FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from______________to
___________
Commission File No._____________
METROPOLITAN REALTY COMPANY, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 38-3260057
(State of incorporation) (I.R.S. Employer Identification No.)
535 Griswold, Suite 748
Detroit, Michigan 48226
(Address of principal executive offices)
Registrant's Telephone Number, including area code:
(313) 961-5552
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES__X ___ NO_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to Form 10-K.
YES_____ NO__X___
The aggregate market value of the Registrant's membership interests held by
non-affiliates as of December 6, 1996 was $4,713,206, of which $4,608,206 was
attributable to Class A Membership Interests and $105,000 was attributable to
Class B Membership Interests.
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY COMPANY, L.L.C.
INDEX TO ANNUAL REPORT ON FORM 10-K
(For the Fiscal Year Ended December 31, 1996)
Page
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<S> <C> <C>
PART I
ITEM 1. BUSINESS.........................................................1
ITEM 2. PROPERTIES.......................................................2
ITEM 3. LEGAL PROCEEDINGS................................................3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS......................................3
ITEM 6. SELECTED FINANCIAL DATA..........................................5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*....................11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............13
ITEM 11. EXECUTIVE COMPENSATION..........................................19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..................................................20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.....................................................24
<FN>
* The Company's financial statements are set forth in the separate
financial section which follows page 27 of this Form 10-K and begins
on page F-1.
</TABLE>
<PAGE>
PART I
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ITEM 1. BUSINESS.
Metropolitan Realty Company, L.L.C., a Delaware limited liability
company (the "Company"), is the successor in interest to Metropolitan Realty
Corporation (the "Corporation"), a Michigan corporation. The Corporation had
operated since 1988 as a qualified real estate investment trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"), and
invested in commercial real estate mortgages in southeastern Michigan and
other investments. The Company was organized as a Delaware limited liability
company on October 23, 1995 for the purpose of implementing the Restructuring
described below. Prior to the consummation of the Restructuring, the Company
had never conducted any business and had no assets.
Restructuring
At a special meeting of the shareholders of the Corporation held on
December 6, 1996, the shareholders of the Corporation approved and adopted
the Agreement and Plan of Dissolution and Restructuring, dated as of
September 24, 1996 (the "Restructuring Agreement"), between the Company and
the Corporation. Pursuant to the terms of the Restructuring Agreement,
effective December 6, 1996, the Corporation transferred all of its assets
(the "Class A Assets") to, and the liabilities of the Corporation were
assumed by, the Company in exchange for Class A limited liability company
membership interests (the "Class A Membership Interests") of the Company. The
Corporation was then dissolved, and the Class A Membership Interests were
distributed pro rata to the Corporation's shareholders who owned 50,000
shares or more of the Corporation's common stock beneficially or of record on
October 9, 1996 (the "Record Date") (the "Majority Shareholders") in
liquidation (the "Restructuring"). Holders, beneficially or of record, of
fewer than 50,000 shares of the Corporation's common stock (the "Minority
Shareholders") as of the Record Date will receive, upon surrender of their
shares, a cash payment equal to the book value of their shares as of
September 30, 1995 ($9.03 per share) in lieu of the distribution of Class A
Membership Interests in the Company. These cash payments will be made
exclusively from the Class A Assets.
Concurrently with the consummation of the Restructuring, the Company
offered its Class B Membership Interests in a separate offering to create a
new investment pool which is segregated on the books of the Company from the
Class A Assets. The total proceeds of the offering of Class B Membership
Interests were $22,500,000. The net proceeds of the offering of Class B
Membership Interests (the "Class B Assets") will be invested in short-term
investments until such time as the proceeds are invested in real estate
loans.
Class A Assets
The Company's Class A mortgage loans include financing for industrial
and mixed-use facilities, office buildings, and retail and residential
centers. In making such loans, the Corporation favored investments that will
provide a competitive return and permanent financing for projects which
create construction jobs and stimulate the southeastern Michigan economy. All
Class A mortgage loans to date are collateralized by a first lien on real
property. At December 31, 1996,
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the Company's largest Class A loan approximates 9.5% of the Class A Assets,
and the carrying value of all Class A mortgage loans approximates 64% of the
Class A Assets.
Class A Assets that have not yet been invested in mortgage loans are
primarily invested in marketable mortgage-backed securities and U.S. Treasury
Notes until needed for the Company's operations or investments in mortgage
loans. As of December 31, 1996, approximately 33% of the Company's Class A
Assets remained invested in marketable securities.
Class B Assets
As of December 31, 1996, the Company has approximately $22,569,000 in
net Class B Assets, the majority of which is invested in money market funds.
The Company intends to invest the Class B Assets in commercial real estate
mortgages in southeastern Michigan and other investments. The Class B
mortgage loan investments are to be chosen on the basis of economic merit,
including availability, risk and potential return. The Class B Assets will be
invested in short-term investments until such time as the assets are invested
in mortgage loan investments.
The Company believes that its mortgage loans and marketable
securities will provide a competitive economic return to its members while
protecting their capital.
The Company continues to evaluate real estate projects and intends to
liquidate its remaining marketable securities and short-term investments to
make additional mortgage loans to qualified projects located in southeastern
Michigan. Although the Company has competed and is competing with financial
institutions such as banks, insurance companies, savings and loan
associations, mortgage bankers, pension funds and other real estate
investment vehicles with investment objectives similar to those of the
Company, the Company believes it has targeted a market niche which is
underserved.
During 1996, the Corporation had one full-time administrative
employee. The day-to-day operations of the Corporation were administered by
its Executive Vice President, who serves on a part-time basis under the
direction of the President and the Executive Committee of the Corporation.
Effective upon the consummation of the Restructuring, the day-to-day
operations of the Company are administered by its President, who serves
part-time, on a per diem basis, under the direction of the Executive
Committee. (See Item 11 - Executive Compensation). Other members of the
Managing Board serve without pay as officers and committee members and devote
a considerable amount of time to the administration and operations of the
Company.
ITEM 2. PROPERTIES.
The Company's executive offices are located at Suite 748, 535
Griswold, Detroit, Michigan, 48226. The Company rents this office space under
a month-to-month lease which provides for a monthly rental of approximately
$1,513, which is comparable to prevailing rentals for similar facilities. The
Company's offices are suitable and adequate for the current operations of the
Company.
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ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending, or, to the knowledge
of the Company, threatened, to which the Company is a party or by which its
property may be bound.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's members since
the consummation of the Restructuring on December 6, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no established public trading market for the Company's Class
A Membership Interests and Class B Membership Interests. As of March 25,
1997, there were 118 holders of the Company's Class A Membership Interests
and 110 holders of the Company's Class B Membership Interests.
The Company has not declared or paid any cash distributions on its
Class A Membership Interests and Class B Membership Interests since the
consummation of the Restructuring on December 6, 1996.
The Company's Operating Agreement provides that Class A Members will
receive pro rata quarterly distributions of 100% of the Class A cash income,
less expenses. Distributions of principal will be returned as follows to the
Class A Members:
(i) prior to 2001, the Company may, at its sole option,
reinvest any principal returned with respect to real estate investments which
are part of the Class A Assets; and
(ii) beginning in 2001, a Class A Member may elect each year
to receive its pro rata share of (x) principal returned with respect to real
estate investments which are part of the Class A Assets, and (y) any cash or
cash equivalents which are part of the Class A Assets. Any part of the Class
A Assets which is not distributed pursuant to the foregoing may, at the
option of the Company, be reinvested in real estate investments. Any such
election must be made by a Member in writing and must be received by the
Company by the November first preceding the fiscal year for which such
election is to be effective.
The Company's Operating Agreement provides that Class B Members will
receive pro rata quarterly distributions of 100% of the Class B cash income,
less expenses. The Class B Membership Interests have been structured so that
payments, beginning in 2000, of principal in the Class B investment pool will
be passed through to the Class B Members on an annual basis (or more
frequently as determined by the Company's Managing Board). In addition, any
cash and cash equivalents, which are part of the Class B Assets, which have
not been invested in real estate investments by December 31, 1999 will be
passed through to the Class B Members.
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All distributions are subject to a determination by the Managing
Board that the Company will have sufficient cash on hand to meet its current
and anticipated needs to fulfill its business purpose.
4
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data as of December
31, 1996, 1995, 1994, 1993 and 1992 and for the years then ended:
<TABLE>
<CAPTION>
1996 1995(3) 1994(4) 1993(5) 1992(5)
------------------------------------ --------- --------- --------- ---------
Class A(1) Class B(2) Total
----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total income............................. $3,925,400 $74,178 $3,999,578 $3,764,059 $3,858,028 $3,715,985 $3,828,950
Net investment income.................... 3,373,259 68,593 3,441,852 1,990,203 2,587,550 2,700,898 2,112,662
Net investment income per share.......... * * * .44 .57 .60 .47
Total assets............................. 44,084,538 22,977,946 67,062,484 41,760,901 41,025,168 41,626,490 41,235,710
Members'/Shareholders' equity............ 42,168,811 22,568,593 64,737,404 41,333,327 40,479,424 41,104,089 40,850,562
Cash dividend per share.................. .11 - .11 .34 .63 .54 .70
Return on assets......................... 7.66% 4.44% 6.55% 4.77% 6.31% 6.49% 5.12%
Return on equity......................... 8.00% 4.52% 6.79% 4.82% 6.39% 6.57% 5.18%
Dividend payout ratio.................... * * * 100% 100% 100% 100%
Equity to assets ratio................... 95.65% 98.22% 96.53% 98.98% 98.67% 98.75% 99.07%
<FN>
(1) On December 6, 1996, pursuant to the terms of a restructuring
agreement, the assets and liabilities of Metropolitan Realty Corporation (the
"Corporation") were transferred to Metropolitan Realty Company, L.L.C. (the
"Company") in exchange for Class A Membership Interests in the Company.
Holders of fewer than 50,000 shares of the Corporation's common stock as of
October 9, 1996, the Record Date, will receive, upon surrender of their
shares, a cash payment in lieu of the distribution of Class A Membership
Interests in the Company. This amount totaled $1,940,980 and was recorded as
a payable of the Corporation. The Corporation was then dissolved and the
Class A Membership interests were distributed pro rata to the Corporation's
shareholders who owned 50,000 shares or more of the Corporation's common
stock.
Net investment income increased by approximately 69% to $3,373,259 in
1996 from $1,990,203 in 1995. The increase in net investment income from 1995
to 1996 is due primarily to a $600,000 decrease in the change in the
provision for loan losses, a $332,000 decrease in the net loss from
foreclosed property held for sale, a $225,000 decrease in general and
administrative expenses for costs associated with the Company's restructuring
into a limited liability company and a $65,000 decrease in other general and
administrative expenses, primarily for loan advisory and professional service
fees.
* Not relevant under the new structure (Note 1).
5
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(2) Concurrently with the consummation of the Restructuring, the
Company offered Class B Membership Interests in a separate offering to create
a new investment pool. The proceeds from the offering of Class B Membership
Interests totaled $22,500,000 and are invested in money market funds at
December 31, 1996. The net proceeds from the offering of Class B membership
interests will be invested in short-term investments until such time as the
proceeds are invested in real estate loans. Investment income and net
investment income earned by Class B Assets totaled $74,178 and $68,593,
respectively, for the period December 6, 1996 to December 31, 1996.
(3) Net investment income decreased by approximately 23% from
$2,587,550, or $.57 per share, for 1994 to $1,990,203, or $.44 per share for
1995. The decrease in net investment income from 1994 to 1995 is due
primarily to a $1,061,500 increase in the change in the provision for loan
losses and a $405,000 increase in general and administrative expenses, of
which $313,000 is for costs associated with the Company's planned
restructuring into a limited liability company, offset by a $963,000 decrease
in net loss from foreclosed property held for sale. Of the cash dividend of
$.34 per share paid in 1995, $.06 was paid from taxable income earned in 1994
and $.28 was paid from taxable income in 1995. All dividends paid have been
ordinary income to shareholders.
(4) Net investment income decreased by approximately 4% from
$2,700,898, or $.60 per share, for 1993 to $2,587,550, or $.57 per share, for
1994. The decrease in net investment income from 1993 to 1994 is due
principally to a $994,000 increase in the valuation provision for foreclosed
property held for sale, offset by a $462,000 decrease in the allowance for
loan losses, a $278,000 decrease in other operating expenses and $114,000 of
income from a loan prepayment penalty. Of the cash dividend of $.63 per share
paid in 1994, $.08 was paid from taxable income earned in 1993 and $.55 was
paid from taxable income earned in 1994.
(5) Net investment income increased by approximately 28% from
$2,112,662, or $.47 per share, for 1992 to $2,700,898, or $.60 per share, for
1993. The increase in net investment income from 1992 to 1993 is due
principally to a $900,000 decrease in allowance for loan losses expense,
offset by the net loss from operations of foreclosed property held for sale
of approximately $338,000. Of the cash dividend of $.54 per share paid in
1993, $.03 was paid from taxable income earned in 1992 and $.51 was paid from
taxable income earned in 1993.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
As a result of the restructuring discussed above, the following
presents the 1996 results of operations individually for the Class A and
Class B Membership Interests.
Results of Operations, Class B Membership Interests
Proceeds of $22,500,000 from the offering of Class B Membership
Interests were received by the Company on December 6, 1996. At December 31,
1996, the net assets of the Class B investment pool totaled $22,977,946 and
were primarily invested in money market funds. Certain organization costs of
the Class B investment pool have been capitalized at cost and will be
amortized over five years. Net organization costs at December 31, 1996
totaled $403,768. The net proceeds from the offering of Class B Membership
Interests will be invested in short-term
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investments until such time as the proceeds are invested in real estate
loans. Investment income and net investment income earned by Class B Assets
totaled $74,178 and $68,593, respectively, for the period December 6, 1996 to
December 31, 1996.
Results of Operations, Class A Membership Interests
The Company's net investment in mortgage loans to real estate
projects represented 64% of its assets, or $28,281,266, at December 31, 1996
and 61% of its assets, or $25,364,328, at December 31, 1995. The yields on
the Company's outstanding mortgage loans range from 6.75% to 12.25%. The
weighted average yield of earning mortgage loans is 10.05% at December 31,
1996, as compared to 10.27% at December 31, 1995. The weighted average term
of outstanding mortgage loans is 8.1 years. At December 31, 1996, the Company
had outstanding loan commitments for additional mortgage loans aggregating
$415,570. The amount of marketable securities (which consisted primarily of
Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation mortgage-backed, pass-through securities and U.S. Treasury Notes)
held by the Company during 1996 averaged $14,929,830 and earned an average
yield of 6.2%, as compared to average marketable security holdings of
$11,992,000 which earned an average yield of 5.6% during 1995. The average
yield on all interest earning assets was 8.75% for the year ended December
31, 1996 and 8.71% for the year ended December 31, 1995.
Investment income from marketable securities increased $264,020 to
$930,713 for the year ended December 31, 1996 from $666,693 for the year
ended December 31, 1995. Of the increase, $163,318 was the result of an
increase in the average amount invested in marketable securities and $100,702
was the result of an increase in the average yield earned.
Investment income from money market securities decreased $108,243 to
$86,188 for the year ended December 31, 1996 from $194,431 for the year ended
December 31, 1995. Of the decrease, $89,205 was the result of a decrease in
the average amount invested in money market securities and $19,038 was the
result of a decrease in average yield.
Investment income from mortgage loans increased $41,991 to $2,796,966
for the year ended December 31, 1996 from $2,754,975 for the year ended
December 31, 1995. Of the increase, $101,427 was the result of an increase in
the average amount invested in mortgage loans offset by a $59,436 decrease in
the average yield.
Miscellaneous income decreased $35,245 to $107,671 for the year ended
December 31, 1996 from $142,916 for the year ended December 31, 1995. The
decrease primarily results from a $24,600 decrease in income from guarantor
settlements.
Operating expenses decreased 69% to $552,141 for the year ended
December 31, 1996 from $1,773,856 for the year ended December 31, 1995. This
decrease is due primarily to a $600,000 decrease in the change in the
provision for loan losses, a $332,000 decrease in net loss from foreclosed
property held for sale, a $225,000 decrease in general and administrative
expenses for costs associated with the Company's restructuring into a limited
liability company, and a $65,000 decrease in other general and administrative
expenses, primarily for loan advisory and professional service fees.
7
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Net investment income increased by 69% to $3,373,259 for the year
ended December 31, 1996 from $1,990,203 for the year ended December 31, 1995
as a result of the items discussed above.
Management reviews, on a regular basis, factors which may adversely
affect its mortgage loans, including occupancy levels, rental rates and
property values. It is possible that economic conditions in southeastern
Michigan, and the nation in general, may adversely affect certain of the
Company's other loans.
The Company had maintained an allowance for doubtful accounts of
$1,461,500 from December 31, 1992 through the third quarter of 1994 to
reflect the expected recoverable cash flows from three troubled loans.
During 1994, the cash flows generated by one of the above loans which
had previously been in default, collateralized by a shopping center,
increased significantly. As this increase was supported by an improvement in
tenant base, the Company determined at December 31, 1994 that this loan no
longer required a loss reserve. The loan loss reserve was reduced,
accordingly, by $461,500 during the fourth quarter of 1994 to $1,000,000. The
other loan with an affiliated borrower, which was also formerly in default,
had not exhibited the same magnitude of improvement in cash flows and tenants
during 1994. The loan loss reserve, however, was further reduced by $250,000
in the second quarter of 1995, based on the Company's determination that the
continued assignment of rents reduced the risk of loss associated with this
loan.
In 1994, only one loan was operating under a loan modification
agreement. The borrower was current with the modified debt service
requirements during 1994, although the underlying apartment collateral
continued to experience high tenant turnover and poor cash flow, and monthly
debt service payments were occasionally late. During 1995, the borrower tried
unsuccessfully to find a buyer for this property. The physical property
collateralizing the loan began to deteriorate as the year progressed. An
independent analysis of the loan portfolio performed in the third quarter of
1995, confirmed the deterioration of the property compared to similar
properties in the surrounding geographic location. The independent valuation
also identified a loan, collateralized by a shopping center which has begun
to experience limited market rent potential based on recent commercial
developments in its surrounding market area. Based on the results of this
independent market valuation, the allowance relating to these loans was
increased by $850,000 during the third quarter of 1995. The Company believes
that the allowance for loan losses of $1,600,000 at December 31, 1996 and
1995 is adequate to reflect mortgage loans at their estimated net realizable
value.
On December 23, 1992, the Company obtained an apartment building
located in Detroit, Michigan, through a foreclosure sale. This property was
the collateral for a construction loan under which the borrower defaulted
during 1992. The carrying value of the property was written down to its
estimated fair value at the time of foreclosure of $2,100,000, based upon a
July 1992 independent appraisal, net of a $140,000 valuation allowance for
the estimated costs to sell the property. At December 31, 1994 the carrying
value of the property was reduced to $900,000 to reflect an updated property
valuation based on the results of the Company's marketing efforts to locate a
buyer for the property. The carrying value of the property was further
written down to $555,000 during the quarter ended June 30, 1995 as the result
of an offer to purchase the property.
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On August 1, 1995, the sale of this property was consummated. In
accordance with the terms of the purchase agreement, the Company received
$100,000 of the purchase price at the August 1, 1995 settlement date. The
remaining $455,000 of the purchase price will be paid, pursuant to the terms
of a mortgage note bearing interest at 10% per annum, in monthly installments
of principal and interest of $4,889 commencing in September 1995 until
maturity in August 2000, at which time the remaining unpaid principal of
approximately $375,000 is due. The mortgage note is guaranteed by the
borrower and may be prepaid in whole or in part at any time.
During 1994, the Company reached settlements with the guarantors of
the foreclosed loan aggregating $320,000. These settlements are payable over
four to eight years, with interest rates ranging from noninterest-bearing to
7.5%. Income from settlements is recorded as miscellaneous income when
received and totaled $37,000, $62,000 and $43,000 for the years ended
December 31, 1996, 1995 and 1994, respectively. The property's operating
income and expenses, from the date of foreclosure through the date of sale,
are reflected in the statement of operations as net loss from foreclosed
property held for sale and total $331,953 and $1,295,416 for the years ended
December 31, 1995, and 1994, respectively.
Investment income from marketable securities increased $295,969 to
$666,693 for the year ended December 31, 1995 from $370,724 for the year
ended December 31, 1994. Of the increase, $178,051 was the result of an
increase in the average amount invested in marketable securities and $117,918
was the result of an increase in the average yield earned.
Investment income from money market securities increased $9,444 to
$194,431 for the year ended December 31, 1995 from $184,987 for the year
ended December 31, 1994. Of the increase, $56,106 was the result of an
increase in average yield offset by a $46,662 decrease in the average amount
invested in money market securities.
Investment income from mortgage loans decreased $318,255 to
$2,754,975 for the year ended December 31, 1995 from $3,073,230 for the year
ended December 31, 1994. Of the decrease, $233,321 was the result of a
decrease in average amount invested in mortgage loans and $84,934 was the
result of a decrease in the average yield.
Miscellaneous income decreased $86,033 to $142,916 for the year ended
December 31, 1995 from $228,949 for the year ended December 31, 1994. The
increase primarily resulted from $114,000 in prepayment penalties received in
1994 offset by a $19,000 increase in income from guarantor settlements from
1994 to 1995.
Operating expenses increased 40% to $1,773,856 for the year ended
December 31, 1995 from $1,270,478 for the year ended December 31, 1994. This
increase is due to a $1,061,500 increase in the change in the provision for
loan losses, a $312,944 increase in general and administrative expenses for
costs associated with the Company's planned restructuring into a limited
liability company, and a $92,397 increase in other general and administrative
expenses, due primarily to increased loan advisory and professional service
fees, offset by a $963,463 decrease in net loss from foreclosed property held
for sale.
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Net investment income decreased by 23% to $1,990,203, or $.44 per
share, for the year ended December 31, 1995 from $2,587,550, or $.57 per
share for the year ended December 31, 1994 as a result of the items discussed
above.
The Company intends to continue to invest its available funds at
competitive market rates in mortgage loans to real estate projects located in
southeastern Michigan. Cycles in the local and national economy have affected
and could continue to affect the Company's ability to invest its remaining
funds in mortgage loans and the yields attainable on such investments.
Decreases in market interest rates may result in lower returns on future
mortgage loans than on the mortgage loans closed to date. Although the
Company expects to have the balance of its available assets fully invested in
mortgage loans by the end of 1998, management will continue its prudent
approach of approving funding only of those loans which meet appropriate
underwriting criteria.
Liquidity and Capital Resources
Funds that have not yet been invested in mortgage loans are primarily
invested in marketable securities until needed for the Company's operations
or investments in mortgage loans. Income and principal received with respect
to the Company's investments in mortgage loans are also invested in
marketable securities pending distribution to members in the form of
dividends or reinvestment in mortgage loans.
At December 31, 1996, the Class A investment pool had $28,281,266
invested in mortgage loans, $8,185,704 invested in marketable mortgage-backed
securities, $6,526,289 invested in U.S. Treasury Notes and $638,742 invested
in money market funds. The Company does not invest in high risk,
mortgage-backed securities such as interest only strips or residual
traunches. However, there can be no assurance that cash flows will
materialize as scheduled as a result of prepayments of the underlying
mortgages or that the proceeds can be invested in securities that will
provide comparable yields. At December 31, 1996, the Company had outstanding
loan commitments aggregating $415,570. The source of funds to satisfy these
commitments will be the Company's marketable securities. The Company
anticipates that its sources of cash are more than adequate to meet its
liquidity needs.
Proceeds of $22,500,000 from the offering of Class B Membership
Interests were received by the Company on December 6, 1996. At December 31,
1996, the net assets of the Class B investment pool totaled $22,977,946 and
were primarily invested in money market funds. Certain organization costs of
the Class B investment pool have been capitalized at cost and will be
amortized over five years. Net organization costs at December 31, 1996
totaled $403,768. The net proceeds from the offering of Class B Membership
Interests will be invested in short-term investments until such time as the
proceeds are invested in real estate loans. Investment income and net
investment income earned by Class B Assets totaled $74,178 and $68,593,
respectively, for the period December 6 to December 31, 1996.
Net cash generated by operating activities during 1996 aggregated
$3,231,473, including $3,394,771 in net investment income adjusted for
noncash depreciation and amortization expense, and amortization of net loan
origination fees.
10
<PAGE>
Net cash used in investing activities during 1996 aggregated
$4,317,476 and consisted primarily of purchases of marketable securities and
loan disbursements offset by collections of principal from marketable
securities and loan repayments. The Company purchased $8,039,531 of
marketable securities and disbursed $3,355,137 in loans. The Company
collected $6,573,374 of principal from marketable mortgage-backed securities
and $436,818 of loan repayments.
Net cash provided by financing activities during 1996 aggregated
$22,001,461. Financing activities in 1996 consisted of proceeds from the
offering of Class B Membership Interests of $22,500,000 and dividend payments
to shareholders of $498,539 which represented $.11 per outstanding share.
The Company's policy is to declare and pay cash dividends on a
quarterly basis. The Company declared and paid dividends aggregating $.11 per
share during the year ended December 31, 1996, compared to $.34 per share
during the year ended December 31, 1995 and $.63 per share during the year
ended December 31, 1994. For the quarters ending June 30 and September 30,
1996, no cash divided was declared by the Company in anticipation of a
liquidating dividend upon the consummation of the restructuring of the
Company from a real estate investment trust to a limited liability company.
In accordance with the terms of the Operating Agreement, Class A and Class B
members will receive quarterly distributions of cash income, less expenses,
from their respective class of net assets. The Operating Agreement also
provides for the pass through to Class A members (commencing in the year
2001, if elected) and Class B members (commencing in the year 2000) of
principal returned with respect to real estate investments and any cash
and cash equivalents which have not been invested in real estate
investments.
The Company adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114), as
amended by SFAS 118, on January 1, 1995. Under these new standards, a loan is
considered impaired, based on current information and events, if it is
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is based on the discounted cash
flows of the underlying collateral. The cumulative effect of adopting the
provisions of SFAS No. 114 was not significant.
The Company adopted SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," at December 31, 1995; SFAS 107 requires disclosure of
fair value information about financial instruments along with the valuation
method and significant assumptions used.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company, consisting of balance sheet,
statement of operations, statement of members'/shareholders' equity,
statement of cash flows and the notes to financial statements, are set
forth in the separate financial section which begins on page F-1 and is
incorporated herein by reference.
11
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There have been no changes in the Company's independent public
accountants during the past two fiscal years, and the Company does not
disagree with such accountants on any matter of accounting principles,
practices or financial statement disclosure.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Managing Board Members
Pursuant to the terms of the Company's Operating Agreement, the
Company's Managing Board Members are appointed from time to time by the
Company's Member-Managers. The Company's Member-Managers are (a) those
Members with a Total Percentage Interest (as defined in the Operating
Agreement) at least equal to the Minimum Percentage (defined as a Total
Percentage Interest which represents a positive Adjusted Capital Account
Balance of $2,500,000) and (b) to the extent not previously taken into
account, those Class A Members (but excluding their assignees) which held
sufficient shares of Metropolitan Realty Corporation's common stock
immediately prior to the initial capital contribution of the Class A Members
to elect at least one director at an annual meeting of the shareholders of
Metropolitan Realty Corporation, and in either case which have not declined
in writing to serve as Member-Managers.
Each Member-Manager is entitled, but is not required, to appoint the
greater of one (1) Managing Board Member to the Managing Board or that number
obtained by dividing such Member-Manager's Total Percentage Interest by the
Minimum Percentage, rounded down to the nearest whole number. The Managing
Board will consist of that number of Managing Board Members appointed from
time to time by the Member-Managers of the Company, but in no event will the
number of Managing Board Members be fewer than three (3) or greater than
forty (40). The Company's Operating Agreement also permits the appointment by
the Managing Board of a limited number of at-large Managing Board Members. A
Managing Board Member may resign by written notice to the Company. A
Member-Manager may at any time upon written notice to the Managing Board
replace one of its appointees to the Managing Board, or fill an opening on
the Managing Board (i) which exists because it did not appoint the full
number of Managing Board Members to which it is entitled, (ii) which was
created by the death, resignation or removal by such Member-Manager of a
Managing Board Member which it had previously appointed or (iii) which was
created by an increase in such Member-Manager's Total Percentage Interest.
13
<PAGE>
The following table sets forth those Member-Managers of the Company
which have not declined to appoint Managing Board Members, and the Managing
Board Members which have been appointed by them.
<TABLE>
<CAPTION>
===============================================================================
Appointee(s) to the
Member-Manager Managing Board
- ------------------------------------------------------------------------------
<S> <C>
Chrysler Corporation Master Retirement Russell P. Flynn
Trust F. Thomas Lewand
Kenneth L. Hollowell
Marc Stepp
Ernest Lofton
Ford Motor Company Wayne S. Doran
Robert G. Jackson
Joel A. Schwartz
Operating Engineers Local 324 Pension Daniel L. Boone
Fund Jeffrey A. Heldt
David B. Hanson
State of Michigan, Public School R. Douglas Trezise
Employees
Policemen & Firemen Retirement System Michael Nevin
of the City of Detroit Nicholas H. Degel
Thomas Zdrodowski
General Retirement System of the City of Harold Smith
Detroit
Macomb County Employees Retirement David M. Diegel
System
Wayne County Retirement System Ronald C. Yee
Michigan National Corporation Douglas E. Ebert
Richard C. Webb
Blue Cross and Blue Shield of Michigan Robert H. Naftaly
Mark R. Bartlett
At Large Robert J. Lee
Richard P. Kughn
Frank D. Stella
==============================================================================
</TABLE>
The following table sets forth certain information regarding each
Managing Board Member, including name, age, principal occupation for the past
five years, other directorships with publicly-
14
<PAGE>
owned companies or with public institutions and term of service as a Managing
Board Member of the Company. The information set forth in the table was
provided to the Company by each Managing Board Member.
<TABLE>
<CAPTION>
========================================================================================================
Has Served
as a
Managing
Board
Member
Name and Age Principal Occupation Since*
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark R. Bartlett, 36 Vice President-Chief Financial Officer, 1996(2)(4)
1996 to present,Vice President-Controller,
1994 to 1996, Director-Financial Accounting, 1989 to
1994, Blue Cross and Blue Shield of Michigan.
Daniel L. Boone, 48 Business Representative, International Union of 1991(2)(4)
Operating Engineers Local 324, a labor organization,
since 1987. Has been with the Apprenticeship Program
since 1989. Previously worked as an Operating Engineer
since 1967.
Nicholas H. Degel, 48 Assistant Administrative Supervisor, Detroit Police & 1996(3)(4)
Fire Retirement System, a public retirement system.
David M. Diegel, 51 Finance Director, Macomb County, Michigan, serving as 1993(2)
its Chief Financial Officer since 1984. Previously served
as Assistant Finance Director, Audit Officer, and Chief
Accountant for the County of Macomb from 1973 to 1984.
Currently serves as Secretary to the Macomb County
Employees Retirement Commission and as an ex-officio
Member of the Macomb County Criminal Justice Building
Authority.
Wayne S. Doran, 62 Chairman of the Board of Ford Motor Land Development Corp., 1988(1)
a real estate development company, since 1978.
Douglas E. Ebert, 51 Chief Executive Officer, 1995 to Present, and President 1996
and Chief Operating Officer, 1993 to 1995, Michigan
National Corporation, a bank holding company. Chief
Executive Officer and President, Lincoln Financial
Corporation, a bank holding company, 1992 to 1993.
Russell P. Flynn, 64 Treasurer of the Company since 1994; Director, Pension 1988(1)(3)
Fund Investments for Chrysler Corporation, where he has
been responsible for investment of the pension assets of
Chrysler Corporation since 1981.
David B. Hanson, 50 Senior Vice President, Walbridge Aldinger, a construction 1994(2)
management and general contractor, since 1995.
Vice President and General Manager of Turner
Construction Co., a construction management company and
general contractor, from 1984 to 1995. Serves on the
Boards of Directors of Greater Detroit Chamber of
Commerce, African American Association of Businesses
and Contractors, and Boys Hope-Detroit.
Jeffrey A. Heldt, 48 Self-employed as an attorney since 1988. 1996(1)
15
<PAGE>
Kenneth L. Hollowell, 52 Secretary-Treasurer, Teamsters Local Union #247, 1992(2)
since March 1988, and a staff member and/or officer
since May 1971. Served as Member, Policy Committee
of the Central Conference of Teamsters from 1992 to
1994. Michigan Teamsters Joint Council #43,
Executive Board member since 1989 currently its
Recording Secretary. Board member Economic Alliance
of Michigan. Member of Police Commissioners, City of
Detroit, since May 1994.
Robert G. Jackson, 65 President, since 1985, and Executive Vice President, 1988
from 1977 to 1985, of Ford Motor Land Development
Corp., a real estate development company.
Richard P. Kughn, 67 Chairman of the Board of the Company since July 1989. 1987(1)
In addition, Chairman and President of Kughn
Enterprises, a real estate development and asset
management company, since 1979. Chairman Emeritus
and minority owner of Lionel L.L.C. Other ventures
include: The Upper Deck Company, a sports card
manufacturer; The Whitney Restaurant, Detroit;
Longbow Productions, a film and television production
company. Serves on the Board of Trustees of the
University of Detroit Mercy. Serves on the Board of
Directors of AAA Michigan, Core Industries, Detroit
Chamber of Commerce and Michigan Historical
Foundation.
Robert J. Lee, 50 Secretary-Treasurer, Michigan State Building and 1996
Construction Trades Council. Previously served as a
Field Representative for the Council from 1985 to
October 1996. Pipe fitter by trade.
F. Thomas Lewand, 50 Partner, Bodman, Longley & Dahling LLP since 1992, 1988(1)
a Detroit, Michigan-based law firm; practicing
attorney with and shareholder of Jaffe, Raitt,
Heuer & Weiss, Professional Corporation from 1970
to 1992. Serves as a Trustee of the University of
Detroit Mercy. Chair of Partners in Service, an
interfaith volunteer organization. Also served as
Chairman of the Michigan Democratic Party from
1989-1990 and Chief of Staff to Michigan Governor
Blanchard in 1983.
Ernest Lofton, 65 Vice President, UAW International Union, Director of 1991
the UAW National Ford Department and Director of the
UAW Michigan Community Action Program Department,
since 1989. Served as a member of the UAW
International Executive Board since May 1983 when
elected Director of UAW Region 1A. Serves on the
Board of the NAACP; Blue Cross & Blue Shield of
Michigan; New Detroit, Inc.; Detroit Economic Growth
Corporation; and Economic Alliance of Michigan;
National Secretary of the Coalition of Black Trade
Unionists and a member of the Economic Policy
Council of the UNA.
16
<PAGE>
Robert H. Naftaly, 59 Executive Vice President and Chief Operating Officer 1989(1)(3)
of Blue Cross and Blue Shield of Michigan, since
1988. Previously served as Vice President and General
Auditor of Detroit Edison Company, an electric
utility, since July 1987; Director - Michigan
Department of Management and Budget from 1983 to
July 1987; and managing partner and founder of
Geller, Naftaly & Shapero, C.P.A.s from 1960 to
October 1983. Also serves on numerous national and
community associations.
Michael Nevin, 32 Treasurer, Firefighter's Union Local #344, since 1996(2)
January, 1996.Firefighter, City of Detroit, and
representative of Firefighter's Union Local #344
since 1991.
Joel A. Schwartz, 35 Project Manager, Ford Motor Land Services Corporation, 1995(4)
a real estate developer, since 1990. Adjunct Professor
of Corporate Finance, Wayne State University,
School of Business Administration, since 1993.
Associate, Plante & Moran Certified Public Accountants
& Management Consultants, 1983 to 1990.
Harold Smith, 56 Retired. Former Chief City Planner, City of Detroit 1995(2)
Planning Department, for 31 years.
Frank D. Stella, 77 Founder (in 1946) and Chairman and Chief Executive 1987(4)
Officer of the F.D. Stella Products Company and
Chairman of F.D. Stella International New York,
engaged in design and distribution of food service
and dining equipment. Former chairman of the Finance
Committee of the Michigan State Republican Committee,
trustee of the University of Detroit Mercy, director
of the Economic Club of Detroit, director of
Complete Business Solutions, Inc. (CBSI), past
member of the Executive Committee of the
Republican National Committee, past chairman of the
National Republican Heritage Groups Council, past
director of the Michigan Chamber of Commerce, past
Chairman of the Greater Detroit Chamber of
Commerce, past chairman of the Concerned Citizens
for the Arts of Michigan, Director and Member of
Executive Committee of the Detroit Symphony
Orchestra Hall, Chairman of the Board of Merrill
Palmer Institute of Wayne State University and
Director and Vice President of Michigan Opera Theatre.
Marc Stepp, 74 Executive Director, Institute for Urban and Community 1987
Affairs,University of Detroit Mercy. Previously
served as Vice President of the International United
Auto Workers (`UAW') since 1974. Served as director
of the UAW's Chrysler Department, General Dynamics
Department, Foundry Department and Job Development
and Training Department.
17
<PAGE>
R. Douglas Trezise, 72 Retired. Previously served as Deputy State Treasurer, 1991(3)
Michigan Department of Treasury, from 1975 to 1990.
Was a member of the Michigan House of
Representatives from 1971 to 1974. Was employed by
General Telephone Company of Michigan (now GTE) from
1950 to 1970. From 1967 to 1975, served as a director
of the First Federal Savings and Loan Association of
Owosso. Member of Owosso Advisory Committee to First
Federal of Detroit (now First Federal of Michigan)
from 1975 to 1989. Chairman of State Employees'
Retirement Board.
Richard C. Webb, 57 Head of Commercial Financial Services, Michigan 1996(1)
National Bank, a banking corporation. Previously
held the positions of Senior Executive Vice
President of Michigan National Bank; Executive
Vice President of Michigan National Bank; Southeast
Region Chairman; Group Vice President Michigan
National Bank of Detroit National Division;
President of Michigan National Bank of Detroit
Retail Banking Division; President of Michigan
Corporation Electronic Services and Products
Division; and Region Chairman Michigan National
Corporation-East Region.
Ronald C. Yee, 44 Director of Risk Management, Wayne County, and 1991(2)(3)
since 1990. Assistant Executive Secretary to Wayne
County Employees Retirement System. Served as Chief
Labor Relations Analyst for Wayne County Labor
Relations from 1986 to 1990.
Thomas Zdrodowski, 56 Administrative Supervisor, Policemen & Firemen 1996
Retirement System of the City of Detroit, since 1988.
========================================================================================================
<FN>
* Service as a Managing Board Member prior to December 6, 1996 was as a
director of Metropolitan Realty Corporation, the Company's
predecessor in interest.
(1) Member of the Executive Committee
(2) Member of the Loan Committee
(3) Member of the Audit Committee
(4) Member of the Nominating Committee
</TABLE>
18
<PAGE>
Executive Officers
The table below sets forth certain information concerning the
Company's executive officers.
<TABLE>
<CAPTION>
==============================================================================
Name Age Office Time in Office
---- --- ------ --------------
<S> <C> <C> <C>
Richard P. Kughn* 67 Chairman of the Board Since July 1989**
Harold Smith* 56 Vice Chairman of the Board Since December 1996
Robert G. Jackson* 65 President Since December 1996
Robert J. Lee 50 Secretary Since December 1996
Russell P. Flynn* 64 Treasurer Since March 1994**
==============================================================================
<FN>
*For a discussion of the officers' principal occupation and business
experience during the past five (5) years, see the information provided under
"Board of Directors", above.
**Service in such office prior to December 1996 was with Metropolitan Realty
Corporation.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION.
The Company's predecessor, Metropolitan Realty Corporation, entered
into an Agency and Consulting Agreement dated as of February 4, 1993 with
Mattar Consulting Services, Inc. ("MCS"), pursuant to which MCS provides
certain financial and business consulting and other services to the Company.
Nancy A. Mattar is President of MCS and was Metropolitan Realty Corporation's
Executive Vice President from the date of such Agreement until the
consummation of the Restructuring. The Agreement provided for annual
compensation of $46,746, $44,520 and $42,400, respectively, for 1996, 1995
and 1994. The Agreement has been extended by the Company through March 31,
1997 and provides for monthly compensation in the amount of $3,896.
Robert G. Jackson became the President and Chief Executive Officer of
the Company on December 6, 1996 concurrently with the consummation of the
restructuring of the Company. Mr. Jackson has waived compensation for
services rendered to the Company in 1996. No cash or other compensation was
paid to any other executive officer of the Company for services performed
during 1996, except to the extent any such individual may have been
reimbursed for out-of-pocket expenses incurred in connection with his duties
as a member of the Managing Board or a committee thereof.
The Operating Agreement of the Company provides that no Managing
Board Member is entitled to compensation for serving as a Managing Board
Member in connection with regular or special meetings of the Managing Board.
The Managing Board Members may, by the affirmative vote of a majority of the
Managing Board Members in office, reimburse Managing Board Members and
committee members for their reasonable out-of-pocket expenses incurred in
connection with their duties and may establish reasonable compensation of
Managing Board Members for serving as a member of any committee established
by the Managing Board. To date, the Company has not paid any compensation
to any Managing Board Member for serving as a member of any committee.
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Certain Beneficial Owners of Class A Membership Interests
The following table sets forth certain information regarding the
entities which, to the Company's knowledge and belief, were the beneficial
owners of more than five percent (5%) of the Company's outstanding Class A
Membership Interests as of December 31, 1996.
<TABLE>
<CAPTION>
=====================================================================================================
CLASS A MEMBERSHIP INTERESTS
- -----------------------------------------------------------------------------------------------------
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Chrysler Corporation Master Retirement Trust............... (1) 18.24%
12000 Oakland Ave.
Highland Park, MI 48203
Ford Motor Company......................................... (1) 17.67%
Ford Motor Company World Headquarters
The American Road
Dearborn, MI 48121
Operating Engineers Local 324 Pension Fund................. (1) 11.55%
37450 Schoolcraft, Suite 110
Livonia, MI 48150
Board of Trustees.......................................... (1) 5.24%
General Retirement Systems of Detroit
Board of Trustees.......................................... (1) 5.24%
Policemen & Firemen Retirement System of the City of Detroit
State Treasurer of the State of Michigan,
State Employees Retirement System.......................... (1) 5.02%
State Treasurer of the State of Michigan,
Public School Employees Retirement System.................. (1) 10.03%
Macomb County Employees Retirement System.................. (1) 5.24%
Wayne County Retirement System............................. (1) 5.24%
NBD Bancorp, Inc........................................... (1) 5.20%
=====================================================================================================
<FN>
(1) Reflects Class A Membership Interests held of record or beneficially
as to which the named beneficial owner exercises sole voting and
investment power.
(2) Based on the assumption that 214,948 in minority shares will be
surrendered.
</TABLE>
20
<PAGE>
Certain Beneficial Owners of Class B Membership Interests
The following table sets forth certain information regarding the
entities which, to the Company's knowledge and belief, were the beneficial
owners of more than five percent (5%) of the Company's outstanding Class B
Membership Interests as of December 31, 1996.
<TABLE>
<CAPTION>
=====================================================================================================
CLASS B MEMBERSHIP INTERESTS
- -----------------------------------------------------------------------------------------------------
Nature of
Beneficial Percent
Name and Address of Beneficial Owner Ownership of Class
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Chrysler Corporation Master Retirement Trust............... (1) 22.12%
12000 Oakland Ave.
Highland Park, MI 48203
Michigan National Corporation.............................. (1) 22.12%
27777 Inkster Road
Farmington Hills, MI 48333-9065
Blue Cross and Blue Shield of Michigan..................... (1) 22.12%
600 East Lafayette #2105
Detroit, MI 48226
Policemen and Firemen Retirement System
of the City of Detroit................................... (1) 22.12%
908 City County Building
Detroit, MI 48226
Operating Engineers Local 324 Pension Fund................. (1) 11.06%
37450 Schoolcraft, Suite 110
Livonia, MI 48150
=====================================================================================================
<FN>
(1) Reflects Class B Membership Interests held of record or beneficially
as to which the named beneficial owner exercises sole voting and
investment power.
</TABLE>
21
<PAGE>
Management
The Company's Managing Board Members and Executive Officers are not
the record holders of any of the Company's Class A Membership Interests or
Class B Membership Interests.
Richard C. Webb, a Managing Board Member, is an executive officer of
Michigan National Corporation, the Member-Manager which appointed him, and,
in such capacity, may be deemed to be the beneficial owner of the 22% Class B
Membership Interest owned of record by Michigan National Corporation, in that
he may have or share voting power or investment power over such membership
interest. Mr. Webb disclaims any beneficial interest in the Class B
Membership Interest owned of record by Michigan National Corporation.
Robert H. Naftaly, a Managing Board Member, is an executive officer
of Blue Cross and Blue Shield of Michigan, the Member-Manager which appointed
him, and, in such capacity, may be deemed to be the beneficial owner of the
22% Class B Membership Interest owned of record by Blue Cross and Blue Shield
of Michigan, in that he may have or share voting power or investment power
over such membership interest. Mr. Naftaly disclaims any beneficial interest
in the Class B Membership Interests owned of record by Blue Cross and Blue
Shield of Michigan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company's predecessor, Metropolitan Realty Corporation, entered
into an Agency and Consulting Agreement dated as of February 4, 1993 with
Mattar Consulting Services, Inc. ("MCS"), pursuant to which MCS provides
certain financial and business consulting and other services to the Company.
Nancy A. Mattar is President of MCS, and was Executive Vice President of
Metropolitan Realty Corporation from 1993 until the consummation of the
Restructuring. The Agreement has been extended by the Company through March
31, 1997 and provides for monthly compensation in the amount of $3,896.
Robert G. Jackson became the President and Chief Executive Officer of
the Company on December 6, 1996, concurrently with the consummation of the
restructuring of the Company. Mr. Jackson has waived compensation for
services rendered to the Company in 1996. No cash or other compensation was
paid to any other executive officer of the Company for services performed
during 1996, except to the extent any such individual may have been
reimbursed for out-of-pocket expenses incurred in connection with his duties
as a member of the Managing Board or a committee thereof.
NBD Bancorp, Inc. ("NBD") is the record holder of a 5.2% Class A
Membership Interest of the Company. The Company and NBD Bank, N.A. (formerly
National Bank of Detroit) (the "Bank"), a wholly owned subsidiary of NBD,
entered into an Investment Management Service Agreement (the "Investment
Agreement") dated February 15, 1989, pursuant to which the Bank manages
certain of the Company's short-term investments. The Investment Agreement may
be terminated by either the Company or the Bank upon thirty (30) days'
written notice. The Bank is compensated by the Company for its services at
the rate of .15 of 1% per annum on the average daily market value of the
Company's portfolio, with a minimum annual charge of $5,000. Fees aggregating
$22,951
22
<PAGE>
were earned by the Bank in 1996 for services provided under the Investment
Agreement, as well as other services.
The Company made a $4,376,000 mortgage loan in 1989 to Walbridge
Aldinger, a construction management company and general contractor of which
Mr. Hanson, a managing board member since 1994, became senior vice president
in January 1995. The carrying amount of the mortgage loan, reduced for
unamortized loan origination fees received in excess of loan origination
costs paid, was $4,177,441 at December 31, 1996. The mortgage note bears
interest at 9.09% and is due in December, 2000.
Bodman, Longley & Dahling LLP provides legal services to the Company.
Mr. Lewand, a managing board member, is a partner in Bodman, Longley &
Dahling LLP. Fees for legal services amounted to $95,277 for the year ended
December 31, 1996.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
a. Documents Filed as part of Report. The following documents are
filed as part of this Report.
1. A list of the financial statements required to be filed
as part of this Form 10-K are shown in the "Index to
the Financial Statements and Schedule" filed herewith.
2. The financial statement schedule required to be filed
as a part of this Form 10- K is shown in the "Index to
the Financial Statements and Schedule" filed herewith.
3. A list of the exhibits required by Item 601 of the
Regulation S-K to be filed as a part of this Form 10-K
are shown in the "Index to Exhibits" filed herewith.
b. Reports on Form 8-K. The Company filed a report on Form 8-K
dated December 9, 1996 to report the consummation of the
Restructuring described in Item 1 of this report on Form 10-K.
No financial statements were filed with such report.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 1997 METROPOLITAN REALTY COMPANY,
L.L.C.
By: /s/ Robert G. Jackson
----------------------------
Robert G. Jackson, President
(Principal Executive Officer and
Principal Financial Officer)
And By: /s/ Russell P. Flynn
---------------------------
Russell P. Flynn, Treasurer
25
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
==============================================================================
Signature Title Date
- ------------------------------------------------------------------------------
/s/Robert G. Jackson Attorney-In-Fact March 27, 1997
*
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Mark R. Bartlett Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Daniel L. Boone Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Nicholas H. Degel Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
David M. Diegel Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Wayne S. Doran Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Douglas E. Ebert Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Russell P. Flynn Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
David B. Hanson Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Jeffrey A. Heldt Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Kenneth L. Hollowell Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Robert G. Jackson Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Richard P. Kughn Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Robert J. Lee Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
F. Thomas Lewand Member
- ------------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Ernest Lofton Member
26
<PAGE>
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- -------------------------
Robert H. Naftaly Member
- -----------------------------------------------------------------------------
Managing Board March 27, 1997
Michael Nevin Member
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Joel A. Schwartz Member
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- ---------------------------
Harold Smith Member
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Frank D. Stella Member
- -----------------------------------------------------------------------------
Managing Board March 27, 1997
Marc Stepp Member
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
R. Douglas Trezise Member
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Richard C. Webb Member
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Ronald C. Yee Member
- -----------------------------------------------------------------------------
* Managing Board March 27, 1997
- --------------------------
Thomas Zdrodowski Member
=============================================================================
27
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS AND SCHEDULE
---------
PAGES
-----
REPORT OF INDEPENDENT ACCOUNTANTS F-2
BALANCE SHEET, DECEMBER 31, 1996 AND 1995 F-3
STATEMENT OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 F-4
STATEMENT OF MEMBERS'/SHAREHOLDERS' EQUITY FOR THE YEARS
ENDED DECEMBER 31, 1996, 1995 AND 1994 F-5 - F-6
STATEMENT OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-31
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts F-32
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Managing Board and Member Managers of Metropolitan Realty Company,
L.L.C.:
We have audited the financial statements and the financial statement schedule
of Metropolitan Realty Company, L.L.C. listed on page F-1 of this Form 10-K.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
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 Metropolitan Realty Company,
L.L.C. as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to
be included therein.
/s/ Coopers & Lybrand
Detroit, Michigan
March 24, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY COMPANY, L.L.C.
BALANCE SHEET, December 31, 1996 and 1995
---------
1996 1995
------------------------------------------- ----
Class A Class B
ASSETS Member Member
Interest Interest Total
-------- -------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents .............................. $ 787,501 $ 22,574,178 $ 23,361,679 $ 2,446,221
Marketable securities .................................. 14,661,426 14,661,426 13,326,733
Mortgage notes receivable:
Notes, unaffiliated ................................. 25,703,825 25,703,825 22,757,998
Notes, affiliated ................................... 4,177,441 4,177,441 4,206,330
Allowance for loan losses ........................... (1,600,000) (1,600,000) (1,600,000)
------------ ------------ ------------
28,281,266 28,281,266 25,364,328
Accrued interest and other receivables ................. 330,555 330,555 282,620
Other assets ........................................... 23,790 23,790 26,780
Organization costs, net of accumulated
amortization of $5,585 at December 31,
1996 ................................................. 403,768 403,768 314,219
------------ ------------ ------------ ------------
Total assets ............................ $ 44,084,538 $ 22,977,946 $ 67,062,484 $ 41,760,901
============ ============ ============ ============
LIABILITIES AND MEMBERS'/SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable ..................................... $ 2,046,201 $ 2,046,201 $ 125,532
Due to (from) ........................................ (409,353) $ 409,353 -- --
Deferred income ...................................... 134,552 134,552 153,952
Deposits from borrowers for property taxes ........... 140,682 140,682 146,385
Other ................................................ 3,645 3,645 1,705
------------ ------------ ------------ ------------
Total liabilities ....................... 1,915,727 409,353 2,325,080 427,574
------------ ------------ ------------ ------------
Commitments ............................................ -- -- -- --
Members' equity:
Class A Members' Equity .............................. 42,208,569 42,208,569
Class B Members' Equity .............................. 22,568,593 22,568,593
Unrealized holding losses on marketable securities
available for sale ................................. (39,758) (39,758)
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding ....... --
Common stock, $.01 par value; 25,000,000 shares
authorized; 4,532,169 shares issued and
outstanding at December 31, 1995 ................... 45,322
Additional paid-in-capital ........................... 43,355,529
Unrealized holding gains on marketable
securities available for sale ..................... 47,690
Distributions of net investment income ............... (2,115,214)
------------ ------------ ------------ ------------
Total members'/shareholders' equity ............ 42,168,811 22,568,593 64,737,404 41,333,327
------------ ------------ ------------ ------------
Total liabilities and members'/shareholders'
equity ................................. $ 44,084,538 $ 22,977,946 $ 67,062,484 $ 41,760,901
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of the
financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
---------
1996 1995 1994
--------------------------------------- ---- ----
Class A Class B
Member Member
Interest Interest Total
-------- -------- -----
<S> <C> <C> <C> <C> <C>
Income:
Interest income:
From mortgage notes, unaffiliated $ 2,407,234 $ 2,407,234 $ 2,363,121 $ 2,678,387
From mortgage notes, affiliated . 389,732 389,732 391,854 394,843
Investment income ................. 1,020,763 $ 74,178 1,094,941 866,168 555,849
Miscellaneous income .............. 107,671 -- 107,671 142,916 228,949
----------- ----------- ----------- ----------- -----------
Total income .............. 3,925,400 74,178 3,999,578 3,764,059 3,858,028
----------- ----------- ----------- ----------- -----------
Operating expenses:
General and administrative ........ 552,141 -- 552,141 841,903 436,562
Amortization of organization costs -- 5,585 5,585 -- --
Change in allowance for loan losses -- -- -- 600,000 (461,500)
Net loss from foreclosed
property held for sale .......... -- -- -- 331,953 1,295,416
----------- ----------- ----------- ----------- -----------
Total operating expenses .. 552,141 5,585 557,726 1,773,856 1,270,478
----------- ----------- ----------- ----------- -----------
Net investment income ..... $ 3,373,259 $ 68,593 $ 3,441,852 $ 1,990,203 $ 2,587,550
=========== =========== =========== =========== ===========
Net investment income per share ..... * * * $ .44 $ .57
=========== ===========
Weighted average shares of common
stock outstanding ................. * * * 4,532,169 4,532,169
=========== ===========
<FN>
* Per share information is no longer relevant as a result of the
restructuring described in Note 1.
The accompanying notes are an integral part of the
financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF MEMBERS'/SHAREHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994
---------
Unrealized
Holding Gains
Common Stock Additional (Losses) on Distributions of Members' Equity Total Members'/
------------------ Paid-in Marketable Net Investment --------------- Shareholder's
Shares Amount Capital Securities Income(1) Class A Class B Equity
------ ------ ---------- -------------- ---------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994 4,532,169 $45,322 $43,355,529 $(2,296,762) $41,104,089
Net investment income 2,587,550 2,587,550
Cash dividend of $.63
per share (2,855,266) (2,855,266)
Adjustment to beginning
balance for change
in accounting
principle (Note 2) $ 3,624 3,624
Change in unrealized holding
gains (losses) on marketable
securities (360,573) (360,573)
--------- ------ ---------- --------- ----------- -----------
Balances at December 31, 1994 4,532,169 45,322 43,355,529 (356,949) (2,564,478) 40,479,424
Net investment income 1,990,203 1,990,203
Change in unrealized holding
gains (losses) on marketable
securities 404,639 404,639
Cash dividend of $.34
per share (1,540,939) (1,540,939)
--------- ------ ---------- --------- ----------- -----------
Balances at December 31, 1995 4,532,169 45,322 43,355,529 47,690 (2,115,214) 41,333,327
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN REALTY COMPANY, L.L.C.
STATEMENT OF MEMBERS'/SHAREHOLDERS' EQUITY, continued
---------
Unrealized
Holding Gains
Common Stock Additional (Losses) on Distributions of Members' Equity Total Members'/
------------------ Paid-in Marketable Net Investment --------------- Shareholder's
Shares Amount Capital Securities Income(1) Class A Class B Equity
------ ------ ---------- -------------- ---------------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net investment income
1/1 - 12/6/96 $3,109,286 $ 3,109,286
Change in unrealized
holding gains (losses)
on marketable
securities
1/1-12/6/96 $ (58,498) (58,498)
Cash dividend of $.11
per share (498,539) (498,539)
Declared payment in
dissolution
with respect
to Minority
Shareholders (Note 1) (214,948) $ (2,149) $(1,938,831) (1,940,980)
Distribution of
Class A Membership
Interests in
dissolution
with respect to
Majority
Shareholders
(Note 1) (4,317,221) (43,173) (41,416,698) 10,808 (495,533) $41,944,596 --
---------- -------- ----------- --------- ---------- ----------- ----------- -----------
Balances at
December 6, 1996 -- -- -- -- -- 41,944,596 41,944,596
Contributions --
Class B $22,500,000 22,500,000
Net investment income
12/7 - 12/31/96 263,973 68,593 332,566
Change in unrealized
holding gains
(losses)
on marketable
securities
12/7-12/31/96 (39,758) (39,758)
---------- -------- ----------- --------- ---------- ----------- ----------- -----------
Balances at
December 31, 1996 -- -- -- $ (39,758) -- $42,208,569 $22,568,593 $64,737,404
========== ======== =========== ========= ========== =========== =========== ===========
<FN>
(1) See Note 7 to the financial statements.
The accompanying notes are an integral part of the
financial statements.
</TABLE>
F-6
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net investment income $ 3,441,852 $ 1,990,203 $ 2,587,550
------------ ----------- -----------
Adjustments to reconcile net investment income to
net cash provided by operating activities:
Amortization of net loan origination fees (55,619) (50,095) (104,008)
Depreciation and amortization expense 8,538 43,702 71,012
Expiration of commitment and application fees (29,400) (15,000) (22,838)
Allowance for loan losses (recovery) expense -- 600,000 (461,500)
Valuation provision for foreclosed property -- 314,421 994,134
Other 33,208 23,263 16,557
Increase in assets:
Accrued interest and other receivables (47,935) (26,896) (33,784)
Other assets (95,097) (181,926) (131,293)
Increase (decrease) in liabilities:
Accounts payable (20,311) (59,373) 16,615
Other liabilities (3,763) (83,197) 24,566
------------ ----------- -----------
Total adjustments (210,379) 564,899 369,461
------------ ----------- -----------
Net cash provided by operating
activities 3,231,473 2,555,102 2,957,011
------------ ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities (8,039,531) (3,507,381) (4,767,232)
Collections of principal from marketable securities 6,573,374 1,345,072 1,093,691
Loan disbursements (3,355,137) (444,293) (150,000)
Loan repayments 436,818 355,151 4,876,191
Commitment fees received 67,000 73,525 38,000
Cash proceeds from sale of foreclosed property, net -- 92,157 --
Loan origination expenses paid -- (10,237) --
Capital expenditures -- (1,270) --
------------ ----------- -----------
Net cash provided by (used in)
investing activities (4,317,476) (2,097,276) 1,090,650
------------ ----------- -----------
Cash flows from financing activities:
Members' Equity contributions 22,500,000 -- --
Dividends paid (498,539) (1,540,939) (2,855,266)
------------ ----------- -----------
Net cash provided by (used in)
financing activities 22,001,461 (1,540,939) (2,855,266)
------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents 20,915,458 (1,083,113) 1,192,395
Cash and cash equivalents, beginning of year 2,446,221 3,529,334 2,336,939
------------ ----------- -----------
Cash and cash equivalents, end of year $ 23,361,679 $ 2,446,221 $ 3,529,334
============ =========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
1996 Noncash Financing Activities: Payable to minority shareholders for
surrender of shares - $1,940,980.
1995 Noncash Investing Activities: Receivable from sale of foreclosed
property - $455,000.
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Metropolitan Realty Company, L.L.C., a Delaware limited liability
company, (the "Company") is the successor in interest to Metropolitan
Realty Corporation (the "Corporation"). The Corporation, incorporated
November 13, 1986, was organized to qualify as a real estate
investment trust ("REIT") under the provisions of the Internal
Revenue Code. On December 6, 1996, pursuant to the terms of a
restructuring agreement, the assets and liabilities of the
Corporation were transferred to Metropolitan Realty Company, L.L.C.
in exchange for Class A Membership Interests in the Company. Holders
of fewer than 50,000 shares of common stock of the corporation as of
October 9, 1996 (the Record Date) will receive, upon surrender of
their shares, a cash payment in lieu of the distribution of Class A
Membership Interests in the Company. This amount totaled $1,940,980
and was recorded as a payable of the Corporation. The Corporation
was then dissolved, and the Class A Membership Interests were
distributed pro rata to the Corporation's shareholders who owned
50,000 shares or more of the Corporation's common stock.
For financial statement presentation, the assets and liabilities,
with the exception of marketable securities, were transferred to the
Company at their carrying values at the date of distribution.
Marketable securities were recorded at fair market value with the
unrealized loss recorded as a reduction in Class A members' equity.
Concurrently with the consummation of the Restructuring, the Company
offered Class B Membership Interests in a separate offering to create
a new investment pool. The proceeds from the offering of Class B
Membership Interests totaled $22,500,000 and are invested in money
market funds at December 31, 1996.
The Company intends to invest substantially all of its assets in real
estate investments. The Company intends to make, where possible, the
majority of its real estate investments in Detroit, with the balance
being in southeastern Michigan. At December 31, 1996, the Company's
total mortgage loan portfolio is invested 77% in projects located in
the City of Detroit, 9% in projects located in the County of Macomb,
and 14% in projects located in the County of Wayne outside the City
of Detroit.
The Company's mortgage loans include financing for industrial and
mixed-use facilities, office buildings, and retail and residential
centers. The Company has favored investments that will provide a
competitive return and permanent financing for projects which will
create construction jobs and stimulate the southeastern Michigan
economy. All mortgage loans to date are collateralized by a first
lien on real property. At December 31, 1996, the Company's largest
loan approximates 9.5% of its total Class A assets and 6.2% of total
assets. The carrying value of all mortgage loans approximates 64% of
its total Class A Assets and 42% of total assets. The net proceeds
from the offering of Class B Membership Interests will be invested in
short-term investments until such time as the proceeds are invested
in real estate loans.
Continued
F-8
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
2. ACCOUNTING POLICIES:
The preparation of these financial statements, in order to be
presented in conformity with generally accepted accounting
principles, requires that management use estimates and assumptions
regarding events anticipated and transpired, together with their
potential effects upon the reported amounts of assets and
liabilities, as well as the disclosures and assessments of contingent
liabilities at the date of the financial statements, and in
determining the reported amounts of revenues, costs and expenses of
the reporting periods.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.
Marketable Securities
The Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115), effective
January 1, 1994. Under SFAS No. 115, marketable securities
available for sale are carried at market value, and
unrealized gains and losses are included in a separate
component of members'/shareholders' equity. Class A
Members' equity includes net unrealized holding losses on
marketable securities of $39,758 at December 31, 1996 and net
unrealized holding gains on marketable securities of $47,690
at December 31, 1995. Realized gains or losses on sales of
securities are determined based upon specific identification.
The realized net loss on marketable securities, included in
investment income in the accompanying statement of operations,
resulted from called mortgaged-backed securities and
aggregated $33,208, $23,263 and $16,557 for the years ended
December 31, 1996, 1995 and 1994, respectively. At December
31, 1996 and 1995, all marketable securities are considered
available for sale.
Allowance for Loan Losses
The Company adopted SFAS 114, "Accounting by Creditors for
Impairment of a Loan", on January 1, 1995. Under the new
standard, a loan is considered impaired, based on current
information and events, if it is probable that the Company
will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the
loan agreement. The measurement of impaired loans is generally
based on the present value of expected future cash flows
discounted at the historical effective interest rate, except
that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral. The
cumulative effect of adopting the provisions of SFAS 114 was
not significant.
Continued
F-9
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
2. ACCOUNTING POLICIES, continued
Allowance for Loan Losses, continued
The Company provides for possible losses on its portfolio of
mortgage notes receivable based on an evaluation of each
mortgage note. In determining the allowance for possible
losses, the Company has considered various indicators of
value, including market evaluations of the underlying
collateral, the cost of money, operating cash flow from
the property during the projected holding period and expected
capitalization rates applied to the stabilized net operating
income of the specified property.
The allowance for loan losses is established through charges
to earnings in the form of a provision for credit losses.
Increases and decreases in the allowance due to changes in the
measurement of the impaired loans are included in the
provision for credit losses. Loans continue to be classified
as impaired unless they are brought fully current and the
collection of scheduled interest and principal is considered
probable. When a loan or portion of a loan is determined to be
uncollectible, the portion deemed uncollectible is charged
against the allowance and subsequent recoveries, if any, are
credited to the allowance.
The allowance is based upon management's estimates and
ultimate losses may vary from the current estimates. These
estimates are reviewed by management at least quarterly, and
as adjustments become necessary, they are reported in the
statement of operations in the period in which they become
known.
Foreclosed Property Held for Sale
Property acquired through loan foreclosure is initially
recorded at the lesser of mortgage loan balance or fair value
at the date of foreclosure. Losses, if any, attributable to
the excess of the recorded investment, including accrued
interest over fair value are charged to the allowance for loan
losses on mortgage loans at the time of foreclosure. A
valuation allowance is also established at the time of
foreclosure for the estimated costs to sell the property, as
the Company is dependent on the liquidation of the property
for the recovery of its investment in foreclosed real estate.
Subsequent to foreclosure, the property is carried at the
lower of cost or fair value less estimated costs to sell. The
property's operating income and expenses from the date of
foreclosure are reflected in the statement of operations.
Depreciation of the property commences one year from the date
of foreclosure. Income from guarantor settlements is
recognized when received.
Continued
F-10
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
2. ACCOUNTING POLICIES, continued
Organization and Restructuring Costs
Certain costs related to the organization of the Class B
investment pool of the Company have been capitalized and are
amortized on a straight-line basis over 60 months. Costs
associated with the restructuring of the Class A investment
pool were expensed as incurred.
Income Taxes
As a limited liability company, it is intended that the
Company will be classified as a partnership for federal income
tax purposes and, as such, it generally will be treated as a
"pass-through" entity that is not subject to federal income
tax. Prior to the restructuring into a limited liability
company, the Company operated at all times to qualify as a
real estate investment trust under provisions of the Internal
Revenue Code. As a real estate investment trust, each year
qualification is met, income is not subject to federal income
tax at the company level, to the extent distributed to
shareholders.
Revenue Recognition
Loan origination fees received from the borrower, in excess of
loan origination costs paid, are amortized to interest income
using the effective interest method over the life of the
mortgage loan.
Interest income is accrued when earned. The Company
discontinues the accrual of interest income when circumstances
exist which cause the collection of interest to be doubtful.
The determination to discontinue accruing interest is made
after a review by the Company's management of all relevant
facts, including delinquency of principal and/or interest, and
financial stability of the borrower. The Company classifies
loans on which the accrual of interest has been discontinued
as nonearning. Interest income on nonaccrual loans is
recognized on a cash basis if the future collectibility of the
recorded loan balance is expected. When the future
collectibility of the recorded loan balance is doubtful,
collection of interest will be applied as a reduction to
outstanding loan principal. All mortgage loans held by the
Company are classified as earning loans at December 31, 1996
and 1995.
General Expenses
Those expenses incurred by the Company that are not directly
attributable to a particular class of Membership Interest
shall be allocated in accordance with a formula, established
in the Operating Agreement, based primarily on the real estate
investments held by each class of assets.
Continued
F-11
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
2. ACCOUNTING POLICIES, continued
Distributions
In accordance with the terms of the Company's Operating
Agreement, Class A and Class B members will receive pro rata
quarterly distributions of cash income, less expenses
from their respective class of net assets. The Operating
Agreement also provides for the pass through to Class A
members (commencing in the year 2001, if elected) and
Class B members (commencing in the year 2000), from their
respective class of net assets, of principal returned with
respect to real estate investments and any cash and cash
equivalents which have not been invested in real estate
investments. All distributions are subject to a determination
by the Managing Board that the Company will have sufficient
cash on hand to meet its current and anticipated needs to
fulfill its business purpose.
Other
Certain prior year accounts have been reclassified to conform
with current year presentations.
Continued
F-12
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, continued
3. MARKETABLE SECURITIES:
Marketable securities at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
Interest Rate
at 12/31/96 Cost Market Value Cost Market Value
------------- ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Notes 5.625%-6.5% $ 6,526,289 $ 6,515,940 $ 3,507,383 $ 3,516,940
Mortgage-backed
securities:
Federal National 6.07%-6.17% 5,331,622 5,235,831 5,956,601 5,948,714
Mortgage Association,
pass through
Federal Home Loan 7.45%-7.99% 2,854,082 2,909,655 3,815,059 3,861,079
Mortgage Corporation,
pass through
----------- ----------- ----------- -----------
$14,711,993 $14,661,426 $13,279,043 $13,326,733
=========== =========== =========== ===========
The U.S. Treasury notes have scheduled maturities from August 1997 to
September 1998. The mortgage-backed securities mature according to
payment characteristics of the underlying loans. The ultimate
maturity dates of the mortgage-backed securities held by the Company
at December 31, 1996 range from January 2017 to August 2024. There
can be no assurance that cash flows will materialize as scheduled as
a result of prepayments of the underlying mortgages.
Continued
F-13
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE:
Mortgage notes receivable as of dates indicated are summarized as
follows:
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First mortgage note 9.09% December 2000 Monthly payments of principal
on parking garage in and interest of $35,494 until
Detroit, Michigan maturity, at which time the
remaining unpaid principal
balance of approximately
$4,010,000 is due. The note may
be prepaid in whole, but not in
part, for a fee ranging from 1
percent to 1.5 percent of the
outstanding principal balance at
the time of prepayment.
First mortgage on 10.25% through March 31, April 2000 Monthly payments in varying
rehabilitation of 1995 adjusted to 9.26% on installments of principal and
historic office April 1, 1995 based on the interest until maturity, at which
building located in U.S. Treasury Securities time the remaining unpaid
Detroit, Michigan weekly average yield principal balance of approxi-
adjusted to a constant mately $1,858,000 is due. The
maturity of 5 years plus note may be prepaid in whole,
2.25% but not in part, for a set fee
based upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the
yield on the note through April
1997, after which time the fee
ranges from 1 percent to 3
percent of the outstanding
principal balance at the time of
prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First mortgage note None $4,376,000 $4,177,441 $4,206,330 $4,238,157
on parking garage in
Detroit, Michigan
First mortgage on None 1,900,000 1,784,069 1,812,889 1,836,190
rehabilitation of
historic office
building located in
Detroit, Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination
fees received in excess of loan origination costs paid.
</TABLE>
Continued F-14
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First mortgage 9.875% February 1999 Monthly payments in varying
permanent loan on a installments of principal and
light industrial interest until maturity, at which
building located in time the remaining unpaid
Plymouth Township, principal balance of approxi-
Michigan mately $2,402,000 is due. The
note may be prepaid in whole,
but not in part, for a fee based
upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the
yield on the note at the time of
prepayment.
First mortgage on 10.50% December 2000 Monthly payments of interest
day care center only until January 1993 when
located in Plymouth, payments in varying installments
Michigan of principal and interest
commence until maturity, at which
time the remaining unpaid
principal balance of
approximately $908,000 is due.
The note may be prepaid in whole,
but not in part, for a fee based
upon the rate by which the annual
yield on certain U.S. Treasury
securities exceeds the yield on
the note at the time of
prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First mortgage None $2,525,000 $2,430,975 $2,445,235 $2,458,787
permanent loan on a
light industrial
building located in
Plymouth Township,
Michigan
First mortgage on None 960,000 935,431 940,653 945,613
day care center
located in Plymouth,
Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination
fees received in excess of loan origination costs paid.
</TABLE>
Continued F-15
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First mortgage on 9.875% through October 31, October 2000 Monthly payments in varying
retail tire 1995 adjusted to 7.25% on installments of principal and
center located in November 1, 1995 based on interest until maturity, at which
Woodhaven, the U.S. Treasury average time the remaining unpaid
Michigan weekly yield adjusted to principal balance of approxi-
a constant maturity of mately $647,000 is due. The note
5 years plus 1.5% at may be prepaid in whole, but not
that date in part, for a fee of 1 percent of
the outstanding principal balance
or based upon the rate by which
the annual yield on certain U.S.
Treasury securities exceeds the
yield on the note at the time of
prepayment.
First mortgage on 9.50% through February 28, February 2001 Monthly payments in varying
retail tire center 1996 adjusted to 6.75% on installments of principal and
located in Sterling March 1, 1996 based on the interest until maturity, at which
Heights, Michigan U.S. Treasury Securities time the remaining unpaid
weekly average yield principal balance of approxi-
adjusted to a constant mately $693,000 is due. The note
maturity of 5 years may be prepaid in whole, but not
plus 1.5% in part, for a fee of 1 percent to 2
percent of the outstanding
principal balance or based upon
the rate by which the annual
yield on certain U.S. Treasury
securities exceeds the yield on
the note at the time of
prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First mortgage on None $695,000 $661,773 $669,449 $673,579
retail tire
center located in
Woodhaven,
Michigan
First mortgage on None 750,000 711,498 719,601 723,425
retail tire center
located in Sterling
Heights, Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination
fees received in excess of loan origination costs paid.
</TABLE>
Continued F-16
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First mortgage on 10.25% April 2003 Monthly payments of interest
office building only through April 1995 and
located in Detroit, varying installments of principal
Michigan and interest from May 1995 until
maturity, at which time the
remaining unpaid principal
balance of approximately
$1,695,000 is due. The note may
be prepaid in whole, but not in
part, at varying prepayment
rates, based on the date of
prepayment.
Renovation of office Bank prime rate plus 1% July 1997 Monthly payments in varying
building located in (Prime Rate at December installments of interest until
Detroit, Michigan 31, 1996 was 8.25%) maturity, at which time it is
anticipated that it will convert
to a permanent loan. The
construction note may be prepaid
in whole, but not in part, for a
fee based upon the rate by
which the annual yield on certain
U.S. Treasury Securities exceeds
the yield on the rate at the time
of prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Industrial and Mixed-Use Facilities and Office Buildings:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First mortgage on None $1,800,000 $1,737,891 $1,741,822 $1,743,332
office building
located in Detroit,
Michigan
Renovation of office None $1,365,000 925,543 420,406 --
building located in (of which
Detroit, Michigan approximately
$416,000 is
undisbursed at
December 31,
1996)
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination
fees received in excess of loan origination costs paid.
</TABLE>
Continued F-17
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shopping center 10.50% through December December 1999 Monthly payments in varying
located in 31, 1994 adjusted to installments of principal and
Detroit, 10.875% on January 1, 1995 interest until maturity, at which
Michigan based on the U.S. Treasury time the remaining unpaid
Securities weekly average principal balance of approxi-
yield adjusted to a constant mately $941,000 is due. The note
maturity of 5 years plus 3%. may be prepaid in whole, but not
in part, for a fee ranging from 1
percent to 5 percent of the
outstanding principal balance or
based upon the rate by which the
annual yield on certain U.S.
Treasury securities exceeds the
yield on the note at the time of
prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping center None $1,080,500 $960,439 $965,898 $971,030
located in Detroit,
Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination
fees received in excess of loan origination costs paid.
</TABLE>
Continued F-18
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shopping center 9.3752% January 2000 Monthly payments of principal
located in Sterling and interest of $18,298 until
Heights, Michigan maturity, at which time the
remaining unpaid principal
balance of approximately
$2,028,000 is due. The note may
be prepaid in whole, but not in
part, for a fee based upon the
rate by which the annual yield on
certain U.S. Treasury securities
at the time of prepayment exceeds
the yield on the note through
January 1997. After such date,
the note may be prepaid without a
fee.
Rehabilitation of 11.25% October 2000 Monthly payments of principal
shopping center and interest of $16,471 until
located in Detroit, maturity, at which time the
Michigan remaining unpaid principal
balance of approximately
$1,477,000 is due. The note may
be prepaid in whole, but not in
part, for a fee based upon the rate
by which the annual yield on
certain U.S. Treasury securities
exceeds the yield on the note at
the time of prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping center None $2,200,000 $2,093,322 $2,111,851 $2,127,504
located in Sterling
Heights, Michigan
Rehabilitation of None 1,650,000 1,560,208 1,575,680 1,589,953
shopping center
located in Detroit,
Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination
fees received in excess of loan origination costs paid.
</TABLE>
Continued F-19
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on on Shopping Centers:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rehabilitation of 11.25% October 2000 Monthly payments of principal
shopping center and interest of $21,961 until
located in Detroit, maturity, at which time the
Michigan remaining unpaid principal
balance of approximately
$1,969,000 is due. The loan may
be prepaid in whole, but not in
part, and may require payment of
a fee based upon the rate by
which the annual yield on certain
U.S. Treasury securities exceeds
the yield on the note at the time
of prepayment.
Shopping center 10.25% April 1997 Monthly payments in varying
located in Detroit, and installments of principal and
Michigan 9.75% interest until maturity, at which
time the remaining unpaid
principal balance of
approximately $2,277,000 is due.
The note may be prepaid in whole,
but not in part, for a fee based
upon the rate by which the annual
yield on certain U.S. Treasury
securities exceeds the yield on
the note at the time of
prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rehabilitation of None $2,200,000 $2,080,277 $2,100,907 $2,119,938
shopping center
located in Detroit,
Michigan
Shopping center None 2,500,000 2,292,465 2,329,018 2,362,444
located in Detroit,
Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-20
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shopping center 9.00% December 1997 Monthly interest payments of
located in Detroit, $21,375 until maturity, at which
Michigan time it is anticipated that it will
convert to a permanent loan. The
construction note may be prepaid
in whole, but not in part, for a
fee based upon the rate by which
the annual yield on certain U.S.
Treasury securities exceeds the
yield on the rate at the time of
prepayment.
<CAPTION>
- ---------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Renovation of 75- 8.0% August 2000 Monthly payments of interest
unit building located and only through April 1994 and
in Detroit, Michigan 9.5% varying installments of principal
and interest from May 1994 until
maturity, at which time the
remaining unpaid principal
balance of approximately
$1,284,000 is due. The note may
be prepaid in whole, but not in
part, and may require payment of
a fee based upon the rate by
which the annual yield on certain
U.S. Treasury securities exceeds
the yield on the note at the time
of prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Shopping Centers:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shopping center None $2,850,000 $2,793,000 -- --
located in Detroit,
Michigan
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Renovation of 75- None 1,260,000** 1,354,681 $1,361,789 $1,369,349
unit building located
in Detroit, Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** During 1993, the Company modified the terms of this mortgage note,
pursuant to which approximately $125,000 of interest was added to the
principal balance of the mortgage.
</TABLE>
Continued F-21
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Renovation of 54- 9.25% September 2000 Monthly payments of principal
unit building located and interest of $5,800 until
in Detroit, Michigan maturity, at which time the
remaining unpaid principal
balance of approximately
$557,000 is due. The note may
be prepaid in whole, but not in
part, and may require payment of
a fee based upon the rate by
which the annual yield on certain
U.S. Treasury securities exceeds
the yield on the note at the time
of prepayment.**
24-unit building 10.25% January 2001 Monthly payments in varying
located in Detroit, installments of principal and
Michigan interest until maturity, at which
time the remaining unpaid
principal balance of
approximately $241,000 is due.
The note may be prepaid in whole,
but not in part, and may require
payment of a fee based upon the
rate by which the annual yield on
certain U.S. Treasury securities
exceeds the yield on the note at
the time of prepayment.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Renovation of 54- None $728,000 $604,392 $614,211 $622,842
unit building located
in Detroit, Michigan
24-unit building None 275,000 255,850 258,623 261,166
located in Detroit,
Michigan
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
** In December 1994, the Company modified the terms of this loan pursuant to
which $75,000 of principal was prepaid and the interest rate was reduced
from 11% to 9.25%.
</TABLE>
Continued F-22
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
---------
4. MORTGAGE NOTES RECEIVABLE, Continued:
<TABLE>
<CAPTION>
====================================================================================================
Final
Interest Maturity Periodic
Description Rate Date Payment Terms
- ----------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Renovation of 167- 10.25% and 12.25% April 1997 Monthly payments in varying
unit building located installments of principal and
in Detroit, Michigan interest until maturity, at which
time the remaining unpaid
principal balance of
approximately $1,911,000 is due.
The note may be prepaid in whole,
but not in part, for a fee based
upon the rate by which the annual
yield on certain U.S. Treasury
securities exceeds the yield on
the note at the time of
prepayment.
205-unit high-rise 10.00% August 2000 Monthly payments in varying
apartment building installments of principal and
located in Detroit, interest until maturity, at which
Michigan time the remaining unpaid
principal balance of
approximately $375,000 is due.
The note may be prepaid in
whole or in part at anytime.
<CAPTION>
========================================================================================================
Principal
Amount of
Loans
Subject
Carrying Amount of to
Face Mortgages at December 31,* Delinquent
Prior Amount of -------------------------- Principal
Description Liens Mortgage 1996 1995 1994 and Interest
- ---------------------------------------------------------------------------------------------------------
First Mortgage Notes on Apartment Buildings:
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Renovation of 167- None $ 2,500,000 $ 2,084,656 $ 2,239,156 $ 2,350,670
unit building located
in Detroit, Michigan
205-unit high-rise None 455,000 437,355 450,810 --
apartment building
located in Detroit,
Michigan
33,769,500 29,881,266 26,964,328 26,393,979 --
----------- ----------- ----------- ----------- -----------
Allowance for loan
losses (1,600,000) (1,600,000) (1,000,000)
----------- ----------- ----------- ----------- -----------
Mortgage notes
receivable, net of
allowance for
loan losses $33,769,500 $28,281,266 $25,364,328 $25,393,979 --
=========== =========== =========== =========== ===========
<FN>
- ------------
* The carrying amount is reduced for unamortized loan origination fees
received in excess of loan origination costs paid.
</TABLE>
Continued F-23
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, Continued:
Aggregate, contractual annual maturities of mortgage notes receivable
principal are as follows:
<TABLE>
<S> <C>
1997 $ 8,439,690
1998 282,886
1999 311,938
2000 12,080,500
2001 7,294,295
2002 and after 1,719,185
-----------
30,128,494
Less unamortized net loan
origination fees (247,228)
-----------
$29,881,266
===========
</TABLE>
Of the $8,439,690 in 1997 contractual maturities, approximately
$3,800,000 represents maturities of construction loans which the Company
anticipates will then convert to permanent loans. There can be no
assurance that cash flows will materialize as scheduled as a result of
prepayments of the mortgage notes.
Continued F-24
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
A reconciliation of the carrying value of mortgage notes receivable
for the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Mortgage notes receivable:
Balance, beginning of year $ 26,964,328 $ 26,393,979 $ 31,049,162
------------ ------------ ------------
Additions:
New mortgage loans 3,355,137 899,293 150,000
Amortization of net loan
origination fees 55,619 50,095 104,008
------------ ------------ ------------
Total additions 3,410,756 949,388 254,008
------------ ------------ ------------
Deductions:
Collections of principal (436,818) (355,151) (4,876,191)
Loan origination fees received (57,000) (23,888) (33,000)
------------ ------------ ------------
Total deductions (493,818) (379,039) (4,909,191)
------------ ------------ ------------
Balance, close of year 29,881,266 26,964,328 26,393,979
------------ ------------ ------------
Allowance for loan losses:
Balance, beginning of year (1,600,000) (1,000,000) (1,461,500)
------------ ------------ ------------
Changes in the provision -- (600,000) 461,500
------------ ------------ ------------
Balance, close of year (1,600,000) (1,600,000) (1,000,000)
------------ ------------ ------------
Mortgage notes receivable, net of
allowance for loan losses $ 28,281,266 $ 25,364,328 $ 25,393,979
============ ============ ============
</TABLE>
During the year ended December 31, 1996, the Company earned approximately
$390,000 or 9.8% of its total income on one mortgage note with a carrying
value of approximately $4,177,000.
Two mortgage notes carried at an aggregate carrying value of approximately
$3,640,000; four mortgage notes carried at an aggregate carrying value of
approximately $3,175,000, and two mortgage notes carried at an aggregate
carrying value of approximately $2,663,000 at December 31, 1996, made to
entities affiliated through common ownership earned $420,732, $324,100 and
$254,665, respectively, during the year ended December 31, 1996.
Continued
F-25
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
The Company evaluates its portfolio of mortgage loans on an
individual basis, comparing the amount at which the investment is
carried to its estimated net realizable value. In making its
evaluations, the Company has assumed that it will be able to acquire
property collateralizing mortgage loans by foreclosure, if deemed
appropriate, and hold and dispose of such assets and real estate
currently owned in the ordinary course of business to maximize the
return to the Company. The evaluations and related assumptions are
dependent upon current estimates of future operations, proceeds,
costs, events and general market and economic conditions all of which
are influenced by many unpredictable factors. Accordingly, the
ultimate realizations of the Company's investments, including future
income, may differ from amounts presently estimated.
The Company had maintained an allowance for doubtful accounts of
$1,461,500 from December 31, 1992 through the third quarter of 1994
to reflect the expected recoverable cash flows from three troubled
loans. During 1994, the cash flows generated by one of the above
loans which had previously been in default, collateralized by a
shopping center, increased significantly. As this increase was
supported by an improvement in tenant base, the Company determined at
December 31, 1994 that this loan no longer required a loss reserve.
The loan loss reserve was reduced, accordingly, by $461,500 during
the fourth quarter of 1994 to $1,000,000. The other loan with an
affiliated borrower, which was also formerly in default, had not
exhibited the same magnitude of improvement in cash flows and tenants
during 1994. The loan loss reserve, however, was further reduced by
$250,000 in the second quarter of 1995, based on the Company's
determination that the continued assignment of rents reduced the risk
of loss associated with this loan.
During the third quarter of 1995, the Company determined that an
$850,000 increase in the allowance related to certain loans was
necessary as a result of the continued deterioration of the
underlying collateral and limited market rent potential on these
loans. In its analysis of the adequacy of the allowance for loan
losses, the Company used operating cash flow analyses and other
information obtained through an independent valuation of the
Company's mortgage portfolio performed in conjunction with the
planned restructuring discussed in Note 1. The Company believes that
the allowance for loan losses of $1,600,000 at December 31, 1996 and
1995 is adequate to properly reflect the portfolio of mortgage loans
at estimated net realizable value.
The Company adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" (SFAS 114),
as amended by SFAS 118, on January 1, 1995. Under these new
standards, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement.
The measurement of impaired loans is based on the discounted cash
flows of the underlying collateral. The cumulative effect of adopting
the provisions of SFAS No. 114 was not significant.
At December 31, 1996 and 1995, the total recorded investment in
impaired loans, as defined by SFAS 114, was $5,264,000 and
$5,308,000, respectively. The allowance related to these loans
totaled $1,600,000 at December 31, 1996 and 1995. The average
recorded
Continued
F-26
<PAGE>
METROPOLITAN REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
4. MORTGAGE NOTES RECEIVABLE, continued:
investment in impaired loans was approximately $5,278,000 and
$5,328,000 and interest income was $538,000 and $536,000 for the
years ended December 31, 1996 and 1995, respectively. All impaired
loans were classified as earning loans during 1996 and 1995, with
interest income recognized on an accrual basis.
5. REAL ESTATE OWNED:
A sale of the property which was foreclosed by the Company in 1992
was consummated on August 1, 1995. In accordance with the terms of
the purchase agreement, the Company received $100,000 of the purchase
price at the August 1, 1995 settlement date. The remaining $455,000
of the purchase price will be paid, pursuant to the terms of the
mortgage note bearing interest at 10% per annum, in monthly
installments of principal and interest of $4,889 commencing in
September 1995 until maturity in August 2000, at which time the
remaining unpaid principal of approximately $375,000 is due. The
mortgage note is guaranteed by the borrower and may be prepaid in
whole or in part at any time. The property's operating income and
expenses, from the date of foreclosure to the date of sale, are
reflected in the statement of operations.
The net loss from foreclosed property held for sale totaled $331,953
and $1,295,416 for the years ended December 31, 1995 and 1994,
respectively, and consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
Rental income $432,292 $661,679
-------- --------
<S> <C> <C>
Expenses:
Operating expenses 380,011 840,950
Valuation provision 314,421 994,134
Depreciation expense 38,422 65,866
Management fees 23,779 37,538
Professional fees 7,612 18,607
--------- ----------
Total expenses 764,245 1,957,095
-------- ---------
Net loss from foreclosed
property held for sale $331,953 $1,295,416
======== ==========
</TABLE>
Continued
F-27
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
6. FINANCIAL INSTRUMENTS:
The estimated fair value of financial instruments held by the Company
at December 31, 1996 and 1995, and the valuation techniques used to
estimate the fair value, were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $23,361,679 $23,361,679 $ 2,446,221 $ 2,446,221
Marketable securities 14,661,426 14,661,426 13,326,733 13,326,733
Mortgage notes receivable, net 28,281,266 28,374,000 25,364,328 25,490,028
Accrued interest and other
receivables 330,555 330,555 282,620 282,620
Accounts payable 2,046,201 2,046,201 125,532 125,532
</TABLE>
Cash and cash equivalents - The carrying amount is a reasonable
estimate of fair value.
Marketable securities - The estimated fair value
of marketable securities
is estimated based on
quoted market prices.
Mortgage notes receivable, net - The fair value of mortgage
notes receivable is
estimated by discounting
future cash flows using an
estimated discount rate
which reflects the current
credit, interest rate and
prepayment risks
associated with similar
types of instruments.
Accrued interest and other - The carrying amount is a reasonable
receivables estimate of fair value.
Accounts payable - The carrying amount is a reasonable
estimate of fair value.
7. FEDERAL INCOME TAX:
Prior to the restructuring, the Company operated to qualify as a real
estate investment trust and was not subject to federal income tax on
taxable income distributed to its shareholders during its fiscal year
and subsequent year, but prior to filing its federal tax return. As
part of the restructuring, the Company contributed its assets to the
limited liability company (LLC) in exchange for Class A membership
interests in the LLC. The Company then distributed the Class A
membership interests to its majority shareholders in a liquidating
distribution. Income for tax and financial reporting purposes is
reconciled as follows:
Continued
F-28
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
7. FEDERAL INCOME TAX, continued:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Investment income before income tax on
undistributed earnings $ 3,441,852 $ 1,990,203 $ 2,587,550
Less investment income from the date of
restructuring (for the period
December 7-31, 1996) (346,456) -- --
Increase (decrease) in taxable income
resulting from:
Loan origination and application
fees, net (24,023) 8,430 (88,845)
Provision for valuation allowances, net -- 914,421 532,634
Realized loss on sale of
foreclosed property -- (1,566,594) --
Bad debt expense -- -- (312,000)
Dividend deductions:
From regular distributions (453,217) (1,314,329) (2,764,623)
From liquidating distribution (2,595,903) -- --
Other, net (22,253) (32,131) 45,284
----------- ----------- -----------
Taxable investment income -- -- --
=========== =========== ===========
8. RELATED PARTY TRANSACTIONS:
The Company was involved in various transactions with affiliates as
follows:
o One of the Company's legal counselors is also a member of the
Company's Managing Board. Fees for legal services provided by
the Managing Board Member's law firm amount to $95,277,
$306,394 and $153,296 for the years ended December 31, 1996,
1995 and 1994, respectively, of which $14,313, $227,586 and
$70,076 of the fees earned in 1996, 1995 and 1994,
respectively, relate to the restructuring of the Company and
new offering discussed in Note 1. Accrued legal fees of
$30,581 and $30,860 are included in accounts payable in the
accompanying balance sheet at December 31, 1996 and 1995,
respectively.
Continued
F-29
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
8. RELATED PARTY TRANSACTIONS, continued:
o Fees aggregating $22,951, $23,920 and $19,831 for the years
ended December 31, 1996, 1995 and 1994, respectively, were
earned by a member manager of the Company for providing
various investment and other services to the Company. Accrued
fees of $12,786 and $5,500 are included in accounts payable in
the accompanying balance sheet at December 31, 1996 and 1995,
respectively.
o Consulting fees under a contractual agreement aggregating
$46,746, $44,520 and $42,400 were earned by an officer of the
Company in 1996, 1995 and 1994 respectively.
o During 1995, one of the Company's Managing Board Members
became the vice president of an entity which has a mortgage
note with the Company. The carrying amount of the mortgage
note receivable totaled $4,177,441 and $4,206,330 at December
31, 1996 and 1995, respectively, and earned the Company
$389,732, $391,854 and $394,843 during the years ended
December 31, 1996, 1995 and 1994, respectively.
9. COMMITMENTS:
At December 31, 1996, the Company had outstanding loan commitments
aggregating $415,570.
Continued
F-30
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS, Continued
12. INTERIM FINANCIAL INFORMATION (unaudited):
Net Investment
Total Net Investment Income (Loss)
Quarters Ended Income Income (Loss) per Share
- -------------- ------ -------------- --------------
Fiscal 1996
- -----------
December 31 $1,105,276 $895,275 N/A(1)
September 30 982,329 872,881 .19
June 30 916,011 802,400 .18
March 31 995,962 871,296 .19
---------- ---------- -----
$3,999,578 $3,441,852 N/A(1)
========== ========== =====
Fiscal 1995
- -----------
December 31 $913,133 $674,776 $ .15
September 30 973,527 (183,720) (.04)(2)
June 30 926,886 736,626 .16
March 31 950,513 762,521 .17
---------- ---------- ----
$3,764,059 $1,990,203 $ .44
========== ========== =====
<FN>
- ---------
(1) Effective upon the consummation of the Restructuring of Metropolitan
Realty Corporation, the Company's predecessor in interest, on December 6,
1996, Class A Membership Interests were distributed pro rata to the majority
shareholders of Metropolitan Realty Corporation. Per share information is no
longer relevant as a result of the restructuring (See Note 1).
(2) The results of operations for the third quarter of fiscal year 1995
include a $850,000 increase in the allowance for loan losses and a $200,000
increase in general and administrative expenses for costs associated with the
Company's planned restructuring into a limited liability company.
</TABLE>
F-31
<PAGE>
METROPOLITAN REALTY COMPANY, L.L.C.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions, Charged
Charged to (Credited) to
Balance at Costs and Other Balance at
Description January 1 Expenses Accounts Deductions December 31
----------- --------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Allowance for
Loan Losses:
1996 $1,600,000 $1,600,000
1995 1,000,000 $600,000 1,600,000
1994 1,461,500 $ (461,500)(1) 1,000,000
Valuation
Allowance:
1996 -- --
1995 1,134,134 314,421 (1,448,555)(2) --
1994 140,000 994,134 1,134,134
(1) Decrease in allowance for loan losses reduced operating expenses.
(2) Foreclosed property sold in 1995.
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Page
Exhibit Incorporated Herein Filed Number
No. Description by Reference to Herewith Herein
------- ----------- ------------------- -------- ------
<S> <C> <C> <C>
3.1 Certificate of Formation of Exhibit 3.1 to the Company's Registration
Metropolitan Realty Company, L.L.C. Statement on Form S-4, File No. 033-
99694
3.2 Operating Agreement of Metropolitan Exhibit 3.2 to the Company's Registration
Realty Company, L.L.C. Statement on Form S-4, File No. 033-
99694
3.3 Certificate of Amendment to Exhibit 3.3 to the Company's Registration
Certificate of Formation of Statement on Form S-4, File No. 033-
Metropolitan Realty Company, L.L.C. 99694
10.1 Investment Management Service Exhibit 10.2 to Metropolitan Realty
Agreement dated February 15, 1989 Corporation's Annual Report on Form 10-
between the Company's predecessor K for the fiscal year ending December
in interest, Metropolitan Realty 31, 1988, Commission File No. 1-9450
Corporation, and NBD Bank, N.A.
(formerly National Bank of Detroit)
10.2 Buhl Building Lease dated April 25, Exhibit 10.4 to Metropolitan Realty
1991 between the Company's Corporation's Annual Report on Form 10-
predecessor in interest, Metropolita K for the fiscal year ending December
Realty Corporation, and Buhl Realty 31, 1991, Commission File No. 1-9450
Company
10.3 First lease amendment to Buhl Exhibit 10.6 to Metropolitan Realty
Building Lease dated May 14, 1992 Corporation's Annual Report on Form 10-
between the Company and Buhl K for the fiscal year ending December
Realty Company 31, 1992, Commission File No. 1-9450
10.4 Second lease amendment to Buhl Exhibit 10.8 to Metropolitan Realty
Building Lease dated May 14, 1992 Corporation's Annual Report on Form 10-
between the Company and Buhl K for the fiscal year ending December
Realty Company 31, 1993, Commission File No. 1-9450
25 Powers of Attorney X E-3
</TABLE>
E-1
EXHIBIT 25
POWER OF ATTORNEY
The undersigned hereby designates, constitutes and appoints Robert G.
Jackson, President, and Russell P. Flynn, Treasurer, and each of them, the
true and lawful attorney for the undersigned, with full power of
substitution, to sign for and on behalf of the undersigned an annual report
on Form 10-K of Metropolitan Realty Company, L.L.C. with respect to the
fiscal year ending December 31, 1996, all amendments thereto, and all
instruments necessary or incidental in connection therewith, and to file the
same with the Securities and Exchange Commission. Each of said attorneys
shall have full power and authority to do and perform in the name and on
behalf of the undersigned, in any and all capacities, every act whatever
requisite or necessary to be done in the premises as fully, and for all
intents and purposes, as the undersigned might or could do in person, the
undersigned hereby ratifying and approving the acts of said attorneys and
each of them.
/s/ Robert H. Naftaly Dated: February 10, 1997
/s/ Thomas Zdrodowski Dated: March 24, 1997
/s/ Richard C. Webb Dated: February 6, 1997
/s/ Russell P. Flynn Dated: February 12, 1997
/s/ Kenneth L. Hollowell Dated: February 24, 1997
/s/ Ernest Lofton Dated: February 6, 1997
/s/ Robert G. Jackson Dated: February 25, 1997
/s/ Wayne S. Doran Dated: February 24, 1997
/s/ Joel A. Schwartz Dated: February 7, 1997
/s/ Daniel L. Boone Dated: February 6, 1997
/s/ Jeffrey A. Heldt Dated: February 10, 1997
/s/ David B. Handon Dated: February 8, 1997
/s/ R. Douglas Trezise Dated: February 10, 1997
/s/ Harold Smith Dated: February 19, 1997
/s/ Nicholas H. Degel Dated: February 7, 1997
/s/ David M. Diegel Dated: February 14, 1997
/s/ Ronald Yee Dated: February 7, 1997
/s/ Douglas E. Ebert Dated: February 10, 1997
/s/ Mark R. Bartlett Dated: February 10, 1997
/s/ Robert J. Lee Dated: February 16, 1997
/s/ Richard P. Kughn Dated: February 16, 1997
/s/ Frank P. Stella Dated: February 10, 1997
/s/ F. Thomas Lewand Dated: March 20, 1997
E-2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $23,361,679
<SECURITIES> 14,661,426
<RECEIVABLES> 29,881,266
<ALLOWANCES> (1,600,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 39,938
<DEPRECIATION> (34,552)
<TOTAL-ASSETS> 67,062,484
<CURRENT-LIABILITIES> 2,325,085
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 64,737,404
<TOTAL-LIABILITY-AND-EQUITY> 67,062,484
<SALES> 0
<TOTAL-REVENUES> 3,999,578
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 557,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,441,852
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,441,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,441,852
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
