UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-1537
STERLING CAPITAL CORPORATION
(Exact name of registrant as specified in charter)
635 Madison Avenue New York, NY 10022
(Address of principal executive offices) (Zip code)
Michael Carey , Treasurer
635 Madison Avenue New York, NY 10022
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 980-3360
Date of fiscal year end: 12/31/2004
Date of reporting period: 12/31/2004
Item 1. Reports to Stockholders.
The Registrant's annual report transmitted to shareholders pursuant to
Rule 30e-1 under the Investment Company Act of 1940 is as follows:
STERLING CAPITAL CORPORATION
Report for the Year Ended December 31, 2004
OFFICERS
Wayne S. Reisner ........... President
Michael Carey .............. Vice President, Secretary and Treasurer
DIRECTORS
Jay Eliasberg (1) Nathan Kingsley (1)
Arthur P. Floor (1) Archer Scherl (1)
Jeffrey 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
Tardino Tocci & Goldstein LLP Skadden, Arps,
The Chanin Building Slate, Meagher & Flom LLP
122 East 42nd Street Suite 1518 Four Times Square
New York, New York 10168 New York, New York 10036
(1) Member of the Audit Committee
STERLING CAPITAL CORPORATION
635 Madison Avenue
New York, N.Y. 10022
February 22, 2005
To our Shareholders:
We enclose a report of our Corporation's operations for the year ended
December 31, 2004. The net asset value per share of the Corporation's Common
Stock as at December 31, 2004 was $7.47, as compared with its net asset value at
December 31, 2003 of $7.20 per share. As at February 18, 2005 the unaudited net
asset value per share was approximately $7.35.
As at December 31, 2004 and February 18, 2005 the closing sales price for
shares of the Corporation's Common Stock on the American Stock Exchange was
$5.70 and $5.80, respectively. Thus, as at December 31, 2004 and February 18,
2005 the market price for the Corporation's common stock represented discounts
of approximately 24% and 21%, respectively, from the Corporation's net asset
value per share at such dates.
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 common 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,
Wayne S. Reisner
President
Report of Independent Registered Public Accounting Firm
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, 2004, 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 auditing standards of the Public
Company Accounting Oversight Board (United States). 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, 2004, 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
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, 2004, the results of its
operations for the year then ended, the changes in its 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 U.S. generally
accepted accounting principles.
TARDINO TOCCI & GOLDSTEIN LLP
New York, New York
February 16, 2005
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS
December 31, 2004
Number of Market Value
Shares (Note A)
--------- ------------
Common & Preferred Stocks - 46.48% of net assets
Financial Services -12.27%
MetLife Inc. ...................................... 10,000 $ 405,100
J.P. Morgan Chase & Co ............................ 10,000 390,100
KeyCorp ........................................... 10,000 339,000
The St Paul Travelers Cos. Inc. ................... 8,668 321,323
Allstate Corp. .................................... 5,000 258,600
Citigroup Inc. .................................... 5,000 240,900
Wilmington Trust Corp. ............................ 5,000 180,750
Mellon Financial Corp. ............................ 5,000 155,550
----------
$2,291,323
----------
Technology - 8.87%
Falconstor Software Inc.* ......................... 100,000 $ 957,000
Check Point Software Technologies * ............... 10,000 246,300
Advanced Micro Devices, Inc. * .................... 10,000 220,200
Intel Corp. ....................................... 5,000 116,950
Cisco Systems Inc.* ............................... 6,000 115,920
----------
$1,656,370
----------
Real Estate and
Real Estate Investment Trusts - 7.18%
Camden Property Trust ............................. 10,000 $ 510,000
Equity Residential ................................ 10,950 396,171
Amli Residential Properties Trust ................. 5,000 160,000
Equity Office Properties Trust .................... 5,000 145,600
St. Joe Co. ....................................... 2,000 128,400
----------
$1,340,171
----------
* Non-income producing security
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
December 31, 2004
Number of Market Value
Shares (Note A)
--------- ------------
Telecommunication and Media - 4.69%
Viacom Inc. Cl A ................................... 6,000 $ 222,480
Verizon Communications ............................. 5,060 204,980
Nokia Corp ADR ..................................... 12,500 195,875
Time Warner Inc. * ................................. 7,500 145,875
Tribune Co. ........................................ 2,500 105,350
----------
$ 874,560
----------
Consumer Goods - 4.17%
Conagra Inc. ....................................... 10,000 $ 294,500
Newell Rubbermaid Inc. ............................. 10,000 241,900
Sara Lee Corp. ..................................... 10,000 241,400
----------
$ 777,800
----------
Energy - 2.95%
Marathon Oil Corp .................................. 10,000 $ 376,100
ConocoPhillips ..................................... 2,000 173,660
----------
$ 549,760
----------
Industrial and Business Services - 2.58%
Koninklijke Philips Electronics NV Holdings ........ 10,838 $ 287,207
Honeywell International Inc. ....................... 5,500 194,755
----------
$ 481,962
----------
Healthcare - 1.44%
Pfizer Inc ......................................... 10,000 $ 268,900
----------
Materials - 1.31%
Du Pont E I De Nemours & Co. ....................... 5,000 $ 245,250
----------
Automotive & Transportation Services - 1.02%
Ryder System Inc. .................................. 4,000 $ 191,080
----------
Total common and preferred stocks (cost $5,901,011) $8,677,176
----------
* Non-income producing security
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
SCHEDULE OF INVESTMENTS - continued
December 31, 2004
Principal Market Value
Amount (Note A)
--------- ------------
U.S. Government Obligations - 5.32%
U.S. Treasury Bill due 6/23/2005 ................. $500,000 $ 494,063
U.S. Treasury Note 2% due 8/31/2005 .............. 500,000 498,125
-----------
Total U.S. Government Obligations
(cost $992,034) .......................... $ 992,188
-----------
Corporate Bonds and Notes - 2.70%
General Motors Acceptance Corp 5.25%
note due 5/16/2005 .............................. $500,000 $ 504,644
-----------
Total corporate bonds and notes
(cost $504,540) .......................... $ 504,644
-----------
Government Agencies -2.68%
Federal Home Loan Bank
3.06% due 4/13/2006 ........................... $500,000 $ 499,687
-----------
Total Government Agencies (cost $500,000) $ 499,687
-----------
Total Investments (cost $7,897,585) $10,673,695
===========
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
ASSETS
Investment in securities, at value
(identified cost $7,897,585) (Note A) ...................... $ 10,673,695
Cash ........................................................... 8,495,557
Investment in real estate (cost $100,000) (Note A) ............. 25,700
Receivables:
Investments securities sold ................................ 709
Dividends and interest ..................................... 35,117
Other ...................................................... 451
Prepaid Interest ............................................... 1,992
Prepaid Insurance .............................................. 2,917
------------
Total assets ................................................... $ 19,236,138
------------
LIABILITIES
Payables:
Investment securities purchased ........................... $ 500,000
Accrued expenses and other liabilities .................... 69,473
------------
Total liabilities .............................................. $ 569,473
------------
NET ASSETS
Common Stock, authorized 10,000,000 shares,
outstanding 2,500,000 shares, $1 par value each ............ $ 2,500,000
Paid-in capital ................................................ 17,701,668
Excess of distributions over accumulated net investment loss ... (6,875,656)
Excess of net realized gain on investments over distributions .. 2,638,843
Net unrealized appreciation on investments ..................... 2,701,810
------------
Net assets ..................................................... $ 18,666,665
============
Net assets per outstanding share ............................... $7.47
=====
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
Investment income:
Dividends ..................................................... $ 194,707
Interest ...................................................... 111,683
---------
Total investment income ..................................... $ 306,390
---------
Expenses (Notes C and D):
Legal, audit and professional fees ............................ $ 120,914
Officers' salaries ............................................ 111,736
Directors' fees and expenses .................................. 61,302
Rent and Electric ............................................. 26,801
Office salaries ............................................... 25,485
Equipment rentals ............................................. 24,811
Transfer agent and registrar fees ............................. 24,500
Payroll taxes, fees and employee benefits ..................... 24,450
Custodian fees and expenses ................................... 18,589
American Stock Exchange listing fee ........................... 15,000
Miscellaneous ................................................. 4,146
Insurance ..................................................... 3,500
Federal, state and local taxes ................................ 2,957
---------
Total expenses .............................................. $ 464,191
---------
Net investment loss ............................................... $(157,801)
---------
(continued)
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
STATEMENT OF OPERATIONS-continued
For the year ended December 31, 2004
Net investment loss (from previous page) ........................ $ (157,801)
-----------
Net gain (loss) on investments (Notes A and B):
Realized gain from securities transactions:
Proceeds from sales ....................................... 3,822,560
Cost of securities sold ................................... 3,004,385
-----------
Net realized gain ......................................... 818,175
-----------
Unrealized appreciation (depreciation) on investments:
Beginning of period ......................................... 2,702,773
End of period ............................................... 2,701,810
-----------
Net decrease in unrealized appreciation ..................... (963)
-----------
Net realized gain and unrealized loss on investments ............ 817,212
-----------
Net increase in net assets resulting from operations ............ $ 659,411
===========
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2004 and 2003
Year ended
December 31, December 31,
2004 2003
------------ ------------
From investment activities:
Net investment income (loss) ............................. $ (157,801) $ (129,179)
Net realized gain (loss) from securities transactions .... 818,175 (1,400,684)
Net increase (decrease) in unrealized appreciation ....... (963) 3,609,059
------------ ------------
Increase in net assets derived from
investment activities .................................... 659,411 2,079,196
Net Assets:
Beginning of year ........................................ 18,007,254 15,928,058
------------ ------------
End of year .............................................. $ 18,666,665 $ 18,007,254
============ ============
The accompanying notes are an integral part of these statements
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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 accounting principles generally
accepted in the United States of America.
(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. 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, 2004 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, 2004. 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.
At December 31, 2004, the Corporation had a net capital loss carryforward,
which may be used to offset future capital gains, of $582,509.
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
(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 accounting
principles generally accepted in the United States of America 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, 2004:
Purchases (excludes $992,034 of U.S. Treasury
Obligations and $504,644 of Corporate Bonds) $ 1,743,743
Sales ................................................. $ 3,004,385
Net realized gain and unrealized loss on investments for the year ended
December 31, 2004 was $817,212. This amount represents the net increase in value
of investments held during the period. The components are as follows:
Long transactions ..................................... $ 817,212
-----------
Net realized gain and unrealized loss on investments .. $ 817,212
===========
As of December 31, 2004, gross unrealized appreciation and (depreciation)
of the corporation's securities portfolio were as follows:
Unrealized appreciation ............................... $ 2,897,609
Unrealized depreciation ............................... (195,799)
-----------
Net unrealized appreciation ........................... $ 2,701,810
===========
STERLING CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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 Jeffrey Scheuer and members of his family. The term of the Windy
Gates lease expires on June 30, 2005. The term of the sublease to the
Corporation expires on June 30, 2005. 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 $26,000.
Note D - Other Transactions with Affiliates
Aggregate remuneration paid or accrued by the Corporation for the year
ended December 31, 2004 to certain persons who were "affiliated persons" within
the meaning of the Act, was as follows:
Officers' salaries ...................................... $111,736
Directors' fees ......................................... 60,000
Incident to the sublease arrangements for office space at 635 Madison
Avenue referred to in Note C above, Walter Scheuer's estate 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, 2004, Walter Scheuer (and his estate) and the Corporation
paid or accrued approximately $334,000 and $37,000, 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 Walter Scheuer and his estate personally
for which they received compensation from Walter Scheuer and his estate.
STERLING CAPITAL CORPORATION
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each year:
Year Ended December 31
------------------------------------------------------
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
Investment income ........................ $ .12 $ .12 $ .20 $ .29 $ .30
Expenses ................................. .18 .17 .20 .19 .21
------ ------ ------ ------ ------
Net investment income (loss) ............. (.06) (.05) -- .10 .09
Distributions of net realized
capital gains ............................ -- -- (.03) (.43) (.51)
Distributions of net investment income -- -- (.01) (.13) (.08)
Net realized gain (loss)and increase
(decrease)in unrealized appreciation .... .33 .88 (1.69) .14 (.05)
------ ------ ------ ------ ------
Net increase (decrease) in net asset value .27 .83 (1.73) (.32) (.55)
Net asset value:
Beginning of period ................... 7.20 6.37 8.10 8.42 8.97
------ ------ ------ ------ ------
End of period ......................... $ 7.47 $ 7.20 $ 6.37 $ 8.10 $ 8.42
====== ====== ====== ====== ======
Ratio of expenses to average net assets .. 2.6% 2.7% 2.7% 2.2% 2.4%
Ratio of net investment income (loss) to
average net assets ....................... (.9)% (.8)% .1% 1.2% 1.0%
Portfolio turnover ....................... 18% 47% 30% 38% 49%
Number of shares outstanding at end
of year (in 000's) ....................... 2,500 2,500 2,500 2,500 2,500
See Report of Independent Registered Public Accounting Firm
Supplemental Information (Unaudited)
The Directors and Officers of the Corporation, their ages and positions
with the Corporation, and their principal occupations during the past five years
are as follows:
Independent Directors
------------------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in Fund
Positions Held Term of Principal Complex Other
Name, with the Office** and Length Occupation(s) Overseen by Directorships held by
Address* and Age Corporation of Time Served During Past 5 Years Director*** Director
------------------------------------------------------------------------------------------------------------------------------------
Jay Eliasberg Director Director since 1980 Private 1 None
85 Investor (1)
------------------------------------------------------------------------------------------------------------------------------------
Arthur P. Floor Director Director since 1980 Energy 1 None
80 Consultant (2)
------------------------------------------------------------------------------------------------------------------------------------
Nathan Kingsley Director Director since 1984 President, Total 1 None
78 Communications
International, a
media consulting
firm (3)
------------------------------------------------------------------------------------------------------------------------------------
Archer Scherl Director Director since 1994 Private 1 None
73 Investor (4)
------------------------------------------------------------------------------------------------------------------------------------
* The address of each of the directors is c/o Sterling Capital Corporation,
635 Madison Avenue, New York, New York 10022.
** Each director serves for a term of one year and until his successor is
duly elected and qualified.
*** The Corporation is the only investment company overseen by the directors.
(1) Mr. Eliasberg has been a private investor for more than the past five
years.
(2) Mr. Floor has held his present position for more than the past five years.
(3) Mr. Kingsley has held his present position for more than the past five
years.
(4) Mr. Scherl has been a private investor for more than the past five years.
Interested Director and Officers
------------------------------------------------------------------------------------------------------------------------------------
Number of
Portfolios in Fund
Positions Held Term of Principal Complex Other
Name, with the Office** and Length Occupation(s) Overseen by Directorships held by
Address* and Age Corporation of Time Served During Past 5 Years Director*** Director
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey Scheuer Director Director since Writer and Private 1 None
51 **** December 2004 Investor (1)
------------------------------------------------------------------------------------------------------------------------------------
Wayne S. Reisner President (2) (2) N/A (2)
54
------------------------------------------------------------------------------------------------------------------------------------
Michael Carey Vice President, (3) (3) N/A None
38 Secretary and
Treasurer
------------------------------------------------------------------------------------------------------------------------------------
* The address of each of the directors is c/o Sterling Capital Corporation,
635 Madison Avenue, New York, New York 10022.
** Each director serves for a term of one year and until his successor is
duly elected and qualified.
*** The Corporation is the only investment company overseen by the director.
**** Mr. Scheuer, together with members of the Scheuer family, may be deemed to
be controlling shareholders of the Corporation and Mr. Scheuer may be
deemed an "interested person" of the Corporation as that term is defined
in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the
"1940 Act").
(1) Mr. Scheuer has been a private investor and writer for more than the past
five years.
(2) Mr. Reisner has been President since March 1993. Mr. Reisner was Executive
Vice President of the Corporation from July 1988 to March 1993 and was
Vice President from November 1985 to July 1988. Mr. Reisner has been
employed by the Corporation since August 1985. Mr. Reisner was also a Vice
President and a Director of Windy Gates from March 1993 to August 2004.
Mr. Reisner has been a Director and President of Winterset Management
Corporation (formerly known as Manchester Capital Corporation) since
December 1988 and March 1989, respectively. Mr. Reisner was a director of
Carret and Company LLC from June 2002 until May 2004. Mr. Reisner has been
President of Carret Asset Management, LLC since May 2004.
(3) Mr. Carey has been Vice President since July 1999. Mr. Carey has been
Secretary and Treasurer of the Corporation since September 2002 and
October 1997, respectively. Mr. Carey has been employed by the Corporation
since February 1995.
Proxy Voting Policies and Procedures
The policies and procedures used by the Corporation to determine how to
vote proxies relating to portfolio securities and information regarding how the
Corporation voted proxies relating to portfolio securities during the 12-month
period ended June 30, 2004 are available without charge, upon request, by
calling toll free 1-800-949-3456 or on the Securities and Exchange Commission's
website at http://www.sec.gov.
Schedule of Portfolio Holdings on Form N-Q
The Registrant files its complete schedule of portfolio holdings with the
Securities and Exchange Commission for the first and third quarters of each
fiscal year on Form N-Q. The Registrant's Form N-Q filings are available on the
Commission's website at http://www.sec.gov commencing with the quarter ended
September 30, 2004. The Registrant's Form N-Q may be reviewed and copied at the
Commission's Public Reference Room in Washington, DC and information on the
Public Reference Room may be obtained by calling 1-800-SEC-0330. It is also
available without charge, upon request, by calling toll free 1-800-949-3456.
Item 2. Code of Ethics.
(a) The Registrant has adopted a code of ethics that applies to its
principal executive officer, principal financial officer, principal
accounting officer or controller, and persons performing similar
functions.
(b) Not applicable.
(c) The Registrant has not amended its code of ethics during the period
covered by the report in Item 1 above.
(d) The Registrant has not granted a waiver or implicit waiver from a
provision of its code of ethics during the period covered by the
report in Item 1 above.
(e) Not applicable.
(f) A copy of the Registrant's code of ethics is filed as an exhibit
pursuant to Item 12(a)(1) of this Form N-CSR.
Item 3. Audit Committee Financial Expert.
The Registrant's board of directors has determined that Archer Scherl, an
"independent" director, qualifies as the audit committee financial expert, as
defined in Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a)-(d) Aggregate fees billed to the registrant for the last two fiscal
years for professional services rendered by the registrant's principal
accountant were as follows:
2004 2003
------- -------
Audit Fees $23,000 $23,000
Audit Related Fees 0 0
Tax Fees 2,000 2,000
All other fees 0 0
Tax fees are for professional services rendered by the principal
accountant for tax compliance, tax advice and tax planning.
(e)(1) The registrant's audit committee has adopted policies and
procedures with regard to the pre-approval of audit, audit-related and tax
compliance services provided by the registrant's principal accountant on an
annual basis. Certain non-audit services provided to the registrant, if
required, will also be subject to pre-approval by the audit committee.
(2) All of the amounts for Audit Fees and Tax Fees in Item 4 (a) -
(d) above are for services pre-approved by the Fund's Audit Committee pursuant
to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
Item 5. Audit Committee of Listed Registrants.
The Registrant has a separately designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. The
audit committee members are Archer Scherl, Jay Eliasberg, Arthur Floor, and
Nathan Kingsley.
Item 6. Schedule of Investments.
The schedule of investments in securities of unaffiliated issuers is
included in the Registrant's report to stockholders filed under Item 1 of this
form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Registrant's proxy voting policies and procedures that it uses to
determine how to vote proxies' relating to portfolio securities is as follows:
Sterling Capital Corporation (the "Company") is uniquely structured as an
internally managed closed-end investment company. Our research efforts,
including the receipt and analysis of proxy material, are focused on the
securities in the Company's portfolio, as well as alternative investment
opportunities. We vote proxies relating to our portfolio securities in the best
long-term interests of the Company.
Our investment approach stresses fundamental security analysis, which
includes an evaluation of the integrity, as well as the effectiveness of
management personnel. In proxy material, we review management proposals and
management recommendations relating to shareholder proposals in order to, among
other things, gain assurance that management's positions are consistent with its
integrity and the long-term interests of the company. We generally find this to
be the case and, accordingly, give significant weight to the views of management
when we vote proxies.
Proposals that may have an impact on the rights or privileges of the
securities held by the Company would be reviewed very carefully. The explanation
for a negative impact could justify the proposal; however, if such justification
were not present, we would vote against a significant reduction in the rights or
privileges associated with any of our holdings.
Proposals relating to corporate governance matters are reviewed on a
case-by-case basis. When they involve changes in the state of incorporation,
mergers or other restructuring, we would, if necessary, complete our review of
the rationale for the proposal by contacting company representatives and, with
few exceptions, vote in favor of management's recommendations.
Proposals relating to anti-takeover provisions, such as staggered boards,
poison pills and supermajorities could be more problematic. They would be
considered in light of our assessment of the capability of current management,
the duration of the proposal, the negative impact it might have on the
attractiveness of the company to future "investors," among other factors. We can
envision circumstances under which we would vote against an anti-takeover
provision.
Generally, we would vote with management on proposals relating to changes
to the company's capital structure, including increases and decreases of capital
and issuances of preferred stock; however, we would review the facts and
circumstances associated with each proposal before finalizing our decision.
Well-structured stock option plans and management compensation programs
are essential for companies to attract and retain high caliber management
personnel. We generally vote in favor of proposals relating to these issues;
however, there could be an occasion on which we viewed such a proposal as over
reaching on the part of management or having the potential for excessive
dilution when we would vote against the proposal.
Corporations should act in a responsible manner toward their employees,
the communities in which they are located, the customers they serve and the
world at large. We have observed that most stockholder proposals relating to
social issues focus on a narrow issue and the corporate position set forth in
the proxy material provides a well-considered response demonstrating an
appropriate and responsible action or position. Accordingly, we generally
support management recommendations on these types of proposals; however, we
would consider each proposal on a case-by-case basis.
We take voting proxies of securities held in our portfolio very seriously.
As indicated above, it is an integral part of the analytical process at Sterling
Capital Corporation. Each proposal and any competing interests are reviewed
carefully on a case-by-case basis. Generally, we support and vote in accordance
with the recommendations of management; however, the overriding basis for the
votes we cast is the best long-term interests of the Company.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not required for this filing.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
The Registrant nor any "affiliated purchaser" had any reportable purchases
of the Registrant's equity securities.
Item 10. Submission of Matters to a Vote of Security Holders.
The Registrant has changed the procedures by which shareholders may
recommend nominees to the registrant's board of directors as follows:
Pursuant to policies and procedures adopted by the Board, the Independent
Directors are responsible for nominating candidates to become Independent
Directors and the full Board is responsible for nominating candidates to become
Interested Directors, provided that at least a majority of the Independent
Directors approve the nomination. The Board, including the Independent
Directors, will consider Director candidates recommended by shareholders. The
Board generally considers nominees for Directors at one meeting each year. The
Board has adopted a resolution setting forth the following procedures for
considering nominees to the Board of Directors. In considering nominees, the
Board will take into consideration the needs of the Board and the qualifications
of the candidate. The Board may also take into consideration the number of
shares held by the recommending shareholder and the length of time that such
shares have been held. To have a candidate considered by the Board, a
shareholder must submit the recommendation in writing and must include:
o The name of the shareholder and evidence of the person's ownership of
shares of the Corporation, including the number of shares owned and the
length of time of ownership; and
o The name of the candidate, the candidate's resume or a listing of his or
her qualifications to be a Director of the Corporation and the person's
consent to be named as a Director if selected by the Board.
The shareholder recommendation and information described above must be sent to
the Corporate Secretary, c/o Sterling Capital Corporation, 635 Madison Avenue,
New York, New York 10022.
The Board believes that the minimum qualifications for serving as a Director of
the Corporation are that a candidate demonstrate, by significant accomplishment
in his or her field, an ability to make a meaningful contribution to the Board's
oversight of the business and affairs of the Corporation on behalf of
shareholders and have an impeccable record and reputation for honest and ethical
conduct in both his or her professional and personal activities. In addition,
the Board examines a candidate's specific experiences and skills, time
availability in light of other commitments and, in the case of candidates to
become Independent Directors, potential conflicts of interest and independence
from management and the Corporation. In the case of candidates to become
Interested Directors, the Board considers the candidates relationship and
familiarity with the Corporation. The Corporation does not pay any third party a
fee to assist in the process of identifying and evaluating candidates.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive and principal financial officers
have concluded that the Registrant's disclosure controls and procedures ( as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act") (17 CFR 270.30a-3(c)) are effective, as of January 31, 2005
based on their evaluation of the controls and procedures required by Rule
30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) The Registrant's principal executive officer and principal financial
officer are aware of no changes in the Registrant's internal control over
financial reporting that occurred during the Registrant's last fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of Ethics.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b) Certification of principal executive officer and principal financial officer
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) STERLING CAPITAL CORPORATION
By: /s/ Wayne S. Reisner
---------------------------
Name: Wayne S. Reisner
Title: President
Date: February 25, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Wayne S. Reisner
---------------------------
Name: Wayne S. Reisner
Title: Principal Executive Officer
Date: February 25, 2005
By: /s/ Michael J. Carey
---------------------------
Name: Michael J. Carey
Title: Principal Financial Officer
Date: February 25, 2005