Sterling Capital Corporation
Report for the Six Months Ended June 30, 2000
OFFICERS
Walter Scheuer .................... Chairman of the Board of Directors
Wayne S. Reisner .................. President
Mark Nikiper....................... Executive Vice President
Michael Carey ..................... Vice President and Treasurer
Tracey Stefano ................... 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
Tocci & Goldstein LLP Skadden, Arps,
342 Madison Avenue Slate, Meagher & Flom
New York, New York 10173 Four Times Square
New York, New York 10036
<PAGE>
STERLING CAPITAL CORPORATION
635 Madison Avenue
New York, N.Y. 10022
August 22, 2000
To our Shareholders:
The equity market posted negative returns in the first half of 2000
with the Dow Jones Industrial Average and the S&P 500 Index declining 9% and 1%,
respectively. Following a particularly sharp 34% decline during April and May,
the volatile NASDAQ Composite has recovered much of its loss, but still remains
well below its high. With many investors heavily weighted in equities, it is
surprising to note that the rate of return achieved by the S&P 500 for the
twelve months ended June 30 was less than 6% and that the Dow Jones Industrial
Average actually recorded a loss of 5% over the same period. The bond market,
following a disappointing performance in 1999, has fared better than expected
this year and has shown positive returns. We attribute the favorable bond
performance to a flight to safety during the recent stock market declines and to
the perception that the economy is slowing and that the cycle of interest rate
tightening by the Federal Reserve may be coming to an end.
Although the widely followed stock indices are struggling, the ratio of
advancing stocks to declining stocks is currently showing signs of improvement
and the average stock is no longer underperforming these capitalization weighted
indices. For example, the Russell 2000, the S&P Midcap, and the S&P Small Cap
indices have all outperformed the S&P 500 this year. Moreover, while the stock
market as measured by the S&P 500 remains overvalued on a price-to-earnings
basis, it is significant to note that a relatively small number of large cap
stocks are distorting this ratio and that the majority of stocks are not
expensive by this measure. Specifically, the S&P 500 is selling at a
price-to-earnings ratio of 28, but the median P/E multiple for all U.S. stocks
is 14, which approximates the long-term average for equities.
The economy continues to surprise on the upside with second quarter
real GDP showing an increase of 5.2%, which was well above forecast. However,
the second quarter rate of growth was boosted by a rapid buildup of inventories,
a sharp increase in federal spending, and an above average rate of growth in
capital spending. Consumer spending, the largest component of GDP, actually
slowed noticeably during the quarter recording an increase of only 3% versus a
7% gain in the first quarter. Employment data showed slower job creation during
the latest quarter with the average monthly increase in payrolls only 50% of the
first quarter level. The recent softening in retail sales and four consecutive
declines in the monthly Purchasing Managers Index similarly suggests slower
growth lies ahead. Therefore, while the economy is still clearly expanding, we
expect the rate of growth to moderate in the second half of this year.
Inflation, led by a sharp rise in energy prices, has increased at a
higher than expected rate this year, and remains an area of concern for
investors. Both the Consumer Price Index and the Producer Price Index have shown
increases in excess of 4% for the year-to-date. However, adjusted for the impact
of higher energy prices, the core rates of inflation remain closer to 3%. In
addition, strong gains in productivity and highly competitive market conditions
in most industries should keep inflation from surging, and in the process, keep
the Federal Reserve's policy on interest rates on hold.
1
<PAGE>
To summarize, we would note that: (1) the economy is showing signs of
slowing, but we believe a soft landing can be achieved; (2) the decline in the
NASDAQ has corrected some of the speculative excess in the technology sector;
and (3) most stocks are not expensive on a P/E multiple basis. As such, our view
toward the equity market is moderately constructive and we continue to emphasize
stocks that are attractive based on traditional benchmarks of valuation.
Enclosed is a report of our Corporation's operations for the six months
ended June 30, 2000. The unaudited net asset value per share of the
Corporation's Common Stock as at June 30, 2000 was $8.87, as compared with its
audited net asset value at December 31, 1999 of $8.97 per share, in both
instances giving effect to the Corporation's distribution to shareholders of
$.50 per share paid on January 21, 2000 to shareholders of record at the close
of business on December 30, 1999. As at August 21, 2000 the unaudited net asset
value per share was approximately $9.06 after further giving effect to a
distribution to shareholders of $.025 per share, payable on September 11, 2000
to shareholders of record at the close of business on August 25, 2000. As at
June 30, 2000 and August 21, 2000 the closing sales price for shares of the
Corporation's Common Stock on the American Stock Exchange was $6.75 and $6.375
respectively. Thus, as at June 30, 2000 and August 21, 2000 the market price for
the Corporation's shares represented discounts of approximately 24% and 30%,
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, 2000 certain of the Corporation's officers and directors and their associates
have purchased an aggregate of 600 shares of the Corporation's capital stock.
Officers and directors of the Corporation currently own beneficially, directly
or indirectly, an aggregate of 1,977,396 shares (79.1% 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
2
<PAGE>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS
June 30, 2000
(Unaudited)
Number of Market Value
Shares (Note A)
----------- ------------
Common and Preferred Stocks - 68.33%
Financial Services - 16.55%
Mellon Financial Corp. .................. 18,500 $ 674,094
Chase Manhattan Corp. ................... 13,500 621,844
Axa Financial Inc. ...................... 10,000 340,000
MBIA, Inc. .............................. 7,000 337,312
Unumprovident Corp. ..................... 15,000 300,938
PNC Financial Services Group ............ 5,000 234,375
Neuberger Berman Inc. * ................. 5,000 232,500
St. Paul Cos Inc. ....................... 5,000 170,625
Fleet Boston Financial Corp. ............ 5,000 170,000
MetLife Inc. * .......................... 7,500 157,969
KeyCorp ................................. 7,500 132,187
Merrill Lynch Cap Tr 7.28% Pfd. ......... 5,000 108,438
Amerus Life Holdings 7% Pfd ............. 5,000 107,812
Friedman Billings Ramsey * .............. 10,000 81,250
----------
$3,669,344
Real Estate and
Real Estate Investment Trusts - 14.85%
Camden Property Trust ................... 22,690 $ 666,519
Equity Residential Properties Trust ..... 9,950 457,700
Chateau Communities, Inc. ............... 15,630 441,547
Amli Residential Properties Trust ....... 18,000 424,125
Catellus Development Corp. * ............ 20,000 300,000
St. Joe Co. ............................. 10,000 300,000
CarrAmerica Realty Trust 8.55% Pfd C .... 9,600 198,000
Equity Office Properties Trust .......... 5,000 137,813
Felcor Lodging Trust Inc. ............... 6,500 130,000
Equity Residential Properties Trust Pfd C 5,000 118,750
Centex Corp. ............................ 5,000 117,500
----------
$3,291,954
* Non-income producing security
The accompanying notes are an integral part of these statements
3
<PAGE>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
June 30, 2000
(Unaudited)
Number of Market Value
Shares (Note A)
-------- --------
Consumer Goods - 10.75%
Applica Incorporated * ..................... 135,200 $1,529,450
Kimberly-Clark Corp. ....................... 6,000 344,250
Black & Decker Corp. ....................... 7,000 275,187
Lazare Kaplan International * .............. 17,000 138,125
Sara Lee Corp. ............................. 5,000 96,562
----------
$2,383,574
Telecommunication and Media - 10.05%
SBC Communications Inc. .................... 10,000 $ 432,500
Viacom Inc. Cl A * ......................... 5,000 341,875
GTE Corp. .................................. 5,000 311,250
AT&T Liberty Media A * ..................... 12,000 291,000
AT&T Corp .................................. 8,000 253,000
Worldcom Inc * ............................. 4,000 183,500
A H Belo Corp Cl A ......................... 9,500 164,469
United States Cellular Corp * .............. 2,000 126,000
Telebras - Sponsored ADR ................... 1,000 97,125
Telecomunicacoes De Sao Paul SA ADR .* ..... 1,000 18,500
Tele Sudeste Cellular Participacoes ADR * .. 200 6,100
Telenorte Leste Participacoes ADR * ........ 117 2,764
Telecomunicacoes Br - Telebras ADS * ....... 1,000 39
----------
$2,228,122
Technology - 5.43%
Koninklijke Philips Electronics NV Holdings 12,720 $ 604,200
Computer Associates Intl Inc. .............. 5,000 255,938
Artisoft Inc. * ............................ 14,500 175,812
Nam Tai Electronics Inc. * ................. 10,000 168,125
----------
$1,204,075
* Non-income producing security
The accompanying notes are an integral part of these statements
4
<PAGE>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
June 30, 2000
(Unaudited)
Number of Market Value
Shares (Note A)
--------- ------------
Healthcare - 4.50%
Aventis Spon ADR ................................... 5,886 $ 427,103
Rhone Poulenc 8.125% Pfd. .......................... 10,000 212,500
Pharmacia Corporation .............................. 3,570 184,524
Bristol Myers Squibb Co. ........................... 3,000 174,750
-----------
$ 998,877
Automotive - 1.96%
Ford Motor Co. ..................................... 5,000 $ 215,000
Cooper Tire & Rubber Co. ........................... 10,000 111,250
Lear Corp * ........................................ 5,000 100,000
Visteon Corp * ..................................... 654 7,938
-----------
$ 434,188
Retail - 1.36%
Saks Inc. * ........................................ 20,000 $ 210,000
J C Penney Co., Inc. ............................... 5,000 92,188
-----------
$ 302,188
Transportation Services - 1.20%
Ryder System Inc. .................................. 10,000 $ 189,375
Fedex Corporation * ................................ 2,000 76,000
-----------
$ 265,375
Paper Products - 1.11%
Mead Corp. ......................................... 5,000 $ 126,250
International Paper Co. ............................ 4,000 119,250
-----------
$ 245,500
Industrial Products - 0.57%
York International Corp. ........................... 5,000 $ 126,250
-----------
Total common and preferred stocks (cost $11,601,464) $15,149,447
-----------
* Non-income producing security
The accompanying notes are an integral part of these statements
5
<PAGE>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
June 30, 2000
(Unaudited)
Principal Market Value
Amount (Note A)
------ --------
Commercial Paper - 6.76%
Ford Motor Credit Co.
6.54% due 7/5/2000 ............................ $ 500,000 $ 500,000
General Electric Capital Corp. .................
6.75% due 7/6/2000 ............................ 500,000 500,000
General Motors Acceptance Corp. ................
6.54% due 7/7/2000 ............................ 500,000 500,000
----------
Total Commercial Paper (cost $1,500,000) ........ $1,500,000
----------
Corporate Bonds and Notes - 4.92%
Stop and Shop Companies 9.75%
senior subordinated note due 2/1/2002 ......... $ 150,000 $ 153,750
Beneficial Corp 6.575%
note due 12/16/2002 ........................... 250,000 245,313
Lehman Brothers 7.25%
senior subordinated note due 4/15/2003 ........ 200,000 194,836
Ford Motor Credit 7.5%
note due 6/15/2003 ............................ 250,000 248,906
Goldman Sachs Group Inc 7.5%
note due 1/28/2005 ............................ 250,000 248,839
----------
Total corporate bonds and notes
(cost $1,094,213) ......................... $1,091,644
----------
U.S. Government Obligations - 3.61%
U.S. Treasury Note 6.5% due 2/28/2002 .......... $ 800,000 $ 800,000
----------
Total U.S. Government Obligations (cost $799,950) $ 800,000
----------
The accompanying notes are an integral part of these statements
6
<PAGE>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
June 30, 2000
(Unaudited)
Principal Market Value
Amount (Note A)
--------- ------------
Government Agencies - 8.64%
Federal Home Loan Bank
7.07% due 9/13/2001 ................... $ 250,000 $ 249,609
Federal National Mortgage Association
5.50% due 2/15/2002 ................... 200,000 195,813
Federal Home Loan Bank
7.185% due 3/6/2002 .................... 250,000 249,531
Federal National Mortgage Association
6.31% due 7/17/2002 ................... 250,000 246,484
Federal Home Loan Mortgage Corp. .........
5.75% due 7/15/2003 .................... 250,000 241,484
Federal Home Loan Bank
7.46% due 9/9/2003 .................... 250,000 249,297
Federal Home Loan Mortgage Corp. .........
8% due 11/25/2005 ...................... 250,000 249,609
Federal National Mortgage Association
6.50% due 4/29/2009 ................... 250,000 233,360
-----------
Total Government Agencies (cost $1,938,745) $ 1,915,187
-----------
Total Investments (cost $16,934,372) ...... $20,456,278
===========
The accompanying notes are an integral part of these statements
7
<PAGE>
STERLING CAPITAL CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000
(Unaudited)
ASSETS
Investment in securities, at value
(identified cost $16,934,372) (Note A) .................. $20,456,278
Cash ........................................................ 1,124,340
Investment in real estate (cost $100,000) (Note A) .......... 50,000
Receivables:
Investment securities sold .............................. 701,771
Dividends and interest .................................. 141,261
Other ................................................... 22,752
Prepaid Pension Costs ....................................... 14,089
-----------
Total assets ................................................ $22,510,491
-----------
LIABILITIES
Payables:
Investment securities purchased ......................... $ 279,698
Accrued expenses and other liabilities .................. 58,237
-----------
Total liabilities ........................................... $ 337,935
-----------
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 (6,474,939)
Excess of net realized gain on investments over distributions 4,952,872
Unrealized appreciation of investments ...................... 3,471,905
-----------
Net assets .................................................. $22,172,556
===========
Net assets per outstanding share ............................ $ 8.87
===========
The accompanying notes are an integral part of these statements
8
<PAGE>
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS
For the Six Months ended June 30, 2000
(Unaudited)
Investment income:
Interest ................................................. $ 127,091
Dividends ................................................. 240,508
--------
Total income ................................................ $367,599
--------
Expenses (Notes C, D and E):
Officers' salaries ........................................ $ 86,764
Pension and related costs ................................. 36,164
Office salaries ........................................... 31,196
Directors' fees and expenses .............................. 31,167
Payroll taxes, fees and employee benefits ................. 28,059
Legal, audit and professional fees ........................ 18,911
Equipment rentals ......................................... 12,626
Rent and Electric ......................................... 12,440
Custodian fees and expenses ............................... 8,622
Transfer agent and registrar fees ......................... 8,584
American Stock Exchange listing fee ....................... 7,500
Miscellaneous ............................................. 3,937
Federal, state and local taxes ............................ 3,180
---------
Total expenses .......................................... $ 289,150
---------
Net investment income ......................................... $ 78,449
---------
(continued)
The accompanying notes are an integral part of these statements
9
<PAGE>
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS-continued
For the Six Months ended June 30, 2000
(Unaudited)
Net investment income (from previous page) ................. $ 78,449
-----------
Net gain on investments (Notes A and B):
Realized gain from securities transactions:
Proceeds from sales .................................. 4,675,284
Cost of securities sold .............................. 2,961,448
-----------
Net realized gain .................................... 1,713,836
-----------
Unrealized appreciation of investments:
Beginning of period .................................... 5,528,992
End of period .......................................... 3,471,905
-----------
Net decrease in unrealized appreciation ................ (2,057,087)
-----------
Net realized gain and unrealized loss on investments ....... (343,251)
-----------
Net decrease in net assets resulting from operations ....... $ (264,802)
===========
The accompanying notes are an integral part of these statements
10
<PAGE>
STERLING CAPITAL CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
For the six months ended June 30, 2000 (unaudited)
and December 31, 1999
<TABLE>
<CAPTION>
Six Months
ended Year Ended
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
From investment activities:
Net investment income ........................ $ 78,449 $ 93,822
Net realized gain from securities transactions 1,713,836 1,219,099
Net change in unrealized appreciation ........ (2,057,087) 1,294,013
------------ ------------
Increase (Decrease) in net assets derived from
investment activities ........................ (264,802) 2,606,934
Distributions to shareholders (Note F) ......... 0 (1,363,225)
Net Assets:
Beginning of year ............................ 22,437,358 21,193,649
------------ ------------
End of period ............................... $ 22,172,556 $ 22,437,358
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
11
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(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. 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, 2000 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, 2000. 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>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
(3) Securities Transactions Valuation
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, 2000:
Purchases (excludes $1,500,000 of short term corporate commercial
paper and $799,876 of U.S. Government Obligations)..... $5,943,685
Sales (excludes $1,750,000 of short term corporate commercial paper) $2,961,449
Net loss on investments for the six months ended June 30, 2000 was
$343,251. This amount represents the net decrease in value of investments held
during the period. The components are as follows:
Long transactions .................... ($343,251)
-----------
Net loss on investments .............. ($343,251)
===========
As of June 30, 2000 gross unrealized appreciation and (depreciation) of
the corporation's securities portfolio were as follows:
Unrealized appreciation............... $4,183,123
Unrealized depreciation............... (711,218)
-----------
Net unrealized appreciation........... $3,471,905
===========
13
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
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 $24,000.
Note D - Other Transactions with Affiliates
Aggregate remuneration paid or accrued by the Corporation for the six
months ended June 30, 2000 to certain persons who were "affiliated persons"
within the meaning of the Act, was as follows:
Officers' salaries ............................$ 86,764
Amount paid or accrued under Pension Plan ..... 29,576
Directors' fees ............................... 30,000
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 six
months ended June 30, 2000, Mr. Scheuer and the Corporation paid or accrued
approximately $293,000 and $62,000, 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 tables provide a reconciliation of the changes in the
plan's benefit obligations, fair value of assets, and a statement of the funded
status for the year ended December 31, 1999:
14
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
Change in Benefit Obligation
Benefit Obligation at Beginning of Year $ 449,032
Service Cost .......................... 34,917
Interest Cost ......................... 26,942
Actuarial Gain ........................ (94,796)
Benefits Paid ......................... (667)
---------
Benefit Obligation at End of Year ..... $ 415,428
=========
Change in Plan Assets
Fair Value at Beginning of Year ....... $ 346,757
Actual Return on Plan Assets .......... 26,240
Employer Contributions ................ 41,369
Benefits Paid ......................... (667)
---------
Fair Value at End of Year ............. $ 413,699
=========
Funded Status
Unfunded Status of the Plan ........... $ (1,729)
Unrecognized Net Actuarial Gain ....... (116,194)
Unrecognized Prior Service Costs ...... 37,626
Unrecognized Transition Obligation .... 94,386
---------
Prepaid Benefit Cost .................. $ 14,089
=========
The following table provides amounts recognized in the balance sheet as of
December 31, 1999:
Prepaid Benefit Cost $ 14,089
---------
Net Amount Recognized $ 14,089
==========
The components of net pension costs are as follows:
Service Cost ................................. $ 34,917
Interest Cost ................................ 26,942
Actual Return on Plan Assets ................. (26,240)
Amortization of Unrecognized Transition Assets 5,244
Amortization of Prior Service Costs .......... 2,352
Recognized Net Actuarial Loss ................ (3,845)
--------
Net Periodic Pension Cost .................... $ 39,370
========
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%.
15
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
Note F - Distributions to Shareholders
On January 21, 2000 the Corporation paid a cash distribution of $.50
per share to shareholders of record at the close of business on December 30,
1999. 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 1999 even though the distribution was paid to
shareholders in 2000. The Board of Directors determined that of the aggregate
amount of the distribution ($1,250,000), $50,000 be considered a charge on the
Corporation's books against net investment income and $1,200,000 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.
On July 27, 2000 the Board of Directors of the Corporation declared a
cash distribution of $.025 per share, payable September 11, 2000 to shareholders
of record at the close of business on August 25, 2000. 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 1999
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
2000 even though the distribution represents net capital gains and "investment
company taxable income" realized by the Corporation during 1999. The Board of
Directors determined that of the aggregate amount of the distribution ($62,500),
$43,401 be considered a charge on the Corporation's books against net investment
income and $19,099 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
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each
period:
<TABLE>
<CAPTION>
Year Ended December 31
Six Months ----------------------
ended 1999 1998 1997 1996 1995
June 30, 2000 ---- ---- ---- ---- ----
(Unaudited)(1) (Audited)
---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income ............................ $.15 $.25 $.26 $.30 $ .27 $.39
Expenses .......................................... .12 .21 .21 .22 .21 .25
--- ---- ---- ---- ----- ----
Net investment income ..................... .03 .04 .05 .08 .06 .14
Distributions of net realized
capital gains ...................................... - (.51) (.04) (.82) (.36) (.53)
Distributions of net investment income - (.04) (.05) (.06) (.06) (.15)
Net realized gain (loss) and increase
(decrease) in unrealized appreciation.. (.13) 1.00 .30 .87 1.02 1.16
------ ---- ---- ----- ---- ----
Net increase (decrease) in net asset value (.10) .49 .26 .07 .66 .62
Net asset value:
Beginning of period ........................ 8.97 8.48 8.22 8.15 7.49 6.87
------ ----- ---- ---- ---- -----
End of period ................................. $8.87 $8.97 $8.48 $8.22 $8.15 $7.49
======= ===== ===== ===== ===== ======
Ratio of expenses to average net assets 1.3% 2.4% 2.5% 2.6% 2.6% 3.4%
Ratio of net investment income to
average net assets .............................. .4% .4% .5% .9% .8% 1.8%
Portfolio turnover .............................. 17% 37% 41% 40% 57% 51%
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
