<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
700 N.E. Multnomah, Suite 1600
Portland, Oregon 97232-4116
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND 1995
June 12, 1997
To the Members:
The enclosed information concerning the Financial Statements of
WhiteRock Portfolio Investors, L.L.C. for the year ended December 31, 1996 and
1995 is being furnished to you for your information and in accordance with
applicable law. Please retain this information for future reference and call
the undersigned at (214) 754-8494 with any questions you may have.
Sincerely,
/s/ Sharlene D. Snyder
----------------------
Sharlene D. Snyder
Secretary
<PAGE>
[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]
The Global Leader
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(A LIMITED LIABILITY COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
[LOGO OF KPMG PEAT MARWICK APPEARS HERE]
2500 City Center Tower II
301 Commerce Street
Fort Worth, TX 76102
INDEPENDENT AUDITORS' REPORT
----------------------------
The Members
WhiteRock Portfolio Investors, L.L.C.:
We have audited the accompanying balance sheets of WhiteRock Portfolio
Investors, L.L.C. (a limited liability company) as of December 31, 1996 and
1995, and the related statements of operations, members' capital, and cash flows
for the year ended December 31, 1996 and the period September 29, 1995
(inception) through December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 referred to above present fairly, in
all material respects, the financial position of WhiteRock Portfolio Investors,
L.L.C. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the year ended December 31, 1996 and the period September 29,
1995 (inception) through December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
April 11, 1997
<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(a limited liability company)
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash $ 2,575 1,834,136
Investment in Lone Star Opportunity Fund,
L.P. (note 2) 805,158 --
Investment in Brazos Fund, L.P. (note 2) 8,598,901 10,216,165
Accounts receivable 9,977 7,729
---------- ----------
Total assets $9,416,611 12,058,030
========== ==========
Liabilities and Members' Capital
--------------------------------
Liabilities - accounts payable $ 34,300 29,356
Members' capital 9,382,311 12,028,674
---------- ----------
Total liabilities and members' capital $9,416,611 12,058,030
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(a limited liability company)
Statements of Operations
<TABLE>
<CAPTION>
Period
September 29,
1995 (inception)
Year ended through
December 31, December 31,
1996 1995
------------ ----------------
<S> <C> <C>
Investment income $ 21,571 --
Equity in earnings (loss) on investments
(note 2) 3,432,113 (59,116)
------------ ----------------
3,453,684 (59,116)
Canadian tax on dividends received (86,814) --
------------ ----------------
Net income (loss) $3,366,870 (59,116)
============ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(a limited liability company)
Statements of Members' Capital
Year ended December 31, 1996 and period
September 29, 1995 (inception) through December 31, 1996
<TABLE>
<S> <C>
Initial capital contributions $ 12,087,790
Net loss for the period (59,116)
------------
Balance at December 31, 1995 12,028,674
Capital contributions 6,528,866
Distributions (12,542,099)
Net income for the year 3,366,870
------------
Balance at December 31, 1996 $ 9,382,311
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(a limited liability company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period
September 29,
1995 (inception)
Year ended through
December 31, December 31,
1996 1995
------------ ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,366,870 (59,116)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in (earnings) loss on investments (3,432,113) 59,116
Changes in operating assets and liabilities:
Increase in accounts receivable (2,248) (7,729)
Increase in accounts payable 4,944 29,356
----------- -----------
Net cash provided by (used in) operating activities (62,547) 21,627
----------- -----------
Cash flows from investing activities:
Contributions made to investments in limited partnerships (843,648) (15,776,387)
Distributions received from investments in limited partnerships 5,087,867 5,501,106
----------- -----------
Net cash provided by (used in) investing activities 4,244,219 (10,275,281)
----------- -----------
Cash flows from financing activities:
Member contributions 6,528,866 12,087,790
Member distributions (12,542,009) --
----------- -----------
Net cash provided by (used in) financing activities (6,013,233) 12.087,790
----------- -----------
Net increase (decrease) in cash (1,831,561) 1,834,136
Cash, beginning of period 1,834,136 --
----------- -----------
Cash, end of period $ 2,575 1,834,136
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(a limited liability company)
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Description of Business
-----------------------
WhiteRock Portfolio Investors, L.L.C. (WhiteRock) was formed on
September 29, 1995 and is registered as a nondiversified,
closed-end investment company under the Investment Company Act
of 1940. The investment objective of WhiteRock is to seek high
total returns by buying, selling, exchanging or otherwise
acquiring, holding, trading, investing in, managing, and dealing
with qualified investments, whether such assets are acquired
directly, or indirectly through partnerships, joint ventures, or
otherwise. In pursuing its objectives, WhiteRock focuses
primarily on acquiring, directly or indirectly, managing and
disposing of distressed mortgage loan and owned real estate
("REO") portfolios, and high yield commercial mortgage-backed
securities, including but not limited to investing in entities
organized or to be organized by Brazos Fund, L.P. (Brazos),
Lone Star Opportunity Fund, L.P. (Lone Star) and their
affiliates.
The operations of WhiteRock are governed by a limited liability
company agreement dated September 29, 1995. The term of
WhiteRock is six years and eleven months from the date of
inception.
Net income and losses of WhiteRock are allocated among the
members based on their respective ownership percentages in
accordance with the limited liability company agreement.
(b) Income Taxes
------------
As a limited liability company, WhiteRock is not subject to
federal income taxes; therefore, no federal taxes have been
reflected in the accompanying financial statements. Federal
income taxes are the responsibility of WhiteRock's members.
(c) Investments in Limited Partnerships
-----------------------------------
Investments in Brazos as of December 31, 1996 and 1995 and in
Lone Star as of December 31, 1996 are recorded for financial
statement purposes on the equity basis which approximates the
estimated fair value of WhiteRock's investments. The equity
basis was determined to be a fair estimate of the projected
future cash flows of the investments discounted at a market rate
of return for investments with similar risks.
The fair values of investments as determined by the members, do
not necessarily represent the amounts that may be realized from
their immediate sale or disposition. Because of the inherent
uncertainty of valuation, those estimated values may differ
significantly from the
(Continued)
<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(a limited liability company)
Notes to Financial Statements
values that would have been used had a ready market for the investments
existed, and the differences could be material.
(d) 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 disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) Investments in Limited Partnerships
-----------------------------------
The primary focus of Brazos and Lone Star, WhiteRock's two investments at
December 31, 1996 and 1995, is the acquisition, management and disposition
of distressed mortgage loan and real estate portfolios. Brazos and Lone
Star may also invest in other real estate related assets. The objective of
the two funds is to achieve significant yields and capital gains for its
partners. The projected holding period for each of these investments is
three to five years. Brazos and Lone Star's general partners are
responsible for the evaluation, execution and management of the investments
and investment opportunities of the respective funds. Brazos and Lone Star
will invest only where they believe that they have a competitive advantage
arising from its expertise in origination, evaluation, management and
disposition of its assets. As of December 31, 1996, Brazos and Lone Star
have invested in eighteen and five portfolios, respectively. The operations
of Brazos and Lone Star have invested in eighteen and five portfolios,
respectively. The operations of Brazos and Lone Star are governed by a
limited partnership agreements (Agreements) dated March 30, 1995 and
November 30, 1996, respectively. All profits, losses and cash distributions
are allocated and governed in accordance with the Agreements.
Summary condensed financial information of Brazos and Lone Star as of
December 31, 1996 and for the year then ended is as follows:
<TABLE>
<CAPTION>
Brazos Lone Star
------ ---------
<S> <C> <C>
Assets $431,315,295 31,360,329
============ ==========
Liabilities $225,749,623 18,226,184
Minority interest 66,243,564 --
Partners' capital 139,322,108 13,134,145
------------ ----------
$431,315,295 31,360,329
============ ==========
</TABLE>
<PAGE>
WHITEROCK PORTFOLIO INVESTORS, L.L.C.
(a limited liability company)
Notes to Financial Statements
<TABLE>
<CAPTION>
Brazos Lone Star
------------ ---------
<S> <C> <C>
WhiteRock's investment, at cost $ 8,598,901 805,158
============ ========
Revenues and net gain on disposition of assets $161,289,723 64
Expenses and minority interest charge 104,443,582 627,919
------------ --------
Net income (loss) $ 56,846,141 (627,855)
============ ========
WhiteRock's equity in earnings (loss) on investment $ 3,470,602 (38,489)
============ ========
</TABLE>
Summary condensed financial information of Brazos as of December 31, 1995
and for the period March 30, 1995 (inception) through December 31, 1995 is
as follows:
<TABLE>
<CAPTION>
Brazos
-------------
<S> <C>
Assets $614,063,610
============
Liabilities $388,300,009
Minority interest 59,803,632
Partners' capital 165,959,969
------------
$614,063,610
============
WhiteRock's investment, at cost $ 10,216,165
============
Revenues and net gain on disposition of assets $ 28,932,467
Expenses and minority interest charge 29,903,502
------------
Net loss $ (971,035)
============
WhiteRock's equity in loss on investment $ (59,116)
============
</TABLE>
(3) Related Party Transactions
--------------------------
All WhiteRock expenses (except for Canadian taxes on dividends received),
including organizational expenses, are the responsibility of Brazos
Principal GenPar, L.P. or its general partner, Brazos GenPar, Inc. Brazos
GenPar, Inc. also functions as WhiteRock's administrator.
