Vestaur
Securities,
Inc.
SEMI-Annual Report
To Stockholders
May 31, 1996
BOARD OF
DIRECTORS
Mark E. Stalnecker
Dr. Donald C. Carroll
Paul B. Fay, Jr.
Robert F. Gurnee
John C. Jansing
James S. Morgan
Philip R. Reynolds
Marciarose Shestack
ADVISOR
CoreStates
CoreStates
Investment Advisers
OFFICERS
Mark E. Stalnecker
Chairman
Dung Vukhac
President
Michael F. Melloy
Vice President
Karen G. Bater
Assistant Vice President
Robert J. Di Domenico
Treasurer and Secretary
VESTAUR SECURITIES, INC.
Centre Square West - Upper Mezz
P.O. Box 7558
Philadelphia, PA 19101-7558
(215) 567-3969
Dear Fellow Stockholder,
After 1995's dramatic rally in bond prices, the bond market has reversed
direction in 1996 with bond prices declining and the yield on the benchmark 30
year maturity rising from 6% to 7%. The primary reason for the higher rates is
that the economy has demonstrated continued growth that exceeds earlier
expectations. The severe winter weather in the first quarter did not diminish
the growth in retail sales as first quarter Gross Domestic Product increased by
2.3%. The consumer remains more resilient than expected despite statistics
showing high debt burdens. One explanation for the consumer optimism is the
impressive increase in household net worth that results from the unprecedented
return on financial assets. There is every indication that Gross Domestic
Product growth in the second quarter will exceed 3%.
A positive note for the market was that key inflation indices remained subdued
at the 3% level in the first half of 1996. However, inflation anxiety
developed when the price of oil exceeded $20 per barrel and grain prices
increased significantly. The key determinant of inflation in the balance of
1996 will be wage pressures. There are several large contract renewals under
negotiation including an auto workers pact.
The Federal Reserve has moved from a policy of easing credit and lowering
short-term rates to considering the dilemma of raising rates to slow the
economy as we approach the Presidential election.
At the most recent Directors meeting, Vestaur Securities declared a regular 27
cents quarterly dividend. The quarterly dividend is payable July 18, 1996 to
stockholders of record on June 28, 1996.
Net Assets of the Fund were $94,963,687 on May 31, 1996 compared to
$100,938,285 on November 30, 1995. The decrease is primarily the result of
the decline in bond prices.
The primary objective of the fund is the attainment of a high level of current
income through investments in a diversified portfolio of debt securities.
There is reason for caution when interest rates rise. However, the decline in
prices provides opportunities for investing at significantly higher rates than
those available at the beginning of the year. The generous yields that are
available today should increase the probability of better returns in the
coming years.
On a positive note, we remain optimistic on the long term outlook for the bond
market. Vestaur Securities' emphasis on the income component should continue to
provide a competitive return compared to other fixed income alternatives.
Sincerely,
Mark E. Stalnecker
Chairman of the Board
June 18, 1996
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
<CAPTION>
May 31
(unaudited)
1996 1995
<S> <C> <C>
ASSETS
Investments
Bonds and long-term notes at value (identified cost
$93,613,710 in 1996 and $92,768,806 in 1995) $ 92,538,884 $ 95,149,430
Short-term notes at cost plus accrued interest
(approximates market) 359,844 1,198,621
Total Investments 92,898,728 96,348,051
Cash 4,405 97,014
Interest receivable 2,107,442 1,923,848
Other assets 9,433 9,525
Total Assets 95,020,008 98,378,438
LIABILITIES
Accounts payable and accrued expenses 56,321 81,794
Total Liabilities 56,321 81,794
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 94,963,687 $ 98,296,644
NET ASSETS ARE REPRESENTED BY
Common Stock, par value $.01 per share
Authorized 10,000,000 shares
Issued and outstanding shares 6,651,676
in 1996 and in 1995 $ 66,517 $ 66,517
Capital in excess of par value 94,381,064 94,379,397
Undistributed net investment income 1,219,872 1,242,048
Undistributed/accumulated net realized gain
on investments 371,060 228,058
Unrealized net (depreciation) appreciation
on investments (1,074,826) 2,380,624
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 94,963,687 $ 98,296,644
NET ASSET VALUE PER SHARES $14.28 $14.78
</TABLE>
See notes to financial statements
<TABLE>
INVESTMENTS % MAY 31, 1996 (unaudited)
BONDS AND LONG-TERM NOTES
<CAPTION>
PRINCIPAL
<S> <C> <C>
AMOUNT INDUSTRIAL AND CONGLOMERATE - 46.2% VALUE
$ 4,000,000 ADT Operations, Inc. 8.25% 8/01/00 $ 4,096,260
1,000,000 Air Products & Chemicals Deb. 8 7/8% 8/1/01 1,072,385
1,000,000 Baxter Int'l Inc. 8.875% 6/15/18 1,047,250
2,500,000 Becton Dickinson & Co. S.F. Deb. Reg. 9 1/4% 6/1/16 2,608,488
1,000,000 Black & Decker 7% 2/01/06 951,270
2,000,000 Burlington Northern, Inc. 7.5% 7/15/23 1,836,130
1,135,000 Chrysler Corp. 10.4% 8/1/99 1,188,793
4,500,000 Crown Cork & Seal, Inc. 8% 4/15/23 4,333,072
2,000,000 Diamond Shamrock, Inc. 8% 4/1/23 1,895,220
4,000,000 General Motors Corp. Deb. Reg. 8 1/8% 4/15/16 3,951,460
4,400,000 Georgia Pacific Corp. 8 1/8% 6/15/23 4,174,500
3,000,000 Ralston Purina Company 9.30% 5/1/21 3,375,105
2,000,000 Tenneco, Inc. 7.25% 12/15/25 1,781,480
4,200,000 Time Warner, Inc. 9.125% 1/15/13 4,373,544
2,000,000 Union Pacific Corp. 7% 2/1/16 1,838,140
2,000,000 Union Pacific Corp. 8.625% 5/15/22 2,080,750
3,000,000 USX Marathon Group 9.375% 2/15/12 3,300,435
43,735,000 43,904,282
PUBLIC UTILITIES - 23.4%
2,000,000 Comcast Corp. 9.125% 10/15/06 1,948,130
1,000,000 Comcast Corp. 10.25% 10/15/01 1,038,750
1,150,000 Georgia Power Company 7.55% 8/1/23 1,076,124
3,250,000 Illinois Power Company 8% 2/15/23 3,186,137
4,500,000 Tele Communications 8.75% 2/15/23 4,319,842
3,360,000 Tennessee Vly Ser C. 8.25% 2/15/34 3,339,286
1,000,000 Texas Utilities Electric Co. 8.5% 8/1/24 1,000,600
2,000,000 Texas Utilities Electric Co. 8.75% 11/1/23 2,050,130
3,500,000 Viacom Inc. 7.625% 1/15/16 3,135,633
1,000,000 Viacom Inc. 10.25% 9/15/01 1,087,190
22,760,000 22,181,822
FINANCIAL AND INSURANCE - 11.1%
2,700,000 Chrysler Fin'l Corp 9.5% 12/15/99 2,909,439
2,000,000 CIGNA CORP 8.3% 1/15/23 2,003,360
3,450,000 Ford Motor Cr. Nt. 9.25% 6/15/98 3,616,169
2,000,000 Travelers Group, Inc. 8.375% 12/15/96 2,022,220
10,150,000 10,551,188
CANADIAN PROVINCIAL AND MUNICIPAL - 3.4%
2,900,000 British Columbia Hydro & Power Bonds 15.50% FJ 11/15/11 (U.S. Pay) 3,212,997
2,900,000 3,212,997
U.S. GOVERNMENT AGENCIES - 13.3%
1,650,000 FNMA 8.625% 09/10/96 1,661,344
497,477 GNMA 8% 3/15/22 Pool #318816 498,566
1,385,460 GNMA 8% 8/15/24 Pool #392478X 1,388,491
990,000 GNMA 8% 8/15/24 Pool #394649X 992,166
1,699,994 GNMA 8.5% 10/15/24 Pool #215821X 1,738,775
1,144,776 GNMA 8.5% 9/15/24 Pool #385902X 1,170,891
1,001,969 GNMA 8.5% 2/15/25 Pool #386672X 1,024,827
350,743 GNMA 9% 12/15/19 Pool #198566 365,928
723,299 GNMA 9% 1/15/20 Pool #202923 754,604
390,422 GNMA 9% 12/15/19 Pool #267601 407,320
182,204 GNMA 9% 1/15/21 Pool #291873 190,090
202,664 GNMA 9% 3/15/21 Pool #299269 211,436
125,263 GNMA 9.5% 5/15/19 Pool #271455 133,640
685,757 GNMA 9.5% 9/15/19 Pool #274141 731,616
87,732 GNMA 9.5% 6/15/20 Pool #290655 93,598
347,374 GNMA 10% 1/15/19 Pool #266987 $ 379,451
385,763 GNMA 10% 3/15/20 Pool #285190 421,385
184,346 GNMA 10% 4/15/20 Pool #285618 201,368
207,604 GNMA 10.5% 4/15/19 Pool #262170 228,916
60,984 GNMA 10.5% 5/15/19 Pool #274947 67,243
12,303,831 12,661,655
RESIDENTIAL SECURITIES - 0.1%
Residential Mortgages (first and second), Participation, 8 3/8%
Average
28,514 Yield, 2 Year Average Maturity, Acquired 12/29/77 26,940
28,514 26,940
91,877,345 TOTAL BONDS AND LONG-TERM NOTES - 97.5% 92,538,884
SHORT-TERM
NOTES
360,000 General Electric 5.21% 6/03/96 359,844
360,000 TOTAL SHORT-TERM NOTES - 0.4% 359,844
$92,237,345 TOTAL INVESTMENTS - 97.9% $ 92,898,728
OTHER ASSETS LESS LIABILITIES - 2.1% 2,064,959
NET ASSETS - 100.0% $ 94,963,687
</TABLE>
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended May 31
(unaudited)
1996 1995
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 4,049,067 $ 4,067,638
EXPENSES
Advisory 346,235 333,016
Legal and auditing 41,321 41,587
Custodian 12,000 12,000
Directors 29,050 28,400
Taxes, other than income 14,870 16,574
Other 36,036 34,819
Total Expenses 479,512 466,396
NET INVESTMENT INCOME 3,569,555 3,601,242
REALIZED AND UNREALIZED gain (LOSS) ON INVESTMENTS
Realized gain from sales of bonds and long-term notes
Proceeds from sales 21,715,192 23,408,096
Cost of investments sold 21,342,548 23,174,564
Net realized gain on investments (on average cost
basis of $357,128 in 1996 and $238,842 in 1995) 372,644 233,532
Unrealized appreciation (depreciation) on investments
Beginning of period 4,850,966 (5,679,070)
End of period (1,074,826) 2,380,624
Unrealized (loss) gain on investments (5,925,792) 8,059,694
Net realized and unrealized (loss)
gain on investments (5,553,148) 8,293,226
NET (DECREASE) INCREASE IN ASSETS
RESULTING FROM OPERATIONS $(1,983,593) $ 11,894,468
</TABLE>
See notes to financial statements
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Six Months Ended May 31 Year Ended
(unaudited) November 30
1996 1995 1995
<S> <C> <C> <C>
OPERATIONS
Net investment income $ 3,569,555 $ 3,601,242 $ 7,259,836
Net realized gain on investments 372,644 233,532 338,143
Unrealized (loss) gain on investments (5,925,792) 8,059,694 10,530,036
Net (decrease) increase in assets resulting
from operations (1,983,593) 11,894,468 18,128,015
Dividends from net investment income (3,569,555) (3,591,906) (7,183,812)
Dividends in excess of net investment income (88,867) 0 0
Dividends from net realized gain (332,583) (233,532) (338,143)
Dividends in excess of net realized gain 0 (105,703) (1,092)
(DECREASE) INCREASE IN NET ASSETS (5,974,598) 7,963,327 10,604,968
NET ASSETS
Beginning of period 100,938,285 90,333,317 90,333,317
End of period (including undistributed
net investment income of $1,219,872,
$1,242,048 and $1,308,738) 94,963,687 98,296,644 $ 100,938,285
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for each share of common stock
outstanding throughout each period and other performance information derived
from the financial statements and market price data.
<CAPTION>
Six Months
Ended May 31 (unaudited) Years Ended November 30
Per Share Operating Performance 1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.17 $ 13.58 $ 13.58 $ 15.64 $ 14.93 $ 14.78 $ 13.75
Net investment income 0.54 0.54 1.09 1.09 1.14 1.17 1.20
Net realized and unrealized
(loss) gain on investments (0.83) 1.25 1.63 (1.90) 0.72 0.15 1.04
Total from investment operation (0.29) 1.79 2.72 (0.81) 1.86 1.32 2.24
Dividends from net investment income (0.54) (0.54) (1.08) (1.09) (1.14) (1.17) (1.20)
Dividends in excess of net
investment income (0.01) 0 0 (0.01) (0.01) 0 (0.01)
Dividends from net realized gain (0.05) (0.04) (0.05) (0.05) 0 0 0
Dividends in excess of net realized gain 0 (0.01) 0 (0.10) 0 0 0
Total dividends (0.60) (0.59) (1.13) (1.25) (1.15) (1.17) (1.21)
Net asset value, end of period $ 14.28 $ 14.78 $ 15.17 $ 13.58 $ 15.64 $ 14.93 $ 14.78
Market value, end of period $ 13.125 $ 13.250 $ 13.625 $ 12.375 $ 15.500 $ 14.125 $ 14.500
Total Investment Return
Based on market value (a) 7.50% 8.83% 19.76% -12.91% 18.25% 5.32% 19.22%
Based on net asset value (b) 4.33% 13.08% 20.93% -5.39% 12.86% 9.23% 17.06%
Ratios and Supplemental Data
Net assets, end of period (in 1,000's) $ 94,964 $ 98,297 $100,938 $ 90,333 $103,345 $ 97,698 $ 95,492
Ratio of operating expenses
to average net assets 0.5% 0.5% 0.9% 0.9% 0.9% 0.9% 0.9%
Ratio of net investment income
to average net assets 3.7% 3.9% 7.6% 7.6% 7.4% 7.9% 8.5%
Portfolio turnover 20.2% 23.9% 39.2% 24.6% 42.0% 40.6% 43.0%
Number of shares outstanding
at end of period (in thousands) 6,652 6,652 6,652 6,652 6,607 6,542 6,463
</TABLE>
(a) The market value total investment return is based on the current market
value of a purchase on the first day and of a sale on the last day of each
period assuming, the reinvestment of dividends and other distributions at
prices obtained by the Company's dividend reinvestment plan.
(b) The net asset value total investment return is computed on a similar
basis except the dividends and other distributions are reinvested at the
ex-dividend date net asset value. These percentages are not an indication
of the performance of a shareholder's investment in the Company based on
market value due to differences between the markets price and the net asset
value of the Company during each period.
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
Six Months Ended May 31, 1996 and 1995 (unaudited) and Year Ended
November 30, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Vestaur Securities, Inc. (the 'Company') is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end management
investment company. The following is a summary of significant accounting
policies:
(a) Security valuation - Investments in bonds and long-term notes are
stated at value based on bid prices obtained from dealers regularly making a
market in such investments. Restricted securities are valued in good faith by
the Board of Directors.
(b) Federal income taxes - No provision is made for taxes on income since
the Company's policy is to distribute all taxable net investment income and
qualify as a 'regulated investment company' under the Internal Revenue Code.
c) Securities transactions - In accordance with industry practice,
security transactions are accounted for on the date securities are purchased
or sold.
(d) Interest income - Premiums and other discounts on investments are not
amortized because the Company does not generally plan to hold such securities
until maturity.
(e) Distributions to Stockholders - Dividends to stockholders are
recorded on the ex-dividend date. Stockholders have the option of receiving
their dividends in cash or in the Company's common stock in accordance with
the Company's Automatic Dividend Investment Plan. For those dividends paid in
common stock, the Company attempts to repurchase enough common stock in the
market to satisfy its dividend needs. If the market price of the common stock
plus brokerage commission equals or exceeds the net asset value or sufficient
common stock cannot be repurchased in the market, the Company will issue new
shares and record the common stock at the greater of: (A) the per share net
asset value, or (B) 95% of the market price per share as of the close of
business on the last trading day of the month preceding the month in which
dividend or other distribution is paid. For the six month period ending
May 31, 1996 and May 31, 1995, no shares were issued. For the year ended
November 30,1995, no shares were issued.
NOTE 2 - INVESTMENT ADVISORY AGREEMENT
Investment advisory fees are payable at an annual rate of 1/2% of the average
net asset value of the Company plus 2 1/2% of the net amount of interest and
dividend income after deducting interest on borrowed funds. The fees are
payable monthly to the Advisor, CoreStates Investment Advisers, Inc. The
Advisor manages the Company's portfolio and also maintains its accounts and
records, prepares its tax returns and other returns and reports, and performs
all other functions necessary for the maintenance of its corporate existence
and its relations with its stockholders. Several officers of the Company are
also officers of the Advisor and no officer receives compensation from
the Company.
NOTE 3 - INVESTMENT TRANSACTIONS
Purchases and sales of securities other than U.S. Government obligations and
agencies, corporate short-term notes and certificates of deposit aggregated
$19,275,850 and $13,609,494, respectively, during the six months ended
May 31, 1996; and $12,392,560 and $21,594,102, respectively, during the six
months ended May 31, 1995; and $21,982,989 and $32,375,524, respectively,
during the year ended November 30, 1995.
Purchases and sales of U.S. Government obligations and agencies were $2,660,854
and $7,733,054, respectively, during the six months ended May 31, 1996; and
$9,327,032 and $1,580,463, respectively, during the six months ended
May 31, 1995; and $14,651,220 and $5,459,917, respectively, during the year
ended November 30, 1995.
NOTE 4 - DISTRIBUTION TO STOCKHOLDERS
On April 22, 1996, a dividend distribution of 27 cents per share, aggregating
$1,795,953, was declared from 1996 net investment income. The dividend will be
paid on July 18, 1996 to stockholders of record on June 28, 1996.
Custodian
CoreStates Bank, N.A.
Philadelphia, PA 19101
Transfer Agent, Dividend
Disbursing Agent & Registrar
First Chicago Trust Company
of New York
P.O. BOX 2500
Jersey City, NJ 07303-2500
Shareholder Relations
First Chicago Trust Company
of New York
P.O. BOX 2500
Jersey City, NJ 07303-2500
(201) 324-0313
Common Stock listed on New York
Stock Exchange, Symbol VES.
