Vestaur Securities, Inc.
Annual Report To Stockholders
November 30, 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
The bond market rallied in price during the second half of 1996, as the
Federal Reserve left monetary policy unchanged at its September and December
meetings. Recent economic data continues to show moderate growth in a low
inflation environment. There is reason to believe that Fed policy will remain
stable with the next Federal Reserve meeting scheduled for February 1997.
The results of the November election that maintain the Republican majority in
Congress are positive for the bond market as optimism has increased for a
possible agreement on some form of a balanced budget amendment. The bond
market has also benefited from a strong dollar that encourages foreign
purchases of U.S. securities.
Corporate bonds continue to provide a spread or incremental yield pick-up over
comparable maturity U.S. Treasury bonds. Although this differential has
narrowed, it is apparent that corporate bonds have value in the current market.
We continue to emphasize credit research in our bond selection process.Vestaur
holdings are larger companies with bonds that are active marketable issues.
The portfolio is diversified by industry and a maximum holding of no more than
5% of total fund assets in any one company. Many other bond funds have
increased their holdings of lower or unrated bonds. While this has generated
higher returns over the past year, Vestaur remains more conservatively
invested in higher rated credits to ensure safety of principal while meeting
the primary objective of the fund which is the attainment of a high level of
current income through investments in a diversified portfolio of marketable
securities.
Net assets of Vestaur were $97,907,078 on November 30, 1996 compared to
$100,938,285 on November 30, 1995. Net assets per share were $14.72 and
$15.17 respectively, for November 30, 1996 and 1995.
At the December 11, 1996 Directors meeting, Vestaur Securities, Inc. declared a
distribution which is payable January 16, 1997 to stockholders of record
December 31, 1996. The total amount of this distribution is 27.3 cents per
share, which consists of 27 cents per share for the regular quarterly income
dividend and 0.3 cents per share for the year-end extra income dividend.
Our economic outlook is that 1997 will strongly resemble 1996. Moderate
economic growth and low inflation should continue. This is an environment that
would be favorable to the bond market. The risk in the market is that
accelerated growth could trigger inflation with rising interest rates.
Your management and directors extend best wishes for a happy and prosperous
New Year.
Sincerely,
Mark E. Stalnecker
Chairman of the Board
December 24, 1996
AUTOMATIC DIVIDEND INVESTMENT PLAN
Any registered Stockholder of Vestaur Securities, Inc. may participate in the
Automatic Dividend Investment Plan (the 'Plan'), with the exception of brokers
and nominees of banks and other financial institutions. If you are a beneficial
owner, whose shares are registered in the name of another (e.g., in a broker's
'street name') and desires to participate in the Plan you must become a
registered holder by having the shares transferred to your name.
To participate in the Plan, you must complete and forward an enrollment
authorization form to the Plan agent. This form authorizes the Plan agent to
receive your dividends and other distributions from the Company in additional
shares of common stock. The additional shares will be issued by the Company,
if the net asset value per share is equal to or lower than the market price
of the Company's common stock plus brokerage commissions. The newly issued
shares will be valued in accordance with the Plan. If the net asset value per
share is higher than the market price of the Company's common stock plus
brokerage commissions, the additional shares will be purchased in the open
market and the cost of the brokerage commissions will be charged against the
amounts invested.
Shares will be held by First Chicago Trust Company of New York, the Plan agent.
You will receive a statement each time shares are distributed by the Company
or purchased for you.
There is no direct charge for Plan participation. The administrative costs of
the Plan are paid out of the investment advisory fees received from the Company
by its investment adviser, CoreStates Investment Advisers, Inc.
If your dividends and other distributions are reinvested, they will be subject
to capital gains and income taxes as if they were paid to you in cash.
You may terminate your participation in the Plan at any time by giving written
notice to the Plan agent.
For additional information on the Plan, please write First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, NJ 07303-2500
or call 1-201-324-0313.
<TABLE>
Statements of Assets And Liabilities
<CAPTION>
November 30
1996 1995
<S> <C> <C>
ASSETS
Investments
Bonds and long-term notes at value (identified cost
$93,590,538 in 1996 and $93,020,835 in 1995) $95,963,644 $97,871,801
Short-term notes at cost plus accrued interest
(approximates market) 119,965 1,192,660
Total Investments 96,083,609 99,064,461
Cash 4,070 1,960
Interest receivable 1,893,891 1,957,931
Other receivable 1,348 1,361
Total Assets 97,982,918 101,025,713
LIABILITIES
Accounts payable and accrued expenses 75,840 87,428
Total Liabilities 75,840 87,428
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $97,907,078 $100,938,285
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 1,244,785 1,308,738
Undistributed/accumulated net realized (loss) gain
on investments (158,394) 332,667
Unrealized net appreciation on investments 2,373,106 4,850,966
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $97,907,078 $100,938,285
NET ASSET VALUE PER SHARE $14.72 $15.17
</TABLE>
See notes to financial statements
<TABLE>
INVESTMENTS % NOVEMBER 30, 1996
BONDS AND LONG-TERM NOTES
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
INDUSTRIAL AND CONGLOMERATE - 47.4%
$1,000,000 Air Products & Chemical Deb. 8 7/8% 8/1/01 $1,103,990
1,000,000 Baxter International Inc. 8.875% 6/15/18 1,065,040
473,000 Becton Dickinson & Co. S.F. Deb. Reg. 9 1/4% 6/1/16 495,380
2,000,000 Burlington Northern, Inc. 7.5% 7/15/23 1,958,740
1,135,000 Chrysler Corp. 10.40% 8/1/99 1,180,400
4,500,000 Crown Cork & Seal, Inc. 8% 4/15/23 4,632,300
2,000,000 Diamond Shamrock, Inc. 8% 4/1/23 2,024,230
4,000,000 General Motors Corp. Deb. Reg. 8 1/8% 4/15/16 4,090,560
4,400,000 Georgia Pacific Corp. 8 1/8% 6/15/23 4,467,100
2,000,000 Lockheed Martin Corp. 7.875% 3/15/23 2,077,560
3,000,000 Northrop Grumman 9.375% 10/15/24 3,414,285
1,500,000 Occidental Pete Mtn 10.41% 7/2/97 1,539,323
3,000,000 Ralston Purina Company 9.30% 5/1/21 3,533,010
1,000,000 Revlon Cons. 9.375% 4/1/01 1,021,250
1,000,000 Revlon Cons. 10.5% 4/1/01 1,046,720
4,200,000 Time Warner, Inc. 9 1/8% 1/15/13 4,650,954
2,000,000 Union Pacific Corp. 8.625% 5/15/22 2,159,680
2,000,000 United Air Lines, Inc. 9.75% 8/15/21 2,421,990
3,000,000 USX Marathon Group 9.375% 2/15/12 3,495,255
43,208,000 46,377,767
PUBLIC UTILITIES - 11.1%
3,250,000 Illinois Power Company 8% 2/15/23 3,332,875
4,110,000 Tennessee Valley Authority 8.25% 9/15/34 4,282,969
1,000,000 Texas Utilities Electric Co. 8.5% 8/1/24 1,059,565
2,000,000 Texas Utilities Electric Co. 8.75% 11/1/23 2,180,710
10,360,000 10,856,119
Broadcasting & Media - 12.7%
2,000,000 Comcast Corp. 9.125% 10/15/06 2,027,500
1,960,000 Comcast Corp. 10.25% 10/15/01 2,050,650
2,500,000 Rogers Cable Systems 9.625% 10/15/01 2,584,375
3,500,000 Tele Communications 8.75% 2/15/23 3,295,145
1,500,000 Viacom Inc. 7.625% 1/15/16 1,397,258
1,000,000 Viacom Inc. 10.25% 9/15/01 1,072,865
12,460,000 12,427,793
FINANCIAL AND INSURANCE - 10.4%
1,000,000 ASCO Corp. NA 8.7% 1/1/97 1,002,295
1,500,000 ASCO Corp. NA 9.7% 5/1/97 1,523,400
2,700,000 Chrysler Financial Corp. 9.5% 12/15/99 2,942,838
1,000,000 CIGNA Corp. 8.30% 1/15/23 1,085,825
3,450,000 Ford Motor Credit Co. 9.25% 6/15/98 3,613,616
9,650,000 10,167,974
CANADIAN PROVINCIAL AND MUNICIPAL - 2.5%
2,255,000 Ontario Prov CDA Deb 15.75% 3/15/12 (U.S. Pay) 2,457,048
2,255,000 2,457,048
U.S. GOVERNMENT AGENCIES - 13.9%
442,911 GNMA 8% 3/15/22 Pool #318816 455,921
1,330,468 GNMA 8% 8/15/24 Pool # 392478X 1,369,550
984,941 GNMA 8.% 8/15/24 Pool #394649X 1,013,874
966,069 GNMA 8% 7/15/26 Pool #417574X 994,447
1,994,109 GNMA 8% 6/15/26 Pool #419616X 2,052,686
1,535,602 GNMA 8.5% 10/15/24 #419616X 1,602,065
1,108,922 GNMA 8.5% 9/15/24 Pool #385902X 1,156,917
998,072 GNMA 8.5% 2/15/25 Pool #386672X 1,041,270
348,295 GNMA 9% 12/15/19 Pool #198566 369,084
717,875 GNMA 9% 1/15/20 Pool #202923 760,723
364,582 GNMA 9% 12/15/19 Pool #267601 386,343
172,536 GNMA 9% 1/15/21 Pool #291873 182,835
177,722 GNMA 9% 3/15/21 Pool #299269 188,330
90,559 GNMA 9.5% 5/15/19 Pool #271455 98,144
645,117 GNMA 9.5% 9/15/19 Pool #274141 699,145
86,197 GNMA 9.5% 6/15/20 Pool #290655 93,416
317,052 GNMA 10% 1/15/19 Pool #266987 349,996
363,881 GNMA 10% 3/15/20 Pool #285190 401,690
183,438 GNMA 10% 4/15/20 Pool #285618 202,498
150,593 GNMA 10.5% 4/15/19 Pool #262170 168,546
60,673 GNMA 10.5% 5/15/19 Pool #274947 67,907
3,039,614 13,655,387
RESIDENTIAL SECURITIES - 0.1%
Residential Mortgages (first and second), Participation,
8 3/8% Average
22,624 Yield, 2 Year Average Maturity, Acquired 12/29/77 21,556
22,624 21,556
$90,995,238
Total BONDS AND LONG-TERM NOTES - 98.1% 95,963,644
SHORT-TERM NOTES
120,000 American Express 5.18% 12/2/96 119,965
120,000 TOTAL SHORT-TERM NOTES - 0.1% 119,965
$91,115,238 TOTAL INVESTMENTS - 98.2% 96,083,609
OTHER ASSETS LESS LIABILITIES - 1.8% 1,823,469
NET ASSETS - 100.0% $97,907,078
</TABLE>
<TABLE>
Statements of Operation
<CAPTION>
Year Ended November 30
1996 1995
<S> <C> <C>
INVESTMENT INCOME
Interest Income $8,103,569 $8,179,586
EXPENSES
Advisory 685,368 681,471
Legal and auditing 51,649 57,768
Custodian 23,546 22,846
Directors 54,950 54,300
Taxes, other than income 29,000 29,710
Other 72,681 73,655
Total Expenses 917,194 919,750
NET INVESTMENT INCOME 7,186,375 7,259,836
REALIZED AND UNREALIZED (LOSS) gain ON INVESTMENTS
Realized (loss) gain from sales of bonds and
long-term notes
Proceeds from sales 49,352,682 38,173,584
Cost of investments sold 49,509,493 37,835,441
Net realized (loss) gain on investments (on average cost
basis of $(166,248) in 1996 and $387,866 in 1995) (156,811) 338,143
Unrealized appreciation (depreciation) on investments
Beginning of year 4,850,966 (5,679,070)
End of year 2,373,106 4,850,966
Unrealized (loss) gain on investments (2,477,860) 10,530,036
Net realized and unrealized (loss) gain on investments (2,634,671) 10,868,179
NET INCREASE IN ASSETS
RESULTING FROM OPERATIONS $4,551,704 $18,128,015
</TABLE>
See notes to financial statements
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
Year Ended November 30
1996 1995
<S> <C> <C>
OPERATIONS
Net investment income $7,186,375 $7,259,836
Net realized (loss) gain on investments (156,811) 338,133
Unrealized (loss) gain on investments (2,477,860) 10,530,036
Net increase in assets resulting
from operations 4,551,704 18,128,015
Dividends from net investment income (7,186,375) (7,183,812)
Dividends in excess of net investment Income. (63,953) 0
Dividends from net realized gain 0 (338,143)
Dividends in excess of net realized gain (332,583) (1,092)
(DECREASE) INCREASE IN NET ASSETS (3,031,207) 10,604,968
NET ASSETS
Beginning of year, 100,938,285 90,333,317
End of year (including undistributed net
investment income of $1,244,785 at 11/30/96
and $1,308,738 at 11/30/95) $97,907,078 $100,938,285
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS - The following table includes selected data for each
share of common stock outstanding throughout each year and other performance
information derived from the financial statements and market price data.
<CAPTION>
Year Ended November 30
Per Share Operating Performance 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $15.17 $13.58 $15.64 $14.93 $14.78
Net investment income 1.08 1.09 1.09 1.14 1.17
Net realized and unrealized (loss)
gain on investments (0.39) 1.63 (1.90) 0.72 0.15
Total from investment operations 0.69 2.72 (0.81) 1.86 1.32
Dividends from net investment income (1.08) (1.08) (1.09) (1.14) (1.17)
Dividends in excess of
net investment income (0.01) 0 (0.01) (0.01) 0
Dividends from net realized gain 0 (0.05) (0.05) 0 0
Dividends in excess of net realized gain (0.05) 0 (0.10) 0 0
Total dividends (1.14) (1.13) (1.25) (1.15) (1.17)
Net asset value, end of year $14.72 $15.17 $13.58 $15.64 $14.93
Market value, end of year $13.50 $13.625 $12.375 $15.50 $14.125
Total Investment Return
Based on market value (a) 7.69% 19.76% -12.91% 18.25% 5.32%
Based on net asset value (b) 4.91% 20.93% -5.39% 12.86% 9.23%
Ratios and Supplemental Data
Net assets, end of year
(in thousands) $97,907 $100,938 $90,333 $103,345 $97,698
Ratio of operating expenses
to average net assets 0.9% 0.9% 0.9% 0.9% 0.9%
Ratio of net investment income
to average net assets 7.4% 7.6% 7.6% 7.4% 7.9%
Portfolio turnover 47.4% 39.2% 24.6% 42.0% 40.6%
Number of shares outstanding at year-
end (in thousands) 6,652 6,652 6,652 6,607 6,542
</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
year, 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 market price and the net asset value of
the Company during each year.
See notes to financial statements
NOTES TO FINANCIAL STATEMENTS
Years ended November 30, 1996 and 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 the dividend or other distribution is paid. For the years ended
November 30, 1996 and 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
$42,518,599 and $37,587,346, respectively, during the year ended
November 30, 1996 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
$7,567,768 and $11,922,148, respectively, during the year ended
November 30, 1996 and $14,651,220 and $5,459,917, respectively, during the
year ended November 30, 1995.
NOTE 4 - DISTRIBUTION TO STOCKHOLDERS
On December 11, 1996 a dividend distribution of 27 cents per share plus a
year-end extra dividend of 0.3 cents per share, aggregating $1,815,908, was
declared from 1996 net investment income. The dividend will be paid on
January 16, 1997 to stockholders of record December 31, 1996.
NOTE 5 - FEDERAL INCOME TAXES
On November 30, 1996, the Company had a capital loss carryforward of
$157,000, available to reduce the taxability of future net captial gains
expiring as of November 30, 2004.
Independent Auditors' report
The Stockholders and Board of Directors
Vestaur Securities, Inc.
Philadelphia, Pennsylvania
We have audited the accompanying statements of assets and liabilities of
Vestaur Securities, Inc. (the 'Company') as of November 30, 1996 and 1995,
including the schedule of investments as of November 30, 1996, and the related
statements of operations and changes in net assets for the years ended
November 30, 1996 and 1995, and the financial highlights for each of the five
years in the period ended November 30, 1996. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights 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 the
financial highlights 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 at November 30, 1996 by correspondence with the custodians.
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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Vestaur
Securities, Inc. as of November 30, 1996 and 1995, and the results of its
operations and changes in its net assets for the years then ended, and the
financial highlights for each of the five years in the period ended
November 30, 1996 in conformity with generally accepted accounting principles.
(Deloite & Touche)
Philadelphia, Pennsylvania
December 20, 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.
