STERLING CAPITAL CORPORATION
Report for the Year Ended December 31, 1999
<PAGE>
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
February 22, 2000
To our Shareholders:
The equity market recorded its fifth consecutive year of strong gains
with the S&P 500 Index and Dow Jones Industrial Average increasing 19.5% and
25.2%, respectively. The NASDAQ Composite, with a heavier weighting in
technology stocks, posted even greater gains. However, the difference in
performance among stocks discussed in our 1998 letter to shareholders widened
further in 1999 and resulted in the largest divergence ever. Last year, more
than half of all publicly traded stocks again declined in price and therefore,
the median performance for stocks was actually negative. Moreover, the ratio of
advancing stocks to declining stocks peaked in April of 1998 and has been
declining ever since, despite the record highs achieved in the major indices.
The performance divergence between large capitalization technology stocks and
the rest of the market has continued into the current year and has led to
extremely large disparities in valuation. We believe the extent of these
valuation disparities is unwarranted and that a significant opportunity exists
for investment in many well known companies with long-term records of growth and
profitability which are now selling at historically attractive valuations. For
example, stocks in industries such as banking, insurance, retailing, housing,
and even the pharmaceutical industry are now selling at their lowest valuations
in several years. We intend to capitalize on these opportunities through
increased investment in currently depressed sectors.
Economic growth continued at a strong pace in the second half of 1999
with real GDP increasing approximately 6%. This rate of growth exceeded most
economists' forecasts, and more importantly, considerably exceeded the Federal
Reserve's targeted growth rate of 3 to 3 1/2%. With consumer confidence at a
record high level, unemployment at a thirty year low, and the positive impact of
a rising stock market on consumer spending, the economy appears unlikely to
falter in the near term. As a result, we expect economic growth to continue at a
healthy rate in the first half of 2000. On a less positive note, a tight labor
market, rising energy prices, and an above average rate of economic growth has
led to increased concerns regarding inflation. Although the Consumer Price Index
showed only a modest 2.5% increase in 1999, the increase was greater than the
prior year and certain inflation indicators rose at a faster rate in the fourth
quarter.
In an effort to slow the pace of economic growth and prevent inflation
from rising above targeted levels, the Federal Reserve increased short-term
interest rates four times since June of last year. These actions have yet to
have much impact on either the economy or stock prices, but clearly have had an
adverse effect on the bond market. Bond prices declined across all maturities in
1999 and total rates of return for bonds were negative. With the Fed expected to
<PAGE>
raise rates further in the first of half of this year and with stocks already
overvalued relative to bonds, additional increases in interest rates from the
current level could have a negative impact on stock prices. We are also
concerned about the narrow nature of the market's advance and the extremely high
valuations being placed on certain internet and technology stocks. These
valuations appear to be unsustainable to us and are likely to be corrected in
the near future. It should also be noted that a correction in technology stocks
would have a meaningful impact on the major stock indices, since all of these
indices now have a much greater weighting in technology stocks. For example,
within the S&P 500 Index, technology now accounts for approximately 30% of the
total versus only 14% as recently as 1995. Despite these concerns, we are
presently finding more and more companies selling at attractive valuations and
at substantial discounts to private market value. As a result, we believe the
stocks being purchased in the portfolio offer substantial appreciation potential
over the long term.
We enclose a report of our Corporation's operations for the year ended
December 31, 1999. The net asset value per share of the Corporation's Common
Stock as at December 31, 1999 was $8.97, as compared with its net asset value at
December 31, 1998 of $7.93 per share, in both instances giving effect to the
Corporation's distributions to shareholders of $.04529 per share paid on
September 10, 1999 to shareholders of record at the close of business on August
27, 1999, and $.50 per share paid on January 21, 2000 to shareholders of record
at the close of business on December 30, 1999. As at February 22, 2000 the
unaudited net asset value per share was approximately $8.63.
As at December 31, 1999 and February 22, 2000 the closing sales price
for shares of the Corporation's Common Stock on the American Stock Exchange was
$6.625 and $6.50, respectively. Thus, as at December 31, 1999 and February 22,
2000 the market price for the Corporation's shares represented discounts of
approximately 26% and 25%, 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, 1999 certain of the Corporation's officers and directors and their associates
have purchased an aggregate of 30,700 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,
/s/Wayne S. Reisner
- -------------------
Wayne S. Reisner
President
<PAGE>
[letterhead TOCCI & GOLDSTEIN LLP]
Independent Auditor's Report
To the Shareholders and Board of Directors of
Sterling Capital Corporation:
We have audited the statement of assets and liabilities of Sterling
Capital Corporation, including the schedule of investments, as of December 31,
1999, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights 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 financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1999, 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 financial highlights
referred to above present fairly, in all material respects, the financial
position of Sterling Capital Corporation as of December 31, 1999, the results of
its operations for the year then ended, the changes in net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
/S/TOCCI & GOLDSTEIN LLP
- ------------------------
TOCCI & GOLDSTEIN LLP
New York, N.Y.
February 22, 2000
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS
December 31, 1999
Number of Market Value
Shares (Note A)
------ --------
<S> <C> <C>
Common & Preferred Stocks - 71.12% of net assets
Financial Services - 18.43%
Mellon Financial Corp. .......................... 24,000 $ 817,500
Chase Manhattan Corp. ........................... 10,000 776,875
Citigroup Inc. .................................. 7,500 417,656
Unumprovident Corp .............................. 10,000 320,625
MBIA, Inc. ...................................... 6,000 316,875
PNC Bank Corp. .................................. 5,000 222,500
Hartford Life Inc. .............................. 5,000 220,000
Fleet Boston Financial Corp ..................... 5,000 174,063
Axa Financial Inc. .............................. 5,000 170,000
St. Paul Cos Inc. ............................... 5,000 168,437
Neuberger Berman Inc. * ......................... 5,000 124,375
Amerus Life Holdings 7 % Pfd .................... 5,000 113,750
Keycorp ......................................... 5,000 110,625
Merrill Lynch Cap Tr 7.28% Pfd .................. 5,000 102,187
Friedman Billings Ramsey * ...................... 10,000 78,750
----------
$4,134,218
----------
Consumer Goods - 14.74%
Windmere Durable Holdings * ..................... 135,200 $2,298,400
Kimberly-Clark Corp. ............................ 5,000 327,187
Black & Decker Corp. ............................ 5,000 261,250
Eastman Kodak ................................... 3,000 198,750
Newell Rubbermaid Inc. .......................... 5,000 145,000
Gartner Group Cl A * ............................ 5,000 76,250
----------
$3,306,837
----------
</TABLE>
* Non-income producing security
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
December 31, 1999
Number of Market Value
Shares (Note A)
------ --------
<S> <C> <C>
Telecommunication and Media - 13.55%
BCE, Inc. ....................................... 12,500 $1,127,344
Viacom Inc. Cl A * .............................. 10,000 604,375
SBC Communications Inc. ......................... 10,000 487,500
GTE Corp. ....................................... 5,000 352,813
AT&T Liberty Media A * .......................... 6,000 340,875
Telebras-Sponsored ADR ........................ 1,000 128,750
Telecomunicacoes Br-Telebras ADS * ............ 1,000 22
----------
$3,041,679
----------
Real Estate and
Real Estate Investment Trusts - 12.47%
Camden Property Trust ........................... 22,690 $ 629,648
Equity Residential Properties Trust ............. 9,950 424,741
Chateau Communities, Inc. ....................... 15,630 405,403
Amli Residential Properties Trust ............... 18,000 363,375
Catellus Development Corp. * .................... 20,000 256,250
St. Joe Co. ..................................... 10,000 243,125
Equity Office Properties Trust .................. 5,000 123,125
Felcor Lodging Trust Inc. ....................... 6,500 113,750
Equity Residential Properties Trust Pfd C ....... 5,000 108,750
CarrAmerica Realty Tr 8.55% Pfd C ............... 5,000 80,000
Prison Realty Trust Inc. ........................ 10,000 50,625
----------
$2,798,792
----------
Technology - 4.18%
Koninklijke Philips Electronics NV Holdings ..... 3,680 $ 496,800
Artisoft Inc. * ................................. 24,500 441,000
----------
$ 937,800
----------
</TABLE>
* Non-income producing security
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
December 31, 1999
Number of Market Value
Shares (Note A)
------ --------
<S> <C> <C>
Healthcare - 2.56%
Aventis Spon ADR ................................... 5,886 $ 334,766
Pharmacia & Upjohn, Inc. ........................... 3,000 135,000
Rhone Poulenc 8.125% Pfd ........................... 5,000 104,375
-----------
$ 574,141
-----------
Automotive - 1.19%
Ford Motor Co. ...................................... 5,000 $ 266,563
-----------
Transportation Services - 1.18%
Ryder System Inc. .................................. 7,500 $ 183,281
FDX Corp * ......................................... 2,000 81,875
-----------
$ 265,156
-----------
Retail - 1.14%
Saks Inc. * ........................................ 10,000 $ 155,625
J C Penney Co., Inc. ............................... 5,000 99,688
-----------
$ 255,313
-----------
Office Equipment and Services - 0.81%
Xerox Corp. ........................................ 8,000 $ 181,500
-----------
Industrial Products - 0.61%
York International Corp. ........................... 5,000 $ 137,187
-----------
Miscellaneous Securities - 0.26%
Technology General Corp. * ** ................... 292,600 $ 58,520
-----------
Total common and preferred stocks (cost $10,363,072) $15,957,706
-----------
</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 December 31, 1999.
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
December 31, 1999
Principal Market Value
Amount (Note A)
------ --------
<S> <C> <C>
Commercial Paper - 7.80% of net assets
Ford Motor Credit Co. .......................
6.28% due 1/7/2000 ......................... $ 750,000 $ 750,000
General Electric Capital Corp. ..............
6.25% due 1/13/2000 ........................ 750,000 750,000
General Electric Capital Corp. ..............
5.95% due 1/19/2000 ........................ 250,000 250,000
-----------
Total Commercial Paper (cost $1,750,000) ..... $ 1,750,000
-----------
Corporate Bonds and Notes - 1.58%
Stop and Shop Companies 9.75%
senior subordinated note due 2/1/2002 ...... $ 150,000 $ 156,843
Lehman Brothers Inc 7.25%
senior subordinated note due 4/15/2003 ..... 200,000 197,581
-----------
Total corporate bonds and notes
(cost $350,368) ........................ $ 354,424
-----------
Government Agencies - 4.10%
Federal National Mortgage Association
5.5% due 2/15/2002 ........................ $ 200,000 $ 195,687
Federal National Mortgage Association
6.31% due 7/17/2002 ....................... 250,000 247,266
Federal Home Loan Mortgage Corp. ............
5.75% due 7/15/2003 ....................... 250,000 241,875
Federal National Mortgage Association
6.5% due 4/29/2009 ........................ 250,000 234,219
-----------
Total Government Agencies
(cost $938,745) ...................... $ 919,047
-----------
Total Investments (cost $13,402,185) ......... $18,981,177
===========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
<S> <C>
Investment in securities, at value
(identified cost $13,402,185) (Note A) .................... $ 18,981,177
Cash .......................................................... 4,861,761
Investment in real estate (cost $100,000) (Note A) ............ 50,000
Receivables:
Investment securities sold ................................ 27,556
Dividends and interest .................................... 85,133
Other ..................................................... 537
Prepaid Pension Cost (Note E) ................................. 14,089
Prepaid Insurance ............................................. 6,125
------------
Total assets .................................................. $ 24,026,378
------------
LIABILITIES
Distribution payable to shareholders (Note F) ................. $ 1,250,000
Payables:
Investment securities purchased ........................... 296,602
Accrued expenses and other liabilities ................... 42,418
------------
Total liabilities ............................................. $ 1,589,020
------------
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 .. (6,553,388)
Excess of net realized gain on investments over distributions . 3,239,036
Net unrealized appreciation on investments .................... 5,528,992
------------
Net assets .................................................... $ 22,437,358
============
Net assets per outstanding share .............................. $ 8.97
============
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS
For the year ended December 31, 1999
<S> <C>
Investment income:
Dividends ................................................ $412,839
Interest ................................................. 202,904
--------
Total investment income ................................ $615,743
--------
Expenses (Notes C, D and E):
Officers' salaries ....................................... $143,833
Office salaries .......................................... 76,237
Pension and related costs ................................ 51,580
Payroll taxes, fees and employee benefits ................ 47,684
Directors' fees and expenses ............................. 42,512
Transfer agent and registrar fees ........................ 35,226
Legal, audit and professional fees ....................... 30,580
Equipment rentals ........................................ 24,748
Rent and Electric ........................................ 21,624
Custodian fees and expenses .............................. 20,978
Insurance ................................................ 7,608
American Stock Exchange listing fee ...................... 7,500
Federal, state and local taxes ........................... 6,811
Miscellaneous ............................................ 5,000
--------
Total expenses ......................................... $521,921
--------
Net investment income ........................................ $ 93,822
--------
</TABLE>
(continued)
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS-continued
For the year ended December 31, 1999
<S> <C>
Net investment income (from previous page) ................... $ 93,822
----------
Net gain on investments (Notes A and B):
Realized gain from securities
transactions:
Proceeds from sales .................................... 8,875,829
Cost of securities sold ................................ 7,656,730
----------
Net realized gain ...................................... 1,219,099
----------
Unrealized appreciation on investments:
Beginning of period ...................................... 4,234,979
End of period ............................................ 5,528,992
----------
Net increase in unrealized appreciation .................. 1,294,013
----------
Net realized and unrealized gain on investments .............. 2,513,112
----------
Net increase in net assets resulting from operations ......... $2,606,934
==========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
<TABLE>
<CAPTION>
STERLING CAPITAL CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 1999 and 1998
Year ended
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
From investment activities:
Net investment income ........................ $ 93,822 $ 107,714
Net realized gain from securities transactions 1,219,099 105,517
Net change in unrealized appreciation ........ 1,294,013 643,127
----------- -----------
Increase in net assets derived from
investment activities ........................ 2,606,934 856,358
Distributions to shareholders (Note F) ......... (1,363,225) (224,250)
Net Assets:
Beginning of year ............................ 21,193,649 20,561,541
----------- -----------
End of year .................................. $22,437,358 $21,193,649
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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, 1999 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, 1999. 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>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(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 year ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Purchases (excludes $1,750,000 of short term corporate commercial paper)....... $ 6,315,394
Sales (excludes $1,500,000 of short term corporate commercial paper
and $1,242,184 of U.S. Government Obligations) .................... $ 7,424,005
</TABLE>
Net realized and unrealized gain on investments for the year ended
December 31, 1999 was $2,513,112. This amount represents the net increase in
value of investments held during the period. The components are as follows:
<TABLE>
<CAPTION>
<S> <C>
Long transactions ............................ $2,500,228
Covered call options written ................. 12,884
-----------
Net gain on investments ...................... $2,513,112
==========
</TABLE>
As of December 31, 1999, gross unrealized appreciation and
(depreciation) of the corporation's securities portfolio were as follows:
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Unrealized appreciation .................. $6,344,258
Unrealized depreciation .................. (815,266)
----------
Net unrealized appreciation .............. $5,528,992
==========
</TABLE>
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 rent expense for this space is
approximately $21,000.
Note D - Other Transactions with Affiliates
Aggregate remuneration paid or accrued by the Corporation for the year
ended December 31, 1999 to certain persons who were "affiliated persons" within
the meaning of the Act, was as follows:
<TABLE>
<CAPTION>
<S> <C>
Officers' salaries ....................................... $143,800
Amount paid or accrued under Pension Plan ................ 15,244
Directors' fees .......................................... 40,000
</TABLE>
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, 1999, Mr. Scheuer and the Corporation paid or accrued
approximately $529,000 and $108,000, 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.
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
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:
<TABLE>
<CAPTION>
<S> <C>
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
=========
</TABLE>
The following table provides amounts recognized in the balance sheet as of
December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Prepaid Benefit Cost $ 14,089
---------
Net Amount Recognized $ 14,089
=========
</TABLE>
<PAGE>
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
The components of net pension costs are as follows:
<TABLE>
<CAPTION>
<S> <C>
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
==========
</TABLE>
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 10, 1999 the Corporation paid a cash distribution of
$.04529 per share to shareholders of record at the close of business on August
27, 1999. 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 1998 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 1999 even though the
distribution represented net capital gains and "investment company taxable
income" realized by the Corporation during 1998. The Board of Directors
determined that of the aggregate amount of the distribution ($113,225), $42,708
be considered a charge on the Corporation's books against net investment income
and $70,517 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 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.
<PAGE>
STERLING CAPITAL CORPORATION
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Investment income ........................ $.25 $.26 $.30 $.27 $.39
Expenses ................................. .21 .21 .22 .21 .25
----- ----- ----- ----- -----
Net investment income .................... .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 and increase
in unrealized appreciation............... 1.00 .30 .87 1.02 1.16
----- ----- ----- ----- -----
Net increase in net asset value .......... .49 .26 .07 .66 .62
Net asset value:
Beginning of period ................... 8.48 8.22 8.15 7.49 6.87
----- ----- ----- ----- -----
End of period.......................... $8.97 $8.48 $8.22 $8.15 $7.49
===== ===== ===== ===== =====
Ratio of expenses to average net assets . 2.4% 2.5% 2.6% 2.6% 3.4%
Ratio of net investment income to
average net assets ....................... .4% .5% .9% .8% 1.8%
Portfolio turnover ...................... 37% 41% 40% 57% 51%
Number of shares outstanding at end
of year (in 000's) ...................... 2,500 2,500 2,500 2,500 2,500
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 23,893
<RECEIVABLES> 113
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,026
<PAYABLE-FOR-SECURITIES> 297
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,292
<TOTAL-LIABILITIES> 1,589
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,723
<SHARES-COMMON-STOCK> 2,500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (6,554)
<ACCUMULATED-NET-GAINS> 3,239
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,529
<NET-ASSETS> 22,437
<DIVIDEND-INCOME> 413
<INTEREST-INCOME> 203
<OTHER-INCOME> 0
<EXPENSES-NET> 522
<NET-INVESTMENT-INCOME> 94
<REALIZED-GAINS-CURRENT> 1,219
<APPREC-INCREASE-CURRENT> 1,294
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 93
<DISTRIBUTIONS-OF-GAINS> 1,270
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 22,242
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 0
</TABLE>
