CITY NATIONAL LOAN FUND, INC.
Semi-annual Report
June 30, 2000
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Table of Contents
Statement of Assets and Liabilities........................................... 2
Statement of Operations....................................................... 2
Statement of Change in Net Assets............................................. 3
Statement of Cash Flows....................................................... 3
Financial Highlights.......................................................... 4
Notes to Unaudited Financial Statements....................................... 5
Portfolio of Investments...................................................... 8
1
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CN LOAN FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AS OF JUNE 30, 2000
ASSETS:
Investments in securities at value
(Cost $2,081,171,309) $ 2,080,552,848
Cash 47,305
Receivables:
Interest receivable 15,346,188
Interest receivable from servicer 10,651,752
Principal paydowns receivable from servicer 34,534,547
Prepaid expenses 48,030
---------------
Total assets 2,141,180,670
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LIABILITIES:
Accrued expense 21,670
Accounts payable 89,531
Due to brokers for securities purchased 49,226,150
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Total liabilities 49,337,351
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NET ASSETS $ 2,091,843,319
===============
Net Assets Consist of:
Par value $205,465
Paid in capital 2,054,444,261
Undistributed net investment income 37,812,054
Net unrealized depreciation of investments (618,461)
---------------
Net assets (21,200,000 shares authorized;
20,546,496 shares outstanding) $ 2,091,843,319
===============
Net asset value per share $101.81
=======
See Accompanying Notes to Unaudited Financial Statements
CN LOAN FUND, INC.
STATEMENT OF INCOME AND LOSS
FOR THE PERIOD FROM APRIL 12, 2000
(COMMENCEMENT OF OPERATIONS) TO JUNE 30, 2000
Interest income, net of servicing expense $ 38,019,718
EXPENSES:
Loan servicing 141,491
Fund accounting 26,333
Custody fees 18,200
Directors fees 3,000
Insurance 2,140
Legal fees 16,500
------------
Total operating expenses 207,664
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Net investment income 37,812,054
Unrealized depreciation of investments (618,461)
------------
Net increase in net assets resulting from operations $ 37,193,593
============
See Accompanying Notes to Unaudited Financial Statements
2
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CN LOAN FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM APRIL 12, 2000
(COMMENCEMENT OF OPERATIONS) TO JUNE 30, 2000
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 37,812,054
Change in unrealized depreciation on investments (618,461)
---------------
Net increase in net assets resulting from operations 37,193,593
CAPITAL SHARE TRANSACTIONS
Shares issued 2,054,649,726
Shares redeemed (1,000)
---------------
Total increase in net assets 2,054,648,726
Net assets, beginning of period 1,000
---------------
Net assets, end of period (including undistributed
net investment income of $37,812,054) $ 2,091,843,319
===============
See Accompanying Notes to Unaudited Financial Statements
CN LOAN FUND, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 12
(COMMENCEMENT OF OPERATIONS)TO JUNE 30, 2000
CASH FROM OPERATING ACTIVITIES:
Net investment income $ 37,812,054
Increase in interest receivables (17,514,713)
Increase in other liabilities 111,203
Increase in prepaid expenses (48,030)
Purchases of securities (196,437,632)
Maturities of securities 120,000,000
Principal payments 51,124,423
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Net cash (used) by operating activities (4,952,695)
CASH FROM FINANCING ACTIVITIES
Proceeds from shares offered 5,000,000
Fund shares redeemed (1,000)
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Net cash provided by financing activities 4,999,000
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Net increase in cash and cash equivalents 46,305
Beginning cash and cash equivalents 1,000
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Ending cash and cash equivalents $ 47,305
=============
See Accompanying Notes to Unaudited Financial Statements
3
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CN LOAN FUND, INC.
FINANCIAL HIGHLIGHTS
FOR THE PERIOD FROM APRIL 12, 2000 (COMMENCEMENT
OF OPERATIONS) TO JUNE 30, 2000
Net asset value, beginning of period $100.00
Net investment income 1.84
Net realized and unrealized loss on investments (.03)
-------
Increase in net asset value from operations 1.81
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Net asset value, end of period $101.81
=======
Total return 1.81%
Net assets, end of period (In 000's) $ 2,091,843
Ratios to average net assets
Expenses* 0.05%
Net investment income* 8.34%
Portfolio turnover rate 3.00%
Shares outstanding, end of period (In 000's) 20,546
*Annualized
See Accompanying Notes to Unaudited Financial Statements
4
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CN Loan Fund, Inc.
Notes to Unaudited Financial Statements
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
CN Loan Fund, Inc. (the "Fund") is a wholly owned subsidiary of City National
Bank (CNB), which is a wholly owned subsidiary of City National Corporation.
The Fund is registered under the Investment Company Act of 1940, as amended, as
a non-diversified, closed-end, investment company. The Fund invests in agency
securities, commercial real estate mortgages, construction loans, grantor trusts
holding commercial real estate mortgages and single family residential first
trust deeds as well as loans which are exempt from registration under the
Securities Act of 1933, but contain certain restrictions on resale and cannot be
sold publicly. These loans bear interest (unless otherwise noted) at rates that
float periodically at a margin above the Prime Rate of a U.S. bank specified in
the credit agreement or the London Inter-Bank Offered Rate ("LIBOR"). The
following is a summary of the significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. LOAN AND OTHER SECURITY VALUATION. The Fund will use market quotes to
value its loan holdings when the Fund believes that multiple and reliable
market quotes are available and reflect current value. Loans that cannot
be valued based on market quotes, are valued using the Fund's valuation
procedures, which ascertain the current value of a loan based on
fundamental analysis. In valuing a loan, the Manager will consider, among
other factors:
(i) the creditworthiness of the issuer;
(ii) the current interest rate, period until next interest rate
reset and maturity date of the senior corporate loan;
(iii) recent market prices for similar loans, if any;
(iv) recent prices in the market for instruments with similar
quality, rate, period until next interest rate reset,
maturity, terms and conditions.
The Manager may also consider prices or quotations, if any, provided by
banks, dealers or pricing services which may represent the prices at which
secondary market transactions in the loans held by the Fund have or could
have occurred. However, because the secondary market in loans has not yet
fully developed, the Manager will not rely solely on such prices or
quotations. Debt securities traded in the over-the-counter market are
valued based on broker quotations. Securities other than loans for which
reliable quotations are not readily available and investments in grantor
trusts will be valued at their respective fair values as determined in
good faith by, or under procedures established by, the Board of Directors
of the Fund. Investments in securities maturing in less than 60 days are
valued at amortized cost, which, when combined with accrued interest,
approximates market value.
B. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
5
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CN Loan Fund, Inc.
Notes to Unaudited Financial Statements
income to its shareholders. Therefore, no federal income tax provision is
required.
C. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Security transactions are
accounted for on trade date (date the order to buy or sell is executed).
Realized gains or losses are reported on the basis of identified cost of
securities delivered. Interest income is recorded on an accrual basis at
the then current loan rate. The accrual of interest on loans is
discontinued when, in the opinion of management, there is an indication
that the borrower may be unable to meet payments as they become due. Upon
such discontinuance, all unpaid accrued interest is reversed. Cash
collections on nonaccrual loans are generally applied as a reduction to
the recorded investment of the loan. Loans are returned to accrual status
only after all past due amounts have been received and the borrower has
demonstrated sustained performance. Arrangement fees, which represent
non-refundable fees associated with the acquisition of loans, are deferred
and recognized ratably over the actual term of the loan. No such fees are
recognized on loans which have been placed on non-accrual status.
D. DISTRIBUTION POLICIES. The Fund will distribute substantially all of Its
taxable income to its shareholders at least once a year before December
31.
E. USE OF ESTIMATES. Management of the Fund has made certain estimates and
assumptions relating to the reporting of assets, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
NOTE 2 -- INVESTMENTS
At June 30, 2000, the Fund held loans and grantor trusts holding title to loans
valued at $1,454,886,000 representing 69.9% of its total investments. The market
value of these securities can only be established by negotiation between parties
in a sales transaction. Due to the uncertainty inherent in the valuation
process, the fair values as determined may materially differ from the market
values that would have been used had a ready market for these securities
existed.
NOTE 3 -- SIGNIFICANT TRANSACTIONS
On April 12, 2000, CNB purchased 10,569,105 shares of the Fund in exchange for
cash of $5,000,000 and securities and loans with a fair value of $1,046,557,758.
On April 12, 2000, simultaneous with the prior transaction, CNB's wholly owned
affiliate, CN Special Holdings LLC purchased 9,977,391 shares of the Fund in
exchange for its 100% ownership in four grantor trusts holding title to pools of
loans with a fair value of $997,739,100. On April 21, 2000 CN Special Holdings
distributed all of its shares in the Fund to CNB.
NOTE 4 -- AFFILIATED TRANSACTIONS
The Fund is managed by Heng Chen, Executive Vice President - Finance, CNB. There
is no fee charged for the management of the Fund.
6
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CN Loan Fund, Inc.
Notes to Unaudited Financial Statements
The Fund has entered into a Fund Accounting Agreement with CNB whereby CNB will
maintain books and records and perform accounting services for the Fund. The fee
charged by CNB under this agreement is $10,000 per month.
The Fund has entered into a custodian contract with CNB for asset custodial
services. The Fund agreed to pay CNB a fee of 0.003% per year for the first
$25,000,000 of securities and 0.0015% per year for securities held in excess of
$25,000,000.
Since the initial contribution of assets to the Fund, there have been no
additional purchases or sales of securities between the Fund and CNB.
In accordance with Section 23(c) of the Investment Company Act of 1940, and Rule
23c-1 under the Investment Company Act of 1940, the Fund may from time to time
purchase shares of common stock of the Fund in the open market, in privately
negotiated transactions.
7
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SCHEDULE OF INVESTMENTS
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Principal
Amount Value
Industry/Borrower TYPE/YIELD (000's) (000's)
--------------------------------------------------------------------------------
LOANS (23.6%)
Business services (0.40%)
LAMAR MEDIA CORP. REVOLVER 625 619
LAMAR MEDIA CORP. TERM LOAN 7,813 7,734
----- -----
Business services total 8,438 8,353
Chemicals and allied products (0.39%)
EXPRESS SCRIPTS INC. REVOLVER 897 889
EXPRESS SCRIPTS INC. TERM LOAN 7,308 7,239
----- -----
Chemicals and allied products total 8,205 8,128
Communications (4.73%)
AMFM OPERATING, INC. REVOLVER 727 723
AMFM OPERATING, INC. TERM LOAN 12,188 12,127
CHARTER COMMUNICATIONS, LP REVOLVER 3,447 3,386
CHARTER COMMUNICATIONS, LP TERM LOAN 6,667 6,550
CROWN ATLANTIC HOLDING, LLC REVOLVER 7,200 7,164
DOBSON OPERATING COMPANY TERM LOAN 5,385 5,351
FALCON HOLDING REVOLVER 9,582 9,391
FALCON HOLDING TERM LOAN 3,485 3,416
FISHER COMPANIES, INC REVOLVER 1,980 1,960
FISHER COMPANIES, INC TERM LOAN 7,678 7,601
INSIGHT COMMUNICATIONS REVOLVER 109 107
INSIGHT COMMUNICATIONS TERM LOAN 8,182 8,018
INTERNATIONAL MEDIA GROUP TERM LOAN 13,433 13,298
PENTON MEDIA INC. TERM LOAN 6,324 6,324
PINNACLE TOWERS, INC. REVOLVER 1,061 1,051
PINNACLE TOWERS, INC. TERM LOAN 3,472 3,438
UMDA CABLE SYSTEMS, INC. REVOLVER 11,842 11,724
VOICESTREAM PCS HOLDINGS TERM LOAN 4,000 3,840
Element K Press, LLC REVOLVER 6,818 6,750
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Communications Total 113,580 112,219
Eating and drinking places (0.46%)
DOMINO'S PIZZA INC. TERM LOAN 3,006 3,002
TRICON GLOBAL RESTAURANT REVOLVER 1,769 1,706
TRICON GLOBAL RESTAURANT TERM LOAN 5,099 4,916
----- -----
Eating and drinking places total 9,874 9,624
Electric, gas, and sanitary services (0.16%)
WASTE CONNECTIONS, INC. REVOLVER 3,472 3,437
Fabricated metal products (0.35%)
NCI, INC. REVOLVER 3,875 3,788
NCI, INC. TERM LOAN 3,594 3,513
----- -----
Fabricated metal products total 7,469 7,301
Food and kindred products (0.55%)
DEL MONTE REVOLVER 3,273 3,224
DEL MONTE TERM LOAN 3,098 3,052
INTERNATIONAL HOME FOODS TERM LOAN 5,320 5,267
------ ------
Food and kindred products total 11,691 11,543
Furniture and fixtures (0.15%)
SEALY MATTRESS COMPANY TERM LOAN 3,217 3,185
8
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SCHEDULE OF INVESTMENTS
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Principal
Amount Value
Industry/Borrower TYPE/YIELD (000's) (000's)
--------------------------------------------------------------------------------
Health services (0.14%)
CHARLES RIVER LABORATORY TERM LOAN 2,857 2,829
Holding and other investment offices (0.05%)
NATIONAL GOLF OPERATING PARTNERSHIP L.P.
REVOLVER 1,000 985
Industrial machinery and equipment (0.35%)
ANTHONY CRANE RENTAL, LP REVOLVER 7,555 7,253
Instruments and related products (0.32%)
STRYKER CORPORATION TERM LOAN 6,645 6,595
Printing and publishing (0.70%)
CANON/ABBY/CHEMICAL WEEK REVOLVER 680 673
CANON/ABBY/CHEMICAL WEEK TERM LOAN 7,200 7,128
JOURNAL REGISTER COMPANY REVOLVER 3,246 3,149
JOURNAL REGISTER COMPANY TERM LOAN 3,750 3,638
------ ------
Printing and publishing total 14,876 14,588
Real estate loans (12.57%)
5430 GLENDALE, LLC 8.23% 12,908 12,670
664 COMPANY 6.75% 3,407 3,344
A J WEST RANCH LLC 10.50% 1,257 1,257
AHS TRINITY INC 10.00% 5,052 5,052
AHWATUKEE HILLS BUILDERS 10.50% 1,924 1,924
AIRPORT DISTRIBUTION PARTNERSHIP 9.69% 7,127 7,127
AIRPORT INTERCHANGE BUS 10.50% 4,596 4,596
ARMOUR PROPERTIES CV, LLC 8.29% 7,843 7,843
AVCH PARTNERSHIP 9.50% 10,000 10,000
BEAUMONT STORAGE PARTNER 8.93% 2,300 2,257
BIXBY LAND COMPANY 9.41% 8,148 8,148
BIXBY RANCH CO 9.33% 32,893 32,893
BRENTWOOD PLACE LTD 9.31% 14,273 14,273
CARSON HOMES LLC 10.25% 1,126 1,126
CLAIRMONT PROPERTIES LLC 8.25% 3,504 3,440
CORONA VILLAGE LLC 10.50% 7,073 7,073
EXTRA SPACE 10.00% 4,073 4,073
FEDERAL STORAGE 8.00% 4,700 4,614
FOX HILLS CANTERBURY CO 7.68% 8,280 7,876
FRANKLIN AVENUE PROPERTI 10.50% 3,449 3,449
HELGA 1999, LLC 10.50% 1,585 1,585
IMPERIAL MARKET INVESTOR 8.50% 3,245 3,185
IRVINE OFFICE VENTURE 9.38% 3,381 3,381
LINCOLN 10.25% 3,562 3,562
MAIN STREET PLAZA INC 7.37% 5,859 5,751
MALIBU CROSS CREEK 8.00% 7,163 7,163
MARINA COVE LTD 7.50% 7,042 6,913
MARKETPLACE COVINA, LP 9.56% 5,712 5,712
MASON WAY PARTNERS 10.75% 1,792 1,792
MEADOWS SOUTH CO., 11 7.68% 2,040 1,941
METROPOLITAN INVESTMENTS 10.50% 2,850 2,850
MIRALOMA PROPERTIES, LLC 10.40% 10,362 10,264
MISSION GROVE PLAZA LP 7.75% 4,189 4,112
M-O INLAND EMPIRE-CHINO, LLC 10.50% 2,914 2,914
9
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SCHEDULE OF INVESTMENTS
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Principal
Amount Value
Industry/Borrower TYPE/YIELD (000's) (000's)
--------------------------------------------------------------------------------
NEXUS SCRIPPS, LLC 10.00% 6,901 6,901
O B H CORP 9.18% 10,936 10,936
ORANGE VILLA SHOPPING 9.25% 10,500 10,500
PASEO VILLAS LLC 9.69% 12,600 12,600
RBE ROSCOE WOODLEY PHASE 2 LLC 9.50% 6,815 6,815
SANTA ANA INVESTMENTS 7.87% 5,971 5,908
SEPULVEDA GROUP, LLC 8.77% 6,782 6,694
SHOWPROP DOWNEY, LLC 7.25% 4,705 4,705
SLAUSON DISTRIBUTION CTR 8.78% 19,577 19,577
TYS ONTARIO COMPANY LLC 10.25% 1,549 1,549
VENTURA STORAGE PARTNERS 10.25% 1,575 1,575
WFB INVESTMNT 8.05% 4,030 4,030
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Real estate total 297,570 295,950
Rubber and miscellaneous plastics products (0.10%)
FORMICA CORPORATION REVOLVER 666 660
FORMICA CORPORATION TERM LOAN 1,389 1,375
----- -----
Rubber & miscellaneous plastics products total 2,055 2,035
Total loans (Cost $495,127) $498,504 $494,025
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Grantor trusts (46.0%)
City National, Trust 2000-1 comprised of
243 commercial real estate loans with
average weighted interest rate of 8.94%
and average maturity of May, 2008 244,702 244,702
City National, Trust 2000-2 comprised of
253 commercial real estate loans with
average weighted interest rate of 8.15%
and average maturity of September, 2009) 366,408 359,675
City National, Trust 2000-3 comprised of
539 single family first trust deed loans
with average weighted interest rate of
7.32% and average maturity of January, 2028 314,680 307,922
City National, Trust 2000-4 comprised of
53 single family first trust deed loans
with average weighted interest rate of
7.55% and average maturity of January, 2025 49,371 48,562
-------- -------
Total grantor trusts (Cost $961,256) $975,161 $960,861
--------------------------------------------------------------------------------
US GOVERNMENT AGENCY DEBT OBLIGATIONS (29.9%)
AGENCY DEBT OBLIGATION
FNMA callable notes
6.040%, 05/14/2003 30,000 29,175
FNLB callable notes
6.155%, 05/25/2005 10,000 9,563
7.280%, 08/23/2004 25,000 24,773
------ ------
TOTAL FNMA callable notes 35,000 34,336
10
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SCHEDULE OF INVESTMENTS
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Principal
Amount Value
Industry/Borrower TYPE/YIELD (000's) (000's)
--------------------------------------------------------------------------------
FNMA discount notes
7/06/2000 75,000 74,936
7/19/2000 26,500 26,415
8/31/2000 25,000 24,742
9/20/2000 23,000 22,662
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Total FNMA discount notes 149,500 148,755
FREDDIE MAC discount notes
7/18/2000 51,250 51,095
7/25/2000 50,000 49,784
9/14/2000 47,507 46,867
------- -------
Total Freddie Mac discount notes 148,757 147,746
FREDDIE MAC callable notes
5.850%, 04/30/2004 25,000 23,922
6.800%, 07/27/2005 25,000 24,359
------ ------
Total Freddie Mac callable notes 50,000 48,281
GNMA mortgage backed securities
8.000%, 10/15/2027 1,803 1,826
7.000%, 11/15/2027 1,339 1,303
7.500%, 11/15/2027 779 774
8.000%, 11/15/2027 2,105 2,132
7.500%, 11/20/2027 1,436 1,419
7.000%, 02/15/2028 2,262 2,200
6.500%, 06/15/2028 1,929 1,831
7.000%, 06/15/2028 2,977 2,896
6.500%, 08/20/2028 22,331 21,079
7.000%, 08/20/2028 20,111 19,452
6.500%, 11/20/2028 27,007 25,493
7.000%, 04/15/2029 3,169 3,082
6.000%, 04/20/2029 2,900 2,657
------ ------
Total GNMA mortgage backed securities 90,148 86,144
FNMA mortgaged back securities
6.50%, 05/01/2013 1,216 1,173
7.00%, 02/01/2028 1,116 1,078
6.50%, 01/01/2029 5,250 4,812
----- -----
Total FNMA mortgage backed securities 7,582 7,063
FHLMC mortgage backed securities
6.50%, 11/01/2018 22,433 21,408
FHLMC REMIC CMO
7.000%, 12/15/2028 18,363 17,250
6.000%, 01/15/2029 18,744 17,263
7.000%, 03/25/2025 10,747 10,565
6.500%, 04/15/2025 24,367 23,511
7.000%, 02/25/2020 7,099 6,932
11
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SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
Principal
Amount Value
Industry/Borrower TYPE/YIELD (000's) (000's)
--------------------------------------------------------------------------------
7.500%, 09/16/2027 8,235 8,216
6.500%, 01/15/2029 20,839 19,022
------ -------
Total FHLMC REMIC CMO 108,394 102,759
TOTAL U.S. GOVERNMENT AGENCY DEBT OBLIGATIONS
(Cost $576,011) 641,814 625,667
--------------------------------------------------------------------------------
Total investments (Cost $2,081,171) (99.5%) 2,080,553
Other assets and liabilities, net (0.5%) 11,290
---------
Net Assets (100.0%) 2,091,843
=========
Tax Cost of Securities $2,107,626
==========
Gross appreciation on securities -0-
Gross depreciation on securities 618,461
-------
Net depreciation on securities $ 618,461
==========
12
