- -------------
Liabilities:
Accrued accounting fees 4,650.00 4,450.00
Federal income tax payable 790.00 375.00
Miscellaneous accounts payable 683.42 354.12
Due shareholders on sale 2,076.95 375,018.64
------------- -------------
Total liabilities 8,200.37 380,197.76
------------- -------------
Net Assets:
Net assets (equivalent to $13.74 and
$14.65 per share based on 355,399.640
and 343,987.019 shares of capital stock
outstanding at December 31, 1996 and
1995, respectively) - Note C $4,882,083.72 $5,041,052.48
============= =============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
INVESTMENTS IN SECURITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount or
COMMON STOCKS: 53.86% Shares Market Value
<S> <C> <C>
Energy Sources & Related: 8.02%
Alamco, Inc. 5,200 $ 58,500.00
Norsk Hydro 1,500 80,437.50
Phillips Petroleum 1,400 61,950.00
Snyder Oil Corp. 4,000 69,500.00
USX Marathon Group 3,000 71,625.00
Wiser Oil 2,500 49,375.00
--------------
391,387.50
--------------
Insurance: 6.09%
American Bankers Insurance Group 1,700 86,912.50
ReliaStar Financial Corp. 1,200 69,300.00
RLI Corp. 2,500 83,437.50
Western National 3,000 57,750.00
--------------
297,400.00
--------------
Electric Utilities: 4.60%
Houston Industries 2,000 45,250.00
PacifiCorp 2,000 41,000.00
Southern Company 2,500 56,562.50
Texas Utilities 900 36,675.00
WPL Holdings 1,600 45,000.00
--------------
224,487.50
--------------
Chemicals: 3.94%
Akzo N.V. ADS 1,000 67,500.00
Dow Chemical 600 47,025.00
Monsanto 2,000 77,750.00
--------------
192,275.00
--------------
Health Products and Services: 3.88%
Beverly Enterprises 3,000 38,250.00
Grancare 2,400 42,900.00
Tenet Health Care 1,800 39,375.00
Universal Health Services "B" 2,400 68,700.00
--------------
189,225.00
--------------
Merchandising: 3.74%
Burlington Coat Factory 4,500 58,500.00
KMart 5,500 57,062.50
Intertan 6,100 29,737.50
Service Merchandise 9,000 37,125.00
--------------
182,425.00
--------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount or
Common Stocks, continued Shares Market Value
<S> <C> <C>
Consumer Products and Services: 3.52%
Showbiz Pizza 6,000 108,750.00
Spaghetti Warehouse, Inc. 12,000 63,000.00
-------------
171,750.00
-------------
Shipping and Transportation: 3.44%
Sea Containers, Ltd. "A" 5,000 78,125.00
Transport Corp. of America 5,000 53,750.00
Rush Enterprises 3,000 36,000.00
-------------
167,875.00
-------------
Investment Co./Foreign Securities: 3.14%
First Australian Fund 3,500 30,406.25
Growth Fund of Spain 5,425.757 69,178.40
New Germany Fund, Inc. 4,000 53,500.00
-------------
153,084.65
-------------
Media/Entertainment: 2.90%
Pulitzer Publishing 933 43,267.88
TCI Satellite Entertainment, Inc. 300 2,962.50
Telecommunications "A" 3,000 39,187.50
Time Warner 1,500 56,250.00
-------------
141,667.88
-------------
Construction Products and Services: 2.74%
Centex Corp. 1,500 56,437.50
Oriole Homes "B" 4,000 28,000.00
Ply-Gem Industries 3,900 49,237.50
-------------
133,675.00
-------------
Business Products and Services: 2.15%
DH Technology 3,000 72,000.00
Pronet, Inc. 7,500 32,812.50
-------------
104,812.50
-------------
Banking and Financial Services: 2.06%
FirstFed Financial Corp. 1,400 30,800.00
Great Western Financial 2,000 58,000.00
MS Financial 12,500 11,718.75
-------------
100,518.75
-------------
Multi-Industries: 2.05%
Canadian Pacific 2,000 53,000.00
Hanson, PLC 7,000 47,250.00
-------------
100,250.00
-------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
INVESTMENTS IN SECURITIES (Continued)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Principal
Amount or
Common Stocks, continued Shares Market Value
<S> <C> <C>
Metal Products/Misc.: 1.17%
Commonwealth Aluminum 1,800 27,675.00
IMCO Recycling, Inc. 2,000 29,250.00
-------------
56,925.00
-------------
Forest Paper & Products: .44%
Georgia Pacific Corp. 300 21,600.00
-------------
TOTAL COMMON STOCKS (Cost $1,676,980.07) 2,629,358.78
-------------
SHORT-TERM TIME DEPOSITS: 9.73%
Beal Banc CD 5.63% Due 3/7/97 95,000.00
Guaranty Fed CD 5.29% Due 2/14/97 95,000.00
LTCB Tr Co NY CD 5.25% Due 6/18/97 95,000.00
Bluebonnet Svgs CD 5.15% Due 6/11/97 95,000.00
Western American CD 5.5% Due 4/30/97 95,000.00
-------------
TOTAL SHORT-TERM TIME DEPOSITS
(Cost $475,000.00) 475,000.00
-------------
OTHER SHORT-TERM SECURITIES: 28.67%
Institutional Liquid Assets - Treasury $ 200,263.70 200,263.70
U.S. T-Notes 4.75% of 2/15/97 1,000,000.00 999,062.50
U.S. T-Notes 5.625% of 8/31/97 200,000.00 200,125.00
-------------
TOTAL OTHER SHORT-TERM SECURITIES
(Cost $1,398,972.09) 1,399,451.20
-------------
TOTAL INVESTMENTS IN SECURITIES:
(Cost $3,550,952.16) 4,503,809.98
-------------
OTHER ASSETS (NET OF LIABILITIES): 7.75% 378,273.74
-------------
NET ASSETS: 100% $4,882,083.72
=============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
Investment Income
Income - Note A
Interest $ 109,879.61 $ 192,844.23
Dividends 38,483.50 42,855.80
-------------- --------------
Total income 148,363.11 235,700.03
-------------- --------------
Expenses
Investment advisory fees - Note E 41,951.47 52,383.99
Accounting fees 5,425.00 5,100.00
Registration fees and expenses 1,484.00 763.00
Directors' fees 1,625.00 1,875.00
Insurance 1,359.00 1,359.00
Postage and delivery 85.00 255.30
Printing 1,376.54 411.87
Professional fees 1,539.00 944.76
Other 820.34 639.82
Federal income tax 790.00 375.00
-------------- --------------
Total expenses 56,455.35 64,107.74
-------------- --------------
Investment income - net 91,907.76 171,592.29
-------------- --------------
Realized and Unrealized Gain on
Investments - Note D
Net realized gain on investments 612,312.46 126,098.67
Change in unrealized appreciation
of investments for the period (301,068.52) 534,137.79
-------------- --------------
Net gain (loss) on investments 311,243.94 660,236.46
-------------- --------------
Net increase in net assets
resulting from operations $ 403,151.70 $ 831,828.75
============== ==============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
6
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
Increase in Net Assets from Operations
Investment income - net $ 91,907.76 $ 171,592.29
Net realized gain on investments 612,312.46 126,098.67
Change in unrealized appreciation (301,068.52) 534,137.79
---------------- ----------------
Net increase in net assets resulting
from operations 403,151.70 831,828.75
---------------- ----------------
Dividends Paid to Shareholders - Note F
Investment income (90,896.34) (171,167.97)
Net realized capital gains (611,624.32) (125,756.05)
---------------- ----------------
Total dividends paid to shareholders (702,520.66) (296,924.02)
---------------- ----------------
Capital Share Transactions 140,400.20 (1,123,961.00)
---------------- ----------------
Net increase (decrease) (158,968.76) (589,056.27)
Net Assets
Beginning of year (including undistributed
investment income of $3,819.67) 5,041,052.48 5,630,108.75
---------------- ----------------
End of year (including undistributed
investment income of $4,831.09) $ 4,882,083.72 $ 5,041,052.48
================ ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
7
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note A - Summary of Significant Accounting Policies
The Company is operated as a diversified, open-end management investment
company.
Security valuation: Investments in securities listed on the New York Stock
Exchange, American Stock Exchange or other security exchanges, and securities
traded in the Over-The-Counter market are valued at their closing sales price.
If no sale has been reported for that day, the last published sale or the last
recorded bid price, whichever is the more recent, is used, unless in the opinion
of the Board of Directors the value thus obtained may not fairly indicate the
actual market value, in which case these securities, and any other assets for
which market quotations are not readily available, are valued at fair value as
determined by the management and approved in good faith by the Board of
Directors.
Federal income taxes: For tax years beginning after December 31, 1987, it
is the Company's intention to comply with the provisions of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its capital gains and investment income to its
shareholders. Therefore, provision has been made for Federal income taxes only
on the undistributed income which is immaterial.
Other: The Company follows industry practice and records security
transactions on the trade date. Dividend income is recognized on the ex-dividend
date, and interest is accrued on all debt securities on a daily basis. Discounts
and premiums on securities purchased are amortized over the life of the
respective securities.
Note B - Registration Expenses
Registration expenses will be amortized as new shares are issued.
Note C - Capital Share Transactions
As of December 31, 1996 and 1995 there were 10,000,000 shares of $1.00 par
value capital stock authorized. Capital paid-in aggregated $3,566,938.75 and
$3,437,951.17 at December 31, 1996 and 1995, respectively.
Transactions in capital stock for the period were as follows:
<TABLE>
<CAPTION>
Shares Amount
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Shares sold 22,304.946 2,894.969 $ 339,000.00 $ 43,000.00
Shares issued in reinvestment
of dividends 47,427.703 20,407.146 652,605.19 296,924.02
---------- --------- ------------ --------------
69,732.649 23,302.115 991,605.19 339,924.02
Shares redeemed 58,320.028 98,445.797 851,204.99 1,463,885.02
---------- --------- ------------ --------------
Net increase (decrease) 11,412.621 (75,143.682) $ 140,400.20 ($1,123,961.00)
========== =========== ============ ==============
</TABLE>
8
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1996
Note D - Investment Transactions
Purchases of common stocks during the year were $588,358.81 in 1996 and
$399,110.80 in 1995; sales were $998,015.67 and $368,935.91 in 1996 and 1995,
respectively. Purchases of U.S. government obligations were $1,793,567.93 in
1996 and $1,663,734.38 in 1995, and $2,300,000.00 and $2,692,656.25 were
sold/matured in 1996 and 1995, respectively.
As of December 31, 1996 and 1995, the unrealized appreciation of securities
was $952,857.81 and $1,253,926.33, respectively; accumulated undistributed net
realized gains on investment transactions totaled $2,056.43 and $1,368.29 at
December 31, 1996 and 1995, respectively.
Note E - Investment Advisory Fees
The Company pays advisory fees for investment management and advisory
services under a management agreement (Agreement) that provides for fees to be
computed monthly at an annual rate of 0.9 percent of the Company's average daily
net assets up to $30,000,000, 0.75 percent of assets from $30,000,000 to
$60,000,000 and 0.6 percent for those assets in excess of $60,000,000. The
Agreement provides for an expense reimbursement from the investment advisor if
the Company's total expenses exceed 2.0 percent of the Company's average daily
net assets for any year.
Note F - Distributions to Shareholders
On December 27, 1996, a distribution of $1.985 per share, aggregating
$611,624.32, was declared from net realized gains from investment transactions
and a dividend of $0.295 per share, aggregating $90,896.34 was declared from net
investment income. The distribution and dividend were paid on December 27, 1996
to shareholders of record on December 26, 1996.
On December 20, 1995, a distribution of $0.36 per share, aggregating
$125,756.05, was declared from net realized gains from investment transactions
and a dividend of $0.49 per share, aggregating $171,167.97 was declared from net
investment income. The distribution and dividend were paid on December 28, 1995
to shareholders of record on December 27, 1995.
9
<PAGE>
PHILLIPS CAPITAL INVESTMENTS, INC.
SUPPLEMENTARY INFORMATION - SELECTED PER-SHARE DATA AND RATIOS*
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Per-Share Data:
Investment income $ .48 $ .67 $ .47 $ .34 $ .47
Expenses .18 .18 .16 .15 .15
--------- --------- --------- --------- ---------
Investment income - net .30 .49 .31 .19 .32
Distributions from net investment income (.29) (.49) (.31) (.19) (.32)
Net realized and unrealized gain (loss)
on securities 1.07 1.58 (.21) .77 .92
Distributions from net realized
long-term gains on securities (1.99) (.36) (.24) (.11) (.33)
--------- --------- --------- --------- ---------
Net increase (decrease) in net
asset value (.91) 1.22 (.45) .66 .59
Net asset value:
Beginning of year 14.65 13.43 13.88 13.22 12.63
--------- --------- --------- --------- ---------
End of year $ 13.74 $ 14.65 $ 13.43 $ 13.88 $ 13.22
========= ========= ========= ========= =========
Ratios (Annualized)
Ratio of expenses to average net assets 1.20% 1.11% 1.11% 1.14% 1.18%
Ratio of net investment income to
average net assets 1.96% 2.98% 2.19% 1.45% 2.09%
Portfolio turnover rate 19.08% 28.17% 37.62% 3.10% 20.42%
Shares Outstanding at End of Year 355,399.640 343,987.019 419,130.701 409,961.200 367,041.839
</TABLE>
* Selected data for a share of capital stock outstanding throughout the year.
10
