SAL TRUST PREFERRED FUND I
SEMI-ANNUAL REPORT
JUNE 30, 2000
(Unaudited)
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Table of Contents
Letter From the Chairman 1
Portfolio Summary 2
Performance of The Fund 2
Portfolio Holdings 3
Trustees, Officers and Service Providers 11
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Letter From the Chairman
Dear Shareholder,
I am pleased to enclose this semi-annual report of SAL Trust Preferred Fund I
(the "Fund") for the six months ending June 30, 2000.
The Fund completed its public offering in September 1999 and purchased its
existing holdings simultaneously therewith. The Fund owns three trust preferred
issues, as more fully described herein, which pay dividends equal to 9 3/4% per
annum. In addition, the issuers of these securities are required to reimburse
reasonable and customary expenses of the Fund. During the first six months of
2000 the Fund received $967,327 in dividends, earned $103 in interest, incurred
$91,597 in expenses, which were reimbursed by the issuers, and distributed
$967,327 to our shareholders. The net asset value of the Fund as of June 30,
2000 was $22.98 per share as reported by our Investment Advisor.
We thank you for your interest in SAL Trust Preferred Fund I. If you have any
questions regarding your ownership in this Fund feel free to call me at
205-949-3535 or write to me at SAL Trust Preferred Fund I, 800 Shades Creek
Parkway, Suite 700, Birmingham, Alabama 35209.
Sincerely,
James S. Holbrook, Jr.
Chairman
1
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Portfolio Summary
June 30, 2000
Net Asset Value (NAV) per Share $ 22.98
Market Price per Share $ 21.125
Distributions per Share $ 1.218750
1-1-2000 through 6-30-2000
Performance of The Fund
The Fund generated a total return of -3.21% (actual) on NAV and -9.72% (actual)
at market price fro the period January 1, 2000 through June 30, 2000.
The Fund paid two quarterly dividends of $0.609375 per share providing a
dividend yield of 11.538% (annualized) based on market price, and 10.607%
(annualized) based on NAV at year-end.
2
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Portfolio Holdings
June 30, 2000
Shares Description Cost
------------- --------------------------------- -----------
264,568 Central Community Capital $6,614,200
Statutory Trust 9.75%
Preferred Securities
264,568 FirstBancorp Capital 6,614,200
Statutory Trust 9.75%
Preferred Securities
264,568 First Southern Bancorp Capital 6,614,200
Statutory Trust 9.75%
Preferred Securities
1,502 Federated Prime Obiligation Fund 1,502
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Total Portfolio $19,844,102
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SAL TRUST PREFERRED FUND I
STATEMENT OF NET ASSETS
JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Fair
Shares Value
-------- -----------
(Unaudited)
INVESTMENT SECURITIES:
<S> <C> <C>
Central Community Capital Statutory Trust 9.75% Preferred 264,568 $ 6,079,773
Securities
FirstBancorp Capital Statutory Trust 9.75% Preferred Securities 264,568 6,079,773
First Southern Bancorp Capital Statutory Trust 9.75% Preferred
Securities 264,568 6,079,773
------- -----------
Total investments in securities (cost $19,842,600) 793,704 18,239,319
CASH 1,502
PREPAID INSURANCE 6,667
EXPENSE REIMBURSEMENTS RECEIVABLE 23,974
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Total assets 18,271,462
LIABILITIES:
Accounts payable 16,510
Accrued expenses 6,454
Other liabilities 7,237
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Total liabilities 30,201
-----------
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NET ASSETS $18,241,261
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NET ASSET VALUE PER SHARE $ 22.98
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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SAL TRUST PREFERRED FUND I
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 2000
TO JUNE 30, 2000
(Unaudited)
INVESTMENT INCOME:
Dividends $ 967,327
Interest 103
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Investment income 967,430
EXPENSES:
Insurance expense 23,333
Professional services 22,773
Board of Trustee fees 18,000
Exchange membership fees 8,667
Investment advisor fees 7,171
Custodian fees 5,737
Transfer agent fees 2,539
Other 3,377
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Total expenses 91,597
Less:
Reimbursable expenses from Bank Holding Companies 91,597
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Net expenses 0
INVESTMENT INCOME--NET $ 967,430
UNREALIZED LOSS ON INVESTMENTS (1,603,281)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (635,852)
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The accompanying notes are an integral part of these financial statements.
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SAL TRUST PREFERRED FUND I
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM JANUARY 1, 2000
TO JUNE 30, 2000
(Unaudited)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Investment income $ 967,430
Change in Other Assets and Other Liabilities, net 929
Change in unrealized loss on investments (1,603,281)
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Net decrease in net assets resulting from operations (634,922)
DISTRIBUTION TO SHAREHOLDERS FROM:
Investment income (967,327)
CAPITAL SHARE TRANSACTIONS --
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Total increase (1,602,248)
NET ASSETS AT BEGINNING OF PERIOD 19,843,509
------------
NET ASSETS AT END OF PERIOD $ 18,241,261
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The accompanying notes are an integral part of these financial statements.
6
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SAL TRUST PREFERRED FUND I
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
1. ORGANIZATION AND RISK FACTORS
SAL Trust Preferred Fund I (the "Fund") was formed as a Delaware business
trust under an Agreement and Declaration of Trust dated July 24, 1999 and
registered as a closed-end, nondiversified management investment company.
On August 19, 1999, the Fund received a $100,000 seed capital contribution
from Sterne Agee Asset Management, Inc., the Fund's investment manager, in
exchange for 4,000 shares of beneficial interest at $25.00 per share.
The Fund issued 789,704 shares of beneficial interest at $25.00 per share
through several underwriters in an initial public offering (the
"Offering") without any sales load or underwriting discounts payable by
investors or the Fund. Fund shares are fully paid and nonassessable, and
have no preemptive or conversion rights or rights to cumulative voting.
The Fund invested substantially all of its assets in 9.75% cumulative
trust preferred securities (the "Preferred Securities") issued in
approximately equal amounts by three statutory trusts (the "Bank Trusts"),
controlled respectively, by three bank holding companies (FirstBancorp,
Inc.-- Naples, Florida; First Southern Bancorp, Inc.--Boca Raton, Florida;
and Central Community Corporation--Temple, Texas), (the "Bank Holding
Companies"). The assets of each statutory trust consist solely of
subordinated debentures and payments thereunder. The Bank Holding
Companies' limited geographic market area, and the nature of the
commercial banking industry itself, creates concentration risk. Certain
economic developments in either the industry or the Banks' market areas
could adversely impact the underlying securities.
Each Bank Holding Company made, through a preferred securities guarantee,
a limited and subordinated guarantee (the "Guarantee"), of the Preferred
Securities issued by its respective Bank Trust in which the Fund invested.
Each Bank Holding Company guarantees under its Guarantee ( i ) the payment
of the Preferred Securities' distributions; and (ii) the full payment of
principal upon liquidation or redemption of the Preferred Securities
issued by its respective Bank Trust, in each case, to the extent the Bank
Trust has legally available funds on hand at such time. Each Guarantee is
also subordinated and junior in right of payment to each Bank Holding
Company's debt and other obligations that are senior to its obligations
under the Guarantee (which senior obligations constitute substantially all
of the debt and other obligations of each Bank Holding Company).
Accordingly, in the event of a default under its Guarantee, no Bank
Holding Company will be required to make payment under its Guarantee to
the Fund unless its senior obligations are paid first, and then only to
the extent of the amount of funds held by the Bank Trust for payment to
the Fund, if any.
While the Fund's investment objective is to seek a high level of current
income for long-term investors, there can be no assurance that the Fund
will attain its investment objective.
7
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2. SUMMARY OF ACCOUNTING POLICIES
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
disclosures of contingent assets and liabilities at the date of the
financial statements.
Basis of Presentation
The Fund maintains its records and presents its financial statements on
the accrual basis.
Security Valuation
Investments are carried at amounts representing estimates of fair values
using methods determined in good faith by the trustees.
Prepaid Insurance
At June 30, 2000, prepaid insurance includes mutual fund professional
liability insurance with premiums of $40,000 expiring August 24, 2000. The
Fund received $40,000 as reimbursement from the Bank Holding Companies.
The unamortized amount is included in other liabilities in the
accompanying statement of net assets. The insurance premium is amortized
over the policy period with an offset to reimbursed expenses.
Federal Income Taxes
The Fund's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute all its taxable income to its shareholders. Therefore, no
federal income tax provision is required.
Other
The Fund follows industry practice and records security transactions on
the trade date. Dividend income is recognized on the ex-dividend date, and
interest income is recognized on an accrual basis. Distributions to
shareholders are recorded on the ex-dividend date.
Reimbursed Expenses
The Bank Holding Companies will reimburse, on a pro rata basis, all of the
Fund's annual operating expenses, up to an aggregate maximum of $185,000
per year, which amount will increase annually in accordance with increases
in the Consumer Price Index ("CPI"). Any expenses in excess of $185,000,
as adjusted by the CPI, will be paid by the Fund. Each Bank Holding
Company's obligation to pay such expenses continues so long as the
Preferred Securities are held by the Fund.
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3. RESTRICTED SECURITIES
The Preferred Securities and Guarantees are not registered with the
Securities and Exchange Commission but were issued in various private
transactions. The Fund purchased each of the Preferred Securities and the
Guarantees from the Bank Trusts and the Bank Holding Companies,
respectively, in three separate private transactions pursuant to three
separate Trust Preferred Purchase Agreements. Consequently, the Preferred
Securities and Guarantees will be restricted securities for which there
can be no public market for at least two years and for which, thereafter,
no public market is expected to develop.
4. DISTRIBUTIONS TO SHAREHOLDERS
On February 29, 2000, a distribution of $483,663 was declared from
investment income of the Fund earned during the period December 31, 1999
to March 31, 2000. The dividend was paid on March 31, 2000 to shareholders
of record on March 15, 2000.
On June 7, 2000, a distribution of $483,663 was declared from investment
income of the Fund earned during the period March 31, 2000 to June 30,
2000. The dividend was paid on June 30, 2000 to shareholders of record on
June 19, 2000.
5. CAPITAL SHARE TRANSACTIONS
The Fund had no capital share transactions during the period from January
1, 2000 to June 30, 2000.
6. INVESTMENT TRANSACTIONS
There were no purchases of investment securities by the Fund during the
period from January 1, 2000 to June 30, 2000. Unrealized loss on
investment securities as of June 30, 2000 was $1,603,281.
7. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's investment manager, Sterne Agee Asset Management, Inc., will
receive an annual fee, payable on a quarterly basis, in a maximum amount
equal to .10% of the Fund's average quarterly net asset value. The Trust
Company of Sterne, Agee & Leach, Inc. performs the Fund's custodian and
portfolio accounting services, as well as serves as the Fund's dividend
paying agent. In return for these services, the Fund will pay an annual
fee, payable on a quarterly basis, amounting to .08% of the Fund's
quarterly net asset value. For the six month period ended June 30, 2000,
investment advisory fees and custodian fees amounted to $7,171 and $5,737,
respectively. Certain directors of the Fund are also directors of the
investment manager and Fund custodian.
9
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SAL TRUST PREFERRED FUND I
SCHEDULE OF FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM JANUARY 1, 2000
TO JUNE 30, 2000
(Unaudited)
Net asset value, beginning of period $ 25.00
Increase from investment operations:
Investment income 1.22
Unrealized loss on investments (2.02)
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Net decrease from investment operations (0.80)
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Distributions to shareholders from investment income (1.22)
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Net decrease in net asset value (2.02)
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Net asset value, end of period $ 22.98
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Market value, end of period $21.125
Total return -3.21%
Ratio of net expenses to average net assets 0.00%
Ratio of net investment income to average net assets 5.31%
Portfolio turnover rate 0.00%
Ratio assuming no reduction for reimbursed expenses:
Net expenses 0.23%
Net investment income 5.08%
The accompanying notes are an integral part of these financial statements.
10
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Trustees, Officers and Service Providers
Trustees and Officers
James S. Holbrook, Jr. Chairman of the Board of
Trustees and President
James A. Taylor, Sr. Trustee
Robert M. Couch Trustee
F. Eugene Woodham Treasurer and Secretary
Investment Advisor
Sterne Agee Asset Management, Inc.
Custodian
The Trust Company of Sterne, Agee & Leach, Inc.
Independent Public Accountants
Arthur Andersen LLP
Legal Counsel
Morgan, Lewis & Bockius LLP
Transfer Agent
Continental Stock Transfer & Trust Company
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