SAL TRUST PREFERRED FUND I
ANNUAL REPORT
DECEMBER 31, 1999
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Table Of Contents
Letter From the Chairman 1
Portfolio Summary 2
Performance of The Fund 2
Portfolio Holdings 3
Report of Independent Public Accountants 4
Trustees, Officers and Service Providers 15
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Letter From the Chairman
Dear Shareholder,
I am pleased to enclose this annual report of SAL Trust Preferred Fund I (the
"Fund") for the year ending December 31, 1999.
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 in the footnotes to the financial statements,
which pay dividends equal to 9 3/4%. In addition, the issuers of these
securities are required to reimburse the reasonable and customary expenses of
the Fund. During the 1999 fiscal year the Fund received $483,663 in dividends,
earned $909 in interest, incurred $27,013 in expenses, which were reimbursed by
the issuers, and distributed $483,663 to our shareholders. The net asset value
of the Fund as of December 31, 1999 was $25 per share as reported by our
auditors in the attached statement.
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,
/s/ James S. Holbrook, Jr.
James S. Holbrook, Jr.
Chairman
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Portfolio Summary 12-31-99
Net Asset Value per Share $ 25.00
Market Price per Share $ 24.75
Distributions per Share
10-1-99 through 12-31-99 $ 0.609375
Performance of The Fund
The Fund generated a total return of 2.44% (actual) on NAV for the period
October 1, 1999 through December 31, 1999, 1.44% (actual) at market price.
The Fund paid a quarterly dividend of $0.609375 per share providing a dividend
yield of 9.848% (annualized) based on market price, and 9.75% (annualized) based
on NAV at year-end.
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Portfolio Holdings 12-31-99
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
909 Federated Prime Obligation Fund 909
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Total Portfolio $19,843,509
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
SAL Trust Preferred Fund I:
We have audited the accompanying statement of net assets of SAL TRUST PREFERRED
FUND I (the "Fund", a Delaware business trust) as of December 31, 1999 and the
related statements of operations, changes in net assets, and financial
highlights for the period September 30, 1999 (commencement of operations) to
December 31, 1999. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
These 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. 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 audit provides 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 net assets of SAL Trust
Preferred Fund I as of December 31, 1999, the results of its operations, the
changes in its net assets, and
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financial highlights for the period presented in conformity with generally
accepted accounting principles.
Birmingham, Alabama
February 18, 2000
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SAL TRUST PREFERRED FUND I
STATEMENT OF NET ASSETS
DECEMBER 31, 1999
Fair
Shares Value
------ -----
INVESTMENTS IN SECURITIES:
Central Community Capital Statutory 264,568 $ 6,614,200
Trust 9.75% Preferred Securities
FirstBancorp Statutory 264,568 6,614,200
Trust 9.75% Preferred Securities
First Southern Bancorp Statutory 264,568 6,614,200
Trust 9.75% Preferred Securities
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Total investments in securities 793,704 19,842,600
(cost $19,842,600)
CASH 2,409
PREPAID INSURANCE 30,000
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Total assets 19,875,009
OTHER LIABILITIES 31,500
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NET ASSETS $19,843,509
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NET ASSET VALUE PER SHARE $25.00
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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 OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 30, 1999
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1999
INVESTMENT INCOME:
Dividends $483,663
Interest 909
--------
Investment income 484,572
EXPENSES:
Insurance expense 10,000
Professional services 6,284
Management fees 4,961
Custodian fees 3,969
Transfer fees 1,799
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Total expenses 27,013
Less:
Expenses reimbursed by Bank
Holding Companies 27,013
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Net expenses 0
NET INCREASE IN NET ASSETS $484,572
RESULTING FROM OPERATIONS ========
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 SEPTEMBER 30, 1999
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1999
INCREASE IN NET ASSETS
FROM OPERATIONS:
Investment income $ 484,572
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Net increase in net assets
resulting from operations 484,572
DISTRIBUTION TO SHAREHOLDERS FROM:
Investment income (483,663)
CAPITAL SHARE TRANSACTIONS 19,742,600
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Total increase 19,743,509
NET ASSETS AT BEGINNING OF PERIOD 100,000
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NET ASSETS AT END OF PERIOD $ 19,843,509
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The accompanying notes are an integral part of these financial statements.
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SAL TRUST PREFERRED FUND I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 development in either the industry or the Banks' market areas
could adversely impact the underlying securities.
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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.
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.
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Security Valuation
Investments are carried at amounts representing estimates of fair values
using methods determined in good faith by the trustees.
Prepaid Insurance
At December 31, 1999, 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
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expenses continues so long as the Preferred Securities are held by the
Fund.
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 ever develop.
4. DISTRIBUTIONS TO SHAREHOLDERS
On December 10, 1999, a distribution of $483,663 was declared from
investment income of the Fund earned during the period September 30, 1999
to December 31, 1999. The dividend was paid on December 31, 1999 to
shareholders of record on December 20, 1999.
5. CAPITAL SHARE TRANSACTIONS
The Fund sold 789,704 shares during the period ended December 31, 1999
amounting to $19,742,600. Underwriting expenses associated with the
issuance amounted to approximately $272,000 and were reimbursed by the
Bank Holding Companies.
6. INVESTMENT TRANSACTIONS
Purchases of investment securities amounted to $19,842,600 representing
investments in the Preferred Securities of the Bank Trusts. There was no
unrealized appreciation (depreciation) on investments or accumulated
undistributed net realized gain (loss) on investment transactions for the
period September 30, 1999 to December 31, 1999.
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7. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATE
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 period ended December 31, 1999,
investment advisory fees and custodian fees amounted to $4,961 and $3,969,
respectively. Certain directors of the Fund are also directors of the
investment manager and Fund custodian.
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SAL TRUST PREFERRED FUND I
SCHEDULE OF FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM SEPTEMBER 30, 1999
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1999
Net asset value, beginning of period $25.00
Increase from investment operations:
Investment income .61
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Net increase from investment operations 0.61
Distributions to shareholders:
Investment income (.61)
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Net increase in net asset value 0.00
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Net asset value, end of period $25.00
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Market value, end of period $24.75
Total return 2.44%
Ratio of net expenses to average net assets 0.00%
Ratio of net investment income to average net assets 2.46%
Portfolio turnover rate 0.00%
Ratio assuming no reduction for reimbursed expenses:
Net expenses 0.14%
Net investment income 2.32%
The accompanying notes to the financial statements are
an integral part of this schedule.
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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 Adviser
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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