<PAGE> 1
THE FINANCE COMPANY OF PENNSYLVANIA
FOUNDED 1871
[SWIRL ARTWORK]
ANNUAL REPORT
DECEMBER 31, 1999
<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 11, 2000
TO OUR SHAREHOLDERS:
We are pleased to submit your Company's one hundred and twenty-eighth
Annual Report.
The following is a summary of financial information for the years 1995 to
1999:
<TABLE>
<CAPTION>
NET DIVIDENDS PAID DEC. 31
INVESTMENT ---------------- NET ASSET
YEAR INCOME REGULAR EXTRA VALUE
- ---- ---------- ------- ------ ---------
<S> <C> <C> <C> <C>
1995 $24.80 $11.00 $15.73* $ 736.90
1996 25.65 11.00 14.67* 827.81
1997 25.22 11.00 14.33 1,052.11
1998 25.49 12.00 13.54 1,067.46
1999 26.39 12.75 13.73* 1,040.12
</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 1999 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.
We are pleased that for the fourth straight year, this company has been
able to increase our dividend. Looking to the future and the volatility of the
equity markets, we will continue to exercise vigilance and maintain our emphasis
on quality. However, at this time we cannot predict that the recent annual
increases in dividend will continue.
On January 31, 2000, the Company paid to the shareholders of record on
December 31, 1999, the regular quarterly dividend of $3.25 and an extra dividend
of $13.73, making a total dividend of $16.98. The tax law also requires that the
final dividend, although paid in 2000, is taxable to the shareholders in 1999.
In addition to this dividend, in 1999 the Company paid to the shareholders
regular dividends of $3.00 on March 31, and $3.25 each on June 30 and September
30, for a total of $12.75 in regular dividends.
Common stocks constitute 81.58% of the portfolio of investments at market
on December 31, 1999, compared with 84.35% 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 FINANCE COMPANY OF PENNSYLVANIA thanks you for your continued interest
and support as we enter the twenty-first century.
/s/Charles E. Mather III
Charles E. Mather III, President
*Includes short term capital gain of $1.97 in 1995, $.27 in 1996 and $1.38 in
1999.
<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 portfolio of investments, of The Finance Company of Pennsylvania
(the "Company") as of December 31, 1999, the related statement of operations for
the year then ended, the statements of changes in net assets for the years ended
December 31, 1999 and 1998, and the condensed financial information for each of
the years in the five-year period ended December 31, 1999. 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 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, 1999 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, 1999, 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 19, 2000
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
INVESTMENTS-AT MARKET OR FAIR VALUE (NOTE 1):
SHORT TERM SECURITIES (IDENTIFIED COST
$5,219,095)................................ $ 5,220,262
U.S. TREASURY NOTES & BONDS (IDENTIFIED COST
$5,607,560)................................ 5,526,016
COMMON STOCKS (IDENTIFIED COST $9,878,710)
INCLUDING AFFILIATE (NOTE 2)............... 47,581,378
-----------
TOTAL INVESTMENTS..................... 58,327,656
CASH.................................................. 65,144
ACCRUED INTEREST AND DIVIDENDS RECEIVABLE............. 220,482
PREPAID EXPENSES...................................... 15,727
OTHER ASSETS.......................................... 11,090
-----------
TOTAL................................. 58,640,099
-----------
LIABILITIES
ACCRUED EXPENSES AND TAXES (NOTE 1)................... 740,365
DIVIDENDS PAYABLE (NOTE 6)............................ 935,480
-----------
TOTAL................................. 1,675,845
-----------
NET ASSETS
NET ASSETS (WITH INVESTMENTS AT MARKET OR FAIR VALUE)
EQUIVALENT TO $1,040.12 PER SHARE ON SHARES OF
54,767 $10 PAR VALUE CAPITAL STOCK OUTSTANDING AT
DECEMBER 31, 1999 (AUTHORIZED 232,000 SHARES).... $56,964,254
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE> 6
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
SHORT TERM SECURITIES -- 8.95%
<TABLE>
<CAPTION>
Face Value/
Principal Amount
----------------
<C> <S> <C> <C>
2,884,594 FED FUND........................ $2,884,594 $2,884,594
333,917 FEDERAL TRUST FUND.............. 333,917 333,917
10,000 TREASURY TRUST FUND............. 10,000 10,000
500,000 TREAS. BILL 5.06%; 1/27/00...... 498,182 498,447
1,000,000 TREAS. BILL 5.06%; 1/27/00...... 996,238 996,893
500,000 TREAS. BILL 5.13%; 2/24/00...... 496,164 496,411
---------- ----------
TOTAL........................... 5,219,095 5,220,262
---------- ----------
</TABLE>
U.S. TREASURY NOTES AND BONDS -- 9.47%
<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.................... 699,980 701,094
500,000 U.S. TREASURY NOTES 5 3/8% DUE
6/30/00.................... 499,760 499,062
1,000,000 U.S. TREASURY NOTES 7 7/8% DUE
8/15/01.................... 1,018,483 1,024,063
750,000 U.S. TREASURY NOTES 6 3/8% DUE
8/15/02.................... 755,093 750,703
1,000,000 U.S. TREASURY NOTES 7 1/4%
DUE 8/15/04................ 1,072,432 1,030,938
500,000 U.S. TREASURY NOTES 6 1/2% DUE
5/15/05.................... 498,273 499,844
1,000,000 U.S. TREASURY BOND 7 5/8% DUE
2/15/07.................... 1,063,539 1,020,312
---------- ----------
TOTAL........................... 5,607,560 5,526,016
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE> 7
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
COMMON STOCKS -- 81.58%
<TABLE>
<CAPTION>
Aggregate
Quoted
Number Identified Market Price
of Shares Cost (Note 1)
- --------------------- ----------- ------------
<C> <S> <C> <C>
PETROLEUM AND MINING -- 8.93%
58,403 EXXON MOBIL CORP............... $ 154,159 $ 4,705,092
30,000 PENN VIRGINIA CORP. ........... 22,382 502,500
----------- -----------
TOTAL.......................... 176,541 5,207,592
----------- -----------
BANKING, INSURANCE AND FINANCIAL
HOLDING COMPANIES -- 36.31%
16,500 MARSH & MCLENNAN, INC. ........ 428,861 1,578,844
424,000 PNC BANK CORP. ................ 256,167 18,868,000
10,000 STATE STREET CORP. ............ 152,542 730,625
----------- -----------
TOTAL.......................... 837,570 21,177,469
----------- -----------
MANUFACTURING AND DIVERSIFIED -- 20.15%
16,000 AVON PRODUCTS ................. 414,987 528,000
10,500 CORNING INC. .................. 342,127 1,353,844
24,000 DOVER CORP. ................... 215,644 1,089,000
6,000 DOW CHEMICAL CO. .............. 116,337 801,750
12,000 EMERSON ELECTRIC............... 181,980 688,500
28,500 GENUINE PARTS.................. 469,072 707,156
22,500 HASBRO......................... 422,455 427,500
10,000 INT'L BUSINESS MACHINES........ 256,675 1,080,000
10,000 MINNESOTA MINING & MFG. CO. ... 170,764 978,750
8,500 MOTOROLA ...................... 368,986 1,251,625
15,000 NATIONAL SERVICES INDUSTRIES... 494,138 442,500
18,766 NEWELL RUBBERMAID INC. ........ 555,988 544,214
6,000 PITNEY BOWES INC. ............. 280,238 289,875
15,000 SNAP-ON INC. .................. 455,250 398,437
30,000 SHERWIN WILLIAMS CO. .......... 481,800 630,000
24,000 XEROX CORP. ................... 661,550 544,500
------------------------------- ----------- -----------
TOTAL.......................... 5,887,991 11,755,651
------------------------------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE> 8
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
COMMON STOCKS -- CONCLUDED
<TABLE>
<CAPTION>
Aggregate
Quoted
Number Identified Market Price
of Shares Cost (Note 1)
- --------------------- ----------- ------------
<C> <S> <C> <C>
DRUGS AND PHARMACEUTICALS -- 3.47%
15,000 BECTON, DICKINSON CO. ......... $ 441,067 $ 404,062
8,000 JOHNSON & JOHNSON.............. 88,070 746,000
13,000 MERCK & CO. ................... 146,402 873,438
----------- -----------
675,539 2,023,500
----------- -----------
COMMUNICATIONS -- 2.11%
20,000 BELL ATLANTIC CORP. ........... 178,287 1,231,250
----------- -----------
FOOD/RETAIL MERCHANDISING -- 2.00%
20,000 COCA-COLA CO. ................. 23,981 1,165,000
----------- -----------
INTERNATIONAL FUNDS -- 5.13%
80,496 SCUDDER INT'L EQUITY INVEST.
TR. ...................... 2,027,402 2,989,616
----------- -----------
DIVERSIFIED HOLDING -- 3.48%
732 PENNSYLVANIA WAREHOUSING AND
SAFE DEPOSIT COMPANY (NOTE
2)........................ 71,399 2,031,300
----------- -----------
TOTAL COMMON STOCKS............ 9,878,710 47,581,378
----------- -----------
TOTAL INVESTMENTS.............. $20,705,365 $58,327,656
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE> 9
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
INCOME:
DIVIDENDS (INCLUDING DIVIDENDS FROM
AFFILIATE -- NOTE 2)................... $ 1,437,932
INTEREST.................................... 396,452
OTHER INCOME................................ 76,434
-----------
TOTAL.................................. 1,910,818
EXPENSES:
COMPENSATION................... $ 118,250
TAXES OTHER THAN INCOME
TAXES........................ 35,853
DIRECTORS' FEES................ 47,375
INVESTMENT ADVISORY FEES
(NOTE 5)..................... 123,298
LEGAL.......................... 11,820
AUDITING & ACCOUNTING.......... 51,150
CUSTODIAN...................... 16,754
INSURANCE...................... 18,890
OTHER OFFICE AND
ADMINISTRATIVE............... 25,339
-----------
TOTAL.................................. 448,729
-----------
NET INVESTMENT INCOME............................. 1,462,089
-----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3):
REALIZED GAIN FROM SECURITY
TRANSACTIONS (EXCLUDING
SHORT-TERM INVESTMENTS):
PROCEEDS FROM SALES............ $ 5,856,472
COST OF SECURITIES SOLD........ 3,774,942
-----------
NET REALIZED GAIN...................... 2,081,530
UNREALIZED APPRECIATION OF
INVESTMENTS:
AT JANUARY 1, 1999............. $40,400,846
AT DECEMBER 31, 1999........... 37,622,291
-----------
DECREASE IN NET UNREALIZED APPRECIATION........... (2,778,555)
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS........ (697,025)
CAPITAL GAINS TAX PAYABLE ON BEHALF OF SHAREHOLDERS
(NOTE 1)............................................. (725,451)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $ 39,613
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS:
NET INVESTMENT INCOME................ $ 1,462,089 $ 1,432,797
NET REALIZED GAIN ON INVESTMENTS..... 2,081,530 3,508,789
DECREASE INCREASE IN NET UNREALIZED
APPRECIATION ON INVESTMENTS....... (2,778,555) (1,422,815)
CAPITAL GAINS TAX PAYABLE ON BEHALF
OF SHAREHOLDERS (NOTE 1).......... (725,451) (1,218,450)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................... 39,613 2,300,321
UNDISTRIBUTED INVESTMENT INCOME
INCLUDED IN PRICE OF SHARES
REDEEMED.......................... (7,582) (4,941)
REALIZED GAIN FROM SECURITY
TRANSACTIONS INCLUDED IN PRICE OF
SHARES REDEEMED................... (8,813) (27,502)
DIVIDENDS TO SHAREHOLDERS FROM NET
INVESTMENT INCOME................. (1,454,503) (1,427,702)
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..................... (1,186,939) (621,152)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................ (2,618,224) 219,024
NET ASSETS:
BEGINNING OF YEAR.................... 59,582,478 59,363,454
----------- -----------
END OF YEAR [INCLUDING UNDISTRIBUTED
NET INVESTMENT LOSS OF $269,299
AND $269,302 RESPECTIVELY]........ $56,964,254 $59,582,478
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 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. Transactions in capital stock were as
follows:
<TABLE>
<CAPTION>
Number Aggregate
of Shares amount
--------- ----------
<S> <C> <C>
Shares redeemed:
Year Ended December 31, 1999............. 1,050 $1,203,334
Year Ended December 31, 1998............. 606 $ 653,594
</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, 1999.
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, 1999 December 31,
--------------------------------- 1999
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 $2,031,300 $91,500
====== ======= ========== =======
</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, 1999 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.............. $ 2,234,433 $ 5,856,472 $ 3,774,942
U.S. Treasury Notes........ 1,071,250 900,000 900,000
Short-term securities...... 8,902,142 7,639,037 7,639,037
----------- ----------- -----------
Total................. $12,207,825 $14,395,509 $12,313,979
=========== =========== ===========
</TABLE>
4. LEASE
The Company rents office space under a lease expiring in April 2000. 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 YEAR ENDED
DECEMBER 31, 1999
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 $118,250.
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 $929,944 was declared on December
8, 1999 payable at $16.98 per share on January 31, 2000 to shareholders of
record on December 31, 1999.
10
<PAGE> 14
CONDENSED FINANCIAL INFORMATION
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------
Investment income........ $ 34.49 $ 33.33 $ 32.49 $ 32.33 $ 30.77
Expenses................. 8.10 7.84 7.27 6.68 5.97
--------- --------- --------- ------- -------
Net investment income.... 26.39 25.49 25.22 25.65 24.80
Dividends from net
investment income...... (26.48) (25.54) (25.33) (25.67) (26.73)
Net realized gain (loss)
and increase (decrease)
in unrealized
appreciation........... (27.25) 15.40 224.41 90.93 170.09
--------- --------- --------- ------- -------
Net increase (decrease)
in net asset value..... (27.34) 15.35 224.30 90.91 168.16
Net asset value:
Beginning of year...... 1,067.46 1,052.11 827.81 736.90 568.74
--------- --------- --------- ------- -------
End of year............ $1,040.12 $1,067.46 $1,052.11 $827.81 $736.90
========= ========= ========= ======= =======
Annual ratio of expenses
to average net
assets................. 0.74% 0.74% 0.78% 0.86% 0.89%
Annual ratio of net
investment income to
average net assets..... 2.40% 2.42% 2.68% 3.32% 3.72%
Annual portfolio turnover
rate................... 6.31% 8.13% 10.44% 5.29% 4.67%
Number of shares
outstanding at end of
period in thousands.... 55 55 56 58 58
</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, 1999
PURCHASES
<TABLE>
<CAPTION>
Changes Balance
During December 31,
the Period 1999
---------- ------------
Number of Shares
-------------------------
<S> <C> <C>
Avon Products............................ 9,000 16,000
Becton, Dickinson & Co. ................. 5,000 15,000
National Services Industries............. 15,000 15,000
Pitney Bowes Inc. ....................... 6,000 6,000
Newell Rubbermaid........................ 3,000 18,766
Snap-On Inc.............................. 5,000 15,000
Xerox Corp. ............................. 14,000 24,000
</TABLE>
SALES
<TABLE>
<CAPTION>
Number of Shares
-------------------------
<S> <C> <C>
Boeing Co. .............................. 5,000 --
Corning Inc. ............................ 8,500 10,500
Dover Corp. ............................. 5,000 24,000
Kalmar Small Cap Fund.................... 69,881 --
Motorola................................. 9,500 8,500
PNC Bank Corp. .......................... 10,000 424,000
Tyco Inc. ............................... 6,259 --
</TABLE>
STOCK MERGERS
<TABLE>
<CAPTION>
Number of Shares
-------------------------
<S> <C> <C>
Tyco Inc. ............................... 6,259 --
Exxon Mobil.............................. 58,403 58,403
</TABLE>
12
