<PAGE> 1
As filed with the Securities and Exchange Commission on May 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 March 31, 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 May 14, 1998, 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
Statements of Assets and Liabilities
March 31, 1998 and December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1998
-------------- -----------------
<S> <C> <C>
Assets
------
Investments in securities at fair value, cost of $14,003,682 and
$14,538,157 $ 14,810,238 $ 15,295,698
Investment in affiliates 1,075,294 941,477
Cash 321,727 568,899
Accounts Receivable 2,025 2,026
Organization Costs 65,000 72,800
----------------- -----------------
Total Assets $ 16,274,284 $ 16,880,900
================= =================
Liabilities
-----------
Accounts Payable $ 111,210 $ 48,547
Investment Advisory Fee Payable 78,738 77,110
Dividend Payable - 275,001
Note Payable 7,747,099 7,981,158
Escrow Funds 67,508 80,924
----------------- -----------------
Total Liabilities $ 8,004,555 $ 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 (1,111,229) (789,921)
Accumulated undistributed net realized gains net of distributions of
$578,097 and $578,097 796,207 611,696
Accumulated undistributed equity of subsidiary (198,578) (137,929)
Accumulated undistributed unrealized gain on investments 806,556 757,541
----------------- -----------------
Total Net Assets ($8.97 and $9.13 per share) 8,269,729 8,418,160
Total Liabilities & Net Assets $ 16,274,284 $ 16,880,900
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements
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<PAGE> 3
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three For the three For the three For the three
months ended months ended months ended months ended
March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 197,174 $ 46,758 $ 197,174 $ 46,758
Other Investment Income - 72,887 - 72,887
-------------- ------------- -------------- -------------
Total Investment Income 197,174 72887 72887
EXPENSES:
Investment advisory fee 239,093 59,306 239,093 59,306
Legal and Professional 34,609 - 34,609 -
Interest expense 170,665 - 170,665 -
Operating expense 74,115 112,391 74,115 112,391
-------------- ------------- -------------- -------------
Total Expenses 518,482 171,697 518,482 171,697
Net Investment Loss $ (321,308) $ (52,052) $ (321,308) $ (52,052)
-------------- ------------- -------------- -------------
Realized gain on sale of investments 35,000 316,573 35,000 316,573
Realized gain on collection of notes 149,511 - 149,511 -
Change in unrealized appreciation on
assets 49,015 (234,119) 49,015 (234,119)
Equity in earnings of affiliate (60,649) - (60,649) -
-------------- ------------- -------------- -------------
Net increase (decrease) in net assets
resulting from operations $ (148,431) $ 30,402 $ (148,431) $ 30,402
============== ============= ============== =============
</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 three For the three
months ended months ended months ended months ended
March 31, 1998 March 31, 1997 March 31, 1998 March 31, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations before distributions
Net investment loss (321,308) (52,052) (321,308) (52,052)
Net realized gain on sale of investments 35,000 316,573 35,000 316,573
Net realized gain on collections 149,511 - 149,511 -
Changes in unrealized appreciation on investments 49,015 (234,119) 49,015 (234,119)
Equity in earnings of affiliates (60,649) - (60,649) -
------------- ------------- ------------- -------------
Net increase in net assets from operations before
distributions (148,431) 30,402 (148,431) 30,402
Distribution to shareholders from
Net realized gain on investments: - (74,212) - (74,212)
------------- ------------- ------------- -------------
Total increase in net assets (148,431) (43,810) (148,431) (43,810)
Net assets, beginning of period 8,418,160 8,592,246 8,418,160 8,592,246
------------- ------------- ------------- -------------
Net assets, end of period 8,269,729 8,548,436 8,269,729 8,548,436
============= ============= ============= =============
Per Share Data
Investment income 0.21 0.14 0.21 0.14
Expenses (0.56) (0.19) (0.56) (0.19)
Net realized gain on sale of investments 0.04 0.34 0.04 0.34
Net realized gain on collection of notes 0.16 - 0.16 -
Equity in earnings of affiliate (0.06) - (0.06) -
Change in unrealized appreciation on assets 0.05 (0.25) 0.05 (0.25)
------------- ------------- ------------- -------------
Increase in net assets from operations before
distributions (0.16) 0.04 (0.16) 0.04
Distributions from realized gain on securities 0.00 (0.08) 0.00 (0.08)
------------- ------------- ------------- -------------
Net increase (decrease) in net asset value (0.16) (0.04) (0.16) (0.04)
Net asset value
Beginning of period 9.13 9.32 9.13 9.32
------------- ------------- ------------- -------------
End of period 8.97 9.28 8.97 9.28
============= ============= ============= =============
Ratio:
Expenses to Average Assets 6.21% 2.00% 6.21% 2.00%
Net Investment Income to Average Assets (3.85) -0.61% (3.86) -0.61%
</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 Three months For the Three months
ended March 31, 1998 ended March 31, 1997
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities
Increase (decreases) in net asserts from operations
before distributions $ (148,431) $ 30,402
Adjustments to reconcile increases in net assets from
operations before distributions to net cash provided
Amortization of organization costs 7,800 7,800
Change in unrealized appreciation on (49,015) 234,119
investments
Changes in other assets - 97,740
Equity in loss of affiliates 60,649 -
Changes in receivables 1 (21,759)
Changes in repurchase agreement - (3,713,501)
Changes in payables 64,291 226,460
Change in escrow (13,416) -
-------------------- --------------------
Net cash provided/usedby operating activities (78,121) (3,169,141)
Cash flow from investing activities
Purchase of securities and capital (523,701) (1,621,356)
expenditures
Sale of securities/principal collection on 1,076,218
securities/transfer to REO
Investment in affiliate (212,507)
-------------------- --------------------
Net cash provided/used by investing activities 340,010 (1,621,356)
Cash flow from financing activities
Change in note net (234,061) -
Dividends paid (275,001) -
-------------------- --------------------
Net cash used by financing activities (509,062)
Net decrease in cash and cash equivalents (247,172) (4,760,094)
Cash and cash equivalents at beginning of period 568,899 5,082,109
-------------------- --------------------
Cash and cash equivalents at end of period 321,727 322,015
==================== ====================
</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.
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.
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 the Fund's most recent annual report on Form 10-K. Interim
statements are subject to possible adjustments in connection with the
annual audit of the Fund. 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 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 has elected the special income
tax treatment available to "regulated investment companies" under
Subchapter M of the Internal Revenue Code. If the Fund
Page -6-
<PAGE> 7
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 (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 the Fund 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 - The Fund paid no dividends to
shareholders in respect of its operations during the first quarter of
1998, and none were declared.
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 (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 the Fund, subject
to the supervision and control of the Fund's Board of Trustees. Specifically,
the Adviser identifies, evaluates, structures, closes and monitors the
investments made by the Fund. The Agreement remains in effect until September
22, 1998. 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 the Fund (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 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 a vote of a majority of the outstanding voting
securities of the Fund. 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. The Fund will be required to pay its operating expenses
and reimburse the Adviser promptly for expenses that the Adviser may pay on the
Fund's behalf, except those specifically required to be borne by the Adviser
under the Agreement. Without limitation, the expenses to be borne by the Fund
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
Page -7-
<PAGE> 8
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 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 pays 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.
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.
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 March 31, 1998, 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 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. Quite often the sale of impaired loans in this
market offers creditors the only alternative to foreclosure.
5. INDEBTEDNESS
The Fund has an $8,000,000 line of credit with a Texas bank that is secured by
a first lien on all of the Fund's assets. As of March 31, 1998 the Fund had
borrowed $7,747,099 on the credit facility. As of May 11, 1998, the Fund 's
borrowings were $6,225,201. See the discussion regarding the Fund's borrowing
base set forth below under "Liquidity and Capital Resources."
Page -8-
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF LIQUIDITY, CAPITAL RESOURCES,
AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
As of March 31, 1998, Plymouth has $8,269,729 in net assets and had borrowed an
additional $7,747,099 on its credit line.
Plymouth's liquidity consists of its capital not invested in loans plus the
amount that is available on its line of credit with Comerica Bank, N.A. 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 the 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 spent on
present assets. Individual assets vary significantly, however, and it is
difficult to predict which assets will have to be held longer and which may be
liquidated sooner.
Plymouth is currently able to 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 May 4, 1998, Plymouth had the ability to
borrow an additional $291,000 (taking into account the $600,000 increase in the
borrowing base discussed in the next paragraph).
Plymouth purchased a majority of its current notes in October, 1997. As to
those assets, Plymouth's base dropped in April 1998. The borrowing base
decrease was mitigated by two factors: (i) improved collections in March and
April and (ii) a verbal agreement with Plymouth's lender to permit a temporary
$600,000 increase in the borrowing base. This increase will be stepped down
over time, and the bank expects Plymouth not to need the increase by the end of
July. While the higher borrowing base is in effect, Comerica will
participate in any new asset purchase decisions or advances on the line.
For Plymouth's need for the stepped up base to end in July 1998, as expected by
the lender, Plymouth must continue to achieve the collections it achieved in
March and April of 1998. If it fails to do so, it will need to negotiate a new
arrangement with its lender or face a liquidity problem. To avoid a repetition
of the problem, Plymouth plans to space out the purchases for its portfolio so
that major portions of it do not concurrently cross the borrowing base decline
threshold.
Management intends to try to smooth out its purchases to mitigate this problem.
Its ability to do so depends, in part, on whether suitable assets are available
for purchase when Plymouth is able to free up liquidity for new purchases. The
best long term solution for the problem is an increase in capital. With a
significant increase in capital, individual loan acquisitions would be a less
significant percentage of Plymouth's overall portfolio. A steady borrowing
base that does not decline with age, or that does not decline so rapidly, would
also mitigate the problem.
There are no material, unused sources of liquidity.
Page -9-
<PAGE> 10
Results of Operations
During the three month period ending March 31,1998, Plymouth purchased seven
additional loans with a cost of $516,902 and a total outstanding principal
balance of $670,427. Plymouth's per share value declined to $8.97 per share
from $9.13 at December 31,1997. The decline was due to a realized GAAP loss of
$136,797. Plymouth did not declare a dividend for the first quarter 1998 due
to a tax loss of $86,874 for that period.
During the three month period ending March 31,1998, Plymouth had gross
collections of $1,275,961. This included eight notes that settled or sold for
an average return on investment of roughly 35.50%. This return takes into the
account the original cost, gross collections, and direct expenses. It does not
include overhead such as the adviser fee and interest expense. The above gross
collections resulted in a GAAP realized loss of $136,797 for the three month
period. The loss was due to slow collections in January and February of
approximately $412,000. For those months, Plymouth posted a loss of
approximately $187,000. In March gross collections increased to $865,920, and
the fund posted approximately a $51,000 profit. In April gross collections
have continued to rise. When Plymouth is fully invested in notes, as it was at
the end of 1997 and throughout the first quarter of 1998, the fund needs to
have gross monthly collections of between $800,000 and $900,000 to be
profitable and maintain per share value, although increased costs could prevent
profitability even at that level.
Plymouth's asset value can be affected by adjustments to portfolio fair market
value by Plymouth's Board of Trustees. For the quarter ending March 31, 1998,
however, the Trustees' adjustments had a de minimis effect on the Company's
balance sheet.
By way of comparison, for the period ending March 31,1997, Plymouth realized a
GAAP gain of $264,521 as a result of low operational expenses and an
exceptional return on one asset with no cost assigned to it, while for the
period ending March 31, 1998, Plymouth realized a GAAP loss of $148,431.
Plymouth was newly formed in the fourth quarter of 1996 and Plymouth still had
significant uninvested capital in the first quarter of 1997, so operations in
that period do not provide a meaningful point of comparison with the operations
in the first quarter of 1998.
Plymouth is working to increase collections both through more aggressive
collection policies and through a more aggressive sales program. Plymouth is
presently developing an auction program through which it hopes to rapidly sell
its performing loans. Nevertheless, as a small fund Plymouth's income will
vary with the timing of collections. At such time as Plymouth can
significantly increase its capital, variations attributable to individual loans
will have less effect on overall operations.
PART II - OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
None.
Item 2: CHANGES IN SECURITIES
None.
None.
Item 3: DEFAULTS UPON SENIOR SECURITIES
None.
None.
Page -10-
<PAGE> 11
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5: OTHER INFORMATION
John Mosher, Vice President and Chief Financial Officer, resigned
from both Plymouth and its adviser effective March 20, 1998. The
Company does not expect his departure will have a material effect on
operations. Greystone Advisers, Inc. has reallocated his
responsibilities among other employees and does not plan to replace
him at this time.
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(1)
(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 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 (1)
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.
- -------------------------
(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 -11-
<PAGE> 12
PLYMOUTH COMMERCIAL MORTGAGE FUND
May 14, 1998 /s/ Robert R. Swendson
----------------------------------------------
Robert R. Swendson, President and
Chief Executive Officer
May 14, 1998 /s/ Patrick J. Panzarella
----------------------------------------------
Patrick J. Panzarella, Chief Financial Officer
(Principal Financial Officer)
Page -12-
<PAGE> 1
PLYMOUTH COMMERCIAL MORTGAGE FUND
INVESTMENT ADVISORY AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT is entered into between Plymouth Commercial Mortgage Fund, a
Delaware business trust (the "Company"), and Greystone Advisers, Inc., a
Delaware corporation (the "Adviser").
1. PURPOSE OF THE COMPANY. The Company is a closed-end management investment
company that will elect to be regulated as a business development company under
the Investment Company Act of 1940, as amended (the "1940 Act").
2. THE INVESTMENT ADVISER. The Adviser is registered as an investment adviser
with the U.S. Securities and Exchange Commission (the "SEC") under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and has
entered into this Agreement with the Company to act as its investment adviser
on the terms set forth herein.
3. OBLIGATIONS OF THE ADVISER. The Company hereby engages the Adviser's
services as the Company's investment adviser. As such, the Adviser will:
(a) advise the Company as to the acquisition and disposition of
securities, loans, real estate interests and other assets in
accordance with the Company's investment policies;
(b) assist the Company in making available and, if requested by
entities in which the Company has invested or is proposing to
invest, in rendering managerial assistance to such entities;
(c) provide to the Company, to the extent required, office space
and facilities and the services of the Adviser's officers and
employees;
(d) maintain the Company's books of account and other records and
files;
(e) report to the Company's Board of Trustees (the "Board"), or to
any committee thereof or officer of the Company acting
pursuant to the authority of the Board, at such times and in
such detail as the Board deems appropriate in order to enable
the Company to determine that its investment policies are
being observed and implemented and that the Adviser's
obligations hereunder are being fulfilled. Any investment
program undertaken by the Adviser pursuant hereto and any
other activities undertaken by the Adviser on the Company's
behalf shall at all times be subject to any directives of the
Board or any duly constituted committee thereof or officer of
the Company acting pursuant to authority of the Board;
(f) subject to the Company's investment policies and any specific
directives from the Board, effect acquisitions and
dispositions for the Company's account in the Adviser's
discretion and to arrange for the documents evidencing
securities, loans, real estate interests and other assets
acquired on behalf of the Company to be delivered to a
custodian of the Company;
(g) on a continuing basis, monitor, manage and service the
Company's loan portfolio and other investments; and
(h) comply with all applicable rules and regulations of the SEC
and, in addition, conduct its activities under this Agreement
in accordance with other applicable law.
Page -13-
<PAGE> 2
(g) service the assets owned by the Company and, in connection
therewith, do all things necessary or convenient to resolve
debts owed by portfolio debtors including but not limited to
negotiating with debtors, arranging renewals and restructures
of debts, foreclosing, and pursuing collection actions.
4. STATUS OF THE ADVISER. For a period of two years after the completion of
the sale by Plymouth of newly issues common shares of beneficial interest for
cash pursuant to an offering to be commenced in or about October 1996, the
services of the Adviser to the Company with regard to advice on new loan
package purchases are to be deemed exclusive, and the Adviser shall not be free
to render similar services to others. After this period, the services of the
Adviser to the Company are not to be deemed exclusive, and the Adviser shall be
free to render similar services to others so long as its services to the
Company are not impaired thereby. The Adviser shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Company in any way or
otherwise be deemed an agent of the Company. To the extent that the purchase
or sale of securities or other investments of any issuer may be deemed by the
Adviser, and to the extent permitted by applicable law, to be suitable for two
or more accounts managed by the Adviser, the available securities or
investments may be allocated in a manner believed by the Adviser to be
equitable to each account. It is recognized that in some cases this may
adversely affect the price paid or received by the Company or the size or
position obtainable for or disposed of by the Company.
5. EXPENSES TO BE PAID BY THE ADVISER. The Adviser shall pay all expenses
incurred by it in rendering the services to be rendered by the Adviser
hereunder. Generally, and except as may otherwise be specified in this
Agreement, these expenses include the cost of office space, telephone service,
equipment and personnel required to perform its obligations under this
Agreement. Without limiting the generality of the foregoing, the Adviser will
pay the salaries and other employee benefits of the persons in its organization
whom the Adviser may engage to render such services, including without
limitation persons who may from time to time act as the Company's officers.
Notwithstanding the foregoing, the Board may, in its sole discretion, award to
such officers options to acquire shares of beneficial interest in the Company,
which options shall not be deemed part of their salaries or other employee
benefits for the purpose of this paragraph.
6. EXPENSES TO BE PAID BY THE COMPANY. In general, the Company shall pay all
of its operating expenses and reimburse the Adviser promptly for expenses which
the Adviser may pay on the Company's behalf, except those specifically required
to be borne by the Adviser under this Agreement. Expenses borne by the Company
include but are not limited to:
(a) all expenses of any offering and sale by the Company of its
shares, including promotional expenses;
(b) fees and disbursements of the Company's outside legal counsel
and accountants and the custodian of its investments;
(c) fees and expenses incurred in producing and effecting filings
with federal and state securities administrators;
(d) costs of the Company's periodic reports to (and other
communications with) shareholders;
(e) fees and expenses of members of the Board who are not
directors, officers or employees of the Adviser;
Page -14-
<PAGE> 3
(f) premiums for the fidelity bond maintained by the Company;
(g) 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
(h) all expenses related to any borrowings by the Company.
7. COMPENSATION TO THE ADVISER. During the term of this Agreement, the
Company 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 Company'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 Company'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. Such values shall
be established using generally accepted accounting principles ("GAAP"). The
fee paid on a monthly basis will be ratified on a quarterly basis by the Board.
8. CERTAIN RECORDS. The Adviser shall keep and maintain all books and records
with respect to the Company's portfolio transactions required by Rule 31a-1
under the 1940 Act and shall render to the Board such periodic and special
reports as the Board may reasonably request. The Adviser shall also furnish to
the Company any other information that is required to be filed by the Company
with the SEC or sent to shareholders under the 1940 Act (including rules
adopted thereunder) or any exemptive or other relief that the Adviser or the
Company obtains from the SEC. The Adviser agrees that the records that it
maintains on behalf of the Company are the property of the Company and the
Adviser will surrender promptly to the Company any of such records upon the
Company's request; provided, however, that the Adviser may retain a copy of
such records. In addition, for the duration of this Agreement, the Adviser
shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any
such records as are required to be maintained by it pursuant to this Agreement,
and shall transfer said records to any successor investment adviser upon the
termination of this Agreement (or, if there is no successor investment adviser,
to the Company.)
9. LIABILITY OF THE ADVISER AND INDEMNIFICATION. The duties of the Adviser
shall be confined to those expressly set forth herein, and no implied duties
are assumed by or may be asserted against the Adviser hereunder. The Adviser
may rely on information reasonably believed by it to be accurate and reliable.
The Adviser shall not be liable to the Company or to any shareholder of the
Company for any error of judgment or mistake of law or for any loss arising out
of any investment or for any act or omission in carrying out its duties
hereunder, except:
(a) for a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by
reason of reckless disregard of its obligations and duties
hereunder, except
Page -15-
<PAGE> 4
as may otherwise be provided under provisions of applicable
state law which cannot be waived or modified hereby;
(b) to the extent specified in Section 36(b) of the 1940 Act
concerning losses resulting from a breach of fiduciary duty
with respect to the Adviser's receipt of compensation; and
(c) for a loss resulting from any breach of any representation and
warranty of the Adviser contained in this Agreement.
In the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the Adviser, to the
fullest extent permitted by applicable law, the Company hereby agrees to
indemnify and hold the Adviser harmless from and against all claims, actions,
suits and proceedings at law or in equity, whether brought or asserted by a
private party or a governmental agency, instrumentality or entity of any kind,
relating to the sale, purchase, pledge of, advertisement of, or solicitation of
sales or purchases of any security (whether of the Company or otherwise) by the
Company, its officers, trustees, employees or agents in alleged violation of
applicable federal, state or foreign laws, rules or regulations.
As used in this Section 9, the term "Adviser" shall include any affiliates of
the Adviser performing services for the Company contemplated hereby and the
directors, officers, employees and other corporate agents of the Adviser and
such affiliates.
10. APPROVAL OF THE AGREEMENT. The Company represents that: (a) the terms of
this Agreement were approved by the Board, including a majority of its members
casting their votes in person who are not "interested persons" of the Company,
at a meeting held on January 26, 1998; and (b) this Agreement was approved by
the "vote of a majority of the outstanding voting securities" (as defined in
Section 2(a)(42) of the 1940 Act) of the Company, at a meeting held on
_________________________. This Agreement shall continue in effect from year
to year as long as such continuance is specifically approved at least annually
by the Board, including a majority of its members casting their votes in person
who are not "interested persons" of the Company 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 Company.
11. TERMINATION OF THE AGREEMENT. The foregoing notwithstanding, this
Agreement may be terminated by the Company at any time, without payment of any
penalty, on sixty (60) days' written notice to the Adviser if the decision to
terminate has been made by the Board or by "vote of a majority of the
outstanding voting securities" of the Company. This Agreement will terminate
automatically in the event of its "assignment" (as defined in Section 2(a)(4)
of the 1940 Act). The Adviser may also terminate this Agreement on sixty (60)
days' written notice to the Company; provided, however, that the Adviser may
not terminate this Agreement unless: (a) the terms of a new investment advisory
agreement with the Adviser or another investment adviser have been approved by
the Board, including a majority of its members casting their votes in person
who are not parties to such agreement or "interested persons" of any such
party, at a meeting called for the purpose of voting on such approval; and (b)
such new investment advisory agreement has been approved by the "vote of a
majority of the outstanding voting securities" of the Company.
12. JURISDICTION. This Agreement shall be governed by the laws of the State
of Texas.
13. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
-oo0oo-
Page -16-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement to be effective as
of the ______ day of April, 1998.
PLYMOUTH COMMERCIAL MORTGAGE FUND GREYSTONE ADVISERS, INC.
By: /s/ Larry D. Krause By: /s/ Kenneth L. Bennight, Jr.
----------------------------- ----------------------------
Name: Larry D. Krause Name: Kenneth L. Bennight, Jr.
Title: Senior Vice President Title: Secretary, General Counsel
By: /s/ Ted J. Hanes
-----------------------------
Name: Ted J. Hanes
Title: Vice President Portfolio
Management
Page -17-
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
registrant's Statement of Assets and Liabilities as of March 31, 1998.
unaudited), and Statement of Operations, Statement of Changes in Net Assets, and
Statement of Cash Flows for the period ended March 31, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 14,003,682
<INVESTMENTS-AT-VALUE> 14,810,238
<RECEIVABLES> 2,025
<ASSETS-OTHER> 65,000
<OTHER-ITEMS-ASSETS> 1,390,021
<TOTAL-ASSETS> 16,274,284
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 7,747,099
<OTHER-ITEMS-LIABILITIES> 257,456
<TOTAL-LIABILITIES> 8,044,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,976,773
<SHARES-COMMON-STOCK> 921,627
<SHARES-COMMON-PRIOR> 921,627
<ACCUMULATED-NII-CURRENT> (1,111,229)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 796,207
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 607,978
<NET-ASSETS> 8,269,729
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 197,174
<OTHER-INCOME> 0
<EXPENSES-NET> 518,482
<NET-INVESTMENT-INCOME> (321,308)
<REALIZED-GAINS-CURRENT> 184,511
<APPREC-INCREASE-CURRENT> (11,634)
<NET-CHANGE-FROM-OPS> (148,431)
<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> (148,431)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 239,093
<INTEREST-EXPENSE> 170,665
<GROSS-EXPENSE> 518,482
<AVERAGE-NET-ASSETS> 8,357,444
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> (.35)
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> .06
<AVG-DEBT-OUTSTANDING> 7,864,128
<AVG-DEBT-PER-SHARE> 8.53
</TABLE>
