STERLING CAPITAL CORPORATION
Report for the Year Ended December 31, 1996
OFFICERS
Walter Scheuer ..........................................
Chairman of the Board of Directors
Wayne S. Reisner .......................................
President
Richard Kaufman .......................................
Executive Vice President and Treasurer
Tracey Schadewald ....................................
Secretary
DIRECTORS
Jay Eliasberg Nathan Kingsley
Arthur P. Floor Archer Scherl
Walter Scheuer
Transfer Agent and Registrar
Custodian
Registrar and Transfer Company
Chase Manhattan Bank
10 Commerce Drive
4 New York Plaza
Cranford, New Jersey 07016 New York, New
York 10004
Auditors General
Counsel
Stavisky, Knittle, Isaacs
Skadden, Arps,
& Dichek, C.P.A., P.C.
Slate, Meagher & Flom
342 Madison Avenue
919 Third Avenue
New York, New York 10173
New York, New York 10022
<PAGE>
STERLING CAPITAL CORPORATION
635 Madison Avenue
New York, N.Y. 10022
February 20, 1997
To our Shareholders:
Equity prices again recorded strong gains in 1996 with the S&P
500 Index generating a total return of 23%. This represented
the sixth consecutive year of gains and the fourteenth increase
in the last fifteen years. Moreover, the combined performance
of 1995 and 1996 represented the largest two year increase in
stock prices in forty years. Large capitalization issues,
benefiting from the increased trend toward indexing portfolios,
outperformed smaller capitalization companies as evidenced by
the Russell 2000 Index's increase of 13% for 1996. Bond prices
did not perform well in 1996 with long-term Government Bonds
showing a price decline of 8% for the year and a total return of
- -1%.
The economy finished on a strong note with real GDP growth
increasing at a 4.7% rate in the fourth quarter. Employment
growth was healthy throughout 1996 with average monthly gains of
215,000 jobs. Consumer confidence has also been rising and
recently reached a seven year high, and combined with the steady
growth in employment, should lead to a continuation of economic
growth in 1997. Although the inflation rate as measured by CPI
was still relatively modest at 3.3% in 1996 it did increase
versus the prior year's level of 2.6%. We would also note that
there were some signs of an acceleration in wage rates late in
the year as the labor market tightened. Despite the concerns
voiced by Federal Reserve Chairman Greenspan in his December 5th
speech and his specific mention of both "irrational exuberance"
in the financial markets and "unduly escalated asset values",
current economic conditions do not appear likely to warrant a
near-term change in Federal Reserve Policy.
The current level of investor enthusiasm for equities and the
unusually large flow of capital into stock funds raises a
cautionary flag to us since individual investors have not
historically demonstrated good timing of their purchases. Cash
inflows to equity funds have averaged nearly $20 billion per
month over the past year and combined with a high level of
corporate buybacks and merger activity, has resulted in a record
level of demand for stocks. Moreover, the recent performance of
stocks relative to other investments reinforces investor
preference for this asset and leads to additional commitments to
equities. Although it is unclear what will cause the current
attraction to equities to change, the recent rate of price
appreciation appears unsustainable and, more importantly, has
resulted in stocks becoming overvalued relative to historical
benchmarks. As a result, we are maintaining a conservative
investment posture with respect to equities and emphasizing
purchase of companies selling at lower price-to-earnings
multiples and valuations than the overall market in an effort
to minimize risk.
We enclose a report of our Corporation's operations for the
year ended December 31, 1996. The net asset value per share of
the Corporation's Common Stock as at December 31, 1996 was
$8.15, as compared with its net asset value at December 31, 1995
of $7.07 per share, in both instances giving effect to the
Corporation's distributions to shareholders of $.052 per share
paid on September 3, 1996 to shareholders of record at the close
of business on August 8, 1996, and $.37 per share paid on
January 22, 1997 to shareholders of record at the close of
business on December 30, 1996. As at February 20, 1997 the
unaudited net asset value per share was approximately $8.41.
As at December 31, 1996 and February 20, 1997 the closing sales
price for shares of the Corporation's Common Stock on the
American Stock Exchange was $6.125 and $6.75, respectively.
Thus, as at December 31, 1996 and February 20, 1997 the market
price for the Corporation's shares represented discounts of
approximately 25% and 20%, respectively, from the Corporation's
net asset values at such dates.
Certain of the Corporation's officers and directors and their
associates may from time to time add to their investments in the
Corporation's Common Stock by open market purchases or in
private transactions. Since January 1, 1996 certain of the
Corporation's officer's and directors and their associates have
purchased an aggregate of 10,500 shares of the Corporation's
capital stock. Officers and directors of the Corporation
currently own beneficially, directly or indirectly, an aggregate
of 1,870,296 shares (74.8% of the outstanding shares) of the
Corporation's capital stock, not including 101,000 shares (4.04%
of the Corporation's outstanding shares) owned by certain
associates of such persons with respect to which such officers
and directors disclaim any beneficial interest.
Very truly yours,
Wayne S. Reisner
President
<PAGE>
Report of Independent
Certified Public Accountants
To the Board of Directors and Shareholders of
Sterling Capital Corporation
We have audited the statement of assets and liabilities of
Sterling Capital Corporation, including the portfolio of
investments in securities, as of December 31, 1996, and the
related statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years in
the period then ended, as well as the supplementary information,
included on page 18, for each of the five years in the period
then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these financial statements 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 supplementary 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, 1996, by correspondence with
the custodian and brokers. 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 supplementary
information referred to above present fairly, in all material
respects, the financial position of Sterling Capital Corporation
as of December 31, 1996, and the results of its operations for
the year then ended, and the changes in net assets for each of
the two years in the period then ended, as well as the
supplementary information for each of the five years in the
period then ended in conformity with generally accepted
accounting principles.
STAVISKY, KNITTLE, ISAACS & DICHEK, C.P.A., P.C.
New York, N.Y.
February 20, 1997
<PAGE>
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES
As at December 31, 1996
Number of Market Value
Shares (Note A)
Common and Preferred Stocks - 62.15%
Financial Services and Insurance - 15.93%
Chase Manhattan Corp. ................. 7,500 $670,313
American Express Co. .......................... 10,000 565,000
Mellon Bank Corp. ............................ 6,000 426,000
PartnerRe Ltd............................... 10,000 340,000
MBIA, Inc..................................... 3,000 303,750
Fleet Financial Group ...................... 5,000 249,375
Norwalk Savings Society ................... 10,000 233,750
Marsh & McLennan Companies, Inc. ........... 2,000 208,000
Long Island Bancorp ....................... 5,000 175,000
Conseco Financing Trust Pfd................ 3,000 75,750
$3,246,938
Real Estate and
Real Estate Investment Trusts - 10.59%
General Growth Properties ................. 15,000 $483,750
Camden Property Trust .................... 15,100 432,238
ROC Communities, Inc. ................... 15,000 416,250
Capstead Mortgage Corp. ................. 12,500 300,000
Oasis Residential,Inc.................. 10,000 227,500
Catellus Development Corp. *......... 15,000 170,625
Equity Residential Properties Trust Pfd C.. 5,000 128,750
$2,159,113
* Non-income producing security
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at December 31, 1996
Number of Market Value
Shares (Note A)
Telecommunication and Media - 9.56%
BCE, Inc........................ 10,000 $477,500
Viacom Inc. Cl A *............. 9,000 310,500
Airtouch Communications Inc.*... 10,000 252,500
Cellular Technical Services Inc.*.. 10,000 200,000
Tele-Communications Inc. Liberty Media "A" * 5,000 142,813
GTE Corp........................... 3,000 136,125
Tele-Communications Int'l Inc.*.......... 10,000 132,500
SBC Communications Inc. ............. 2,500 129,687
BellSouth Corp........................... 2,500 101,250
Tele-Communications Inc. TCI Group A *.. .. 5,000 65,312
$1,948,187
Technology - 9.31%
Network Peripherals, Inc. * ........... 49,500 $878,625
Parkervision Inc. *.................. 33,000 445,500
Avnet, Inc......................... 5,000 291,250
Xilinx, Inc........................... 5,000 184,062
Mentor Graphics Corp. *............. 10,000 97,500
$1,896,937
Healthcare and Related Services - 3.39%
Rhone Poulenc S.A. ADR. ........... 10,227 $346,440
Rhone Poulenc Overseas LTD 8.125%
Preferred Series A.................. 10,000 246,250
Cognizant Corp. ................. 3,000 99,000
$691,690
Retail - 2.27%
Carson Pirie Scott & Co. *......... 10,000 $252,500
J C Penny Co., Inc.............. 2,500 121,875
Pier 1 Imports Inc..................... 5,000 88,125
$462,500
* Non-income producing security
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at December 31, 1996
Number of Market Value
Shares (Note A)
Transportation Services - 2.07%
Ryder System Inc. ................ 15,000 $421,875
Publishing - 1.98%
K-III Communications Senior
Exchangeable Preferred ........... 15,000 $403,125
Consumer Goods - 1.84%
Kimberly Clark Corp. ............. 3,000 $285,750
Black & Decker Corp. ............ 3,000 90,375
$376,125
Office Equipment and Supplies - 1.56%
OfficeMax Inc. *................ 15,000 $161,250
Xerox Corp..................... 3,000 157,875
$319,125
Automotive and Automotive Products - 1.29%
Ford Motor Co.................. 5,000 $161,250
Goodyear Tire & Rubber Co. ... 2,000 102,750
$264,000
Oil Services - 0.67%
Tidewater Inc........................ 3,000 $135,750
Metals - 0.61%
Asarco, Inc......................... 5,000 $124,375
* Non-income producing security
The accompanying notes are an integral part of these statements
<PAGE>
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at December 31, 1996
Number of Market Value
Shares (Note A)
Environmental Services - 0.40%
WMX Technologies Inc. .......... 2,500 $81,250
Textiles and Apparel - 0.39%
Fieldcrest Cannon Inc.* ....... 5,000 $79,375
Miscellaneous Securities - 0.29%
Technology General Corp. * **..... 292,600 $58,520
Total common and preferred stocks (cost $9,259,920) $12,668,885
* Non-income producing security
** Investment in a company representing 5% or more of such
company's outstanding voting securities (such company is defined
as an "affiliated company" in Section 2(a)(2) of the Investment
Company Act of 1940, as amended). This investment was purchased
on February 7, 1969 at a cost of $266,000 and is valued at the
average of the bid and ask prices in the over-the-counter market
on December 31, 1996.
The accompanying notes are an integral part of these statements
<PAGE>
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at December 31, 1996
Principal Market Value
Amount (Note A)
Commercial Paper - 4.91%
Ford Motor Credit Co.
5.91% due 1/3/1997 $500,000 $500,000
General Electric Capital Corporation
5.78% due 1/9/1997 ................... 500,000 500,000
Total Commercial Paper (cost $1,000,000) .. $1,000,000
Corporate Bonds and Notes - 5.20%
ADT Operations Inc. 8.25% debenture
due 8/1/2000.. ............................. $150,000 $156,562
Stop and Shop Companies 9.75%
senior subordinated note due 2/1/2002 ........ 150,000 167,391
Caesar's World 8.875% senior
subordinated note due 8/15/2002 ......... 200,000 207,500
ADT Operations Inc. 9.25% senior
subordinated note due 8/1/2003 ........... 250,000 266,562
Kroger Co. 9.75% senior subordinated
debenture due 2/15/2004 ................ 250,000 262,891
Other.................................. 160
Total corporate bonds and notes
(cost $986,875)...................... $1,061,066
U.S. Government Obligations - 3.65%
U.S. Treasury Note 5.125% due 2/28/1998 .... $500,000 $495,625
U.S. Treasury Note 5.5% due 2/28/1999 ........ 250,000 247,650
Total U.S. Government Obligations (cost $741,953) $743,275
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at December 31, 1996
Principal Market Value
Amount (Note A)
Government Agencies - 6.19%
Federal Home Loan Bank
6.35% due 6/18/1999 ........ $250,000 $252,500
Federal Home Loan Mortgage Corp.
7.395% due 6/27/2001 ................ 200,000 200,960
Federal National Mortgage Association
7.1% due 8/8/2001 ................. 200,000 201,875
Federal National Mortgage Association
7.5% due 6/3/2003 ................. 200,000 201,200
Federal National Mortgage Association
8% due 6/15/2006 ................. 200,000 202,812
Federal Home Loan Mortgage Corp.
Step-Up Notes 7.2% due 8/7/2006 ... 200,000 202,875
Total Government Agencies (cost $1,249,988) $1,262,222
Total Investments (cost $13,238,736) $16,735,448
The accompanying notes are an integral part of these statements
<PAGE>
STERLING CAPITAL CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
As at December 31, 1996
ASSETS
Investment in securities, at value
(identified cost $13,238,736) (Note A)......................... $16,735,448
Cash.......................................................... 20,370
Vista U.S. Government Money Market Fund...................... 4,373,516
Investment in real estate (cost $100,000)..................... 50,000
Receivables:
Investment securities sold..................................... 50,625
Dividends and interest......................................... 119,345
Other......................................................... 26,959
Deferred Pension Costs......................................... 51,033
Prepaid Insurance............................................. 6,542
Total assets................................................. 1,433,838
LIABILITIES
Distribution payable to shareholders................... $925,000
Payables:
Investment securities purchased................... 26,437
Accrued expenses and other liabilitie............. 97,797
Total liabilities............................................. $1,049,234
NET ASSETS
Common Stock, authorized 10,000,000 shares,
outstanding 2,500,000 shares, $1 par value each............... $2,500,000
Paid in capital................................................ 17,722,718
Excess of distributions over accumulated net investment loss. (6,574,247)
Excess of net realized gain on investments over distributions.. 3,289,421
Unrealized appreciation of investments......................... 3,446,712
Net assets.................................................... $20,384,604
Net assets per outstanding share............................. $8.15
The accompanying notes are an integral part of these statements
<PAGE>
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
Investment income and expenses:
Interest............................................... $304,561
Dividends............................................. 508,502
Total income........................................ 813,063
Reclassification(1).................................. (141,977)
Total income after reclassification..................... $671,086
Expenses (Notes C, D and E):
Officers' salaries................................... $148,125
Pension plan........................................ 71,635
Office salaries..................................... 71,410
Payroll taxes, fees and employee benefits.......... 46,694
Directors' fees and expenses....................... 44,061
Rent and Electric................................. 26,018
Equipment rentals................................. 25,718
Legal, audit and professional fees................ 22,323
Transfer agent and registrar fees.............. 21,585
Custodian fees and expenses......................... 14,367
Federal, state and local taxes..................... 10,115
Insurance.......................................... 7,637
American Stock Exchange listing fee............... 7,500
Miscellaneous..................................... 5,011
Total expenses...................................... $522,199
Net investment income................................... $148,887
(1) The Corporation received information from the issuer of one
of its portfolio holdings that certain amounts received in prior
periods and originally recorded as dividend income were, in
fact, a return of capital and are being reclassified that way.
(continued)
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS-continued
For the year ended December 31, 1996
Net investment income (from previous page)............... $148,887
Net gain on investments (Notes A and B):
Realized gain from securities transactions:
Long transactions:
Proceeds from sales.................................. $8,504,550
Cost of securities sold............................. 7,641,817
Net realized gain from long transactions............ $862,733
Short sale transactions:
Proceeds from securities sold short ............... $63,875
Cost of securities purchased to cover short sales .. 57,123
Net realized gain from short sale transactions..... $6,752
Net realized gain................................... $869,485
Unrealized appreciation of investments:
Beginning of period................................... $1,755,049
End of period............................................ 3,446,712
Net increase in unrealized appreciation................. $1,691,663
Net realized and unrealized gain on investments............ $2,561,148
Net increase in net assets resulting from operations....... $2,710,035
The accompanying notes are an integral part of these statements
<PAGE>
STERLING CAPITAL CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1996 and December 31, 1995
Year ended
December 31, December 31,
1996 1995
From investment activities:
Net investment income.................... $148,887 $334,614
Net realized gain from securities transactions.. 869,485 1,420,414
Net change in unrealized appreciation ....... 1,691,663 1,482,410
Increase in net assets derived from investment activities
2,710,035 3,237,438
Distributions to shareholders (Note F) ......... (1,055,000) (1,695,000)
Net Assets:
Beginning of year............................ 18,729,569 17,187,131
End of year................................. $20,384,604 $18,729,569
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
As at December 31, 1996
Note A - Significant Accounting Policies
Sterling Capital Corporation (the "Corporation") (formerly
known as The Value Line Development Capital Corporation) is
registered under the Investment Company Act of 1940, as amended
(the "Act"), and is a diversified, closed-end investment
company. The Corporation operates exclusively as an internally
managed investment company whereby its own officers and
employees, under the general supervision of its Board of
Directors, conduct its operations. The following is a summary of
significant accounting policies consistently followed, in all
material respects, by the Corporation in the preparation of its
financial statements. The policies are in conformity with
generally accepted accounting principles.
(1) Security Valuation
Investments in securities traded on a national securities
exchange (or reported on the NASDAQ national market) are valued
at the last reported sales price on the day of valuation; other
securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are
valued at the last quoted bid price, except for short positions
and call options written, for which the last quoted asked price
is used. Corporate commercial paper is valued at cost, which
approximates market value. Investments in real estate are valued
at fair value as determined by the Board of Directors.
(2) Federal Income Taxes
The Corporation's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended (the "Code") that
are applicable to regulated investment companies and to
distribute substantially all its taxable income to its
shareholders.
The Corporation for the fiscal year ending December 31, 1996
was a "personal holding company" under the Code, since five or
fewer shareholders own directly or indirectly more than 50% in
value of the Corporation's outstanding stock, and more than 60%
of the Corporation's adjusted ordinary income was "personal
holding company income". As a personal holding company, the
Corporation will be subject to penalty taxes unless it
distributes to its shareholders an amount at least equal to its
otherwise undistributed personal holding company income, net of
appropriate deductions applicable thereto. The Corporation did
not have any undistributed personal holding company income for
the year ended December 31, 1996. Personal holding company
income does not include the excess, if any, of net realized
long-term capital gains over net realized short-term capital
losses, less any Federal income tax attributable to such excess.
The Corporation has considered methods of minimizing the
possible tax impact of being a personal holding company, and if
appropriate, will make sufficient distributions to shareholders
so that the Corporation will not be subject to such penalty tax.
<PAGE>
(3) Securities Transactions
Securities transactions are accounted for on the date the
securities are purchased or sold (trade date), dividend income
is recorded on the ex-dividend date and interest income is
accrued as earned. Gains and losses from securities transactions
were computed on the identified cost basis.
(4) Distributions to Shareholders
Dividends to shareholders are recorded on the dividend
declaration date.
5) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Note B - Securities Transactions
The following summarizes all securities transactions by the
Corporation for the year ended
December 31, 1996:
Purchases (includes $10,000,000 of short term corporate
commercial paper)....... $18,988,847
Sales (includes $10,500,000 of short term corporate commercial
paper) ............. $19,858,855
Net gain on investments for the year ended December 31, 1996
was $2,561,148. This amount represents the net increase in value
of investments held during the period. The components are as
follows:
Long transactions ............................ $2,554,396
Short sale transactions ..................... 6,752
Net gain on investments .................. $2,561,148
Gross unrealized gains and losses in the Corporation's
portfolio of investments amounted to $3,814,267 and $367,555,
respectively, as at December 31, 1996.
Note C - Rent
The Corporation sublets a portion of office space at 635
Madison Avenue, New York, NY, from Windy Gates Corporation
("Windy Gates"), a corporation controlled by Walter Scheuer, the
Chairman of the Board of Directors and principal shareholder of
the Corporation. The term of the Windy Gates lease expires on
June 30, 2004. The term of the sublease to the Corporation
expires on June 30, 2004. The annual rental obligation of these
premises is being allocated between the Corporation and Windy
Gates on the basis of each such party's use of this space. The
Corporation's current net annual expense for this space is
approximately $24,900.<PAGE>
Note D - Other Transactions with Affiliates
Aggregate remuneration paid or accrued by the Corporation for
the year ended December 31, 1996 to certain persons who were
"affiliated persons" within the meaning of the Act, was as
follows:
Officers' salaries.....................................$148,125
Amount paid or accrued under Pension Plan........... 25,031
Directors' fees...................................... 43,500
Incident to the sublease arrangements for office space at 635
Madison Avenue referred to in Note C above, Mr. Scheuer and the
Corporation, have allocated certain of the expenses incurred in
connection with each of such party's use of various services
located thereat, including office equipment and secretarial,
administrative and internal accounting personnel. For the year
ended December 31, 1996, Mr. Scheuer and the Corporation paid or
accrued approximately $439,000 and $104,000, respectively, in
connection with the allocation of expenses incurred with respect
to the use of such services. In addition, during the period
certain persons who are also officers of the Corporation
rendered services to Mr. Scheuer personally for which they
received compensation from Mr. Scheuer.
Note E - Pension Plan
The Corporation has a defined benefit pension plan covering
substantially all of its employees', other than Union employees
and part-time employees. The benefits are based on years of
service and the employee's compensation. The Corporation's
funding policy is to contribute annually the maximum amount that
can be deducted for Federal income tax purposes. Contributions
are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the
future.
The following table sets forth the plan's funded status and
amounts recognized in the Corporation's statement of assets and
liabilities at December 31, 1996:
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $254,581................................. ($256,717)
Projected benefit obligation for service rendered to date (321,008)
Plan assets at fair value............................. 227,080
Projected benefit obligation in excess of plan assets (93,928)
Prior service costs.................................. 44,682
Unrecognized net loss (gain) from past experience different
from that assumed and effect of changes in assumptions (39,298)
Unrecognized net transition obligation at January 1, 1996,
being recognized over 25 years..................... 110,118
Accrued pension expense.............................. 29,459
Prepaid pension cost included in other assets........ 51,033
Net pension cost for 1996 included the following components:
Service cost - benefits earned during the period.......... $41,828
Interest cost on projected benefit obligation............ 24,045
Actual return on plan assets............................. (16,866)
Net amortization and deferral........................... 9,331
Net periodic pension cost ................................ $58,338
The weighted average discount rate and rate of increase in
future compensation levels used in determining the actuarial
present value of the projected benefit obligation were 6.0% and
3.0% respectively. The expected long-term rate of return on
assets was 8.0%.
Note F- Distributions to Shareholders
On September 3, 1996 the Corporation paid a cash distribution
of $.052 per share to shareholders of record at the close of
business on August 8, 1996. The entire amount of the
distribution represents a distribution of net capital gains and
"investment company taxable income" to shareholders realized by
the Corporation during 1995 that was not previously distributed
to shareholders. The Corporation believes that the entire
amount of the distribution should be treated as a distribution
of net capital gains and "investment company taxable income" to
shareholders and for Federal income tax purposes is taxable to
calendar year shareholders in 1996 even though the distribution
represented net capital gains and "investment company taxable
income" realized by the Corporation during 1995. The Board of
Directors determined that of the aggregate amount of the
distribution ($130,000), $34,600 be considered a charge on the
Corporation's books against net investment income and $95,400 be
considered a charge on the Corporations books against net
realized gains. Detailed information with respect to the
distribution has been provided to each shareholder
On January 22, 1997 the Corporation paid a cash distribution of
$.37 per share to shareholders of record at the close of
business on December 30, 1996. The Corporation believes that
the entire amount of the distribution should be treated as a
distribution of net capital gains and "investment company
taxable income" to shareholders and for Federal income tax
purposes was taxable to calendar year shareholders in 1996 even
though the distribution was paid to shareholders in 1997. The
Board of Directors determined that of the aggregate amount of
the distribution ($925,000), $125,000 be considered a charge on
the Corporation's books against net investment income and
$800,000 be considered a charge on the Corporation's books
against net realized gains. Detailed information with respect to
the distribution has been provided to each shareholder.
STERLING CAPITAL CORPORATION
SUPPLEMENTARY INFORMATION
As at December 31, 1996
Selected data for each share of capital stock outstanding
throughout each year:
Year Ended December 31
1996 1995 1994 1993 1992
Investment income ...................... $.27 $.39 $.38 $.36 $.35
Expenses ............................... .21 .25 .28 .24 .31
Net investment income ................... .06 .14 .10 .12 .04
Distributions of net realized
capital gains .......................... (.36) (.53) - (.67) (.96)
Distributions of net investment income (.06) (.15) (.08) (.15) -
Net realized gain (loss) and increase
(decrease) in unrealized appreciation.. 1.02 1.16 (.68) 1.08 .72
Net increase (decrease) in net asset value .66 .62 (.66) .38 (.20)
Net asset value:
Beginning of period ........... 7.49 6.87 7.53 7.15 7.35
End of period ............... $8.15 $7.49 $6.87 $7.53 $7.15
Ratio of expenses to average net assets . 2.6% 3.4% 3.8% 3.1% 4.0%
Ratio of net investment income to
average net assets ..................... .8% 1.8% 1.3% 1.6% .6%
Portfolio turnover ................... 57% 51% 77% 95% 99%
Number of shares outstanding at end
of year (in 000's) ............... 2,500 2,500 2,500 2,500 2,500
<PAGE>
