<PAGE> 1
THE FINANCE COMPANY OF PENNSYLVANIA
FOUNDED 1871
LOGO
SEMI-ANNUAL REPORT
JUNE 30, 1998
<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
August 3, 1998
TO OUR SHAREHOLDERS:
The Semi-annual Report of your Company is enclosed. In the first half of
1998, the Company continued to do well in what some view as an irrational,
exuberant market. Understanding this market's unpredictability, your Company
will remain vigilant.
At the Annual Meeting April 15, 1998, Frank A. Wood, Jr. and Herbert S.
Riband, Jr. were re-elected Directors for three-year terms. Deloitte & Touche
LLP were reappointed as our independent auditors and Cooke & Bieler, Inc.
remains as our investment adviser.
I thank the Board and Officers of your Company for their advice and
assistance, and you, our shareholders, for your continued faith in our Company.
/s/ Charles E. Mather III
Charles E. Mather III, President
<PAGE> 4
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
INVESTMENTS-AT MARKET VALUE (NOTE 1):
U.S. TREASURY NOTES (IDENTIFIED COST
$3,490,037)................................... $ 3,589,562
MUTUAL FUNDS & OTHER SHORT-TERM INVESTMENTS
(IDENTIFIED COST $5,754,678)............... 5,785,136
COMMON STOCKS (IDENTIFIED COST $11,300,194)
INCLUDING AFFILIATE (NOTE 2)............... 50,623,984
-----------
TOTAL INVESTMENTS..................... 59,998,682
CASH.................................................. 13,217
ACCRUED INTEREST AND DIVIDENDS RECEIVABLE............. 201,417
PREPAID TAXES AND EXPENSES............................ 6,704
OTHER ASSETS.......................................... 900
-----------
TOTAL................................. 60,220,920
-----------
LIABILITIES
ACCRUED EXPENSES AND TAXES............................ 1,421
-----------
NET ASSETS
NET ASSETS (WITH INVESTMENTS AT MARKET VALUE)
EQUIVALENT TO $1,075.62 PER SHARE ON 55,986
SHARES OF $10 PAR VALUE CAPITAL STOCK OUTSTANDING
AT JUNE 30, 1998 (AUTHORIZED 232,000 SHARES)..... $60,219,499
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE> 5
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
U.S. TREASURY OBLIGATIONS -- 5.98%
<TABLE>
<CAPTION>
Aggregate
Quoted
Principal Identified Market Price
Amount Cost (Note 1)
- --------------------- ---------- ------------
<C> <S> <C> <C>
700,000 U.S. TREASURY NOTES 7 3/4% DUE
1/31/00.................... $ 699,637 $ 723,625
500,000 U.S. TREASURY NOTES 5 3/8% DUE
6/30/00.................... 498,926 499,062
1,000,000 U.S. TREASURY NOTES 7 7/8% DUE
8/15/01.................... 1,035,623 1,067,500
750,000 U.S. TREASURY NOTES 6 3/8% DUE
8/15/02.................... 758,011 772,500
500,000 U.S. TREASURY NOTES 6 1/2% DUE
5/15/05.................... 497,840 526,875
---------- ----------
TOTAL GOVERNMENT SECURITIES..... 3,490,037 3,589,562
---------- ----------
MUTUAL FUNDS AND OTHER SHORT-TERM
SECURITIES -- 9.64%
</TABLE>
<TABLE>
<CAPTION>
Face Value/
Principal Amount
- --------------------------------------------------------
<C> <S> <C> <C>
1,000,000 U.S. TREASURY NOTES 9 1/4%
DUE 8/15/98................ 1,000,006 1,008,750
900,000 U.S. TREASURY NOTES 8 7/8%...... 900,209 920,813
500,000 U.S. TREASURY BILLS............. 494,121 493,697
400,000 U.S. TREASURY BILLS............. 390,521 392,055
26,087 TREASURY TRUST FUND............. 26,087 26,087
312,864 FEDERAL TRUST FUND.............. 312,864 312,864
2,630,870 FED FUND........................ 2,630,870 2,630,870
---------- ----------
TOTAL........................... 5,754,678 5,785,136
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 6
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
COMMON STOCKS -- 84.38%
<TABLE>
<CAPTION>
Aggregate
Quoted
Number Identified Market Price
of Shares Cost (Note 1)
- --------------------- ---------- ------------
<C> <S> <C> <C>
PETROLEUM AND MINING -- 7.66%
32,000 EXXON CORP...................... $ 91,444 $ 2,284,000
20,000 MOBIL CORP. .................... 62,715 1,532,500
30,000 PENN VIRGINIA CORP. ............ 22,382 776,250
---------- -----------
TOTAL........................... 176,541 4,592,750
---------- -----------
BANKING, INSURANCE AND FINANCIAL
HOLDING COMPANIES -- 41.79%
16,500 MARSH & MCLENNAN, INC. ......... 428,861 997,219
434,000 PNC BANK CORP. ................. 262,209 23,381,750
10,000 STATE STREET CORP. ............. 152,542 695,000
---------- -----------
TOTAL........................... 843,612 25,073,969
---------- -----------
MANUFACTURING AND DIVERSIFIED -- 19.41%
19,000 AMP, INC. ...................... 545,903 653,125
12,000 BOEING CO. ..................... 426,205 534,750
23,000 CORNING INC. ................... 662,567 799,250
29,000 DOVER CORP. .................... 261,750 993,250
6,000 DOW CHEMICAL CO. ............... 116,337 580,125
12,000 EMERSON ELECTRIC................ 181,980 724,500
10,000 FLUOR CORP. .................... 390,750 510,000
28,500 GENUINE PARTS CO. .............. 469,072 985,031
15,000 HASBRO INC. .................... 422,456 589,688
7,000 INT'L BUSINESS MACHINES......... 363,995 803,687
8,000 INT'L FLAVORS & FRAGRANCES...... 327,606 347,500
10,000 MINNESOTA MINING & MFG. CO. .... 170,764 821,875
12,000 MOTOROLA ....................... 634,630 630,750
25,000 PALL CORP. ..................... 579,250 512,500
20,000 RUBBERMAID INC. ................ 474,275 660,000
30,000 SHERWIN WILLIAMS CO. ........... 481,800 993,750
5,000 XEROX CORP. .................... 234,100 508,125
---------- -----------
TOTAL........................... 6,743,440 11,647,906
---------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 7
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
COMMON STOCKS -- CONCLUDED
<TABLE>
<CAPTION>
Aggregate
Quoted
Number Identified Market Price
of Shares Cost (Note 1)
- --------------------- ----------- ------------
<C> <S> <C> <C>
DRUGS AND PHARMACEUTICALS -- 2.66%
8,000 JOHNSON & JOHNSON.............. $ 88,070 $ 592,000
7,500 MERCK & CO. ................... 168,925 1,003,125
----------- -----------
TOTAL.......................... 256,995 1,595,125
----------- -----------
COMMUNICATIONS -- 1.52%
20,000 BELL ATLANTIC CORP. ........... 178,287 912,500
----------- -----------
FOOD/RETAIL MERCHANDISING -- 2.85%
20,000 COCA-COLA CO. ................. 23,981 1,710,000
----------- -----------
INTERNATIONAL FUNDS -- 3.57%
80,496 SCUDDER INT'L EQUITY INV.
TR. ...................... 2,005,939 2,141,190
----------- -----------
SMALL CAP FUNDS -- 1.62%
69,881 KALMAR SMALL CAP FUND.......... 1,000,000 974,144
----------- -----------
DIVERSIFIED HOLDING -- 3.30%
732 PENNSYLVANIA WAREHOUSING AND
SAFE DEPOSIT COMPANY (NOTE
2)........................ 71,399 1,976,400
----------- -----------
TOTAL COMMON STOCKS............ 11,300,194 50,623,984
----------- -----------
TOTAL INVESTMENTS.............. $20,544,909 $59,998,682
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 8
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
DIVIDENDS (INCLUDING DIVIDENDS FROM
AFFILIATE -- NOTE 2)................... $ 733,324
INTEREST.................................... 192,844
-----------
TOTAL.................................. 926,168
EXPENSES:
COMPENSATION................... $ 47,850
TAXES OTHER THAN INCOME
TAXES........................ 12,150
DIRECTORS' FEES (NOTE 5)....... 25,800
INVESTMENT ADVISORY FEES (NOTE
5)........................... 61,965
LEGAL.......................... 3,600
AUDITING & ACCOUNTING.......... 24,875
CUSTODIAN...................... 8,168
OTHER OFFICE AND
ADMINISTRATIVE............... 29,206
-----------
TOTAL.................................. 213,614
-----------
NET INVESTMENT INCOME............................. 712,554
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3):
REALIZED GAIN FROM SECURITY
TRANSACTIONS
(EXCLUDING SHORT-TERM
INVESTMENTS):
PROCEEDS FROM SALES............ $ 4,047,115
COST OF SECURITIES SOLD........ 720,625
-----------
NET REALIZED GAIN...................... 3,326,490
UNREALIZED APPRECIATION OF
INVESTMENTS:
AT JANUARY 1, 1998............. 41,823,661
AT JUNE 30, 1998............... 39,453,773
-----------
DECREASE IN NET UNREALIZED APPRECIATION........... (2,369,888)
-----------
NET GAIN ON INVESTMENTS................................ 956,602
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $ 1,669,156
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 9
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND THE
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
NET INVESTMENT INCOME................ $ 712,554 $ 1,443,971
NET REALIZED GAIN ON INVESTMENTS..... 3,326,490 2,678,716
INCREASE (DECREASE) IN NET UNREALIZED
APPRECIATION ON INVESTMENTS....... (2,369,888) 11,032,034
CAPITAL GAINS TAX PAYABLE ON BEHALF
OF SHAREHOLDERS (NOTE 1).......... 0 (929,093)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS......... 1,669,156 14,225,628
UNDISTRIBUTED INVESTMENT INCOME
INCLUDED IN PRICE OF SHARES
REDEEMED.......................... (2,544) (10,922)
REALIZED GAIN FROM SECURITY
TRANSACTIONS INCLUDED IN PRICE OF
SHARES REDEEMED................... (16,989) (24,166)
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME................. (336,531) (1,433,374)
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..................... (457,047) (1,163,998)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ 856,045 11,593,168
NET ASSETS:
BEGINNING OF PERIOD.................. 59,363,454 47,770,286
----------- -----------
END OF PERIOD [INCLUDING
UNDISTRIBUTED NET INVESTMENT
INCOME (LOSS) OF $104,024 AND
($269,456) RESPECTIVELY].......... $60,219,499 $59,363,454
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
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. There were 437 shares of capital stock
redeemed during the period ended June 30, 1998.
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
Marketable securities are generally valued at the last reported sales price
on June 30, 1998. Where a last sales price is not reported, the latest bid price
is used. Marketable securities for which neither a sale nor a bid price was
reported on June 30, 1998 are valued at the latest sale or bid price previously
reported. 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.
Equalization
The Company follows the accounting practices known as "equalization" by
which a portion of the costs of redemption of capital shares equivalent to the
amount, on a per share basis, of distributable investment income on the date of
the transaction is charged to the undistributed income, so that undistributed
8
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
income per share is unaffected by Company shares redeemed. Similarly, on
redemptions, a pro rata portion of realized capital gains is charged against
undistributed realized gains.
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>
June 30, 1998 6 Months
--------------------------------- Ended 6/30/98
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 $1,976,400 $29,280
====== ======= ========== =======
</TABLE>
9
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED)
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 for the six months
ended June 30, 1998 (excluding U.S. Government short-term securities) 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................ $2,772,528 $ 4,047,114 $ 720,626
Short-term securities........ 3,547,540 6,292,344 6,292,344
U.S. Treasury Notes.......... 498,880 0 0
---------- ----------- ----------
Total................... $6,818,948 $10,339,458 $7,012,970
========== =========== ==========
</TABLE>
4. LEASE
The Company rents office space under a lease expiring in April 1999. The
lessor Company's President also serves on the Board of Directors of the Company.
Minimum annual rental for this space is $5,400.
5. OTHER INFORMATION FOR THE SIX MONTHS ENDED
JUNE 30, 1998
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 $47,850.
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%.
10
<PAGE> 13
SUPPLEMENTARY INFORMATION
(UNAUDITED)
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Six
Months
Ended
June 30 Year Ended December 31
1998 1997 1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income....................... $ 16.42 $ 32.49 $ 32.33 $ 30.77 $ 28.64
Expenses................................ 3.79 7.27 6.68 5.97 5.59
--------- --------- ------- ------- -------
Net investment income................... 12.63 25.22 25.65 24.80 23.05
Dividends from net investment income.... (6.00) (25.33) (25.67) (26.73) (22.99)
Net realized gain (loss) and increase
(decrease) in unrealized
appreciation.......................... 16.88 224.41 90.93 170.09 (77.72)
--------- --------- ------- ------- -------
Net increase (decrease) in net asset
value................................. 23.51 224.30 90.91 168.16 (77.66)
Net asset value:
Beginning of year..................... 1,052.11 827.81 736.90 568.74 646.40
--------- --------- ------- ------- -------
End of year........................... $1,075.62 $1,052.11 $827.81 $736.90 $568.74
========= ========= ======= ======= =======
Annual ratio of expenses to average net
assets................................ .70%* 0.78% 0.86% 0.89% 0.89%
Annual ratio of net investment income to
average net assets.................... 2.34%* 2.68% 3.32% 3.72% 3.68%
Annual portfolio turnover rate.......... 2.81%* 10.44% 5.29% 4.67% 9.17%
Number of shares outstanding at end of
period (in thousands)................. 56 56 58 58 59
</TABLE>
* ANNUALIZED
11
<PAGE> 14
CHANGES IN THE PORTFOLIO OF INVESTMENTS*
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Changes Balance
During June 30,
the Period 1998
---------- ------------
Number of Shares
-------------------------
<S> <C> <C>
</TABLE>
SALES
<TABLE>
<S> <C> <C>
Bristol-Myers Squibb..................... 7,000 -0-
Marsh & McLennan Inc. ................... 8,000 16,500
PNC Bank Corp. .......................... 20,000 434,000
Schering-Plough.......................... 12,000 -0-
State Street Corp. ...................... 6,000 10,000
Xerox Corp. ............................. 2,500 5,000
</TABLE>
PURCHASES
<TABLE>
<S> <C> <C>
AMP, Inc. ............................... 3,000 19,000
Corning Inc. ............................ 4,000 23,000
Fluor Corp. ............................. 10,000 10,000
Kalmar Small Cap Fund.................... 69,881 69,881
Pall Corp. .............................. 5,000 25,000
Scudder Int'l............................ 39,293 80,496
</TABLE>
<TABLE>
<CAPTION>
Principal Amount
-------------------------
<S> <C> <C>
U.S. Treasury Notes 5 3/8% due 6/30/00... 500,000 500,000
</TABLE>
STOCK SPLITS
<TABLE>
<CAPTION>
Number of Shares
-------------------------
<S> <C> <C>
Bell Atlantic Corp. ..................... 10,000 20,000
Marsh & McLennan Inc. ................... 5,500 16,500
</TABLE>
* EXCLUSIVE OF SHORT-TERM U.S. TREASURY BILLS AND OTHER SHORT-TERM INSTRUMENTS.
12
<PAGE> 15
OTHER INFORMATION RELATING TO THE ANNUAL
SHAREHOLDERS MEETING
Of 56,191 shares of common stock of the company outstanding and entitled to
vote, a total of 54,711 shares were represented either in person or by proxy at
the annual shareholders meeting held on April 15, 1998.
Votes totaling 54,386 were cast for both Frank A. Wood, Jr. and Herbert S.
Riband, Jr., to serve as directors of the company for a three-year period. There
were 325 abstentions.
Votes cast for the ratification of the selection of Deloitte & Touche LLP
as auditors of the company for the period April 15, 1998 to April 21, 1999
totalled 54,386.
13
