<PAGE>
TO OUR SHAREHOLDERS:
Total net assets at June 30, 1995 were $522.7 million, or $19.77 per share,
compared to $461.9 million, or $17.47 per share at December 31, 1994. The six-
month portfolio total return of 14.8% compared to 20.2% for the Standard &
Poor's 500 Stock Index.
First half return by portfolio sector varied widely. The public portfolio
19.8% total return approximated the S&P 500 results and would have placed our
public portfolio in the highest quartile among about 700 long-term growth equity
mutual funds. Our other two portfolio sectors, Consolidated-Tomoka Land Co. and
private placements, together generated a 4.2% return. Private placement return
reflects the first quarter write-down of Alliance Northwest Industries; other
private investments continue to perform to expectations and there have been no
further valuation changes.
A mid year dividend of $0.20 per share was paid June 7 to shareholders of
record as of May 15. Based upon average net asset value of $17.60 for the eight-
month period from November 1, 1994 through June 30, 1995, our 8% annual payout
policy would result in additional 1995 calendar year distributions totalling at
least $1.21.
Public equities continued their early strength virtually uninterrupted
through the second quarter. Technology maintained its market leadership,
although industrials and the financial service sectors also were strong.
Continuing signs of moderating economic growth and reduced inflation assured
markets that the Federal Reserve was succeeding in avoiding both inflation and
recession. The Fed apparently agreed and after a long series of increases, it
reduced rates after the second quarter.
Enthusiasm for equities was enhanced by signs of fiscal restraint in
Washington in the form of Congressional action to balance the Federal budget by
2002. This is directionally consistent with increased savings and reduced
inflation.
Based upon current conditions, we continue to have long-term optimism for U.S.
equities, particularly those in sectors favored by our long-held themes of
investment, savings, and export. The greatest risks to our thesis appear to be
political in nature, such as weakening budget resolve in the U.S., international
trade conflicts, or deepening Japanese financial distress.
David D. Peterson
President and
Chief Executive Officer
1
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
June 30, 1995
ASSETS (Unaudited)
-------------
<S> <C>
INVESTMENTS, AT VALUE:
Portfolio securities:
Unaffiliated issuers (cost $313,192,804) ..................... $423,730,277
Controlled affiliates (cost $36,121,147) ..................... 85,641,785
Money market securities (cost $12,591,973) ..................... 12,591,973
------------
TOTAL INVESTMENTS (COST $361,905,924) ....................... 521,964,035
CASH ............................................................ 2,274
RECEIVABLE FOR SECURITIES SOLD .................................. 889,375
DIVIDENDS AND INTEREST RECEIVABLE ............................... 701,731
OTHER ASSETS .................................................... 439,543
------------
TOTAL ASSETS ................................................ 523,996,958
LIABILITIES ......................................................
PAYABLE FOR SECURITIES PURCHASED ................................ 653,759
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ........................ 622,628
------------
TOTAL LIABILITIES ........................................... 1,276,387
------------
NET ASSETS ....................................................... $522,720,571
============
ANALYSIS OF NET ASSETS
COMMON STOCK, $1 PAR VALUE, AUTHORIZED -- 40,000,000 SHARES;
ISSUED AND OUTSTANDING -- 26,441,682 SHARES ................... $ 26,441,682
CAPITAL SURPLUS (A) ............................................. 158,657,921
ACCUMULATED NET REALIZED GAIN FROM INVESTMENT TRANSACTIONS (B) .. 129,009,927
OTHER RETAINED EARNINGS (B) ..................................... 48,458,430
UNREALIZED APPRECIATION ON INVESTMENTS AND FUTURES .............. 160,152,611
------------
NET ASSETS ....................................................... $522,720,571
============
NET ASSET VALUE PER SHARE ........................................ $ 19.77
============
</TABLE>
- -------------
(a) Represents the excess of the issue price over the par value of newly issued
stock distributed by the Company to its shareholders under its reinvestment
plan and rights offering.
(b) Prior to January 1, 1970, operating and other non-portfolio activities were
included in other retained earnings. Accumulated net realized gain from
investment transactions at June 30, 1995 includes $9,482,142 net gain
realized during 1994 to be distributed to shareholders in December 1995.
2 See accompanying Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
JUNE 30, 1995 December 31,
(UNAUDITED) 1994
---------------- --------------
<S> <C> <C>
INVESTMENT INCOME
Dividends from:
Unaffiliated issuers........................................... $ 2,142,531 $ 3,581,692
Controlled affiliates.......................................... 1,000,000 1,750,000
----------- ------------
3,142,531 5,331,692
----------- ------------
Interest from:
Unaffiliated issuers........................................... 3,128,591 4,554,371
Controlled affiliates.......................................... 420,000 840,000
----------- ------------
3,548,591 5,394,371
----------- ------------
TOTAL INCOME................................................. 6,691,122 10,726,063
----------- ------------
EXPENSES
Investment research............................................. 899,342 1,706,000
Administration and operations................................... 503,310 932,092
Rent............................................................ 135,642 295,149
Directors fees and expenses..................................... 82,265 147,050
Reports to shareholders......................................... 153,434 129,558
Professional fees............................................... 66,030 173,345
Custodian and transfer agent fees............................... 40,226 70,810
Taxes other than income......................................... 32,502 70,818
Other........................................................... 160,118 268,464
----------- ------------
TOTAL EXPENSES............................................... 2,072,869 3,793,286
----------- ------------
NET INVESTMENT INCOME...................................... 4,618,253 6,932,777
----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on sales of investments in unaffiliated
issuers, including options purchased.......................... 17,401,759 50,451,816
Net realized loss on covered call options written............... - (5,185,111)
Net realized gain (loss) on financial futures transactions...... 1,461,550 (2,538,000)
----------- ------------
Net realized gain on sales of investments................... 18,863,309 42,728,705
Net change in unrealized appreciation of investments............ 42,596,623 (74,674,301)
----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................................ 61,459,932 (31,945,596)
----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS.................................................. $66,078,185 $(25,012,819)
=========== ============
</TABLE>
See accompanying Notes to Financial Statements 3
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
JUNE 30, 1995 December 31,
(UNAUDITED) 1994
---------------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net increase (decrease) in net assets resulting
from operations........................................... $ 66,078,185 $ (25,012,819)
Adjustments to reconcile increase (decrease) in
net assets from operations to net cash provided
by (used in) operating activities:
Net realized and unrealized (gain) loss on investments.... (61,459,932) 31,945,596
(Increase) decrease in receivable for securities sold..... 913,750 (1,175,625)
(Increase) decrease in dividends and interest receivable.. 864,644 (973,821)
(Increase) decrease in other assets....................... (6,104) 58,592
Increase (decrease) in payable for securities purchased... 653,759 (9,063,270)
Increase (decrease) in accounts payable and
accrued liabilities..................................... 13,631 (19,749)
------------ -------------
Net cash provided by (used in) operating activities.... 7,057,933 (4,241,096)
------------ -------------
Cash Flows from Investing Activities
Purchases of portfolio securities and options................. (82,262,597) (217,516,097)
Sales of portfolio securities and options..................... 87,163,828 256,774,059
Proceeds from options written................................. - 16,026,254
Cost of options repurchased................................... - (27,106,364)
Net realized gain (loss) on financial
futures transactions........................................ 1,556,050 (2,538,000)
Sales/maturities of money market securities, net.............. (8,239,401) 8,472,306
------------ -------------
Net cash provided by (used in) investing activities..... (1,782,120) 34,112,158
------------ -------------
Cash Flows from Financing Activities
Dividends and capital gain distributions...................... (5,288,336) (29,960,478)
------------ -------------
Net cash (used in) financing activities................... (5,288,336) (29,960,478)
------------ -------------
Net (Decrease) in Cash.................................................. (12,523) (89,416)
Cash at the Beginning of the Period..................................... 14,797 104,213
------------ -------------
Cash at the End of the Period........................................... $ 2,274 $ 14,797
============ =============
Supplemental Disclosure of
Noncash Financing Activities
Capital gain distribution reinvestments................... $ - $ 15,865,885
============ =============
</TABLE>
4 See accompanying Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED Year Ended
JUNE 30, 1995 December 31,
(UNAUDITED) 1994
---------------- ------------
<S> <C> <C>
OPERATIONS
Net investment income ........................................ $ 4,618,253 $ 6,932,777
Net realized gain on sales of investments .................... 18,863,309 42,728,705
Net change in unrealized appreciation ........................ 42,596,623 (74,674,301)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................................. 66,078,185 (25,012,819)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Net investment income ........................................ (5,288,336) (7,239,654)
Net realized gain from investment transactions ............... -- (38,586,710)
------------ ------------
Total dividends to shareholders ............................ (5,288,336) (45,826,364)
------------ ------------
Net increase (decrease) in net assets from
operations after distributions .......................... 60,789,849 (70,839,183)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET INCREASE ...................... -- 15,879,895
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....................... 60,789,849 (54,959,288)
NET ASSETS AT THE BEGINNING OF THE PERIOD ..................... 461,930,722 516,890,010
------------ ------------
NET ASSETS AT THE END OF THE PERIOD ........................... $522,720,571 $461,930,722
============ ============
</TABLE>
See accompanying Notes to Financial Statements 5
<PAGE>
STATEMENT OF INVESTMENTS
June 30, 1995 - Unaudited Shares VALUE
INVESTMENTS IN UNAFFILIATED ISSUERS - 81.06%
PUBLIC PORTFOLIO - 69.73%
HEALTH CARE - 2.86%
Foundation Health Corporation (b)........... 200,000 $ 5,425,000
United HealthCare Corporation............... 230,241 9,526,221
-----------
14,951,221
CONSUMER PRODUCTS AND SERVICES - 10.00%
Federated Department Stores, Inc. (b)....... 350,000 9,012,500
Newell Co................................... 400,000 9,750,000
The Walt Disney Company..................... 190,000 10,545,000
CONSUMER GROWTH GROUP
Department 56, Inc. (b).................... 90,000 3,442,500
Lechters, Inc. (b)......................... 287,500 4,456,250
Toys 'R' Us, Inc. (b)...................... 120,000 3,510,000
CONSTRUCTION GROUP
Owens-Corning Fiberglas Corporation (b).... 100,000 3,687,500
Toll Brothers, Inc. (b).................... 270,000 4,320,000
USG Corporation (b)....................... 150,000 3,562,500
-----------
52,286,250
-----------
TECHNOLOGY - 117.70%
American Power Conversion Corp. (b)......... 425,000 9,721,875
Cisco Systems, Inc. (b)..................... 300,000 15,168,750
DSC Communications Corp. (b)................ 160,000 7,440,000
EMC Corporation (b)......................... 400,000 9,700,000
KLA Instruments Corporation (b)............. 140,000 10,815,000
Solectron Corporation (b)................... 280,000 9,555,000
Sybase, Inc. (b)............................ 270,000 7,931,250
INFORMATION TECHNOLOGY GROUP
Nextel Communications, Class A (b)......... 160,000 2,260,000
Raychem Corporation........................ 90,000 3,442,500
Sequent Computer Systems, Inc. (b)......... 220,000 3,918,750
StrataCom, Inc. (b)........................ 120,000 5,850,000
Varian Associates, Inc..................... 120,000 6,720,000
-----------
92,523,125
-----------
ENERGY - 6.24%
Baker Hughes Incorporated................... 400,000 8,200,000
Diamond Shamrock, Inc....................... 289,500 7,454,625
Panhandle Eastern Corporation............... 350,000 8,531,250
Union Texas Petroleum Holdings, Inc......... 400,000 8,450,000
-----------
32,635,875
-----------
FINANCE - 11.40%
Aon Corporation............................. 270,000 10,057,500
Barnett Banks, Inc.......................... 400,000 20,550,000
General Re Corporation...................... 50,000 6,693,750
T. Rowe Price Associates, Inc............... 107,500 4,138,750
REAL ESTATE GROUP
JDN Realty Corporation..................... 150,000 3,056,250
Merry Land & Investment Company, Inc....... 142,300 2,899,363
GROWTH LENDING INSTITUTIONS GROUP
Crestar Financial Corporation.............. 80,000 3,920,000
UJB Financial Corp......................... 140,000 4,252,500
Union Planters Corporation................. 150,000 4,012,500
-----------
59,580,613
-----------
6 See accompanying Notes to Statement of Investments
<PAGE>
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
June 30, 1995 - Unaudited Shares or
Principal Amount VALUE
---------------- -------------
<S> <C> <C>
INVESTMENTS IN UNAFFILIATED ISSUERS (continued)
BASIC INDUSTRIES - 4.56%
Great Lakes Chemical Corporation.......................................... 180,000 $ 10,845,000
Wausau Paper Mills Company................................................ 568,992 12,980,130
------------
23,825,130
------------
PRODUCER GOODS - 11.81%
Bandag, Incorporated...................................................... 170,000 10,625,000
The Boeing Company........................................................ 150,000 9,393,750
Cooper Industries, Inc.................................................... 220,000 8,690,000
Harnischfeger Industries, Inc............................................. 356,420 12,341,043
York International Corporation............................................ 200,000 9,000,000
ENGINEERING AND CONSTRUCTION GROUP
Foster Wheeler Corporation............................................... 100,000 3,525,000
Jacobs Engineering Group Inc. (b)........................................ 200,000 4,400,000
The Manitowoc Company, Inc............................................... 80,700 2,330,212
Thomas Group, Inc. (b)................................................... 137,500 1,443,750
------------
61,748,755
------------
TRANSPORTATION - 2.63%
Norfolk Southern Corporation.............................................. 100,000 6,737,500
GROWTH TRANSPORTATION GROUP
Heartland Express, Inc. (b).............................................. 125,207 3,192,778
RailTex, Inc. (b)........................................................ 161,200 3,828,500
------------
13,758,778
------------
UTILITIES - 2.53%
MCI Communications Corporation............................................ 600,000 13,200,000
------------
Total public portfolio (Cost: $261,575,110)............................. 364,509,747
------------
PRIVATE PLACEMENT PORTFOLIO - 11.33%
Champion Healthcare Corporation -- hospital management company
Series D Convertible Preferred Stock (b)(c)(d)........................... 111,111 1,999,998
11% Subordinated Note due 12/31/2003 (c)(d).............................. $ 8,000,000 8,000,000
Stock Purchase Warrants Expiring 12/31/2003 (c)(d)....................... 240,000 --
County Seat Holdings, Inc., common stock -- specialty retailer (b)(c)(d).. 111,067 1,249,509
Earth Technology Corporation - environmental engineering and consulting
12.5% Senior Subordinated Note due 6/30/98 (c)(d)........................ $10,000,000 10,000,000
Stock Purchase Warrants Expiring 7/1/98 (c)(d)........................... 166,500 --
EXCL Communications, Inc. -- radio broadcasting
Convertible Preferred Stock (b)(c)(d).................................... 2,150,000 2,150,000
Convertible Preferred Stock, Series II (b)(c)(d)......................... 510,931 510,931
14% Subordinated Debenture due 6/30/2000 (c)(d).......................... $ 3,800,000 3,800,000
Home State Holdings, Inc. -- property and casualty insurers
11.50% Subordinated Note due 10/3/2004 (c)(d)............................ $10,050,000 9,594,638
Stock Purchase Warrants Expiring 10/3/2004 (c)(d)........................ 150,750 472,941
TBN Holdings Inc. - hazardous waste recycler
12% Subordinated Note due 12/31/2002 (c)(d).............................. $ 8,000,000 8,000,000
Series C-3 Convertible Preferred Stock (b)(c)(d)......................... 1,511,628 3,239,000
Stock Purchase Warrants Expiring 12/31/2002 (c)(d)....................... 1,100,000 11,000
United HealthCare Corporation
Common stock (c)(e)...................................................... 240,370 8,751,872
Golder, Thoma, Cressey Fund II Limited Partnership (c)(d)................. $ 474,280 1,121,123
Phillips-Smith Specialty Retail Group Limited Partnership (c)(d).......... $ 67,979 319,518
------------
Total private placement portfolio (Cost: $51,617,694)................... 59,220,530
------------
TOTAL INVESTMENTS IN UNAFFILIATED ISSUERS (COST: $313,192,804)............ 423,730,277
------------
See accompanying Notes to Statement of Investments 7
</TABLE>
<PAGE>
STATEMENT OF INVESTMENTS
June 30, 1995 - Unaudited
<TABLE>
<CAPTION>
Shares or
Principal Amount Value
---------------- ------------
<S> <C> <C>
INVESTMENTS IN CONTROLLED AFFILIATES - 16.38%
Publicly-Traded - 12.91%
Consolidated-Tomoka Land Co., common stock (majority-owned) -- development
of Florida real estate; production and sale of citrus fruit (Cost: $5,030,627) ... 5,000,000 $ 67,500,000
------------
Private Placement Portfolio - 3.47%
Alliance Northwest Industries, Inc. -- commercial and residential lighting fixtures
Series B Convertible Preferred Stock (b)(c)(d) ................................... 2,000,000 -
Series C Convertible Preferred Stock (b)(c)(d) ................................... 500 -
Series D Convertible Preferred Stock (b)(c)(d) ................................... 1,000 -
Stock Purchase Warrants Expiring 12/20/2000 (b)(c)(d) ............................ 1,687,941 -
American Electronic Components, Inc. -- electronic component manufacturer
Common stock (b)(c)(f) ........................................................... 1,511,374 6,808,958
Citadel Communications Corporation -- radio broadcasting
Series A Convertible Preferred Stock (b)(c)(d) ................................... 972,000 3,374,865
Series C Convertible Preferred Stock (b)(c)(d) ................................... 275,904 957,962
Citadel Broadcasting Corporation -- radio broadcasting
12% Class A Subordinated Note due 6/30/2000 (c)(d) .............................. $ 7,000,000 7,000,000
------------
Total private placement portfolio (Cost: $31,090,520) ........................ 18,141,785
------------
TOTAL INVESTMENTS IN CONTROLLED AFFILIATES (COST: $36,121,147) ...................... 85,641,785
------------
MONEY MARKET SECURITIES - 2.41%
Ford Motor Credit Company -- 5.98% to 6.15% due 7/7/95 to 9/11/95 ................... $11,590,000 11,519,983
U.S. Treasury bills -- 6.595% due 11/16/95 .......................................... $ 1,100,000 1,071,990
------------
TOTAL INVESTMENTS IN MONEY MARKET SECURITIES (COST: $12,591,973) .................... 12,591,973
------------
Total Investments - 99.85% (COST: $361,905,924) ..................................... 521,964,035
OTHER ASSETS LESS LIABILITIES -- .15% ............................................... 756,536
------------
NET ASSETS - 100.00% ................................................................ $522,720,571
============
</TABLE>
---------------
(a) Based on the cost of investments of $361,905,924 for federal income
tax purposes at June 30, 1995, net unrealized appreciation was
$160,058,111, which consisted of gross unrealized appreciation of
$179,573,041 and gross unrealized depreciation of $19,514,930.
(b) Non-income producing security.
(c) Securities subject to legal or contractual restrictions on sale.
Valued at cost on the dates of acquisition and at a fair value as
determined by the board of directors of the Company as of June 30,
1995. The aggregate value of restricted securities was $77,362,315,
or 14.80% of net assets, at June 30, 1995.
(d) There were no unrestricted securities of the same issue outstanding
on June 30, 1995 or the dates of acquisition.
(e) Valued at 88.0% of the current market price of unrestricted common
stock of United HealthCare Corporation.
(f) Valued at 60.1% of the current market price of unrestricted common
stock of American Electronic Components, Inc.
8
<PAGE>
CHANGES IN PORTFOLIO
Quarter Ended June 30, 1995 - Unaudited
<TABLE>
<CAPTION>
Shares or Principal Amount*
----------------------------------------------
Held at
Purchased Sold June 30, 1995
--------- -------- -------------
<S> <C> <C> <C>
PUBLIC
PORTFOLIO EMC Corporation........................ 400,000 400,000
Foster Wheeler Corporation............. 82,000 100,000
Jacobs Engineering Group Inc........... 50,000 200,000
Lechters, Inc.......................... 47,500 287,500
The Manitowoc Company, Inc............. 80,700 80,700
StrataCom, Inc......................... 120,000 120,000
Sybase, Inc............................ 300,000 30,000 270,000
T. Rowe Price Associates, Inc.......... 107,500 107,500
Toys 'R' Us, Inc....................... 120,000 120,000
BJ Services Company.................... 200,000 -
Cirrus Logic, Inc...................... 250,000 -
Harley-Davidson, Inc................... 17,100 -
IHOP Corp.............................. 130,000 -
KLA Instruments Corporation............ 10,000 140,000
Merry Land & Investment Company, Inc... 27,700 142,300
Varian Associates, Inc................. 80,000 120,000
PRIVATE United HealthCare Corporation,
PORTFOLIO 20% Subordinated Note due 7/1/2001,
Complete Health Services, Inc. -
subsidiary of United HealthCare
Corporation.......................... 4,250,000 -
-----------------
* Excludes shares acquired or disposed of as a result of stock dividends, stock splits,
stock reorganizations, mergers and conversions.
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following table shows per share operating performance data, total investment return, ratios and supplemental
data for the six months ended June 30, 1995 and the year ended December 31, 1994.
SIX MONTHS ENDED Year Ended
JUNE 30, 1995 December 31,
PER SHARE OPERATING PERFORMANCE (UNAUDITED) 1994
---------- ------------
<S> <C> <C>
Net asset value, beginning of period............. $ 17.47 $ 20.42
---------- --------
Net investment income....................... .20 .35
Net realized gain (loss) and change in
unrealized appreciation and other changes.. 2.30 (1.36)
---------- --------
Total from investment operations................. 2.50 (1.01)
Less distributions:
Dividends from net investment income........ (.20) (.35)
Distribution from net realized gain......... - (1.46)
---------- --------
Total distributions.............................. (.20) (1.81)
---------- --------
Dilution resulting from:
Reinvestment of capital gain distribution... - (.13)
---------- --------
Net asset value, end of period................... $ 19.77 $ 17.47
========== ========
Per share market price, end of period............ $ 16.00 $ 13.75
TOTAL INVESTMENT RETURN-SHAREHOLDER RETURN................ 17.83% (7.51)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)........ $ 522,721 $461,931
Ratio of expenses to average net assets..... .85% .75%
Ratio of net investment income to average
net assets................................. 1.88% 1.38%
Portfolio turnover.......................... 34.32% 41.63%
Number of shares outstanding, end of period
(in 000's)................................. 26,442 26,442
</TABLE>
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The Company is registered under the Investment Company Act of 1940 as a non-
diversified closed-end management investment company.
INVESTMENT VALUATION:
Investments are stated at "value". Securities traded on securities exchanges or
on the Nasdaq National Market are valued at the last reported sales prices on
the day of valuation; listed and Nasdaq securities for which no sales were
reported on that day and other securities traded in the over-the-counter market
are valued at the mean of closing bid and asked prices on that day. Money market
instruments are valued at amortized cost. Financial futures are valued at the
settlement price established each day by the exchange on which they are traded.
Restricted securities and other securities for which prices are not readily
available, or for which market quotations are considered to not reflect fair
value, are valued at a fair value as determined by the board of directors.
The Company may be considered to be a "controlling person" of Consolidated-
Tomoka Land Co. and American Electronic Components, Inc. within the meaning of
the Securities Act of 1933. A public distribution of shares of either company
therefore would require registration under the Securities Act. The shares of
Consolidated-Tomoka Land Co. are valued by the board of directors at the closing
price as reported by the American Stock Exchange on the day of valuation. The
shares of American Electronic Components, Inc. are valued at a fair value as
determined by the board of directors.
INVESTMENT TRANSACTIONS:
Investment transactions are accounted for on the trade date. Realized gains and
losses on investment transactions are determined on an identified cost basis.
INVESTMENT INCOME:
The Company records dividends on the ex-dividend date. Interest income is
recorded on the accrual basis and includes amortization of premium and discount
on securities purchased. Such income is classified based on the affiliation
status of the issuer as of the date of the financial statements.
FEDERAL INCOME TAXES, DIVIDENDS, AND DISTRIBUTIONS
TO SHAREHOLDERS:
The Company intends to qualify each year as a "regulated investment company"
under the provisions of the Internal Revenue Code so that it will not be liable
for federal income tax on net investment income and capital gain distributed to
shareholders.
In order to qualify as a regulated investment company and avoid being subject
to federal income or excise taxes, the Company intends to distribute
substantially all of its taxable net investment income (including net realized
short-term capital gain, if any) within the time limits prescribed by the
Internal Revenue Code. Accordingly, no provision has been made for federal
income or excise tax on such income.
For the year ended December 31, 1994, the Company distributed $1.46 per share
of net realized long-term capital gain to shareholders.
Long-term capital gain distributions are taxable as long-term capital gain to
shareholders, irrespective of how long the related shares have been held. Short-
term capital gain distributed to shareholders is taxable as ordinary dividend
income.
Dividends and distributions payable to shareholders are recorded by the
Company on the ex-dividend date.
NOTE 2. CAPITAL STOCK
The Company may purchase shares of its own stock in open market or private
transactions from time to time and at such prices and amounts as management may
deem advisable. Since such purchases are made at prices below net asset value,
they increase the net asset value per share of the remaining shares outstanding.
The Company made no such purchases for the first six months of 1995 and the year
ended December 31, 1994.
Other transactions in capital stock for the first six months of 1995 and the
year ended December 31, 1994 were as follows:
Shares Amount
------------------- ---------------------
1995 1994 1995 1994
------ --------- ------ -----------
Reinvestment of
capital gain
distributions.... -- 1,123,249 -- $ 1,123,249
Increase in
capital surplus.. -- 14,756,646
------- -----------
Net increase..... $ $15,879,895
------- -----------
NOTE 3. EXPENSES
Aggregate compensation paid or accrued during the first six months of 1995 and
for the year ended December 31, 1994 to officers of the Company amounted to
$550,018 and $1,080,800, respectively. Fees, excluding expenses, of $73,150 and
$147,050 were incurred for directors who were not officers of the Company during
the first six months of 1995 and for the year ended December 31, 1994,
respectively.
10
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NOTES TO FINANCIAL STATEMENTS
NOTE 4. INVESTMENT TRANSACTIONS
The cost of securities purchased and proceeds from securities sold during the
first six months of 1995, excluding money market instruments, aggregated
$82,245,018 and $87,163,828, respectively.
The Company paid brokerage commissions totalling $20,600 and $79,457 for the
six months ended June 30, 1995 and the year ended December 31, 1994,
respectively, to Goldman, Sachs & Co., of which James P. Gorter, chairman of the
board of the Company, is a limited partner.
NOTE 5. FUTURES TRANSACTIONS
In order to maintain a substantially fully invested position in the stock
market, the Company buys Standard & Poor's 500 Stock Index futures contracts.
Upon entering into a futures contract, the Company is required to deposit with
its custodian either cash or eligible securities in an amount set by the
relevant futures exchange, known as "initial margin." Subsequent payments, known
as "variation margin," are made on a daily basis as the market prices of the
underlying futures contracts fluctuate. For financial statement purposes, such
variation margin is recognized on a daily basis as gain or loss.
The Company had the following S&P 500 futures contracts open as of June 30,
1995:
Contract Number of Expiration Gain (Loss) at
Amount Position Contracts Month June 30, 1995
- ---------- -------- --------- --------------- --------------
$4,103,625 Long 15 September, 1995 $94,500
The aggregate market value of U.S. Treasury bills pledged to cover margin
requirements for the open futures positions at June 30, 1995 was $167,000.
NOTE 6. RETIREMENT PLANS AND POST-RETIREMENT HEALTH CARE BENEFITS
The Company maintains a non-contributory defined benefit pension plan covering
all of its employees. Benefits under the plan are based on salary and years of
service. The Company makes annual contributions to the plan in accordance with
federal tax law and ERISA requirements. Total plan contributions for 1994 were
$37,500. Net pension expense for 1994 was $35,467.
In addition, the Company has a non-contributory money purchase pension plan
covering all employees. Company contributions are based on compensation. Total
plan contributions for 1994 were $265,799.
The Company also provides certain health care benefits for retired employees.
All of the Company's employees become eligible for these benefits upon
retirement and the coverage is provided on a contributory basis. These benefits
are subject to deductible and co-payment provisions, medicare supplements and
other limitations. The net expense for post-retirement health care benefits for
1994 was $75,270.
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DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Frederick S. Addy Richard M. Jones
Bob D. Allen Burton G. Malkiel
J. Barton Goodwin David D. Peterson
James P. Gorter William H. Springer
David D. Grumhaus
OFFICERS
James P. Gorter Chairman of the Board
David D. Peterson President and Chief Executive Officer
Steven C. Carhart Vice President
George V. Carracio, Jr. Vice President
James P. Koeneman Vice President and Secretary
Scott E. Smith Vice President
Janet Sandona Jones Treasurer and Assistant Secretary
CORPORATE DATA
TRANSFER AND DIVIDEND DISBURSING AGENT
Harris Trust and Savings Bank
(312) 461-6834
CUSTODIAN
UMB Bank, N.A.
LEGAL COUNSEL
Bell, Boyd & Lloyd
ADDRESS OF COMPANY
200 West Madison Street
Suite 3510
Chicago, Illinois 60606
(312) 236-9190 or
(800) BKF-1891
BAKER, FENTRESS & COMPANY
REPORT TO SHAREHOLDERS
[LOGO]SM
INVESTING
IN THE
EMERGING
AMERICAN
ECONOMY
SECOND QUARTER
JUNE 30, 1995
2
[LOGO]
The Company's Report to Shareholders is printed on recycled paper.
We encourage recycling and use of recycled products.
