<PAGE> 1
As filed with the Securities and Exchange Commission on March 29, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
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 (I.R.S. Employer
incorporation or organization) Identification No.)
C/O GREYSTONE ADVISERS, INC.,
13333 BLANCO ROAD, SUITE 314,
SAN ANTONIO, TEXAS78216-7756 78216-7756
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code:
210-493-3971
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of each exchange on which registered
(NONE) (NOT APPLICABLE)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
SHARES OF BENEFICIAL INTEREST, NO PAR VALUE
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
There is currently no market for the registrant's shares of beneficial interest.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 29, 1999, was $5,761,608, based upon the price at which
the stock was sold. The number of shares outstanding on March 29, 1999 was
921,627.
Documents Incorporated by Reference: None
<PAGE> 2
PART I
ITEM 1. BUSINESS.
THE COMPANY
ORGANIZATION
Plymouth Commercial Mortgage Fund (the "Company" or "Plymouth") is a closed-end
management investment company that was organized as a Delaware business trust
and began operating on September 27, 1996. The Company has elected to be
regulated as a business development company ("BDC") under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Company may not change the nature
of its business so as to cease to be a BDC unless authorized by "the vote of a
majority of its outstanding voting securities" as defined in the 1940 Act.
Plymouth began operating on September 27, 1996 by acquiring all of the interests
of SWF 1995 Limited Partnership, a Texas limited partnership ("SWF-95"), through
an offer made to SWF-95's investors to exchange their equity and subordinated
debt interests for cash or equity in Plymouth. After consummating this
transaction, Plymouth's net asset value was $2,246,456 and the Company had
issued and outstanding 221,627 common shares of beneficial interest ("Shares").
SWF-95 was subsequently dissolved. Its assets are now held directly either by
the Company or by Plymouth REO, Inc., a Delaware corporation and a wholly owned
subsidiary of Plymouth. The Company successfully closed an offering of
additional Shares on December 26, 1996, raising a gross amount, before offering
costs, of $7,000,000 cash. After the offering a total of 921,627 Shares were
issued and outstanding.
BUSINESS
The Company's investment objective is to achieve a high level of current income
and capital gains by acquiring, restructuring and collecting "impaired loans"
primarily made to small businesses and secured by commercial real estate. Except
for short periods of time in which Plymouth is investing newly acquired capital,
the Company expects to maintain at least 65% of the value of its total assets
invested in impaired commercial mortgages. Plymouth cannot change its investment
objective without the approval of the board of trustees or unless authorized by
"the vote of a majority of its outstanding voting securities" as defined in the
1940 Act.
A loan is generally considered impaired when, based on current information and
events, it is probable that a creditor will not be able to collect all amounts
due according to the contractual terms of the loan. While different types of
impaired loans are available for purchase, Plymouth concentrates on purchasing
loans secured by commercial real estate. These loans are typically offered to
buyers by financial institutions and intermediaries in packages containing
multiple loans where the cost can exceed $1 million per package. Quite often
this market for impaired loans offers banks the only alternative to foreclosure.
Plymouth purchases the loan packages for an amount less than the contractual
principal and interest balance. The Company then attempts to recover more than
it paid for the loans through several resolution strategies including revising
the payment terms, encouraging the borrower to refinance the loan by offering to
forgive indebtedness, selling loans to third parties, or foreclosing on the
loan's collateral and selling it (this process is known as "resolving"). The
Company does not typically hold loans until maturity. Instead, it focuses on
maximizing its rate of return per loan and may hold an individual loan for only
a short period of time.
Once a loan package is purchased, Plymouth contacts the borrowers to begin the
collection process. If a borrower is able to repay or refinance the loan, then a
payoff amount is negotiated that may represent a discount to the contractual
outstanding loan balance but which is typically more than Plymouth paid for the
loan. Alternatively, if the borrower is not able to immediately repay the
reduced amount, Plymouth will attempt to restructure the loan in such a way that
the borrower can begin making monthly payments of principal and interest. Once a
loan is restructured and the borrower has established a history of regular
payments, the Company will assist the borrower to find permanent financing or
will sell the loan to a third party. In the event repayment or restructuring of
the loan is not possible, Plymouth employs all means legally available,
including action against the borrowers and foreclosing and selling a loan's
collateral, to maximize its return on investment.
<PAGE> 3
MANAGERIAL ASSISTANCE
The 1940 Act requires a BDC to generally "make available significant managerial
assistance" to the issuers of such securities as a BDC may invest in. In this
regard, the 1940 Act defines "making available significant managerial
assistance" as "any arrangement whereby a [BDC], through its directors,
officers, employees, or general partners, offers to provide, and, if accepted,
does so provide, significant guidance and counsel concerning the management,
operations, or business objectives and policies of a portfolio company"
Upon acquiring a new note, Plymouth contacts the management of the small
business and offers assistance that, among other things, includes restructuring
the loan to meet the borrower's ability to pay, analyzing a borrower's financial
statements, and helping the borrower locate a third-party lender and acquire
permanent financing.
SOURCES FOR THE ACQUISITION OF LOANS
The loan packages in which the Company invests typically are offered to buyers
nationwide through either private offerings or sealed-bid auctions typically on
an "as-is, where-is" basis. Sellers include entities such as the Federal Deposit
Insurance Corporation, banks, savings and loans, insurance companies and other
institutions. If the Company purchases a loan through an intermediary, the
intermediary is typically compensated by the seller of the loan.
Through previous business activity, the employees of the Adviser have developed
long-standing relationships with a large number of sellers of impaired loans and
intermediaries in various states who may or may not have a contractual
relationship with the Adviser. Any loan offered for sale to the Company is
evaluated by the Adviser using objectives established by the Company's board of
trustees (the "Board of Trustees").
TEMPORARY INVESTMENTS
Because Plymouth cannot control the timing or the outcome of loan auctions, the
Company may have uninvested cash from time to time. The Company invests such
cash in high-grade short-term debt securities which may be issued or guaranteed
by the U.S. government or U.S. government agencies. The Company follows policies
for investment of uninvested cash that emphasize low risk and short-term
maturities.
BORROWINGS
To take advantage of the difference between favorable interest rates available
from lenders and the expected rates of return from purchased loans, the Company
has established a line of credit with a commercial bank (the "Credit Facility").
Such borrowing by the Company combined with any other senior security
representing indebtedness will not exceed the maximum amount permitted by the
1940 Act for a BDC. See "BDC Regulation"
As of December 31, 1998, the Credit Facility had a borrowing ceiling of
$8,000,000 and the Company had borrowed $4,448,795. The company had borrowed
$7,981,158 at the end of 1997. The Credit Facility is secured by a perfected
first security interest in substantially all of the Company's assets. The line
originally expired on September 27, 1998. It was first extended to January 15,
1999 and now has been extended to July 15, 1999. The terms of the Credit
Facility are as they were previously except for a change to the interest rate.
The interest rate is now calculated as follows:
<TABLE>
<CAPTION>
Interest Coverage Ratio Prime Rate +
<S> <C>
less than 3.49X 1%
3.50 to 3.99X .5%
Greater than 4.0X .25%
</TABLE>
The interest coverage ratio is the ratio between income and interest expense.
The rate fluctuates in accordance with the above table on a quarterly basis. The
rate for the first quarter of 1999 was prime (7.25%) plus 1%, which is 8.25%
Management is considering negotiating with other lenders to find a more flexible
borrowing base.
<PAGE> 4
The interest rate charged by the bank for 1998 was based upon average borrowings
under this facility. For borrowings of up to $2.5 million for the previous
quarter, the interest rate on the Credit Facility was prime plus 1.5%; for
average borrowings of between $2.5 million and $5.0 million for the previous
quarter, the interest rate was prime plus 1.0%; and for average borrowings of
more than $5.0 million for the previous quarter, the interest rate was prime
plus .05%. At 1998 fiscal year end, the bank's prime rate was 7.75%. Adding the
one percent to the top of that brings the rate up to 8.75%. A variable rate
based on the London Interbank Offered Rate is also available. Terms of the
Credit Facility include periodic third-party auditing, a lock box for receipt of
payments, custody by a third-party custodian of primary collateral, certain
other fee payments, and loan covenants that require the Company to meet various
requirements that may be difficult to maintain at all times.
The Company may initially borrow up to 60% of the net cost of each new loan that
is purchased. This advance percentage, however, is reduced to a lower percentage
as the amount of time that Plymouth has held the loan increases. The schedule
below describes how the advance rate declines:
<TABLE>
<CAPTION>
Number of Months Maximum Advance
Plymouth has held the loan (lesser of net cost or fair value)
<S> <C>
0 to 6 60%
6 to 9 48%
9 to 12 45%
12 to 15 42%
15 to 18 32%
18 to 21 24%
21 to 24 18%
after 24 0%
</TABLE>
Plymouth's borrowing availability is determined by multiplying the net cost of
an individual loan by the applicable percentage listed above. Net cost is
determined by subtracting from Plymouth's original cost certain payments
received by Plymouth from the borrower. Because the percentage of net cost that
the bank is willing to advance declines over time, the Company may not be able
to borrow $8,000,000 on the Credit Facility at any given time. Additionally,
should Plymouth choose to borrow the maximum available to it, the Company would
be required to make collections of a certain amount within a short time period
to comply with the Credit Facility's provisions.
All advances under the Credit Facility are subject to the lender's discretion
and continued satisfaction with the Company's business and financial condition
and operations. The Credit Facility includes several other affirmative and
negative covenants with which the Company is complying. In the beginning of
1998, the Company did not meet the interest coverage ratio, but the bank waived
the non-compliance and all covenants were met by year-end. In 1999, depending on
collections, Plymouth may find it difficult to meet all loan covenants.
INVESTMENT ADVISER
Subject to the terms of an investment advisory agreement (the "Agreement") and
the supervision and control of its Board of Trustees, the investments of the
Company are directed by Greystone Advisers, Inc. (the "Adviser"). The Adviser is
located at 13333 Blanco Road, Suite 314, San Antonio, Texas 78216-7756. In 1996
the Adviser was federally registered. Because the Adviser does not manage at
least $25,000,000 in assets, it was forced to withdraw its federal registration
in July 1997. The Adviser is currently relying on an exemption from Texas
registration requirements.
INVESTMENT ADVISORY AGREEMENT. Pursuant to the Agreement, the Adviser directs
the investments of the Company. Specifically, the Adviser identifies, evaluates,
resolves and monitors the investments of the Company. The current agreement is
in effect until January 22, 2000 and may be extended after this as long as it is
approved at least annually by the Board of Trustees, including a majority of the
Trustees who are not "interested persons" of the Company within the meaning of
the 1940 Act.
<PAGE> 5
Under the Agreement, the Adviser is required to pay for such basic services as
it needs to effectively satisfy its obligations. These include the cost of
office space, telephone, equipment and personnel. The Company is required to pay
those expenses which directly relate to its activities. These include all
expenses of any offering and sale by the Company of its Shares; fees and
disbursements of the Company's outside legal counsel, accountants and custodian;
fees and expenses incurred in effecting filings with federal and state
securities administrators; costs of the Company's periodic reports and other
communications to Shareholders; fees and expenses of members of the Company's
Board of Trustees who are not directors, officers or employees of the Adviser;
premiums for the fidelity bond maintained by the Company; and all costs related
to portfolio investments including, without limitation, financing costs, legal
and accounting fees and other professional or technical fees and expenses (i.e.,
credit reports, title searches, 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, maintaining, working-out, and
effecting the disposition of such investments, as well as responding to any
litigation arising therefrom.
Pursuant to the Agreement, the Company pays the Adviser a monthly management fee
which is based on end-of-month asset values, payable on the 15th day of the
following month, and is calculated at the annual rate of 5.94% of the Company's
"invested assets" including those assets purchased with borrowed capital, and
0.48% of its cash and short-term investments. The value of the Company's
"invested assets" is established by the Board of Trustees in good faith and
using their best judgment. For purposes of calculating the fee at the end of a
month that is not also the end of a calendar quarter, the value of "invested
assets" that the Board of Trustees previously established is reduced by 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 items since the end of the previous quarter. Events that would
negatively affect the previous value of an impaired loan are also taken into
consideration in calculating the management fee.
The percentage of assets being charged by the Adviser as a management fee is
substantially higher than that paid by most investment companies because of the
additional efforts and resources associated with identifying, evaluating,
purchasing, renegotiating and collecting impaired loans.
OPERATIONS. The Adviser's personnel have had significant experience purchasing
and resolving impaired loans. Most of this experience was derived through work
for SouthWest Federated, Inc., a Texas corporation ("SWFI"). Most of the
Adviser's employees previously worked for SWFI and two individuals, Robert R.
Swendson, the Adviser's President, and Larry D. Krause, the Adviser's Senior
Vice President and Controller, helped found SWFI.
From 1989 to 1996, SWFI invested approximately $20 million to purchase more than
$180 million in impaired commercial mortgages and consumer loans (outstanding
principal balance at the time of purchase). SWFI made these investments as the
general partner for several limited partnerships and for its own account. Robert
Swendson, the President of the Adviser and SWFI, attributes SWFI's success to
thorough due diligence prior to making a bid, experienced and patient
negotiations with borrowers, and a focus on generating high investor returns.
The Adviser currently assists SWFI to resolve those loans that remain under its
management.
OWNERSHIP. All of the shares of the Adviser's outstanding stock are owned by
Robert R. Swendson, who also serves as a trustee and as President of Plymouth.
The Adviser has not issued any options, warrants or convertible equity
securities of any nature.
VALUATION PROCEDURES
There is no publicly quoted market for the Company's impaired loan portfolio. As
such, the fair value of the portfolio is established by the Board of Trustees in
good faith and using their best judgment. Such values are based upon what the
Board believes the Company could reasonably expect to receive for each impaired
loan in an orderly disposition over a reasonable time period. For the first six
months after acquisition the value of an impaired loan is typically its assigned
cost unless some event occurs with respect to the borrower that warrants an
upward or downward change in its value as an asset of the Company.
In establishing the fair value of a loan, the Board considers factors 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
<PAGE> 6
the borrower will begin or stop making payments, the value of the collateral and
the guarantees securing the loans, the Company'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.
Moreover, because the majority of the Company's impaired loans are delinquent,
no assurance can be given that the Company will be able to recover the fair
value that the Board has established. The Company's impaired loans are not
typically backed by any government guarantee or private credit enhancement. In
many cases, the Company 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
Company and third parties.
BDC REGULATION
Being regulated as a BDC imposes certain limitations upon the operations of the
Company. In general, a BDC must be operated for the purpose of making
investments in certain types of securities ("Qualifying Assets"). A BDC may not
acquire any investment asset other than Qualifying Assets unless, at the time
the acquisition is made, Qualifying Assets represent at least 70% of the value
of the BDC's total investment assets (the "70% Test"). For purposes of meeting
the 70% Test, Qualifying Assets generally include cash, cash items, U.S.
Government securities, high quality debt securities maturing in one year or less
from the time of investment, and securities issued by an "eligible portfolio
company."
An "eligible portfolio company" is defined in the 1940 Act as any issuer that:
(a) is organized under the laws of, and has its principal place of business in,
any state or states or any possession or possessions of the United States; (b)
is neither an investment company (other than a "small business investment
company" which is licensed by the U.S. Small Business Administration and wholly
owned by the BDC) nor a company excluded from the definition of "investment
company" in the 1940 Act; and (c) does not have any class of securities with
respect to which a member of a national securities exchange, broker, or dealer
may extend or maintain margin credit to or for a customer (e.g., publicly traded
securities).
To treat the securities of an eligible portfolio company as Qualifying Assets
for the purpose of the 70% Test, a BDC must ordinarily "make available
managerial assistance" with respect to the issuer of those securities. This
means, among other things, any arrangement whereby the BDC, through its
directors (e.g., Trustees), officers or employees, offers to provide and, if
accepted, does so provide significant guidance and counsel concerning the
management, operations, or business objectives and policies of a portfolio
company (see managerial assistance). The Company has received a response from
the Office of the Chief Counsel, Division of Investment Management, of the
Securities and Exchange Commission that allows Plymouth to treat as Qualifying
Assets those assets which the Company acquires from third parties and works with
the borrower to restructure or refinance.
APPLICATION FOR A NO-ACTION LETTER. Plymouth found it difficult to maintain the
70% Test described above because the definition of "eligible portfolio company"
appeared to exclude loans with makers that are natural persons. Such loans
exceed 30% of the secondary market for commercial loans and loans in this market
are typically sold in packages that are not segregated by type of maker.
Plymouth went through a lengthy process seeking relief from this problem and, on
July 8, 1998, it received a "No-Action" letter permitting it to treat as
"eligible portfolio loans" all loans made for a commercial purpose even if the
obligor is an individual.
FEDERAL TAX RULES
Subchapter M of the Internal Revenue Code also regulates the activities of a
BDC. In order to qualify, the Company must, among other things: (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
gains from the sale of stock or securities, or other income derived with respect
to its business of investing in such stock or securities and (b) diversify its
holdings so that at the end of each quarter of the taxable year (i) at least 50%
of the value of the Company's assets consists of cash, cash items, U.S.
government securities and other securities if such other securities of any one
issuer do not represent more than 5% of the Company's assets or 10% of the
outstanding voting securities of the issuer, and (ii) no more than 25% of the
value of the Company's assets is invested in the securities of one issuer (other
than U.S. government securities and securities of other regulated investment
companies) or of two or more issuers that are controlled (as determined under
applicable Code rules) by the Company and are engaged in the same or similar
trades or businesses.
<PAGE> 7
In addition to asset and income qualifications, a BDC is restricted as to the
amount of leverage that it can incur. Generally, a BDC may not issue any class
of senior security representing an indebtedness unless, immediately after such
issuance or sale, it will have an asset coverage of at least 200%. "Asset
coverage" of a class of senior security representing an indebtedness of an
issuer means the ratio that the value of the total assets of such issuer, less
all liabilities and indebtedness not represented by senior securities, bears to
the aggregate amount of senior securities representing indebtedness of such
issuer. At the end of 1998 the asset coverage ratio was 234%.
Having elected to be regulated as a BDC, the Company may not change the nature
of its business so as to cease to be, or withdraw its election as, a BDC unless
authorized by "the vote of a majority of its outstanding voting securities" the
1940 Act. The Company is, however, in the process of preparing a proposal for
the Board of Trustees to present to the shareholders to drop BDC status. The
exact form that the company would thereafter assume is as of yet undetermined
and is the subject of the proposal being developed.
EMPLOYEES AND OFFICERS
The Company has no employees. All the officers are employed by, and receive
their compensation from, the Adviser. Each of the following persons has been
duly elected to and now holds the office or offices of the Company set forth
opposite his or her name.
<TABLE>
<CAPTION>
Name Position with Company Age Principal Occupations
During Past 5 Years
<S> <C> <C> <C>
Robert R. Swendson Trustee, President, and Chief Executive 56 From 1989 to 1995, Mr. Swendson was employed
Officer (appointed September 3, 1996) by SWFI as its President and Chief Executive
Officer. Mr. Swendson is the Adviser's sole
shareholder, its President and its Chief
Executive Officer.
Larry D. Krause Senior Vice President (appointed 50 From its founding in 1989 until 1996, Mr.
September 3, 1996) Krause served as the controller for SWFI and
as one of its Vice Presidents.
Kenneth L. Bennight, Jr. Secretary (appointed September 3, 1996) 51 Mr. Bennight provided legal assistance
part-time for SWFI from 1994 through 1996.
He began full time employment in December
1996. From 1991 to 1996, Mr. Bennight
practiced law as a sole practitioner in San
Antonio, Texas.
Patrick J. Panzarella, CPA Vice President, Chief Financial Officer 31 From 1994, Mr. Panzarella, a certified
(appointed January 26, 1998) public accountant, was employed by the
public accounting firm of Sol Schwartz &
Associates as a tax supervisor. Prior to
that, he was a tax senior at the public
accounting firm of Boldt and Boldt.
</TABLE>
In 1998, John Mosher and Ted Hanes announced their resignations as executive
officers of the Company and the Adviser. Neither the Company nor the Adviser has
hired a replacement for either of them. Their responsibilities were reallocated
among remaining personnel, and no adverse effect occurred in connection with
their departure.
ADDITIONAL MATTERS
COMPETITION
The Company competes with many different companies for its impaired loans.
Sources of competition include private investors, banks and thrifts, investment
bankers, and venture capital funds. Many of these sources have substantially
greater financial resources and lower costs of capital than the Company has
available to it. The number and quality of competitors
<PAGE> 8
for any one loan package changes dramatically depending upon circumstances
unique to the package. Typically competition is based solely on price and the
ability to pay cash. Therefore to achieve its investment goals, the Company has
to rely upon the Adviser's ability to review a significant amount of impaired
loan offerings and to be able to properly bid on the offerings.
ANNUAL SHAREHOLDERS' MEETING. The 1999 Annual Shareholders' Meeting has not yet
been scheduled. Before scheduling it, management and the Trustees hope to have
ready a proposal to drop BDC status.
ITEM 2. PROPERTIES.
Except for certain foreclosed-upon properties that may be held by a subsidiary
of Plymouth, the Company does not own or lease any physical properties or other
tangible assets. Its business premises are furnished to it by the Adviser.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1998, the Company was a party to a suit entitled and numbered
Whitney Financial Corporation and Whitney Holdings Limited Liability Company on
their own behalf and as derivative plaintiffs on behalf of SouthWest Federated,
Inc. and/or SouthWest Federated Holding Company v. Robert R. Swendson, Goodhue
W. Smith, III, Duncan-Smith Co., Greystone Advisers, Inc., Plymouth Commercial
Mortgage Fund, SouthWest Federated, Inc., SouthWest Federated Holding Company,
SouthWest Federated Portfolio Limited Partnership, and SouthWest Federated
Servicing Limited Partnership, Cause Number 98-CI-15256, 131st Judicial District
Court, Bexar County, Texas. In January 1999 that suit was dismissed with
prejudice with no loss to the Company.
The Company is not presently a party to, nor is any of its property the subject
of, any other material pending legal proceedings other than ordinary routine
proceedings incidental to the business of the Company. Such routine proceedings
primarily consist of foreclosure actions brought by the Company to realize value
from its security interests in real property and other collateral underlying its
portfolio loans. To the best knowledge of the management of the Company, there
are no material legal proceedings contemplated or threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted for the vote of Plymouth's Shareholders during the
fourth quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET INFORMATION
There is no established public trading market for the Company's common shares of
beneficial interest (the "Shares"). The Shares are not listed on the NASDAQ
Stock Market or any national securities exchange, and the Company has no present
intention to seek any such listing.
HOLDERS
On March 20, 1999 the Company had 67 Shareholders of record.
DIVIDENDS
Pursuant to the stated objective of making quarterly distributions of the
Company's net income, Plymouth made the following dividends for 1998 and 1997:
<TABLE>
<CAPTION>
FY 1998 FY 1997
------------------ ------------------
<S> <C> <C>
1st quarter $0 $74,213 ($0.08 per share)
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
2nd quarter $0 $6,176 ($0.01 per share)
3rd quarter $506,894 (.55 per share) $153,207 ($0.16 per share)
4th quarter $525,813 (.57 per share) $275,001 ($0.30 per share)
------------------ ------------------
$1,032,707 $508,597
================== ==================
</TABLE>
The Company made one dividend distribution during the 1996 fiscal year of
$69,501 ($0.31 per share).
The Company intends to distribute substantially all of its annual net income as
calculated for federal income tax purposes. Shareholder distributions are
expected to be made in the month following the end of each calendar quarter.
Subject to declaration by the Board of Trustees, the Company intends to make
distributions on a quarterly basis according to the following schedule: 25% of
its net income for the first quarter; 50% of its net income for the first six
months of each year less the previous distribution; 75% of its net income for
the first nine months of each year less both previous distributions; and 100% of
its net income for each year less all previous distributions.
SALES OF UNREGISTERED SECURITIES
The following transactions involved the offering of Shares pursuant to the
private placement exemption available under section 4(2) of the Securities Act.
All the Shares issued thereby are considered restricted securities. They are not
listed on the NASDAQ Stock Market or any national securities exchange. There is
no market for these Shares nor is a market expected to develop.
On September 3, 1996, the Company sold 50 Shares to Robert R. Swendson for
aggregate proceeds to the Company of $500 ($10.00 per Share). Mr. Swendson is
the President and Chief Executive Officer of the Company and an "accredited
investors" within the meaning of Rule 501(a) under the Securities Act.
On September 27, 1996 the Company issued and sold 221,577 Shares in exchange for
outstanding securities of and other interests in SWF-95 held by the general
partner, certain limited partners, and certain subordinated note holders. The
offering was made pursuant to a confidential private placement memorandum that
had offered a maximum of 293,897 Shares.
On December 26, 1996, the Company issued and sold 700,000 Shares resulting in
gross cash proceeds to the Company of $7,000,000 ($10.00 per Share). The sale
was made to current Company Shareholders and "accredited investors" within the
meaning of Rule 501(a) under the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA.
Plymouth began operating September 27, 1996. As such, the financial information
presented below for the 1996 fiscal year is for only the period from September
27 to December 31, 1996 as compared to a full year for fiscal years 1998 and
1997.
<TABLE>
<CAPTION>
FY 1998 FY 1997 FY 1996
<S> <C> <C> <C>
Net investment loss ($854,257) ($621,882) ($168,039)
Realized gains on the sale of investments $1,923,323 $987,363 $202,431
Change in net unrealized appreciation on investments ($2,024,458) $183,077 ($269,219)
Equity in earnings (loss) of affiliate ($595,651) ($214,047) $76,118
Net increase (decrease) in net assets from operations ($1,623,843) $334,511 ($158,709)
Per Share ($1.76) $0.36 ($0.16)
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
Net Assets $5,761,608 $8,418,160 $8,592,246
Per Share $6.24 $9.13 $9.32
Distributions to Shareholders $1,032,709 $508,597 $69,501
Per Share $1.12 $0.55 $0.31
</TABLE>
For purposes of calculating per share distributions, the number of Shares
outstanding on the distribution's record date was used ( 921,627 shares in 1998
and 1997 and 221,627 shares in 1996). All other per share values are based on
the number of shares outstanding at the end of the year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information contained in this section should be read in conjunction with the
Company's financial statements and notes.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal Year-1998
Plymouth attempts to be fully invested at all times. When Plymouth is fully
invested, it has minimal cash on hand and is close to fully extended on its
credit line. Because of the short holding time of its portfolio and Regulated
Investment Company (RIC) distribution requirements, the amount of capital that
the Company has available for investment can only grow when new equity is
raised. Plymouth's borrowings are limited to the lesser of $8,000,000 or the
calculated borrowing basis as described in the Borrowing section (on page 2).
As of December 31,1998, Plymouth had $5,761,608 in net assets plus outstanding
debt of $4,448,795, all of which was invested in impaired loans. Plymouth has
had difficulty maintaining adequate reserves to meet obligations and purchase
new debts because of (i) its declining borrowing base as described in the
Borrowing section and (ii) the BDC-related requirement to distribute virtually
all its income. Plymouth generally purchases a majority of its assets in large
packages. Typically, the better assets are resolved in the first year and the
income is distributed to shareholders. Plymouth is then left with the assets
that will take longer to resolve. The borrowing base declines on these
relatively intractable assets and thereby contributes to a strain on cash until
the debts are resolved. Only after it succeeds in resolving most of its assets
can Plymouth once again buy new assets and start the cycle again. Plymouth had
the same difficulty in 1997. Plymouth's lender granted a temporary increase in
the borrowing base, and Plymouth sold a large portion of its portfolio in the
second and third quarters of 1998. These factors were material to Plymouth's
1998 financial performance. In early 1999 Plymouth continues to experience the
same difficulties and has requested its lender to increase the borrowing base.
Plymouth further intends to market loans in the second quarter of 1999. If the
sale is successful, it will assist Plymouth in meeting its obligations. If not,
liquidity will be a problem. Even if the sale is successful, if Plymouth cannot
receive the borrowing base increase, Plymouth may experience a cash shortage. At
Plymouth's current size, the only way to avoid liquidity problems is to increase
the borrowing base, raise additional equity, or change to an entity that does
not require distribution of all income irrespective of the need for reserves.
Management is currently working on a proposed change in structure and on
increased borrowing capabilities. These changes would allow Plymouth to purchase
more consistently and avoid the cyclical performance it has experienced in the
past.
At the end of 1998 Plymouth had $86,940 in cash and approximately $500,000 in
borrowing capacity.
In 1999 Plymouth does not expect to make any large capital expenditures apart
from new loan purchases and protective advances.
<PAGE> 11
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR 1998 WITH FISCAL YEAR 1997:
COLLECTIONS AND OPERATING EXPENSES FOR 1998:
For the fiscal year 1998, Plymouth had gross collections on impaired notes of
$10,938,966. Of this amount, $8,304,506 was applied to principal, $696,467 to
interest, $415,801 to gain on collections (including partial and full write offs
of $181,121 on five loans), and $1,507,522 to gain on sale of loans. During
1998, Plymouth had no excess cash (its cash balance over current liabilities) to
invest in short term investments. Plymouth had $38,601 in other income from
various sources in 1998. The company incurred $1,589,325 in operating expenses.
The main expenses were $736,766 in advisory fees, $428,510 in interest expense,
and $166,296 in legal expenses. The legal expenses related mainly to the
collection of notes. The collections, income, and expenses for 1998 were
consistent with the 1997 activity. The main differences between 1998 and 1997
are attributable to different amounts of assets under management and different
holding times of such assets. In 1997, the company made large asset purchases in
the fourth quarter. The assets bought in the fourth quarter of 1997 as well as
assets purchased earlier increased 1998 income as Plymouth had time to
restructure and collect these assets.
COLLECTIONS AND OPERATING EXPENSES FOR THE COMPARABLE PERIOD FOR
1997:
For the fiscal year 1997, Plymouth had gross collections on impaired notes of
$7,695,241. Of this amount $6,241,406 was applied to principal, $466,472 to
interest, $403,304 to gain on collection (including two loans with a combined
principal balance of $20,000 written off), and $584,059 to gain on the sale of
loans. Plymouth invested excess cash (its cash balance over current liabilities)
in short-term investments that yielded $107,783 in income. The Company incurred
$1,196,137 in operating expenses. The main expenses were $553,671 in advisory
fees, $251,611 in interest expense, and $173,049 in legal expenses. The legal
expenses related mainly to the collection of loans.
PURCHASES AND ENDING BALANCES FOR 1998:
During the 1998 fiscal year, Plymouth and its wholly owned subsidiary Plymouth
REO, Inc. purchased 31 loans at a cost of $4,541,165 to add to its portfolio.
The timing of these purchases was as follows:
<TABLE>
<CAPTION>
Quarter No. of Loans Amount
<S> <C> <C>
1 7 $516,902
2 2 $204,800
3 8 $2,574,903
4 14 $1,244,560
Totals: 31 $4,541,165
</TABLE>
Plymouth found ample product on the market in 1998, but it had difficulty buying
loans because of its declining borrowing base. As mentioned earlier, Plymouth
would like to revamp its borrowing base so it can even out its purchases over
time. Evening out purchases is essential to evening out cash flow and liquidity.
If Plymouth cannot revamp its borrowing base, it will continue to experience a
cycle in which it buys assets and has to resolve them before it can buy more.
This cycle will create large fluctuations in earnings and liquidity.
At the end of 1998, the Company had 72 loans with a cost of $9,210,118 and a
fair market value of $7,943,201, resulting in unrealized depreciation of
$1,266,917. Only the net change in unrealized depreciation from 1997 to 1998 of
$2,024,458 is measured on the statement of operations. Three factors explain the
change from the 1997 appreciation figure.
In 1997, the Company's assets were more mature and closer to
resolution, thus creating a higher fair market value.
In 1998, the Company used a conservative valuation technique that
computes net present value based on cash flows and further discounts
the notes for repayment uncertainty.
<PAGE> 12
The assets still in the portfolio at the end of 1998 that were
bought earlier in 1998 and in 1997 represented more difficult assets
that are taking longer to resolve. That results in a relatively
lower fair market value.
It should also be noted that cash recovery is expected to be greater than the
cost of the remaining portfolio. Assets bought later in 1998 are projected to be
resolved more quickly than the more difficult ones referred to above.
PURCHASES AND ENDING BALANCES COMPARABLE PERIOD FOR 1997:
During the 1997 fiscal year, Plymouth and its wholly owned subsidiary Plymouth
REO, Inc. purchased 141 loans at a cost of $19,636,489 to add to the portfolio
of loans that it held at the end of 1996. The timing of these purchases was as
follows:
<TABLE>
<CAPTION>
Quarter No. of Loans Amount
<S> <C> <C>
1 13 $2,525,774
2 46 $4,908,552
3 13 $2,268,524
4 69 $9,933,639
Totals: 141 $19,636,489
</TABLE>
At the end of 1997, the Company had 106 loans with a cost of $14,538,157 and a
fair market value of $15,295,698, resulting in unrealized appreciation of
$757,541. Only the net change in unrealized appreciation from 1996 to 1997 of
$183,077 is measured on the statement of operations.
REO ASSETS 1998:
The Company has a wholly-owned subsidiary, Plymouth REO, Inc., which holds the
real estate that is acquired through foreclosure or otherwise in connection with
Plymouth's debt portfolio. As of December 31,1998, Plymouth REO, Inc. held one
foreclosure judgment (as to which the foreclosure sale was pending) and seven
real estate properties. Three REO-related assets were transferred back to the
Company during 1998 because they were sold on terms, resulting in the nature of
the asset changing to a note. Plymouth REO, Inc. had very little activity in
1998 with earnings of roughly $12,000. Nonetheless, Plymouth REO reported an
unrealized loss of $595,651, mostly due to a write down to estimated fair market
value. One property in particular could be a loss of $230,000 due to a tax
problem. Further, the write down of the judgment mentioned in 1997 remains on
the books.
REO ASSETS FOR THE COMPARABLE PERIOD 1997:
As of December 31,1997, Plymouth REO, Inc. held one foreclosure judgment and
four real estate properties. Two properties were sold during 1997 for a combined
gain of $54,873. Plymouth REO, Inc. reported an unrealized loss of $214,047,
mostly due to a write down of the fair market value of the judgment from its
cost basis of $548,000 to $385,000. The Board wrote the asset down because of
concerns of the underlying value of the property.
NET INCREASE IN ASSETS AND DISTRIBUTIONS 1998:
In 1998 the above operations resulted in a $1,623,843 decrease in net assets in
accordance with generally accepted accounting principles (GAAP) before the 1998
tax-related distribution of $1,032,709 ($1.12 per share). The end result were
net assets at the end of the period of $5,761,608 or $6.25 a share. That is down
from the 1997 value of $9.13 per share. The $2.88 drop is a result of a $1.08
per share increase from realized income and realized gains less operational
expenses including the write off of organizational cost less an unrealized loss
of $2.84 per share due to valuation changes and the distribution of $1.12 per
share. The $1.12 per share distribution was based on taxable income of $973,872
compared to GAAP income before unrealized valuations of $996,266. The main
adjustments were to fair values creating unrealized depreciation as discussed
earlier. The cash collections estimated at December 31,1998 was still higher
than cost. As the assets get closer to resolution, the Company expects the fair
value to increase.
<PAGE> 13
NET INCREASE IN ASSETS AND DISTRIBUTIONS COMPARABLE PERIOD 1997:
The 1997 operations resulted in a $334,511 net increase in assets in accordance
with generally accepted accounting principles (GAAP) before the 1997
distributions of $508,597 to the shareholders.
The 1997 distribution of $508,597 was based on a tax earnings of approximately
$500,000. The difference between GAAP and tax earnings can be explained
primarily by the difference in the timing of recognition of income, gains,
losses, expenditures, and accounting for transactions with Plymouth REO, Inc. In
1997, Plymouth had higher tax earnings than the GAAP earnings for two main
reasons.
The accounting for impaired loans for tax purposes calls for the
recognition of income earlier and the reduction of basis later than
the GAAP books, resulting in approximately $100,000 in additional
tax earnings on the same GAAP collections.
Plymouth also recognized for tax purposes approximately $90,000 in
income on the collection of two Plymouth REO, Inc. loans that GAAP
treats as a reduction in investment in affiliate.
The fair value adjustments for GAAP purposes can have a significant impact on
GAAP earnings compared to tax earnings. In 1997 net adjustments to GAAP earnings
to place the Company and its wholly owned affiliate Plymouth REO, Inc. on the
fair market value method were minimal. In contrast, 1998 fair market value
adjustments were material.
COMPARISON OF FISCAL YEAR 1999 WITH FISCAL YEAR 1996:
The Company was in operation for only a small portion of 1996. For that reason,
a comparative analysis of 1998 with 1997 would not be meaningful and is not
provided.
FISCAL YEAR 1996
The Company began operations on September 27, 1996, with the acquisition of most
of the assets of SWF 1995 Limited Partnership. At the end of fiscal 1996, the
Company's impaired loan portfolio had an aggregate contractual principal balance
of $4,390,036 and an aggregate fair value of $2,763,554. Of the 25 borrowers,
fourteen were delinquent in their required payments. Seven loans with an
aggregate contractual principal balance of $1,346,671 and an aggregate fair
value of $657,613 were in the foreclosure process.
For fiscal 1996, Plymouth recorded $54,510 in investment income. Of this amount,
$48,955 resulted from interest actually received from the Company's impaired
loan portfolio. Because of the uncertainty related to its impaired loan
portfolio, Plymouth records interest income only as it is received.
Plymouth realized gains of $202,431 as a result of the settlement of three loans
for total proceeds of $681,120. The obligations were settled for amounts greater
than SWF 1995's initial purchase price and at a discount to the contractual
principal and accrued interest balance.
The Company also recorded total unrealized gains of $574,464 as a result of the
adjustments made by the Board of Trustees to bring the loans to their fair
value. Such an adjustment is prescribed by GAAP.
Expenses for the period were $222,549. Approximately $190,000 in costs related
to the formation of Plymouth were deducted from shareholder's equity directly
and not recorded on the Company's statement of operations. Professional fees
accounted for the largest single expense. The fees included accounting and audit
expense and legal expenses for debt collection, for researching and complying
with securities law, and for negotiating the credit facility loan agreement. The
Company's Adviser received total fees of $32,322 for the months of November and
December 1996. The Adviser did not collect any fees during the months of
September and October, because the Company's BDC election did not become
effective until November 26, 1996.
Plymouth distributed $69,501 in cash to Shareholders of record as of December
15, 1996. Management believes that this amount satisfied the distribution
requirements of Subchapter M of the Internal Revenue Code.
<PAGE> 14
OTHER ITEMS
The Company has six assets with cash recoveries that are now estimated to be
more than $50,000 below cost. If Plymouth received the estimated cash
recoveries, it would realize a loss of $929,314 (which is included in unrealized
appreciation on investments on the GAAP financials). Although this number
represents a conservative estimate, were it to materialize it would
significantly reduce the tax earnings and distributions to shareholders and
could erode the capital base. Actual settlements (when they occur) could be more
or less than the estimates.
Plymouth's borrowing base is calculated on the age of the loans in the
portfolio. When a loan has been in the portfolio for 6 months, the borrowing
base begins a rapid decline. Plymouth originally believed it could settle or
sell the majority of its loans in a 6 month period from purchase, before the
decline. Since inception, loans have taken significantly longer to resolve. The
coupling of the borrowing base decline with the longer than expected holding
times has led to lack of liquidity and, therefore, difficulty in purchasing new
product. Moving forward, it will be crucial that Plymouth have a borrowing base
in line with its holding period.
YEAR 2000 ANALYSIS
The Year 2000 problem ("Y2K") relates back to a formerly common practice among
writers of computer code. To reduce the length of the code, writers often used
only the last two digits to represent a year, building into the system that all
two-digit years are preceded by "19." That assumption will, of course, prove to
be erroneous at the end of this year.
The problem is most often thought of as relating to software. If a program's
code abbreviates references to years to two digits, when presented with a year
2000 or later number, the program may produce erratic results or cease to
function altogether, depending on how crucial dates are to its operation. The
problem can also arise, however, with what we think of as hardware. Much
hardware contains chips with embedded code. If the writers of that code
abbreviated references to years to two digits, then, when presented with a year
2000 or later number, the hardware too may present the same problems described
for software.
As to hardware, Plymouth relies upon Greystone's computer system. Both the file
server and the work stations are Pentium class machines. Some Pentium class
machines present Y2K problems. In the coming months, well before the end of the
year, Greystone plans to go through its machines systematically, setting the
clocks forward to 2000 to see if problems arise in their operation. If problems
do arise, the most economical solution may be to replace the machines.
As to software, Greystone's server is a personal computer running a Windows NT
based network. Each work station is an independent personal computer using
Windows 95 as an operating system. Depending on the versions, neither Windows NT
nor Windows 95 can be relied upon to be Y2K compliant. Most of the software used
by Greystone is "off-the-shelf" mass produced software. Both it and the
operating systems can be checked at the same time the hardware is. If any of
them show any incompatibility, again, the most economical solution will probably
be to buy updated versions.
The only non-mass produced software that is material to Greystone's operations
is a program called "Loan Base." It is a loan servicing system Greystone
acquired because of the nature of Plymouth's portfolio. Greystone has been in
contact with the company publishing Loan Base and has been assured that it is
Y2K compliant. That software, too, will be put to the test when the company runs
it computer clocks forward.
Neither Plymouth nor Greystone have any online connections with third parties
that are material to its operations.
Failure to correct a material Y2K problem could result in an interruption in, or
a failure of certain normal business activities or operations. Such failures
could materially and adversely affect the Plymouth's operations, liquidity and
financial condition. Due to the general uncertainty inherent in the Y2K,
Plymouth is unable to determine at this time whether the consequences of Y2K
failures will have a material impact on the its operations, liquidity or
financial condition.
RISK FACTORS
The Company has a limited operating history and is involved in a highly
speculative business that involves risk. Among other things, the following items
could have material impact on the Company's ability to conduct business
effectively:
<PAGE> 15
RISKS REGARDING PURCHASING AND RESOLVING IMPAIRED LOANS.
As described in Item 1 above, the Company purchases loans where the borrower is
not making the contractual payments. Such loans are inherently risky. Certain
items related to the credit quality of the loans that may or may not have been
identified by the Adviser prior to investing in the loans could mean that the
amount that the Company seeks to collect cannot be collected. Additionally,
because the borrowers typically have not met their prior contractual
obligations, the timing of actual collections can vary. A significant variance
in collection timing would lower shareholder returns.
LEVERAGE.
The Company has a line of credit with a Texas bank with which it purchases
assets for its portfolio. The use of leverage is intended to improve the
Shareholder's overall return. Nonetheless, such borrowings must be repaid before
distributions to shareholders and, to the extent that the Company cannot collect
more than the cost of the loan that it purchased, leverage may adversely affect
shareholder returns. Because the interest rate being charged by the credit
facility is based on a floating prime rate, rising interest rates would also
negatively affect the return to shareholders. In addition, because borrowing
availability under the credit facility declines the longer the loan is held, the
Company's ability to purchase new loans or to maximize collections on its loan
portfolio is negatively affected by assets taking longer than originally
expected to be resolved.
REGULATORY COMPLIANCE.
As the BDC description in Item 1 demonstrates, the Company is highly regulated.
Such regulations limit the types and amount of impaired loans that the Company
may invest in and restrict the manner in which the loans may by resolved by
limiting the amount of income that may come from assets that are not securities.
In certain circumstances, such restrictions could require the Company to act in
a manner that is inconsistent with maximizing return. If Plymouth does not
comply with these regulations, its ability to pass through its investment income
and gains to shareholders without paying federal income taxes could be
jeopardized.
ENVIRONMENTAL CONSIDERATIONS.
The real properties securing the Company's impaired loans and the businesses
that operate at those properties are subject to federal, state, and local
environmental laws. These laws, and related causes of action, could diminish the
value of the Company's assets if one or more of those assets is discovered to
contain materials regulated by environmental laws. Companies holding a security
interest in environmentally impacted property generally are exempted from any
liability for the violations unless they become involved in the management of
the property and are deemed operators If the Company were deemed to be an
operator for liability purposes, the Company could be liable for cleanup costs,
even if it did not know of and was not responsible for the presence or release
of the hazardous or toxic substances. Such costs could exceed the value of the
Company's investment.
COMPETITION.
The Company competes with many different companies for its impaired loans.
Sources of competition include private investors, banks and thrifts, investment
bankers, and venture capital funds. Many of these sources have substantially
greater financial resources and lower costs of capital than the Company has
available to it. The number and quality of competitors for any one loan package
changes dramatically depending upon circumstances unique to the package.
Typically, competition is based solely on price and the ability to pay cash.
Therefore, to achieve its investment goals, the Company has to rely upon the
Advisers' ability to review a significant amount of impaired loan offerings and
to bid properly on the offerings.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
If market interest rates were to rise, then the rate on Plymouth's credit
facility, which is a floating rate, would rise correspondingly. If rates went up
2%, then Plymouth's interest expense would increase $200,000 for every $5
million in debt. Whether that increase would affect Plymouth materially
negatively would depend upon other factors in its financial condition at the
time, most notably whether Plymouth was experiencing difficulty in collecting on
the loans in its portfolio and whether it had been theretofore able to stabilize
its cash flow by making consistent purchases of new loans.
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required for this item is attached as pages F-1 through F-15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
BOARD OF TRUSTEES
Information in response to this item is incorporated by reference to the
identification of trustees and nominees contained in the section entitled
election of Trustees and the subsection entitled compliance with Section 16(a)
of the Securities Exchange Act of 1934 of Company's definitive proxy statement
to be filed on or about April 8, 1998. Information in response to the item is
also included under the capital employees and Officers of this report.
The following table describes the occupations of Plymouth's Trustees:
<TABLE>
<CAPTION>
Name and Address Current Occupation
<S> <C>
Ronald K. Calgaard President of Trinity University
Trinity University
Office of the President
715 Stadium Drive
San Antonio, Texas 78212
Goodhue W. Smith, III Investment banker with Duncan-Smith Co. and President of
Duncan-Smith Company Duncan-Smith Securities, Inc., a registered broker/dealer
311 Third Street, Suite 300
San Antonio, Texas 78205
James R. Clifton Private investor
The Clifton Group
4830 Lakewood, Suite 5
Waco, Texas 76710
Eric S. Foultz
Silver Aggressive Growth Fund, L.P.
P.O. Box 460567
San Antonio, Texas 78246-0567
Robert R. Swendson President and Chief Executive Officer of Plymouth and the Adviser
Greystone Advisers, Inc.
13333 Blanco Road, Suite 314
San Antonio, Texas 78216-7756
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION.
The Trustees may provide for their own compensation, and for the compensation of
officers, advisers, administrators, custodians, other agents, consultants and
employees of the Company on such terms as the Trustees deem appropriate.
Currently, each member of the Board of Trustees who is not an officer of the
Company receives from the Company a fee of $750 for each meeting of the Board
that the Trustee attends, and an additional meeting fee of $500 per committee
meeting attended, unless the committee meeting occurs on the same day as a Board
meeting, in which case the fee for attending the committee meeting would be
$250.
<PAGE> 17
It is expected that the Board of Trustees will hold at least four Board meetings
per year. None of the Company's officers is compensated by the Company for
attending Board meetings.
Since inception, the Company has had no employees and has not paid annual
compensation to its executive officers, whose services to the Company are
provided through Greystone Advisers, Inc. The Company paid aggregate Trustees'
fees for 1998 of $7,500. The following table sets forth certain details of the
compensation paid to Trustees during 1998.
<TABLE>
<CAPTION>
Aggregate
Compensation from Total Compensation from
Name and Position Company Company Paid to Trustees
<S> <C> <C>
Ronald K. Calgaard $3,000 $3,000
James R. Clifton $3,000 $3,000
Eric S. Foultz $1,500 $1,500
Goodhue W. Smith III $0 $0
Robert R. Swendson $0 $0
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of December 31, 1998 there were, and there still are, 921,627 shares
outstanding. Each share is entitled to one vote. The following table sets forth
information as of such date with respect to the beneficial ownership of the
Company's shares by: (i) each person known by the Company to own beneficially
more than 5% of such Shares; (ii) each Trustee of the Company; (iii) the Chief
Executive Officer of the Company; and (iv) all Trustees and officers of the
Company as a group.
<TABLE>
<CAPTION>
===============================================================================================================================
Amount and nature of beneficial
Title of class Name and address of beneficial owner ownership(1) Percent of class
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares of Robert R. Swendson (2) 33,747 Shares(3) 3.34%
beneficial interest,
no par value
James R. Clifton(4, 5) 65,000 Shares(5) 7.05%
William L. Clifton, Jr.(4, 5) 81,160 Shares(6) 8.81%
Goodhue W. Smith III 86,197 Shares(7) 9.35%
311 Third Street
San Antonio, TX 78205
Silver Aggressive Growth Fund, L.P.(8) 200,000 Shares 21.70%
P.O. Box 460567
San Antonio, Texas 78246-0567
Trinity University(9) 50,000 Shares 5.43%
715 Stadium Drive
San Antonio, TX 78212
All Trustees and Executive 171,247 Shares(3) 18.58%
Officers as a Group (7 persons)
===============================================================================================================================
</TABLE>
(1) Directly owned unless otherwise indicated.
(2) SouthWest Federated Holding Company, Inc., 13333 Blanco Road, Suite 314,
San Antonio, TX 78216-7756.
(3) Includes 100% of the Shares beneficially owned by SWFHC, the voting or
disposition of which Robert R. Swendson may be deemed to have the power
to direct by virtue of his ownership of approximately 46% of
<PAGE> 18
SWFHC's common stock and his position as president and chief executive
officer of SWFHC and as one of its two directors. Mr. Swendson disclaims
beneficial ownership of the Shares owned by SWFHC.
(4) 4830 Lakewood, Suite 5, Waco, TX 76710.
(5) Includes 20,000 Shares owned by two family trusts of which James R.
Clifton is one of two trustees and 20,000 Shares owned by two family
trusts for the benefit of Mr. Clifton's children of which Mr. Clifton is
not a trustee. Mr. Clifton disclaims beneficial ownership of those Shares
that he does not directly own. James R. Clifton and William L. Clifton,
Jr. are brothers.
(6) Includes 61,160 Shares owned by three family trusts of which William L.
Clifton, Jr., is one of two trustees and 20,000 Shares owned by two
family trusts for the benefit of Mr. Clifton's children of which Mr.
Clifton is not a trustee. Mr. Clifton disclaims beneficial ownership of
all the Shares attributed to him.
(7) Includes 50,000 Shares owned by five trusts of which Goodhue W. Smith,
III is one of two trustees and 100% of the Shares beneficially owned by
SWFHC, the voting or disposition of which Mr. Smith may be deemed to have
the power to direct by virtue of his position as one of its two
directors. Mr. Smith disclaims beneficial ownership of those Shares that
he does not own directly.
(8) Christopher Goldsbury is the sole member and manager and the president of
the general partner of Silver Aggressive Growth Fund, L.P. As such, he
directly or indirectly controls the voting and dispositive power over the
shares.
(9) Ronald K. Calgaard, a member of the Company's Board of Trustees, is
President of Trinity University.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Investment Advisory Agreement
The Company is a party to an investment advisory agreement with Greystone
Advisers, Inc. ("Greystone"). Pursuant to the investment advisory agreement,
Greystone is entitled to be paid, monthly in arrears, a fee at the rate of 5.94%
per annum on the value of the Company's invested assets, and 0.48% per annum of
its cash and short-term investments. From January 1, 1998 through December 31,
1998, the Company incurred $736,766 in investment advisory fees.
Each officer of the Company also is an officer of Greystone. As of December 31,
1998, all of the shares of Greystone were owned by Robert R. Swendson, the
Company's President and Chief Executive Officer. Greystone has not issued any
options, warrants, or convertible securities of any nature.
Indebtedness of Management
No person serving as a Trustee or executive officer of the Company and no
nominee for election as a Trustee at any time since the beginning of the
Company's last fiscal year has been indebted to the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS OF FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THIS FORM 10K.
Audited Financial Statements for the fiscal year ended December 31, 1996:
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Statement of Assets and Liabilities F-3
Statement of Investments F-4
Statement of Operations F-7
Statement of Changes in Net Assets F-8
Statement of Cash Flows F-9
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
Selected Per Share Data and Ratios F-10
Notes to Financial Statements F-11
</TABLE>
(b) REPORTS ON FORM 8K.
None.
(c) EXHIBITS.
<TABLE>
<C> <S>
(3)(i) (A) Certificate of Trust of the Company as filed August 23, 1996(1)
(B) Declaration of Trust of the Company, dated August 23, 1996(1)
(3)(ii) Bylaws of the Company, dated September 3, 1996 (1)
(4) (A) Loan Agreement between Comerica Bank-Texas and the Company, dated September 27, 1996(2)
(2) Agreement to furnish to the Commission upon request a copy of the Subordinated Note Agreement between the
Company and SouthWest Federated Holding Company, Inc., dated September 27, 1996(2)
(10) (A) Investment Advisory Agreement by and between the Company 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 Company, dated September 27, 1996(2)
(21) Legal name, jurisdiction of organization, and doing business as name of each subsidiary of the Company(2)
(27) Financial Data Schedule- Filed herewith.
</TABLE>
(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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PLYMOUTH COMMERCIAL MORTGAGE FUND
By /s/ Robert R. Swendson
Robert R. Swendson, Trustee, President and
Chief Executive Officer
Date March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacities and on the dates indicated.
By /s/ Robert R. Swendson
<PAGE> 20
Robert R. Swendson, Trustee, President and
Chief Executive Officer
Date March 29, 1999
By /s/ Patrick J. Panzarella
Patrick J. Panzarella, Vice President and Chief Financial Officer
Date March 29, 1999
By /s/ Dr. Ronald K. Calgaard
Dr. Ronald K. Calgaard, Trustee
Date March 29, 1999
By /s/ James R. Clifton
James R. Clifton, Trustee
Date March 29, 1999
By /s/ Goodhue W. Smith, III
Goodhue W. Smith, III, Trustee
Date March 29, 1999
By /s./ Eric S. Foultz
Eric S. Foultz, Trustee
Date March 29, 1999
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders Plymouth Commercial Mortgage Fund:
We have audited the accompanying statements of assets and liabilities of
Plymouth Commercial Mortgage Fund (including the statement of investments) as of
December 31, 1998 and 1997, and the related statements of operations, changes in
net assets, cash flows, and financial highlights for the years ended December
31, 1998 and 1997 and the period September 27, 1996 (inception of operations) to
December 31, 1996. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and per share data
and ratios are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Plymouth Commercial Mortgage Fund as of December 31, 1998 and 1997, and the
results of its operations, changes in net assets, cash flows, and financial
highlights for the years ended December 31, 1998 and 1997 and the period
September 27, 1996 (inception of operations) to December 31, 1996 in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Fund changed its method
of accounting for organization costs in 1998.
KPMG LLP
San Antonio, Texas
February 5, 1999
F-1
<PAGE> 22
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statements of Assets and Liabilities
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------------ -----------------
<S> <C> <C>
Investments in securities at fair value, cost
of $9,210,118 and $14,538,157, respectively $ 7,943,201 15,295,698
Investments in affiliates 2,362,165 941,477
Cash and short-term investments 86,940 568,899
Accounts receivable - 2,026
Organization costs, net - 72,800
------------------ -----------------
Total assets $ 10,392,306 16,880,900
================== =================
LIABILITIES
Accounts payable $ 120,284 48,547
Investment advisory fee payable 51,030 77,110
Dividend payable - 275,001
Note payable 4,448,795 7,981,158
Escrow funds 10,589 80,924
------------------ -----------------
Total liabilities 4,630,698 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 (1,716,978) (789,921)
Accumulated undistributed net realized gains net of
distributions declared of $1,610,805 and $578,098, respectively 1,502,310 611,696
Accumulated undistributed deficit in loss of subsidiary (733,580) (137,929)
Accumulated undistributed unrealized gain (loss) on investments (1,266,917) 757,541
------------------ -----------------
Total net assets ($6.25 and $9.13 per share) 5,761,608 8,418,160
------------------ -----------------
Total liabilities and net assets $ 10,392,306 16,880,900
================== =================
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 23
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Investments
December 31, 1998
<TABLE>
<CAPTION>
Location Original Stated Outstanding
of Contract Interest Principal Fair
Eligible Portfolio Investments Property Maturity Rate Balance Value
------------------------------ -------- -------- ---- ------- -----
<S> <C> <C> <C> <C> <C>
Commercial Loans -
Valued at fair value as determined by the
Board of Trustees (note 2)
Loan secured by an auto garage NJ 01/01/15 9.50% $ 288,213 246,728
Loan secured by an office building NJ 04/01/99 10.00% 255,046 244,696
Loan secured by multi-family residential
property NJ 01/15/03 9.75% 250,000 191,383
Loan secured by a bar NJ 11/01/92 13.00% 470,793 180,627
Loan secured by a commercial retail building NJ 10/01/08 10.00% 158,161 120,668
Loan secured by an apartment building NJ 07/01/00 10.00% 97,300 84,735
Loan secured by a commercial office building NJ 10/01/94 6.19% 146,589 78,081
Loan secured by multi-family residential
property NJ 04/01/07 9.00% 105,809 70,132
Loan secured by a commercial office building NJ 10/28/97 10.75% 282,594 63,560
Loan secured by multi-family residential
property NJ 01/01/03 9.00% 80,000 47,088
Loan secured by gas station NJ 12/01/99 10.00% 35,000 31,486
Loan secured by an office building NJ 03/01/99 11.50% 33,978 28,761
Loan secured by a commercial retail building NJ 09/01/94 9.00% 24,708 24,181
Loan secured by accounts receivable NJ 10/22/96 10.00% 37,000 16,161
Loan secured by equipment NJ 06/21/97 9.75% 1,586 1,383
Loan secured by an office building NJ 01/01/00 9.25% 62,998 1
Loan secured by an office warehouse NJ 01/01/97 8.13% 111,200 1
Loan secured by residential property NJ 04/04/99 9.50% 29,181 1
------------
Total loans secured by property in
New Jersey (18% of investments
in securities) 1,459,274
------------
Loan secured by a commercial retail building NY 09/01/16 8.50% 641,352 399,560
Loan secured by multi-family residential
property NY 01/15/91 14.25% 1,529,140 316,860
Loan secured by a commercial retail building NY 09/28/16 8.50% 239,611 151,226
Loan secured by multi-family residential
property NY 09/06/16 8.50% 134,209 84,638
Loan secured by an office building NY 03/01/00 8.50% 88,950 79,726
</TABLE>
See accompanying notes to the financial statements. (Continued)
F-3
<PAGE> 24
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Investments (Continued)
December 31, 1998
<TABLE>
<CAPTION>
Location Original Stated Outstanding
of Contract Interest Principal Fair
Eligible Portfolio Investments Property Maturity Rate Balance Value
------------------------------ -------- -------- ---- ------- -----
<S> <C> <C> <C> <C> <C>
Commercial Loans -
Loan secured by multi-family residential
property NY 09/19/16 8.50% $ 122,736 76,711
Loan secured by multi-family residential
property NY 11/30/98 5.83% 316,234 63,671
Loan secured by multi-family residential
property NY 11/30/98 5.83% 209,699 61,414
Loan secured by residential property NY 11/30/98 5.83% 211,845 58,458
Loan secured by residential property NY 09/03/16 8.50% 59,670 37,267
Loan secured by a garage NY 05/01/95 11.50% 601,779 1
------------
Total loans secured by property in New
York (17% of investments
in securities) 1,329,532
------------
Loan secured by an RV Park CT 03/01/19 9.00% 1,000,000 704,911
Loan secured by commercial property CT 05/01/99 9.50% 271,293 171,349
Loan secured by retail property CT 10/01/96 10.00% 208,236 152,634
Loan secured by an auto garage CT 04/01/17 9.00% 193,943 139,118
Loan secured by residential property CT 10/25/02 13.00% 27,028 1
------------
Total loans secured by property in
California (15% of investments
in securities) 1,168,013
------------
Loan secured by a restaurant CA 05/01/00 9.25% 371,839 288,648
Loan secured by a restaurant CA 12/01/01 10.00% 185,570 155,183
Loan secured by a commercial office building CA 01/01/01 7.00% 185,000 144,577
Loan secured by an office building CA 05/25/99 12.00% 198,691 117,689
Loan secured by medical offices and related
fixtures CA 07/26/01 12.00% 149,158 107,864
Loan secured by a restaurant CA 11/21/12 8.50% 57,930 39,656
Loan secured by residential property CA 11/15/02 10.00% 34,985 25,631
Loan secured by a foreclosure judgement CA 08/15/08 10.00% 879,647 1
Loan secured by medical offices and related
fixtures CA 02/01/97 8.00% 141,628 1
Loan secured by medical offices and related
fixtures CA 04/01/96 12.00% 25,917 1
Loan secured by multi-family residential
property CA 10/01/03 10.50% 12,737 1
</TABLE>
See accompanying notes to the financial statements. (Continued)
F-4
<PAGE> 25
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Investments (Continued)
December 31, 1998
<TABLE>
<CAPTION>
Location Original Stated Outstanding
of Contract Interest Principal Fair
Eligible Portfolio Investments Property Maturity Rate Balance Value
------------------------------ -------- -------- ---- ------- -----
<S> <C> <C> <C> <C> <C>
Commercial Loans -
Loan secured by land CA 03/17/10 15.95% $ 7,659 1
----------
Total loans secured by property in
California (11% of investments in
securities) 879,250
----------
Loan secured by a retail center MA 08/03/15 7.00% 557,526 385,993
Loan secured by furniture and equipment MA 11/16/01 8.50% 471,928 319,747
----------
Total loans secured by property in
Massachusetts (9% of investments
in securities) 705,740
----------
Loan secured by resort property RI 07/01/97 10.00% 213,591 501,956
Loan secured by resort property RI 07/01/97 8.50% 622,162 172,789
----------
Total loans secured by property in
Rhode Island (8% of investments in
securities) 674,745
----------
Loan secured by a movie theater TX 02/01/98 9.50% 603,647 369,037
Loan secured by an office building TX 06/15/98 11.00% 350,000 212,585
Loan secured by a warehouse TX 11/19/98 11.00% 23,646 15,088
Loan secured by a commercial office building TX 10/01/98 9.50% 72,342 1
----------
Total loans secured by property in
Texas (7% of investments in
securities) 596,711
----------
Loan secured by a commercial building PA 12/24/11 8.00% 195,690 189,212
Loan secured by residential property PA 08/02/99 8.75% 104,180 73,449
Loan secured by residential property PA 04/19/02 8.00% 94,850 69,145
Loan secured by multi-family residential
property PA 01/01/97 11.00% 72,448 45,228
Loan secured by residential property PA 12/01/01 9.00% 58,274 42,440
Loan secured by residential property PA 04/17/02 8.50% 60,818 42,415
Loan secured by residential property PA 12/01/01 9.75% 42,252 30,804
Loan secured by residential property PA 12/01/01 9.00% 28,478 21,207
Loan secured by a commercial office building PA 12/01/02 9.75% 6,832 4,582
----------
Total loans secured by property in
Pennsylvania (6% of investments in
securities) 518,482
----------
</TABLE>
See accompanying notes to the financial statements. (Continued)
F-5
<PAGE> 26
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statement of Investments (Continued)
December 31, 1998
<TABLE>
<CAPTION>
Location Original Stated Outstanding
of Contract Interest Principal Fair
Eligible Portfolio Investments Property Maturity Rate Balance Value
------------------------------ -------- -------- ---- ------- -----
<S> <C> <C> <C> <C> <C>
Commercial Loans -
Loan secured by a commercial property -
(4% of investments in securities) TN 12/31/99 $ 869,510 346,152
-------------
1993 to 9.00% to
7 other commercial loans various 2005 12.00% 751,539 265,302
-------------
$ 7,943,201
=============
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 27
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statements of Operations
For the years ended December 31, 1998 and 1997 and the period
September 27, 1996 (inception of operations) to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Investment income:
Interest on investments in securities $ 696,467 466,472 48,955
Other investment income 38,601 107,783 5,555
---------------- ---------------- ----------------
Total income 735,068 574,255 54,510
---------------- ---------------- ----------------
Expenses:
Investment advisory fees 736,766 553,671 32,322
Interest expense 428,510 251,611 30,077
Operating expenses 257,753 217,806 73,415
Legal and professional fees 166,296 173,049 86,735
---------------- ---------------- ----------------
Total expenses 1,589,325 1,196,137 222,549
Net investment loss (854,257) (621,882) (168,039)
Realized gain on sale of investments 1,507,522 584,059 202,431
Realized gain on collection of notes 415,801 403,304 -
Change in unrealized appreciation on investments (2,024,458) 183,077 (269,219)
Equity in earnings (loss) of affiliate (595,651) (214,047) 76,118
---------------- ---------------- ----------------
Net increase (decrease) in net assets
resulting from operations before
cumulative effect of change in
accounting principle (1,551,043) 334,511 (158,709)
Cumulative effect of change in accounting for
organization costs (72,800) - -
---------------- ---------------- ----------------
Net increase (decrease) in net assets
resulting from operations $ (1,623,843) 334,511 (158,709)
================ ================ ================
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 28
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statements of Changes in Net Assets
For the years ended December 31, 1998 and 1997 and the period
September 27, 1996 (inception of operations) to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Operations before distributions:
Net investment loss $ (854,257) (621,882) (168,039)
Net realized gain on investments 1,923,323 987,363 202,431
Change in unrealized appreciation on investments (2,024,458) 183,077 (269,219)
Equity in earnings of affiliate (595,651) (214,047) 76,118
Cumulative effect of change in accounting
for organization costs (72,800) - -
---------------- ---------------- ----------------
Net increase (decrease) in net assets from
operations before distributions (1,623,843) 334,511 (158,709)
Distribution to shareholders from:
Net realized gain on investments (1,032,709) (508,597) (69,501)
Capital share transactions:
Proceeds from issuance of 700,00
shares on December 26, 1996, net
of issuance costs of $426,000 - - 6,574,000
---------------- ---------------- ----------------
Total increase (decrease) in net assets (2,656,552) (174,086) 6,345,790
Net assets, beginning period 8,418,160 8,592,246 2,246,456
---------------- ---------------- ----------------
Net assets, end of period $ 5,761,608 8,418,160 8,592,246
================ ================ ================
</TABLE>
See accompanying notes to the financial statements.
F-8
<PAGE> 29
PLYMOUTH COMMERCIAL MORTGAGE FUND
Statements of Cash Flows
For the years ended December 31, 1998 and 1997 and the period
September 27, 1996 (inception of operations) to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Increase (decrease) in net assets from operations before $ (1,623,843) 334,511 (158,709)
distributions and capital share transactions
Adjustments to reconcile increase in net assets from
operations before distributions and capital share
transactions to net cash used by operating activities:
Amortization of organization costs 72,800 31,200 7,800
Change in unrealized appreciation on investments 2,024,458 (183,077) 269,219
Equity in loss (earnings) of affiliate 595,651 214,047 (76,118)
(Increase) decrease in receivables 2,026 4,425 (6,451)
(Increase) decrease in other assets - 103,641 (99,509)
Increase (decrease) in current liabilities (24,678) 106,155 (684,714)
---------------- ---------------- ----------------
Net cash provided (used) by operating activities 1,046,414 610,902 (748,482)
Cash flows from investing activities:
Purchases of investments (5,028,809) (18,590,473) -
Sales of investments/principal collection
on investments 8,304,507 6,241,406 391,793
Net change in investments in affiliate 36,000 (1,024,958) -
---------------- ---------------- ----------------
Net cash provided (used) by investing activities 3,311,698 (13,374,025) 391,793
Cash flows from financing activities:
Increase from issuance of shares - - 6,574,000
Distributions from net realized gain on investments (1,307,708) (233,596) (69,501)
Proceeds from borrowings on notes payable 9,565,971 15,700,631 -
Repayment of notes payable (13,098,334) (7,719,473) (600,000)
---------------- ---------------- ----------------
Net cash provided (used) by financing activities (4,840,071) 7,747,562 5,904,499
Net increase (decrease) in cash and cash equivalents (481,959) (5,015,561) 5,547,810
Cash and cash equivalents at beginning of period 568,899 5,584,460 36,650
---------------- ---------------- ----------------
Cash and cash equivalents at end of period $ 86,940 568,899 5,584,460
================ ================ ================
</TABLE>
See accompanying notes to the financial statements.
F-9
<PAGE> 30
PLYMOUTH COMMERCIAL MORTGAGE FUND
Supplementary Information - Selected Per Share Data and Ratios
For the years ended December 31, 1998 and 1997 and the period
September 27, 1996 (inception of operations) to December 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Per share data:
Investment income $ 0.80 0.62 0.06
Expenses (1.72) (1.30) (0.24)
---------------- ---------------- ----------------
Net investment loss before cumulative effect of
change in accounting principle (0.92) (0.68) (0.18)
Cumulative effect of change in accounting for
organization costs (0.08) - -
---------------- ---------------- ----------------
Net investment loss (1.00) (0.68) (0.18)
Net realized and unrealized gain (loss) on securities (0.11) 1.27 (0.07)
Distributions declared from realized gains
on securities (1.12) (0.55) (0.31)
Equity in earnings of subsidiary (0.65) (0.23) 0.09
Capital adjustment from share issuance - - (0.35)
---------------- ---------------- ----------------
Net decrease in net asset value (2.88) (0.19) (0.82)
Net asset value:
Beginning of period 9.13 9.32 10.14
---------------- ---------------- ----------------
End of period $ 6.25 9.13 9.32
================ ================ ================
Ratios:
Ratio of expenses to average net assets (%) 23% 14% 4%
Ratio of net investment loss to average net assets (%) -13% -7% -3%
Total return per net asset value per share (%) -19% 4% -5%
</TABLE>
See accompanying notes to the financial statements.
F-10
<PAGE> 31
PLYMOUTH COMMERCIAL MORTGAGE FUND
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(1) ORGANIZATION AND BUSINESS PURPOSE
Plymouth Commercial Mortgage Fund, a Delaware business trust (the
"Fund"), was organized on August 23, 1996. The Fund seeks to achieve a
high level of current income. To achieve this objective, the Fund
purchases impaired loans typically secured by commercial real estate.
The Fund has elected to be regulated as a business development company
("BDC") under the Investment Company Act of 1940, as amended ("1940
Act").
The Fund was initially capitalized when Robert Swendson bought 50
common shares of beneficial interest ("Shares") in the Fund for $500.
The Fund began operating on September 27, 1996 by acquiring in a tax
free exchange all of the interests of SWF 1995 Limited Partnership, a
Texas limited partnership ("SWF-95"), through an offer made to SWF-95's
investors to exchange their equity and subordinated debt interests for
cash or equity in the Fund. On September 27, 1996, the net asset value
of SWF-95 was $2,245,956 including $843,683 of unrealized gains on
investments. The Fund issued 221,577 Shares in connection with this
transaction. SWF-95 was subsequently dissolved, and its assets are now
held directly either by the Fund or by Plymouth REO, Inc. ("Plymouth
REO"), a Delaware corporation which is a wholly-owned subsidiary of the
Fund.
Pursuant to a private placement offering, the Fund issued and sold
700,000 Shares on December 26, 1996 for cash consideration in the
amount of $10 per Share resulting in gross proceeds to the Fund of
$7,000,000.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The financial statements included herein have been prepared
in accordance with generally accepted accounting principles
("GAAP") for financial information and the instructions to
Form 10-K and Article 6 of Regulation S-X.
(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 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.
For the first six months after acquisition the value of an
impaired loan is typically its assigned cost unless some
event occurs with respect to the loan's issuer that warrants
an upward or downward change in its value as an asset of the
Fund.
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.
F-11 (Continued)
<PAGE> 32
PLYMOUTH COMMERCIAL MORTGAGE FUND
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(2) SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Certain elements of the valuation procedure involve
subjective judgment. Moreover, 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 may 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. Real estate held
by Plymouth REO is recorded at its estimated fair value and
accounted for under the equity method for GAAP purposes. At
December 31, 1998, Plymouth REO held three commercial
properties in New Jersey, two commercial properties in
California, and commercial properties in Texas and Maryland
with fair values of $557,857, $491,226, $909,927 and $91,036,
respectively, as well as a judgment of foreclosure secured by
an office building in Puerto Rico with a fair value of
$308,558. These fair values are all determined by the Board
of Trustees of the Fund.
(c) CASH EQUIVALENTS
The Fund did not have cash equivalents at December 31, 1998
or 1997. For purposes of the statement of cash flows, the
Fund considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
(d) INVESTMENTS IN AFFILIATES
In accordance with generally accepted accounting principles
for investment companies, the investment in the common stock
of an affiliated company that is not another investment
company (Plymouth REO) is accounted for by the equity method.
The net worth of Plymouth REO reflects the fair value of the
underlying investments.
(e) FEDERAL INCOME TAXES
The Fund has elected the special tax treatment available to
"regulated investment companies" under Subchapter M of the
Internal Revenue Code ("IRC") in order to be relieved of the
Federal income tax on that part of its net investment income
and realized capital gains that it pays out to its
shareholders. The Fund's policy is to comply with the
requirements of the IRC that are applicable to regulated
investment companies. Such requirements include, but are not
limited to certain qualifying income tests, asset
diversification tests, and the distribution to its
stockholders of substantially all of the Fund's taxable
investment company income and net capital gains. Management
intends to comply with these requirements; therefore no
Federal income tax provision is included in the accompanying
financial statements.
F-12 (Continued)
<PAGE> 33
PLYMOUTH COMMERCIAL MORTGAGE FUND
Notes to Financial Statements
December 31, 1998, 1997 and 1996
2) SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
(f) DISTRIBUTIONS TO SHAREHOLDERS
Dividends to shareholders are recorded on the record date.
During the years ended December 31, 1998 and 1997 and the
period from September 27, 1996 (inception of operations) to
December 31, 1996, the Fund declared distributions of
$1,032,708, $508,597 and $69,501, respectively, from
accumulated undistributed net realized gains. During the
years ended December 31, 1998 and 1997 and the period from
September 27, 1996 (inception of operations) to December 31,
1996, the Fund paid distributions of $1,307,708, $233,596 and
$69,501, respectively, from accumulated undistributed net
realized gains.
(g) 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.
(h) ORGANIZATION COSTS
On January 1, 1998, the Fund adopted AICPA Statement of
Position (SOP) 98-5. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred.
SOP 98-5 also requires that initial application of this SOP
be reported as a cumulative effect of a change in accounting
principle. Prior to January 1, 1998, organization costs were
capitalized and were being amortized on a straight line
basis. The remaining balance was written off during 1998 in
accordance SOP 98-5.
(i) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts
payable, and accrued expenses approximate fair value because
of the short maturity of these items. The carrying amount of
the notes payable pursuant to the Company's credit facility
approximates fair value because interest rates change with
market interest rates.
(j) MANAGEMENT ESTIMATES
The financial statements have been prepared in conformity
with generally accepted accounting principles. The
preparation of the accompanying financial statements requires
estimates and assumptions made by management of the Fund that
affect the reported amounts of assets and liabilities as of
the date of the statement of assets and liabilities and
income and expenses for the period. Actual results could
differ significantly from the estimates.
F-13 (Continued)
<PAGE> 34
PLYMOUTH COMMERCIAL MORTGAGE FUND
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(3) INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an Investment Advisory Agreement (the
"Agreement") with Greystone Advisers, Inc., a Delaware corporation,
which is registered as an investment adviser (the "Adviser") under the
Investment Advisers Act of 1940 (the "Adviser's Act"), as amended.
Unless terminated as described below, the Agreement remains in effect
until September 22, 1999. Thereafter it requires specific approval 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 days' 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 manages the investments of the Fund,
subject to the supervision and control of the Fund's Board of Trustees.
Specifically, the Adviser will acquire, monitor, negotiate, work-out,
and dispose of the investments made by the Fund.
The Adviser is 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 is 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 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 (i.e., credit reports, title searches and delivery charges,
property taxes, insurance premiums, long-distance telephone charges,
title searches and delivery charges, property taxes, insurance
premiums, long-distance telephone charges, cost 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 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.
F-14 (Continued)
<PAGE> 35
PLYMOUTH COMMERCIAL MORTGAGE FUND
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(3) INVESTMENT ADVISORY AGREEMENT, CONTINUED
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 December 31, 1998 and
1997 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.
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
concentrates on purchasing impaired loans secured by commercial real
estate.
The Fund invests in impaired loans nationwide typically obtained
through sealed-bid auctions. These auctions occur from time to time in
different locations. The location of the loans and their collateral and
the availability of loans in different areas cannot be directed by the
Fund or anticipated in advance. Therefore, the Fund's impaired loan
portfolio may, at times, be concentrated in one geographic region of
the United States. As of December 31, 1998, the Fund's impaired loans
were primarily concentrated in the states of New Jersey, Texas, New
York, and California.
(5) INDEBTEDNESS
For the purpose of making investments and to take advantage of the
difference between the favorable interest rates available from lenders
and the expected rates of return from purchased loans, the Fund has
established a line of credit with a Texas commercial bank (the "Credit
Facility"). Such borrowings combined with any other outstanding senior
security representing indebtedness of the Fund will not exceed the
maximum amount permitted by the 1940 Act for a BDC.
F-15 (Continued)
<PAGE> 36
PLYMOUTH COMMERCIAL MORTGAGE FUND
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(5) INDEBTEDNESS, CONTINUED
As of December 31, 1998 and 1997, the credit facility had a borrowing
ceiling of $8,000,000. Debt outstanding at December 31, 1998 and 1997
was $4,448,795 and $7,981,158, respectively. Maximum borrowings under
the Credit Facility are limited to a percentage of the borrowing base
which decreases based upon the time the loans are held by the Fund. At
December 31, 1998, the Fund has approximately $500,000 in additional
borrowing capacity available under the terms of the Credit Facility.The
credit facility was renewed on September 27, 1998 and expires July 15,
1999.
The Credit Facility is secured by a perfected first security interest
in the Fund's assets. The interest rate is based upon average
borrowings under this facility. For borrowings of up to $2.5 million
for the previous quarter, the interest rate on the Credit Facility is
prime plus 1.5%; for average borrowings of between $2.5 million and
$5.0 million for the previous quarter, the interest rate is prime plus
1.0%; and for average borrowings of more than $5.0 million for the
previous quarter, the interest rate is prime plus 0.5%. The bank's
prime rate was 8.25% and 8.5% on December 31, 1998 and 1997,
respectively. A similar variable rate based on the London Interbank
Offered Rate is also available. Terms of the Credit Facility include
periodic third-party auditing, a lock box for receipt of payments,
custody by the lender of primary collateral, certain other fee
payments, and loan convenants with which the Fund was in compliance on
December 31, 1998. Included in interest expense of $428,510 and
$251,611 are commitments fees of $24,821 and $40,846 for the years
ended December 31, 1998 and 1997, respectively. During the years ended
December 31, 1998 and 1997, interest payments totaled $398,174 and
$251,611, respectively. There were no commitment fees or interest
payments during 1996.
(6) RIGHTS AND WARRANTS
Pursuant to certain agreements dated September 22, 1996 (the
"Agreements") between the Fund and the Southwest Federated Holding
Company ("SWFHC"), the Fund has issued Class "A" and Class "B" Warrants
to SWFHC. The agreements provide that SWFHC receive warrants to
purchase a total of 200,000 Shares. The Fund committed to issue
warrants or rights to SWFHC in consideration for SWFHC taking the
financial risks attendant to supporting the formation of the Fund. As
of February 5, 1999, 150,000 Class "A" warrants and 50,000 Class "B"
warrants have been issued to SWFHC.
The Agreements provided for the issuance of the following classes of
warrants to the extent permitted by the 1940 Act:
1.The Class "A" Warrant Agreement provides for the issuance of warrants
to purchase 150,000 Shares at $10.00 per Share. The warrants expire on
September 22, 2006 and are exercisable only upon the condition that by
December 26, 1999, the Fund or one or more underwriters and selling
brokers or dealers on the Fund's behalf shall have received gross cash
proceeds of at least $10,000,000 from one or more sales of newly issued
Shares at an average price of at least $15.00 per Share (adjusted
proportionately for any Share dividends, splits, or combinations).
These warrants may be transferred or exercised in whole or in part from
time to time.
F-16 (Continued)
<PAGE> 37
PLYMOUTH COMMERCIAL MORTGAGE FUND
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(6) RIGHTS AND WARRANTS, CONTINUED
2.The Class "B" Warrant Agreement provides for the issuance of warrants
to purchase 50,000 Shares at the greater of $10.00 per Share or net
asset value per Share on the date of issuance. The warrants expire on
September 22, 2006, and are exercisable only upon the condition that by
December 26, 1999, the Fund or one or more underwriters and selling
brokers or dealers on the Fund's behalf shall have received gross cash
proceeds of at least $10,000,000 from one or more sales of newly issued
Shares at an average price of at least $20.00 per Share (adjusted
proportionately for any Share dividends, splits, or combinations).
These warrants may be transferred or exercised in whole or in part from
time to time.
Because of the significant risks and uncertainty relating to the
operations of the Fund, no value has been assigned to the Agreements
and the related issued rights and warrants or contingently issuable
warrants.
(7) YEAR 2000
The Fund has initiated a plan ("Plan") to identify, assess, and
remediate "Year 2000" issues within each of its significant computer
programs and certain equipment which contain micro-processors. The Plan
is addressing the issue of computer programs and embedded computer
chips being unable to distinguish between the year 1900 and the year
2000, if a program or chip uses only two digits rather than four to
define the applicable year. The Fund is currently in the conversion,
implementation and testing phases. Systems which have been determined
not to be Year 2000 compliant are being either replaced or
reprogrammed, and thereafter tested for Year 2000 compliance. The Plan
anticipates that by mid-1999 the conversion, implementation and testing
phases will be completed.
The Fund is in the process of identifying and contacting critical
suppliers and customers whose computerized systems interface with the
Fund's systems, regarding their plans and progress in addressing their
Year 2000 issues. The Fund has received varying information from such
third parties on the state of compliance or expected compliance.
Contingency plans are being developed in the event that any critical
supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Fund's operations, liquidity and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, the Fund is unable to determine at this time
whether the consequences of Year 2000 failures will have a material
impact on the Fund's operations, liquidity or financial condition.
F-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 December 31, 1998 and
Statement of Operations, Statements of Changes in Net Assets, and Statement of
Cash Flows for the period ended December 31, 1998 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 9,210,118
<INVESTMENTS-AT-VALUE> 7,943,201
<RECEIVABLES> 0
<ASSETS-OTHER> 2,362,165
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,392,306
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 4,448,795
<OTHER-ITEMS-LIABILITIES> 81,903
<TOTAL-LIABILITIES> 4,630,698
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,976,773
<SHARES-COMMON-STOCK> 921,627
<SHARES-COMMON-PRIOR> 921,627
<ACCUMULATED-NII-CURRENT> (1,716,978)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,502,310
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,000,497)
<NET-ASSETS> 5,761,608
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 696,467
<OTHER-INCOME> 38,601
<EXPENSES-NET> 1,589,325
<NET-INVESTMENT-INCOME> (854,257)
<REALIZED-GAINS-CURRENT> 1,923,323
<APPREC-INCREASE-CURRENT> (2,620,109)
<NET-CHANGE-FROM-OPS> (1,551,043)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,032,709
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (2,656,552)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 736,766
<INTEREST-EXPENSE> 428,510
<GROSS-EXPENSE> 1,589,325
<AVERAGE-NET-ASSETS> 7,089,884
<PER-SHARE-NAV-BEGIN> 9.13
<PER-SHARE-NII> (0.92)
<PER-SHARE-GAIN-APPREC> (0.84)
<PER-SHARE-DIVIDEND> 1.12
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.25
<EXPENSE-RATIO> .23
<AVG-DEBT-OUTSTANDING> 6,214,976
<AVG-DEBT-PER-SHARE> 6.70
</TABLE>
