Vestaur Securities, Inc.
Semi-Annual Report To Stockholders
May 31, 1998 (unaudited)
BOARD OF DIRECTORS
Glen T. Insley
Paul B. Fay, Jr.
Robert F. Gurnee
John C. Jansing
James S. Morgan
Charles P. Pizzi
Philip R. Reynolds
Marciarose Shestack
OFFICERS
Glen T. Insley
Chairman
Dung Vukhac
President
Michael F. Melloy
Vice President
Karen G. Bater
Assistant Vice President and Secretary
J. Kevin Kenely
Treasurer
ADVISOR
First Union National Bank
Vestaur Securities, Inc.
Shareholder Letter
Semiannual Report, period ending May 31, 1998
Dear Fellow Shareholders:
The rally in bond prices continued in the first half of our current fiscal year
as the yield on the 30-year benchmark U.S. Treasury bond declined from 6.04% in
November to 5.80% at the end of May. Fueled by domestic demand, GDP grew much
faster than consensus forecasts during this period, driving the unemployment
rate to a 28 year low of 4.3% and causing the Federal Reserve to shift the bias
of its policy directive from neutral toward tightening in March. Lower than
expected inflation and the severity of the Asian economic crisis kept the
monetary policy hawks at bay, however, and the Federal Funds target rate
remained unchanged. Bond market performance also benefited from a favorable
supply/demand balance. The emergence of a sizeable Federal budget surplus
in fiscal 1998 led to a sharp reduction in the supply of treasury securities.
Demand for bonds, by contrast, rose sharply as foreign investors sought the
strength and safety of dollar-denominated fixed income securities and domestic
investors re-allocated portfolio assets in response to the outlook for weaker
corporate earnings growth ahead.
The bond market has rallied further since the end of May, pushing yield on long
treasury bonds to new historical lows. Near term, we feel that favorable
fundamentals have already been fully priced into the market. Longer term,
however, we remain constructive on the outlook for fixed income securities
given the current context of fiscal and monetary policies.
The Net Assets of the Fund on May 31, 1998, were $99,892,718 or $14.91 per
share. This compares favorably with Net Assets value of $98,594,325 or $14.82
per share on November 31, 1997. At the April 28, 1998 meeting, the Directors
of Vestaur Securities, Inc. declared a quarterly dividend of 26 cents per share.
This regular dividend is payable on July 16, 1998 to shareholders of record on
June 30, 1998.
Last April, as a result of the pending merger between CoreStates and First
Union, the Fund's Directors and Shareholders approved a new investment advisory
agreement with First Union National Bank. First Capital Group, a division of
Capital Management Group of First Union National Bank, is now the investment
advisor to the Fund. There has been no material change, however, in the Fund's
management and investments as a result of the merger.
A major benefit of the merger is the availability of even more investment
research and administrative resources to the Fund and its shareholders
through First Union's Capital Management Group. The Group currently manages
or oversees the management of over $85 billion in assets belonging to a wide
range of clients, including the Evergreen family of funds. With $16.4
billion in fixed income assets under management, First Capital Group also has
significant depth of experience and expertise in the areas of credit research
and bond portfolio management. We look forward to continue providing Vestaur's
shareholders with excellent investment service as in the past.
Sincerely,
Glen T. Insley, CFA
Chairman of the Board
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1998
(unaudited)
<CAPTION>
PRINCIPAL
AMOUNT VALUE
LONG-TERM BONDS AND NOTES
<S> <C> <C>
INDUSTRIAL AND CONGLOMERATE - 41.1%
$ 3,500,000 Air Products & Chemicals Inc. 8.875% 8/1/01 $ 3,766,035
1,000,000 American Standard Inc. 9.875% 6/1/01 1,028,750
500,000 American Standard Inc. 10.875% 5/15/99 516,250
1,000,000 AT&T Corp. 8.35% 1/15/25 1,121,570
1,500,000 AT&T Corp. 8.625% 12/1/31 1,674,030
1,000,000 Baxter International Inc. 8.875% 6/15/18 1,044,880
2,000,000 Burlington Northern Inc. 7.50% 7/15/23 2,047,820
3,000,000 Crown Cork & Seal Inc. 8.00% 4/15/23 3,147,840
450,000 Dayton Hudson Corp. 10.00% 12/1/00 490,491
2,000,000 Diamond Shamrock Inc. 8.00% 4/1/23 2,084,080
2,000,000 Du Pont de Nemours & Co. 8.25% 1/15/22 2,162,860
4,400,000 Georgia Pacific Corp. 8.125% 6/15/23 4,577,320
3,000,000 Northrop Grumman Corp. 9.375% 10/15/24 3,599,640
1,400,000 Occidental Petroleum Corp. 7.20% 4/1/28 1,416,156
1,000,000 Occidental Petroleum Corp. 8.50% 9/15/04 1,024,420
401,000 Pennzoil Co. 9.625% 11/15/99 420,196
230,000 Pennzoil Co. 10.625% 6/1/01 239,441
1,500,000 Ralston Purina Co. 9.30% 5/1/21 1,916,655
2,000,000 Southwest Airlines Co. 9.15% 7/1/16 2,462,580
4,200,000 Time Warner Inc. 9.125% 1/15/13 5,106,066
1,000,000 USX Marathon Group 9.375% 2/15/12 1,201,110
41,048,190
BROADCASTING AND MEDIA - 15.9%
1,000,000 Chancellor Media Corp. 8.75% 6/15/07 1,027,500
2,000,000 Comcast Corp. 9.125% 10/15/06 2,125,000
1,960,000 Comcast Corp. 10.25% 10/15/01 2,156,353
4,000,000 Lenfest Communications, Inc. 8.375% 11/1/05 4,190,000
2,500,000 Rogers Cablesystems Limited 9.625% 8/1/02 2,675,000
1,500,000 Viacom, Inc. 7.625% 1/15/16 1,594,650
1,000,000 Viacom, Inc. 8.00% 7/7/06 1,030,000
1,000,000 Viacom, Inc. 10.25% 9/15/01 1,113,900
15,912,403
FINANCIAL AND INSURANCE - 14.5%
1,000,000 Chase Manhattan Corp. 10.00% 6/15/99 1,039,450
3,800,000 Chrysler Financial Corp. 9.50% 12/15/99 3,991,748
1,000,000 CIGNA Corp. 8.30% 1/15/23 1,148,170
1,055,000 CIGNA Corp. 8.75% 10/1/01 1,136,298
3,000,000 Deere John Capital Corp. 9.625% 11/1/98 3,044,070
1,000,000 Ford Motor Credit Co. 9.25% 6/15/98 1,001,280
1,000,000 GMAC 8.625% 6/15/99 1,026,180
1,900,000 GMAC 9.625% 12/15/01 2,109,038
14,496,234
PUBLIC UTILITIES - 9.1%
3,250,000 Illinois Power Co. 8.00% 2/15/23 3,420,690
840,000 Niagara Mohawk Power Corp. 8.75% 4/1/22 925,117
1,410,000 Tennessee Valley Authority 8.25% 9/15/34 1,444,277
2,000,000 Texas Utilities Electric Co. 8.50% 8/1/24 2,174,260
1,000,000 Texas Utilities Electric Co. 8.75% 11/1/23 1,098,380
9,062,724
U.S. GOVERNMENT AGENCIES - 8.0%
819,336 GNMA 8.00% 8/15/24, Pool #392478X 852,110
800,575 GNMA 8.00% 8/15/24, Pool #394649X 832,597
342,741 GNMA 8.00% 3/15/22, Pool #318816 357,842
643,174 GNMA 8.50% 9/15/24, Pool #385902X 679,147
432,275 GNMA 8.50% 2/15/25, Pool #386672X 456,184
838,810 GNMA 8.50% 1/15/27, Pool #393235X 885,205
1,139,689 GNMA 8.50% 10/15/24, Pool #215821X 1,203,432
295,398 GNMA 9.00% 12/15/19, Pool #198566 319,765
517,529 GNMA 9.00% 1/15/20, Pool #202923 559,413
221,969 GNMA 9.00% 12/15/19, Pool #267601 240,279
86,317 GNMA 9.00% 3/15/21, Pool #299269 93,168
103,720 GNMA 9.00% 1/15/21, Pool #291873 111,951
63,812 GNMA 9.50% 5/15/19, Pool #271455 69,179
360,156 GNMA 9.50% 9/15/19, Pool #274141 390,449
39,469 GNMA 9.50% 6/15/20, Pool #290655 42,769
246,920 GNMA 10.00% 1/15/19, Pool #266987 272,854
275,969 GNMA 10.00% 3/15/20, Pool #285190 305,556
88,329 GNMA 10.00% 4/15/20, Pool #285618 97,799
141,715 GNMA 10.50% 4/15/19, Pool #262170 158,100
59,607 GNMA 10.50% 5/15/19, Pool #274947 66,498
7,994,297
TRUST PREFERRED - 4.3%
4,000,000 MBNA Capital 8.278% 12/1/26 4,248,360
CANADIAN - 1.9%
1,780,000 Hydro Quebec 13.25% 12/15/13 1,930,214
RESIDENTIAL SECURITIES - 0.0%
15,684 Residential Mortgages (first and second), Participation,
8.375% AverageYield, 2 Year Average Maturity,
Acquired 12/29/77 15,273
TOTAL INVESTMENTS (cost $91,391,678) 98.4% 94,707,695
OTHER ASSETS AND LIABILITIES (NET) 5.2 5,185,023
NET ASSETS 100.0% $ 99,892,718
</TABLE>
LEGEND OF PORTFOLIO ABBREVIATIONS:
GNMA Government National Mortgage Association
See Notes to Financial Statements
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
May 31, 1998
(unaudited)
<S> <C>
ASSETS
Investments at market value (identified cost - $91,391,678) $ 94,707,695
Cash 24,450
Receivable for investments sold 2,866,875
Interest receivable 2,366,641
Prepaid assets 10,782
Total assets 99,976,443
LIABILITIES
Advisory fee payable 57,921
Accrued expenses and other liabilities 25,804
Total liabilities 83,725
NET ASSETS $ 99,892,718
NET ASSETS REPRESENTED BY
Common stock, par value $.01 per share $ 67,010
Capital in excess of par value 95,103,885
Undistributed net investment income 1,202,174
Accumulated net realized gain on investments 203,632
Net unrealized appreciation on investments 3,316,017
Total Net Assets $ 99,892,718
SHARES OUTSTANDING 6,700,954
NET ASSET VALUE PER SHARE $ 14.91
</TABLE>
See Notes to Financial Statements
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
Six Months
ended
May 31, 1998
(unaudited)
<S> <C>
INVESTMENT INCOME
Interest $ 4,003,492
EXPENSES
Advisory fee 344,735
Directors' fees and expenses 39,823
Professional fees 21,521
Custodian fee 10,635
Other 100,792
Total expenses 517,506
NET INVESTMENT INCOME 3,485,986
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 201,292
Net change in unrealized appreciation (depreciation) on investments 565,197
Net realized and unrealized gain on investments 766,489
NET INCREASE IN NET ASSTES RESULTING FROM OPERATIONS $ 4,252,475
</TABLE>
See Notes to Financial Statements
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Six Months Year
ended ended
May 31,1998 November 30, 1997
(unaudited)
<S> <C> <C>
OPERATIONS
Net investment income $ 3,485,986 $ 7,141,867
Net realized gain on investments 201,292 360,307
Net change in unrealized
appreciation (depreciation)on investments 565,197 377,714
Net increase in net assets
resulting from operations 4,252,475 7,879,888
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net investment income (3,466,699) (7,141,867)
Net realized gain on investments (199,573) (61,898)
Total distributions (3,666,272) (7,203,765)
CAPITAL SHARE TRANSACTIONS
Net asset value of common shares
issued under the Automatic
Dividend Investment Plan 712,190 11,124
TOTAL INCREASE IN NET ASSETS 1,298,393 687,247
NET ASSTES
Beginning of period 98,594,325 97,907,078
End of period (Including
undistributed net investment
income of $1,202,174 and $1,182,887,
respectively) $ 99,892,718 $ 98,594,325
</TABLE>
See Notes to Financial Statements
<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 31,1998 Years ended November 30,
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Net asset value beginning of period $ 14.82 $ 14.72 $ 15.17 $ 13.58 $ 15.64 $ 14.93
Income from investment operations
Net investment income 0.52 1.07 1.08 1.09 1.09 1.14
Net realized and unrealized
gain (loss) on investments 0.12 0.11 (0.39) 1.63 (1.90) 0.72
Total from investment operations 0.64 1.18 0.69 2.72 (0.81) 1.86
Less distributions from
Net investment income (0.52) (1.07) (1.08) (1.08) (1.09) (1.14)
In excess of net investment income 0 (0.01) (0.01) 0 (0.01) (0.01)
Net realized gain on investments (0.03) 0 0 (0.05) (0.05) 0
In excess of net realized
gain on investments 0 0 (0.05) 0 (0.10) 0
Total distributions (0.55) (1.08) (1.14) (1.13) (1.25) (1.15)
Net asset value end of period $ 14.91 $ 14.82 $ 14.72 $ 15.17 $ 13.58 $ 15.64
Market value end of period $ 13.94 $ 14.06 $ 13.50 $ 13.625 $ 12.375 $ 15.50
Total Return
Based on market value (a) 2.90% 12.58% 7.69% 19.76% (12.91%) 18.25%
Based on net asset value (b) 4.42% 8.50% 4.91% 20.93% (6.39%) 12.86%
Ratios/supplemental data
Ratios to average net assets
Expenses 1.05%(c) 0.9% 0.9% 0.9% 0.9% 0.9%
Net investment income 7.06%(c) 7.4% 7.4% 7.6% 7.6% 7.4%
Portfolio turnover 20.92% 33.4% 47.4% 39.2% 24.6% 42.0%
Net assets end of period (in thousands) $ 99,893 $ 98,594 $ 97,907 $ 100,938 $ 90,333 $ 103,345
</TABLE>
(a) The market value total 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 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 shareholders investment in the Company based on market value due to
differences between the market price and the net asset value of the Company
during the period.
(c) Annualized
See Notes to Financial Statements
Vestaur Securities, Inc.
NOTES TO FINANCIAL STATEMENTS (unaudited)
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 primary investment objective of the Company is to
seek a high level of current income for its shareholders through investment
in a diversified portfolio of debt securities which management considers to
be of high quality, of which some may be privately placed and some may have
equity features.
The following is a summary of significant accounting policies. The policies
are in conformity with generally accepted accounting principles, which require
management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
(a) Valuation of Securities -
U.S. government obligations held by the Funds are valued at the mean
between the over-the-counter bid and asked prices. Corporate bonds,
other fixed-income securities, and mortgage and other asset-backed
securities are valued at prices provided by an independent pricing
service. In determining a price for normal institutional-size
transactions, the pricing service uses methods based on market
transactions for comparable securities and analysis of various
relationships between similar securities which are generally
recognized by institutional traders. Securities for which valuations
are not readily available from an independent pricing service
(including restricted securities) are valued at fair value as
determined in good faith according to procedures established by the
Board of Directors.
Short-term investments with remaining maturities of 60 days or less
are carried at amortized cost, which approximates market value.
(b) Security Transactions and Investment Income -
Securities transactions are accounted for no later than one business
day after the trade date. Realized gains and losses are computed on
the identified cost basis. Interest income is recorded on the
accrual basis.
(c) Federal Taxes -
The Company has qualified and intends to continue to qualify as a
regulated investment company under the Internal Revenue Code of 1986,
as amended (the "Code"). Thus, the Company will not incur any federal
income tax liability since it is expected to distribute all of its net
investment company taxable income and net capital gains, if any, to
its shareholders. The Company also intends to avoid any excise tax
liability by making the required distributions under the Code.
Accordingly, no provision for federal taxes is required. To the
extent that realized capital gains can be offset by capital loss
carryforwards, it is the Company's policy not to distribute such gains.
(d) Distributions -
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 (i) the per share net asset value, or (ii) 95% of
the market price per share as of the close of business on the last
trading day of the month in which the dividend or other distribution
is paid. Distributions from net realized capital gains, if any, are
paid at least annually.
Income and capital gains distributions to shareholders are determined
in accordance with income tax regulations, which may differ from
generally accepted accounting principles. The significant differences
between financial statement amounts available for distributions and
distributions made in accordance with income tax regulations are
primarily due to differing treatment of paydown gains and losses.
NOTE 2 - CAPITAL SHARE TRANSACTIONS
The Company has authorized capital of 10,000,000 shares of common stock with a
par value of $0.01 per share. For the six months ended May 31, 1998, the
Company issued 48,516 shares and for the year ended November 30, 1997, the
Company issued 762 shares.
NOTE 3 - SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) for the six months ended May 31, 1998 were $20,337,422
and $22,253,093, respectively.
NOTE 4 - INVESTMENT ADVISORY AGREEMENT
Prior to April 28, 1998, CoreStates Investment Advisers served as the
investment adviser to the Company. In return for providing investment
management and administrative services, the Company paid an advisory fee that
was paid monthly. The advisory fee was computed at an annual rate of 0.50%
of the average monthly net assets plus 2.50% of net investment income.
Effective April 28, 1998, CoreStates Bank N.A., a subsidiary of CoreStates
Financial Corp. and parent company of CoreStates Investment Advisers,
merged with and into First Union Corporation ("First Union"). As a result,
under a new investment advisory agreement between the Company and First
Union National Bank ("FUNB"), a subsidiary of First Union, FUNB became
the investment adviser. The terms and conditions of the new investment
advisory agreement with FUNB are unchanged.
Officers of the Funds and affiliated Directors receive no compensation
directly from the Funds.
<TABLE>
ADDITIONAL INFORMATION (unaudited)
On April 28, 1998 the Annual meeting of shareholders of the Company was
held to consider a number of proposals. On March 20, 1998, the record
date of the meeting, the Company had:
<CAPTION>
<S> <C>
Record Date Shares Outstanding 6,681,019
Shares represented at meeting 4,902,491
Percentage of record date shares represented at the meeting 73.38%
The votes recorded at the meeting, by proposal, were as follows:
PROPOSAL 1 - ELECTION OF DIRECTORS:
Shares voted "For" 4,832,189
Shares voted "Against" 0
Shares voted "Abstain" 70,302
PROPOSAL 2 - RATIFICATION OF AUDITORS:
Shares voted "For" 4,824,523
Shares voted "Against" 28,883
Shares voted "Abstain" 49,085
PROPOSAL 3 - APPROVAL OF INVESTMENT ADVISORY AGREEMENT:
Shares voted "For" 4,721,193
Shares voted "Against" 63,230
Shares voted "Abstain" 118,068
</TABLE>
VESTAUR SECURITIES, INC.
Centre Square West - Upper Mezz
P.O. Box 7558
Philadelphia, PA 19101-7558
CUSTODIAN
State Street Bank and Trust Company
Box 9021
Boston, MA 02205-9827
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.
