STERLING CAPITAL CORPORATION
Report for the Six Months Ended June 30, 1998
OFFICERS
Walter Scheuer ........................ Chairman of the Board of Directors
Wayne S. Reisner ...................... President
Richard Kaufman ....................... Executive Vice President
Michael Carey ......................... Treasurer
Elizabeth Acton ....................... Secretary
DIRECTORS
Jay Eliasberg Nathan Kingsley
Arthur P. Floor Archer Scherl
Walter Scheuer
Transfer Agent and Registrar Custodian
Registrar and Transfer Company Citibank, N.A.
10 Commerce Drive 120 Broadway
Cranford, New Jersey 07016 New York, New York 10271
Auditors General Counsel
Stavisky, Knittle, Tucci & Skadden, Arps,
Goldstein, L.L.P. 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
August 24, 1998
To our Shareholders:
Although stock prices advanced during the first half of 1998,
significant divergences occurred within the market with the performance of the
average stock substantially lagging the performance of the capitalization
weighted S&P 500 Index. For example, during the second quarter, the S&P 500
achieved a gain of 2.9%, but an unweighted average performance of stocks in that
index declined 1.6%. Similarly, on the NASDAQ 70% of all stocks have declined
30% from their highs, while the index, which is heavily weighted by stocks with
the largest capitalizations, is still showing strong gains for the year. The
Russell 2000 Index, a proxy for small capitalization stocks, is 20% below its
high and has recorded a 10% decline for the year to date. In short, beneath the
progress of the major indices, the average stock has not performed well.
In addition to the weak technical trends of the market, corporate
profit growth slowed to less than 5% during the first half of the year from last
year's double digit rate. Importantly, estimates for the second half of the year
continue to be revised downward. The current estimate for S&P 500 earnings
growth for the third quarter is now 5% versus an estimate of a 10% increase as
recently as one month ago. Given the high level of valuation for equities, this
slowdown in profit growth appears likely to limit the upside potential for
equity prices in the near term and, if profits weaken further, poses a greater
risk longer term.
On a more positive note, the economy is still growing and inflation
remains remarkably subdued with the Consumer Price Index increasing less than 2%
through the first seven months of the year. As expected, the Asian crisis and a
strong dollar caused the rate of GDP growth to slow, but continued strength in
the consumer sector has prevented the economy from contracting. Federal Reserve
policy has remained unchanged and the interest rate outlook, reflecting the slow
growth, low inflation environment, remains favorable.
With many stocks already experiencing bear market declines, we expect
long term investors to be rewarded by purchases made in currently depressed
sectors. On the other hand, the large capitalization stocks that have driven the
market on the upside are significantly overvalued and appear vulnerable to a
meaningful correction. As a result, we remain underweighted in large
capitalization growth stocks and continue to focus on undervalued securities
offering superior long term prospects.
-1-
<PAGE>
Enclosed is a report of our Corporation's operations for the six months
ended June 30, 1998. The unaudited net asset value per share of the
Corporation's Common Stock as at June 30, 1998 was $8.63, as compared with its
audited net asset value at December 31, 1997 of $8.22 per share, in both
instances giving effect to the Corporation's distribution to shareholders of
$.85 per share paid on January 22, 1998 to shareholders of record at the close
of business on December 30, 1997. As at August 21, 1998 the unaudited net asset
value per share was approximately $7.82 after further giving effect to a
distribution to shareholders of $.0497 per share, payable on September 11, 1998
to shareholders of record at the close of business on August 28, 1998. As at
June 30, 19 98 and August 21, 1998 the closing sales price for shares of the
Corporation's Common Stock on the American Stock Exchange was $7.75 and $6.375
respectively. Thus, as at June 30, 1998 and August 21, 1998 the market price for
the Corporation's shares represented discounts of approximately 10% and 18%,
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, 1998 certain of the Corporation's officer's and directors and their
associates have purchased an aggregate of 9,100 shares of the Corporation's
capital stock. Officers and directors of the Corporation currently own
beneficially, directly or indirectly, an aggregate of 1,945,896 shares (77.8% 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,
/s/Wayne S. Reisner
-------------------
Wayne S. Reisner
President
- 2 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES
As at June 30, 1998
(Unaudited)
Number of Market Value
Shares (Note A)
--------- ------------
<S> <C> <C>
Common and Preferred Stocks - 73.56%
Technology - 15.50%
Parkervision Inc. * ...................... 112,100 $2,157,925
Electronics for Imaging, Inc. * .......... 15,000 316,875
Avnet, Inc. .............................. 5,000 273,437
Sun Microsystems, Inc. * ................. 5,000 217,188
Electronic Data Systems Corp. ............ 5,000 199,688
Seagate Technology * ..................... 7,500 179,062
----------
$3,344,175
----------
Real Estate and
Real Estate Investment Trusts - 13.37%
Camden Property Trust ....................... 22,690 $ 675,028
Chateau Communities, Inc. ................... 15,630 449,362
Merry Land & Investment Co. ................. 15,000 315,938
Toll Brothers Inc. * ........................ 10,000 286,875
Amli Residential Properties Trust ........... 12,500 267,969
United Dominion Realty Trust ................ 15,000 208,125
Catellus Development Corp. * ................ 10,000 176,875
Equity Office Properties Trust .............. 5,000 141,875
Equity Residential Properties Trust Pfd C ... 5,000 131,875
Capstead Mortgage Corp. ..................... 15,000 126,563
Capstead Mortgage Corp Pfd B ................ 10,000 105,000
----------
$2,885,485
----------
Financial Services - 12.21%
Mellon Bank Corp. ........................ 12,000 $ 836,250
Chase Manhattan Corp. .................... 10,000 755,000
MBIA, Inc. ............................... 6,000 449,250
PartnerRe Ltd. ........................... 5,000 255,000
Fleet Financial Group .................... 2,500 208,750
Conseco Financing Trust Pfd. ............. 5,000 130,312
----------
$2,634,562
----------
</TABLE>
* Non-income producing security
The accompanying notes are an integral part of these statements
- 3 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at June 30, 1998
(Unaudited)
Number of Market Value
Shares (Note A)
--------- ------------
<S> <C> <C>
Telecommunication and Media - 10.71%
Viacom Inc. Cl A * ....................... 12,000 $ 702,000
BCE, Inc. ................................ 12,500 533,594
SBC Communications Inc. .................. 10,000 400,000
GTE Corp. ................................ 5,000 278,125
Tele-Communications Int'l Inc.* .......... 10,000 200,938
Airtouch Communications Inc.* ............ 3,000 175,312
Cellular Technical Services Inc.* ........ 45,000 21,096
----------
$2,311,065
----------
Office Equipment and Services - 5.61%
Xerox Corp. ................................. 3,000 $ 304,875
Norrell Corp. ............................... 15,000 299,063
OfficeMax Inc. * ............................ 15,000 247,500
Ikon Office Solutions ....................... 12,500 182,031
Danka Business Systems ADR................... 15,000 177,187
----------
$1,210,656
----------
Healthcare - 5.09%
Rhone Poulenc S.A. ADR ...................... 5,886 $ 330,720
Health Care Property Invs Inc. .............. 9,000 324,563
Pharmacia & Upjohn, Inc. .................... 7,000 322,875
Nationwide Health Property Inc. ............. 5,000 119,375
Matria Healthcare, Inc. * ................... 40 140
----------
$1,097,673
----------
Energy & Related Services - 3.60%
Occidental Petroleum Corp. .................. 10,000 $ 270,000
Global Marine Inc. * ........................ 10,000 188,125
Triton Energy Corp.* ........................ 5,000 179,375
ENSCO Intl Inc .............................. 8,000 140,000
----------
$ 777,500
----------
</TABLE>
* Non-income producing security
The accompanying notes are an integral part of these statements
- 4 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at June 30, 1998
(Unaudited)
Number of Market Value
Shares (Note A)
--------- -----------
<S> <C> <C>
Transportation Services - 2.05%
Ryder System Inc. ........................... 7,500 $ 236,719
KLM Royal Dutch Airlines .................... 5,000 205,000
-----------
$ 441,719
-----------
Automotive and Automotive Products - 1.96%
Ford Motor Co. .............................. 5,000 $ 295,000
Goodyear Tire & Rubber Co. .................. 2,000 128,875
-----------
$ 423,875
-----------
Consumer Goods - 1.81%
Kimberly-Clark Corp. ........................ 5,000 $ 229,375
Matsushita Electric Industries Ltd. ......... 1,000 160,750
-----------
$ 390,125
-----------
Retail - 1.38%
J C Penney Co., Inc. ........................ 2,500 $ 180,781
Toys R Us Inc. Holding Company * ............ 5,000 117,187
-----------
$ 297,968
-----------
Miscellaneous Securities - 0.27%
Technology General Corp. * ** .............. 292,600 $ 58,520
-----------
Total common and preferred stocks (cost $12,364,653) $15,873,323
-----------
</TABLE>
* 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 June 30, 1998.
The accompanying notes are an integral part of these statements
- 5 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
INVESTMENTS IN SECURITIES - continued
As at June 30, 1998
(Unaudited)
Principal Market Value
Amount (Note A)
---------- -----------
<S> <C> <C>
Corporate Bonds and Notes - 2.53%
Stop and Shop Companies 9.75%
senior subordinated note due 2/1/2002 ........... $ 150,000 $ 167,344
Caesar's World 8.875% senior
subordinated note due 8/15/2002 ................. 200,000 204,000
Danka Business Systems 6.75%
convertible corporate bond due 4/1/2002 ......... 200,000 175,250
-----------
Total corporate bonds and notes
(cost $543,875) ............................. $ 546,594
-----------
U.S. Government Obligations - 5.81%
U.S. Treasury Note 5.5% due 2/28/1999 ............ 500,000 500,000
U.S. Treasury Note 6.25% due 3/31/1999 ........... 250,000 251,406
U.S. Treasury Note 6% due 8/15/1999 .............. 250,000 251,172
U.S. Treasury Note 6% due 10/15/1999 ............. 250,000 251,406
-----------
Total U.S. Government Obligations (cost $1,242,184) $ 1,253,984
-----------
Government Agencies - 4.88%
Federal Home Loan Mortgage Corp.
Step-Up Notes 7.2% due 8/7/2006 ................. $200,000 $ 200,375
Federal Home Loan Mortgage Corp.
7% due 7/23/2007 ................................ 200,000 200,187
Federal Home Loan Mortgage Corp.
Step-Up Notes 6.5% due 10/15/2007 ............... 400,000 401,500
Federal National Mortgage Association
7% due 12/10/2007 ............................... 250,000 250,000
-----------
Total Government Agencies (cost $1,049,500) $ 1,052,062
-----------
Total Investments (cost $15,200,212) ............. $18,725,963
-----------
</TABLE>
The accompanying notes are an integral part of these statements
- 6 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
CALL OPTIONS WRITTEN
As at June 30, 1998
(Unaudited)
Number of Market Value
Contracts (Note A)
--------- --------
<S> <C> <C>
Description/Expiration Date/Exercise Price
Chase Manhattan Corp/January 1999/ $75
(sales proceeds $15,321) .......................... 30 $22,875
Electronics for Imaging Inc/January 1999/ $45
(sales proceeds $6,197) ............................ 25 938
Electronics for Imaging Inc/July 1998/ $35
(sales proceeds $6,040)............................. 25 312
Sun Microsystems Inc/January 1999/ $65
(sales proceeds $6,687)............................. 20 1,624
Sun Microsystems Inc/July 1998/ $60
(sales proceeds $2,947)............................. 15 93
Xerox Corp./October 1998/ $120
(sales proceeds $7,072)............................. 10 2,000
-------
Total Call Options written(sales proceeds $44,264) $27,842
-------
</TABLE>
The accompanying notes are an integral part of these statements.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
STERLINLG CAPITAL CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
As at June 30, 1998
(Unaudited)
ASSETS
<S> <C>
Investment in securities, at value
(identified cost $15,200,212) (Note A) ................... $ 18,725,963
Cash ......................................................... 2,427,136
Investment in real estate (cost $100,000) .................... 50,000
Receivables:
Investment securities sold ............................... 273,541
Dividends and interest ................................... 99,584
Other .................................................... 4,177
Deposits with brokers for covered call options written ....... 120,789
Deferred Pension Costs ....................................... 24,255
------------
Total assets ................................................. $ 21,725,445
------------
LIABILITIES
Covered call options written, at value
(premiums received $44,264) .................................. $ 27,842
Payables:
Investment securities purchased .......................... 68,438
Accrued expenses and other liabilities ................... 51,404
------------
Total liabilities ............................................ $ 147,684
------------
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 . (6,484,773)
Excess of net realized gain on investments over distributions 4,347,643
Unrealized appreciation of investments ....................... 3,492,173
------------
Net assets ................................................... $ 21,577,761
------------
Net assets per outstanding share ............................. $ 8.63
------------
</TABLE>
The accompanying notes are an integral part of these statements
- 8 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS
For the Six Months ended June 30, 1998
(Unaudited)
<S> <C>
Investment income and expenses:
Interest ................................................. $151,146
Dividends ................................................ 176,504
--------
Total income ................................................. $327,650
Expenses (Notes D, E, and F):
Officers' salaries ....................................... $ 86,500
Office salaries .......................................... 35,847
Pension plan ............................................. 27,806
Payroll taxes, fees and employee benefits ................ 22,856
Directors' fees and expenses ............................. 20,376
Custodian fees and expenses .............................. 15,274
Equipment rentals ........................................ 12,612
Rent and Electric ........................................ 11,325
Legal, audit and professional fees ....................... 10,000
American Stock Exchange listing fee ...................... 7,500
Transfer agent and registrar fees ........................ 7,016
Insurance ................................................ 6,542
Federal, state and local taxes ........................... 2,571
Miscellaneous ............................................ 1,499
--------
Total expenses ......................................... $267,724
--------
Net investment income ........................................ $ 59,926
--------
</TABLE>
(continued)
The accompanying notes are an integral part of these statements
- 9 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS-continued
For the Six Months ended June 30, 1998
(Unaudited)
<S> <C>
Net investment income (from previous page) ................... $ 59,926
----------
Net gain on investments (Notes A and B):
Realized gain from securities transactions:
Proceeds from sales .................................... $3,784,025
Cost of securities sold ................................ 2,728,052
----------
Net realized gain ...................................... $1,055,973
----------
Unrealized appreciation of investments:
Beginning of period ...................................... $3,591,852
End of period ............................................ 3,492,173
----------
Net decrease in unrealized appreciation .................. $ (99,679)
----------
Net realized and unrealized gain on investments .............. $ 956,294
----------
Net increase in net assets resulting from operations ......... $1,016,220
----------
</TABLE>
The accompanying notes are an integral part of these statements
- 10 -
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 1998 (unaudited)
and December 31, 1997
Six months
ended Year ended
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
From investment activities:
Net investment income ........................ $ 59,926 $ 189,081
Net realized gain from securities transactions 1,055,973 2,060,216
Net change in unrealized appreciation ........ (99,679) 145,140
------------ ------------
Increase in net assets derived from
investment activities ........................ 1,016,220 2,394,437
Distributions to shareholders (Note G) ......... 0 (2,217,500)
Net Assets:
Beginning of year ............................ 20,561,541 20,384,604
------------ ------------
End of period ................................ $ 21,577,761 $ 20,561,541
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements
- 11 -
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
As at June 30, 1998
(Unaudited)
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. 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, 1998 will
probably be 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 will probably be "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. It is anticipated that the Corporation will not
have any undistributed personal holding company income for the year ended
December 31, 1998. 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.
- 12 -
<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 six months ended June 30, 1998:
Purchases .......................................................... $3,046,963
Sales (includes $2,550,000 of short term corporate commercial paper). $6,372,315
Net gain on investments for the six months ended June 30, 1998 was
$956,294. This amount represents the net increase in value of investments held
during the period. The components are as follows:
Long transactions ............................ $939,872
Covered call options written ................. 16,422
--------
Net gain on investments ...................... $956,294
--------
Gross unrealized gains and losses in the Corporation's portfolio of
investments amounted to $4,741,903 and $1,249,730, respectively, as at June 30,
1998.
Note C - Call Options Written
As at June 30, 1998, $120,789 was held in escrow by a broker in
connection with covered call options written.
-13-
<PAGE>
Note D - 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 $21,800.
Note E - Other Transactions with Affiliates
Aggregate remuneration paid or accrued by the Corporation for the six
months ended June 30, 1998 to certain persons who were "affiliated persons"
within the meaning of the Act, was as follows:
Officers' salaries .............................. $ 86,500
Amount paid or accrued under Pension Plan........ 13,363
Directors' fees.................................. 20,000
Incident to the sublease arrangements for office space at 635 Madison
Avenue referred to in Note D 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 six
months ended June 30, 1998, Mr. Scheuer and the Corporation paid or accrued
approximately $263,000 and $50,000, 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 F - 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, 1997:
- 14 -
<PAGE>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including
vested benefits of $265,058 .............................. ($267,363)
---------
Projected benefit obligation for service rendered to date .. (376,153)
Plan assets at fair value .................................. 291,767
---------
Projected benefit obligation in excess of plan assets ...... (84,386)
Prior service costs ........................................ 42,330
Unrecognized net loss (gain) from past experience different
from that assumed and effect of changes in assumptions .. (38,563)
Unrecognized net transition obligation at January 1, 1997,
being recognized over 25 years .......................... 104,874
Accrued pension expense .................................... 0
---------
Prepaid pension cost included in other assets .............. 24,255
---------
Net pension cost for 1997 included the following components:
Service cost - benefits earned during the period ........... $ 27,359
Interest cost on projected benefit obligation .............. 19,260
Actual return on plan assets ............................... (35,074)
Net amortization and deferral .............................. 23,694
---------
Net periodic pension cost .................................. $ 35,239
---------
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 G - Distributions to Shareholders
On January 22, 1998 the Corporation paid a cash distribution of $.85
per share to shareholders of record at the close of business on December 30,
1997. 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 1997 even though the distribution was paid to
shareholders in 1998. The Board of Directors determined that of the aggregate
amount of the distribution ($2,125,000), $136,518 be considered a charge on the
Corporation's books against net investment income and $1,988,482 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.
- 15 -
<PAGE>
On August 13, 1998 the Board of Directors of the Corporation declared a
cash distribution of $.0497 per share, payable September 11, 1998 to
shareholders of record at the close of business on August 28, 1998. 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 1997 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 such calendar
year shareholders in 1998 even though the distribution represents net capital
gains and "investment company taxable income" realized by the Corporation during
1997. The Board of Directors determined that of the aggregate amount of the
distribution ($124,250), $52,516 be considered a charge on the Corporation's
books against net investment income and $71,734 be considered a charge on the
Corporation's books against net realized gains. Detailed information with
respect to the distribution will be provided to each shareholder.
- 16 -
<PAGE>
STERLING CAPITAL CORPORATION
SUPPLEMENTARY INFORMATION
As at June 30, 1998
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Six Months
ended Year Ended December 31
-------------------------------------------------------------
June 30, 1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)(1) (Audited)
-------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income ......................... $.13 $ .30 $ .27 $ .39 $ .38 $ .36
Expenses .................................. .11 .22 .21 .25 .28 .24
---- ------ ------- ------- ------- ------
Net investment income .................... .02 .08 .06 .14 .10 .12
Distributions of net realized
capital gains ............................. -- (.82) (.36) (.53) - (.67)
Distributions of net investment income -- (.06) (.06) (.15) (.08) (.15)
Net realized gain (loss) and increase
(decrease) in unrealized appreciation.. .39 .87 1.02 1.16 (.68) 1.08
----- ------ ------ ------- ------ ------
Net increase (decrease) in net asset value .41 .07 .66 .62 (.66) .38
Net asset value:
Beginning of period .................... 8.22 8.15 7.49 6.87 7.53 7.15
----- ------ ------ ------- ------ ------
End of period ......................... $8.63 $ 8.22 $ 8.15 $ 7.49 $ 6.87 $ 7.53
===== ====== ====== ======= ====== ======
Ratio of expenses to average net assets . 1.2% 2.6% 2.6% 3.4% 3.8% 3.1%
Ratio of net investment income to
average net assets ........................ .3% .9% .8% 1.8% 1.3% 1.6%
Portfolio turnover ....................... 16% 40% 57% 51% 77% 95%
Number of shares outstanding at end
of each period (in 000's) ................ 2,500 2,500 2,500 2,500 2,500 2,500
</TABLE>
_________________
(1) Not annualized
- 17 -
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