Vestaur Securities, Inc.
Semi-Annual Report To Stockholders
May 31, 1997
BOARD OF DIRECTORS
Mark E. Stalnecker
Paul B. Fay, Jr.
Robert F. Gurnee
John C. Jansing
James S. Morgan
Charles P. Pizzi
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 Shareholder:
The year began with an economic forecast of moderate growth and a gradual
increase in inflation. The consensus forecast for economic growth was that
Gross Domestic Product (GDP) would increase by 2% to 2 1/2% and inflation would
rise from a 3% level. The actual result was a much stronger first quarter
with the GDP increasing at an annual rate of 5.9%. A mild winter, consumer
confidence and the wealth creation effect from the strong stock market were
several reasons to explain the strong economic growth. The bond market reacted
negatively in the first quarter to the possibility of the Fed raising interest
rates. The Federal Reserve responded at the March Open Market Committee
meeting and raised short term interest rates by 25 basis points. There was
concern that this was the first of numerous increases by the Fed.
However, economic statistics in the second quarter portrayed a different
picture. Auto sales slowed, housing starts declined and department store sales
were sluggish. There was talk that the consumer was overextended with the
rise in credit card delinquencies and personal bankruptcies.
More important to bond investors was that the increase in inflation was not
occurring. The Producer Price Index for the month of May actually registered
a decline.
The bond market remained resilient during this period by absorbing a
significant supply of new corporate issuance at a narrowing spread to Treasury
securities. The result was positive return for bond portfolios as interest
rates declined and bond prices rose during April and May.
Net Assets of Vestaur were $95,662,756 on May 31,1997 compared to $94,963,687
on May 31, 1996. Net asset values per share were $14.38 and $14.28
respectively for May 31, 1997 and 1996.
At the May 20, 1997 Directors meeting, Vestaur Securities, Inc. declared the
regular quarterly income distribution of 27 cents per share to stockholders of
record on June 30, 1997 to be paid on July 17, 1997.
There are a number of positive factors that favor the bond market.
Inflation appears to be contained by both global competition and improvements
in productivity. Another positive for the bond market were the reports of
preliminary agreement on a budget deficit accord. The details will come later
but the stronger economy and fiscal restraint will lower the U.S. Treasury's
borrowing need. The supply of new Treasuries will decline to 1% of the Gross
Domestic Product. This is down from the 3% to 4% of GDP in previous years.
The Treasury's reduced funding needs have already resulted in cutbacks in
Treasury auction sizes.
We will continue to manage the Vestaur Fund as we have in the past with the
primary objective of attaining a high level of current income through a
diversified portfolio of debt securities.
Your management and directors extend to you our best wishes for a pleasant
summer.
Sincerely,
Mark E. Stalnecker
Chairman of the Board
June 25, 1997
<TABLE>
STATEMENTS OF ASSETS AND LIABILITIES
<CAPTION>
May 31
(unaudited)
1997 1996
<S> <C> <C>
ASSETS
Investments
Bonds and long-term notes at value (identified cost
$93,197,595 in 1997 and $93,613,710 in 1996) $93,107,959 $92,538,884
Short-term notes at cost plus accrued interest
(approximates market) 583,822 359,844
Total Investments 93,691,781 92,898,728
Cash 8,329 4,405
Interest receivable 2,023,026 2,107,442
Other assets 9,432 9,433
Total Assets 95,732,568 95,020,008
LIABILITIES
Accounts payable and accrued expenses 69,812 56,321
Total Liabilities 69,812 56,321
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $95,662,756 $94,963,687
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 1997 and in 1996 $66,517 $66,517
Capital in excess of par value 94,381,064 94,381,064
Undistributed net investment income 1,202,314 1,219,872
Undistributed/accumulated net realized gain
on investments 102,497 371,060
Unrealized net (depreciation) on investments (89,636) (1,074,826)
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $95,662,756 $94,963,687
NET ASSET VALUE PER SHARE $14.38 $14.28
</TABLE>
See notes to financial statements
<TABLE>
INVESTMENTS - MAY 31, 1997 (unaudited)
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
BONDS AND LONG-TERM NOTES
INDUSTRIAL AND CONGLOMERATE - 46.2%
$2,000,000 Air Products & Chemical Deb. 8 7/8% 8/1/01 $2,143,270
2,750,000 ARA Group, Inc. 8.5% 6/1/03 2,807,874
1,000,000 Baxter International Inc. 8.875% 6/15/18 1,042,090
473,000 Becton Dickinson & Co. S.F. Deb. Reg. 9 1/4% 6/1/16 491,636
2,000,000 Burlington Northern, Inc. 7.5% 7/15/23 1,865,890
1,135,000 Chrysler Corp. 10.40% 8/1/99 1,147,767
2,500,000 Crown Cork & Seal, Inc. 8% 4/15/23 2,444,788
2,000,000 Diamond Shamrock, Inc. 8% 4/1/23 1,930,090
1,000,000 General Motors Corp. Deb. Reg. 8 1/8% 4/15/16 1,001,005
4,400,000 Georgia Pacific Corp. 8 1/8% 6/15/23 4,293,696
2,000,000 Lockheed Martin Corp. 7.875% 3/15/23 1,953,860
3,000,000 Northrop Grumman 9.375% 10/15/24 3,252,555
1,500,000 Occidental Pete Mtn 10.41% 7/2/97 1,505,588
1,500,000 Ralston Purina Company 9.30% 5/1/21 1,725,593
1,000,000 Revlon Cons. 9.375% 4/1/01 1,026,250
2,500,000 Revlon Cons. 10.5% 2/15/03 2,640,625
800,000 Sears Roebuck & Co. 9.25% 4/15/98 820,820
4,200,000 Time Warner, Inc. 9 1/8% 1/15/13 4,557,336
3,000,000 Union Pacific Corp. 8.625% 5/15/22 3,098,970
2,000,000 United Air Lines, Inc. 9.75% 8/15/21 2,332,430
1,000,000 USX Marathon Group 9.375% 2/15/12 1,139,905
1,000,000 WorldCom, Inc. 7.75% 4/1/07 1,011,835
42,758,000
44,233,873
PUBLIC UTILITIES - 12.1%
3,250,000 Illinois Power Company 8% 2/15/23 3,233,798
4,110,000 Tennessee Vly Ser C 8.25% 9/15/34 4,172,328
2,000,000 Texas Utilities Electric Co. 8.5% 8/1/24 2,058,880
2,000,000 Texas Utilities Electric Co. 8.75% 11/1/23 2,088,890
11,360,000 11,553,896
Broadcasting & Media - 13.1%
2,000,000 Comcast Corp. 9.125% 10/15/06 2,050,000
1,960,000 Comcast Corp. 10.25% 10/15/01 2,116,800
2,500,000 Rogers Cable Systems 9.625% 8/1/02 2,600,000
2,500,000 Tele Communications 8.75% 2/15/23 2,420,425
2,500,000 Viacom Inc. 7.625% 1/15/16 2,281,638
1,000,000 Viacom Inc. 10.25% 9/15/01 1,078,280
12,460,000 12,547,143
Financial And Insurance - 8.3%
500,000 Bank of Boston Corp. 9.5% 8/15/97 503,738
2,700,000 Chrysler Financial Corp. 9.5% 12/15/99 2,87,275
1,000,000 CIGNA Corp. 8.30% 1/15/23 1,036,415
3,450,000 Ford Motor Credit Co. 9.25% 6/15/98 3,553,603
7,650,000 7,965,031
Trust Preferred - 3.3%
1,000,000 MBNA Capital BD SR-A 8.278% 12/1/26 956,795
1,750,000 Mellon Capital I 7.72% 12/1/26 1,664,836
500,000 NB Capital Trust IV 8.25% 4/15/27 505,650
3,250,000 3,127,281
U.S. GOVERNMENT AGENCIES - 14.3%
426,200 GNMA 8% 3/15/22 Pool #318816 433,792
1,203,613 GNMA 8% 8/15/24 Pool # 392478X 1,225,052
980,184 GNMA 8.% 8/15/24 Pool # 394649X 997,644
961,307 GNMA 8% 7/15/26 Pool #417574X 978,430
1,906,348 GNMA 8% 6/15/26 Pool #419616X 1,940,305
1,448,920 GNMA 8.5% 10/15/24 #215821X 1,500,085
1,003,178 GNMA 8.5% 9/15/24 Pool #385902X 1,038,602
858,107 GNMA 8.5% 2/15/25 Pool #386672X 888,409
982,352 GNMA 8.5% 1/15/27 Pool #393235X 1,017,041
346,008 GNMA 9% 12/15/19 Pool #198566 364,012
652,267 GNMA 9% 1/15/20 Pool #202923 686,205
298,613 GNMA 9% 12/15/19 Pool #267601 314,150
171,498 GNMA 9% 1/15/21 Pool #291873 180,421
133,073 GNMA 9% 3/15/21 Pool #299269 139,997
64,828 GNMA 9.5% 5/15/19 Pool #271455 69,691
638,984 GNMA 9.5% 9/15/19 Pool #274141 686,908
84,534 GNMA 9.5% 6/15/20 Pool #290655 90,874
268,744 GNMA 10% 1/15/19 Pool #266987 294,274
353,365 GNMA 10% 3/15/20 Pool #285190 386,935
182,482 GNMA 10% 4/15/20 Pool #285618 199,817
149,468 GNMA 10.5% 4/15/19 Pool #262170 164,532
60,346 GNMA 10.5% 5/15/19 Pool #274947 66,428
13,174,419 13,663,604
RESIDENTIAL SECURITIES - 0.1%
Residential Mortgages (first and second),
Participation, 8 3/8% Average
18,120 Yield, 2 Year Average Maturity, Acquired 12/29/77 17,131
18,120 17,131
90,670,539 TOTAL BONDS AND LONG-TERM NOTES - 97.4 % 93,107,959
SHORT-TERM NOTES
159,000 General Electric 5.45% 6/2/97 158,952
425,000 General Electric 5.53% 6/2/97 424,870
584,000 TOTAL SHORT-TERM NOTES - 0.6% 583,822
91,254,539 TOTAL INVESTMENTS - 98.0% 93,691,781
OTHER ASSETS LESS LIABILITIES - 2.0% 1,970,975
NET ASSETS - 100.0% $95,662,756
</TABLE>
<TABLE>
Statement of Operations
<CAPTION>
Six Months Ended May 31 (unaudited)
1997 1996
<S> <C> <C>
INVESTMENT INCOME
Interest Income $4,035,756 $4,049,067
EXPENSES
Advisory 339,658 346,235
Legal and auditing 40,153 41,321
Custodian 12,000 12,000
Directors 29,050 29,050
Taxes, other than income 11,420 14,870
Other 34,085 36,036
Total Expenses 466,366 479,512
NET INVESTMENT INCOME 3,569,390 3,569,555
REALIZED AND UNREALIZED gain (LOSS) ON INVESTMENTS
Realized gain from sales of bonds and long-term notes
Proceeds from sales 17,704,706 21,715,192
Cost of investments sold 17,443,815 21,342,548
Net realized gain on investments (on average cost
basis of $230,544 in 1997 and $357,128 in 1996) 260,891 372,644
Unrealized appreciation (depreciation) on investments
Beginning of period 2,373,106 4,850,966
End of period (89,636) (1,074,826)
Unrealized (loss) on investments (2,462,742) (5,925,792)
Net realized and unrealized (loss) on investments (2,201,851) (5,553,148)
NET INCREASE (DECREASE) IN ASSETS
RESULTING FROM OPERATIONS $1,367,539 $(1,983,593)
</TABLE>
See notes to financial statements
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Six Months Ended May 31 Year Ended
(unaudited) November 30
<S> <C> <C> <C>
OPERATIONS 1997 1996 1996
Net investment income $3,569,390 $3,569,555 $7,186,375
Net realized gain (loss) on investments 260,891 372,644 (156,811)
Unrealized (loss) on investments (2,462,742) (5,925,792) (2,477,860)
Net increase (decrease) in assets resulting
from operations 1,367,539 (1,983,593) 4,551,704
Dividends from net investment income (3,569,390) (3,569,555) (7,186,375)
Dividends in excess of net investment Income (42,471) (88,867) (63,953)
Dividends from net realized gain 0 (332,583) 0
Dividends in excess of net realized gain 0 0 (332,583)
(DECREASE) IN NET ASSETS (2,244,322) (5,974,598) (3,031,207)
NET ASSETS
Beginning of period 97,907,078 100,938,285 100,938,285
End of period (including undistributed net
investment income of $1,202,314 at 5/31/97,
$1,219,872 at 5/31/96 and
$1,244,785 at 11/30/96) $95,662,75 $94,963,687 $97,907,078
</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 1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.72 $15.17 $15.17 $13.58 $15.64 $14.93 $14.78
Net investment income 0.54 0.54 1.08 1.09 1.09 1.14 1.17
Net realized and unrealized
(loss) gain on investments (0.34) (0.83) (0.39) 1.63 (1.90) 0.72 0.15
Total from investment operation 0.20 (0.29) 0.69 2.72 (0.81) 1.86 1.32
Dividends from net investment income (0.54) (0.54) (1.08) (1.08) (1.09) (1.14) (1.17)
Dividends in excess of net investment
income 0 (0.01) (0.01) 0 (0.01) (0.01) 0
Dividends from net realized gain 0 (0.05) 0 (0.05) (0.05) 0 0
Dividends in excess of net realized gain 0 0 (0.05) 0 (0.10) 0 0
Total dividends (0.54) (0.60) (1.14) (1.13) (1.25) (1.15) (1.17)
Net asset value, end of period $14.38 $14.28 $14.72 $15.17 $13.58 $15.64 $14.93
Market value, end of period $13.500 $13.125 $13.500 $13.625 $12.375 $15.500 $14.125
Total Investment Return
Based on market value (a) 11.43% 7.50% 7.69% 19.76% -12.91% 18.25% 5.32%
Based on net asset value (b) 8.55% 4.36% 91% 20.93% -5.39% 12.86% 9.23%
Ratios and Supplemental Data
Net assets, end of period (in 1,000's) $95,663 $94,964 $97,907 $100,938 $90,333 $103,345 $97,698
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% 3.7% 7.4% 7.6% 7.6% 7.4% 7.9%
Portfolio turnover 17.7% 20.2% 47.4% 39.2% 24.6% 42.0% 40.6%
Number of shares outstanding
at end of period (in thousands) 6,652 6,652 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
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 market 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 31,1997 and 1996 (unaudited)
and Year Ended November 30, 1996.
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 six
month period ending May 31, 1997 and May 31, 1996, and for the year
ended November 30, 1996, no shares were issued.
NOTE 2 - INVESTMENT ADVISORY AGREEMENT
Investment advisory fees are payable at an annual rate of 1/2% of the average
monthly 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
$16,030,726 and $16,593,758, respectively, during the six months ended May 31,
1997; and $19,275,850 and $13,609,494, respectively, during the six months ended
May 31, 1996; and $42,518,599 and $37,587,346, respectively, during the year
ended November 30, 1996.
Purchases and sales of U.S. Government obligations and agencies were $1,024,651
and $850,058, respectively, during the six months ended May 31, 1997; and
$2,660,854 and $7,733,054, respectively, during the six months ended
May 31, 1996; and $7,567,768 and $11,922,148, respectively, during the year
ended November 30, 1996.
NOTE 4 - DISTRIBUTION TO STOCKHOLDERS
On May 20, 1997, a dividend distribution of 27 cents per share, aggregating
$1,795,953, was declared from 1997 net investment income. The dividend will be
paid on July 17, 1997 to stockholders of record on June 30,1997.
NOTE 5 - FEDERAL INCOME TAXES
At November 30, 1996, the Company had a capital loss carryforward of $157,000,
available to reduce the taxability of future net captial gains. Such capital
loss carryforward was utilized during the six months ending May 31, 1997.
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.
