<PAGE> 1
THE FINANCE COMPANY OF PENNSYLVANIA
FOUNDED 1871
[LOGO]
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE> 2
THE FINANCE COMPANY OF PENNSYLVANIA
226 WALNUT STREET
PHILADELPHIA, PA 19106
BOARD OF DIRECTORS
Charles E. Mather III
<TABLE>
<S> <C>
Shaun F. O'Malley Jonathan D. Scott
Herbert S. Riband, Jr. Frank A. Wood, Jr.
</TABLE>
OFFICERS
Charles E. Mather III, President
Frank A. Wood, Jr., Secretary-Treasurer
Doranne H. Case, Asst. Secretary-Treasurer
Mary Ellen Christ, Assistant Secretary
<PAGE> 3
THE FINANCE COMPANY OF PENNSYLVANIA
226 WALNUT STREET
PHILADELPHIA, PA 19106
February 10, 1997
TO OUR SHAREHOLDERS:
We are pleased to submit your Company's one hundred and twenty-fifth Annual
Report.
The following is a summary of financial information for the years 1992 to
1996:
<TABLE>
<CAPTION>
NET DIVIDENDS PAID DEC. 31
INVESTMENT ------------------ NET ASSET
YEAR INCOME REGULAR EXTRA* VALUE
- ----- ---------- ------- ------ ---------
<S> <C> <C> <C> <C>
1992 20.90 10.75 10.14 633.16
1993 22.14 11.00 11.09 646.40
1994 23.05 11.00 11.99 568.74
1995 24.80 11.00 15.73 736.90
1996 25.65 11.00 14.67 827.81
</TABLE>
As a Regulated Investment Company, the Company is required to pay to its
shareholders at least 98% of its ordinary income for the calendar year 1996 or
pay a 4% non-deductible Federal Excise Tax on its undistributed ordinary income.
Your Board of Directors has elected to distribute 100% of the ordinary income.
On January 31, 1997, the Company paid to the Shareholders of record on
December 31, 1996, the regular quarterly dividend of $2.75 and an extra dividend
of $14.67, making a total dividend of $17.42 per share. The tax law also
requires that the final dividend, although paid in 1997, is taxable to the
shareholders in 1996. In addition to this dividend, in 1996 the Company paid to
the shareholders three regular dividends of $2.75 on March 29, June 28 and
September 30, for a total of $11.00 in regular dividends.
Common stocks constitute 80.19% of the portfolio of investments at market
on December 31, 1996, compared with 78.87% one year earlier.
Our Investment Adviser, Cooke & Bieler, Inc., is present at each of our
Board Meetings and is available for consultation throughout the year.
The board and staff of THE FINANCE COMPANY OF PENNSYLVANIA thank you for
your loyalty to our company as we face the challenges and opportunities of 1997.
/s/ CHARLES E. MATHER III
Charles E. Mather III, President
*Includes short term capital gain of $1.97 in 1995 and $.27 in 1996.
<PAGE> 4
[Deloitte & Touche LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of The Finance Company of Pennsylvania:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of The Finance Company of Pennsylvania as
of December 31, 1996, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended December 31,
1996 and 1995, and the condensed financial information for each of the years in
the five-year period ended December 31, 1996. These financial statements and the
condensed financial information are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the condensed financial information 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 condensed
financial information are free of material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned at December 31, 1996 by correspondence with the custodian. 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 condensed financial
information present fairly, in all material respects, the financial position of
The Finance Company of Pennsylvania at December 31, 1996, the results of its
operations, the changes in its net assets, and the condensed financial
information for the respective stated periods in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
January 24, 1997
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
INVESTMENTS-AT MARKET OR FAIR VALUE (NOTE 1):
U.S. TREASURY NOTES (IDENTIFIED COST
$4,413,663)................................... $ 4,555,796
MUTUAL FUNDS & OTHER SHORT-TERM INVESTMENTS
(IDENTIFIED COST $5,194,124)............... 5,188,167
COMMON STOCKS (IDENTIFIED COST $8,770,422)
INCLUDING AFFILIATE (NOTE 2)............... 39,425,873
-----------
TOTAL INVESTMENTS..................... 49,169,836
CASH.................................................. 17,224
ACCRUED INTEREST AND DIVIDENDS RECEIVABLE............. 237,305
PREPAID EXPENSES...................................... 17,270
OTHER ASSETS.......................................... 2,250
-----------
TOTAL................................. 49,443,885
-----------
LIABILITIES
DIVIDENDS PAYABLE (NOTE 6)............................ 1,010,399
ACCRUED EXPENSES AND TAXES (NOTE 1)................... 663,200
-----------
TOTAL................................. 1,673,599
-----------
NET ASSETS
NET ASSETS (WITH INVESTMENTS AT MARKET OR FAIR VALUE)
EQUIVALENT TO $827.81 PER SHARE ON 57,707 SHARES
OF $10 PAR VALUE CAPITAL STOCK OUTSTANDING AT
DECEMBER 31, 1996 (AUTHORIZED 232,000 SHARES).... $47,770,286
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE> 6
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
U.S. TREASURY OBLIGATIONS -- 9.27%
<TABLE>
<CAPTION>
Aggregate
Quoted
Principal Identified Market Price
Amount Cost (Note 1)
- --------- ---------- ------------
<C> <S> <C> <C>
1,000,000 U.S. TREASURY NOTES 9 1/4% DUE
8/15/98.................... $1,000,079 $ 1,050,312
900,000 U.S. TREASURY NOTES 8 7/8% DUE
2/15/99.................... 900,705 952,031
700,000 U.S. TREASURY NOTES 7 3/4% DUE
1/31/00.................... 699,296 732,594
1,000,000 U.S. TREASURY NOTES 7 7/8% DUE
8/15/01.................... 1,052,670 1,065,937
750,000 U.S. TREASURY NOTES 6 3/8% DUE
8/15/02.................... 760,913 754,922
---------- -----------
TOTAL................... 4,413,663 4,555,796
---------- -----------
</TABLE>
MUTUAL FUNDS AND OTHER SHORT-TERM
SECURITIES -- 10.55%
<TABLE>
<CAPTION>
Face Value/
Principal Amount
- --------------------------
<C> <S> <C> <C>
10,000 TREASURY TRUST FUND............. 10,000 10,000
1,972,470 FEDERAL TRUST FUND.............. 1,972,470 1,972,470
2,212,291 FED FUND........................ 2,212,291 2,212,291
500,000 U.S. TREASURY BILL 5.09% DUE
1/9/97..................... 499,391 493,250
500,000 U.S. TREASURY NOTES 8% DUE
1/15/97.................... 499,972 500,156
---------- -----------
TOTAL................... 5,194,124 5,188,167
---------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 7
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
COMMON STOCKS -- 80.18%
<TABLE>
<CAPTION>
Aggregate
Quoted
Number Identified Market Price
of Shares Cost (Note 1)
- --------- ---------- ------------
<C> <S> <C>
PETROLEUM AND MINING -- 7.10%
16,000 EXXON CORP...................... $ 91,444 $ 1,568,000
10,000 MOBIL CORP. .................... 62,715 1,222,500
15,000 PENN VIRGINIA CORP. ............ 22,382 701,250
---------- -----------
TOTAL.................. 176,541 3,491,750
---------- -----------
BANKING, INSURANCE AND FINANCIAL
HOLDING COMPANIES -- 40.62%
9,500 MARSH & MCLENNAN, INC. ......... $ 522,710 988,000
484,000 PNC BANK CORP. ................. 292,417 18,210,500
12,000 STATE STREET BOSTON CORP. ...... 376,689 775,500
---------- -----------
TOTAL.................. 1,191,816 19,974,000
---------- -----------
MANUFACTURING AND DIVERSIFIED -- 19.89%
16,000 AMP, INC. ...................... 422,130 614,000
2,500 BOEING CO. ..................... 93,363 266,250
21,000 CORNING INC. ................... 631,845 971,250
14,500 DOVER CORP. .................... 261,750 732,250
6,000 DOW CHEMICAL CO. ............... 116,338 470,250
6,000 EMERSON ELECTRIC................ 181,980 581,250
19,000 GENUINE PARTS CO. .............. 469,072 845,500
3,500 INT'L BUSINESS MACHINE.......... 363,995 530,250
8,000 INT'L FLAVORS & FRAGRANCES...... 327,606 360,000
10,000 MINNESOTA MINING & MFG. CO. .... 170,764 830,000
10,000 MOTOROLA ....................... 516,200 612,500
21,500 READERS DIGEST A................ 882,941 865,375
15,000 RUBBERMAID INC. ................ 361,425 339,375
15,000 SHERWIN WILLIAMS CO. ........... 481,800 840,000
11,000 UNION CAMP CORP. ............... 386,515 525,250
7,500 XEROX CORP. .................... 351,150 394,688
-------------------------------- ---------- -----------
TOTAL.................. 6,018,874 9,778,188
-------------------------------- ---------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 8
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
COMMON STOCKS -- CONCLUDED
<TABLE>
<CAPTION>
Aggregate
Quoted
Number Identified Market Price
of Shares Cost (Note 1)
- --------- ----------- ------------
<C> <S> <C>
DRUGS AND PHARMACEUTICALS -- 5.60%
9,000 BRISTOL-MYERS SQUIBB CO. ...... $ 506,137 $ 981,000
8,000 JOHNSON & JOHNSON.............. 88,070 398,000
7,500 MERCK & CO. ................... 168,925 597,188
12,000 SCHERING-PLOUGH................ 342,795 777,000
----------- -----------
TOTAL................. 1,105,927 2,753,188
----------- -----------
COMMUNICATIONS -- 1.32%
10,000 BELL ATLANTIC CORP. ........... 178,287 647,500
----------- -----------
FOOD/RETAIL MERCHANDISING -- 2.46%
23,000 COCA-COLA CO. ................. 27,578 1,210,375
----------- -----------
DIVERSIFIED HOLDING -- 3.19%
732 PENNSYLVANIA WAREHOUSING AND
SAFE DEPOSIT COMPANY (NOTE
2)........................ 71,399 1,570,872
----------- -----------
TOTAL COMMON STOCKS... 8,770,422 39,425,873
----------- -----------
TOTAL INVESTMENTS..... $18,378,209 $49,169,836
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 9
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
INCOME:
DIVIDENDS (INCLUDING DIVIDENDS FROM
AFFILIATE -- NOTE 2)..................... $1,463,075
INTEREST...................................... 390,497
----------
TOTAL.................................... 1,853,572
EXPENSES:
COMPENSATION.................... $ 103,125
TAXES OTHER THAN INCOME TAXES... 22,105
DIRECTORS' FEES (NOTE 5)........ 41,150
INVESTMENT ADVISORY FEES (NOTE
5)............................ 100,026
LEGAL........................... 6,375
AUDITING & ACCOUNTING........... 46,980
CUSTODIAN....................... 14,252
INSURANCE....................... 20,296
OTHER OFFICE AND
ADMINISTRATIVE................ 28,640
-----------
TOTAL.................................... 382,949
----------
NET INVESTMENT INCOME............................... 1,470,623
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTE 3):
REALIZED GAIN FROM SECURITY
TRANSACTIONS
(EXCLUDING SHORT-TERM
INVESTMENTS):
PROCEEDS FROM SALES............. $ 3,675,509
COST OF SECURITIES SOLD......... 1,852,207
-----------
NET REALIZED GAIN........................ 1,823,302
UNREALIZED APPRECIATION OF
INVESTMENTS:
AT JANUARY 1, 1996.............. 26,719,524
AT DECEMBER 31, 1996............ 30,791,626
-----------
INCREASE IN NET UNREALIZED APPRECIATION............. 4,072,102
----------
NET GAIN ON INVESTMENTS.................................. 7,366,027
CAPITAL GAINS TAX PAYABLE ON BEHALF OF SHAREHOLDERS
(NOTE 1)............................................... (631,197)
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..... $6,734,830
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
NET INVESTMENT INCOME................ $ 1,470,623 $ 1,455,706
NET REALIZED GAIN ON INVESTMENTS..... 1,823,302 1,559,359
INCREASE IN NET UNREALIZED
APPRECIATION ON INVESTMENTS....... 4,072,102 8,942,162
CAPITAL GAINS TAX PAYABLE ON BEHALF
OF SHAREHOLDERS (NOTE 1).......... (631,197) (499,377)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................... 6,734,830 11,457,850
UNDISTRIBUTED INVESTMENT INCOME
INCLUDED IN PRICE OF SHARES
REDEEMED.......................... (2,860) (14,095)
REALIZED GAIN FROM SECURITY
TRANSACTIONS INCLUDED IN PRICE OF
SHARES REDEEMED................... (4,509) (18,569)
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME................. (1,482,730) (1,555,512)
CAPITAL SHARE TRANSACTIONS:
(EXCLUSIVE OF AMOUNTS ALLOCATED TO
INVESTMENT INCOME AND NET REALIZED
GAIN FROM SECURITY TRANSACTIONS)
(NOTE 1):
COST OF SHARES OF CAPITAL STOCK
REDEEMED..................... (181,342) (855,906)
----------- -----------
TOTAL INCREASE IN NET ASSETS......... 5,063,389 9,013,768
NET ASSETS:
BEGINNING OF YEAR.................... 42,706,897 33,693,128
----------- -----------
END OF YEAR [INCLUDING UNDISTRIBUTED
NET INVESTMENT LOSS OF ($269,130)
AND ($269,069) RESPECTIVELY]...... $47,770,286 $42,706,896
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES
The Company is registered under the Investment Company Act of 1940, as
amended, as a regulated open-end investment company. On April 21, 1964, the
stockholders approved amendments to the Articles of Incorporation whereby, since
that date, the Company has held itself ready to redeem any of its outstanding
shares at net asset value. Net asset value for redemptions is determined at the
close of business on the day of formal tender of shares or the next day on which
the New York Stock Exchange is open. Transactions in capital stock were as
follows:
<TABLE>
<CAPTION>
Number Aggregate
of Shares amount
--------- ---------
<S> <C> <C>
Shares redeemed:
Year Ended December 31, 1996............. 248 $188,711
Year Ended December 31, 1995............. 1,287 $888,570
</TABLE>
The following is a summary of significant accounting policies consistently
followed by the Company in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
Portfolio Valuation
Investments are valued using published bid quotes as of December 31, 1996.
Costs used to determine realized gain or loss from securities transactions are
those of the specific securities sold. Investments in non-marketable securities
are valued at fair value as determined by the Board of Directors (see Note 2).
Federal Income Taxes
No provision has been made for Federal income taxes other than capital
gains tax because the Company has elected to be taxed as a regulated investment
company meeting certain requirements of the Internal Revenue Code. As such, the
Company is paying the applicable Federal capital gains tax for shareholders and
retaining the net balance for reinvestment, except to the extent that such gains
are considered to have been distributed to redeeming shareholders.
8
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. The Company's financial statements include amounts that are based on
management's best estimates and judgments. Actual results could differ from
those estimates.
Other
As is common in the industry, security transactions are accounted for on
the trade date. Dividend income and distributions to shareholders are recorded
on the ex-dividend date.
2. NON-MARKETABLE SECURITY OF AFFILIATE
There is no ready market for the below listed security. Fair value is
established by the Board of Directors of The Finance Company of Pennsylvania.
The Pennsylvania Warehousing and Safe Deposit Company is defined as an
affiliate under the Investment Company Act of 1940 in that the Company owns 5%
or more of the outstanding voting securities of such company. Further, if at the
time of public sale of any of these shares the Company would be deemed a
"control person," it would be necessary to register said shares under the
Securities Act of 1933 prior to their sale.
<TABLE>
<CAPTION>
For the
year ended
December 31, 1996 December 31,
------------------------------------- 1996
Percent Identified Fair Dividend
Shares Owned Cost Value Income
- ------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
732 Pennsylvania
Warehousing
and Safe
Deposit
Company 16.92% $71,399 $1,570,872 $82,716
======= ======= ========== =======
</TABLE>
9
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of securities purchased, the proceeds from sales and
maturities of investments, and the cost of securities sold (excluding U.S.
Government short-term securities) for the year ended December 31, 1996 were:
<TABLE>
<CAPTION>
Historical Cost of
Cost of Proceeds from Securities
Investments Sales and Sold and
Purchased Maturities Matured
----------- ------------- -------------
<S> <C> <C> <C>
Common stocks................ $2,116,888 $3,675,509 $1,852,207
Mutual funds and other short-
term securities............ 4,715,863 4,109,693 4,109,693
---------- ---------- ----------
Total................... $6,832,751 $7,785,202 $5,961,900
========== ========== ==========
</TABLE>
4. LEASE
The Company rents office space under a lease expiring in April 1997. The
lessor Company's President also serves on the Board of Directors of the Company.
Minimum annual rental for this space is $5,100.
5. OTHER INFORMATION FOR THE YEAR ENDED
DECEMBER 31, 1996
Directors of the Company, who are not also employees, are paid a fee for
attendance at meetings of the Board of Directors and its committees.
Compensation of officers amounted to $103,125.
Investment advisory fees payable monthly to Cooke & Bieler, Inc., are based
on the monthly closing portfolio value, less the value of certain investments at
an annual rate of .5 of 1%.
6. SUBSEQUENT EVENT
A dividend from net investment income of $1,005,256 was declared on
December 11, 1996 payable at $17.42 per share on January 31, 1997 to
shareholders of record on December 31, 1996.
10
<PAGE> 14
CONDENSED FINANCIAL INFORMATION
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992
---------------------------------------------------
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income........... $ 32.33 $ 30.77 $ 28.64 $ 27.52 $ 26.48
Expenses.................... 6.68 5.97 5.59 5.38 5.58
------- ------- ------- ------- -------
Net investment income....... 25.65 24.80 23.05 22.14 20.90
Dividends from net
investment
income.................... (25.67) (26.73) (22.99) (22.09) (20.89)
Net realized gain (loss) and
increase (decrease) in
unrealized appreciation... 90.93 170.09 (77.72) 13.19 35.21
------- ------- ------- ------- -------
Net increase (decrease) in
net asset value........... 90.91 168.16 (77.66) 13.24 35.22
Net asset value:
Beginning of year......... 736.90 568.74 646.40 633.16 597.94
------- ------- ------- ------- -------
End of year............... $827.81 $736.90 $568.74 $646.40 $633.16
======= ======= ======= ======= =======
Annual ratio of expenses to
average net assets........ 0.86% 0.89% 0.89% 0.81% 0.91%
Annual ratio of net
investment income to
average net assets........ 3.32% 3.72% 3.68% 3.34% 3.40%
Annual portfolio turnover
rate...................... 5.29% 4.67% 9.17% 9.16% 7.65%
Number of shares outstanding
at end of period
(in thousands)............ 58 58 .59 60 61
</TABLE>
See Notes to Financial Statements
11
<PAGE> 15
CHANGES IN THE PORTFOLIO OF INVESTMENTS
(EXCLUSIVE OF SHORT-TERM INVESTMENTS)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
PURCHASES
<TABLE>
<CAPTION>
Changes Balance
During December 31,
the Period 1996
---------- ------------
Number of Shares
--------------------------
<S> <C> <C>
AMP Inc.................................. 6,000 16,000
Int'l Business Machines.................. 1,000 3,500
Motorola................................. 6,000 10,000
Readers Digest A......................... 3,000 21,500
Rubbermaid............................... 15,000 15,000
Xerox Corp. ............................. 7,500 7,500
</TABLE>
SALES
<TABLE>
<CAPTION>
Number of Shares
--------------------------
<S> <C> <C>
American Greetings....................... 20,000 -0-
Avery Dennison Corp. .................... 5,000 -0-
Boeing Co. .............................. 1,000 2,500
Coca Cola................................ 5,000 23,000
Dun & Bradstreet......................... 11,000 -0-
Imation.................................. 1,000 -0-
State Street Boston Corp. ............... 4,000 12,000
</TABLE>
12
