<PAGE> 1
FIRST CAROLINA INVESTORS, INC.
REPORT TO SHAREHOLDERS
JUNE 30, 2000
<PAGE> 2
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Investments in securities, at value (cost of $29,673,225 in
2000 and $29,022,745 in 1999)............................. $ 89,106,418 $106,821,883
Cash, including short term investments of $7,533,439 in 2000
and $8,428,363 in 1999.................................... 7,513,706 10,921,603
Mortgage loans, secured by real estate...................... 52,513 54,250
Real estate................................................. 2,000,000 2,250,000
Investment in joint venture................................. 75,000 250,000
Amounts due from sale of security........................... 43,286 --
Accrued dividend and interest receivable.................... 55,560 38,141
Other assets................................................ 2,823,510 2,211,192
------------ ------------
Total assets...................................... $101,669,993 $122,547,069
------------ ------------
LIABILITIES
Accounts payable and accrued liabilities.................... $ 4,515,961 $ 3,315,867
Federal and state income taxes payable...................... 784,878 2,767,264
Deferred income taxes payable............................... 22,457,157 30,980,940
------------ ------------
Total liabilities................................. 27,757,996 37,064,071
------------ ------------
Net Assets.................................................. $ 73,911,997 $ 85,482,998
============ ============
Net assets per share (3,500,000 no par value common shares
authorized, 966,456 shares issued, 955,956 and 999,581
shares outstanding in 2000 and 1999 respectively)......... $ 77.32 $ 85.52
============ ============
</TABLE>
The Consolidated Financial Statements should be read in conjunction with the
1999 Annual Report.
1
<PAGE> 3
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
INCOME
Dividends................................................... $ 802,933 $ 414,970
Interest.................................................... 258,796 297,490
Gain on sale of real estate................................. 10,000 941,593
Equity in earnings of joint venture......................... 177,974 (3,312)
Other....................................................... 3,834 33,813
---------- ----------
Total income...................................... 1,253,537 1,684,554
---------- ----------
EXPENSES
General and administrative.................................. 44,539 155,491
Professional fees........................................... 47,379 37,405
Other....................................................... 107,581 113,355
---------- ----------
Total expenses.................................... 199,499 306,251
---------- ----------
Earnings before income taxes and realized and unrealized
appreciation on investments............................... 1,054,038 1,378,303
Provision for income taxes.................................. (303,000) (455,000)
---------- ----------
Net income before realized and unrealized appreciation on
investments............................................... 751,038 923,303
Gain realized on investments in other companies (net of
income tax provision of $767,000 in 2000 and $4,535,000 in
1999)..................................................... 1,199,753 6,320,380
Change in unrealized appreciation (depreciation) of
investments for the period, net of deferred taxes......... 559,932 (976,666)
---------- ----------
Net increase in net assets resulting from
operations...................................... $2,510,723 $6,267,017
========== ==========
</TABLE>
The Consolidated Financial Statements should be read in conjunction with the
1999 Annual Report.
2
<PAGE> 4
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Increase in net assets from operations
Investment income, net.................................... $ 751,038 $ 923,303
Realized gain on investments, net......................... 1,199,753 6,320,380
Change in unrealized appreciation, net.................... 559,932 (976,666)
----------- -----------
Net increase in net assets resulting from operations... 2,510,723 6,267,017
Distributions to shareholders of $.50 per share
in 2000 and in 1999 from investment income, net........... (467,356) (486,731)
Treasury shares purchased................................... (1,124,731) (1,092,607)
----------- -----------
Total increase......................................... 918,636 4,687,679
Net assets
Beginning of period....................................... 72,993,361 80,795,319
----------- -----------
End of period............................................. $73,911,997 $85,482,998
=========== ===========
</TABLE>
The Consolidated Financial Statements should be read in conjunction with the
1999 Annual Report.
3
<PAGE> 5
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
INVESTMENTS IN SECURITIES
JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------------------ -------------------------
PRINCIPAL PRINCIPAL
AMOUNT OR AMOUNT OR
NO. SHARES FAIR VALUE NO. SHARES FAIR VALUE
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Common Stocks -- 96.6% in 2000 and 100% in
1999
Financial Services -- 66.5% in 2000 and
69.8% in 1999
M & T Bank Corporation...................... 125,000 $56,250,000 130,000 $ 71,500,000
Merchants Group, Inc........................ 135,000 2,244,375 135,000 3,020,625
Three Rivers Bancorp, Inc................... 124,300 815,718 -- --
Manufacturing -- 18.7% in 2000 and 12.7% in
1999
Acme Electric Corporation................... 1,010,000 8,711,250 941,000 5,116,688
Exolon -- ESK Company....................... 64,700 711,700 64,700 1,164,600
Marine Transport Corporation................ 700,000 1,706,250 700,000 2,493,750
Todd Shipyards Corporation.................. 700,000 5,512,500 700,000 4,812,500
Services -- 4.3% in 2000 and 7.6% in 1999
Barrister Global Services Network, Inc...... 159,810 169,798 1,757,910 5,273,730
Ecology & Environment, Inc.................. 425,000 2,576,563 425,000 2,868,750
Imperial Parking Corporation................ 62,500 1,046,875 -- --
Diversified -- 7.1% in 2000 and 9.9% in 1999
Bell Industries, Inc........................ 108,900 285,863 592,700 2,630,106
First Union Real Estate..................... 1,296,400 3,808,175 1,000,000 4,500,000
First Union R/E PFD Conv Ser A.............. 30,700 614,000 -- --
Oglebay Norton Company...................... -- -- 98,000 2,180,500
Price Enterprises, Inc...................... 17,000 114,223 -- --
Tandycrafts, Inc............................ 533,511 1,500,500 347,761 1,260,634
----------- ------------
Total Common Stocks -- (cost of $26,552,275 in
2000 and $29,022,745 in 1999)............... $86,067,790 $106,821,883
----------- ------------
Debentures -- 3.4% in 2000 and 0% in 1999
Excel Legacy Corporation.................... $ 668,000 489,310 -- --
First Union Real Estate Equity
Investments.............................. $ 100,000 91,251 -- --
Sizeler Property Investors, Inc............. $2,758,000 2,458,067 -- --
----------- --------- ------------
Total Debentures (cost of $3,120,950 in 2000
and 0% in 1999)............................. 3,038,628 -- --
----------- --------- ------------
Total -- 100% (cost of $29,673,225 in 2000 and
$29,022,745 in 1999)........................ $89,106,418 $106,821,883
=========== ============
</TABLE>
The Consolidated Financial Statements should be read in conjunction with the
1999 Annual Report.
4
<PAGE> 6
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, FINANCIAL STATEMENT PRESENTATION
AND ORGANIZATION.
(A) Organization
First Carolina Investors, Inc. was organized December 2, 1971 and
subsequently incorporated in the state of Delaware on July 1, 1987. On January
3, 1995 First Carolina Investors, Inc. registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940.
(B) Principles of consolidation and financial statement presentation
The accompanying consolidated financial statements include First Carolina
Investors, Inc. and its subsidiaries (the Company), all of which are
wholly-owned. In consolidation, all significant intercompany accounts and
transactions have been eliminated.
The Company became an investment company on January 3, 1995, and
accordingly has prepared its consolidated financial statements on a fair value
basis. Prior to this time the Company prepared its consolidated financial
statements on a historical cost basis. Financial information for periods prior
to January 3, 1995 is available by referring to quarterly filings on Form 10-Q,
annual filing on Form 10-KSB and reports to stockholders.
(C) Security valuation
Investments in securities traded on a national securities exchange (or
reported on the NASDAQ national market) are stated 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
stated at the last quoted bid price.
(D) Real estate
The Board of Directors and management of the Company value its real
property investments at estimated fair value. Procedures utilized to determine
the estimated fair value include appraisals by an independent appraiser,
estimated net cash flows, utilization of fair market comparables in existing
subdivisions developed by the Company and other market comparables.
The Company accounts for sales of real estate in accordance with Statement
of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate.
(E) Investment in joint venture
The Company has an interest in a joint venture which is engaged in the
development and sale of real estate. The Board of Directors and management have
used both fair market comparables in the existing subdivision developed by the
venture and discounted net cash flows in valuing its investment at its estimated
fair value. At June 30, 2000, the venture owned 3 lots at a cost of $113,268 and
at June 30, 1999 the venture owned 7 lots at a cost of $293,236.
(F) Income taxes
The Company is subject to Federal and state corporate income taxes. The
Company files a consolidated Federal income tax return. The Company accounts for
income taxes in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
5
<PAGE> 7
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes payable have been increased to reflect the estimated
Federal and state income tax liabilities on unrealized gains in real estate,
investments in other companies and investment in joint venture in the
accompanying Consolidated Statements of Assets and Liabilities.
(G) Management's use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, revenues
and expenses; and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results may differ from these estimates.
(H) Other
The Company follows the industry practice of recording security
transactions on the trade date. Dividend income is recognized on the ex-dividend
date. Interest income is recognized on the accrual basis.
2. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities were $2,866,841 and $4,884,800
respectively for the six month period ended June 30, 2000 and $8,892,700 and
$12,342,158 respectively for the six months ended June 30, 1999. The net gain on
sale of investments in other companies for the respective six month period was
$1,199,753 in 2000 and $6,320,380 in 1999.
The gross unrealized gain on investments in other companies totaled
$62,274,883 and $79,250,265 for the six months ended June 30, 2000 and 1999,
respectively. Gross unrealized losses were $2,841,690 and $1,451,127 at June 30,
2000 and 1999.
3. MORTGAGE LOANS
The Company's investments in mortgage loans as of June 30, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
2000 1999
--------------------------------- ---------------------------------
INTEREST MATURITY OUTSTANDING INTEREST MATURITY OUTSTANDING
RATE DATE BALANCE RATE DATE BALANCE
-------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Permanent first mortgage
loans on condominiums...... 16% 12/2002 $52,513 16% 12/2002 $54,250
------- -------
$52,513 $54,250
======= =======
</TABLE>
4. REAL ESTATE
The estimated fair value of real estate owned at June 30, 2000 and 1999,
respectively is $2,000,000 and $2,250,000. It consists of two tracts of
commercially zoned property totaling 35 acres as compared with the same tracts
plus four developed lots at June 30, 1999. Land held for investment is
considered non-income producing.
6
<PAGE> 8
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ASSETS
The components of other assets at June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Deferred compensation, funded............................... $2,802,327 $2,191,947
Miscellaneous............................................... 21,183 19,245
---------- ----------
$2,823,510 $2,211,192
========== ==========
</TABLE>
The deferred compensation includes $2,802,000 and $2,191,000 at June 2000
and 1999 respectively, that is owed to affiliated persons pursuant to a deferred
compensation plan. The deferred compensation has accrued over sixteen years.
Contributions are no longer being made to the plan.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities at June 30, 2000
and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Trade accounts payable...................................... $ 394,607 $ 717,905
Accounts payable for securities............................. 711,136 --
Deferred compensation (note 5).............................. 2,802,327 2,191,947
Dividends payable........................................... 465,431 242,015
Miscellaneous accruals and payable.......................... 137,915 155,915
Cash held in escrow......................................... 4,545 8,085
---------- ----------
$4,515,961 $3,315,867
========== ==========
</TABLE>
7. NET ASSETS PER SHARE
Net assets per share are based on the number of shares of common stock and
common stock equivalents outstanding, after deducting treasury stock 955,956 and
999,581 at June 30, 2000 and 1999, respectively. The computation assumes that
outstanding stock options were exercised and the proceeds used to purchase
common stock resulting in the issuance of an additional 35,594 shares of common
stock at June 30, 2000 and 36,919 shares at June 30, 1999.
At June 30, 2000, accumulated undistributed net investment income is
$4,580,984, accumulated and undistributed net realized gains on investment
transactions are $25,531,973 and the net unrealized appreciation in value of
investments is $31,310,655.
8. SHARE REPURCHASE PROGRAM
At June 30, 2000 the Company has repurchased 586,180 shares as treasury
shares at a cost of $17,946,676. At June 30, 2000, 575,680 treasury shares were
cancelled and retired. During 2000 through June 30, the Company has repurchased
17,700 shares at an average cost of $63.54 per share on the Boston Stock
Exchange, the exchange on which the Company's shares are traded. At the June 19,
2000 Board of Directors meeting, the directors authorized the continuation of
the share repurchase program.
9. DISTRIBUTION TO SHAREHOLDERS
Two dividends totaling $0.75 per share were declared during the six months
ended June 30, 2000. Two dividends of $0.25 each per share were declared during
the six months ended June 30, 1999. The dividends are taxable to stockholders as
ordinary income.
7
<PAGE> 9
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At a meeting held on June 19, 2000, the Company's directors adopted a
dividend policy to reflect the Company's intention to distribute to shareholders
as dividends all undistributed personal holding company income of the Company as
defined in the Internal Revenue Code. In the Company's case, the sources of such
income are primarily dividends and interest received on its portfolio
investments. The Company intends to continue payment of quarterly dividends and,
in addition, to make an additional adjusting dividend in December of each year
if necessary to effect a distribution of all undistributed personal holding
company income and avoid special taxes imposed by the Internal Revenue Code on
the undistributed personal holding company income of personal holding companies.
10. REMUNERATION
Each Director receives fees of $2,500 per directors' meeting attended and
$1,000 per audit committee meeting attended. The Chairman also receives a $1,500
monthly salary. For the six months ended June 30, 2000 and 1999 directors' fees
totaled $33,000 and $30,300, respectively.
There was no aggregate remuneration paid during the six months ended June
30, 2000. Aggregate remuneration paid during the six month period ended June 30,
1999 was $109,761.
The Company paid brokerage fees of $73,670 and $82,510 for the six months
ended June 30, 2000 and 1999, respectively. Trubee, Collins & Co., Inc. received
$52,445 and $8,415 during the six months ended June 30, 2000 and 1999,
respectively. The Company has executed securities transactions through the
brokerage firm of Trubee, Collins and Co., Inc., of which Brent D. Baird,
Chairman of the Board and an affiliated person of the Company, is a registered
person.
11. STOCK OPTION PLAN
During 1987 options for 45,000 shares of common stock were awarded to
certain employees. These options are exercisable at the rate of 20% per year
beginning July 1, 1988 at a price of $12.75 per share which was equal to the
market price at the date of the adoption of the amended plan. All options are
fully vested and exercisable but no options have been exercised.
12. COMMITMENTS AND CONTINGENCIES
At June 30, 2000 the Company has approximately $250,000 of undisbursed
contractual commitments in connection with real estate development. In order to
protect its investments, the Company may be required to furnish amounts in
excess of its current contractual investments or commitments. The future
development of the Company's land holdings may require additional expenditures.
The Company is not involved in any legal actions.
8
<PAGE> 10
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMPUTATION OF NET ASSET VALUE PER SHARE
PRIMARY AND FULLY DILUTED
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Primary
Net Assets.................................................. $73,911,997 $85,482,998
=========== ===========
Shares Outstanding.......................................... 920,362 962,662
=========== ===========
Net Asset Value per Share................................... $ 80.31 $ 88.80
=========== ===========
Fully Diluted
Options..................................................... 45,000 45,000
Exercise Price of $12.75
Market Price of $61.00 in 2000 and $73.00 in 1999........... $ (9,406) $ (8,081)
----------- -----------
Additional Shares Attributable to Stock Options............. 35,594 36,919
Shares Outstanding.......................................... 920,362 962,662
----------- -----------
955,956 999,581
Net Asset Value per Share................................... $ 77.32 $ 85.52
=========== ===========
</TABLE>
Annual Meeting Summary
On June 19, 2000 the annual shareholders meeting was held in Buffalo, New
York. At the meeting, six directors, constituting the entire Board of Directors,
were elected to serve a one year term. The votes were as follows:
<TABLE>
<CAPTION>
DIRECTORS NAME FOR WITHHELD
-------------- ------- --------
<S> <C> <C>
Brent D. Baird.............................................. 799,656 248
Bruce C. Baird.............................................. 799,656 248
Theodore E. Dann, Jr........................................ 799,656 248
Patrick W. E. Hodgson....................................... 799,656 248
James E. Traynor............................................ 799,654 250
H. Thomas Webb III.......................................... 799,656 248
</TABLE>
To ratify the appointment of KPMG LLP, the votes were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
------- ------- -------
<S> <C> <C>
798,518 24 1,362
</TABLE>
9
<PAGE> 11
FIRST CAROLINA INVESTORS, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SELECTED PER SHARE DATA AND RATIOS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Per Share Data and Ratios*
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Investment income........................................... $ 1.30 $ 1.67
Expenses (including income taxes)......................... (.52) (.75)
------ ------
Investment income, net.................................... .78 .92
Distributions from investment income, net................. (.48) (.48)
------ ------
Net realized and unrealized gain on securities............ 1.82 5.29
Share transactions.......................................... .28 .20
------ ------
Net increase in net asset value............................. 2.40 5.93
Net asset value:
Beginning of period....................................... 74.92 79.59
------ ------
End of period............................................. $77.32 $85.52
====== ======
Ratios
Ratio of expenses to average net assets................... 0.60% 0.81%
Ratio of investment income, net, to average net assets.... 1.48 1.79
Portfolio turnover........................................ 3.22 9.11
</TABLE>
* Per Share data is based upon the average number of shares outstanding for the
6 month periods. The computation assumes that outstanding stock options were
exercised and the proceeds used to purchase common stock.
10
<PAGE> 12
DIRECTORS
Brent D. Baird*
Private Investor
Bruce C. Baird
President
Belmont Contracting Co., Inc.
Patrick W.E. Hodgson*+
President of Cinnamon Investments Ltd. and
Chairman of Todd Shipyards Corporation
Theodore E. Dann, Jr.+
President
Buffalo Technologies Corporation
James E. Traynor+
President
Clear Springs Development Co., LLC
H. Thomas Webb III*
Senior Vice-President
Crescent Resources, Inc.
OFFICERS
Brent D. Baird
Chairman
H. Thomas Webb III
President
Bruce C. Baird
Vice President, Secretary & Treasurer
Cynthia Raby
Assistant Secretary
REGISTRAR, TRANSFER AND DISBURSING AGENT
Continental Stock Transfer and Trust Company
2 Broadway
New York, NY 10004
* Member of Executive Committee
+ Member of the Audit Committee
11
