<PAGE>
SHEPMYERS INVESTMENT COMPANY
ANNUAL REPORT TO SHAREHOLDERS
December 31, 1995
P.O. Box 339
Hanover, Pennsylvania 17331
<PAGE>
SHEPMYERS INVESTMENT COMPANY
P.O. Box 339
Hanover, Pennsylvania 17331
February 8, 1996
To Our Shareholder:
We are pleased to send you the Annual Report reflecting the Company's financial
position for the year ended December 31, 1995.
Although the Federal Reserve raised the Discount Rate by one half of one percent
during the course of 1995, longer-term rates declined steadily throughout the
year. Bond investors were cheered by the Fed's ability to seemingly control
inflation by slowing the economy without inducing a recession. Additionally,
investors were finally able to exhibit optimism over meaningful progress on the
budget deficit. These factors combined to create the highest government bond
market returns since 1986. Municipal yields fell substantially during 1995 with
the yield on the Bond Buyer Index falling from 6.97% at the end of 1994 to only
5.44% by year-end. The portfolio's net asset value, which moves in the opposite
direction of interest rates, rose to $20.49 at December 31, 1995 from $19.81 on
December 31, 1994.
The portfolio continues to deliver a high-quality, diversified stream of income
to shareholders while maintaining a conservative 5.6 year average maturity.
Eighty-eight percent of the bonds currently held are rated at least "AA-" by
either Standard & Poor's or Moody's Investor's Services. The portfolio
represents diversification among issuers in 24 states, minimizing the risk
associated with economic events occurring in any one state or geographic region.
While the longest maturity is only 14 years, currently 73% of the bonds mature
within the next 8 years.
On behalf of the Board of Directors, I am pleased to report the declaration of
an extra dividend totaling $.42 per share from earnings generated by the Company
during 1995. This is payable March 1, 1996 to shareholders of record February
22, 1996. This brings the total distributions from 1995 earnings to $1.02.
To assist you in the preparation of your 1995 income tax returns, listed below
are certain tax attributes concerning the dividends paid to you during 1995.
1. All distributions to you during 1995 represented tax-exempt
interest dividends for federal income tax purposes.
2. For Pennsylvania residents, 35.63% of the federally tax-exempt
interest dividends should be considered Pennsylvania exempt-interest
dividends and are not subject to Pennsylvania Personal Income Tax in 1995.
We appreciate the confidence you have expressed in the Board and welcome your
questions
<PAGE>
and suggestions.
Sincerely,
s/ Paul E. Spears
Paul E. Spears
President and Chairman of the Board
<PAGE>
Shepmyers Investment Company
Statement of Assets and Liabilities
December 31, 1995
Assets
Investments at market value (cost $14,923,738) $15,636,649
Cash 1,000
Accrued interest receivable and other assets 252,810
-----------
Total assets 15,890,459
Liabilities
Dividends payable 115,236
Accrued liabilities 30,711
-----------
Total liabilities 145,947
-----------
Net assets at market, applicable to 768,238 outstanding common
shares, equivalent to $20.49 a share $15,744,512
===========
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Investments
December 31, 1995
<TABLE>
<CAPTION>
Principal Market
Amount Description Value
------ ----------- ------
<S> <C> <C>
Highway construction bonds--2.68%
$210,000 Kansas State Highway Bonds, Series 1985, 9.00%, due
7/1/96, callable 7/1/94 at 100 (MBIA) $ 215,481
200,000 Illinois Toll Highway Bonds, 6.35%, due 1/1/00,
callable 1/1/96 at 102 203,840
----------
Total highway construction bonds 419,321
Housing finance agency bonds--9.17%
150,000 New Jersey Housing and Mortgage Finance Authority,
4.80%, due 11/1/96 151,155
100,000 Connecticut State Housing Financial Authority, 6.60%,
due 11/15/96 102,250
190,000 Massachusetts Housing Finance Agency, 6.75%,
due 6/1/99, callable 12/1/96 at 102 198,550
140,000 Minnesota Housing Finance Agency, Single Family
Mortgage, 6.80%, due 1/1/99, callable 1/1/96 at 146,300
102
100,000 Oregon State Housing and Community Service
Department, Single Family Mortgage, 4.20%,
due 7/1/99 100,000
300,000 Virginia State Housing Authority, Series A, 7.15%,
due 7/1/99 314,250
400,000 Pennsylvania Housing Finance System, Single Family
Mortgage, Series S, 7.25%, due 10/1/03 422,000
----------
Total housing finance agency bonds 1,434,505
General obligation bonds--51.03%
350,000 Los Angeles County Certificates of Participation,
Multiple Cap Facilities, 5.50%, due 11/1/96 354,410
200,000 Connecticut State, Series A, 5.25%, due 3/15/97 203,880
200,000 Vermont Muni Bond Bank, 6.50%, due 12/1/97 209,040
200,000 Port Corpus Christi Authority, 4.40%, due 2/1/98 201,080
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Investments (continued)
December 31, 1995
Principal Market
Amount Description Value
------ ----------- ------
General obligation bonds--51.03% (continued)
$400,000 Pittsburgh, Pennsylvania, 6.875%, due 3/1/98,
callable 3/1/97 at 102 (FGIC) $ 419,640
175,000 Birmingham, Alabama, 7.00%, due 7/1/98 186,953
500,000 Pembroke Pines, Florida, Public Improvement Bond,
6.90%, due 10/1/98, callable 10/1/96 at 102 519,100
(AMBAC)
200,000 Dade County, Florida, Public Improvement, Series 1,
6.80%, due 7/1/99, callable 7/1/89 at 102.75 205,480
(MBIA)
300,000 New Hampshire, 6.50%, due 10/1/99, callable
4/1/99 at 102 324,060
300,000 Dauphin County Pennsylvania, 4.90%, due 3/15/00
(MBIA) 306,090
250,000 Wisconsin State, 6.40%, due 5/1/00, callable
5/1/98 at 101 268,200
640,000 Commonwealth of Pennsylvania, First Series, 6.60%,
due 6/1/01, callable 6/1/99 at 101.5 692,224
300,000 New Mexico State Severance, 5.20%, due 7/1/01,
callable 7/1/99 at 100 307,500
215,000 Utah State Municipal Finance Coop., Salt Lake,
6.90%, due 3/1/02 (LOC - Government
Revenue Pooled), callable 3/1/01 at 100 239,209
155,000 Cambria County Pennsylvania, 5.20%, due 8/15/02
(FGIC) 161,712
550,000 Maricopa County, Arizona, 6.80%, due 7/1/03,
callable 7/1/97 at 101 572,880
350,000 Erie County Pennsylvania, 4.90%, due 9/1/04
callable 9/1/98 at 100 354,095
500,000 Washington Suburban Sanitation District, Maryland
Water Supply, 6.80%, due 6/1/05, callable 6/1/01 561,650
at 102
<PAGE>
510,000 Indiana Bond Bank, Series A2, 6.75%, due 1/1/06,
callable 1/1/01 at 102 (LOC Sumitomo Bank 563,193
Ltd.)
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Investments (continued)
December 31, 1995
Principal Market
Amount Description Value
------ ----------- ------
General obligation bonds--51.03% (continued)
$200,000 Pleasant Valley Pennsylvania School District, 6.00%,
due 3/15/07, callable 3/15/00 at 100 (MBIA) $ 207,820
350,000 Montgomery County Pennsylvania, 5.20%,
due 10/15/07, callable 10/15/00 at 100 353,570
225,000 Wilkes-Barre, Pennsylvania School District, (Luzerne
County), 6.00%, due 4/1/08, callable 10/1/04 at
100 (FGIC) 241,965
200,000 Seneca Valley Pennsylvania School District, 5.50%,
due 2/15/09, callable 8/15/05 at 100 204,020
300,000 Haverford Township, Pennsylvania School District
(Delaware County), 6.00%, due 6/1/09, callable
6/1/04 at 100 (FGIC) 321,900
----------
Total general obligation bonds 7,979,671
Special obligation bonds--3.45%
225,000 Connecticut State Special Tax Obligation, 6.80%, due
10/1/97 235,665
300,000 Pennsylvania Intergovernmental Coop Authority,
Special Tax Revenue, Philadelphia Fund, 4.70%,
due 6/15/01 (FGIC) 304,320
-----------
Total special obligation bonds 539,985
Revenue bonds--28.81%
125,000 Commonwealth of PA Higher Education System
(University of Pittsburgh), 7.25%, due 6/1/96 126,725
250,000 Lancaster County, Pennsylvania, Solid Waste, 7.00%,
due 12/15/96 254,325
200,000 Harrisburg Authority, Dauphin County Lease
Revenue, 5.80%, due 6/1/97 204,960
150,000 Memphis-Shelby County Tennessee Airport
Authority, 4.25%, due 2/15/98 150,375
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Investments (continued)
December 31, 1995
Principal Market
Amount Description Value
------ ----------- ------
Revenue bonds--28.81% (continued)
$245,000 Kenton County Kentucky School District, Finance
Corporate School Building, 4.25%, due 7/1/98 $ 245,833
275,000 Fort Wayne, Indiana, Hospital Revenue Bond, 6.60%,
due 7/1/98, callable 7/1/96 at 102 283,250
500,000 Hillsborough County Florida Aviation Authority (Tampa
International Airport), 4.25%, due 10/1/98 501,950
300,000 West Chester Pennsylvania Area School District, 3.55%,
due 12/1/98 295,560
230,000 Intermountain Power Agency, Utah, 6.80%, due 7/1/02,
callable 1/1/97 at 102 239,223
300,000 Pennsylvania State Certificates of Participation, Lease
Revenue, 4.90%, due 7/1/02 (AMBAC) 305,970
250,000 Kane County Illinois Public Building, Elgin Community
College, 6.80%, due 12/1/02, callable 12/1/99 at 270,875
100
325,000 Knoxville, Tennessee Water Revenue, 6.70%, due
11/1/03, callable 11/1/97 at 102 342,712
350,000 District of Columbia, Georgetown University, 6.90%,
due 4/1/04, callable 4/1/99 at 102 379,365
450,000 Chester County Pennsylvania Health and Education
Authority (Main Line Health System), 4.90% due
5/15/04 450,000
175,000 State Public Schools Pennsylvania College Revenue
(Harrisburg Community), 5.10%, due 4/1/06 177,152
(MBIA)
250,000 Lancaster County Pennsylvania Vo-Tech School
Authority, 6.50%, due 2/15/07, callable 2/15/04 276,050
at 100
-----------
Total revenue bonds 4,504,325
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Investments (continued)
December 31, 1995
Principal Market
Amount Description Value
------ ----------- ------
Industrial revenue bonds--2.13%
$200,000 Montgomery County, Pennsylvania Redevelopment
Authority, Gwynedd--Oxford Project, 6.125%,
due 8/1/07, mandatory put 12/1/96 at 100 $ 202,500
130,000 Chester County Pennsylvania Industrial Development
Authority, Glenn Avenue Associates, 4.375%,
due 11/15/98 (Guaranteed by Provident Mutual 130,455
Life)
-----------
Total industrial revenue bonds 332,955
Short-term investments--at cost, approximating
market--2.73%
425,887 Muni Fund Portfolio of Municipal Funds for Temporary
Investment 425,887
-----------
Total short-term investments 425,887
-----------
Total investments--100% (cost $14,923,738) $15,636,649
===========
</TABLE>
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Statement of Operations
<TABLE>
<CAPTION>
Year ended December 31, 1995
<S> <C>
Investment income:
Interest $ 894,487
Expenses:
Investment advisory fees 25,000
Custodian fees 7,582
Transfer and dividend disbursing agent fees 3,292
Legal and professional fees 31,550
Officers' salaries and directors' fees 28,850
Capital stock tax 2,830
Clerical 2,500
Insurance 2,378
Miscellaneous 6,030
----------
110,012
----------
Net investment income 784,475
Realized and unrealized gain (loss) on investments:
Net realized loss from investment transactions (2,632)
Net unrealized appreciation of investments 518,238
----------
Net gain on investments 515,606
----------
Net increase in net assets resulting from operations $1,300,081
==========
</TABLE>
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year ended December 31
1995 1994
-----------------------------
<S> <C> <C>
Changes resulting from operations:
Net investment income $ 784,475 $ 772,557
Net realized loss from investment transactions (2,632) (10,261)
Net unrealized appreciation (depreciation) of
investments 518,238 (721,930)
----------- -----------
Net increase in net assets resulting from operations 1,300,081 40,366
Distributions to shareholders:
Dividends from net investment income (775,921) (812,832)
Distribution from net realized gain from
investment transactions - (1,500)
----------- -----------
Total increase (decrease) in net assets 524,160 (773,966)
Net assets:
Beginning of year 15,220,352 15,994,318
----------- -----------
End of year (including undistributed net
investment income of $321,168 and
$312,614, respectively) $15,744,512 $15,220,352
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Financial Highlights
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (for a share
outstanding throughout the indicated
year)
Net asset value, beginning of year $19.81 $20.82 $20.82 $20.65 $20.22
Income from investment operations:
Investment income 1.16 1.15 1.19 1.27 1.34
Expenses .14 .15 .14 .14 .14
------ ------ ------ ------ ------
Net investment income 1.02 1.00 1.05 1.13 1.20
Net realized and unrealized (loss) gain on
investments .67 (.95) .11 .26 .47
------ ------ ------ ------ ------
Total from investment operations 1.69 .05 1.16 1.39 1.67
Less distributions:
Dividends from net investment (1.01) (1.06) (1.13) (1.21) (1.22)
income
Distribution from net realized gain
from investment transactions - - (.03) (.01) (.02)
------ ------ ------ ------ ------
Total distributions (1.01) (1.06) (1.16) (1.22) (1.24)
------ ------ ------ ------ ------
Net asset value, end of year $20.49 $19.81 $20.82 $20.82 $20.65
====== ====== ====== ====== ======
Total return based on net asset value
per share (1) 8.58% .10% 5.57% 6.75% 8.31%
====== ====== ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in thousands) $15,745 $15,220 $15,994 $15,993 $15,862
Ratio of expenses to average net_assets .72% .73% .67% .66% .69%
Ratio of net investment income to average
net assets 5.10% 5.02% 5.14% 5.55% 6.02%
Portfolio turnover rate 11.00% 12.68% 14.92% 13.09% 14.09%
Number of shares outstanding at end of year 768,238 768,238 768,238 768,238 768,238
</TABLE>
<PAGE>
(1) Total return based on market price has not been disclosed due to lack
of market price information.
See accompanying notes.
<PAGE>
Shepmyers Investment Company
Notes to Financial Statements
December 31, 1995
1. Summary of Significant Accounting Policies
The Company is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management company and intends to meet the
requirements of a regulated investment company as defined under Subchapter M of
the Internal Revenue Code. The following is a summary of significant accounting
policies followed by the Company in the preparation of its financial statements.
The Company's investment objective is to seek as high a level of income and
capital gains, net of federal income tax as is consistent with the preservation
of capital. The Company will invest primarily in tax-exempt obligations, but may
also own taxable obligations, preferred stock (including convertible preferred
stocks), other fixed-income securities and common stocks (including warrants and
rights to purchase common stocks). The relative proportions of the types of the
Company's portfolio securities will vary from time to time but not less than 50%
of the portfolio will be invested in obligations issued by states, territories,
and possessions of the United States and the District of Columbia, and their
political subdivisions, duly constituted authorities and corporations, the
interest on which is exempt from federal income tax in the opinion of bond
counsel to the issuers.
Valuation of Investments
Investments are valued based on prices furnished by an independent pricing
service. This service determines the valuations based on valuations for normal
institutional size trading units of debt securities. In most instances, these
valuations represent the mean between the most recently quoted bid and ask
prices. In the event that market quotations are not readily available,
securities are valued at their fair value by the investment advisor under the
supervision and responsibility of the Company's Board of Directors. These
valuations are believed to accurately reflect the fair market value of such
securities.
Recording of Transactions
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Dividends and distributions to shareholders are recorded
on the declaration date.
<PAGE>
Shepmyers Investment Company
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Determination of Realized Gains or Losses from Investment Transactions
Realized gains or losses from investment transactions are calculated on the
identified cost basis.
Federal Income Tax
It is the Company's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its net investment income and realized net gain from
investment transactions to its shareholders and, accordingly, no provision has
been made for Federal income taxes.
Investment Income
The Company records interest income on the accrual basis. In computing net
investment income, the Company amortizes premium over the life of the security,
unless said premium is in excess of any call price, in which case the excess is
amortized to the earliest call date. Original issue discount is accreted over
the life of the security.
2. Dividends
On October 9, 1995, the Board of Directors declared a cash dividend from net
investment income of $.15 per share, payable January 2, 1996, to shareholders of
record on December 1, 1995.
3. Investment Advisory Fee and Other Transactions With Affiliates
The Investment Advisory Agreement provides that the Company will pay to the
Investment Advisor, as compensation for services provided, a fee at an annual
rate of $25,000. At December 31, 1995, $6,250 is payable.
An officer of the Company is a partner in a law firm that provides legal
services to the Company. Fees to the firm for legal services aggregated $17,000
in 1994, of which $4,250 is payable at December 31, 1995.
<PAGE>
Shepmyers Investment Company
Notes to Financial Statements (continued)
3. Investment Advisory Fee and Other Transactions With Affiliates (continued)
The Board of Directors has resolved that each director be paid $250 per meeting
attended plus an annual fee of $600, and that the Chairman of the Board be paid
an annual consulting fee of $15,000 and other officers an annual salary of $100
as compensation for their services. Directors and officers are reimbursed by the
Company for out-of-pocket expenses incurred in attending meetings of the Board
of Directors.
4. Cost, Purchases, and Sales of Security Investments
Cost of purchases and proceeds from sales and maturities of investment
securities, other than short-term investments, aggregated $1,663,049 and
$1,932,291, respectively, during the year ended December 31, 1995.
At December 31, 1995, the cost of investment securities owned is the same for
financial reporting and federal income tax purposes. Net unrealized appreciation
of investment securities is $712,911 (aggregate gross unrealized appreciation of
$717,351 less aggregate gross unrealized depreciation of $(4,440)).
5. Components of Net Assets
The components of net assets at December 31, 1995, are as follows:
Common stock--par value $.50 per share, 768,238
shares issued and outstanding, (2,000,000 shares
authorized); and capital paid-in $14,723,326
Undistributed net investment income 321,168
Undistributed net capital losses (12,893)
Net unrealized appreciation of investments 712,911
-----------
Net assets $15,744,512
===========
<PAGE>
Shepmyers Investment Company
Notes to Financial Statements (continued)
6. Proxy to Shareholders
An annual meeting of the shareholders of the Fund was held on April 28, 1995, at
which time the shareholders approved the directors, the Advisor, and Independent
Auditors. The tabulation was as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Directors:
P. E. Spears 711,900 3,550 0
G. P. King 711,900 3,550 0
L. S. Devan 703,410 12,040 0
J. M. Fuss 711,900 3,550 0
R. E. Lemmon, Jr. 711,900 3,550 0
R. P. Myers 711,900 3,550 0
P. F. Spears 711,900 3,550 0
J. F. Thompson III 711,900 3,550 0
C. D. Weber 711,900 3,550 0
Advisor: 713,247 0 2,203
Rittenhouse, Inc.
Independent Auditor:
Ernst & Young LLP 713,207 0 2,243
</TABLE>
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Shepmyers Investment Company
We have audited the accompanying statement of assets and liabilities of
Shepmyers Investment Company, including the schedule of investments, as of
December 31, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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 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 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 as of
December 31, 1995, by correspondence with the custodian and broker. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Shepmyers Investment Company as of December 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
January 17, 1996
<PAGE>
CORPORATE DIRECTORY
DIRECTORS AND OFFICERS
P.E. Spears*
President and Chairman of the Board
G.P. King*
Vice President & Treasurer
W.B. McConnel, III
Secretary
L.S. DeVan*
J.M. Fuss*
R.E. Lemmon, Jr.*
R.P. Myers*
P.F. Spears*
J.F. Thompson, III*
C.D. Weber*
*Director
AUDITOR
Ernst & Young LLP
Reading, Pennsylvania
COUNSEL
Drinker Biddle & Reath
Philadelphia, Pennsylvania
INVESTMENT ADVISOR
Rittenhouse Financial Services, Inc.
Radnor, Pennsylvania
CUSTODIAN, TRANSFER AGENT, REGISTRAR & DIVIDEND DISBURSING AGENT
Investors Trust Company
Wyomissing, Pennsylvania
