<PAGE> 1
As filed with the Securities and Exchange Commission on August 14, 1998
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 June 30, 1998
[ ] 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)
<TABLE>
<S> <C>
Delaware 74-6439983
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
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 August 12, 1998, 921,627 of the registrant's common shares of beneficial
interest, no par value, were outstanding.
<PAGE> 2
PLYMOUTH COMMERCIAL MORTGAGE FUND
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
ASSETS
------
<S> <C> <C>
INVESTMENTS IN SECURITIES AT FAIR VALUE, COST OF $8,857,185 AND
$14,538,157 $ 8,816,534 $ 15,295,698
INVESTMENT IN AFFILIATE 1,094,248 941,477
CASH 151,256 568,899
ACCOUNTS RECEIVABLE 1,826 2,026
ORGANIZATION COSTS, NET 57,200 72,800
------------------- --------------------
TOTAL ASSETS $ 10,121,064 $ 16,880,900
======================= =======================
LIABILITIES
-----------
ACCOUNTS PAYABLE $ 30,728 $ 48,547
INVESTMENT ADVISORY FEE PAYABLE 51,975 77,110
DIVIDEND PAYABLE - 275,001
NOTE PAYABLE 1,381,187 7,981,158
ESCROW FUNDS 59,848 80,924
------------------- --------------------
TOTAL LIABILITIES 1,523,738 8,462,740
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 NET INVESTMENT LOSS (1,311,602) (789,921)
ACCUMULATED UNDISTRIBUTED NET REALIZED GAINS NET OF DISTRIBUTIONS OF
$578,097 2,158,540 611,696
ACCUMULATED UNDISTRIBUTED EQUITY OF SUBSIDIARY (185,734) (137,929)
ACCUMULATED UNDISTRIBUTED UNREALIZED GAIN (LOSS) ON INVESTMENTS (40,651) 757,541
------------------- --------------------
TOTAL NET ASSETS ($9.33 AND $9.13 PER SHARE) 8,597,326 8,418,160
TOTAL LIABILITIES & NET ASSETS $ 10,121,064 $ 16,880,900
======================= =======================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page -2-
<PAGE> 3
PLYMOUTH COMMERCIAL MORTGAGE FUND
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
INTEREST $ 223,110 $ 64,457 $ 420,284 $ 111,215
OTHER INVESTMENT INCOME 260 34,909 260 107,796
----------------- ------------------- ---------------- ---------------
TOTAL INVESTMENT INCOME 223,370 99,366 420,544 219,011
EXPENSES:
INVESTMENT ADVISORY FEE 192,263 100,451 431,356 159,757
LEGAL AND PROFESSIONAL 34,659 40,092 69,268 97,128
INTEREST EXPENSE 143,416 8,703 314,081 8,957
OPERATING EXPENSE 53,405 53,519 127,520 108,620
----------------- ------------------- ---------------- ---------------
TOTAL EXPENSES 423,743 202,765 942,225 374,462
NET INVESTMENT LOSS (200,373) (103,399) (521,681) (155,451)
----------------- ------------------- ---------------- ---------------
REALIZED GAIN ON SALE OF INVESTMENTS 1,032,091 1,067,091 268,628
REALIZED GAIN ON COLLECTION OF NOTES 330,243 14,419 479,754 62,364
CHANGE IN UNREALIZED APPRECIATION ON (847,207) 28,555 (798,192) (205,564)
ASSETS
EQUITY IN EARNINGS OF AFFILIATE 12,844 (49,494) (47,805) (49,494)
----------------- ------------------- ---------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 327,598 $ (109,919) $ 179,167 $ (79,517)
================= =================== ================ ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page -3-
<PAGE> 4
PLYMOUTH COMMERCIAL MORTGAGE FUND
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
<S> <C> <C> <C> <C>
OPERATIONS BEFORE DISTRIBUTIONS:
NET INVESTMENT LOSS $ (200,373) (103,399) (521,681)
NET REALIZED GAIN ON SALE OF INVESTMENTS 1,032,091 - 1,067,091 268,628
NET REALIZED GAIN ON COLLECTIONS 330,243 14,419 479,754 62,364
CHANGES IN UNREALIZED APPRECIATION ON
INVESTMENTS (847,208) 28,555 (798,193) (205,564)
EQUITY IN EARNINGS OF AFFILIATE 12,844 (49,494) (47,805) (49,494)
----------------- ------------------ --------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS
BEFORE DISTRIBUTION TO SHAREHOLDERS 327,597 (109,919) 179,166 75,934
DISTRIBUTION TO SHAREHOLDERS FROM:
NET REALIZED GAIN ON INVESTMENTS - (6,175) - (80,388)
CAPITAL SHARE TRANSACTIONS - - - -
----------------- ------------------ --------------- ---------------
TOTAL INCREASE IN NET ASSETS 327,597 (116,094) 179,166 (4,454)
NET ASSETS, BEGINNING OF PERIOD 8,269,729 8,548,434 8,418,160 8,592,246
----------------- ------------------ --------------- ---------------
NET ASSETS, END OF PERIOD $ 8,597,326 8,432,341 8,597,326 8,587,792
================= ================== =============== ===============
PER SHARE DATA
INVESTMENT INCOME $ 0.24 0.11 0.46 0.24
EXPENSES (0.46) (0.22) (1.02) (0.41)
NET REALIZED GAIN ON SALE OF INVESTMENTS 1.12 0.00 1.16 0.29
NET REALIZED GAIN ON COLLECTION OF NOTES 0.36 0.02 0.52 0.07
EQUITY IN EARNINGS OF AFFILIATE 0.01 (0.05) (0.05) (0.05)
CHANGE IN UNREALIZED APPRECIATION ON ASSETS (0.92) 0.03 (0.87) (0.22)
----------------- ------------------ --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS BEFORE DISTRIBUTIONS 0.35 (0.11) 0.20 (0.08)
----------------- ------------------ --------------- ---------------
DISTRIBUTIONS FROM REALIZED GAIN ON SECURITIES 0.00 (0.01) 0.00 (0.09)
----------------- ------------------ --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSET VALUE 0.35 (0.12) 0.20 (0.17)
NET ASSET VALUE
BEGINNING OF PERIOD 8.97 9.27 9.13 9.32
----------------- ------------------ --------------- ---------------
END OF PERIOD $ 9.33 9.15 9.33 9.15
================= ================== =============== ===============
RATIOS:
EXPENSES TO AVERAGE ASSETS -5.02% -2.39% -11.07% -4.40%
NET INVESTMENT LOSS TO AVERAGE ASSETS -2.38% -1.22% -6.13% -1.83%
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page -4-
<PAGE> 5
PLYMOUTH COMMERCIAL MORTGAGE FUND
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 ENDED JUNE 30, 1997
--------------------------- ----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
INCREASE (DECREASES) IN NET ASSETS FROM OPERATIONS BEFORE $ 179,167 $ (79,517)
DISTRIBUTIONS
ADJUSTMENTS TO RECONCILE INCREASES IN NET ASSETS FROM
OPERATIONS BEFORE DISTRIBUTIONS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
AMORTIZATION OF ORGANIZATION COSTS 15,600 15,600
CHANGE IN UNREALIZED APPRECIATION ON INVESTMENTS 798,192 205,564
CHANGES IN OTHER ASSETS - (352,760)
EQUITY IN LOSS OF AFFILIATES 47,805 49,494
CHANGES IN RECEIVABLES 200 4,024
CHANGE IN PAYABLES (42,953) (31,303)
CHANGES IN DIVIDEND PAYABLE (275,001) 26,970
CHANGE IN ESCROW (21,076) 21,461
--------------------------- ----------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 701,934 (140,467)
CASH FLOW FROM INVESTING ACTIVITIES:
PURCHASE OF SECURITIES AND CAPITAL EXPENDITURES (903,597) (7,189,286)
SALE OF SECURITIES/PRINCIPAL COLLECTION ON
SECURITIES/TRANSFER TO AFFILIATE 6,347,995 840,733
INVESTMENT IN AFFILIATE 35,996 (38,000)
--------------------------- ----------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 5,480,394 (6,386,553)
CASH FLOW FROM FINANCING ACTIVITIES:
CHANGE IN NOTE, NET (6,599,971) 1,552,680
DIVIDENDS PAID - (74,213)
DISTRIBUTION FROM NET REALIZED GAIN ON INVESTMENTS - -
--------------------------- ----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (6,599,971) 1,478,467
NET DECREASE IN CASH AND CASH EQUIVALENTS (417,643) (5,048,552)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 568,899 5,584,460
--------------------------- ----------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 151,256 $ 535,908
=========================== ============================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page -5-
<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.
Plymouth 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 Plymouth purchases are typically secured by
commercial real estate.
Plymouth 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 Articles 6 and 10 of Regulation S-X.
Accordingly, certain information and notes that are required by
generally accepted accounting principles for complete financial
statements are not included herein. The interim statements should be
read in conjunction with the financial statements and notes included
in Plymouth's most recent annual report on Form 10-K. Interim
statements are subject to possible adjustments in connection with the
annual audit of Plymouth. Management believes all adjustments
necessary for a fair presentation of these interim statements have
been included.
B. Security Valuation: There is no publicly quoted market for
Plymouth's loan portfolio. As such, the fair value of the portfolio
is established by Plymouth's Board of Trustees using their best
judgment. The Board bases its values on what the Board believes
Plymouth could reasonably expect to receive for each 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, Plymouth's historical experience selling the type
of loan being valued, various standard financial measurements, the
remaining contract terms, and prevailing interest rates. Generally
the Board does not change the value of the loan from the purchase
price paid by Plymouth unless there are specific factors indicating
the value should be revised.
The valuation procedure involves subjective judgment. Because the
majority of Plymouth's impaired loans are delinquent, Plymouth may not
recover the fair value the Board has established. Plymouth's
portfolio is not typically backed by any government guarantee or
private credit enhancement. In many cases, Plymouth 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 be determined only in negotiations between Plymouth and
third parties.
When Plymouth cannot get the debt performing through restructure or
otherwise, Plymouth generally attempts to foreclose and acquire the
collateral. Pursuant to its credit agreement, Plymouth puts real
estate acquired through foreclosure into Plymouth REO, Inc., a wholly
owned subsidiary. Foreclosed real estate is recorded at its estimated
fair value.
Page -6-
<PAGE> 7
C. Federal Income Taxes: Plymouth has elected the special income
tax treatment available to "regulated investment companies" under
Subchapter M of the Internal Revenue Code. If Plymouth 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 Internal Revenue Code (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. In addition, if Plymouth distributes in a timely manner
98% of its net capital gain income for each fiscal year, 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: In respect of its second
quarter operations, the Board declared and Plymouth paid a dividend to
shareholders of record as of July 18, 1998 in the amount of
$506,894.85, which is 55 cents per share. The dividend was paid on
July 18, 1998.
E. Other: Principal and interest payments due on Plymouth's
portfolio notes are recognized on the date received. Interest income
is typically not accrued because of the impaired nature of Plymouth's
portfolio.
3. INVESTMENT ADVISORY AGREEMENT
Plymouth has to entered into an Investment Advisory Agreement (Agreement) with
Greystone Advisers, Inc., a Delaware corporation, (Adviser). Initially, the
Adviser was a federally registered investment adviser under the Investment
Advisers Act of 1940. The Securities Markets Improvements Act of 1996,
however, altered the requirements for federal investment adviser registration.
To maintain its federal registration, the Adviser would have needed to have at
least $25,000,000.00 in assets under management. Accordingly, as of July 8,
1997, the Adviser was required by law to, and did, withdraw its federal
registration. Further, upon consultation with Texas securities counsel, the
Adviser determined that it was not required to have a Texas investment adviser
registration. Accordingly, until such time as the Adviser reaches
$25,000,000.00 under management, it will have no investment adviser
registration. When that threshold is achieved, it intends to reregister under
the Investment Advisers Act.
Under the Agreement, the Adviser manages the investments of Plymouth, subject
to the supervision and control of Plymouth's Board of Trustees. Specifically,
the Adviser identifies, evaluates, structures, closes and monitors the
investments made by Plymouth. The Agreement remains in effect until January
26, 1999. Thereafter, it will need to be renewed 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 Plymouth (as defined by the 1940 Act)
at a meeting called for the purpose of voting on such approval, or by a vote of
a majority of the outstanding voting securities of Plymouth. The Agreement can
be terminated by Plymouth 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 a vote of a majority of the outstanding voting
securities of Plymouth. The Agreement will terminate automatically in the
event of its assignment.
The Adviser is required to pay all expenses that are incurred 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. Plymouth will be required to pay its operating expenses
and reimburse the Adviser promptly for expenses that the Adviser may pay on
Plymouth's behalf, except those specifically required to be borne by the
Adviser under the Agreement. Without limitation, the expenses to be borne by
Plymouth will include: all expenses of any offering and sale by Plymouth of its
shares; the fees and
Page -7-
<PAGE> 8
disbursements of Plymouth's counsel, accountants, and custodian; fees and
expenses incurred in producing and effecting filings with federal and state
securities administrators; costs of Plymouth's periodic reports to and other
communications with Plymouth's shareholders; fees and expenses of members of
Plymouth's Board of Trustees who are not directors, officers or employees of
the Adviser; premiums for the fidelity bond maintained by Plymouth; 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
disposition of such investments, as well as responding to any litigation
arising therefrom; and all expenses related to any borrowings by Plymouth.
During the term of this Agreement, Plymouth pays to the Adviser, on the 15th
day of each month: (a) a fee calculated at an effective annual rate of 5.94% of
Plymouth'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 Plymouth'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.
At the shareholders' meeting on April 28, 1998, the shareholders approved the
execution and delivery of minor revisions to the existing Agreement. The
Agreement is the same as it was in all material respects, and none of the above
description arises from any of those revisions. The revisions reflected the
changed name of the adviser from Emerald to Greystone and clarified the
adviser's authority to perform loan servicing functions with respect to
Plymouth's assets.
4. INVESTMENTS
Plymouth 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 June 30, 1998, at fair value, as determined in good faith by
Plymouth'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. Plymouth's investments in loan packages will be directed by the
Adviser. Plymouth 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, Plymouth's portfolio is 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. Often the sale of impaired loans in this market
offers creditors the only alternative to foreclosure.
Page -8-
<PAGE> 9
5. INDEBTEDNESS
Plymouth has an $8,000,000 line of credit with a Texas bank that is secured by
a first lien on all of Plymouth's assets. As of June 30, 1998 the balance on
Plymouth's credit facility was $1,381,187. As of August 3, 1998, Plymouth
could borrow approximately an additional $1,990,000. The amount the bank will
lend increases in relation to increases in capital stemming from assets
previously purchased so that, depending on the age of the portfolio loans,
Plymouth could work its way up to or near the full $8,000,000 credit line. See
the discussion regarding Plymouth's borrowing base set forth below under
"Liquidity and Capital Resources."
6. STOCK OPTION PLAN
At the annual shareholders meeting on April 28, 1998, the shareholders approved
a proposal for a stock option plan for the officers of Plymouth. The proposal
approved by the shareholders provides for a total 50,000 shares in the plan.
The options will expire ten years after issuance, vest after three years,
contain a minimum exercise price of $10.00, and may not be exercised except in
connection with a registered offering.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY, CAPITAL RESOURCES,
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
As of June 30, 1998, Plymouth had $8,597,326 in net assets and had borrowed an
additional $1,381,187 on its credit line. Plymouth declared and, on July 18,
1998, paid a 55 cents per share dividend based on its second quarter results.
The dividend is not reflected in the financial statements presented.
Plymouth's liquidity consists of its capital not invested in loans plus the
amount that is available on its line of credit. As Plymouth tries to remain
fully invested at all times, it generally has uninvested capital only when
assets are liquidated. Availability on its line of credit is tied to the
credit limit and a borrowing base.
Plymouth's experience is that it holds assets for approximately eleven months.
Therefore, on average, invested capital will not be available for the purchase
of new assets until approximately eleven months from when it was last spent.
Individual assets vary significantly, however, and it is difficult to predict
which assets will be held longer and which can be liquidated sooner.
Under the current loan agreement, Plymouth can borrow the lesser of $8,000,000
or its borrowing base. The borrowing base limits advances to a declining
percentage applied to the lesser of cost or current fair market value. On a
new purchase, the allowable percentage is 60%. After Plymouth has held the
asset for six months, the advance rate declines to 48% (See page 3 of
Plymouth's December 31, 1997 Form 10-K for the other decline thresholds). This
borrowing base decline after six months combined with Plymouth's average eleven
month's holding time for assets potentially could deny Plymouth liquidity
needed to purchase new assets as they become available. As of August 3, 1998,
Plymouth had the ability to borrow approximately an additional $1,990,000. The
borrowing capacity has increased significantly since May 4, 1998 when borrowing
capacity was $291,000. The $291,000 figure included a temporary $600,000
credit line increase extended by the bank. The temporary credit line increase
is no longer in effect. The primary reason for the borrowing capacity increase
is that, in June 1998, Plymouth conducted a loan auction in which it sold many
of its older assets, thereby reducing the average age of its portfolio.
Another smaller auction is planned for September 1998.
Plymouth's present credit line expires on September 27, 1998. When seeking a
renewal or replacement line, Plymouth will attempt to restructure the line so
that its borrowing base does not decline with age or at least so that the
decline is slowed and reduced.
Page -9-
<PAGE> 10
There are no material, unused sources of liquidity.
Results of Operations
Six Months Ended 6/30/98
During the six month period ending June 30,1998, Plymouth purchased nine
additional loans with a cost of $721,702 and a total outstanding principal
balance of $1,044,073. Plymouth's per share value increased to $9.33 from
$9.13 at December 31, 1997. The increase was due to strong results realized at
the June 1998 loan auction that exceeded expected unrealized gains. For the
period Plymouth realized approximately $1,000,000 in taxable income and
declared a dividend to shareholders of 55 cents per share. The dividend was
paid on July 18, 1998 to shareholders of record on that date. The aggregate
amount of the dividend was $506,894 and represents approximately half of
taxable income for the period. If the accompanying June 30, 1998 financial
statements reflected the dividend, the per share value would decline to $8.78.
During the six month period ending June 30,1998, Plymouth had gross collections
of $8,315,123, including fifty-five notes that settled or sold for an average
return on investment of approximately 31.05%. That return on investment takes
into the account the original cost, gross collections, and direct expenses and
is calculated on collections and expenses both within and without the six month
period. The 31.05% return does not include overhead such as the adviser fee
and interest expense. Plymouth's collections resulted in a net increase in net
assets from operations, before changes in unrealized appreciation on
investments and equity in earnings of affiliates, of $1,025,164 for the six
month period ending June 30, 1998. The gain principally arises from loan sales
effected through a loan auction held in June 1998. The GAAP net increase in
assets for the six month period was $179,167 after a change in unrealized
appreciation of ($798,192). The number is negative because gain was moved from
unrealized to realized as a result of the loan auction. If it has product
available for sale, Plymouth intends to hold loan auctions quarterly so as to
maximize returns.
Plymouth's asset value can be affected by adjustments to portfolio fair market
value by Plymouth's Board of Trustees. For the quarter ending June 30, 1998,
the balance sheet shows an accumulated undistributed, unrealized loss on
investments of $40,651. This loss is principally attributable to reductions of
expected cash flows to net present value. The loss includes three loans with
an expected cash loss of $265,956. The unrealized losses are expected to
affect Plymouth's income statement in a manner corresponding to the effect of
the unrealized gains on loans in the June loan auction.
Comparable Period for Previous Year
By way of comparison, for the period ending June 30,1997, Plymouth realized a
GAAP gain of $175,541. The lower gain is attributable to there being fewer
assets under management and to the timing of collections. The magnitude of
Plymouth's GAAP gain in the second quarter of 1998 ($1,025,164) is
significantly affected by the loans moving in groups through Plymouth's
resolution process. A large group of loans was ready for sale during that
quarter, but that will not always be the case in future quarters. While
management tries to keep Plymouth's portfolio spread out, that is difficult to
do. At such time as Plymouth may be able to increase its capitalization
significantly, the lumps attributable to loans moving through the resolution
process will be less significant and performance should be more uniform.
Three Month Period Ending June 30, 1998 and Comparable Period Ending
June 30, 1997
For the three month period ending June 30, 1998, Plymouth realized gross
collections of $1,265,975 and realized a net increase in net assets from
operations, before changes in unrealized appreciation on investments and equity
in earnings of affiliates, of $1,161,961. The magnitude of both the
collections and the gain arose
Page -10-
<PAGE> 11
from the June 1998 loan auction. For the comparable period in 1997, Plymouth
realized a net decrease in net assets from operations, before changes in
unrealized appreciation on investments and equity in earnings of affiliates, of
($88,980). Most of Plymouth's collections come upon final disposition of the
loan (such as the recent loan auction) and, at June 30, 1997, most of
Plymouth's assets were still too young to be at the state of final disposition,
and as of June 30, 1997 Plymouth had too few loans and loans not held long
enough to permit an auction or other large sale
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None.
Item 2: CHANGES IN SECURITIES
None.
Item 3: DEFAULTS UPON SENIOR SECURITIES
None.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(A) Matters were submitted to shareholders at the annual meeting of
shareholders held on April 28, 1998.
(B) The following persons were elected to serve as members of the
Board of Trustees:
Ronald K. Calgaard, James R. Clifton, Willis H. Wagner,
Goodhue W. Smith III, Robert R. Swendson
Mr. Wagner has subsequently resigned and the trustees filled
his seat with the election of Eric S. Foultz. No members of
the Board of Trustees had terms continuing past the meeting so
that each member was newly elected at the annual meeting.
(C) The matters voted on and the votes tabulated are as follows:
(1) Election of trustees. The specific votes were as set
forth in the following tables (allocating the shares of Robert
Swendson, Goodhue W. Smith III, and SouthWest Federated, Inc.
in the same proportions as the votes of the other
shareholders):
<TABLE>
<CAPTION>
Proposition % For % Against % Abstain Check
<S> <C> <C> <C> <C>
Dr. Ronald K. Calgaard 100.00% 0.00% 0.00% 100.00%
James R. Clifton 100.00% 0.00% 0.00% 100.00%
Goodhue W. Smith III 100.00% 0.00% 0.00% 100.00%
Willis Wagner 98.51% 1.49% 0.00% 100.00%
Robert R. Swendson 100.00% 0.00% 0.00% 100.00%
</TABLE>
Shares owned by Smith, Swendson, and SWF total 46,247.
<TABLE>
<S> <C> <C> <C>
Smith Swendson SWF Totals
</TABLE>
Page -11-
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C>
Total Shares 15,500.00 10,050.00 20,697.00 46,247.00
Owned
Calgaard For 15,500.00 10,050.00 20,697.00 46,247.00
Calgaard Against 0.00 0.00 0.00 0.00
Calgaard Abstain 0.00 0.00 0.00 0.00
Clifton For 15,500.00 10,050.00 20,697.00 46,247.00
Clifton Against 0.00 0.00 0.00 0.00
Clifton Abstain 0.00 0.00 0.00 0.00
Wagner For 15,269.05 9,900.26 20,388.61 45,557.92
Wagner Against 230.95 149.74 308.39 689.08
Wagner Abstain 0.00 0.00 0.00 0.00
Swendson For 15,500.00 10,050.00 20,697.00 46,247.00
Swendson Against 0.00 0.00 0.00 0.00
Swendson Abstain 0.00 0.00 0.00 0.00
Smith For 15,500.00 10,050.00 20,697.00 46,247.00
Smith Against 0.00 0.00 0.00 0.00
Smith Abstain 0.00 0.00 0.00 0.00
</TABLE>
(2) Investment Advisory Agreement. The shareholders were
asked to approve a slightly revised investment advisory
agreement, although the revisions did not change any economic
terms of the relationship between Plymouth and the Advisor.
The shareholders returning their proxies voted on the
continuation of the agreement as set forth in the following
tables (allocating the shares of Robert Swendson, Goodhue W.
Smith III, and SouthWest Federated, Inc. in the same
proportions as the votes of the other shareholders):
<TABLE>
<CAPTION>
Proposition % For % Against % Abstain Check
<S> <C> <C> <C> <C>
Revised Advisory Agreement 97.02% 0.00% 2.98% 100.00%
</TABLE>
Shares owned by Smith, Swendson, and SWF total 46,247.
<TABLE>
<CAPTION>
Smith Swendson SWF Totals
<S> <C> <C> <C> <C>
Total Shares Owned 15,500.00 10,050.00 20,697.00 46,247.00
Advisory Agmt For 15,038.10 9,750.51 20,080.23 44,868.84
Advisory Agmt 0.00 0.00 0.00 0.00
Against
Advisory Agmt 461.90 299.49 616.77 1,378.16
Abstain
</TABLE>
Page -12-
<PAGE> 13
(3) Auditors. The shareholders were asked to approve the
selection of KPMG Peat Marwick as the auditors of Plymouth.
The shareholders returning their proxies voted in favor of
such selection as set forth in the following tables
(allocating the shares of Robert Swendson, Goodhue W. Smith
III, and SouthWest Federated, Inc. in the same proportions as
the votes of the other shareholders):
<TABLE>
<CAPTION>
Proposition % For % Against % Abstain Check
<S> <C> <C> <C> <C>
KPMG Peat Marwick 96.28% 3.72% 0.00% 100.00%
</TABLE>
Shares owned by Smith, Swendson, and SWF total 46,247.
<TABLE>
<CAPTION>
Smith Swendson SWF Totals
<S> <C> <C> <C> <C>
Total Shares Owned 15,500.00 10,050.00 20,697.00 46,247.00
KPMG For 14,923.40 9,676.14 19,927.07 44,526.61
KPMG Against 576.60 373.86 769.93 1,720.39
KPMG Abstain 0.00 0.00 0.00 0.00
</TABLE>
(4) Stock Option Plan. The shareholders were asked to
approve a plan whereby officers of Plymouth would be granted
options to purchase shares of Plymouth. The plan was to have
the following characteristics:
1. There shall be no transfer of options except through a
decedent's estate.
2. There shall be no exercise except in connection with a
registered offering.
3. The options shall expire ten years after issuance, and
they are not vested until three years after issuance, the
condition of vesting being that the holder remain in the
employ of Greystone Advisers, Inc.
4. The exercise price for the options shall be the net asset
value determined by the trustees for the applicable
period, but such price shall not be less than $10.00.
5. The issuance of options at any one time shall be limited
to a number that will not exceed limitations applicable
to the Trust regarding the number of outstanding options,
such restrictions at this time limiting the permissible
number of additional options to 30,000.
The shareholders returning their proxies voted on the plan as set forth in the
following tables (allocating the shares of Robert Swendson, Goodhue W. Smith
III, and SouthWest Federated, Inc. in the same proportions as the votes of the
other shareholders):
<TABLE>
<CAPTION>
Proposition % For % Against % Abstain Check
<S> <C> <C> <C> <C>
Employee Stock Option 97.02% 2.98% 0.00% 100.00%
</TABLE>
Shares owned by Smith, Swendson, and SWF total 46,247.
<TABLE>
<CAPTION>
Smith Swendson SWF Totals
<S> <C> <C> <C> <C>
Total Shares Owned 15,500.00 10,050.00 20,697.00 46,247.00
Option For 15,038.10 9,750.51 20,080.23 44,868.84
</TABLE>
Page -13-
<PAGE> 14
<TABLE>
<S> <C> <C> <C> <C>
Option Against 461.90 299.49 616.77 1,378.16
Option Abstain 0.00 0.00 0.00 0.00
</TABLE>
(D) Not applicable.
Item 5: OTHER INFORMATION
Ted J. Hanes, Vice President Portfolio Management, left Plymouth
effective July 3, 1998. Larry D. Krause has assumed his
responsibilities. The Company does not expect Mr. Hanes' departure
will have a material effect on operations and does not plan to replace
him at this time.
As noted in the management discussion and analysis, management
believes Plymouth's performance would be both improved and stabilized
if Plymouth had more capital. Accordingly, management is currently
investigating raising additional capital. Its goal is to raise at
least some of the funds needed before the end of 1998. Management
does not yet have an agreement with an investment banker with respect
to such an offering.
In the past, Plymouth has operated under ambiguity as to what loans to
sole proprietorships would properly be considered as issued by
eligible portfolio companies. Loans to sole proprietorships were a
significant percentage of those in Plymouth's target market. Plymouth
sought clarification from the Securities and Exchange Commission and ,
in a July 1998 no-action letter, the Commission stated that it would
not recommend regulatory action against Plymouth if Plymouth treats
sole proprietorships as eligible portfolio companies. This relief
will enable Plymouth to bid on packages it would previously have had
to pass up. With expanded choices, Plymouth hopes to get a better
portfolio mix at better prices.
Item 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)
-----------------------------------
(1)Incorporated herein by reference from 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 number 1 of the
registrant's initial registration statement on Form 10 (File No.
0-21443), as filed with the Commission on January 15, 1997.
(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 January 15, 1997.
(2) Incorporated herein by reference from amendment #1to 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.
(4) Incorporated herein by reference from the registrant's Form 10-Q filed
with the Commission for the period ending June 30, 1997 on or about August 14,
1997.
Page -14-
<PAGE> 15
(10) (A)Investment Advisory Agreement by and between the registrant and
Greystone Advisers, Inc.(3)
(B)Custodial Agreement by and between Broadway National Bank,
Comerica Bank--Texas and the registrant, dated September 27,
1996(4)
(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
REPORTS ON FORM 8-K- None.
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
/s/ Robert R. Swendson
August 14, 1998
--------------------------------------------
Robert R. Swendson, President and Chief
Executive Officer
/s/ Patrick J. Panzarella
August 14, 1998
--------------------------------------------
Patrick J. Panzarella, Chief Financial
Officer (Principal Financial Officer)
----------------------------------
(3)Incorporated by reference from registrant's Form 10-Q for the period ending
March 31, 1998 (File No. 0-21433), as filed with the Commission on May 14,
1998.
(4)Incorporated by reference from registrant's Form 10-Q for the period ending
June 30, 1997 (File No. 0-21433), as filed with the Commission on or about
August 14, 1997.
Page -15-
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
registrant's Statement of Assets and Liabilities as of June 30, 1998 unaudited),
and Statement of Operations, Statement of Changes in Net Assets, and Statement
of Cash Flows for the period ended June 30, 1998 (unaudited), and is qualified
in its entirety by reference to such Statement of Assets and Liabilities,
Statement of Operations, Statement of Changes in Net Assets, and Statement of
Cash Flows.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 8,857,185
<INVESTMENTS-AT-VALUE> 8,816,534
<RECEIVABLES> 1,826
<ASSETS-OTHER> 57,200
<OTHER-ITEMS-ASSETS> 1,094,248
<TOTAL-ASSETS> 10,121,064
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 1,381,187
<OTHER-ITEMS-LIABILITIES> 142,551
<TOTAL-LIABILITIES> 1,523,738
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,976,773
<SHARES-COMMON-STOCK> 921,627
<SHARES-COMMON-PRIOR> 921,627
<ACCUMULATED-NII-CURRENT> (1,311,602)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,158,540
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (226,385)
<NET-ASSETS> 8,597,326
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 420,554
<OTHER-INCOME> 0
<EXPENSES-NET> 942,225
<NET-INVESTMENT-INCOME> (521,681)
<REALIZED-GAINS-CURRENT> 1,546,845
<APPREC-INCREASE-CURRENT> (845,997)
<NET-CHANGE-FROM-OPS> (179,167)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (179,167)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 431,356
<INTEREST-EXPENSE> 314,081
<GROSS-EXPENSE> 942,225
<AVERAGE-NET-ASSETS> 8,507,743
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> (.20)
<PER-SHARE-GAIN-APPREC> 1.68
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> .11
<AVG-DEBT-OUTSTANDING> 4,681,173
<AVG-DEBT-PER-SHARE> 5.08
</TABLE>
