<PAGE> 1
As filed with the Securities and Exchange Commission on May 15,1997
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________________
Commission File Number: 0-21443
PLYMOUTH COMMERCIAL MORTGAGE FUND
(Exact name of registrant as specified in its charter)
Delaware 74-6439983
(State or other jurisdiction or (I.R.S. Employer Identification No.)
incorporation or organization)
c/o Greystone Advisers, Inc.,
13333 Blanco Road, Suite 314,
San Antonio, Texas 78216-7756
(Address of principal executive offices, including zip code)
210-493-3971
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year,
if changed since last report)
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.
[X] Yes [ ] No
As of May 15, 1997, 921,627 of the registrant's common shares of beneficial
interest, no par value, were outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Assets and Liabilities
March 31, 1997 and December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Assets March 31, 1997 December 31, 1996
------ -------------- -----------------
<S> <C> <C>
Investments in securities at value, cost
of $2,189,090 and $3,810,445 $4,150,790 $2,763,554
Investments in affiliates 130,566 130,566
Cash 247,802 5,082,109
Repurchase Agreement 4,215,852 502,351
Accounts Receivable 28,210 6,451
Organizational Costs 96,200 104,000
Other Assets 5,901 103,641
---------- ----------
Total Assets $8,875,321 $8,692,672
---------- ----------
Liabilities
-----------
Accounts Payable $ 233,658 $ 66,822
Declared and Unpaid Dividends 74,213
Investment Advisory Fee Payable - 16,677
Escrow Funds 19,016 16,927
---------- ----------
Total Liabilities $ 326,886 $ 100,426
Net Assets
----------
Common shares of beneficial interest,
no par value, 1,750,000 shares authorized,
921,627 shares issued and outstanding 7,976,773 7,976,773
Accumulated undistributed income (220,091) (168,039)
Accumulated undistributed net realized gains 375,290 132,930
Accumulated undistributed equity in
earnings of subsidiary 76,118 76,118
Accumulated undistributed unrealized gain
on investments 340,345 574,464
---------- ----------
Total Net Assets ($9.28 and $9.32 per share) 8,548,434 8,592,246
Total Liabilities & Net Assets $8,875,321 $8,692,672
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 3
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Operations
for the 3 month period ended March 31, 1997
(unaudited)
Income:
Investment Income:
Interest $ 46,758
Other Investment Income 72,887
---------
Total Investment Income 119,645
Expenses:
Operating Expenses 112,391
Management Fees 59,306
---------
Total Expenses 171,697
Net Investment Income $ (52,052)
Gain on investments 316,573
Change in unrealized gain (loss) on investments (234,119)
Earnings in equity of affiliate --
---------
Net increase (decrease) in net assets resulting from operations $ 30,402
=========
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Changes in Net Assets
for the 3 month period ended March 31, 1997
(unaudited)
<TABLE>
<S> <C>
Operations before distributions:
Net Investment Income $ (52,052)
Net realized gain on investments 316,573
Change in unrealized gain (loss) on investments (234,119)
---------
Increase in net assets from operations before
distributions $ 30,402
Distributions from:
Undistributed net investment income $ -
Undistributed net realized gain on investments (74,213)
Unrealized appreciation of investments -
---------
(Decrease) in net assets from distributions $ (74,213)
Capital share transactions -
---------
Total Increase in net assets $ (43,811)
---------
Net assets, beginning of period $ -
Net assets, end of period $ (43,811)
Per Share Data
Investment income $ 0.13
Expenses 0.19
Net realized gain on investments 0.34
Change in unrealized gain (loss) on investments (0.25)
---------
Increase in net assets from operations
before distributions 0.03
Distributions from realized gains on securities 0.08
---------
Net increase (decrease) in net asset value (0.05)
Net asset value:
Inception 9.32
End of period $ 9.28
---------
Ratios:
Ratio of expenses to average net assets (%) 2.00%
Ratio of net investment income to average assets (%) -0.61%
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Cashflows
for the 3 month period ended March 31, 1997
(unaudited)
<TABLE>
<S> <C>
Cash flows from operating activities:
Increase in net assets from operations before distributions $ 30,402
Adjustments to reconcile increase in net assets from operations
before distributions to net cash provided by operating activities:
Depreciation and amortization 7,800
(Increase) decrease in unrealized gain 234,119
(Increase) decrease in repurchase agreement (3,713,501)
(Increase) decrease in investments in affiliates --
(Increase) decrease in accounts receivable (21,759)
(Increase) decrease in other assets 97,740
Decrease (increase) in current liabilities 226,460
Deferred income taxes --
-----------
Net cash provided by operating activities (3,138,739)
Cash flows from investing activities:
Purchases of securities (1,621,355)
-----------
Net cash used by investing activities (1,621,355)
Net increase (decrease) in cash and cash equivalents $(4,760,094)
===========
Cash and cash equivalents at beginning of period $ 5,082,109
Cash and cash equivalents at end of period $ 322,015
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
1. ORGANIZATION AND BUSINESS PURPOSE
Plymouth Commercial Mortgage Fund, a Delaware business trust, (the
"Fund") was organized on August 23, 1996 and commenced operations on September
27, 1996. The Fund seeks to achieve a high level of current income by purchasing
loans where the obligor is having trouble meeting the loan's contractual
requirements. The loans that the Fund purchases are typically secured by
commercial real estate.
The Fund has elected to be regulated as a business development company
under the Investment Company Act of 1940, as amended ("1940 Act").
2. SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation- The financial statements included herein have
been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to
Form 10-Q and Article 6 of Regulation S-X. Certain information and
footnotes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. The Fund believes that the information that is
presented is a fair representation and reflects all which are necessary
for a fair presentation of the results of operations for the interim
periods.
B. Security Valuation -There is no publicly quoted market for the Fund's
impaired loan portfolio. As such, the fair value of the portfolio is
established by the Fund's Board of Trustees using their best judgment.
Such values are based upon what the Board believes the Fund could
reasonably expect to receive for each impaired loan in an orderly
disposition over a reasonable time period.
In establishing the fair value of a loan, the Board considers aspects
about the individual loan as well as the general economy. Such factors
include but are not limited to: the type of loan, whether the borrower
is currently meeting the contractual terms of the obligation, the
length of time that the borrower has or has not been meeting the
contractual terms, the probability that the borrower will begin or stop
making payments, the value of the collateral and the guarantees
securing the loans, the Fund's historical experience selling the type
of loan being valued, various standard financial measurements, the
remaining contract terms, and prevailing interest rates.
Certain elements of the valuation procedure involve subjective
judgment. Because the majority of the Fund's impaired loans are
delinquent, no assurance can be given that the Fund will be able to
recover the fair value that the Board has established. The Fund's
impaired loans are not typically backed by any government guarantee or
private credit enhancement. In many cases, the Fund will also incur
certain costs and delays in attempting to assert its right to payment
or in foreclosing on the loan's collateral. The actual value realized
on any particular loan will vary from the values determined by the
Board and can only be determined in negotiations between the Fund and
third parties.
In asserting its rights, the Fund will often attempt to foreclose on a
loan and acquire the collateral. Pursuant to the terms of its credit
agreement, any real estate that is acquired through foreclosure is held
by Plymouth REO, a wholly owned subsidiary of the Fund. Real estate
acquired through foreclosure is recorded at its estimated fair value.
C. Federal Income Taxes - The Fund intends to elect the special income tax
treatment available to "regulated investment companies" under
Subchapter M of the Internal Revenue Code. If the Fund qualifies as a
regulated investment company and distributes to shareholders annually
in a timely manner at least 90% of its "investment company taxable
income," as defined by the Code
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(i.e., net investment income, including accrued discount, and net
short-term capital gains), it will not be subject to federal income tax
on the portion of its taxable investment income and net capital gain
distributed to shareholders as required under the Code. In addition, if
the Fund distributes in a timely manner 98% of its net capital gain
income for each one-year period, and distributes 98% of its investment
company taxable income for each calendar year (as well as any income
not distributed in prior years), it will not be subject to the 4%
nondeductible federal excise tax imposed with respect to certain
undistributed income of regulated investment companies.
D. Distributions to Shareholders - Dividends to shareholders are recorded
on the payment date. The Fund declared a dividend of $74,213 for the
quarter ended March 31, 1997 payable on or before May 31, 1997 to
shareholders of record on March 31, 1997.
E. Other - Principal and interest payments due on notes held by the Fund
are recognized on the date received. Interest income is typically not
accrued because of the impaired nature of the Fund's loan portfolio.
3. INVESTMENT ADVISORY AGREEMENT
The Fund has to entered into an Investment Advisory Agreement (the
"Agreement") with Emerald Advisers, Inc., a Delaware corporation, a registered
investment adviser, (the "Adviser"), under the Investment Advisers Act of 1940
(the "Adviser's Act"), as amended. (As of October 28, 1996, the Adviser changed
its name from Emerald Advisers, Inc. to Greystone Advisers, Inc. No change in
the Adviser's operations was made in conjunction with the name change.) Unless
terminated as described, the Agreement remains in effect until September 22,
1998. Thereafter it will need to be specifically approved at least annually by
the Board of Trustees, including a majority of its members casting their votes
in person who are not "interested persons" of the Fund (as defined by the 1940
Act) at a meeting called for the purpose of voting on such approval or by "vote
of a majority of the outstanding voting securities" of the Fund. The Agreement
can be terminated by the Fund at any time, without payment of any penalty, on
sixty day's written notice to the Adviser if the decision to terminate has been
made by the Board of Trustees or by "vote of a majority of the outstanding
voting securities" of the Fund. The Agreement will terminate automatically in
the event of its assignment.
Under the Agreement, the Adviser will manage the investments of the Fund,
subject to the supervision and control of the Fund's Board of Trustees.
Specifically, the Adviser will identify, evaluate, structure, close and monitor
the investments made by the Fund.
The Adviser will be required to pay all expenses incurred by it in
rendering its services. Generally, these expenses include the cost of office
space, telephone service, equipment and personnel required to perform its
obligations under the Agreement. The Fund will be required to pay its operating
expenses and reimburse the Adviser promptly for expenses which the Adviser may
pay on the Fund's behalf, except those specifically required to be borne by the
Adviser under the Agreement. Without limitation, such expenses will include: all
expenses of any offering and sale by the Fund of its shares; the fees and
disbursements of the Fund's counsel, accountants, and custodian; fees and
expenses incurred in producing and effecting filings with federal and state
securities administrators; costs of the Fund's periodic reports to and other
communications with the Fund's shareholders; fees and expenses of members of the
Fund's Board of Trustees who are not directors, officers or employees of the
Adviser; premiums for the fidelity bond maintained by the Fund; all costs
related to portfolio investments, including without limitation financing costs,
legal and accounting fees, expenses related to protecting or maintaining the
value of the loan portfolio or its underlying collateral, and other professional
or technical fees and expenses (e.g., credit reports, title searches and
delivery charges, property taxes, insurance premiums, long-distance telephone
charges, costs of specialized consultants such as accountants or
industry-specific technical experts, and travel expenses) incurred in acquiring,
monitoring, negotiating, working-out, and effecting
6
<PAGE> 8
disposition of such investments, as well as responding to any litigation arising
therefrom; and all expenses related to any borrowings by the Fund.
During the term of this Agreement, the Fund will pay to the Adviser, on
the 15th day of each month: (a) a fee calculated at an effective annual rate of
5.94% of the Fund's invested assets as of the end of the previous month; and (b)
a fee calculated at an effective annual rate of 0.48% of the Fund's cash and
short-term investments as of the end of the previous month. For purposes of
calculating the fee to be paid on a monthly basis, "invested assets" means the
asset value as determined by the Board as of the end of the previous fiscal
quarter minus cash, short-term investments, intangible assets, and the amount of
collections applied to the carrying value of the loan portfolio since the end of
the previous quarter, plus the cost of loans purchased and capitalized advances
to protect portfolio investments or underlying collateral since the end of the
previous quarter.
4. INVESTMENTS
The Fund invests primarily in impaired loans of companies that qualify
as "eligible portfolio companies" as defined in Section 2(a)(46) of the 1940 Act
or in securities that otherwise qualify for investment as permitted in Section
55(a)(1) through (6). These loans are carried on the Statement of Assets and
Liabilities as of September 31, 1996, at fair value, as determined in good faith
by the Fund's Board of Trustees.
These loans typically are offered at auction in packages of multiple
loans. Sellers include entities such as the Federal Deposit Insurance
Corporation ("FDIC"), banks, savings and loans, insurance companies and other
financial institutions. The Fund's investments in loan packages will be directed
by the Adviser. The Fund holds its real estate assets in a wholly-owned
subsidiary as required in the agreement establishing its senior credit facility.
Generally, a loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement unless
the borrower receives material assistance. While several types of impaired loans
are available for purchase, the Fund's portfolio will be concentrated in
impaired loans secured by commercial real estate. For both financial and
regulatory reasons, commercial banks, either directly or indirectly through the
FDIC, make these loans available for sale in packages with prices that are
typically more than $1 million per package. Quite often the sale of impaired
loans in this market offers creditors the only alternative to foreclosure.
5. INDEBTEDNESS
As of March 31, 1997, the Fund had no indebtedness. The Fund has open
an $8,000,000 line of credit with a Texas bank.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(1) Material Changes in Financial Condition
Net assets during the period declined slightly and will continue to
decline for the next few quarters as the loans that were acquired from SWF 1995
Limited Partnership ("SWF 1995") are resolved. This is not a long term trend.
The decline is triggered by the realization of a gain over the carrying cost for
federal income tax purposes. When the loans were acquired from SWF 1995, the
value that was established for the transaction was more than this carrying cost.
However, because the loans were acquired in a tax-free
7
<PAGE> 9
exchange, the carrying cast was not adjusted. Instead an unrealized gain was
recorded on the Fund's books for the difference between the carrying cost of the
loans and their fair value. As the unrealized gain is realized, the Fund is
distributing it to shareholders. The distributions have lead to a short term
decline in the Fund's net asset value.
There is a difference of approximately $375,000 ($.41 per share)
between the unrealized gain attributed to the remaining assets acquired from SWF
1995 and their carrying basis for federal income tax purposes. There is also
approximately $234,000 ($.25 per share) in already realized gain that will have
to be distributed by the end of January 1998, further reducing net asset value.
This decline is similar to stock and bond mutual funds. Such a decline
will not occur with new loans that the Fund purchases.
(2) Material Changes in the Results of Operations
The three month period ended March 31, 1997 represents the first period
in which the Fund was fully operating. We have been very pleased with the
quantity and quality of loans that have been available and the price that we
have been able to receive for the assets that we have disposed of.
During the period, we submitted total bids of $19,451,000 and were the
successful bidder on two packages with a total cost of $2,076,000 . One loan
purchase was particularly important to us because we purchased it directly from
a Texas bank instead of through a sealed bid auction. Because we had the luxury
of being able to review a complete loan file, ask questions, and talk to the
obligor before buying the loan, we felt much more confident about our bid. As a
result, the bank also got a better offer from us than they would have had we
been asked to review the loan as part of an auction. To us, this was an ideal
situation for both parties and we are eagerly pursuing other "private deals."
We were very pleased with the amount of loans that we were able to
either settle or sell during the quarter, particularly since the loan portfolio
consists primarily of the harder to work assets remaining in the limited
partnership that was acquired in September 1996. The Fund received a total of
$1,022,088 during the quarter. Most of these collections came from six loans
that we either settled or sold for a total of $927,039. Our overall return on
the initial cost of the loan plus all expenses was a very significant 26% annual
internal rate of return although we did settle one loan for loss of $20,032. The
most significant gain was $119,439 on one loan which we had purchased as part of
a package of loans but had assigned no cost.
PART II - OTHER INFORMATION
1. LEGAL PROCEEDINGS
None.
2. CHANGES IN SECURITIES
(b) None.
(c) None.
3. DEFAULTS UPON SENIOR SECURITIES
(c) None.
(d) None.
1. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 10
2. OTHER INFORMATION
None.
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS-
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession: (None)
(3)(i) (A)Certificate of Trust of the registrant, as filed
August 23, 1996(1)
(B)Declaration of Trust of the registrant, dated August
23, 1996(1)
(3)(ii)Bylaws of the registrant, dated September 3, 1996(1)
(4) (A)Loan Agreement between Comerica Bank-Texas and the
registrant, dated September 27, 1996(2)
(B)Agreement to furnish to the Commission upon request
a copy of Subordinated Note Agreement between the
registrant and SouthWest Holding Company, Inc., dated
September 27, 1996(2)
(10) (A)Investment Advisory Agreement by and between the
registrant and Emerald Advisers, Inc. (former name of
Greystone Advisers, Inc.), dated September 22, 1996(2)
(B)Custodial Agreement by and between Comerica Bank-
Texas and the registrant, dated September 27, 1996(2)
(15) Letter re unaudited interim financial information: (None)
(18) Letter re change in accounting principles: (None)
(19) Report furnished to security holders: (None)
(22) Published report regarding matters submitted to vote of
security holders: (None)
(23) Consents of experts and counsel: (None)
(24) Power of attorney: (None)
(27) Financial Data Schedule (3)*
(b) REPORTS ON FORM 8-K- None.
- ------------------
(1) Incorporated herein by reference from the registrant's initial registration
statement on Form 10 (File No. 0-21443), as filed with the Commission on
September 27, 1996.
(2) Incorporated herein by reference from amendment #1 of the registrant's
initial registration statement on Form 10 (File No. 0-21443), as filed with the
Commission on January 15, 1997.
(3) Filed herewith.
9
<PAGE> 11
SIGNATURES
Pursuant to the requirements 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.
PLYMOUTH COMMERCIAL MORTGAGE FUND
May 15, 1997 /s/ Robert R. Swendson
---------------------------------------------
Robert R. Swendson, President and
Chief Executive Officer
May 15, 1997 /s/ John C. Mosher
---------------------------------------------
John C. Mosher, Vice President and
Chief Financial Officer (Principal
Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S STATEMENT OF ASSETS & LIABILITIES AS OF SEPTEMBER 31, 1996
(UNAUDITED), AND STATEMENT OF OPERATIONS, STATEMENT OF CHANGES IN NET ASSETS, &
STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED SEPTEMBER 31, 1996 (UNAUDITED), AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENT OF ASSETS &
LIABILITIES, STATEMENT OF OPERATIONS, STATEMENT OF CHANGES IN NET ASSETS, AND
STATEMENT OF CASH FLOWS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 3,810,445
<INVESTMENTS-AT-VALUE> 4,150,790
<RECEIVABLES> 28,210
<ASSETS-OTHER> 5,901
<OTHER-ITEMS-ASSETS> 4,690,420
<TOTAL-ASSETS> 8,875,321
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 326,886
<TOTAL-LIABILITIES> 326,886
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,976,773
<SHARES-COMMON-STOCK> 921,627
<SHARES-COMMON-PRIOR> 921,627
<ACCUMULATED-NII-CURRENT> (143,973)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 375,290
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 340,345
<NET-ASSETS> 8,548,434
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46,758
<OTHER-INCOME> 72,887
<EXPENSES-NET> 171,697
<NET-INVESTMENT-INCOME> (52,052)
<REALIZED-GAINS-CURRENT> 316,573
<APPREC-INCREASE-CURRENT> (234,119)
<NET-CHANGE-FROM-OPS> 30,402
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 74,213
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 182,649
<ACCUMULATED-NII-PRIOR> (168,039)
<ACCUMULATED-GAINS-PRIOR> 202,431
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 59,306
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 171,697
<AVERAGE-NET-ASSETS> 8,570,340
<PER-SHARE-NAV-BEGIN> 9.32
<PER-SHARE-NII> 9.28
<PER-SHARE-GAIN-APPREC> 0.78
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
