As filed with the Securities and Exchange Commission on April 24, 1998
Registration No. 333-35063
U.S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 2
to
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Baron Capital Trust
(Name of small business issuer in its charter)
Delaware
State or jurisdiction of 6798 31-1574856
incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
7826 Cooper Road Gregory K. McGrath
Cincinnati, Ohio 45242 7826 Cooper Road
(513) 984-5001 Cincinnati, Ohio 45242
(Address and telephone number (513) 984-5001
of principal executive offices (Name, address and telephone
and principal place of business) number of agent for service)
Copies to:
Dennis P. Spates, Esq.
Schoeman, Marsh & Updike, LLP
60 East 42nd Street, 39th Floor
New York, New York 10165
(212) 661-5030
Approximate date of proposed sale to the public: As soon as practicable after
the Registration Statement becomes effective.
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CALCULATION OF REGISTRATION FEE
- ----------------------------- ------------------- -------------------------- -------------------------- --------------------
Title of each class of Dollar amount to Proposed maximum Proposed maximum Amount of
securities to be registered be registered offering price per unit aggregate offering price registration fee
(1)
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Common Shares of Beneficial $25,000,000 $10.00 $25,000,000
Interest $7,576.00
- ----------------------------- ------------------- -------------------------- -------------------------- --------------------
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(1) Previously paid.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS REFERENCE SHEET
Location or Heading in
Item Number Caption Prospectus
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Item 1 Front of Registration Statement and Outside Front Outside Front Cover
Cover of Prospectus
(Furnish the information required by Item 501 of
Regulation S-B)
Item 2 Inside Front and Outside Back Cover Pages of Inside Front Cover; Outside Back Cover,
Prospectus Additional Information; Summary of
(Furnish the information required by Item 502 of Declaration of Trust - Quarterly and
Regulation S-B) Annual Reports
Item 3 Summary Information and Risk Factors Outside Front Cover; Summary of the
(Furnish the information required by Item 503 of Offering; Summary of Risk Factors; Risk
Regulation S-B) Factors
Item 4 Use of Proceeds Summary of the Trust and Use of Proceeds;
(Furnish the information required by Item 504 of The Trust; Investment Objectives and
Regulation S-B) Policies; Proposed Real Estate Investments
Item 5 Determination of Offering Price Risk Factors - Arbitrary Offering Price
(Furnish the information required by Item 505 of
Regulation S-B)
Item 6 Dilution Risk Factors - Dilution
(Furnish the information required by Item 506 of
Regulation S-B)
Item 7 Selling Security Holders Not Applicable
(Furnish the information required by Item 507 of
Regulation S-B)
Item 8 Plan of Distribution Outside Front Cover; Summary of the Trust
(Furnish the information required by item 508 of and Use of Proceeds; Terms of the Offering
Regulation S-B)
Item 9 Legal Proceedings Legal Matters
(Furnish the information required by Item 103 of
Regulation S-B)
Item 10 Directors, Executive Officers, Promoters and Management
Control Persons
(Furnish the information required by Item 401 of
Regulation S-B)
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Item 11 Security Ownership of Certain Beneficial Owners and Management; The Trust; Terms of the Offering
Management
(Furnish the information required by Item 403 of
Regulation S-B)
Item 12 Description of Securities Capital Stock of the Trust
(Furnish the information required by Item 202 of
Regulation S-B)
Item 13 Interest of Named Experts and Counsel Legal Matters
(Furnish the information required by Item 509 of
Regulation S-B)
Item 14 Disclosure of Commission Position on Summary of Declaration of Trust - Liability
Indemnification for Securities Act Liabilities and Indemnification; Terms of the Offering
(Furnish the information required by Item 510 of
Regulation S-B)
Item 15 Organization within Last Five Years Management - The Board of the Trust and
(Furnish the information required by Item 404 of Trustees - Independent Trustees
Regulation S-B)
Item 16 Description of Business Summary of the Trust and Use of Proceeds;
(Furnish the information required by Item 101 of The Trust; Investment Objectives and
Regulation S-B) Policies; Proposed Real Estate Investments
Item 17 Management's Discussion and Analysis or Plan of Summary of the Trust and Use of Proceeds;
Operation The Trust
(Furnish the information required by Item 303 of
Regulation S-B)
Item 18 Description of Property The Trust; Proposed Real Estate Investments
(Furnish the information required by Item 102 of
Regulation S-B)
Item 19 Certain Relationships and Related Transactions Management - The Board of the Trust -
(Furnish the information required by Item 404 of Independent Trustees
Regulation S-B)
Item 20 Market for Common Equity and Related Stockholder Summary of the Trust and Use of Proceeds;
Matters Terms of the Offering; Risk Factors -
(Furnish the information required by Item 201 of Distributions to Shareholders Affected by
Regulation S-B) Many Factors
Item 21 Executive Compensation Management - The Board of the Trust -
(Furnish the information required by Item 402 of Independent Trustees
Regulation S-B)
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Item 22 Financial Statements Other Information - Financial Statements;
(Furnish the information required by Item 310 of Exhibit A
Regulation S-B)
Item 23 Changes in and Disagreement with Accountants on Not Applicable
Accounting and Financial Disclosure
(Furnish the information required by Item 304 of
Regulation S-B)
Item 24 Indemnification of Directors and Officers Part II of Registration Statement
(Furnish the information required by Item 702 of
Regulation S-B)
Item 25 Other Expenses of Issuance and Distribution Part II of Registration Statement
(Furnish the information required by Item 511 of
Regulation S-B)
Item 26 Recent Sales of Unregistered Securities Not Applicable
(Furnish the information required by Item 701 of
Regulation S-B)
Item 27 Exhibits Part II of Registration Statement
(Furnish the information required by Item 601 of
Regulation S-B)
Item 28 Undertakings Part II of Registration Statement
(Furnish the information required by Item 512 of
Regulation S-B)
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PART I
INFORMATION REQUIRED IN PROSPECTUS
Date of Issuance: ________________, 1998
Subject to Completion:
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
BARON CAPITAL TRUST
a Delaware business trust
2,500,000 Common Shares of Beneficial Interest (maximum)
50,000 Common Shares of Beneficial Interest (minimum)
Baron Capital Trust (the "Trust"), a Delaware business trust, and its
affiliate, Baron Capital Properties, L.P. (the "Operating Partnership"), a
Delaware limited partnership, constitute a self-administered and self-managed
real estate company which has been organized to acquire equity interests in
existing residential apartment properties located in the United States and to
provide or acquire debt financing secured by mortgages on such types of
property. The Trust intends to acquire, own, operate, manage and improve
residential apartment properties for long-term ownership, and thereby to seek to
maximize current and long-term income and the value of its assets. See "SUMMARY
OF THE TRUST AND USE OF PROCEEDS," "THE TRUST," and "INVESTMENT OBJECTIVES AND
POLICIES" below. The management of the Trust has been involved in the
residential property business for over 10 years.
The Trust intends to make regular quarterly distributions to its
Shareholders of net income generated from its investments. The Trust intends to
operate as a real estate investment trust (a "REIT") for federal income tax
purposes, provided, however, that if the Managing Shareholder determines, with
the affirmative vote of a Majority of Shareholders entitled to vote on such
matter approving the Managing Shareholder's determination, that it is no longer
in the best interests of the Trust to continue to qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
The Trust is the sole general partner of the Operating Partnership, which
will conduct all of the Trust's real estate operations, and in such capacity the
Trust will control the activities of the Operating Partnership. As described
below, the Trust will also acquire an equity interest in the Operating
Partnership with the net proceeds of this Offering. See "THE TRUST - The
Operating Partnership." The Managing Shareholder of the Trust is Baron Advisors,
Inc. ("Baron Advisors"), a Delaware corporation which will manage the operations
of the Trust and the Operating Partnership. The Corporate Trustee of the Trust
is Baron Capital Properties, Inc. ("Baron Properties"), a Delaware corporation.
The Operating Partnership, Baron Advisors and Baron Properties are Affiliates of
each other, and each of them is an Affiliate of the Trust. The Board of the
Trust, a majority of whose members will be comprised of Independent Trustees,
will have general supervisory authority over the activities of the Trust and the
Operating Partnership and prior approval authority in respect of certain actions
of the Trust and Operating Partnership specified in the Declaration of Trust for
the Trust. See "MANAGEMENT" and "SUMMARY OF DECLARATION OF TRUST - Control of
Operations."
All of the common shares of beneficial interest in the Trust ("Common
Shares") offered hereby (the "Offering") are being sold by the Trust. The Trust
is offering on a best efforts basis a maximum of 2,500,000
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Common Shares in this Offering at a purchase price of $10 per Common Share
(minimum purchase of 200 Common Shares per Investor).
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Offering Price to Underwriting Net Proceeds to
Common Shares Public Commissions* the Trust**
- --------------------------------------------------------------------------------------------
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Per Common Share $ 10.00 $ .80 $ 9.20
- --------------------------------------------------------------------------------------------
Minimum Common Shares (50,000) $ 500,000 $ 40,000 $ 460,000
- --------------------------------------------------------------------------------------------
Maximum Common Shares $ 25,000,000 $ 2,000,000 $ 23,000,000
(2,500,000)
============================================================================================
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* The Trust has agreed to indemnify Sigma Financial Corporation, the Dealer
Manager of the Offering, against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. The Trust has also granted the
Dealer Manager a five-year warrant, exercisable beginning on the first
anniversary of the commencement of the Offering and ending on the fifth such
anniversary, to acquire a number of Common Shares in an amount equal to 8.5% of
the number of Common Shares sold by it in the Offering at an exercise price of
$13.00 per Common Share. See "TERMS OF THE OFFERING."
** Before deducting expenses of the Offering payable by the Trust estimated
at approximately $500,000, including a non-accountable fee payable to the
Managing Shareholder in an amount equal to 1% of the gross proceeds from the
Offering to cover its distribution, due diligence and organizational expenses
associated with the formation of the Trust and the Operating Partnership and
with the Offering, and a non-accountable fee payable to the Managing Shareholder
in an amount equal to 1% of the gross proceeds of the Offering to cover legal,
accounting and consulting fees, and printing, filing, recording, postage and
other miscellaneous expenses associated with the Offering.
The net cash proceeds from the issuance of Common Shares in connection with
this Offering and the net cash proceeds of any subsequent issuance of Common
Shares will be contributed by the Trust to the Operating Partnership in exchange
for an equivalent number of Units in the Operating Partnership. The Operating
Partnership will use the net cash proceeds of the Offering, unissued units of
limited partnership interest in the Operating Partnership or a combination of
net cash proceeds and unissued units to acquire interests in residential
apartment properties or interests in other partnerships substantially all of
whose assets consist of residential apartment property interests.
Funds received from the sale of Common Shares in this Offering will be held
in escrow until the date on which a minimum number of 50,000 Common Shares has
been sold (the "Escrow Date"), provided, however, that if the Escrow Date has
not occurred on or prior to December 31, 1998, the Trust will be required to
promptly refund all proceeds received from subscriptions for Common Shares as of
such date. The Trust will not accept any subscriptions from New York investors,
and no sales will be completed in New York, unless and until the Trust has sold,
and collected the proceeds from, at least 250,000 Common Shares in this Offering
($2,500,000 gross proceeds). The Trust will not accept any subscriptions from
Ohio investors and no sales will be completed in Ohio, unless and until the
Trust has sold, and collected the proceeds from, at least 100,000 Common Shares
in this Offering (gross proceeds of $1,000,000). Upon release of proceeds from
the escrow account, the Trust will hold such proceeds in trust for the benefit
of the Investors until they are utilized for the purposes described at "SUMMARY
OF THE TRUST AND USE OF PROCEEDS - Summary of Use of Proceeds." The Offering
will terminate no later than _____________ [the end of the eighteenth month
following the commencement date of the Offering]. See "TERMS OF THE OFFERING."
Concurrently with the sale of the Common Shares offered hereby, the
Operating Partnership is registering with the Securities and Exchange Commission
(the "Commission") 2,500,000 units of limited partnership interest in the
Operating Partnership ("Units" or "Operating Partnership Units") to be used to
acquire property interests pursuant to a proposed $25,000,000 exchange offering
(the "Exchange Offering"). In the Exchange Offering,
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which will be made pursuant to a separate prospectus, the Operating Partnership
will offer to issue Units to property interest owners in exchange for their
existing property interests. Offerees who elect to accept the Exchange Offering
("Unitholders") will be entitled at any time and from time to time to exchange
Units acquired in the Exchange Offering for an equivalent number of Common
Shares so long as the exchange would not cause the offeree to own (taking into
account certain ownership attribution rules) in excess of 5.0% of the then
outstanding Shares of the Trust, subject to certain exceptions and subject to
the Trust's right to cash out any holder of Units who requests an exchange of
Units for Common Shares. To facilitate such exchanges, 2,500,000 additional
Common Shares (in addition to the 2,500,000 Common Shares being offered in this
Offering) will be registered with the Commission in conjunction with the
registration of the Units. Concurrently with this Offering, the Trust will apply
for listing on the American Stock Exchange (the "AMEX") of the Common Shares
being offered hereby and the Common Shares into which Units will be
exchangeable.
As its initial acquisition candidates in connection with the proposed
Exchange Offering, the Operating Partnership anticipates that it will offer to
acquire property interests indirectly owned by partners in 10 real estate
limited partnerships managed by Affiliates of the Managing Shareholder and by
partners in a real estate limited partnership managed by an Affiliate of the
Dealer Manager. The targeted properties consist of an aggregate of 638
residential units (comprised of studio and one, two, three and four-bedroom
units) and are all located in Florida with the exception of one property which
is located in Georgia. Such property interests are described in further detail
at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit B hereto If acquisitions
are consummated in respect of all 11 properties, the deemed purchase price is
expected to be approximately $12 million, payable in Units in the Operating
Partnership. The Trust intends to investigate other investment opportunities to
exchange the balance of the Units to be registered for property interests in
other Exchange Offering transactions, including interests held in 13 additional
properties by other limited partnerships managed by Affiliates of the Managing
Shareholder and interests held in one additional property by a limited
partnership managed by an Affiliate of the Dealer Manager. The Trust will also
investigate investment opportunities involving property interests owned by
unaffiliated persons. See "PRIOR PERFORMANCE BY AFFILIATES OF MANAGING
SHAREHOLDER."
Prior to this Offering, the Trust will have no ownership interest in the
Operating Partnership. Assuming the Trust sells all 2,500,000 Common Shares
being offered hereby, the Trust will contribute the net proceeds of the Offering
($22,500,000, after payment of selling commissions and offering fees - see " -
Summary of Use of Proceeds") to the Operating Partnership in exchange for
2,500,000 Units. In that case, assuming that no transactions have been completed
in the proposed Exchange Offering, the Trust would own approximately 80.2% of
the then outstanding Units. See "THE TRUST - Ownership of the Trust and the
Operating Partnership."
The Trust has authority under the Declaration of Trust to issue an
aggregate of up to 25,000,000 Shares (consisting of Common Shares and Preferred
Shares). The Operating Partnership has authority under the Operating Partnership
Agreement to issue any number of Units as may be determined by the Trust in its
sole discretion. Assuming this Offering and the proposed Exchange Offering are
completed in full under the terms currently contemplated and no other
transactions have taken place (including, without limitation, any additional
issuances of Common Shares or Units, any exchange of Units into Common Shares or
any exercise of Common Share purchase warrants issued to the Dealer Manager or
any participating broker-dealer), immediately upon the completion of the
offerings, the Trust would have 2,625,000 Common Shares outstanding and the
Operating Partnership would have 6,264,808 Units outstanding. On a fully diluted
basis assuming that all then outstanding Units (other than those owned by the
Trust) have been exchanged into an equivalent number of Common Shares, all
participants in the offerings would beneficially own an aggregate of 6,327,160
Common Shares of the Trust (i.e., have the right to vote or dispose of such
Common Shares or to acquire ownership of Common Shares in exchange for Units).
Of those Common Shares, purchasers of Common Shares in this Offering as a group
would beneficially own 2,500,000 Common Shares (39.5%) and recipients of Units
in the proposed Exchange Offering as a group would beneficially own the same
number and percentage. The remaining Common Shares would be beneficially owned
by the Original Investors and broker-dealers who earn Common Shares as
commissions in exchange for their services in the Exchange Offering. See "THE
TRUST - Formation Transactions" and " - Ownership of the Trust and the Operating
Partnership."
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The Trust intends to investigate making an additional public or private
offering of Common Shares within the 12-month period following the commencement
of this Offering if the Managing Shareholder determines that suitable property
acquisition opportunities which fulfill the Trust's investment criteria are
available and such an offering would fulfill its cost of funds requirements. The
issuance by the Trust and the Operating Partnership of additional Shares and
Units subsequent to the completion of this Offering and the proposed Exchange
Offering could have a dilutive effect on Shareholders who acquire Common Shares
in this Offering.
THE MATERIAL RISKS INVOLVED IN THE PURCHASE OF COMMON SHARES IN THE OFFERING
INCLUDE THE FOLLOWING:
o Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from residential apartment properties in which the
Trust invests and on property values.
o Distributions of available cash flow to Shareholders of the Trust and
Unitholders of the Operating Partnership will be dependent upon the
operating profits generated by the Operating Partnership. Assuming this
Offering and the proposed Exchange Offering are completed in full under the
terms currently contemplated and no other transactions have taken place
(including, without limitation, any additional issuances of Common Shares
or Units, any exchanges of Units into Common Shares or any exercise of
Common Share purchase warrants issued to the Dealer Manager or any
participating broker-dealer), immediately upon the completion of the
offerings, the Shareholders of the Trust (including offerees who acquire
Common Shares in this Offering and certain broker-dealers who effect
transactions in connection with the proposed Exchange Offering) would
receive approximately 41.5% of any distributions made by the Operating
Partnership; the Unitholders (including persons who accept the proposed
Exchange Offering and the Original Investors) would receive the remaining
approximately 58.5% of such distributions. See "RISK FACTORS -
Distributions to Shareholders and Unitholders Dependent upon Profits of
Operating Partnership" and "THE TRUST - Ownership of the Trust and the
Operating Partnership."
o Financing risks exist, including debt service obligations in respect of
debt secured by or associated with properties in which the Trust invests
and the ability of the Trust to incur additional debt; the need to
refinance all of the Trust's indebtedness at various maturities; and the
effect of any increase in interest rates on the Trust's interest expenses
in respect of any adjustable interest rate financing or in respect of any
required refinancing, all of which risks could adversely affect the Trust's
cash flow from its investments.
o The Original Investors serve as executive officers of the Trust and the
Managing Shareholder and collectively own an amount of Units which are
exchangeable (subject to escrow restrictions described below) into 19% of
the Common Shares outstanding after the completion of this Offering and the
proposed Exchange Offering, on a fully diluted basis assuming that all then
outstanding Units (other than those owned by the Trust) have been exchanged
into an equivalent number of Common Shares. (The Original Investors
received the Units in exchange for their initial capitalization of the
Operating Partnership and other consideration and such Units have been
required to be deposited into a security escrow account for a period of six
to nine years, subject to earlier release under certain conditions
described at "THE TRUST - Formation Transactions.) Accordingly, the
Original Investors have significant influence over the affairs of the Trust
which may result in decisions that do not fully represent the interests of
all Shareholders of the Trust. In addition, Shareholders who acquire Common
Shares in the Offering will pay a higher price per share for Common Shares
than the Original Investors paid for their Units.
o The operation of the Trust involves transactions among the Trust, the
Operating Partnership, the Managing Shareholder, the Original Investors and
certain Affiliates of the Managing Shareholder which may involve conflicts
of interest which could result in decisions that do not fully represent the
interest of all Shareholders of the Trust and Unitholders of the Operating
Partnership.
o Although the Common Shares have been registered under the Securities Act of
1933, as amended, will be freely tradable (subject to certain restrictions
relating to REIT tax laws and rules) and are expected to be listed for
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trading on AMEX immediately prior to the completion of the Offering, it is
possible that no public market for the Common Shares will ever develop or
be maintained, resulting in lack of liquidity of the Common Shares.
o The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance acquisitions and improvements of
property without additional debt or equity financing and may limit cash
available for distribution to Shareholders.
o Dependency on key management.
o Taxation of the Trust as a corporation results if it fails to qualify as a
REIT.
o Limitations on the ability of Shareholders to change control of the Trust
exist due to restrictions on ownership by any individual Shareholder (other
than the Original Investors) of more than 5.0% of the Common Shares.
o The Trust is newly formed and has no assets or operating history, and, as a
result, prospective Investors may not have an opportunity prior to their
acquisition of Common Shares in the Offering to evaluate any properties in
which the Trust may acquire an interest.
o There can be no assurance as to the successful completion of this Offering
and the proposed Exchange Offering and it is unlikely that the cash
proceeds from the sale in this Offering of only the minimum number of
Common Shares required to complete this Offering will be sufficient to meet
the investment objectives of the Trust.
SEE "SUMMARY OF RISK FACTORS" AND "RISK FACTORS" ON PAGES 20 THROUGH AND 22 AND
PAGES 30 THROUGH 45, RESPECTIVELY, FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN COMMON SHARES,
INCLUDING THE FOREGOING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
INVESTORS MAY NOT HAVE AN OPPORTUNITY TO EVALUATE THE TRUST'S PROPERTY
INVESTMENTS BECAUSE THE TRUST OWNS NO PROPERTY AS OF THE DATE OF THE
COMMENCEMENT OF THE OFFERING, HAS NOT IDENTIFIED SPECIFIC PROPERTIES IN THIS
PROSPECTUS AS PROPERTIES THE TRUST INTENDS TO ACQUIRE WITH THE NET PROCEEDS OF
THIS OFFERING AND HAS NO OPERATING HISTORY.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
FLORIDA DIVISION OF SECURITIES, BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
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BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY.
The address and telephone and fax numbers of the Trust's principal office
are:
Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
(513) 984-5001 (Telephone)
(513) 984-4550 (Fax)
The address and telephone and fax numbers of the Dealer Manager of the
Offering are:
Sigma Financial Corporation
4261 Park Road
Ann Arbor, Michigan 48103
(313) 663-1611 (Telephone)
(313) 663- 0213 (Fax)
The date of this Prospectus is ______________, 1998
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TABLE OF CONTENTS
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INVESTOR SUITABILITY STANDARDS ............................................... 12
SUMMARY OF THE TRUST AND USE OF PROCEEDS ..................................... 14
Summary of the Trust ..................................................... 14
Reasons for this Offering and the Proposed Exchange Offering ............. 17
Effects of the Formation and this Offering and Proposed Exchange Offering. 17
Summary of Use of Proceeds ............................................... 18
SUMMARY OF RISK FACTORS ...................................................... 20
TAX STATUS OF THE TRUST ...................................................... 23
COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES ...................... 23
CONFLICTS OF INTEREST ........................................................ 27
FIDUCIARY RESPONSIBILITY ..................................................... 29
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS ............................ 30
RISK FACTORS ................................................................. 30
The Trust ............................................................... 30
No Operating History ............................................... 30
Limited Marketability of Common Shares ............................. 31
Effect on Price of Common Shares and Units Available for Future Sale 31
Effect of Market Interest Rates on Common Share Prices ............. 31
Arbitrary Offering Price ........................................... 31
Participation Rights of Shareholders in Management ................. 32
Distributions to Shareholders Affected by Many Factors ............. 32
Distributions to Shareholders and Unitholders Dependent upon
Profits of Operating Partnership ................................. 33
Liability and Indemnification of the Managing Persons .............. 33
Delaware Business Trust ............................................ 33
Issuance of Additional Securities .................................. 34
Limits on Ownership and Transfers of Shares ........................ 34
Anti-Takeover Provisions ........................................... 35
Dependency on Key Management ....................................... 35
Influence of Original Investors .................................... 35
Conflicts of Interest .............................................. 35
Success of Public Offerings ........................................ 36
Dilution ........................................................... 36
Proposed Exchange Offering ......................................... 37
Prior Performance of Properties Acquired in Exchange Offering ...... 37
No Independent Representation of Prospective Investors ............. 38
Property Investments .................................................... 38
Investment Risks ................................................... 38
Lack of Liquidity of Real Estate ................................... 39
Capital Improvements ............................................... 39
Risk of Real Estate Acquisitions ................................... 39
Real Estate Financing Risks ........................................ 39
Risks of Investments in Mortgages .................................. 40
Operating Risks .................................................... 40
Risk of Joint Activity with Others ................................. 41
Competition ........................................................ 41
Uninsured Loss ..................................................... 41
Regulatory Compliance .............................................. 42
Fair Housing Amendments Act of 1988 ........................... 42
Americans with Disabilities Act ............................... 42
Compliance with Environmental Laws ............................ 42
Extended and Uncertain Period for Returns .......................... 42
Lack of Diversification ............................................ 43
Utilization of Funds for Undesignated Properties ................... 43
Dispositions of Trust Property ..................................... 43
Changes in Laws .................................................... 44
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Unaudited Financial Statements ..................................... 44
Income Tax Considerations ............................................... 44
Adverse Consequences of Failure to Qualify as a REIT ............... 44
State and Local Taxes .............................................. 44
PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER ...................... 45
MANAGEMENT ................................................................... 55
Managing Shareholder .................................................... 55
Trust Management Agreement .............................................. 57
Officers of the Trust ................................................... 57
The Board of the Trust and Trustees ..................................... 58
The Board of the Trust ............................................. 58
Independent Trustees ............................................... 58
Corporate Trustee .................................................. 58
THE TRUST .................................................................... 61
The Operating Partnership ............................................... 61
Formation Transactions .................................................. 64
Ownership of the Trust and the Operating Partnership .................... 65
Regulations ............................................................. 68
Fair Housing Amendments of 1988 .................................... 68
Americans with Disabilities Act ("Act") ............................ 68
Environmental Regulations .......................................... 68
Rent Control Legislation ........................................... 69
Employees ............................................................... 69
INVESTMENT OBJECTIVES AND POLICIES ........................................... 69
General ................................................................. 69
Trust Policies with Respect to Certain Activities ....................... 70
Investment Policies ................................................ 71
Disposition Policies ............................................... 72
Financing Policies ................................................. 72
Conflicts of Interest Policies ..................................... 73
PROPOSED REAL ESTATE INVESTMENTS ............................................. 73
FEDERAL INCOME TAX CONSIDERATIONS ............................................ 78
Taxation of the Trust ................................................... 78
General ............................................................ 78
Stock Ownership Tests .............................................. 79
Asset Tests ........................................................ 79
Gross Income Tests ................................................. 80
The 75% Test .................................................. 80
The 95% Test .................................................. 81
The 30% Test .................................................. 81
Annual Distribution Requirements ................................... 81
Failure to Qualify ................................................. 82
Tax Aspects of the Trust's Investments in Partnerships .................. 82
General ............................................................ 82
Entity Classification .............................................. 83
Tax Allocations with Respect to Trust Properties ................... 83
Sale of Trust Properties ........................................... 84
Taxation of Shareholders ................................................ 84
Taxation of Taxable Domestic Shareholders .......................... 84
Backup Withholding ................................................. 85
Taxation of Tax-Exempt Shareholders ................................ 85
Taxation of Foreign Shareholders ................................... 85
Other Tax Considerations ................................................ 86
Possible Legislative or Other Actions Affecting Tax Consequences.... 86
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
State and Local Taxes ................................................... 86
SUMMARY OF DECLARATION OF TRUST .............................................. 87
Term .................................................................... 87
Control of Operations ................................................... 87
Liability and Indemnification ........................................... 87
Distributions ........................................................... 91
Quarterly and Annual Reports ............................................ 92
Accounting .............................................................. 93
Books and Records; Tax Information ...................................... 93
Governing Law ........................................................... 93
Amendments and Voting Rights ............................................ 93
Dissolution of Trust .................................................... 94
Removal and Resignation of the Managing Shareholder...................... 94
Transferability of Shareholders' Interest ............................... 94
Independent Activities .................................................. 94
Power of Attorney ....................................................... 95
Meetings and Voting Rights .............................................. 95
Additional Offerings of Shares .......................................... 95
Temporary Investments ................................................... 96
REPORTS TO SHAREHOLDERS ...................................................... 96
CAPITAL STOCK OF THE TRUST ................................................... 97
General ................................................................. 97
Transfer Agent .......................................................... 97
Restrictions on Ownership and Transfer .................................. 98
CAPITALIZATION ............................................................... 99
TERMS OF THE OFFERING ........................................................ 100
OTHER INFORMATION ............................................................ 103
General ................................................................. 103
Authorized Sales Material ............................................... 104
Financial Statements ................................................... 104
LITIGATION ................................................................... 104
EXPERTS ...................................................................... 104
LEGAL MATTERS ................................................................ 105
ADDITIONAL INFORMATION ....................................................... 105
GLOSSARY ..................................................................... 105
</TABLE>
EXHIBITS
A ... Prior Performance of Affiliates of Managing Shareholder
B ... Summary of Exchange Property and Exchange Partnership Information
C ... Financial Statements of the Trust, the Operating Partnership and the
Managing Shareholder
D ... Financial Statements of the Exchange Properties
9
<PAGE>
INVESTMENT IN THE COMMON SHARES BEING OFFERED MAY NOT BE SUITABLE FOR INVESTORS
WHO DO NOT MEET CERTAIN NET WORTH AND OTHER REQUIREMENTS OR WHO CANNOT AFFORD
THE CONSEQUENCES OF A SPECULATIVE INVESTMENT THAT IS NOT EXPECTED TO HAVE AN
IMMEDIATE ACTIVE AFTER-MARKET WHERE THE INVESTMENT MIGHT BE SOLD. EVEN THOUGH,
AS DESCRIBED HEREIN, THE TRUST BELIEVES THAT IT WILL BE TREATED AS A REAL ESTATE
INVESTMENT TRUST ("REIT") FOR FEDERAL INCOME TAX PURPOSES, THE TRUST HAS NOT
OBTAINED, AND DOES NOT INTEND TO REQUEST, A RULING FROM THE INTERNAL REVENUE
SERVICE ("IRS") THAT IT WILL BE TREATED AS A REIT. ALTHOUGH THE TRUST DOES NOT
INTEND TO REQUEST SUCH A RULING FROM THE IRS, THE TRUST HAS OBTAINED THE OPINION
OF ITS SPECIAL TAX COUNSEL THAT, BASED ON THE ORGANIZATION AND PROPOSED
OPERATION OF THE TRUST AND BASED ON CERTAIN OTHER ASSUMPTIONS AND
REPRESENTATIONS, IT WILL QUALIFY AS A REIT. THE OPINION IS NOT BINDING ON THE
IRS OR ANY COURT.
REFERENCE SHOULD BE MADE TO THE DECLARATION OF TRUST FOR THE TRUST
("DECLARATION") AND THE AGREEMENT OF LIMITED PARTNERSHIP OF THE OPERATING
PARTNERSHIP, SUPPORTING DOCUMENTS AND OTHER INFORMATION FURNISHED FOR COMPLETE
INFORMATION CONCERNING THE RIGHTS AND OBLIGATIONS OF THE PARTIES. CERTAIN
PROVISIONS OF SUCH AGREEMENTS ARE SUMMARIZED IN THIS PROSPECTUS, BUT IT SHOULD
NOT BE ASSUMED THAT THE SUMMARIES ARE COMPLETE. SUCH SUMMARIES ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO THE ACTUAL DOCUMENTS ATTACHED AS EXHIBITS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO ANY PERSON WHO DOES NOT MEET THE
SUITABILITY TESTS DESCRIBED HEREIN. REPRODUCTION OF THIS PROSPECTUS OR ANY
PORTION THEREOF OTHER THAN BY THE TRUST, THE MANAGING SHAREHOLDER OR ANY
AFFILIATE IS STRICTLY PROHIBITED.
THE MANAGING SHAREHOLDER HAS AGREED TO PROVIDE, DURING THE OFFERING PERIOD, TO
EACH OFFEREE OF COMMON SHARES (OR HIS REPRESENTATIVE(S) OR BOTH) THE OPPORTUNITY
TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE MANAGING SHAREHOLDER OR ANY
PERSON ACTING ON ITS BEHALF CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING
AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT IT POSSESSES SUCH
INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, NECESSARY
TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN. REQUESTS FOR FURTHER
INFORMATION SHOULD BE MADE TO THE TRUST AND SUCH INFORMATION SHOULD BE RELIED
UPON ONLY WHEN FURNISHED IN WRITTEN FORM AND SIGNED ON BEHALF OF THE TRUST. EACH
INVESTOR SHOULD CONSULT HIS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISERS AS TO
LEGAL, TAX, ECONOMIC AND RELATED MATTERS CONCERNING THE INVESTMENT DESCRIBED
HEREIN AND ITS SUITABILITY FOR HIM.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY
STATE OR IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED.
NO BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN RESPECT OF THIS OFFERING, OTHER
THAN THOSE CONTAINED HEREIN (OR INFORMATION REQUESTED BY A PROSPECTIVE INVESTOR
AND FURNISHED TO SUCH PROSPECTIVE INVESTOR IN WRITTEN FORM, SIGNED ON BEHALF OF
THE TRUST) AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR ANY OTHER PERSON. ANY
OTHER INFORMATION OR REPRESENTATION MUST
10
<PAGE>
NOT BE RELIED UPON. EXCEPT AS OTHERWISE INDICATED, THIS PROSPECTUS SPEAKS AS OF
THE DATE ON THE COVER PAGE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL CREATE ANY INFERENCE THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE TRUST SINCE THE RESPECTIVE DATES AT WHICH THE INFORMATION IS
GIVEN HEREIN OR THE DATE HEREOF.
CERTAIN DEFINED TERMS MAY BE FOUND AT "GLOSSARY."
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" FOR THE RISK FACTORS THAT MANAGEMENT
BELIEVES PRESENT THE MOST SUBSTANTIAL RISKS TO AN INVESTOR IN THIS OFFERING.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
11
<PAGE>
INVESTOR SUITABILITY STANDARDS
An investment in the Common Shares being offered under this Prospectus
involves a high degree of risk and is suitable only for persons of substantial
financial means who have no need for liquidity in their investments. See "RISK
FACTORS." The Trust has adopted as a general investor suitability standard the
requirement that each subscriber for Common Shares represent in writing in the
Subscription Documents, among other things, that:
(a) The subscriber has received a copy of the Prospectus;
(b) The subscriber is acquiring the Common Shares for his own account
and for investment purposes only;
(c) The subscriber can bear the economic risk of losing the
subscriber's entire investment;
(d) The subscriber meets the following minimum income/net worth
standards:
(i) Minimum annual gross income of $45,000 and a minimum net
worth (determined exclusive of home, home furnishings, and
automobiles) of $45,000; or
(ii) Minimum net worth of $150,000 (determined exclusive of home,
home furnishings, and automobiles);
(e) The subscriber's overall commitment to investments which are not
readily marketable is not disproportionate to the subscriber's net worth
and the subscriber's investment in the Common Shares will not cause such
overall commitment to become excessive;
(f) The subscriber has adequate means of providing for the
subscriber's current needs and personal contingencies and has no need for
liquidity in the subscriber's investment in the Common Shares; and
(g) The objectives of the Trust are compatible with the subscriber's
investment goals.
In addition, the Trust may not sell Common Shares in the Offering to, or
accept as a Shareholder, any Ohio investor whose investment would exceed 10% of
his liquid net worth.
In the case of sales to fiduciary accounts, the foregoing investor
suitability standards must be satisfied by the beneficiary, by the fiduciary
account, or by the donor or grantor who directly or indirectly provides the
funds to purchase the Common Shares (if the donor or grantor is the fiduciary).
In the event the subscriber for the Common Shares is purchasing in a fiduciary
capacity for another person or entity, the foregoing suitability standards must
be satisfied by such other person or entity on whose behalf the fiduciary is
acting.
The suitability standards referred to above represent minimum suitability
requirements for prospective Investors, and the satisfaction of such standards
by a prospective Investor does not necessarily mean that the Common Shares are a
suitable investment for such prospective Investor.
Representations made by each prospective Investor in the Subscription
Documents regarding the foregoing will be reviewed by the Managing Shareholder
and Dealer Manager to determine the suitability of such persons, and the
Managing Shareholder will have the right to refuse a prospective Investor's
subscription for Common Shares if, in its sole discretion, it believes the
offeree does not meet the applicable suitability requirements or the Common
Shares are otherwise an unsuitable investment for the offeree or for any other
reason. The acceptance of a subscription for Common Shares by the Managing
Shareholder does not, however, constitute a determination by the Managing
Shareholder that the investment is suitable for such purchaser.
The Trust and the Managing Shareholder will make every effort to furnish
each qualified prospective Investor with any additional information he desires
which is not set forth herein and to provide an opportunity for
12
<PAGE>
inquiry concerning the terms and conditions of this Offering, including
information required to verify the accuracy of the information contained in this
Prospectus. Copies of all documents described or referred to herein are
available at the offices of the Trust located at 7826 Cooper Road, Cincinnati,
Ohio 45242. The Trust's telephone number is (513) 984-5001 and its fax number is
(513) 984-4550.
IF YOU DO NOT MEET THE REQUIREMENTS DESCRIBED ABOVE, DO NOT READ FURTHER AND
IMMEDIATELY RETURN THIS PROSPECTUS TO THE DEALER MANAGER OF THE OFFERING. IN THE
EVENT YOU DO NOT MEET SUCH REQUIREMENTS, THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL COMMON SHARES TO YOU.
13
<PAGE>
SUMMARY OF THE TRUST AND USE OF PROCEEDS
The following summary of this Prospectus is for the convenience of
prospective Investors and does not fully reflect all of the terms of the
Offering. This Prospectus describes in detail the numerous aspects of the
transaction which are material to Investors, including those summarized below.
This Prospectus and accompanying Exhibits and supporting documents referred to
herein should be read in their entirety by each prospective Investor and his
advisors before purchasing any Common Shares. The following summary is qualified
in its entirety by reference to the full text of this Prospectus and the
documents referred to herein. Unless the context otherwise requires, the term
"Trust" as used in this Prospectus shall refer to Baron Capital Trust, the
issuer of the Common Shares being offered hereby, and its affiliate, Baron
Capital Properties, L.P., the Operating Partnership, which will conduct the real
estate operations of the Trust and hold its property interests.
Summary of the Trust
The Trust and the Operating Partnership constitute a self-administered and
self-managed real estate company which has been organized to indirectly acquire
equity interests in existing residential apartment properties located in the
United States and to provide or acquire debt financing secured by mortgages on
such types of property. The Trust intends to acquire, own, operate, manage and
improve residential apartment properties for long-term ownership, and thereby to
seek to maximize current and long-term income and the value of its assets. See
"THE TRUST" and "INVESTMENT OBJECTIVES AND POLICIES" below. The management of
the Trust has been involved in the residential apartment business for over 10
years.
The Trust intends to make regular quarterly distributions to its
Shareholders of net income generated from its investments. The Trust intends to
operate as a real estate investment trust (a "REIT") for federal income tax
purposes, provided, however, that if the Managing Shareholder determines, with
the affirmative vote of a Majority of Shareholders entitled to vote on such
matter approving the Managing Shareholder's determination, that it is no longer
in the best interests of the Trust to continue to qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
The Trust is the sole general partner of the Operating Partnership, which
will conduct all of the Trust's real estate operations, and in such capacity the
Trust will control the activities of the Operating Partnership. The real estate
operations of the Trust will be conducted through the Operating Partnership (and
any other subsidiaries the Trust may have in the future), among other reasons,
in order to (i) enhance the ability of the Trust to qualify as a REIT under the
Code, and (ii) enable the Trust to indirectly acquire interests in residential
apartment properties in exchange transactions that involve the issuance of units
of limited partnership interest in the Operating Partnership ("Units") in
exchange for such property interests and thereby permit the deferral until a
later date of any tax liabilities that sellers of such interests otherwise would
incur if they received cash or Common Shares in connection with such sales.
Substantially all of the Trust's assets (including property interests acquired)
will be held by the Operating Partnership. As its sole general partner, the
Trust will control the Operating Partnership as well as hold Units representing
an economic interest in the Operating Partnership. The Operating Partnership
will be responsible for, and pay when due, its share of all administrative and
operating expenses of properties in which it acquires an interest. See "THE
TRUST - The Operating Partnership."
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with this Offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units in the Operating
Partnership. The Operating Partnership will use the net cash proceeds of the
Offering, unissued Units or a combination of net cash proceeds and unissued
Units to acquire interests in residential apartment properties or interests in
other partnerships substantially all of whose assets consist of residential
apartment property interests. In connection with the proposed $25,000,000
Exchange Offering (which will involve the acquisition by the Operating
Partnership of property interests in exchange for Units), the Operating
Partnership will register 2,500,000 Units with the Commission. A registration
statement in connection with the Exchange Offering will be filed with the
Commission concurrently with this Offering.
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<PAGE>
Sellers of property interests who accept the Exchange Offering and receive
Units will be entitled to exchange all or a portion of their Units for an
equivalent number of Common Shares at any time and from time to time, so long as
the exchange would not cause the seller to own (taking into account certain
ownership attribution rules) in excess of 5.0% of the then outstanding Shares,
subject to the Trust's right to cash out any holder of Units who requests an
exchange. To facilitate such exchanges, the Trust will also register 2,500,000
additional Common Shares (in addition to the 2,500,000 Common Shares being
offered in this Offering) for issuance to holders of Units who in the future
request the Trust to issue Common Shares in exchange for Units.
The Trust intends to investigate making an additional public or private
offering of Common Shares within the 12-month period following the commencement
of this Offering if the Managing Shareholder determines that suitable property
acquisition opportunities which fulfill the Trust's investment criteria are
available and such an offering would fulfill its cost of funds requirements. The
issuance by the Trust and the Operating Partnership of additional Shares and
Units subsequent to the completion of this Offering and the Exchange Offering
could have a dilutive effect on Shareholders who acquire Common Shares in the
Offering.
Baron Advisors, Inc., the Managing Shareholder of the Trust, has full
exclusive and complete discretion in the management and control of the Trust and
the Operating Partnership (subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership). Gregory K. McGrath, the Chief Executive Officer of the Trust and
the President, sole shareholder and sole director of the Managing Shareholder,
and Robert S. Geiger, the Chief Operating Officer of the Trust and the Managing
Shareholder (together, the "Original Investors"), and James H. Bownas and Peter
M. Dickson, the initial Independent Trustees of the Trust, will make investment
decisions for the Trust. See "MANAGEMENT." The address and telephone and fax
numbers for the Managing Shareholder are as follows:
Baron Advisors, Inc.
7826 Cooper Road
Cincinnati, Ohio 45242
Phone: (513) 984-5001
Fax: (513) 984-4550
The term of the Trust will end on the earliest to occur of (a) December 31,
2098, (b) the determination of the holders of at least a majority of the Shares
then outstanding to dissolve the Trust; (c) the sale of all or substantially all
of the Trust's Property, (d) the withdrawal of the Offering by the Managing
Shareholder prior to the Termination Date of the Offering, and (e) the
occurrence of any other event which, by law, would require the Trust to
terminate. See "SUMMARY OF DECLARATION OF TRUST - Term." The Operating
Partnership will terminate on December 31, 2098 unless terminated earlier in
connection with a merger or a sale of all or substantially all of the assets of
the Operating Partnership or upon a vote of its partners. See "THE TRUST The
Operating Partnership."
As described below in this Prospectus, the Managing Shareholder, certain of
its Affiliates, the Dealer Manager and participating brokers will receive
substantial fees and compensation from the Trust in connection with this
Offering, the operation of the Trust and the acquisition, ownership, operation,
improvement and disposition of the Trust's Property. See "SOURCES AND USES OF
FUNDS," "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES" and "TERMS OF
THE OFFERING."
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. The initial distribution is
expected to be made by June 30, 1998, assuming that the Escrow Date has occurred
by such date.
Net cash proceeds of this Offering have not yet been committed to specific
properties. Although the Managing Shareholder has several investment
opportunities under review for the application of such proceeds, none of such
potential opportunities has developed beyond the negotiating stage. As of the
date of this Prospectus, the Trust does not contemplate using any significant
portion of the net proceeds of this Offering to acquire property
15
<PAGE>
interests from the Managing Shareholder, any other member of the Board of the
Trust or any of their respective affiliates. The Trust may direct a substantial
portion of the proceeds to investment opportunities that have not been
designated in this Prospectus, as it may be amended or supplemented from time to
time, and the Trust may be unable to or may decline to apply the proceeds to any
specific investments that may be described in this Prospectus or any amendments
or supplements thereto. Therefore, prospective Investors may not be able to
evaluate any properties in which the Trust may apply the net cash proceeds of
the Offering before they purchase Common Shares. In addition, prospective
Investors will not have any vote in the selection of property investments after
they purchase Common Shares. Consequently, Investors will be relying upon the
judgment of the Managing Shareholder and the Independent Trustees for such
decisions. Any proceeds from this Offering which are not invested or committed
for investment within two years following the date of effectiveness of the
Offering (less any amounts retained as necessary operating capital) will be
distributed pro rata to the Shareholders as a return of capital.
As described above, concurrently with this Offering, the Operating
Partnership proposes to make an Exchange Offering using Units to be registered
with the Commission to acquire interests in residential apartment properties. As
its initial acquisition candidates in connection with the Exchange Offering, the
Operating Partnership anticipates that it will offer to acquire property
interests indirectly owned by partners in 10 real estate limited partnerships
managed by Affiliates of the Managing Shareholder and by partners in a real
estate limited partnership managed by an Affiliate of the Dealer Manager of the
Offering (collectively, the "Exchange Partnerships" and individually, an
"Exchange Partnership").
The targeted properties consist of an aggregate of 638 residential units
(comprised of studio and one, two, three and four-bedroom units) and are all
located in Florida with the exception of one property which is located in
Georgia. Such property interests are described in further detail at "PROPOSED
REAL ESTATE INVESTMENTS" and in Exhibit B. If acquisitions are consummated in
respect of all 11 properties (the "Exchange Properties"), the deemed purchase
price is expected to be approximately $12 million, payable in Units in the
Operating Partnership. The Trust intends to investigate other investment
opportunities to exchange the balance of the Units to be registered for property
interests in other Exchange Offering transactions, including interests held in
13 additional properties by other limited partnerships managed by Affiliates of
the Managing Shareholder and interests held in one property by a limited
partnership managed by an Affiliate of the Dealer Manager. The Trust will also
investigate investment opportunities involving property interests owned by
unaffiliated persons. See "PRIOR PERFORMANCE BY AFFILIATES OF MANAGING
SHAREHOLDER."
In the initial transactions of the Exchange Offering, the Operating
Partnership will offer to issue Operating Partnership Units to each individual
limited partner in an Exchange Partnership ("Exchange Limited Partner") in
exchange for his respective limited partnership interest in the Exchange
Partnership. The number of Operating Partnership Units to be offered to each
Exchange Limited Partner for his interest in a given Exchange Partnership will
have a deemed value in the range of 102% to 110% of the amount of an Exchange
Limited Partner's original investment in the partnership. For such purposes,
each Operating Partnership Unit will be initially valued at $10, the same
offering price of each Trust Common Share offered in this Offering. As described
above, holders of Operating Partnership Units may exchange their Units into an
equivalent number of Common Shares (which are expected to be listed on AMEX or
another national securities exchange prior to completion of this Offering) at
any time, subject to certain conditions.
The number of Operating Partnership Units to be offered in respect of each
Exchange Property will differ based upon a number of factors, including, among
others, the operating history of the property, the amount of distributed cash
flow generated by the property, the period of time that the property has been
held by the underlying Exchange Partnership and the property's overall condition
and estimated appraised market value. An Affiliate of one of the Original
Investors has agreed to supplement the number of Operating Partnership Units
offered to Exchange Limited Partners in certain Exchange Partnerships by
contributing to the Operating Partnership at no cost a portion of his appraised
interest in an unrelated residential property. Each Exchange Property in which
the Operating Partnership intends to acquire an interest has been appraised by a
qualified and licensed independent appraisal firm and each additional property
in which it intends to acquire an interest will be appraised in advance. See
"THE TRUST - The Operating Partnership."
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<PAGE>
No special fees or commissions were or will be paid to the Managing
Shareholder or any Affiliates in connection with the proposed Exchange Offer.
Broker-dealers who assist the Operating Partnership in consummating the Exchange
Offering with individual offerees who accept the Exchange Offering will be paid
a commission equal to a number of unregistered Common Shares of the Trust having
a value equal to 5% of the deemed value of Operating Partnership Units exchanged
in the particular transactions.
Properties in which the Trust will acquire an interest are expected to use
the straight-line method of depreciation over 27-1/2 years. Among other
investment policies described below at "INVESTMENT OBJECTIVES AND POLICIES," the
Trust will not make an equity investment in respect of any property where the
amount invested by it plus the amount of any existing indebtedness or
refinancing indebtedness in respect of such property exceeds the appraised value
of the property. In addition, the Trust will not acquire or provide debt
financing in respect of any property where the amount invested by the Trust plus
the amount of any existing indebtedness in respect of such property exceeds 80%
of the estimated replacement cost of the property as determined by the Managing
Shareholder unless substantial justification exists.
For the definition of certain terms used in this Prospectus, see
"GLOSSARY."
Reasons for this Offering and the Proposed Exchange Offering
The Original Investors have structured the formation of the Trust and the
Operating Partnership and caused the Trust and the Operating Partnership to
conduct this Offering and the proposed Exchange Offering because they believe
that the following benefits will occur:
o Opportunity for purchasers of Common Shares in this Offering and
offerees who participant in the proposed Exchange Offering (who in
most cases now have an interest in a single property) to participate
in a diversified portfolio of residential apartment properties through
beneficial ownership of interests in a publicly traded REIT.
o Anticipated ability of the Trust and the Operating Partnership to
obtain capital as a result of (i) access to public equity and debt
markets; (ii) the financial strengths of the combined enterprise,
which should enable the Trust and the Operating Partnership to obtain
financing at better rates and on better terms than would otherwise be
available to single-asset owners and (iii) the potential for reduced
leverage and enhanced borrowing capacity of the Trust and the
Operating Partnership.
o The potential for Shareholders of the Trust and Unitholders of the
Operating Partnership in the growth of the Trust.
o The deferral of the income tax consequences of the contributions of
property owners who elect to participate in the Exchange Offering and
in future similar transactions and the improved liquidity that will be
available to such participants. Property owners who accept the
Exchange Offering will receive Operating Partnership Units (which are
exchangeable for publicly traded Common Shares) and will thus have
improved the liquidity of their investment.
o The issuance in this Offering of up to $25 million of Trust Common
Shares, which will provide funds to permit the Trust and the Operating
Partnership to achieve their investment objectives.
o Additional professional expertise from the individuals who will serve
as members of the Board of the Trust and officers of the Trust and the
Managing Shareholder who are not currently associated therewith.
Effects of the Formation Transactions and this Offering and the Proposed
Exchange Offering
The completion of the formation transactions and this Offering and the
proposed Exchange Offering will have various beneficial effects on the
operations of the Trust and the Operating Partnership, including the operation
17
<PAGE>
of the properties to be acquired, for the purchasers of Common Shares in this
Offering and offerees who accept the Exchange Offering:
The principal benefits include the following:
o The enhanced ability of the Trust and the Operating Partnership to
obtain unsecured financing or financing secured by all or a portion of
the portfolio of assets to be acquired by the Trust and the Operating
Partnership.
o The ability of the Trust and the Operating Partnership to issue Common
Shares and Units in connection with acquisitions that the Trust and
the Operating Partnership may undertake in the future.
o The ability to solicit institutional investors for investment in
residential apartments properties.
Summary of Use of Proceeds
Set forth below is the estimated application of proceeds of this Offering.
See also "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES" and "TERMS OF
THE OFFERING."
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
Amount Percent Amount Percent
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Offering Proceeds: $ 500,000 100% $25,000,000 100%
Cash Offering Expenses:
Underwriting Commissions (1): 40,000 8% 2,000,000 8%
Distribution, Due Diligence and
Organizational Fee (2): 5,000 1% 250,000 1%
Legal and Consulting Fee (3): 5,000 1% 250,000 1%
----------- ----------- ----------- -----------
Amount Available for Investment and
Trust Operations: $ 450,000 90% $22,500,000 90%
=========== =========== =========== ===========
Investment Fee (4): 20,000 4% 1,000,000 4%
Proceeds to be Used to Acquire
Property Interests and for Trust
Operations (5): 430,000 86% 21,500,000 86%
Cash Offering Expenses: 50,000 10% 2,500,000 10%
----------- ----------- ----------- -----------
Total Application of Proceeds: $ 500,000 100% $25,000,000 100%
=========== =========== =========== ===========
</TABLE>
Footnotes:
1. The Trust will pay the Dealer Manager selling commissions in an amount
equal to 8% of the gross proceeds received from its sales of Common Shares
in this Offering from which it will pay any broker-dealers that the Trust
or the Dealer Manager selects to participate in the sale of Common Shares.
All or a portion of the commissions payable may be reallocated to
participating broker-dealers. The selling commissions will be due and
payable promptly after the latest to occur of (i) acceptance by the
Managing Shareholder of an Investor's subscription, (ii) the receipt and
collection by the Trust of the gross purchase price of the Common Shares
acquired by
18
<PAGE>
such Investor, and (iii) the Escrow Date. The Trust reserves the right to
waive the payment of all or a part of a commission by one or more
Investors, in which case the cost of the Common Shares acquired by such
Investors will be less than the cost of equivalent Common Shares to an
Investor paying a commission. The Trust has also granted the Dealer Manager
a five-year warrant, exercisable beginning on the first anniversary of the
commencement of the Offering and ending on the fifth such anniversary, to
acquire a number of Common Shares in an amount equal to 8.5% of the number
of Common Shares sold by it in the Offering at an exercise price of $13.00
per Common Share.
2. The Trust will pay the Managing Shareholder a non-recurring non-accountable
fee in an amount (up to $250,000) equal to 1% of the gross proceeds from
sales of Common Shares in this Offering to cover the distribution, due
diligence and organizational expenses associated with the formation of the
Trust and the Operating Partnership and with the Offering.
3. The Trust will also pay the Managing Shareholder a non-recurring
non-accountable fee in an amount (up to $250,000) equal to 1% of gross
proceeds from sales of Common Shares in this Offering to cover legal,
accounting and consulting fees and printing, filing, recording, postage and
other miscellaneous expenses associated with this Offering. The fees
described in footnote 2 and this footnote 3 will be payable at the same
time that selling commissions are payable. To the extent which the
distribution, due diligence and organizational expenses or the legal,
accounting and consulting fees and printing, filing, recording, postage and
other miscellaneous expenses associated with this Offering exceed 1% of the
gross proceeds from the Offering, those expenses will not be reimbursed to
the Managing Shareholder.
4. The Trust will pay the Managing Shareholder an investment fee in an amount
(up to $1,000,000) equal to 4% of the gross proceeds from sales of Common
Shares in this Offering as compensation for the Managing Shareholder's
services and expenses in investigating and evaluating investment
opportunities for the Trust and for assisting the Trust in consummating its
investments. One-half of the fee will be payable at the same time that
selling commissions are payable in connection with this Offering, and the
balance will be payable proportionately upon the consummation of each of
the Trust's real estate investments based on the amount invested.
5. The Trust's intended types of investments are described at "THE TRUST,"
"INVESTMENT OBJECTIVES AND POLICIES" and "PROPOSED REAL ESTATE
INVESTMENTS."
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<PAGE>
SUMMARY OF RISK FACTORS
The following is a summary of the material risk factors applicable to the
purchase of Common Shares in this Offering and the proposed operations of the
Trust. For a more detailed description of the risk factors relating to the
Offering and the Trust's activities, including those set forth below, see "RISK
FACTORS" below.
o Real estate investment considerations, such as the effect of national and
local economic and other conditions on residential apartment property
values, the general lack of liquidity of investments in real estate, the
risks associated with investments in mortgages, the ability of tenants to
pay rents, the possibility that rental units may not be occupied or may be
occupied on terms unfavorable to the Trust, the frequent need for capital
improvements, the possibility that (including the effects of depreciation
and interest) certain properties may have experienced recurring losses for
financial reporting purposes, the possibility of uninsured losses, the
ability of the Trust's property investments to generate sufficient cash
flow to meet expenses, including debt service requirements, or to be sold
on favorable terms, if at all, the availability of capital for investment,
and competition in seeking properties for acquisition and in seeking
tenants, which considerations, individually or in the aggregate, may
negatively impact the Trust's ability to make distributions to
Shareholders.
o Distributions of available cash flow to Shareholders of the Trust and
Unitholders of the Operating Partnership will be dependent upon the
operating profits generated by the Operating Partnership. Assuming this
Offering and the proposed Exchange Offering are completed in full under the
terms currently contemplated and no other transactions have taken place
(including, without limitation, any additional issuances of Common Shares
or Units, any conversion of Units into Common Shares or any exercise of
Common Share purchase warrants issued to the Dealer Manager or any
participating broker-dealer), immediately upon the completion of the
offerings, the Shareholders of the Trust (including offerees who acquire
Common Shares in this Offering and certain broker-dealers who effect
transactions in connection with the proposed Exchange Offering) would
receive approximately 41.5% of any distributions made by the Operating
Partnership; the Unitholders (including persons who accept the proposed
Exchange Offering and the Original Investors) would receive the remaining
approximately 58.5% of such distributions. See "RISK FACTORS -
Distributions to Shareholders and Unitholders Dependent upon Profits of
Operating Partnership" and "THE TRUST - Ownership of the Trust and the
Operating Partnership."
o Risks associated with debt financing, including the potential inability to
refinance any mortgage indebtedness of the Trust upon maturity, risks
associated with possible investments in loans secured by Junior Mortgages
on property which may not be recorded, and the risk of higher interest
rates on any adjustable interest rate debt or debt incurred to refinance
indebtedness.
o The Trust will be permitted to incur indebtedness in an aggregate amount up
to 300% of its net assets (subject to certain exceptions described at
"INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with respect to
Certain Activities - Financing Policies"), which could result in the Trust
becoming highly leveraged, which in turn could adversely affect the ability
of the Trust to make distributions to Shareholders and increase the risk of
default under its indebtedness.
o The Original Investors serve as executive officers of the Trust and the
Managing Shareholder and collectively own an amount of Units which are
exchangeable (subject to escrow restrictions described below) into 19% of
the Common Shares outstanding after the completion of the Offering and the
proposed Exchange Offering, on a fully diluted basis assuming that all then
outstanding Units (other than those owned by the Trust) have been exchanged
into an equivalent number of Common Shares. (The Original Investors
received the Units in exchange for their initial capitalization of the
Operating Partnership and other consideration, and such Units have been
required to be deposited into a security escrow account for a period of six
to nine years, subject to earlier release under certain conditions
described at "THE TRUST - Formation Transactions.) Accordingly, the
Original Investors have significant influence over the affairs of the Trust
which may result in decisions that do not fully represent the interests of
all Shareholders of the Trust. In addition, Shareholders who acquire Common
Shares in this Offering will pay a higher price per share for Common Shares
than the Original Investors paid for
20
<PAGE>
their Units. See "MANAGEMENT" and "THE TRUST - Formation Transactions" and
" - Ownership of the Trust and the Operating Partnership."
o Although the Trust has adopted certain policies designed to eliminate or
minimize their effect, potential conflicts of interest may arise among the
Trust, the Operating Partnership, the Managing Shareholder, the Original
Investors and certain Affiliates of the Managing Shareholder, including
certain Affiliates which have sponsored and/or managed, or may in the
future sponsor, real estate investment programs which seek to acquire
interests in properties similar to those which the Trust will seek to
acquire. In addition, there will be competing demands for management
resources of the Managing Shareholder and the Trust, the possibility of
transactions between the Trust and Affiliates of the Managing Shareholder,
and a lack of independent representation of Investors in structuring this
Offering. See "CONFLICTS OF INTEREST" and "INVESTMENT OBJECTIVES AND
POLICIES - Conflict of Interest Policies."
o Although the Common Shares have been registered under the Securities Act of
1933, as amended, will be freely tradable (subject to certain restrictions
relating to REIT tax laws and rules) and are expected to be listed for
trading on AMEX immediately prior to the completion of this Offering, it is
possible that no public market for the Common Shares will ever develop or
be maintained, resulting in lack of liquidity of the Common Shares.
o The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance acquisitions and improvements of
property without additional debt or equity financing and may limit cash
available for distribution to Shareholders. See "FEDERAL INCOME TAX
CONSIDERATIONS."
o Dependency on key management. See "MANAGEMENT."
o Taxation of the Trust as a corporation if it fails to qualify as a REIT for
federal income tax purposes, the Trust's liability for certain federal,
state and local income taxes in such event, and the resulting decrease in
cash available for distribution to Shareholders; even if the Trust
qualifies for taxation as a REIT, the Trust may be subject to certain
Federal, state and local taxes on its income and property. See "FEDERAL
INCOME TAX CONSIDERATIONS."
o Potential anti-takeover effects of provisions in the Declaration which
generally limit the actual or constructive ownership by any one person or
entity (other than the Original Investors) of equity securities in the
Trust to 5.0% of the outstanding Shares and other Declaration and statutory
provisions that may limit the opportunity for Shareholders to receive a
premium price upon any resale by them of Common Shares. See Article 2A of
the Declaration of the Trust.
o The potential liability of the Trust for unknown or future environmental
liabilities and the costs of compliance with the Americans with
Disabilities Act and other governmental regulations, which may negatively
impact the Trust's financial condition, results of operations and cash
available for distribution to Shareholders.
o The Trust is newly formed and has no assets or operating history, and, as a
result, prospective Investors may not have an opportunity prior to their
acquisition of Common Shares in the Offering to evaluate any properties in
which the Trust may acquire an interest.
o There can be no assurance as to the successful completion of this Offering
and the proposed Exchange Offering and it is unlikely that the cash
proceeds from the sale in this Offering of only the minimum number of
Common Shares required to complete this Offering will be sufficient to meet
the investment objectives of the Trust.
o The possible issuance by the Trust and the Operating Partnership of
additional Shares and Units subsequent to the completion of this Offering
and the proposed Exchange Offering, which may result in the dilution of
Investors which acquire Common Shares in the Offering and effect the then
prevailing market price of Common Shares.
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<PAGE>
o The investment of the net proceeds of this Offering to acquire interests in
one or more existing residential apartment properties may occur over an
extended period during which the Trust will face risks of changes in
interest rates and adverse changes in the real estate market. Similarly,
during periods in which proceeds are invested in interim investments prior
to such application, the Trust may be affected by changes in prevailing
interest rate levels. Such interim investments would be expected to earn
rates of return which are lower than those earned on the Trust's real
estate investments.
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<PAGE>
TAX STATUS OF THE TRUST
The Trust intends to elect to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ending December 31, 1998. To maintain REIT status, an
entity must meet a number of organizational and operational requirements,
including a requirement that it currently distribute to its Shareholders at
least 95% of its REIT taxable income (determined without regard to the dividends
paid deduction and by excluding net capital gains). For taxable years beginning
after August 5, 1997, the Taxpayer Relief Bill of 1997 (the "1997 Act") (1)
expands the class of excess noncash items that are excluded from the
distribution requirement to include income from the cancellation of indebtedness
and (2) extends the treatment of original issue discount and coupon interest as
excess noncash items to REITs, like the Trust, that use an accrual method of
accounting. As a REIT, the Trust generally will not be subject to federal income
tax on net income it distributes currently to its Shareholders. If the Trust
fails to qualify as a REIT in any taxable year, it will be subject to federal
income tax at regular corporate rates and may not be able to qualify as a REIT
for the four subsequent taxable years. See "RISK FACTORS - Adverse Consequences
of Failure to Qualify as a REIT" and "FEDERAL INCOME TAX CONSIDERATIONS." Even
if the Trust qualifies for taxation as a REIT, the Trust may be subject to
certain federal, state and local taxes on its income and property.
COMPENSATION OF THE MANAGING SHAREHOLDER
AND AFFILIATES
The following table describes all the material fees, compensation, and
other payments that may be received by the Managing Shareholder and Affiliates
in exchange for their respective services and expenses in connection with the
preparation of this Prospectus and this Offering, the operation of the Trust and
the acquisition and disposition of the Trust's Property. The determination of
the type and amount of such compensation was not the result of arms'-length
negotiation. See "CONFLICTS OF INTEREST."
No special fees or commissions were or will be paid to the Managing
Shareholder or any affiliates, in connection with the proposed Exchange Offer.
Broker-dealers who assist the Operating Partnership in consummating the Exchange
Offering with individual offerees who accept the Exchange Offering will be paid
as a commission a number of unregistered Common Shares of the Trust equal to 5%
of the Units exchanged in the particular transactions as a result of their
efforts.
<TABLE>
<CAPTION>
OFFERING AND ORGANIZATIONAL STAGE
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder (Baron Non-recurring non-accountable fee to cover $250,000
Advisors) distribution, due diligence and
organizational expenses associated with the
formation of the Trust and the Operating
Partnership and with the Offering (1% of
gross proceeds from Offering)
Managing Shareholder Non-recurring non-accountable fee to cover $250,000
legal, accounting and consulting fees,
filing, recording, printing, postage and
other miscellaneous expenses associated
with the Offering (1% of gross proceeds
from Offering)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
OFFERING AND ORGANIZATIONAL STAGE (cont'd)
------------------------------------------
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Baron Capital Properties, No compensation will be payable to the Reimbursible expenses are
Inc. (the Corporate Trustee Corporate Trustee for performing services on expected to be limited to the
of the Trust) behalf of the Trust at the direction of the expense of operating an office
Managing Shareholder; however, reimbursement in Delaware (approximately
will be made for reasonable expenses $1,500 per year initially) as
incurred on behalf of the Trust which are required by the Delaware Act -
approved in advance by the Managing see "MANAGEMENT - Corporate
Shareholder. Trustee."
Managing Shareholder and The Managing Shareholder and certain Amount of reimbursible expenses
Affiliates Affiliates are entitled to be reimbursed expenses incurred on behalf of
by the Trust for all reasonable direct the Trust.
expenses incurred on behalf of the
Trust, including but not limited to
legal, accounting and consulting fees
and other expenses, to the extent those
expenses were incurred by them in
carrying out responsibilities assigned
to them under the Declaration and do not
constitute payment for activities for
which they already receive a fee or
compensation as described herein.
<CAPTION>
ACQUISITION AND OPERATING STAGE
-------------------------------
<S> <C> <C>
Managing Shareholder Investment fee in an amount (up to $1,000,000; the Managing
$1,000,000) equal to 4% of gross proceeds Shareholder may, in its sole
from the Offering as compensation for discretion, share all or a
investigating and evaluating investment portion of this fee with
opportunities for the Trust and assisting in non-Affiliates.
the consummation of its investments; one-half
of the fee is payable at the same time that
selling commissions are payable in connection
with the Offering, and the balance is payable
proportionately at investment closings based
on amount invested
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION AND OPERATING STAGE (cont'd)
----------------------------------------
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder Annual fee payable under the Trust $500,000 per year payable on a
Management Agreement for ongoing monthly basis during the term of
management, administrative, and investment the agreement beginning June 1,
advisory services for the Trust (in an 1998; at its option the Managing
amount equal to 1% of gross proceeds of the Shareholder may elect to be paid
Offering plus 1% of the initial value of in Common Shares with an
Units issued in connection with the equivalent value.
proposed Exchange Offering)
Brentwood Management, LLC or Property Management Fee for managing 5% of collected rental income
an Affiliate properties in which the Trust invests from each apartment property it
manages for the Trust plus $325
monthly bookkeeping fee; it may
earn a monthly performance fee of
$2.00 per residential unit if
greater than 96% of gross
potential rents are collected.
Managing Shareholder or an Fee payable to the Managing Shareholder or Fee limited to an amount equal
Affiliate an Affiliate by a seller, in certain cases to up to five percent of the
where the Trust acquires one or more First amount raised in the Offering.
Mortgage Loans or Junior Mortgage Loans or
accounts receivable from existing creditors
of such obligations, title to a particular
property, or an equity interest in an
entity which owns title to a particular
property at a discount to the appraised
value of such property or equity interest
determined at the time of such
acquisition.
Baron Capital Properties, No compensation will be paid for performing Reimbursible expenses are
Inc. (the Corporate Trustee services on behalf of the Trust at the expected to be limited to the
of the Trust) direction of the Managing Shareholder; expense of operating an office
however, reimbursement will be made for in Delaware (approximately
reasonable expenses incurred on behalf of $1,500 per year initially) as
the Trust which are approved in advance by required by the Delaware Act -
the Managing Shareholder. see "MANAGEMENT - Corporate
Trustee."
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION AND OPERATING STAGE (cont'd)
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder and Subject to operational limitations on The compensation, price or fee
Affiliates REITs for federal income tax purposes, payable must be comparable to and
the Trust is authorized to contract with competitive with that charged by
the Managing Shareholder and Affiliates a third party rendering
to provide goods and services other than comparable goods and services
those specified herein, but no such which could reasonably be made
contract is contemplated at this time. available to the Trust.
Any such contract would require, among
other things, that such persons be
previously engaged in the business of
providing such goods or services as an
ongoing business and that the
compensation, price or fee does not
exceed that specified in the third column.
Managing Shareholder and The Managing Shareholder and certain Amount of reimbursible expenses
Affiliates Affiliates are entitled to be reimbursed incurred on behalf of the Trust.
by the Trust for all reasonable direct
expenses incurred on behalf of the Trust,
including but not limited to legal,
accounting and consulting fees and other
expenses, to the extent those expenses
were incurred by them in carrying out
responsibilities assigned to them under
the Declaration and do not constitute
payment for activities for which they
already receive a fee or compensation as
described herein.
</TABLE>
26
<PAGE>
CONFLICTS OF INTEREST
The Managing Shareholder will use its best efforts to conduct Trust affairs
for the benefit of the Shareholders. However, the Trust is subject to various
conflicts of interest arising out of its relationship with the Managing
Shareholder, Affiliates of the Managing Shareholder, the Original Investors and
the Shareholders, including but not limited to those described below.
The Managing Shareholder was formed for the sole purpose of serving as the
Managing Shareholder of the Trust. Certain Affiliates of the Managing
Shareholder, however, have formed, manage or participate in other partnerships
or entities which engage in real estate activities and may acquire and/or
develop real estate for their own accounts. Affiliates of the Managing
Shareholder are corporate general partners of 46 other Delaware or Florida real
estate limited partnerships that were previously organized to invest in separate
residential apartment properties and single-family housing and retail projects
located in southeastern and mid-western portions of the United States.
Generally, each such program has a separate general partner and involves
separate projects or phases of projects which have been separately financed and
operated on a "stand-alone" basis. See "MANAGEMENT" and "PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER." It is expected that Affiliates of the
Managing Shareholder will organize similar programs in the future.
Certain Affiliates of the Managing Shareholder have sponsored or may
sponsor real estate investment limited partnerships which may seek to acquire
interests in properties similar to those which the Trust may seek to acquire. In
addition, the Trust may attempt to acquire interests in properties from certain
partnerships managed by Affiliates of the Managing Shareholder that directly or
indirectly own interests in properties or from investors in such partnerships.
Furthermore, the Original Investors, Mr. McGrath and Mr. Geiger, serve as
executive officers of the Trust and the Managing Shareholder and are principal
Unitholders in the Operating Partnership. Therefore, individually and
collectively they have significant influence over the affairs of the Trust which
may result in decisions that do not fully represent the interests of all
Shareholders of the Trust. Mr. McGrath is also the sole principal of the
corporate general partners of the real estate investment limited partnerships
described above, certain of which own interests in residential apartment
properties in which the Trust may acquire an interest.
In order to eliminate or minimize conflicts of interest among the Trust and
such Affiliates which may arise in such situations, the Trust has adopted
provisions in the Declaration which require that at least a majority of the
members of the Board be Independent Trustees and that a majority of the Board,
and, in certain cases, a majority of the Independent Trustees, approve
transactions between the Trust and the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective Affiliates. See "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
In addition, the Trust has adopted the following method of allocation of
the acquisition of properties between the Trust and such other affiliated
partnership programs seeking similar properties. Except in unusual
circumstances, the Trust will not invest its net proceeds in property
investments until such similar programs sponsored prior to the Offering have
specified for investment or committed to invest at least 50% of their investment
funds in respect of particular properties, and no such similar program sponsored
subsequent to the Offering will invest in respect of a particular property until
the Trust has specified for investment or committed to invest at least 50% of
its net offering proceeds in respect of particular properties. The Board and the
Independent Trustees are responsible for overseeing the allocation of the
acquisition of properties under the circumstances described above to insure that
the foregoing allocation method is applied fairly to the Trust. However, there
can be no assurance that these policies will always be successful in eliminating
the influence of such conflicts, and, if they are not successful, decisions
could be made that might fail to reflect fully the interests of all
Shareholders.
In most cases, the management of the Managing Shareholder and its
Affiliates is identical. For example, the President, sole stockholder and sole
director of the Managing Shareholder is Gregory K. McGrath, who is also the
President, sole director and sole shareholder of each of the corporate general
partners of the investment programs referred to in the second paragraph of this
section. See "MANAGEMENT." As a result, the activities of
27
<PAGE>
other investment programs organized by Affiliates of the Managing Shareholder
may also result in conflicting demands upon the time and effort of the
management of the Managing Shareholder in the performance of its duties to the
Trust. However, the Managing Shareholder will devote as much attention to the
Trust's activities as is reasonably necessary to manage the Trust.
In the event that any dispute arises in which the interests of the Trust
and any other programs sponsored by the Affiliates of the Managing Shareholder
diverge, the Trust, if necessary, intends to retain separate counsel for each
party with an adverse interest.
The Managing Shareholder and certain Affiliates are entitled under the
Declaration to receive certain fees and other compensation, payments and
reimbursements discussed in this Prospectus. Such fees and other compensation
generally were not determined through a process of arm's length bargaining. The
prices payable and terms of such transactions may not necessarily be determined
by reference to costs to the Managing Shareholder or such Affiliates,
independent appraisals or comparable third party transactions. As a result, the
fees, compensation, prices or terms may not reflect the fair market value of the
services to be rendered to the Trust by the Managing Shareholder or Affiliates
or the value of the property acquired or disposed of.
In addition, the level of compensation payable to the Managing Shareholder
or its Affiliates in connection with the organization and operation of the Trust
may be greater or less than that payable in connection with the organization and
operation of the other investment programs sponsored by such Affiliates.
The interests of the Shareholders may be inconsistent in some respects with
the interests of the Managing Shareholder. The Managing Shareholder and certain
of its Affiliates, by reasons of their interests in the Trust and their receipt
of compensation and fees from the Trust, have and will have potential conflicts
of interest in connection with their performance of certain activities. For
example, a transaction such as a sale of the Trust's Property may produce an
economic benefit for the Managing Shareholder and/or an Affiliate but adverse
tax consequences for the Shareholders. Also, circumstances may arise where
termination of business by the Trust may be advantageous to the Managing
Shareholder and/or Affiliates, while continuation of the Trust might be
advantageous to the Shareholders.
The Declaration provides that the Trust will indemnify the Managing
Shareholder, Independent Trustees, other members of the Board and each of their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees against certain liabilities, and the availability
of such indemnification could affect the actions of such indemnified parties.
See "SUMMARY OF DECLARATION OF TRUST Liability and Indemnification."
The Managing Shareholder intends to utilize the services of certain
suppliers of goods and services for the Trust that have previously provided
goods or services to prior investment programs organized by Affiliates of the
Managing Shareholder. While such providers of goods and services are
unaffiliated with the Managing Shareholder, the existence of previous business
relationships may affect the ability of the Managing Shareholder to
independently represent the interests of the Trust with respect to such
providers of goods and services in light of such other business relationships.
While the Managing Shareholder believes that it has represented and will
continue to represent the interests of the Trust and believes that there are
benefits to utilizing the services of parties with whom the Managing Shareholder
has previous experience, prospective Investors who are concerned about such
potential conflicts are advised to request further information from the Managing
Shareholder and to independently evaluate such relationships.
The Managing Shareholder has provided no independent representation of
prospective Investors in connection with this Offering, and each prospective
Investor should seek independent advice and counsel before making an investment
in the Trust.
While potential conflicts of interest, including those described herein,
may not be entirely eliminated, the Trust believes that any actual conflicts
that may arise will not materially affect the obligation of the Managing
28
<PAGE>
Shareholder, the Independent Trustees, and any other members of the Board to act
in the best interests of the Shareholders and the Trust. See "FIDUCIARY
RESPONSIBILITY" and "RISK FACTORS."
FIDUCIARY RESPONSIBILITY
The Managing Shareholder, the Trustees and other members of the Board of
the Trust are deemed to be in a fiduciary relationship to the Trust and the
Shareholders, and consequently must exercise good faith and integrity in
handling Trust affairs. The Trustees and other members of the Board of the Trust
also have a fiduciary duty to the Shareholders to supervise the relationship of
the Trust with the Managing Shareholder. Where the question has arisen, courts
have held that a limited partner may institute legal action on behalf of himself
and all other similarly situated limited partners (i.e., class action) to
recover damages for a breach by a general partner of its fiduciary duty, or on
behalf of the partnership (i.e., partnership derivative action) to recover
damages from third parties. Certain recent cases decided by the Federal courts
may also be construed to support the right of a limited partner to bring such
actions under Rule 10b-5 issued under the Securities Act of 1933, as amended,
for the recovery of damages (including losses incurred in connection with the
purchase or sale of a partnership interest) resulting from a breach by a
managing entity of its fiduciary duty.
The foregoing summary is based on statutes, rules and decisions as of the
date of this Prospectus and involves a rapidly developing and changing area of
the law. Investors who believe that a breach of fiduciary duty by the Managing
Shareholder, an Independent Trustee or any other member of the Board has
occurred or who have questions concerning the duties of such persons should
consult with their own counsel.
The Declaration provides that the Trust will indemnify the Managing
Shareholder, the Independent Trustees, other members of the Board and their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees against liability arising out of the management
of the Trust within the scope of the Declaration, unless negligence or
misconduct is involved. As a result of these indemnification arrangements,
purchasers of Common Shares have more limited rights of action than they would
have absent the limitations in the Declaration. The exculpatory provisions do
not include indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), unless (i) there has been a successful
adjudication on the merits of each claim involving alleged securities law
violations as to the particular indemnitee, (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee, or (iii) a court of competent jurisdiction approves a
settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In
addition, the exculpatory provisions do not include indemnification for
liabilities arising from or out of intentional or criminal wrongdoing. See
Section 3.7(b) of the Declaration of Trust. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to the Managing
Shareholder, the Independent Trustees, other members of the Board and their
respective Affiliates and their respective officers, directors, shareholders,
partners, agents and employees pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. See "SUMMARY OF
DECLARATION OF TRUST - Liability and Indemnification."
The Managing Shareholder is not permitted to commingle any funds of the
Trust with its own funds or the funds of any other person. The Trust is
expressly prohibited from making any loans to the Managing Shareholder. The
Trust may borrow money from the Managing Shareholder, but only on terms which
are competitive with those offered by unrelated lending institutions.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including
statements regarding, among other items: (i) the Trust's anticipated business
strategies and (ii) the Trust's intention to acquire property interests in
exchange for cash proceeds it may receive from the Offering, loan proceeds from
any debt financings it may effect, any available net operating revenue, and
Units of the Operating Partnership. Actual results could differ materially from
those projected in the forward-looking statements as a result of any number of
factors discussed elsewhere in this Prospectus, including, without limitation,
under the captions "SUMMARY OF THE TRUST AND USE OF PROCEEDS," "SUMMARY OF RISK
FACTORS," "RISK FACTORS," "TAX STATUS OF THE TRUST," "CONFLICTS OF INTEREST,"
"MANAGEMENT," "THE TRUST," "INVESTMENT OBJECTIVES AND POLICIES," "PROPOSED REAL
ESTATE INVESTMENTS," "FEDERAL INCOME TAX CONSIDERATIONS," "SUMMARY OF
DECLARATION OF TRUST," and "TERMS OF THE OFFERING." When used in this Prospectus
the words "anticipate," "expect," "estimate," "intend," "believe," "project,"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, expected, estimated, intended, believed or projected. Among
the key factors that may have a direct bearing on the Trust's business,
financial condition and results of operations are the effects of risks
associated with (i) changes in the competitive marketplace for acquisitions of
interests in residential apartment properties, (ii) changes in the performance
of the operations of properties in which the Trust acquires an interest, and
(iii) the volatility of the trading market for the Common Shares and general
economic conditions. The Trust assumes no obligation to update its
forward-looking statements or to advise of changes in the assumptions and
factors on which they are based. Given these uncertainties, prospective
purchasers are cautioned not to place undue reliance on such forward-looking
statements.
RISK FACTORS
Prospective investors should carefully consider the following material risk
factors, in addition to the other information set forth in this Prospectus, in
connection with an investment in the Common Shares offered hereby and the
proposed operations of the Trust. See also "SUMMARY OF RISK FACTORS" above.
Unless the context otherwise requires, the term "Trust" as used herein shall
refer to Baron Capital Trust, the issuer of the Common Shares being offered
hereby, and Baron Capital Properties, L.P., the Operating Partnership, which
will conduct the real estate operations of the Trust and hold its property
interests.
Trust
No Operating History
Common Shares offered hereby must be considered speculative investments,
and there can be no assurance that the Trust will fulfill its investment
objectives. The Trust, the Operating Partnership and the Managing Shareholder
have no operating history. In addition, the Operating Partnership's assets will
consist primarily of direct or indirect equity or debt investments it may make
in respect of particular residential apartment properties and thus will be
largely dependent upon the successful operation of such properties. Management
of the Managing Shareholder and Affiliates has substantial prior experience in
and knowledge of the residential apartment property market and its financing,
and has significant experience in the management of investment programs. Subject
to the REIT provisions of the Code and regulations issued thereunder and certain
limitations set forth in Section 1.9 of the Declaration, the Trust will also be
authorized to invest in raw land, stocks, bonds, notes, partnership interests
and other securities, and thus will be dependent to a lesser extent upon the
satisfactory performance of such securities. See "FEDERAL INCOME TAX
CONSIDERATIONS" for a description of the REIT provisions of the Code and
regulations issued thereunder and Section 7.4 of the Declaration of the Trust
regarding such permitted investments.
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Limited Marketability of Common Shares
Although Common Shares issued in connection with the Offering have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will be freely transferable, the Common Shares will not be registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or listed
on a stock exchange immediately following the effective date of such Securities
Act registration. The Trust will apply for listing on the American Stock
Exchange ("AMEX") of the Common Shares to be issued in connection with the
Offering and the proposed Exchange Offering and expects to qualify for listing
prior to the completion of the offerings. However, there can be no assurance
whether the Trust will qualify for such listing on AMEX or any other stock
exchange and, if so, of the timing of the effectiveness of any such listing. In
addition, the initial public offering price may not be indicative of the market
price for Common Shares after the Offering.
Prior to the Offering there has not been a public market for Common Shares.
Although Common Shares are expected to be listed for trading on AMEX immediately
prior to the completion of the Offering and the proposed Exchange Offering, it
is possible that no public market for the Common Shares will ever develop or be
maintained after the completion of the offerings. Thus there can be no assurance
that an active trading market will develop after the offerings. Accordingly, an
Investor should purchase Common Shares only as a long-term investment and should
be prepared to remain a Shareholder indefinitely. In addition, to facilitate the
Trust' continued compliance with federal tax laws and regulations governing
REIT's, the Declaration of Trust contains significant restrictions relating to
the ownership and transfer of Shares. See " - Limits on Ownership and Transfers
of Shares," "CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and
Transfer," and Article 2A of the Declaration of the Trust.
Effect on Price of Common Shares and Units Available for Future Sale
Future sales or issuances of a substantial number of Common Shares and
Units following the completion of the Offering, or the perception that such
sales or issuances could occur, could adversely affect then prevailing market
prices for Common Shares. In addition to up to 2,500,000 Common Shares to be
issued in the Offering, up to approximately 1,202,160 Units of the Operating
Partnership (exchangeable into an equivalent number of Common Shares subject to
escrow restrictions described below) have been issued to the Original Investors
in connection with the initial capitalization of the Operating Partnership, and
up to 2,500,000 Units may be issued in the Exchange Offering to sellers of
property interests who elect to receive Units in exchange for such property
interests. In addition, the Compensation Committee of the Board of the Trust may
vote to reserve additional Common Shares for issuance in connection with option
plans that may be adopted by the committee. See "MANAGEMENT - Option Plan" and
"THE TRUST - Ownership of the Trust and the Operating Partnership." The Original
Investors have entered into an escrow agreement with the Trust under which they
have agreed to not exchange such Units for Common Shares or sell Common Shares
for a period of six years following the date of this Prospectus unless the Trust
achieves certain operating results described at "THE TRUST - Formation
Transactions."
Effect of Market Interest Rates on Common Share Prices
One of the factors that may influence the price of the Common Shares in
public markets will be the annual yield from dividend distributions made by the
Trust to Shareholders. Thus, following the completion of the Offering, an
increase in market interest rates may lead future purchasers of Common Shares to
demand a higher annual yield, which could adversely affect the market price of
the Common Shares.
Arbitrary Offering Price
The offering price of $10.00 per Common Share has been arbitrarily
established by the Trust, and does not necessarily represent a price at which
the Common Shares could be resold, if at all. See " - Limited Marketability of
Common Shares."
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Participation Rights of Shareholders in Management
Management of the Trust and the Operating Partnership is vested in the
Managing Shareholder (subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership). Shareholders will generally not have the right to participate in
the management of the Trust's Property or in the decisions of the Managing
Shareholder relating to the Trust's investments. See Sections 1.9, 6.1 and 7.1
of the Declaration of the Trust. Although the members of the Board of the Trust
owe fiduciary duties to the Trust, their failure to enforce the material terms
of any of the Trust agreements, particularly the indemnification provisions and
remedy provisions for breaches of representations and warranties, could result
in a substantial monetary loss to the Trust.
Distributions to Shareholders Affected by Many Factors
Distributions by the Trust to Shareholders will be based principally on
cash available for distributions from properties in which it invests. Increases
in rents under leases of properties acquired by the Trust will increase the
Trust's cash available for distribution to Shareholders. In contrast, the amount
available to make distributions may decrease if rental rates are lowered or if
properties acquired yield lower than expected returns.
The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance future acquisitions and capital
improvements of properties without additional debt or equity financing. If the
Trust incurs indebtedness in the future, it will require additional funds to
service such indebtedness and, as a result, amounts available to make
distributions may decrease. Distributions by the Trust will also be dependent on
a number of other factors, including the Trust's financial condition, any
decision to reinvest funds rather than to distribute such funds, capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code, and such other factors as the Trust deems relevant. In addition, the
Trust and the Operating Partnership may issue from time to time additional
Common Shares, Preferred Shares, Units or debt securities in connection with the
acquisition of properties or in certain other circumstances. No prediction can
be made as to the number of such Common Shares, Preferred Shares, Units or debt
securities which may be issued, if any, and, if issued, the effect on cash
available for distribution, on a per Share basis, to Shareholders. Such
issuances, if any, would have a dilutive effect on cash available for
distribution on a per Share basis to Shareholders.
To obtain the favorable tax treatment associated with REITs, the Trust
generally will be required to distribute to its Shareholders at least 95% of its
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains) each year. For taxable years beginning after August
5, 1997, the 1997 Act (1) expands the class of excess noncash items that are
excluded from the distribution requirement to include income from the
cancellation of indebtedness and (2) extends the treatment of original issue
discount and coupon interest as excess noncash items to REITs, like the Trust,
that use an accrual method of accounting. In addition, the Trust will be subject
to tax at regular corporate rates to the extent that it distributes less than
100% of its taxable income (including net capital gains). The Trust will also be
subject to a 4% non-deductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year, are less
than the sum of 85% of its ordinary income, 95% of its capital gain net income,
and 100% of its undistributed income from prior years. Pursuant to the 1997 Act,
the Trust may elect to retain rather than distribute its net long-term capital
gains. The effect of such election is that (i) the Trust is required to pay the
tax on such gains, (ii) Shareholders, while required to include their
proportionate share of the undistributed long-term capital gains in income, will
receive a credit or refund for their share of the tax paid by the Trust, and
(iii) the tax basis of a Shareholder's Shares would be increased by the amount
of undistributed long-term capital gains (less the amount of capital gains tax
paid by the Trust) included in the Shareholder's long-term capital gains.
The Trust intends to make distributions to its Shareholders to comply with
the distribution requirements of the Code and to reduce exposure to federal
income taxes and the non-deductible excise tax. Differences in the timing
between the receipt of income and the payment of expenses in arriving at taxable
income and the effect of required debt amortization payments, could require the
Trust to borrow funds on a short-term basis to meet the
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distribution requirements that are necessary to achieve the tax benefits
associated with qualifying as a REIT. See Section 1.9 of the Declaration.
Distributions to Shareholders and Unitholders Dependent upon Profits of
Operating Partnership
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with this Offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units. The Trust's ownership
of Units in the Operating Partnership will entitle it to share in cash
distributions from, and in the profits and losses of, the Operating Partnership
in proportion to its percentage ownership of Units. The Trust in turn will
distribute such cash distributions to the Shareholders of the Trust. The other
Unitholders (i.e., other Limited Partners) of the Operating Partnership,
including the Original Investors and property interest sellers who receive Units
in exchange for such property interests, will own the remaining economic
interest in the Operating Partnership.
Distributions of available cash flow to Shareholders of the Trust and
Unitholders of the Operating Partnership will be dependent upon the operating
profits generated by the Operating Partnership. Assuming this Offering and the
proposed Exchange Offering are completed in full under the terms currently
contemplated and no other transactions have taken place (including, without
limitation, any additional issuances of Common Shares or Units, any conversion
of Units into Common Shares or any exercise of Common Share purchase warrants
issued to the Dealer Manager or any participating broker-dealer), immediately
upon the completion of the offerings, the Shareholders of the Trust (including
offerees who acquire Common Shares in this Offering and certain broker-dealers
who effect transactions in connection with the proposed Exchange Offering) would
receive approximately 41.5% of any distributions made by the Operating
Partnership; the Unitholders (including persons who accept the proposed Exchange
Offering and the Original Investors) would receive the remaining approximately
58.5% of such distributions. The actual percentage allocation of any cash
distributions between the Shareholders of the Trust and the Unitholders of the
Operating Partnership will be dependent upon the number of Common Shares and
Units outstanding as of the date of the particular cash distribution, which in
turn will be dependent upon (i) the actual mix of the number of Common Shares
which are issued in this Offering and the number of Units which are issued in
the proposed Exchange Offering and (ii) the number of issued Units which have
been exchanged by their holders into Common Shares as of the date of the
particular cash distribution. See "THE TRUST - Ownership of the Trust and the
Operating Partnership."
Liability and Indemnification of the Managing Persons
Although the Managing Shareholder, Independent Trustees and other members
of the Board will be accountable to the Trust as fiduciaries and, consequently,
will be required to exercise good faith and integrity in handling the Trust's
assets and affairs, the Declaration provides that such persons and their
respective officers, directors, shareholders, partners, agents and employees
will not be liable to the Trust or to any of the Shareholders for errors in
judgment or for actions or omissions taken without negligence or bad faith,
provided they acted within the scope of the Declaration. Moreover, the
Declaration provides that the Trust will indemnify the Managing Shareholder,
Independent Trustees, other members of the Board and such other persons against
all liabilities, costs and expenses (including legal fees and expenses) incurred
by the Managing Shareholder or any such persons arising out of or incidental to
this Offering or the business of the Trust on certain conditions. See Section
3.7 of the Declaration. As a result, the Shareholders will have more limited
rights against the Managing Shareholder and such persons than they would have
absent the limitations in the Declaration. See "FIDUCIARY RESPONSIBILITY" and
"SUMMARY OF DECLARATION OF TRUST - Liability and Indemnification."
Delaware Business Trust
The Trust has been organized as a Delaware business trust having limited
liability of the Shareholders of the Trust. Many states have enacted legislation
recognizing the limited liability provisions of the Delaware business trust.
Other states have not enacted such legislation, although it is expected
(although not assured) that most of such states will also recognize the limited
liability of the Shareholders. Accordingly, there is a risk that Shareholders
will not have limited liability for activities of the Trust in any other state
in which the Trust may conduct activities which
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does not recognize the limited liability of beneficiaries of a Delaware business
trust. Such risk is substantially, if not entirely, mitigated by the Trust
conducting its activities and holding its interest in properties in the
Operating Partnership.
Issuance of Additional Securities
The Trust and the Operating Partnership have authority to offer authorized
but unissued Shares (which may be comprised of Common Shares and/or Preferred
Shares in the discretion of the Trust), debt securities and Units in exchange
for property or otherwise. As described in further detail at "THE TRUST," in
order to facilitate the proposed Exchange Offering, the Trust will register with
the Commission 2,500,000 Units of the Operating Partnership and an additional
2,500,000 Common Shares into which such Units are exchangeable by their holders,
subject to certain restrictions. In addition, the Trust intends to investigate
making an additional public or private offering of Common Shares within the
12-month period following the commencement of the Offering if the Managing
Shareholder determines that suitable property acquisition opportunities are
available to the Trust at attractive prices and such an offering would fulfill
its cost of funds requirements. Shareholders who acquire Common Shares in the
Offering will have no preemptive rights to acquire any such additional Shares,
debt securities or Units, and could suffer dilution as a result of subsequent
issuances of securities. See Article 2 of the Declaration.
Limits on Ownership and Transfers of Shares
In order for the Trust to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which the election to be treated as a REIT has been made). Furthermore,
after the first taxable year for which a REIT election is made, the Trust's
Shares must be held by a minimum of 100 persons for at least 335 days of a
12-month taxable year (or a proportionate part of a short tax year). In
addition, if the Trust, or an owner of 10% or more of the Trust, actually or
constructively, owns 10% or more of a tenant of the Trust (or a tenant of any
partnership in which the Trust is a partner), the rent received by the Trust
(either directly or indirectly through any such partnership) from such tenant
will not be qualifying income for purposes of the REIT gross income tests of the
Code. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust." In order
to protect the Trust against the risk of losing REIT status due to a
concentration of ownership among its Shareholders, the Declaration of the Trust
limits actual or constructive ownership of the outstanding Shares by any single
Shareholder (other than the Original Investors) to 5.0% (the "Limit") of the
then outstanding Shares. See "CAPITAL STOCK OF THE TRUST - Restrictions on
Ownership and Transfer." The Managing Shareholder (upon receipt of a ruling from
the Internal Revenue Service (the "Service") or an opinion of counsel or other
evidence satisfactory to the Managing Shareholder and upon such other conditions
as the Managing Shareholder may require) may in its discretion waive the Limit
depending on the then existing facts and circumstances surrounding the proposed
transfer, including without limitation, the identity of the party requesting
such waiver, the number and extent of Share ownership of other Shareholders, the
aggregate number of outstanding Shares and the extent of any contractual
restrictions (other than that contained in the Declaration of Trust) on any
Shareholders relating to transfer of their Shares. See Section 2A.12 of the
Declaration of Trust. The Managing Shareholder will waive the Limit with respect
to a particular Shareholder if it is satisfied, based upon the foregoing, that
ownership by such Shareholder in excess of the Limit would not jeopardize the
Trust's status as a REIT and the Managing Shareholder otherwise decided that
such action would be in the best interests of the Trust.
Actual or constructive ownership of Shares in excess of the Limit, or with
the consent of the Managing Shareholder, such other limit, will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of Shares in excess of the Limit, or, with the consent
of the Managing Shareholder, such other limit, as applicable. Such purported
transferee or owner would have no right to vote such Shares or be entitled to
dividends or other distributions with respect to such Shares. See "CAPITAL STOCK
OF THE TRUST - Restrictions on Ownership and Transfer" and Article 2A of the
Declaration for additional information regarding the Limit.
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Anti-Takeover Provisions
The ownership limitations set forth in the Declaration of the Trust
described above at " - Limits on Ownership and Transfer of Shares" could have
the effect of delaying, deferring or preventing a takeover or other transaction
in which holders of some, or a majority, of the Common Shares might receive a
premium for their Common Shares over the then prevailing market price or which
such holders might believe to be otherwise in their best interest. See "CAPITAL
STOCK OF THE TRUST - Restrictions on Ownership and Transfer" and Article 2A of
the Declaration for additional information regarding the ownership limitations.
Dependency on Key Management
The Trust will be dependent upon the efforts of management of the Trust and
the Managing Shareholder (primarily Gregory K. McGrath and Robert S. Geiger) and
other members of management (including, without limitation, the Independent
Trustees and any other members of the Board). While the Trust believes that it
could find replacements for such management, the loss of their services could
have an adverse effect on the Trust's business, financial condition and
operating results.
Influence of Original Investors
Following the completion of this Offering and the proposed Exchange
Offering (regardless of whether the minimum or maximum amount or any other
amount of the Offering is sold or the Exchange Offering is completed in full or
in part), Mr. McGrath and Mr. Geiger, the Original Investors, will each own an
amount of Units in the Operating Partnership which are exchangeable (with
certain escrow restrictions described at "THE TRUST Formation Transactions")
into 9.5% of the Common Shares outstanding after the completion of the Offering,
on a fully diluted basis assuming that all then outstanding Units (other than
those owned by the Trust) have been exchanged into an equivalent number of
Common Shares. Under the Declaration of the Trust no other Shareholder may hold
more than 5.0% of the beneficial interest in the Trust. Although a majority of
the members of the Board will be unaffiliated Independent Trustees in accordance
with the Trust's Declaration of Trust, Mr. McGrath serves as the Chief Executive
Officer of the Trust and the President, sole stockholder and sole director of
the Managing Shareholder, and Mr. Geiger serves as Chief Operating Officer of
each company. See "MANAGEMENT." Although there is no agreement, understanding or
arrangement for such individuals to act together in any manner, they are in a
position to exercise significant influence over the affairs of the Trust if they
were to act together in the future. Accordingly, the Original Investors have
significant influence over the affairs of the Trust which may result in
decisions that do not fully represent the interests of all Shareholders of the
Trust. See "MANAGEMENT" and "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies
with Respect to Certain Activities - Conflict of Interest Policies."
Conflicts of Interest
The Trust is subject to conflicts of interest arising out of its
relationship to the Operating Partnership, the Managing Shareholder, Affiliates
of the Managing Shareholder, the Original Investors, Shareholders, and sellers
of property interests who receive Units in exchange for such property interests.
For example, certain Affiliates of the Managing Shareholder have sponsored
and/or managed, or may in the future sponsor, real estate investment programs
which may seek to acquire interests in properties similar to those which the
Trust may seek to acquire. In addition, the Trust may attempt to acquire
interests in properties from certain partnerships managed by Affiliates of the
Managing Shareholder that directly or indirectly own interests in properties or
from investors in such partnerships.
Furthermore, as described above at " - Influence of Original Investors,"
the Original Investors, Mr. McGrath and Mr. Geiger, serve as executive officers
of the Trust and the Managing Shareholder and have received a significant number
of Units in the Operating Partnership in connection with the formation of the
Trust and the Operating Partnership. Therefore, individually and collectively
they will have significant influence over the affairs of the Trust which may
result in decisions that do not fully represent the interests of all
Shareholders of the Trust. Mr. McGrath is also the sole principal of the
corporate general partners of numerous real estate investment limited
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partnerships, certain of which own interests in residential apartment properties
in which the Trust may acquire an interest.
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest. These policies include provisions in the
Declaration which require that (i) at least a majority of the members of the
Board be Independent Trustees and (ii) a majority of the Board, and, in certain
cases, a majority of the Independent Trustees, approve transactions between the
Trust and the Managing Shareholder, a Trustee, and any of their respective
Affiliates. See "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with
Respect to Certain Activities - Conflict of Interest Policies." However, there
can be no assurance that these policies will always be successful in eliminating
the influence of such potential conflicts, and, if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
Shareholders. While the potential conflicts of interest cannot be eliminated,
the Trust believes that any actual conflicts will not materially affect the
obligation of the Managing Shareholder and the Board to act in the best
interests of the Shareholders and the Trust. See "CONFLICTS OF INTEREST."
Success of Public Offerings
In this Offering the Trust is offering 2,500,000 Common Shares for sale at
$10 per share (maximum gross proceeds of $25,000,000). As described at "THE
TRUST," the Trust will also register with the Commission 2,500,000 Units of
limited partnership interest in the Operating Partnership in connection with the
proposed $25,000,000 Exchange Offering (and an additional 2,500,000 Common
Shares into which holders of Units may exchange such Units, subject to certain
conditions) which it intends to use, together with or as an alternative to the
cash proceeds of this Offering, to acquire property interests. There can be no
assurance, however, as to the successful completion of this Offering and the
proposed Exchange Offering and it is unlikely that the cash proceeds from the
sale in this Offering of only the minimum number of Common Shares required to
complete this Offering will be sufficient to meet the investment objectives of
the Trust.
In addition, during the period of this Offering there may be ongoing
unregistered private offerings by real estate limited partnerships sponsored and
managed by Affiliates of the Managing Shareholder. Therefore, despite the
different nature and scope of proposed activities of the Trust and such
partnerships, the Trust will be competing with such unregistered offerings to
sell investment securities to prospective Investors with the possible adverse
effect that the Trust will sell fewer Common Shares in this Offering than
otherwise might be the case absent such unregistered offerings. See " -
Conflicts of Interest."
Dilution
In connection with the formation of the Trust and the Operating
Partnership, each of Mr. McGrath and Mr. Geiger, the Original Investors, has
received an amount of Units in the Operating Partnership which are exchangeable
(subject to escrow restrictions described at "THE TRUST - Formation
Transactions") into 9.5% of the Common Shares outstanding after the completion
of this Offering, on a fully diluted basis assuming that all then outstanding
Units (other than those owned by the Trust) have been exchanged into an
equivalent number of Common Shares. The Original Investors received the Units in
exchange for their initial capitalization of the Operating Partnership and other
consideration. Purchasers of Common Shares in this Offering and offerees who
accept the proposed Exchange Offering will pay a higher price per Common Share
than the Original Investors paid for their Units. As a result of the issuance of
such Units to the Original Investors and the use of a portion of the gross
proceeds of this Offering to cover expenses of this Offering and the proposed
Exchange Offering and the investment fee payable to the Managing Shareholder,
purchasers of Common Shares in this Offering and offerees who accept the
proposed Exchange Offering will experience immediate dilution in their
investment in the Trust and the Operating Partnership, respectively. To the
extent that the Trust and the Operating Partnership issue additional securities
in the future (including, without limitation, Common Shares purchased by
broker-dealers who exercise warrants to purchase Common Shares received as
partial compensation for their services in connection with this Offering), there
will be further dilution. See "THE TRUST - Ownership of the Trust and the
Operating Partnership." In addition, the Exchange Properties which the Operating
Partnership anticipates will be the initial properties it will offer to acquire
in connection with the proposed Exchange Offering have not previously been put
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on the market for sale by the Exchange Partnerships, and the acquisition of such
properties by the Operating Partnership at their estimated appraised value may
result in the properties being carried at a value above or below what may be
obtainable in the market. Moreover, any acquisition of property interests in the
Exchange Offering above their carrying value would result in deferred gains to
the sellers and could reduce the potential returns on investment results for the
Operating Partnership.
Proposed Exchange Offering
The Operating Partnership will conduct all of the Trust's real estate
operations and hold title to property interests acquired. Concurrently with this
Offering, the Operating Partnership proposes to make an Exchange Offering using
Units it will register with the Commission to acquire interests in residential
apartment properties. As its initial acquisition candidates in connection with
the Exchange Offering, the Operating Partnership anticipates that it will offer
to acquire property interests indirectly owned by partners in 10 real estate
limited partnerships managed by Affiliates of the Managing Shareholder and by
partners in a real estate limited partnership managed by an Affiliate of the
Dealer Manager of the Offering. The Trust intends to investigate other
investment opportunities to issue the balance of the Units to be registered in
exchange for property interests in other Exchange Offering transactions,
including interests held in 13 additional properties by other limited
partnerships managed by Affiliates of the Managing Shareholder and interests
held in one additional property by a limited partnership managed by an Affiliate
of the Dealer Manager. The Operating Partnership will also investigate
investment opportunities involving property interests owned by unaffiliated
persons. See "SUMMARY OF THE TRUST AND USE OF PROCEEDS," "PROPOSED REAL ESTATE
INVESTMENTS" and "PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
Since the Trust will contribute to the Operating Partnership the net cash
proceeds from the sale of Common Shares in this Offering in exchange for an
equivalent number of Operating Partnership Units, the Trust will have an
economic interest in the Operating Partnership which will entitle it to share in
cash distributions from, and in the profits and losses of, the Operating
Partnership. The Trust in turn will distribute such cash distributions to the
Shareholders of the Trust. Thus, the performance of an investment in Common
Shares will depend at least in part upon successful registration of the Units,
successful completion of the Exchange Offering and profitable operating results
of the properties in which the Operating Partnership acquires an interest in
connection with the Exchange Offering. There can be no assurance that the Units
will be successfully registered, that a significant number of offerees will
accept the terms of the proposed Exchange Offering or that properties acquired
in the Exchange Offering, if any, will generate operating profits sufficient to
permit the Trust to make cash distributions to Shareholders. See " - Investment
Risks," " - Risks of Real Estate Acquisitions" and " Operating Risks."
Each of the 25 properties which the Trust contemplates acquiring in
connection with the Exchange Offering is a multi-family residential apartment
property located in the southeastern or midwestern portion of the United States.
These properties have been selected for acquisition by the Trust because the
Trust believes that they have the potential to provide attractive returns with
significant potential growth in cash flow from property operations and in
investment value. In addition, the Trust believes that such properties (i) are
strategically located, of high quality and competitive in their respective
markets and (ii) are available in exchange for registered Units of the Operating
Partnership and at prices below estimated replacement costs.
Prior Performance of Properties Acquired in Exchange Offering
The annual rate of return on investment for 1997 and for the first quarter
of 1998 generated by the properties contemplated to be acquired by the Operating
Partnership in connection with the proposed Exchange Offering ranged between
zero and ten percent. The annual rate of return on investment for those periods
generated by other residential apartment properties owned by other limited
partnerships managed by Affiliates of the Managing Shareholder of the Trust
ranged between zero and twelve percent. Distributions were not made during these
periods by certain of the partnerships because (i) certain apartment units were
withdrawn from the rental market, and net available cash flow was applied, to
prepare them for sale as individual condominium units (which plan was later
abandoned) or to convert them from long-term rentals to short-term corporate
rentals or (ii) net available cash flow was applied to pay certain expenses in
connection with this Offering and the proposed Exchange
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Offering. There can be no assurance that purchasers of Common Shares in this
Offering will experience returns, if any, comparable to or in excess of those
experienced by investors in certain of the Exchange Partnerships or in certain
other real estate limited partnerships managed by Affiliates of the Managing
Shareholder.
No Independent Representation of Prospective Investors
No independent representation has been provided by the Trust for
prospective Investors in connection with this Offering. In addition, the Dealer
Manager has been represented by counsel solely in respect of certain due
diligence matters relating to this Offering. Each prospective Investor is
advised to seek independent advice and counsel before making an investment in
the Trust.
Property Investments
Investment Risks
The results of the Trust's operations will depend, among other things, upon
the quality of opportunities available for investment. It is possible that the
properties in which the Trust invests will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. The performance of an
investment in the Trust will depend on many factors over which the Trust may
have no control, including without limitation the continuation of certain
advantageous provisions of federal tax laws, adverse changes in national and
local economic conditions, increases in operating costs, adverse local
conditions such as decreases in employment or changes in real estate zoning laws
and other characteristics of the geographical location of the Trust's
investments, which may reduce the desirability of real estate in the area,
excessive building, changes in interest rates, the availability of long-term
mortgage funds, changes in federal, state or local government laws, regulations,
or policies, changes in tax laws, the ability of tenants to pay rents, the
possibility that rental units may not be occupied or may be occupied on terms
unfavorable to the Trust, the frequent need for capital improvements, the
possibility that (including the effects of depreciation and interest) certain
properties may have experienced recurring losses for financial reporting
purposes, various uninsurable risks, liabilities in tort (which may exceed
insurance coverage), acts of God and other catastrophes, hazardous substances
and other environmental problems in respect of the Trust's investments, the
availability of financing for operating or capital needs and the management
capabilities of the management of the Managing Shareholder and the Trust and
their respective Affiliates and developers, borrowers and property managers.
The above factors may also adversely affect the ability of a borrower to
meet its repayment obligations to the Trust in connection with Mortgage Loans
that may be provided or acquired by the Trust. In the event of a default under
such an obligation, the Trust may experience substantial delays in enforcing its
rights as mortgagee and may incur substantial costs associated with protecting
its investment. The Trust may be required to acquire title to a property and
thereafter to make substantial improvements or repairs in order to maximize the
property's investment potential. In such circumstances, the Trust may be
required to attempt to borrow or raise additional funds and may not be able
ultimately to recover its investment.
The Trust may provide or acquire Mortgage Loans which provide for the
repayment of principal, in whole or in part, in lump-sum "balloon" payments. The
borrower's ability to make such payments may depend upon its ability to obtain
refinancing or sell a particular property securing such property. There is no
assurance that either replacement financing or a sale can be obtained by the
borrower. The borrower's ability to refinance or sell its property will depend
on general economic conditions, the value of the property and, in the case of a
refinancing, upon the financial strength of the borrower. In the event the
borrower fails to make any necessary payment upon maturity or scheduled payments
as they become due, the Trust may be compelled to institute foreclosure
proceedings.
The Trust expects that Mortgage Loans it provides or acquires which are
secured by residential apartment properties would generally be made on a
non-recourse basis under which the other participants in respect of the property
would not be responsible for the debt and the Trust would be able to look only
to the unencumbered assets of the property for repayment. In many cases, the
Trust is expected to be secured by a Second Mortgage that is
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subordinated to a First Mortgage. In the event of a default on a Senior
Mortgage, the Trust may find it necessary to make payments to prevent
foreclosure on the Senior Mortgage, without necessarily improving the Trust's
position with respect to the underlying real property. Failure to make such
payments could result in foreclosure on the Senior Mortgage and the
extinguishment of the Trust's Junior Mortgage. In such event, the Trust's entire
investment in the property could be lost. In addition, non-payment of any
subordinated Mortgage Loan that may be made or acquired by the Trust may
constitute an event of default to a borrower under the underlying Senior
Mortgage Loan(s), and such Senior Mortgage Loan(s) may have to be repaid by the
borrower before Shareholders in the Trust will receive any return on their
investment in Common Shares. Furthermore, Mortgage Loans will not be insured or
guaranteed by governmental agencies or otherwise.
If the Trust owns real property directly, it may be on a pari passu basis
with other investors. In the event of a default under such an investment, the
Trust remedies may be limited by the size of the Trust's investment relative to
that of other participants.
Lack of Liquidity of Real Estate
Real estate investments are relatively illiquid, and, therefore, the Trust
will have limited ability to vary its portfolio quickly in response to changes
in economic or other conditions. In addition, the prohibitions in the Code and
related regulations on a REIT holding property for sale may affect the Trust's
ability to sell properties without adversely affecting distributions to the
Trust's Shareholders.
Capital Improvements
Properties in which the Trust may invest will vary in age and require
capital improvements regularly. The cost of such capital improvements (including
capital improvements that may be required in respect of properties in which the
Trust intends to acquire an interest from real estate limited partnerships
managed by Affiliates in connection with the proposed Exchange Offering) may be
funded out of the net proceeds of the Offering, available cash flow of the Trust
or borrowed funds. If the costs of improvement, whether required to attract and
maintain tenants or to comply with governmental requirements, substantially
increases, cash available for distribution to Shareholders could be reduced.
Risks of Real Estate Acquisitions
The Trust intends to actively seek to acquire interests in residential
apartment properties to the extent they can be acquired on advantageous terms
and meet the Trust's investment criteria. See "INVESTMENT OBJECTIVES AND
POLICIES." Acquisitions in respect of such properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring acquired property up to standards established
for the market position intended for that property may prove inaccurate. In
addition, there are general investment risks associated with any new real estate
investment.
The Trust (indirectly through the Operating Partnership) will acquire
property interests from time to time in exchange for cash or unissued Units. The
Trust will obtain appraisals with respect to the market value of any property
interest that the Trust will acquire or an opinion as to the fairness of the
allocation of Units in the Operating Partnership to sellers of property
interests. Appraisals and fairness opinions are only estimates of value and
should not be relied upon as precise measures of true worth or realizable value.
There can be no assurance that the value of the aggregate percentage interests
in the Trust paid to persons contributing assets to the Trust in exchange for
Units is equivalent to the value the Trust will realize from those contributions
or that the initial public offering price of this Offering reflects the fair
market value of the interests of the purchasers of Common Shares in this
Offering.
Real Estate Financing Risks
The Trust will be subject to the risks normally associated with debt
financing, including the risks that the Trust's cash flow will be insufficient
to meet required payments of principal and interest on any indebtedness of the
Trust, the risk that
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the interest rates on any adjustable interest rate indebtedness will increase,
the risk that indebtedness on the Trust's properties will not be refinanced at
maturity or that the terms of such refinancing will not be as favorable as the
terms of such indebtedness. If the Trust were unable to refinance its
indebtedness on acceptable terms, if at all, the Trust might be forced to
dispose of one or more of its properties upon disadvantageous terms, which might
result in losses to the Trust and might adversely affect the cash available for
distribution to Shareholders. If prevailing interest rates or other factors at
the time of the refinancing result in higher interest rates on refinancings, the
Trust's interest expense would increase, which would adversely affect the
Trust's cash flow and its ability to pay distributions to Shareholders. Further,
if a property is mortgaged to secure payment of indebtedness, and the Trust is
not able to meet mortgage payments, or is in default under the related mortgage
or deed of trust, such property could be transferred to the mortgagee, the
mortgagee could foreclose upon the property, appoint a receiver and receive an
assignment of rents and leases, or pursue other remedies, all with the
consequence of loss of income and asset value to the Trust. Foreclosures could
also create taxable income without accompanying cash proceeds, thereby hindering
the Trust's ability to meet the REIT distribution requirements of the Code.
In connection with the Trust's acquisition of an equity interest in a given
property, the Trust may assume the seller's obligations under any underlying
Mortgage Loan or obtain Mortgage financing in connection with the acquisition.
Any such loan would be secured by the property acquired and may require a
"balloon" payment upon the maturity of its term. The ability of the Trust to
repay such obligation may be dependent on its ability to obtain adequate
long-term refinancing or equity financing or to sell the property at or prior to
the maturity date. There is no assurance that either replacement debt or equity
financing or a sale could be obtained, and the Company could suffer a complete
loss of its investment if neither a sale nor such replacement financing could be
obtained. The ability to obtain refinancing will be dependent upon general
economic conditions, the value of the property and the financial strength of the
Trust. There is no assurance that any such property would be refinanced upon the
maturity of any replacement debt. Failure to obtain the refinancing necessary to
make the foregoing payment when due, or to make any scheduled payments due with
respect to any obligation secured in whole or in part by the property, could
result in a foreclosure and loss of the property, and the Company could suffer a
complete loss of its investment in the property. See "THE TRUST" and "INVESTMENT
OBJECTIVES AND POLICIES."
Under the Declaration of the Trust, the Trust may incur aggregate
borrowings in an amount up to 300% of the amount of its net assets, except where
the Trust determines that a higher level of borrowing is appropriate. Therefore,
the Trust could become highly leveraged, increasing the risks of leverage as
described above. There can be no assurance that the ratio of debt to any measure
of asset value of the Trust will maximize the level of distributions to
Shareholders.
Risks of Investments in Mortgages
The Trust may invest in mortgages, either by acquiring mortgages or
providing mortgage financing. Mortgage investments are subject to the risk that
borrowers may not be able to make debt service payments or pay principal when
due, the risk that the value of the mortgaged property may be less than the
amounts owed, and the risk that interest rates payable to the Trust on the
mortgages may be lower than the Trust's cost of funds. If the Trust invested in
mortgages and if any of the above occurred, the Trust's ability to make
distributions to Shareholders could be adversely affected.
Any subordinated Mortgage Loan the Trust may make or acquire using net
proceeds of the Offering may or may not be recorded. If the Trust's Mortgage is
not recorded, the Trust's security interest in such Mortgage would not be
perfected and the Trust would be pari passu (i.e., on an equal basis) with all
other unsecured creditors of the borrower, provided, however, the security
instrument which will be entered into in connection with any Mortgage Loan
proposed to be made or acquired by the Trust will generally restrict the
borrower's ability to enter into a subsequent loan arrangement with third
parties which would be senior to or pari passu with the Mortgage to be held by
the Trust.
Operating Risks
There can be no assurance that the Trust will be able to avoid operating
losses in the future in respect of properties in which it acquires an interest
or that an Investor's investment in the Trust will be recovered. In order for
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the Trust to make cash distributions on acquired residential apartment
properties, certain occupancy percentages and rental rates will need to be
achieved and expense levels maintained. No assurance can be given that these
percentages, rates or expenses can be achieved or maintained. If the properties
do not achieve and maintain such occupancy percentages at such rates, the
Trust's ability to make cash distributions to Shareholders may be eliminated. No
assurance can be given that rental increases can be instituted while maintaining
acceptable occupancy levels. If the Trust fails to generate sufficient gross
income, it may find it necessary to attempt to borrow funds for operating
capital or other purposes. The availability of additional financing to the Trust
is partially dependent upon general economic conditions, the value of the
property and the financial strength of the Trust. See " - Real Estate Financing
Risks."
Risk of Joint Activity with Others
It is anticipated that the Trust will provide or acquire financing in
respect of existing residential apartment properties and thus will jointly
participate with one or more other entities, including without limitation
developers, property owners, and First Mortgage lenders and other financing
sources. If any such other participants fail to fulfill their obligations or
have divergent interests or are in a position to take action contrary to the
policies or objectives of the Trust, the Trust's interest in such project may be
adversely affected. Although the Trust will remain closely involved in all
aspects of the Trust's activities, the Trust may initially rely upon others as
to the operation of any property in which it participates. It will monitor or
take part in those activities to the extent it deems appropriate. The successful
operation of each property in which the Trust participates will, to a large
extent, be determined by the quality and performance of its managers.
Competition
The Trust will be competing for suitable investments with other financial
institutions such as banks, insurance companies, savings and loan associations,
mortgage bankers, pension funds, real estate investment trusts and other real
estate developers, managers, owners, and investment vehicles, which may have
investment objectives similar to those of the Trust. See "INVESTMENT OBJECTIVES
AND POLICIES." Many of these competitors will have greater resources than the
Trust and some may have, or may have access to, more extensive real estate and
financial experience than does the Managing Shareholder.
It is expected that all properties in which the Trust will invest will be
located in developed areas that include other residential apartment properties.
Certain of these competitive apartment properties may be owned by limited
partnerships managed by Affiliates of the Managing Shareholder. The number of
competitive apartment properties in a particular area could have a material
effect on the Trust's ability to lease apartment units to tenants at such
properties and on the rents charged. The Trust may be competing for tenants with
others that have greater resources than the Trust and whose officers and
directors have more experience than the officers and members of the Board of the
Trust and the Managing Shareholder. In addition, other forms of multifamily
residential properties provide housing alternatives to potential tenants of
residential apartment properties.
Uninsured Loss
Properties in which the Trust invests are expected to be covered by
adequate comprehensive liability and all-risk insurance provided by reputable
companies and with commercially reasonable deductibles, limits and policy
specifications customarily carried for similar properties. Certain types of
losses, however, may be either uninsurable or not economically insurable, such
as losses due to earthquakes, floods, riots or acts of war, or may be insured
subject to certain limitations including large deductibles or co-payments.
Should an uninsured loss or a loss in excess of insured limits occur, the Trust
could lose its investment in and anticipated profit and cash flow from a
property and would continue to be obligated on any mortgage indebtedness or
other obligations related to such properties. Any such loss would adversely
affect the Trust and its ability to make distributions.
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Regulatory Compliance
Fair Housing Amendments Act of 1988. The Fair Housing Amendments Act of
1988 (the "FHA") requires residential apartment properties first occupied after
March 13, 1990 to be accessible to the handicapped. Noncompliance with the FHA
could result in the imposition of fines or an award of damages to private
litigants. The Trust will use its best efforts to ensure that properties subject
to the FHA in which it acquires an interest will be in compliance with such law.
Americans with Disabilities Act. Properties in which the Trust acquires an
interest must comply with Title III of the Americans with Disabilities Act (the
"ADA") to the extent that such properties are "public accommodations" and/or
"commercial facilities" as defined by the ADA. Compliance with the ADA
requirements requires that public accommodations "reasonably accommodate"
individuals with disabilities, which includes removal of structural barriers to
handicapped access in certain public areas of the Trust's properties, where such
removal is readily achievable and that new construction or alterations made to
"commercial facilities" conform to accessibility guidelines unless "structurally
impracticable" for new construction, or exceeds 20% of the cost of the
alteration for existing structures. The ADA does not, however, consider
residential properties, such as residential apartment properties, to be public
accommodation or commercial facilities except to the extent portions of such
facilities, such as a leasing office, are open to the public. The Trust will use
its best efforts to ensure that its properties comply with all present
requirements under the ADA and applicable state laws. Noncompliance with the ADA
could result in imposition of injunctive relief, fines or an award of damages.
Compliance with Environmental Laws. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of such hazardous substances. The presence of such substances, or
the failure to properly remediate such substances, when released, may adversely
affect the owner's ability to sell such real estate or to borrow such real
estate as collateral.
In order to address these issues, the Trust intends, where necessary, to
retain an unaffiliated consultant to conduct a Phase I environmental audit of
any property in which it intends to acquire an interest. The Phase I audit
generally consists of an on-site inspection of the land and improvements; a
review of the building plans and specifications to determine the construction
materials and procedures used; a review of EPA and other governmental agency
files to determine if the subject property or any other properties in its
vicinity have been the subject of any investigations, reports or classifications
that would indicate potential environmental risks; and a review of the chain of
title of the subject property to determine the ownership history of the
property. Phase I audits do not include soil sampling or subsurface
investigations. Thus, a Phase I audit is not comprehensive or exhaustive and
will not identify all possible hazardous substances. The Trust will obtain Phase
II environmental audits where matters disclosed in the Phase I audit warrant
further investigation. No assurances can be given, however, that the
environmental studies undertaken with respect to any particular property will
reveal all potential environmental liabilities, that any prior owner of a
property did not create any material environmental conditions not known to the
Trust, or that a material environmental condition does not otherwise exist as to
any particular property in which the Trust acquires an interest. If it is ever
determined that hazardous substances are present, the Trust could be required to
pay all costs of any necessary clean-up work, although under certain
circumstances claims against other responsible parties could be made by the
Trust.
Extended and Uncertain Period for Returns
The use of the net proceeds of this Offering and Units in the Operating
Partnership to acquire interests in one or more existing residential apartment
properties may occur over an extended period during which the Trust will face
risks of changes in interest rates and adverse changes in the real estate
market. Similarly, during periods in which net proceeds of the Offering are
invested in interim investments prior to such application, the Trust may be
affected by changes in prevailing interest rate levels. Such interim investments
would be expected to earn rates of return which are lower than those earned on
the Trust's real estate investments.
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Lack of Diversification
Although the Trust is expected to invest in several residential apartment
properties, the number of properties in which the Trust ultimately invests may
be insufficient to afford adequate diversification against the risk that its
investments will not be profitable or return the Trust's invested capital. There
can be no assurance that the Trust's properties will earn a return or that the
returns on its properties will be sufficient to permit distributions to
Shareholders.
Utilization of Funds for Undesignated Properties
The Managing Shareholder expects the Trust to acquire equity interests in
and/or provide or acquire debt financing secured by Mortgages on several
existing residential apartment properties. Net cash proceeds of the Offering
have not yet been committed to specific properties. Although the Managing
Shareholder has several opportunities for the investment of the net proceeds of
the Offering under review, none of such potential opportunities has developed
beyond the negotiating stage. The Trust may direct a substantial portion of the
net proceeds from the Offering to properties that have not been designated in
this Prospectus, as it may be amended or supplemented from time to time, and the
Trust may be unable to or may decline to participate in any specific investments
that may be described in this Prospectus or any amendments or supplements
thereto. Therefore, prospective Investors may not be able to evaluate any
properties in which the Trust may apply the net proceeds of the Offering before
they purchase Common Shares. In addition, prospective Investors will not have
any vote in the selection of property investments after they purchase Common
Shares. Consequently, Investors will be relying upon the judgment of the
management of the Managing Shareholder and the Independent Trustees for such
decisions.
Concurrently with this Offering, the Trust proposes to make an Exchange
Offering using Units in the Operating Partnership to be registered with the
Commission to acquire interests in residential apartment properties. As its
initial acquisition candidates in connection with the proposed Exchange
Offering, the Trust anticipates that it will offer to acquire property interests
owned by partners in 10 real estate limited partnerships managed by Affiliates
of the Managing Shareholder and by partners in a limited partnership managed by
an Affiliate of the Dealer Manager of this Offering. The Trust intends to
investigate other investment opportunities for the Exchange Offering, including
property interests held by unaffiliated owners and certain other limited
partnerships managed by Affiliates of the Managing Shareholder and of the Dealer
Manager.
The actual number of properties in which the Trust will acquire an interest
will depend upon the amount of net proceeds from the Offering the Trust has
available to invest, the number of suitable investment opportunities available,
the willingness of sellers of property interests to accept Units in the
Operating Partnership in exchange for such property interests, and the amount of
funds and number of Units required for each investment opportunity. See "RISK
FACTORS," "MANAGEMENT," "THE TRUST," "INVESTMENT OBJECTIVES AND POLICIES" and
"PROPOSED REAL ESTATE INVESTMENTS."
Dispositions of Trust Property
The Trust will periodically review the portfolio of assets which the Trust
may acquire. It has no current intention to dispose of any interest in
properties it may acquire, although it reserves the right to do so. There is no
assurance as to the timing of any sales of property or that if the Trust
determines to attempt to sell a particular property it will be able to do so on
favorable terms, if at all. A successful sale of any property will depend upon,
among other things, the operating history of the property and prospects for the
property, the number of potential purchasers, the economics of any bids made by
such potential purchasers and the state of the market for residential properties
of the type sought to be sold. The management of the Trust will have full
discretion to determine whether the properties should be sold and the timing,
price and other terms of any such sales. In addition, the prohibitions in the
Code and related regulations on a REIT holding property for sale may affect the
Trust's ability to sell properties without adversely affecting distributions to
the Trust's Shareholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of
the Trust."
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Changes in Laws
Increased costs resulting from changes in real estate taxes or other
governmental requirements may generally not be passed directly through tenants,
inhibiting the Trust's ability to recover such increased costs. An attempt to
pass through any substantial increases in costs by increasing rental rates may
affect tenants' ability to pay rent, causing increased delinquency and vacancy.
Similarly, increases in income or transfer taxes generally are not passed
through to tenants and may adversely affect the Trust's ability to make
distributions to Shareholders. Changes in laws increasing potential liability
for environmental conditions or increasing the restrictions on discharges or
other conditions may result in significant unanticipated expenditures, which
would adversely affect the Trust's ability to make distributions to
Shareholders.
Unaudited Financial Statements
In making an investment decision in respect of any given property, the
Trust may rely on financial statements covering the operations of the property
which may have been prepared by the current owner or property manager of the
property and which may have not been compiled, reviewed or audited by
independent public accountants or reviewed by counsel to the Managing
Shareholder or the Trust. In any such case, therefore, there will not have been
any independent assessment of any of such financial statements and accordingly
the Trust would be subject to the risk that such financial statements do not
properly reflect the prior operation of the property.
Income Tax Considerations
Unfavorable resolution of any of a number of tax issues could adversely
affect Shareholders. The following is a summary of the principal tax risks of an
investment in the Trust. For a more detailed summary of the Federal income tax
consequences and the tax-related risks of an investment in the Trust, see
"FEDERAL INCOME TAX CONSIDERATIONS." The Trust has not obtained and does not
expect to request a letter ruling from the IRS as to the classification and
treatment of the Trust for federal tax considerations described herein, or any
other tax matters. The Trust has obtained the opinion of its special tax counsel
that, based on the organization and proposed operation of the Trust and based on
certain other assumptions and representations, it will qualify as a REIT. The
opinion is not binding on the IRS or any court. Prospective Shareholders are
advised to consult with and rely upon their own legal, tax and investment
advisor regarding how an investment in the Trust will affect them.
Adverse Consequences of Failure to Qualify as a REIT
The Trust intends to operate so as to qualify as a REIT under the Code,
commencing with its taxable year ending December 31, 1998. Although the Managing
Shareholder believes that the Trust will be organized and will operate in such a
manner, no assurance can be given that the Trust will be organized or will be
able to operate in a manner so as to qualify or remain so qualified.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and others on a quarterly basis) established under highly technical
and complex Code provisions of which there are only limited judicial and
administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Trust's control. For
example, in order to qualify as a REIT, at least 95% of the Trust's gross income
in any year must be derived from qualifying sources and the Trust must pay
distributions to Shareholders aggregating annually at least 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains). The complexity of these provisions and the
applicable Treasury Regulations that have been promulgated under the Code is
greater in the case of a REIT that holds its assets in partnership form (as the
Trust intends to do). No assurance can be given that legislation, new
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as REIT or the
federal income tax consequences of such qualification. The Trust has been
advised by tax counsel regarding various issues affecting the Trust's ability to
qualify, and continue to qualify, as a REIT. See "FEDERAL INCOME TAX
CONSIDERATIONS - Taxation of the Trust" and "LEGAL MATTERS." No assurance can be
given that actual operating results will meet the REIT requirements.
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If the Trust fails to qualify for taxation as a REIT in any taxable year
and no relief provisions apply, the Trust will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to Shareholders in any such year will not be deductible by
the Trust nor will they be required to be made. In such event, to the extent of
current or accumulated earnings and profits, all distributions to Shareholders
will be taxed as ordinary income. Moreover, unless entitled to relief under
certain statutory provisions, the Trust also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the Trust
available for investment or distribution to Shareholders because of the
additional tax liability to the Trust for the years involved. In addition,
distributions to Shareholders would no longer be required to be made. "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust."
State and Local Taxes
Each Investor will also be liable for state and local income taxes payable
in the state or locality in which the Investor is a resident or doing business
or in a state or locality in which the Trust conducts or is deemed to conduct
business. Depending upon the state in question, an Investor who pays such taxes
in a foreign state may be entitled to receive a credit for all or a portion of
such amount paid against any income taxes payable in his state of residence.
Thus each Investor will likely be required to file multiple state income tax
returns as a result of his investment in the Trust. Each prospective Investor is
urged and expected to consult with his personal tax advisor with respect to the
tax consequences connected with an investment in the Trust.
PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER
This section provides certain historical information regarding 46 private
limited partnerships sponsored and/or managed by Affiliates of the Managing
Shareholder of the Trust. A prospective Investor should be aware that: (i) the
inclusion of the following information and information set forth in the tables
which comprise Exhibit A hereto does not imply that the Trust will experience
results similar to those reflected below and in the tables or that an Investor
who acquires Common Shares in this Offering will receive returns, if any,
comparable to those experienced by investors in such limited partnerships; (ii)
except as otherwise described in this Prospectus, an Investor who acquires
Common Shares in this Offering will not acquire any direct or indirect ownership
interest in any of the prior limited partnerships; and (iii) the following
information and information set forth in the tables is given solely to enable a
prospective Investor to evaluate the experience of the Managing Shareholder and
its Affiliates and, in certain cases, to evaluate certain properties in which
the Operating Partnership may acquire an interest in connection with the
proposed Exchange Offering.
Gregory K. McGrath, the President, sole director and sole stockholder of
the Managing Shareholder and the Chief Executive Officer of the Trust, has
substantial experience in the real estate industry. See "MANAGEMENT." Since
1994, Affiliates of the Managing Shareholder and of Mr. McGrath have sponsored
and/or managed 46 prior real estate investment limited partnership offerings,
certain of them with investment objectives similar to those of the Trust. The
limited partner interests in these prior partnerships were offered without
registration under the Securities Act of 1933, as amended, in reliance upon the
non-public offering exemption from registration. The first such offering
sponsored by an Affiliate of the Managing Shareholder commenced in November
1994. As of April 22, 1998, the prior partnerships had raised aggregate capital
contributions of approximately $38,661,137 from approximately 1,593 investors
(including investors who have invested in two or more programs). The annual rate
of return on investment for 1997 and for the first quarter of 1998 generated by
the residential apartment properties owned by the prior partnerships ranged
between zero and twelve percent. Distributions were not made during these
periods by certain of the partnerships because (i) certain apartment units were
withdrawn from the rental market, and net available cash flow was applied, to
prepare them for sale as individual condominium units (which plan was later
abandoned) or to convert them from long-term rentals to short-term corporate
rentals or (ii) net available cash flow was applied to pay certain expenses in
connection with this Offering and the proposed Exchange Offering.
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To date, the prior partnerships have acquired interests in 52 properties,
28 of which are located in Florida (Bartow, Brandon, Clearwater, Cocoa, Cocoa
Beach, Crystal River, Daytona Beach, Jacksonville, Kissimmee, Lakeland,
Melbourne, Orlando, Port Orange, St. Petersburg, Seminole, Tampa and
Titusville); one of which is located in Georgia (Statesboro); one in Indiana
(Anderson); 17 in Kentucky (Alexandria, Burlington, Independence and
Louisville); and five in Ohio (Bellefontaine and Cincinnati). All acquisitions
occurred within the last four years. The aggregate dollar amount of property
interests acquired and initial cash reserves held was approximately $32,032,772.
The property interests acquired have consisted of the following: direct or
indirect equity interests in 19 residential apartment properties comprised of
1,189 units; mortgage financing interests in 17 residential apartment properties
comprised of 2,052 units; mortgage financing interests in four residential
condominium properties comprised of 578 units; mortgage financing interests in
six single-family housing developments relating to approximately 981 homes; a
mortgage financing interest in 8.2 acres of land for development into a 195-unit
condominium property; a mortgage financing interest in 4.0 acres of land for
development into a shopping center; and a mortgage financing interest in respect
of the conversion of a 144-unit residential apartment property into an
extended-stay hotel. Each of the properties is subject to first mortgage
financing. One property interest has been sold to date. See the balance of this
section and Exhibit A hereto for more detailed information relating to the
individual property interests owned by certain of the prior partnerships.
Additional information relating to the original acquisitions of such property
interests is included in Part II of the Form SB-2 registration statement filed
with the Commission in connection with this Offering. The Trust will provide
such information at no charge to any prospective Investor who requests it.
Exhibit B hereto sets forth certain information concerning the Exchange
Properties and the Exchange Partnerships which are proposed to be involved in
the initial transactions of the proposed Exchange Offering.
Concurrently with this Offering, the Operating Partnership proposes to make
an Exchange Offering using Units to be registered with the Commission to acquire
interests in residential apartment properties. As its initial acquisition
candidates in connection with the proposed Exchange Offering, the Operating
Partnership anticipates that it will offer to acquire property interests owned
by partners in 10 of the prior partnerships. The Operating Partnership intends
to investigate other investment opportunities to exchange the balance of the
Units for property interests in other Exchange Offering transactions, including
interests held in 13 additional properties by other limited partnerships managed
by Affiliates of the Managing Shareholder. The Operating Partnership will also
investigate investment opportunities involving property interests owned by
unaffiliated persons. Each partnership currently managed by an Affiliate of the
Managing Shareholder that may be involved in the proposed Exchange Offering is
indicated where applicable in the following paragraphs. Additional information
relating to the property interests owned by these partnerships and the proposed
Exchange Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in
Exhibits A and B to this Prospectus.
In September 1994, Baron Capital I, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,050 units of limited partner
interest in Tampa Capital Income Fund, Ltd., a Florida limited partnership, at a
purchase price of $1,000 per unit (maximum gross proceeds of $1,050,000). The
offering was fully subscribed and closed in August 1995. The partnership
invested the net proceeds of its offering to acquire title to an 83-unit
residential apartment community located in Brandon, Florida. The partnership
sold the property in February 1997 in exchange for cash and a purchase money
mortgage taken back by the partnership.
In November 1994, Baron Capital II, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,614 units of limited partner
interest in Florida Capital Income Fund, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $807,000). The
offering was fully subscribed and closed in April 1995. The partnership invested
the net proceeds of its offering to acquire title to a 77-unit residential
apartment community located in Port Orange, Florida. As one of its initial
acquisition candidates in connection with the proposed Exchange Offering, the
Operating Partnership anticipates that it will offer to acquire partnership
interests in this partnership owned by the partners thereof. Additional
information relating to the property interests owned by this partnership and to
the proposed Exchange Offering is included at "PROPOSED REAL ESTATE INVESTMENTS"
and in Exhibits A and B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Appreciation Fund I, Ltd.,
a Florida limited partnership, which in the first half of 1994 sold 205
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units of limited partnership interest in the partnership (gross proceeds of
$205,000) and invested the net proceeds of its offering to acquire a beneficial
interest in a land trust owning title to an eight-unit residential apartment
community located in Daytona Beach, Florida. As one of its initial acquisition
candidates in connection with the proposed Exchange Offering, the Operating
Partnership anticipates that it will offer to acquire partnership interests in
this partnership owned by the partners thereof. Additional information relating
to the property interests owned by this partnership and to the proposed Exchange
Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Advantage Fund I, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 940 units of
limited partnership interest in the partnership (gross proceeds of $940,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 26-unit residential apartment community located in
Daytona Beach, Florida. As one of its initial acquisition candidates in
connection with the proposed Exchange Offering, the Operating Partnership
anticipates that it will offer to acquire partnership interests in this
partnership owned by the partners thereof. Additional information relating to
the property interests owned by this partnership and to the proposed Exchange
Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Realty Opportunity Income Fund VIII,
Ltd., a Florida limited partnership, which in the first half of 1994 sold 944
units of limited partnership interest in the partnership (gross proceeds of
$944,000) and invested the net proceeds of its offering to acquire a beneficial
interest in a land trust owning title to a 30-unit residential apartment
community located in Daytona Beach, Florida. As one of its initial acquisition
candidates in connection with the proposed Exchange Offering, the Operating
Partnership anticipates that it will offer to acquire partnership interests in
this partnership owned by the partners thereof. Additional information relating
to the property interests owned by this partnership and to the proposed Exchange
Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Capital Income Fund II, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 1,840 units of
limited partnership interest in the partnership (gross proceeds of $920,000) and
invested the net proceeds of its offering to acquire a beneficial interest in a
land trust owning title to a 52-unit residential apartment community located in
Daytona Beach, Florida. As one of its initial acquisition candidates in
connection with the proposed Exchange Offering, the Operating Partnership
anticipates that it will offer to acquire partnership interests in this
partnership owned by the partners thereof. Additional information relating to
the property interests owned by this partnership and to the proposed Exchange
Offering is included at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this Prospectus.
In April 1995, Baron Capital VI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 626 units of limited partner
interest in Florida Tax Credit Fund, Ltd., a Florida limited partnership, at a
purchase price of $1,000 per unit (maximum gross proceeds of $626,000). The
offering was fully subscribed and closed in May 1996. The partnership invested
the net proceeds of its offering to acquire an equity interest in a limited
partnership that owns title to a 78-unit residential apartment community located
in Tampa, Florida.
In May 1995, Baron Capital III, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 800 units of limited partner
interest in Florida Opportunity Income Partners, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
60-unit residential apartment community located in Daytona Beach, Florida.
Following the completion of the initial transactions of the proposed Exchange
Offering, the Operating Partnership intends to investigate other investment
opportunities to exchange the balance of the Units to be registered for property
interests in other Exchange Offering transactions, including this partnership's
interests in one or more other properties. Additional information relating to
the property interests owned by this partnership and to the proposed Exchange
Offering is included in Exhibit A to this Prospectus and at "PROPOSED REAL
ESTATE INVESTMENTS," respectively.
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In June 1995, Baron Capital VII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Florida Capital Income Fund III, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
48-unit residential apartment community located in Jacksonville, Florida. As one
of its initial acquisition candidates in connection with the proposed Exchange
Offering, the Operating Partnership anticipates that it will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the proposed Exchange Offering is included at "PROPOSED REAL
ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In June 1995, Baron Capital VIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Homebuyer Mortgage Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in May 1996. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of approximately 200 single-family home sites
located in Louisville, Kentucky.
In August 1995, Baron Capital V, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 3,640 units of limited partner
interest in Florida Capital Income Fund IV, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,820,000). The
offering was fully subscribed and closed in June 1996. The partnership invested
the net proceeds of its offering to acquire title to a 144-unit residential
apartment community located in St. Petersburg, Florida. As one of its initial
acquisition candidates in connection with the proposed Exchange Offering, the
Operating Partnership anticipates that it will offer to acquire partnership
interests in this partnership owned by the partners thereof. Additional
information relating to the property interests owned by this partnership and to
the proposed Exchange Offering is included at "PROPOSED REAL ESTATE INVESTMENTS"
and in Exhibits A and B to this Prospectus.
In September 1995, Baron Capital X, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in GSU Stadium Student Apartments, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in February 1996. The partnership
invested the net proceeds of its offering to acquire title to a 60-unit student
residential apartment community located in Statesboro, Georgia. As one of its
initial acquisition candidates in connection with the proposed Exchange
Offering, the Operating Partnership anticipates that it will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the proposed Exchange Offering is included at "PROPOSED REAL
ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In November 1995, Baron Capital XI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,300 units of limited partner
interest in Florida Income Growth Fund V, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $1,150,000). The
offering was fully subscribed and closed in February 1997. The partnership
invested the net proceeds of its offering to acquire title to a 70-unit
residential apartment community located in Orlando, Florida. As one of its
initial acquisition candidates in connection with the proposed Exchange
Offering, the Operating Partnership anticipates that it will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the proposed Exchange Offering is included at "PROPOSED REAL
ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In December 1995, Baron Capital XII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 575 units of limited partner
interest in Brevard Mortgage, Ltd., a Florida limited partnership, at a purchase
price of $1,000 per unit (maximum gross proceeds of $575,000). The offering was
fully subscribed and closed in April 1996. The partnership invested the net
proceeds of its offering to acquire a second mortgage loan which is secured by a
64-unit residential apartment community located in Melbourne, Florida. Following
the completion of the initial transactions of the proposed Exchange Offering,
the Operating Partnership intends to investigate other investment opportunities
to exchange the balance of the Units to be registered for property interests
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in other Exchange Offering transactions, including this partnership's interests
in one or more other properties. Additional information relating to the property
interests owned by this partnership and to the proposed Exchange Offering is
included in Exhibit A to this Prospectus and at "PROPOSED REAL ESTATE
INVESTMENTS," respectively.
In December 1995, Baron Capital XV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund II, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in July
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of 39 single-family home sites
located in Louisville, Kentucky.
In January 1996, Baron Capital XVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,500 units of limited partner
interest in Clearwater First Time Home Buyer Program, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$750,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to provide subordinated
mortgage financing to a developer for the acquisition of 8.2 acres of land
located in Clearwater, Florida for a 195-unit residential condominium
development.
In March 1996, Baron Capital IX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 700 units of limited partner
interest in Lamplight Court of Bellefontaine Apartments, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to acquire debt and equity
interests in a limited partnership that owns title to an 80-unit residential
apartment community located in Bellefontaine, Ohio. Following the completion of
the initial transactions of the proposed Exchange Offering, the Operating
Partnership intends to investigate other investment opportunities to exchange
the balance of the Units to be registered for property interests in other
Exchange Offering transactions, including this partnership's interests in one or
more other properties. Additional information relating to the property interests
owned by this partnership and to the proposed Exchange Offering is included in
Exhibit A to this Prospectus and at "PROPOSED REAL ESTATE INVESTMENTS,"
respectively.
In April 1996, Baron Capital XXVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,800 units of limited partner
interest in Baron Strategic Vulture Fund I, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $900,000). The
offering was fully subscribed and closed in October 1996. The partnership
invested the net proceeds of its offering to acquire notes receivable associated
with an 81-unit residential apartment community located in Tampa, Florida.
Following the completion of the initial transactions of the proposed Exchange
Offering, the Operating Partnership intends to investigate other investment
opportunities to exchange the balance of the Units to be registered for property
interests in other Exchange Offering transactions, including this partnership's
interests in one or more other properties. Additional information relating to
the property interests owned by this partnership and to the proposed Exchange
Offering is included in Exhibit A to this Prospectus and at "PROPOSED REAL
ESTATE INVESTMENTS," respectively.
In April 1996, Baron Capital XXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund III, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in September
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of approximately 100 condominium
units located in Independence, Kentucky.
In May 1996, Baron Capital XXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund IV, Ltd., a Florida
limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in November
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of approximately 82 single-family
homes in Louisville, Kentucky.
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In May 1996, Baron Capital XXIX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,000 units of limited partner
interest in Baron First Time Home Buyer Mortgage Fund V, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of the second phase of an 84-unit residential
condominium development in Independence, Kentucky.
In May 1996, Baron Capital XXXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Strategic Investment Fund II, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in October 1996. The
partnership invested the net proceeds of its offering to acquire an equity
interest in a 72-unit residential apartment community located in Anderson,
Indiana. Following the completion of the initial transactions of the proposed
Exchange Offering, the Operating Partnership intends to investigate other
investment opportunities to exchange the balance of the Units to be registered
for property interests in other Exchange Offering transactions, including this
partnership's interests in one or more other properties. Additional information
relating to the property interests owned by this partnership and to the proposed
Exchange Offering is included in Exhibit A to this Prospectus and at "PROPOSED
REAL ESTATE INVESTMENTS," respectively.
In May 1996, Baron Capital XXXII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in December 1996. The
partnership invested the net proceeds of its offering to acquire notes
receivable associated with a 68-unit residential apartment community located in
Orlando, Florida. As one of its initial acquisition candidates in connection
with the proposed Exchange Offering, the Operating Partnership anticipates that
it will offer to acquire partnership interests in this partnership owned by the
partners thereof. Additional information relating to the property interests
owned by this partnership and to the proposed Exchange Offering is included at
"PROPOSED REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In June 1996, Baron Capital XXIX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,500 units of limited partner
interest in Baron Income Property Mortgage Fund VI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$750,000). The offering was fully subscribed and closed in July 1997. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of a 150-unit apartment community located in
Independence, Kentucky.
In July 1996, Baron Capital XXXIV, an Affiliate of the Managing
Shareholder, sponsored an offering of up to 620 units of limited partner
interest in Florida Tax Credit Fund II, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $310,000). The
offering has raised $297,750 as of April 22, 1998 and continues in progress. The
partnership has invested the net proceeds of its offering to acquire title to a
47-unit residential apartment community located in Bartow, Florida.
In October 1996, Baron Capital XVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Strategic Investment Fund IV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering was fully subscribed and closed in March 1998. The
partnership has invested the net proceeds of its offering to make a subordinated
mortgage loan secured by a 73-unit residential apartment community located in
Tampa, Florida. Following the completion of the initial transactions of the
proposed Exchange Offering, the Operating Partnership intends to investigate
other investment opportunities to exchange the balance of the Units to be
registered for property interests in other Exchange Offering transactions,
including this partnership's interests in one or more other properties.
Additional information relating to the proposed Exchange Offering is included at
"PROPOSED REAL ESTATE INVESTMENTS."
In October 1996, Baron Capital XXXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,400 units of limited partner
interest in Baron Mortgage Development Fund VII, Ltd., a Florida
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limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $700,000). The offering was fully subscribed and closed in July
1997. The partnership invested the net proceeds of its offering to make a second
mortgage loan to the developer of an 84-unit residential apartment community in
Alexandria, Kentucky.
In October 1996, Baron Capital XXXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,300 units of limited partner
interest in Baron Mortgage Development Fund VIII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$650,000). The offering has raised $550,000 as of April 22, 1998 and continues
in progress. The partnership has invested the net proceeds of its offering to
make a second mortgage loan to the developer of a 114-unit residential apartment
community located in Louisville, Kentucky.
In October 1996, Baron Capital XL, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund V, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in June 1997. The
partnership invested the net proceeds of its offering to purchase receivables
associated with two properties comprising 144 residential apartment units
located in Titusville, Florida. Following the completion of the initial
transactions of the proposed Exchange Offering, the Operating Partnership
intends to investigate other investment opportunities to exchange the balance of
the Units to be registered for property interests in other Exchange Offering
transactions, including this partnership's interests in one or more other
properties. Additional information relating to the property interests owned by
this partnership and to the proposed Exchange Offering is included in Exhibit A
to this Prospectus and at "PROPOSED REAL ESTATE INVESTMENTS," respectively.
In November 1996, Baron Capital XXXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund VI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in April 1997. The
partnership has invested the net proceeds of its offering to acquire an equity
interest in a 91-unit residential apartment community in Orlando, Florida.
Following the completion of the initial transactions of the proposed Exchange
Offering, the Operating Partnership intends to investigate other investment
opportunities to exchange the balance of the Units to be registered for property
interests in other Exchange Offering transactions, including this partnership's
interests in one or more other properties. Additional information relating to
the property interests owned by this partnership and to the proposed Exchange
Offering is included in Exhibit A to this Prospectus and at "PROPOSED REAL
ESTATE INVESTMENTS," respectively.
In November 1996, Baron Capital XLI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 3,800 units of limited partner
interest in Baron Strategic Investment Fund VII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,900,000). The offering was fully subscribed and closed in December 1997. The
partnership has invested the net proceeds of its offering to purchase
receivables associated with three properties comprising 145 residential
apartment units located in Cocoa Beach, Lakeland and Titusville, Florida.
Following the completion of the initial transactions of the proposed Exchange
Offering, the Operating Partnership intends to investigate other investment
opportunities to exchange the balance of the Units to be registered for property
interests in other Exchange Offering transactions, including this partnership's
interests in one or more other properties. Additional information relating to
the property interests owned by this partnership and to the proposed Exchange
Offering is included in Exhibit A to this Prospectus and at "PROPOSED REAL
ESTATE INVESTMENTS," respectively.
In November 1996, Baron Capital XLIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in December 1997. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of 226 condominium units in Cincinnati, Ohio.
In December 1996, Baron Capital XLII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Development Fund IX, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $800,000). The
offering was fully subscribed and closed in September 1997. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of a 320 single-family home site located in Louisville,
Kentucky.
In February 1997, Baron Capital XXXIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund XI, Ltd., a Florida limited
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partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in August 1997. The
partnership has invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of 168 residential condominium units in
Cincinnati, Ohio.
In February 1997, Baron Capital XLIV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund VIII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in February 1998. The
partnership has invested the net proceeds of its offering to acquire notes
receivable associated with a 58-unit residential apartment community located in
Cocoa, Florida. Following the completion of the initial transactions of the
proposed Exchange Offering, the Operating Partnership intends to investigate
other investment opportunities to exchange the balance of the Units to be
registered for property interests in other Exchange Offering transactions,
including this partnership's interests in one or more other properties.
Additional information relating to the proposed Exchange Offering is included at
"PROPOSED REAL ESTATE INVESTMENTS."
In March 1997, Baron Capital XLVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XIV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000. The offering was fully subscribed and closed in March 1998. The
partnership has invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of a 396-unit luxury residential apartment
community in Cincinnati, Ohio.
In April 1997, Baron Capital XLVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $887,000 as of April 22, 1998 and continues
in progress. The partnership has invested the net proceeds of its offering to
make a subordinated mortgage loan to the developer of a 111,000 square-foot
shopping center located in Burlington, Kentucky.
In May 1997, Baron Capital XLVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,400 units of limited partner
interest in Baron Mortgage Development Fund XV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in February 1998. The
partnership has invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of an 88-unit residential apartment community
located in Alexandria, Kentucky.
In May 1997, Baron Capital LX, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron First Mortgage Development Fund XVI, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $785,147 as of April 22, 1998 and continues
in progress. The partnership has invested the net proceeds of its offering to
make a first mortgage loan to the developer of approximately 200 entry-level
single-family homes in Cincinnati, Ohio.
In May 1997, Baron Capital LXI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron First Mortgage Development Fund XVII, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $450,500 as of April 22, 1998 and continues
in progress. The partnership has invested the net proceeds of its
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offering to make a first mortgage loan to the developer of approximately 140
entry-level single-family homes in Crystal River, Florida.
In June 1997, Baron Capital LXII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund IX, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering has raised $1,107,406 as of April 22, 1998 and
continues in progress. The partnership has invested the net proceeds of its
offering to acquire a limited partnership interest in the limited partnership
which owns a 72-unit residential apartment property in Lakeland, Florida and to
make a subordinated mortgage loan in respect of the development of a separate
residential apartment property. Following the completion of the initial
transactions of the proposed Exchange Offering, the Operating Partnership
intends to investigate other investment opportunities to exchange the balance of
the Units to be registered for property interests in other Exchange Offering
transactions, including this partnership's interests in one or more other
properties. Additional information relating to the proposed Exchange Offering is
included at "PROPOSED REAL ESTATE INVESTMENTS."
In June 1997, Baron Capital LXIV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,400 units of limited partner
interest in Baron Strategic Investment Fund X, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,200,000). The offering was fully subscribed and closed in March 1998. The
partnership has invested the net proceeds of its offering to acquire limited
partnership interests in two limited partnerships which own a 91-unit
residential apartment property in Orlando, Florida and a 72-unit residential
apartment property in Lakeland, Florida, respectively, and to provide
subordinated mortgage financing secured by a 41-unit residential apartment
property in Kissimmee, Florida. Following the completion of the initial
transactions of the proposed Exchange Offering, the Operating Partnership
intends to investigate other investment opportunities to exchange the balance of
the Units to be registered for property interests in other Exchange Offering
transactions, including this partnership's interests in one or more other
properties. Additional information relating to the proposed Exchange Offering is
included at "PROPOSED REAL ESTATE INVESTMENTS."
In July 1997, Baron Capital LXV, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 1,600 units of limited partner
interest in Baron Mortgage Development Fund XVIII, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$800,000). The offering was fully subscribed and closed in November 1997. The
partnership has invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of a 150-unit residential apartment community in
Independence, Kentucky.
In September 1997, Baron Capital LXVI, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XIX, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $731,500 as of April 22, 1998 and continues
in progress. The partnership has invested the net proceeds of its offering to
make a subordinated mortgage loan to the developer of four approximately
one-acre out parcels of land adjacent to a shopping center development to be
constructed in Burlington, Kentucky.
In September 1997, Baron Capital LXVII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XX, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $912,834 as of April 22, 1998 and continues
in progress. The partnership has invested the net proceeds of its offering to
make a subordinated mortgage loan to finance the conversion of a 144-unit
residential apartment community located in St. Petersburg, Florida into an
extended-stay hotel.
In November 1997, Baron Capital LXVIII, Inc., an Affiliate of the Managing
Shareholder, sponsored an offering of up to 2,000 units of limited partner
interest in Baron Mortgage Development Fund XXI, L.P., a Delaware limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$1,000,000). The offering has raised $402,000 as of April 22, 1998 and continues
in progress. The partnership has invested the net proceeds of its offering to
make a subordinated mortgage loan to a developer to finance land acquisition,
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development and construction in respect of two phases of a 396-unit luxury
residential apartment community to be constructed in four phases in Burlington,
Kentucky, a suburb of Cincinnati, Ohio.
There have been no major adverse business developments or conditions
experienced to date by any of the prior limited partnerships that would be
material to prospective Investors in the Trust. A prospective Investor should
note that certain of the prior limited partnerships described above and in the
tables comprising Exhibit A hereto were only recently organized, that certain
partnerships have only recently commenced operations, and that others are still
in the development stage. Accordingly, it would be premature to draw conclusions
based upon the current stages of operations or development of certain of the
prior limited partnerships.
Exhibit A sets forth certain historical information relating to the
offerings of 32 of such prior limited partnerships, compensation paid to the
general partners of such partnerships and their Affiliates in connection
therewith, operating results of such partnerships, sales of properties and
results of completed programs. Exhibit A is comprised of the following tables:
Table I Baron Advisors and Affiliates Experience in Raising and Investing
Funds
Table II Compensation to Baron Advisors Affiliates from Prior Funds
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
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MANAGEMENT
As Managing Shareholder of the Trust, Baron Advisors, Inc. ("Baron
Advisors") will have direct and exclusive discretion in management and control
of the affairs of the Trust and the Operating Partnership, subject to general
supervision and review by the Independent Trustees and the Managing Shareholder
acting together as the Board of the Trust and to prior approval authority of a
majority of the Board and a majority of the Independent Trustees in respect of
certain specified actions. The Corporate Trustee, Baron Properties (an Affiliate
of the Managing Shareholder), will act on the instructions of the Managing
Shareholder, and will not take independent discretionary action on behalf of the
Trust. The audited balance sheets of the Trust and the Operating Partnership as
of February 3, 1998 and the audited balance sheet of the Managing Shareholder as
of February 28, 1998 are included in this Prospectus at Exhibit C.
The Board of the Trust and the Independent Trustees will act only where
their consent and participation is required under the Declaration of the Trust.
See "SUMMARY OF DECLARATION OF TRUST - Control of Operations." The members of
the Board and the Independent Trustees are under a fiduciary duty similar to
that of corporation directors to act in the Trust' best interests and may compel
action by the Managing Shareholder to carry out that duty if necessary, but
ordinarily they have no duty to manage or direct the management of the Trust
outside their enumerated duties.
Although the Managing Shareholder will be in control of the Trust (subject
to the powers and obligations of the Board and the Independent Trustees), it
will have no liability to the Trust or the Investors for losses or liabilities
except in cases of its negligence, misconduct or breach of the Declaration. See
"FIDUCIARY RESPONSIBILITY."
Managing Shareholder
Baron Advisors, Inc., the Managing Shareholder of the Trust, was
incorporated in July 1997 as a Delaware corporation. The management of Baron
Advisors has substantial prior experience in and knowledge of the residential
apartment property and single-family housing market and its financing and
experience in the management of investment programs and in directing their
operations. The President, sole director and sole shareholder of Baron Advisors
is Gregory K. McGrath and its Chief Operating Officer is Robert S. Geiger. The
Managing Shareholder will be compensated for its services under the Trust
Management Agreement. Officers and employees of the Managing Shareholder who
perform services on behalf of the Trust will not be paid any additional
compensation by the Trust. Such officers and employees generally will serve in
the same capacity for the Trust and will be compensated by the Trust in amounts
determined by the Managing Shareholder, in the case of employees, and by the
Executive Compensation Committee described below, in the case of officers. See
"--Trust Management Agreement." Set forth below is certain information
concerning Mr. McGrath and Mr. Geiger.
Gregory K. McGrath, age 36, is the President, sole director and sole
shareholder of Baron Advisors and Chief Executive Officer of the Trust. Mr.
McGrath has over 10 years experience in all aspects of the real estate industry,
including site selection and acquisition, arrangement and closing of mortgage
financing, and property acquisition and management. Between January 1993 and
June 1994, Mr. McGrath served as Senior Vice President of Realty Capital, Inc.,
a Florida corporation which sponsored real estate limited partnerships. Mr.
McGrath is also the President, sole director and sole shareholder of Baron Real
Estate Services, Inc. ("Baron"), an Ohio corporation headquartered in
Cincinnati, Ohio, which he co-founded in 1989. Under Mr. McGrath's leadership,
Baron grew from the property manager of a single site in Ohio to managing over
40 residential apartment properties containing over 3,000 units which have a
current value in excess of $100 million, and commercial space. In January 1997,
substantially all of Baron's property management operations were sold to
Affirmative Management, Inc., an Affiliate of Affirmative Equities Company,
L.P., a New York City-based owner, operator and manager of multi-family
residential apartment properties. Mr. McGrath is the President, sole director
and sole shareholder of Brentwood Management, LLP, an Ohio limited liability
company which may provide property management services in respect of properties
in which the Trust may invest. Mr. McGrath is also a principal of The Baron
Organization, Inc., a Delaware corporation which asset manages an approximately
$100 million real estate portfolio.
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In addition to the affiliations described below, Mr. McGrath is also a principal
in a number of other related business entities which are involved in various
aspects of the real estate industry. Mr. McGrath attended Miami University.
Mr. McGrath is also the President, sole director and sole shareholder of
each of 14 Delaware or Florida corporations which is the sole general partner of
one of 14 separate real estate investment limited partnerships organized in
Delaware or Florida since 1994 to invest in real estate located in the
midwestern and southeastern portions of the United States. The name of each such
corporation and the limited partnership sponsored by it are listed on the last
page of Exhibit A hereto. Each of these limited partnerships is currently
offering limited partner interests in private securities offerings and/or has
not commenced operations yet. One of a group of 28 separate Affiliates of the
Managing Shareholder identified above in "PRIOR PERFORMANCE OF AFFILIATES OF
MANAGING SHAREHOLDER" (and in Table I at the beginning of Exhibit A hereto ) is
also the sole general partner of one of 32 additional real estate investment
limited partnerships formed in Florida which have commenced operations. Mr.
McGrath is the President, sole director and sole shareholder of each of such
affiliated corporations. These partnerships have provided financing in respect
of residential apartment properties located in the midwestern and southeastern
portions of the United States. Each of the partnerships has terminated its
private placement offering and invested the net proceeds thereof. Attached
hereto at the beginning of Exhibit A are five tables which summarize certain
information about such offerings, compensation paid to the general partners of
such programs and their Affiliates in connection therewith, operating results of
such programs, the application of net offering proceeds to real estate
investments, and sales of properties.
Since 1986, Robert S. Geiger, age 46, has been managing director of the law
firm of Geiger Kasdin Heller Kuperstein Chames & Weil, P.A., a Miami, Florida
law firm with a general practice, and its predecessor firms. Mr. Geiger's
practice is concentrated in complex commercial and real property litigation,
insolvency law, business reorganizations and banking law. He serves as general
counsel for national, regional and local corporations engaged in a wide range of
business activities, including regulated industry matters. Mr. Geiger's firm has
performed and is expected to continue to perform legal services for Affiliates
of the Managing Shareholder and may perform legal services for the Trust in
connection with the purchase and sale of real estate assets and other related
activities. Compensation received by the firm for such services has not
represented a material portion of the firm's revenues. Mr. Geiger will continue
in his current capacity at the firm after the Offering. Prior to 1986, Mr.
Geiger practiced law at private law firms. Mr. Geiger is a member of the Panel
of Arbitrators, American Arbitration Association, Dade County and American Bar
Associations, The Florida Bar (member, Corporation, Business and Banking Law),
and the International Bar Association. Mr. Geiger earned a law degree from the
University of Florida in 1974 and a Bachelor of Arts degree from Hobart College
in 1972.
Mr. McGrath and Mr. Geiger are the founders of the Trust and the Operating
Partnership. Each of them has contributed $25,000 for the initial capitalization
of the Operating Partnership and other consideration to the Operating
Partnership in exchange for an amount of Units which are exchangeable (subject
to escrow restrictions described below at "THE TRUST - Formation Transactions")
into 9.5% of the Common Shares outstanding after the completion of this Offering
and the proposed Exchange Offering, on a fully diluted basis assuming that all
then outstanding Units (other than those owned by the Trust) have been exchanged
into an equivalent number of Common Shares. Such Units are exchangeable into an
equivalent number of Common Shares, subject to a security escrow agreement among
Mr. McGrath, Mr. Geiger, the Trust and an institutional escrow agent. See "THE
TRUST Formation Transactions." Such Units and the Common Shares into which they
are exchangeable are in addition to the 2,500,000 Common Shares which the Trust
is offering for sale in this Offering and the 2,500,000 Units which the
Operating Partnership will offer in connection with the proposed Exchange
Offering. See "THE TRUST Ownership of the Trust and the Operating Partnership."
The holders of at least 10% of the Common Shares may propose the removal of
the Managing Shareholder, either by calling a meeting or soliciting consents in
accordance with the terms of the Declaration. Removal of the Managing
Shareholder requires either the affirmative vote of a majority of the Common
Shares (excluding Common Shares held by the Managing Shareholder which is the
subject of the vote or by its Affiliates) or the affirmative vote of a majority
of the Independent Trustees. The Shareholders entitled to vote thereon may
replace a removed Managing Shareholder or fill a vacancy by vote of a majority
in interest of such Shareholders. See "SUMMARY OF DECLARATION OF TRUST - Removal
and Resignation of the Managing Shareholder."
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Trust Management Agreement
The Trust will enter into a Trust Management Agreement with the Managing
Shareholder under which the Managing Shareholder will be obligated to provide
management, administrative and investment advisory services to the Trust from
the commencement of the Offering. The services to be rendered will include,
among other things, communicating with and reporting to Investors, administering
accounts, providing to the Trust of office space, equipment and facilities and
other services necessary for the Trust's operation, and representing the Trust
in its relations with custodians, depositories, accountants, attorneys, brokers
and dealers, corporate fiduciaries, insurers, banks and others, as required. The
Managing Shareholder will also be responsible for determining which real estate
investments and non-real estate investments (including the temporary investment
of the Trust's available funds prior to their commitment to particular real
estate investments) the Trust will make and for making divestment decisions,
subject to the provisions of the Declaration.
The Managing Shareholder will be obligated to compensate the administrative
personnel and pay all administrative and service expenses necessary to perform
the foregoing obligations. The Trust will pay all other expenses of the Trust,
including transaction expenses, appraisal costs, expenses of preparing and
printing periodic reports for Investors, the Commission and securities
commissions of applicable states, postage for Trust mailings, Commission and
state securities commission fees, interest, taxes, legal, accounting and
consulting fees, litigation expenses, and other expenses properly payable by the
Trust. The Trust will reimburse the Managing Shareholder for all such Trust
expenses paid by it. As compensation for the Managing Shareholder's performance
under the Trust Management Agreement, beginning June 1, 1998, the Trust will pay
to the Managing Shareholder on a monthly basis during the term of the agreement
an annual management fee in an amount equal to 1% of the aggregate subscription
price paid for Common Shares in the Offering and of the initial value of Units
issued in connection with the proposed Exchange Offering. The Managing
Shareholder in its sole discretion may elect to receive payment for its services
in the form of Common Shares with an equivalent value.
The Trust Management Agreement has an initial term of one year and may be
extended on a year-to-year basis on approval of (i) the Board or a Majority of
the Shareholders entitled to vote on such matter or (ii) a majority of the
Independent Trustees. By executing and delivering to the Trust the Subscription
Agreement, each Investor will be deemed to have consented to the terms and
conditions of the Trust Management Agreement described herein. The Independent
Trustees have responsibility for determining that compensation payable to the
Managing Shareholder under the Trust Management Agreement is reasonable. The
agreement may be terminated without cause or penalty at any time on 60 days'
prior notice by a majority of the Independent Trustees, by a Majority of the
Shareholders entitled to vote on such matter or by the Managing Shareholder.
Amendment of the agreement requires the approval of (i) a majority of the
Trustees or a Majority of the Shareholders entitled to vote on such matter and
(ii) a majority of the Independent Trustees. Shareholders entitled to vote on
such matters will be entitled to vote whether or not to amend or terminate the
agreement or to extend it for an additional one-year period only if such item is
called for a Shareholder vote at the annual meeting of Shareholders or a special
meeting of Shareholders by either the Managing Shareholder, a majority of the
Independent Trustees, any officer of the Trust or Shareholders who hold 10% or
more of the Common Shares then outstanding.
Officers of the Trust
The Declaration provides that the Managing Shareholder will appoint
officers of the Trust who may act on behalf of the Trust and sign documents on
behalf of the Trust as authorized by the Managing Shareholder and who will have
the duties and powers usually applicable to similar officers of a Delaware
corporation in carrying out Trust business. Officers act under the supervision
and control of the Managing Shareholder, which can remove any officer at any
time for any or no reason. Unless otherwise specified by the Managing
Shareholder, the Chief Executive Officer of the Trust will have full power to
act on behalf of the Trust. Mr. McGrath serves as Chief Executive Officer of the
Trust and as President of the Managing Shareholder and Robert S. Geiger serves
as the Chief Operating Officer of each company. The Trust is currently
interviewing suitable candidates to serve as President and Chief Financial
Officer of the Trust upon the commencement of the Offering. Mr. Geiger's initial
annual salary has been set at $100,000 (in addition to benefits, including
without limitation health, disability and life
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insurance, and eligibility for participation in any Common Share option plan and
bonus incentive compensation plan which may be implemented by the Trust). Mr.
McGrath has agreed to serve as Chief Executive Officer during 1998 in exchange
for compensation in the form of Common Shares in an amount to be determined by
the Executive Compensation Committee based upon his performance in 1998. The
Managing Shareholder will appoint a Secretary for the Trust. Officers and
employees of the Managing Shareholder who perform services on behalf of the
Trust will not be paid any additional compensation by the Trust. Such officers
and employees generally will serve in the same capacity for the Trust and will
be compensated by the Trust in amounts determined by the Managing Shareholder,
in the case of employees, and by the Executive Compensation Committee described
below, in the case of officers.
Information concerning Mr. McGrath and Mr. Geiger is set forth above at " -
Managing Shareholder."
The Board of the Trust; Committees; and Trustees
As Managing Shareholder of the Trust, Baron Advisors will have direct and
exclusive discretion in management and control of the affairs of the Trust,
subject to general supervision and review by the Independent Trustees and the
Managing Shareholder acting together as the Board of the Trust and to prior
approval authority of the Board and the Independent Trustees in respect of
certain actions specified in the Declaration and described at "SUMMARY OF THE
DECLARATION - Control of Operations."
The Board of the Trust
As described above, the Board of the Trust has general supervisory
authority over the activities of the Managing Shareholder and prior approval
authority in respect of certain actions under the Declaration. A majority of the
members of the Board must be Independent Trustees. The initial Board of the
Trust will be comprised of the Managing Shareholder and two individuals
described below who have agreed to serve as the initial Independent Trustees
upon the completion of the Offering. Each member of the Board must have adequate
experience in the residential real estate industry. The term of each member of
the Board is one year. Each member of the Board (other than the initial members
and any member who is elected to fill the unexpired term of another member no
longer serving) must be elected by vote of the Shareholders entitled to vote on
such matter at the annual meeting of Shareholders. Mid-term vacancies may be
filled by a majority of the remaining members of the Board. Each member may
serve an unlimited number of terms.
The Board may establish such committees as it deems appropriate, provided,
the majority of the members of any such committee are Independent Trustees. At
its initial meeting, which is scheduled to be held in the second quarter of
1998, the Board of the Trust will establish an Audit Committee, Executive
Compensation Committee, and Nominating Committee. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Trust's internal accounting controls. The Executive
Compensation Committee will determine compensation for the Trust's executive
officers and implement a Common Share option plan and bonus incentive
compensation plan for members of management and key employees of the Trust. The
Nominating Committee will nominate the members of the Board of the Trust to be
presented to Shareholders for election at each annual meeting beginning in 1999.
The Trust intends to pay its Independent Trustees an annual fee of $6,000.
The Executive Compensation Committee will consider from time to time adjustments
in the compensation payable to members of the Board and the possibility of
permitting the members of the Board to participate in any option plans which the
Trust may adopt. Mr. McGrath, the Chief Executive Officer of the Trust and the
President of the Managing Shareholder, will not be paid any fees for serving on
the Board on behalf of the Managing Shareholder. In addition, the Trust will
reimburse all members of the Board for expenses incurred in attending meetings.
The Board will meet at least annually, and, except to the extent
conflicting with the Delaware Act or the Declaration, the law of Delaware
governing meetings of directors of corporations shall govern such meetings,
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voting and consents by the members of the Board. The Compensation Committee of
the Board may review the compensation payable to the Independent Trustees and
other members of the Board (other than the Managing Shareholder, which will not
be compensated for serving on the Board) annually and may increase or decrease
it as the committee deems reasonable. Without prior approval of the Compensation
Committee of the Board, the Trust may not pay compensation to any Independent
Trustee or other member of the Board for consulting services provided to the
Trust. Any member of the Board may resign by giving notice to the Trust, and may
be removed (i) for cause by the action of at least two-thirds of the remaining
members of the Board or (ii) with or without cause by action of the holders of
at least a majority of the then outstanding Shares entitled to vote thereon.
Shares in the Trust owned by the Managing Shareholder, the Trustees, other
members of the Board of the Trust, the Original Investors and any of their
respective affiliates may not vote regarding the removal of the Managing
Shareholder, the Trustees or any other member of the Board or any transaction
between the Trust (or the Operating Partnership) and any of them.
Independent Trustees
The Trust is required to have at least two Independent Trustees, and such
Independent Trustees must constitute a majority of the Board. To qualify to
serve the Trust as an Independent Trustee, a person may not be associated or
have been associated within the last two years with the Managing Shareholder (or
any successor advisor to the Trust). A person is deemed to be associated with
the Managing Shareholder if he (i) owns an interest in, is employed by, or is an
officer, director or trustee of the Managing Shareholder or any of its
Affiliates; (ii) performs services, other than as an Independent Trustee, for
the Trust; (iii) is a trustee for more than three REITs organized or advised by
the Managing Shareholder; or (iv) has any material business or professional
relationship with the Managing Shareholder or any of its Affiliates.
The term of each Independent Trustee is one year, and each Independent
Trustee (other than one who has been elected to fill the unexpired term of
another Independent Trustee who no longer serves in such capacity) must be
elected by a vote of the Shareholders. Mid-term vacancies may be filled by a
majority of the remaining members of the Board. Any person may serve an
unlimited number of terms. An Independent Trustee may resign by giving notice to
the Trust, and may be removed (i) for cause by the action of at least two-thirds
of the remaining members of the Board or (ii) with or without cause by action of
the holders of at least a majority of the then outstanding Shares entitled to
vote thereon. The Independent Trustees are not obligated to persons other than
Shareholders for the obligations of the Trust. See "SUMMARY OF DECLARATION OF
TRUST - Liability and Indemnification."
Described below are James H. Bownas and Peter M. Dickson, who have agreed
to serve as the initial Independent Trustees of the Trust upon the completion of
the Offering. Set forth below is certain information concerning these
individuals, who are not otherwise affiliated with the Trust, the Operating
Partnership, the Managing Shareholder or any of their respective Affiliates. In
performing their responsibilities to the Trust, the Independent Trustees are
under a fiduciary duty and obligation to act in the best interests of the Trust.
In interpreting the scope of this obligation, the Independent Trustees will have
the responsibilities of, and will be entitled to, the defenses of directors of a
Delaware corporation.
James H. Bownas, age 49, is a principal in Gamble Hartshorn Alden Co. LPA,
a Columbus, Ohio law firm with a general practice. Mr. Bownas's practice is
concentrated in securities, real estate, taxation, corporate and estate
planning. Between 1989 and January 1996, Mr. Bownas served as General Counsel,
Vice President and Secretary of Cardinal Realty Services, Inc. ("Cardinal")
(formerly known as Cardinal Industries, Inc.), a publicly traded company
headquartered in Reynoldsburg, Ohio which has sponsored numerous real estate
investment limited partnerships. At Cardinal, Mr. Bownas developed significant
experience in the syndication of real estate investment limited partnerships,
negotiated the resolution of over $2 billion of creditors' claims in connection
with the bankruptcy reorganization of Cardinal Industries, Inc., and coordinated
the transition of Cardinal Industries, Inc. from a bankruptcy creditor to a
successful publicly traded company. Since 1995, Cardinal has engaged in several
arms-length transactions (none of which represented a material portion of
Cardinal's assets, liabilities, revenues or expenditures) with Affiliates of the
Managing Shareholder pursuant to which multi-family real estate was sold to,
purchased from and managed by and for such entities. Prior to 1989, Mr. Bownas
served as General Counsel and Vice President of Alliance Corporate Resources,
Inc., Dublin, Ohio, a third party equipment lessor, and practiced
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law at private law firms. Mr. Bownas is a member of the American Bar
Association, the Ohio State Bar Association and the Columbus Bar Association.
Mr. Bownas earned a law degree from Harvard University in 1971 and a Bachelor of
Science degree from Xavier University in 1968. He resides in Columbus, Ohio.
Since 1991, Peter M. Dickson, age 47, has been managing director of the
Guardian Management Company Limited, a global financial services corporation
based in Bermuda. In addition, since 1994 Mr. Dickson has served as a director
to Grosvenor Trust Company Limited, another Bermuda-based financial services
corporation. Between 1985 and 1990, Mr. Dickson served as the Executive Vice
President of Finance for The Wraxall Group, Bermuda. Between 1979 and 1985, Mr.
Dickson held several positions with Peat, Marwick, Bermuda, beginning as a
Senior Accountant/Supervisor, before being promoted to Manager, then to Senior
Manager, and finally to Director of Accounting Services. Prior to 1979, Mr.
Dickson was a Senior Accountant with Deloitte, Haskin & Sells in Manchester,
with whom he was Articled. Mr. Dickson qualified as a Chartered Accountant in
1974 with the Institute of Chartered Accountants in England and Wales. Mr.
Dickson is a member of the Bermuda Institute of Chartered Accountants, Chartered
Institute of Marketing, and The Offshore Institute. He is a member of the
Institute of Chartered Accountants in England & Wales, Institute of Cost and
Executive Accountants, Association of Financial Controllers Managers and
Association of Business Executives. Mr. Dickson serves as Fellow of the
Institute of Chartered Accountants in England & Wales, Faculty of Corporate
Executive Secretaries, Institute of Directors, Faculty of Business Administrator
and Institute of Financial Accountants. Mr. Dickson earned his undergraduate
degree from Wrekin College, Shropshire, England in 1969.
Corporate Trustee
The Corporate Trustee of the Trust is Baron Capital Properties, Inc.
("Baron Properties"), a Delaware corporation formed in July 1997 and an
Affiliate of the Managing Shareholder. The primary duty of the Corporate Trustee
will be to operate an office in the State of Delaware as the Delaware Act
requires that at least one of the trustees of a Delaware business trust (such as
the Trust) have an office in Delaware. Legal title to Trust Property will be in
the name of the Trust if possible or Baron Properties as trustee. Baron
Properties, as Corporate Trustee of the Trust, will act only at the direction of
the Managing Shareholder, and will not take independent discretionary action on
behalf of the Trust. The Corporate Trustee will not be compensated for its
services, but will be reimbursed only for its reasonable out-of-pocket expenses
in serving in such capacity which are approved in advance by the Managing
Shareholder. Such expenses are expected to be limited to those incurred in
connection with the operation of its Delaware office. Baron Properties may be a
trustee of other similar entities that may organized by the Managing
Shareholder, Baron Capital, Inc., and any of their Affiliates. The President,
sole director and sole stockholder of Baron Properties is Gregory K. McGrath.
See " - Managing Shareholder." The principal office of Baron Properties is at
1105 North Market Street, Suite 1300, Wilmington, Delaware 19899. The Corporate
Trustee is not obligated to persons other than Shareholders for the obligations
of the Trust. See "SUMMARY OF THE DECLARATION."
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THE TRUST
The Trust and the Operating Partnership constitute a self-administered and
self-managed real estate company which has been organized to indirectly acquire
equity interests in existing residential apartment properties located in the
United States and to provide or acquire debt financing secured by mortgages on
such types of property. The Trust intends to acquire, own, operate, manage and
improve residential apartment properties for long-term ownership, and thereby to
seek to maximize current and long-term income and the value of its assets. See
"INVESTMENT OBJECTIVES AND POLICIES" below. The management of the Trust has been
involved in the residential apartment business for over 10 years.
The Trust intends to make regular quarterly distributions to its
Shareholders of net income generated from its investments. The Trust intends to
operate as a real estate investment trust (a "REIT") for federal income tax
purposes, provided, however, that if the Managing Shareholder determines, with
the affirmative vote of a Majority of Shareholders entitled to vote on such
matter approving the Managing Shareholder's determination, that it is no longer
in the best interests of the Trust to continue to qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
The Operating Partnership
The operations of the Trust will be carried on through the Operating
Partnership (and any other subsidiaries the Trust may have in the future), among
other reasons, in order to (i) enhance the ability of the Trust to qualify as a
REIT under the Code, (ii) enable the Trust to indirectly acquire interests in
residential apartment properties in exchange transactions that involve the
exchange of Units of limited partnership interest in the Operating Partnership
for such property interests and thereby permit the deferral until a later date
of any tax liabilities that sellers of property interests otherwise would incur
if they received cash or Common Shares in connection therewith. Substantially
all of the Trust's assets (including the property interests acquired) will be
held by, and its operations conducted through, the Operating Partnership. As its
sole general partner, the Trust will control the Operating Partnership as well
as hold Units representing an economic interest in the Operating Partnership.
The Operating Partnership will be responsible for, and pay when due, its share
of all administrative and operating expenses of properties in which it acquires
an interest.
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with the Offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of units of limited partnership
interest in the Operating Partnership ("Units"). The Operating Partnership will
use the net cash proceeds of the Offering, unissued Units or a combination of
net cash proceeds and unissued Units to acquire interests in residential
apartment properties or interests in other partnerships substantially all of
whose assets consist of residential apartment property interests. See " -
Ownership of the Trust and the Operating Partnership."
Concurrently with this Offering, the Operating Partnership proposes to make
an Exchange Offering using Units to be registered with the Commission to acquire
interests in residential apartment properties. As its initial acquisition
candidates in connection with the Exchange Offering, the Trust anticipates that
it will offer to acquire property interests owned by partners in 10 real estate
limited partnerships managed by Affiliates of the Managing Shareholder and by
partners in a limited partnership managed by an Affiliate of the Dealer Manager
of this Offering. The targeted properties consist of an aggregate of 638
residential units (comprised of studio and one, two, three and four-bedroom
units) and are all located in Florida with the exception of one property which
is located in Georgia. Such property interests are described in greater detail
below at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit B hereto. If property
acquisitions are consummated in respect of all 11 properties, the purchase price
is expected to be approximately $12 million, payable in Units in the Operating
Partnership. The Trust intends to investigate other investment opportunities for
the Exchange Offering, including property interests held by unaffiliated owners
and certain other limited partnerships managed by Affiliates of the Managing
Shareholder and of the Dealer Manager. See also "PRIOR PERFORMANCE BY AFFILIATES
OF MANAGING SHAREHOLDER."
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In the initial transactions of the Exchange Offering, the Operating
Partnership will offer to issue Operating Partnership Units to each individual
limited partner in an Exchange Partnership (individually, an "Exchange Limited
Partner" and collectively, the "Exchange Limited Partners") in exchange for his
respective limited partnership interest in the Exchange Partnership. The number
of Operating Partnership Units to be offered to each Exchange Limited Partner
for his interest in a given Exchange Partnership will have a deemed value in the
range of 102% to 110% of the amount of an Exchange Limited Partner's original
investment in the partnership. For such purpose, each Operating Partnership Unit
will be initially valued at $10, the same offering price of each Trust Common
Share offered in the Cash Offering. As described below, holders of Operating
Partnership Units may exchange their Units into an equivalent number of Common
Shares at any time, subject to certain conditions. Any Exchange Limited Partner
that does not desire to participate in the Exchange Offering would be entitled
to retain his limited partnership interest in the partnership on generally the
same terms as currently exist. As part of the transaction, the Trust would
assume the corporate general partner's interest in each of the Exchange
Partnerships involved and manage the partnerships on an ongoing basis.
The number of Operating Partnership Units to be offered to the Exchange
Limited Partners in respect of each Exchange Property will differ based upon a
number of factors, including, among others, the operating history of the
property, the amount of distributed cash flow generated by the property, the
period of time that the property has been held by the underlying Exchange
Partnership and the property's overall condition and estimated appraised market
value. An Affiliate of one of the Original Investors has agreed to supplement
the number of Operating Partnership Units offered to Exchange Limited Partners
in certain Exchange Partnerships by contributing to the Operating Partnership at
no cost a portion of his appraised interest in an unrelated residential
property. Each Exchange Property in which the Operating Partnership intends to
acquire an interest has been appraised by a qualified and licensed independent
appraisal firm and each additional property in which it intends to acquire an
interest will be appraised in advance.
The appraisal reports to be relied upon by the Operating Partnership will
based on the three traditional property valuation methods: the cost approach,
the direct sales comparison approach, and the income approach. The "cost
approach" is based on the principle that an informed purchaser would pay no more
than the cost of building a comparable property. This approach involves the
estimation of the current market value of the land and the replacement cost of
improvements. Accrued depreciation of the improvements is then calculated and
deducted from such estimation to indicate the value of the property. Generally,
the land value is determined using the direct sales comparison approach
described below. The replacement cost of improvements is estimated based on
current prices for building materials, less depreciation, after analyzing the
disadvantages or deficiencies of the existing building compared to a new
building.
The "income approach" is based on the principle that value is created by
the expectation of economic benefits to be derived in the future. This approach
to valuation takes into account the amount of income a property is expected to
earn in the future and its present value. Under this approach, net income before
payment of debt service obligations is first estimated. That amount is then
converted into present value through a process called capitalization, which
involves dividing the net income by a capitalization rate. Factors such as risk,
time, interest on the capital investment and the recapture of the depreciating
assets are taken into account to determine the capitalization rate. The
selection of an appropriate capitalization rate is one of the most important
factors to be analyzed under the income approach of valuation. One important
method to determine the capitalization rate is to extract the rate based on
comparable residential apartment properties.
The "direct sales comparison" approach is based on the principle that an
informed purchaser will pay no more for a property than the cost of acquiring an
existing property with the same characteristics. The appraiser first gathers
data relating to sales of comparable properties and then analyzes the nature and
condition of each comparable sale, making adjustments for dissimilar
characteristics. To determine land value, the price per acre or price per unit
is the common denominator. For improvements, the common denominator may be price
per square foot, price per unit or room, or a gross rent multiplier (i.e., a
comprehensive unit of comparison based on the relationship between gross
potential rental income and value).
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The final step in the appraisal process is the reconciliation of the values
estimated under the three approaches, taking into account the relative
applicability of each approach, the range between the estimated values and the
approach that appears to produce the most reliable estimate. According to the
appraisers retained by the Operating Partnership to appraise the Exchange
Properties, the income and direct sales comparison approaches are considered by
most purchasers and sellers to be the most relevant when valuing
income-producing properties such as the Exchange Properties. The appraisers give
the least consideration to the cost approach because purchasers and sellers are
more responsive to acquiring income-producing properties based on attractive
overall capitalization rates.
To facilitate the proposed Exchange Offering, the Operating Partnership
will register with the Commission 2,500,000 Units. Sellers of property interests
who receive Units as consideration in connection with the proposed Exchange
Offering will be entitled to exchange all or a portion of the Units held by them
for an equivalent number of Common Shares at any time and from time to time, so
long as the exchange would not cause the seller to own (taking into account
certain ownership attribution rules) in excess of 5.0% of the then outstanding
Shares, subject to the Trust's right to cash out any holder of Units who
requests an exchange. Therefore, in conjunction with the registration of the
Units, the Trust will register 2,500,000 Common Shares (in addition to the
2,500,000 Common Shares being offered in this Offering) for issuance to holders
of Units who request the Trust to exchange Units for Common Shares. A
registration statement in connection with the proposed Exchange Offering has
been filed with the Commission.
The Trust intends to investigate making an additional public or private
offering of Common Shares or Units within the 12-month period following the
commencement of the Offering if the Managing Shareholder determines that
suitable property acquisition opportunities are available to the Trust at
attractive prices and that such an offering would fulfill its cost of funds
requirements. The issuance by the Trust and the Operating Partnership of
additional Shares and Units subsequent to the completion of the Offering and the
proposed Exchange Offering could have a dilutive effect on Investors which
acquire Common Shares in the Offering.
The Trust's ownership of Units in the Operating Partnership will entitle it
to share in cash distributions from, and in the profits and losses of, the
Operating Partnership in proportion to its percentage ownership of Units. The
Trust in turn will distribute such cash distributions to the Shareholders of the
Trust. The other Unitholders (i.e., other Limited Partners) of the Operating
Partnership, including the Original Investors and property interest sellers who
receive Units in exchange for such property interests, will own the remaining
economic interest in the Operating Partnership. Subject to certain percentage
limitations on ownership, Units may be transferred by Limited Partners without
restriction (other than Original Investors who are subject to escrow
restrictions described below), although the transferee may only be admitted as a
Unitholder with the consent of the Trust as general partner. As described below
at "THE TRUST - Formation Transactions," the Original Investors have entered
into a security escrow agreement with the Trust under which they have agreed to
deposit into an escrow account with an institutional escrow agent for a period
of six to nine years (subject to their earlier release if the Trust meets
certain specified operating criteria) all Units issued to them in connection
with the formation of the Trust and the Operating Partnership. The effect of the
escrow arrangement is that, as long as their Units are held in the escrow
account, the Original Investors will not be able to exchange their Units into
Common Shares or sell Common Shares. As Unitholders exchange their Units for
Common Shares, the Trust's percentage interest in the Operating Partnership will
increase.
The Trust will hold one Unit in the Operating Partnership for (i) each
Common Share that it issues in this Offering, (ii) each Common Share that it
issues in exchange for a Unit at the request of a Unitholder, and (iii) each
Unit it elects to cash out in lieu of an exchange described in item (ii) above.
The net proceeds from the issuance of Common Shares of the Trust in connection
with the Offering and of any other issuance of Common Shares will be contributed
to the Operating Partnership in exchange for an equivalent number of Units.
As the general partner of the Operating Partnership, the Trust will have
the exclusive power under the Operating Partnership Agreement to manage and
conduct the business of the Operating Partnership. Baron Advisors, Inc., the
Managing Shareholder of the Trust, has full exclusive and complete discretion in
the management and control of the Trust and the Operating Partnership (subject
to the general supervision and review by the Independent Trustees and the
Managing Shareholder acting together as the Board of the Trust and subject to
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prior approval of the Board and the Independent Trustees in respect of certain
activities of the Trust and the Operating Partnership). Gregory K. McGrath, the
Chief Executive Officer of the Trust and the President of the Managing
Shareholder, and Robert S. Geiger, the Chief Operating Officer of the Trust and
of the Managing Shareholder, and James H. Bownas and Peter M. Dickson, the
initial Independent Trustees of the Trust, will make investment decisions for
the Trust. The Independent Trustees and the Managing Shareholder comprise all
the initial members of the Board of the Trust. The Operating Partnership will
terminate on December 31, 2098 unless terminated earlier in connection with a
merger or a sale of all or substantially all of the assets of the Operating
Partnership or upon a vote of the Partners. The Operating Partnership will be
responsible for, and pay when due, its share of all administrative and operating
expenses of properties in which it acquires an interest.
Formation Transactions
Set forth below is a description of transactions relating to the formation
of the Trust and the Operating Partnership. Gregory K. McGrath and Robert S.
Geiger are the founders of the Trust and the Operating Partnership (the
"Original Investors"). Mr. McGrath serves as the Chief Executive Officer of the
Trust and is the President, sole shareholder and sole director of the Managing
Shareholder, which will manage the day to day operations of the Trust and the
Operating Partnership. McGrath is also the President, sole shareholder and sole
director of the corporate general partners of 46 real estate investment limited
partnerships, which since 1994 have acquired interests in residential and
commercial properties. See "MANAGEMENT" and "PRIOR PERFORMANCE OF AFFILIATES OF
MANAGING SHAREHOLDER." As described below at "PROPOSED REAL ESTATE INVESTMENTS,"
certain of the prior partnerships own interests in properties which the Trust
may acquire in connection with the proposed Exchange Offering.
In connection with the formation of the Trust and the Operating
Partnership, Mr. McGrath will receive an amount of Units which are exchangeable
(with certain escrow restrictions described below) into 9.5% of the Common
Shares outstanding after the completion of the Offering and the proposed
Exchange Offering, on a fully diluted basis assuming that all then outstanding
Units (other than those owned by the Trust) have been exchanged into an
equivalent number of Common Shares. Mr. McGrath's consideration for the Units
included an initial capital contribution of $25,000 to the Operating
Partnership; a waiver of any ongoing economic interests (including back end
interests and administrative fees) attributable to the corporate general
partners (which he controls) which manage real estate investment limited
partnerships whose investors participate in the proposed Exchange Offering; and
the contribution to the Trust and the Operating Partnership of the goodwill of
the affiliated group of Baron companies under his control.
Mr. Geiger serves the Trust and the Managing Shareholder as their Chief
Operating Officer. In exchange for an initial capital contribution of $25,000 to
the Operating Partnership and his past and future participation in the formation
and operation of the Trust and the Operating Partnership, he will receive a
number of Units in the Operating Partnership equivalent to that issuable to Mr.
McGrath in connection with the formation of the Trust and the Operating
Partnership.
Mr. McGrath and Mr. Geiger have entered into a security escrow agreement
with the Trust under which they have agreed to deposit into an escrow account
with American Stock Transfer & Trust Company (the transfer agent and registrar
for the Common Shares being offered hereby and the Units to be offered in the
proposed Exchange Offering) Units issuable to them in connection with the
formation of the Trust and the Operating Partnership. Under the agreement, 25%
of the escrowed Units may be released from the escrow account on the sixth,
seventh, eighth and ninth anniversary dates of the commencement of this
Offering, provided that the escrowed Units may be released in their entirety
earlier if either (i) the Trust achieves annual net earnings per Common Share of
at least $.50 (i.e., 5% of the public offering price per share), after taxes and
excluding extraordinary items, for any consecutive two-year period following the
commencement of the Offering, (ii) the Trust achieves average annual net
earnings per share of at least $.50 (after taxes and excluding extraordinary
items) for any consecutive five-year period following the commencement of the
Offering, or (iii) the Common Shares have traded on a national stock market at a
price per share of at least $17.50 (i.e., 175% of the public offering price per
share) for at least 90 consecutive trading days following the first anniversary
of the commencement of the Offering.
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The effect of the escrow arrangement is that, as long as their Units are
held in the escrow account, the Original Investors will not be able to exchange
their Units into Common Shares and sell any Common Shares. The Original
Investors will retain any voting rights to which the escrowed Units are
entitled. Any dividends paid on the escrowed Units will be held in the escrow
account and available for distribution to other Shareholders and Unitholders in
the event of any transaction which results in the distribution of the assets of
the Operating Partnership (such as its dissolution, liquidation, merger or sale
of substantially all of its assets) to the extent that the other Shareholders
and Unitholders otherwise would not receive in connection with such transaction,
distributions in an amount equal to at least the initial public offering price
of the Common Shares.
Ownership of the Trust and the Operating Partnership
Set forth below is a description of the ownership of the Trust and the
Operating Partnership on a pro forma basis, assuming that the Offering and the
proposed Exchange Offering are completed in their entirety as contemplated
herein and that the Dealer Manager or other participating broker-dealer has not
exercised any Common Share warrants granted to it in connection with this
Offering. Immediately after the completion of this Offering and the proposed
Exchange Offering, there would be 2,625,000 Common Shares and 6,264,808 Units
outstanding. The purchasers of Common Shares in this Offering would own
2,500,000 Common Shares, representing a 95.2% ownership interest in the Trust as
of the closing of this Offering and the Exchange Offering. Broker-dealers who
earn commissions for their services in the Exchange Offering (a number of Common
Shares equal to 5% of the Units issued to offerees as a result of their efforts)
would own the remaining 125,000, or 4.8%, of the outstanding Common Shares. On a
fully diluted basis assuming that all then outstanding Units (other than those
owned by the Trust) have been exchanged into an equivalent number of Common
Shares, the purchasers of Common Shares in this Offering, sellers of property
interests who receive Units in the proposed Exchange Offering, the Original
Investors and broker-dealers who provide services in the Exchange Offering would
have a 39.5%, 39.5%, 19.0% and 2.0% beneficial ownership interest (i.e., have
the right to vote or dispose of such Common Shares or to acquire ownership of
Common Shares in exchange for Units) in the Trust, respectively.
The Trust will contribute the net proceeds of this Offering to the
Operating Partnership in exchange for up to 2,500,000 unregistered Units and in
its capacity as general partner of the Operating Partnership will also receive a
1% partnership interest in the Operating Partnership. Units held by the Trust
will not be exchangeable into Common Shares.
The two tables below reflect the pro forma allocation of Common Shares and
Units among the participants in this Offering and the proposed Exchange
Offering. The first table assumes the consummation of this Offering by itself
without taking into account the Exchange Offering. The second table assumes the
consummation of this Offering and the Exchange Offering.
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The Offering
- ---------------------------------------
Ownership:
Purchasers of Common
BARON CAPITAL TRUST Shares in this Offering 100.0%
("TRUST")
- ---------------------------------------
- ---------------------------------------
General Partner
Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 80.2%
("OPERATING PARTNERSHIP") Original Investors 18.8%
-----
100.0%
Total
- ---------------------------------------
If the Trust sells all 2,500,000 Common Shares being offered in this
Offering (gross proceeds of $25,000,000) and assuming that the Dealer Manager
and participating broker-dealers have not exercised any Common Share warrants
granted to them in connection with this Offering and that no transactions are
effected pursuant to the proposed Exchange Offering, the following would result:
o The Trust would use the net proceeds of this Offering ($22,500,000)
(remaining after payment of commissions and offering fees) to acquire
2,500,000 Units in the Operating Partnership (80.2% of the then
outstanding amount). The Original Investors would own 18.8% of the
then outstanding Units (586,420 Units) and the Trust, in its capacity
as general partner of the Operating Partnership, would own the
remaining 1% (31,176 Units).
o The purchasers of Common Shares in this Offering would own 100% of the
equity interest in the Trust, which, in turn, would own an 80.2%
limited partnership interest in the Operating Partnership.
o The respective ownership percentage interests in the Trust and the
Operating Partnership would remain proportionately the same in the
event the Trust sells less than all Common Shares being offered in
this Offering, even though there would be fewer outstanding Common
Shares and Units.
o The Operating Partnership would use the cash proceeds received from
the Trust to acquire property interests and for working capital and
other general business purposes.
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The Offering And Proposed Exchange Offering
- --------------------------------------
Ownership:
Purchasers of Common
BARON CAPITAL TRUST Shares in this Offering 95.2%
Broker-dealers participating
("TRUST") in the Exchange Offering 4.8%
------
Total 100.0%
- --------------------------------------
- --------------------------------------
General Partner
Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 39.9%
("OPERATING PARTNERSHIP") Sellers of Property in
Exchange Offering 39.9%
Original Investors 19.2%
-----
- -------------------------------------- Total 100.0%
If the Trust sells all 2,500,000 Common Shares being offered in this
Offering, and the Operating Partnership uses all 2,500,000 registered Units to
complete the proposed Exchange Offering to acquire property interests, the
following would result:
o The Trust would use the net proceeds of the Offering ($22,500,000)
(remaining after payment of commissions and offering fees) to acquire
2,500,000 Units in the Operating Partnership.
o The Operating Partnership would issue all 2,500,000 registered Units
to sellers of property interests in exchange for such interests and
acquire additional property interests with the cash proceeds received
from the Trust.
o Each broker-dealer who assists the Operating Partnership in
consummating the Exchange Offering with individual offerees who accept
the offering will be paid as a commission a number of unregistered
Common Shares of the Trust equal to 5% of the number of Operating
Partnership Units exchanged in the respective transactions.
o Assuming no Unitholders have exercised their right to exchange their
Units for an equivalent number of Common Shares, the purchasers of
Common Shares in this Offering and broker-dealers providing services
in the Exchange Offering would own 95.2% and 4.8%, respectively, of
the equity interest in the Trust, and the Units of the Operating
Partnership would be owned as follows:
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Percentage
Limited Partners Units Interest
Baron Capital Trust (as limited partner) 2,500,000 39.9%
Sellers of Property Interests
in Exchange Offering 2,500,000 39.9%
Original Investors 1,202,160 19.2%
Baron Capital Trust (as general partner) 62,648 1.0%
--------- ------
Total: 6,264,808 100.0%
If this Offering is closed and all or a portion of the 2,500,000 Common
Shares being offering hereby are sold prior to that closing, and the proposed
Exchange Offering is also closed, but less than 2,500,000 Units are issued prior
thereto, the purchasers of Common Shares in this Offering and broker-dealers
providing services in the Exchange Offering would still together hold 100% of
the then outstanding Common Shares of the Trust (but in varying percentages
between them, depending upon the number of Units issued), and the Trust and the
sellers of property interests who receive Units in the Exchange Offering would
own varying numbers of Units and percentages of the then outstanding Units,
depending upon how many Common Shares and Units were issued in connection with
the respective offerings. The Original Investors would own a varying number of
Units, but their collective Common Share beneficial ownership percentage would
remain at 19%. In addition, over time as Unitholders exercise their rights to
exchange Units for an equivalent number of Common Shares: (i) the number of
outstanding Common Shares would increase, resulting in changing percentages of
ownership among Shareholders, and (ii) the number of outstanding Units would
decrease, resulting in changing percentages of ownership among Unitholders.
However, such exchanges would not affect the ownership percentage interests of
any Shareholder or Unitholder.
Regulations
General. Residential apartment communities are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas. The
Trust will use its best efforts to provide that each property in which it
acquires an interest has the necessary permits and approvals to operate its
business.
Fair Housing Amendments of 1988. The FHA requires residential apartment
communities first occupied after March 13, 1990 to be accessible to the
handicapped. Noncompliance with the FHA could result in the imposition of fines
or an award of damages to private litigants. The Trust will use its best efforts
to provide that properties subject to the FHA in which it acquires an interest
are in compliance with such law.
Americans with Disabilities Act ("ADA"). Properties in which the Trust
acquires an interest must comply with Title III of the ADA to the extent that
such properties are "public accommodations" and/or "commercial facilities" as
defined by the ADA. Compliance with the ADA requirements could require removal
of structural barriers to handicapped access in certain public areas of
properties where such removal is readily achievable. The ADA does not, however,
consider residential properties, such as apartment communities, to be public
accommodations, except to the extent portions of such facilities, such as a
leasing office, are open to the public. The Trust will use its best efforts to
provide that properties in which it acquires an interest comply with all present
requirements under the ADA and applicable state laws. Noncompliance could result
in imposition of injunctive relief, fines or an award of damages. If required
changes involve a greater expenditure than the Trust might anticipate, or if
changes must be made on a more accelerated basis than it might anticipate, the
Trust's ability to make expected distributions to Shareholders could be
adversely affected. The Trust believes that its competitors would face similar
costs to comply with the requirements of the ADA.
Environmental Regulations. The Trust is subject to Federal, state, and
local environmental regulations that apply to the development of real property,
including construction activities, the ownership of real property, and the
operation of multifamily apartment communities.
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The Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. 9601, et seq. ("CERCLA"), and applicable state Superfund laws subject
the owner of real property to claims or liability for the costs of removal or
remediation of hazardous substances that are disposed of on real property in
amounts that require removal or remediation. Liability under CERCLA and
applicable state Superfund laws can be imposed on the owner of real property or
the operator of a facility without regard to fault or even knowledge of the
disposal of hazardous substances on the property or at the facility. The
presence of hazardous substances in amounts requiring response action or the
failure to undertake remediation where it is necessary may adversely affect an
owner's ability to sell real estate or borrow money using such real estate as
collateral. In addition to claims for cleanup costs, the presence of hazardous
substances on a property could result in a claim by a private party for personal
injury or a claim by an adjacent property owner for property damage.
The Trust, where required, intends to retain a qualified environmental
consultant to conduct an environmental investigation of each property that it
considers for investment. If there is any indication of contamination, sampling
of the property will be performed by the environmental consultant. The
environmental investigation report will be reviewed by the Trust and counsel
prior to purchase of an interest in any property.
Rent Control Legislation. Although none currently are applicable to any of
the properties in which the Trust is contemplating an investment, state and
local rent control laws in certain jurisdictions limit a property owner's
ability to increase rents and to cover increases in operating expenses and the
costs of capital improvements. Enactment of such laws has been considered from
time to time in other jurisdictions. The Trust does not presently intend to
acquire interests in residential apartment properties in markets that are either
subject to rent control or in which rent limiting legislation exists.
Employees
The Trust and the Operating Partnership initially expect to employ a total
of approximately 20 employees. The number of employees it will initially hire
will depend upon the amount of net proceeds raised in the Offering and the
results of the proposed Exchange Offering.
INVESTMENT OBJECTIVES AND POLICIES
General
The Trust has been organized to acquire equity interests in existing
residential apartment properties located in the United States and/or to provide
or acquire debt financing secured by mortgages on such types of property. Such
investments are expected to consist primarily of: (i) the acquisition,
ownership, operation, management, improvement and disposition of equity
interests in such types of properties and/or (ii) Mortgage Loans which the Trust
provides or acquires which are secured by mortgages on such types of properties.
The Managing Shareholder expects that the Trust's proposed investments will (1)
generate current cash flow for distribution to Investors from rental payments
from the rental of residential apartment units which the Trust may acquire
and/or principal and interest payments in respect of Mortgage Loans which the
Trust may provide or acquire and (2) provide the opportunity for capital
appreciation through the sale of all or a portion of the Trust's investment in
equity interests in residential apartment properties. The Trust intends to pay
regular quarterly distributions to its Shareholders. Properties in which the
Trust will acquire an interest are expected to use the straight-line method of
depreciation over 27-1/2 years.
The management of the Trust has been involved in the residential property
business for over 10 years and has extensive experience and presence in the
residential property business which have enabled it to form key alliances and
working relationships with owners of residential apartment properties and
financial institutions.
The Trust intends to acquire, own, operate, manage, and improve residential
apartment properties for long-term ownership, and thereby to seek to maximize
current and long-term income and the value of its assets. The
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Trust's strategy is to pursue acquisitions of interests in properties that (i)
are available at prices below estimated replacement cost; (ii) may provide
attractive returns with significant potential growth in cash flow from property
operations; (iii) are strategically located, of high quality and competitive in
their respective markets; (iv) have been under-managed or are otherwise capable
of improved performance through intensive management and leasing that will
result in increased occupancy and rental revenues, and (v) provide anticipated
total returns that will increase the Trust's distributions and its overall
market value. The Trust will make investments in properties indirectly through
the Operating Partnership in which it will hold all of its real estate assets
and conduct all real estate operations.
The Trust's primary business objectives are to increase distributions to
Shareholders and to increase the value of the Trust's portfolio of properties in
which it acquires an interest. The Trust intends to achieve these objectives by:
(i) Acquiring interests in properties that are available at prices below
estimated replacement cost and capable of enhanced performance, both in terms of
cash flow and investment value, through application of the Trust's management
ability and strategic capital improvements;
(ii) Increasing cash flow of the Trust's properties through active leasing,
rent increases, improvement in tenant retention, expense controls, effective
property management, and regular maintenance and periodic renovations, including
additions to amenities;
(iii) Managing operating expenses through the use of affiliated leasing,
marketing, financing, accounting, legal, and data processing functions; and
(iv) Emphasizing capital improvements to enhance the Trust's competitive
advantages in its markets.
Brentwood Management, LLC ("Brentwood"), an Ohio limited liability company
which is an Affiliate of the Managing Shareholder, or an Affiliate may manage
properties in which the Trust may invest. For managing a residential apartment
property, the property manager would be paid a fee equal to 5% of the collected
rental income from the property plus a bookkeeping fee of $325 per month and it
may earn a performance fee of $2.00 per residential unit per month if greater
than 96% of gross potential rents are collected.
After the Trust has invested the net proceeds of this Offering and
completed the proposed Exchange Offering, it intends to utilize one or more
sources of capital for future acquisitions and capital improvements, which may
include undistributed cash flow, borrowings, issuance of debt or equity
securities and other bank and/or institutional borrowings. The Trust intends to
investigate making an additional public or private offering of Common Shares or
Units within the 12-month period following the commencement of the Offering if
the Board of the Trust determines that suitable property acquisition
opportunities which meet its investment criteria are available to the Trust at
attractive prices and such an offering would fulfill its cost of funds
requirements. There can be no assurance, however, that the Trust will be able to
obtain capital for any such acquisitions or improvements on terms favorable to
the Trust.
The Trust expects to qualify as a REIT for federal income tax purposes
beginning with its taxable year ending December 31, 1998. See "TAX STATUS OF THE
TRUST" and "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust."
Trust Policies with Respect to Certain Activities
The following is a discussion of the Trust's policies with respect to
investments, dispositions, financings, and conflicts of interest. These policies
have been determined by the Managing Shareholder of the Trust and under the
Declaration may be amended or revised from time to time at the discretion of the
Board with approval of a majority in interest of the Shareholders entitled to
vote on such matters. The Declaration of Trust contains certain additional
limitations on the Trust's activities. See "SUMMARY OF THE DECLARATION OF TRUST
- - Control of Operations" and Section 1.9 of the Declaration.
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At all times, the Trust intends to make investments and conduct its
operations in such a manner as to be consistent with the requirements of the
Code for the Trust to qualify as a REIT unless, because of changing
circumstances or changes in the Code (or in Treasury Regulations), the Managing
Shareholder, with the consent of a majority of the Shareholders entitled to vote
on such matter approving the Managing Shareholder's determination, determines
that it is no longer in the best interests of the Trust to qualify as a REIT. No
assurance can be given that the Trust's objectives will be attained.
Investment Policies
The Trust's investment objective is to provide quarterly cash distributions
and achieve long-term appreciation through increases in cash flows and the value
of its properties. The Trust intends to pursue these objectives by acquiring
equity interests in one or more existing residential apartment properties
located in the United States and/or making or investing in Mortgage Loans and
other real estate interests related to such types of properties consistent with
its qualification as a REIT. The Trust may invest in First Mortgage Loans or
Junior Mortgage Loans and participating or convertible mortgages if it concludes
that it may benefit from the cash flow or any appreciation in the value of the
subject property. Such mortgages are similar to equity participation. The Trust
may also retain a purchase money mortgage for a portion of the sale price in
connection with the disposition of properties from time to time.
Subject to the percentage of ownership limitations and gross income tests
necessary for REIT qualification, the Trust also may invest in securities of
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. See "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust." The Trust may acquire all or
substantially all of the securities or assets of other REITs or similar entities
where such investments would be consistent with the Trust's investment policies.
The Trust will not make an equity investment in respect of any property
where the amount invested by it plus the amount of any existing indebtedness or
refinancing indebtedness in respect of such property exceeds the appraised value
of the property. In addition, the Trust will not acquire or provide debt
financing in respect of any property where the amount invested by the Trust plus
the amount of any existing indebtedness in respect of such property exceeds 80%
of the estimated replacement cost of the property as determined by the Managing
Shareholder unless substantial justification exists. Repayment of any Mortgage
Loans provided or acquired by the Trust would typically be secured by a Mortgage
on the land, apartment units, and other improvements financed by the Trust and
be non-recourse to the borrower. It is expected that in certain cases the Trust
will provide or acquire a Second Mortgage Loan that is subordinate to a First
Mortgage Loan provided by a lending institution. In certain cases, Mortgage
Loans provided or acquired by the Trust may be in the form of First Mortgage
Loans.
Junior Mortgages securing Junior Mortgage Loans to be provided or acquired
by the Trust may or may not be recorded. If any Junior Mortgage in favor of the
Trust is not recorded, the Trust's security interest in the Mortgage would be
unperfected and the Trust would be pari passu (i.e., on an equal basis) with all
other unsecured creditors of the borrower, provided, however, the security
instruments that will be entered into in connection with Mortgage Loans to be
provided or acquired by the Trust will typically restrict the borrower's ability
to enter into a subsequent loan arrangement with third parties which would be
senior to or pari passu with (i.e., equal to) the Mortgage held by the Trust.
Non-payment of any Junior Mortgage Loan that may be made or acquired by the
Trust may constitute an event of default by the borrower under the underlying
Senior Mortgage Loan, and such Senior Mortgage Loan may have to be repaid by the
borrower before Shareholders in the Trust will receive any return on their
investment.
The Trust will obtain and maintain insurance coverage on property in which
it acquires an equity interest (and, prior to providing or acquiring any
Mortgage Loan in respect of a property, will be listed as an additional insured
or loss payee in respect of such property), protecting against casualty loss up
to replacement cost (with a $1,000 deductible per loss), and against public
liability in an amount that is reasonable taking into account the market value
of the property at the time insurance is obtained. There can be no assurance,
however, that the Trust's Property would not sustain losses in excess of its
applicable insurance coverage, and it could sustain losses as a
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result of risks which are uninsurable. There are certain types of losses
(generally of a catastrophic nature, such as earthquakes, floods and wars) which
may be either uninsurable or not economically insurable. Should such a loss
occur, the Trust could lose its invested capital in the property. In that case,
the Shareholders could suffer a complete loss of their investment in the Trust.
Real estate investment programs previously sponsored by and which may in
the future be sponsored by Affiliates of the Managing Shareholder may seek to
acquire interests in properties similar to those which the Trust will seek to
acquire. The following method of allocation of the acquisition of such
properties between the Trust and such other programs will generally be followed
by the Trust in such cases. Except in unusual circumstances, the Trust will not
invest its net offering proceeds in property investments until such similar
programs sponsored prior to the Offering have specified for investment or
committed to invest at least 50% of their investment funds in respect of
particular properties, and no such similar program sponsored subsequent to the
Offering will invest in respect of a particular property until the Trust has
specified for investment or committed to invest at least 50% of its net offering
proceeds in respect of particular properties. The Board and the Independent
Trustees are responsible for overseeing the allocation of the acquisition of
properties under the circumstances described above to insure that the foregoing
allocation method is applied fairly to the Trust.
Pending the commitment of Trust funds for the purposes described in this
Prospectus, for distributions to Shareholders or for application of reserve
funds to their purposes, the Managing Shareholder has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest.
The Trust intends to make investments in such a way that it will not be
treated as an investment company under the Investment Company Act of 1940.
Disposition Policies
The Managing Shareholder will periodically review the portfolio of assets
which the Trust acquires. The Trust has no current intention to dispose of any
property interests it may acquire, although it reserves the right to do so.
Disposition decisions relating to a particular property will be made based on
(but not limited to) the following factors: (i) potential to continue to
increase cash flow and value; (ii) the sale price; (iii) strategic fit of the
property with the rest of the Trust's portfolio; (iv) potential for, or the
existence of, any environmental or regulatory problems; (v) alternative uses of
capital; and (vi) maintaining qualification as a REIT. Any decision to dispose
of a property will be made by the Managing Shareholder.
Financing Policies
The Trust will have the right to borrow funds, and use the Trust's
available assets as security for any such loan, if the Trust's cash requirements
exceed its available cash. Under the Declaration of the Trust, the aggregate
borrowings of the Trust in relation to its net assets may not exceed 300%,
except where the Trust determines that a higher level of borrowing is
appropriate. It is expected that each property in which the Trust invests will
secure a First Mortgage Loan. The principal balance of any such First Mortgage
Loan typically would represent a substantial percentage of the Trust's basis in
any property in which the Trust owns an equity interest.
To the extent that the Managing Shareholder desires that the Trust obtain
additional capital, the Trust may raise such capital through additional public
and private equity offerings, debt financing, retention of cash flow (subject to
satisfying the Trust's distribution requirements under the REIT rules) or a
combination of these methods. The Trust may determine to issue securities senior
to the Common Shares, including Preferred Shares and debt securities (either of
which may be convertible into Common Shares or be accompanied by warrants to
purchase Common Shares). The Trust may also finance acquisitions of properties
or interests in properties through the exchange of properties, the issuance of
Shares, or the issuance of Units of limited partnership interest in the
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Operating Partnership and any other partnerships the Trust may form or acquire
an equity interest in to conduct all or a portion of its real estate operations.
The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
any applicable Operating Partnership, to refinance existing indebtedness or to
finance acquisitions or capital improvements of new properties.
Conflict of Interest Policies
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest, as described below. However, there can be no
assurance that these policies always will be successful in eliminating the
influences of such conflicts, and if they are not successful, decisions could be
made that might fail to reflect the interests of all Shareholders.
The Managing Shareholder will have discretion in management and control of
the affairs of the Trust and the Operating Partnership, subject to (i) general
supervision and review by the Independent Trustees and the Managing Shareholder
acting together as the Board of the Trust and (ii) prior approval authority of a
majority of the Board and/or of a majority of the Independent Trustees in
respect of certain actions of the Trust and the Operating Partnership. The
Declaration of the Trust requires that a majority of the Board of the Trust be
comprised of Independent Trustees not affiliated with the Managing Shareholder
or its Affiliates.
Actions of the Trust and the Operating Partnership requiring approval of
the Board and/or the Independent Trustees include, without limitation, the
payment of compensation to the Managing Shareholder, a Trustee, any other member
of the Board of the Trust or any of their respective Affiliates in amounts in
excess of certain specified limits for services performed for the Trust and the
acquisition of properties from or the sale of properties to any such parties.
For example, the Trust may not purchase property from the Managing Shareholder,
a Trustee, any other member of the Board or any of their respective Affiliates
unless a majority of the members of the Board and a majority of the Independent
Trustees who have no other interest in the particular proposed transaction
(beyond their role on the Board or as Independent Trustees) review the proposed
transaction and determine that it is fair and reasonable to the Trust and that
the purchase price to the Trust for such property is no greater than the cost of
the property to such proposed seller, or if the purchase price to the Trust is
in excess of such cost, that substantial justification for such excess exists
and such excess is reasonable, provided, however, in no event may the purchase
price for the property exceed its then current appraised value. As of the date
of this Prospectus, the Trust does not contemplate using any substantial portion
of the net proceeds of this Offering to acquire property interests from the
Managing Shareholder, any Trustee or any other member of the Board of the Trust
or any of their respective affiliates.
For a more detailed description of Trust and Operating Partnership actions
requiring approval of the Board and/or the Independent Trustees, see "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
PROPOSED REAL ESTATE INVESTMENTS
Net cash proceeds of this Offering have not yet been committed to specific
properties. Although the Managing Shareholder has several investment
opportunities under review for the application of the proceeds, none of such
potential opportunities has developed beyond the negotiating stage. The Trust
may direct a substantial portion of the proceeds to investment opportunities
that have not been designated in this Prospectus, as it may be amended or
supplemented from time to time, and the Trust may be unable to or may decline to
apply the proceeds to any specific investments that may be described in this
Prospectus or any amendments or supplements thereto. Therefore, prospective
Investors may not be able to evaluate any properties in which the Trust may
apply the net cash proceeds of the Offering before they purchase Common Shares.
In addition, prospective Investors will not have any vote in the selection of
property investments after they purchase Common Shares. Consequently, Investors
will be relying upon the judgment of the Managing Shareholder and the
Independent Trustees for such decisions.
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As described above, concurrently with this Offering, the Operating
Partnership proposes to make an Exchange Offering using Units to be registered
with the Commission to acquire interests in residential apartment properties. In
the Exchange Offering, the Operating Partnership will offer to issue Units to
sellers of interests in residential apartment properties in exchange for such
property interests. As its initial acquisition candidates, the Operating
Partnership anticipates that it will offer to acquire property interests
indirectly owned by individual limited partners in 10 real estate limited
partnerships managed by Affiliates of the Managing Partnership and by individual
limited partners in a limited partnership managed by an Affiliate of the Dealer
Manager of this Offering (such limited partners are collectively referred herein
as the "Exchange Limited Partners" and individually as an "Exchange Limited
Partner," and such partnerships are collectively referred herein as the
"Exchange Partnerships" and individually as an "Exchange Partnership").
Each Exchange Partnership directly or indirectly owns the entire equity
interest in a single residential apartment property. The Operating Partnership
would acquire interests in a particular property by acquiring from Exchange
Limited Partners their limited partnership interests in the respective
partnership (the "Exchange Partnership Units"). In connection with the Exchange
Offering, the corporate general partners of each of the Exchange Partnerships
have agreed to waive all but a one percent economic interest (retained for
federal income tax purposes), including back end interests and administrative
fees, attributable to such corporate general partners. In addition, the Trust
will replace the current corporate general partners of each Exchange Partnership
in their capacity as general partners.
The 11 properties initially targeted for the Exchange Offering
(collectively, the "Exchange Properties" and individually, an "Exchange
Property") consist of an aggregate of 638 residential units (comprised of studio
and one, two, three and four-bedroom units) and are all located in Florida with
the exception of one property which is located in Georgia. Certain information
relating to the 11 properties and mortgage indebtedness secured thereby is
summarized in the two tables set forth below. Assuming the Exchange Offering in
respect of the 11 properties is accepted by all Exchange Limited Partners, the
deemed purchase price is expected to be approximately $12 million, payable in
Operating Partnership Units. The Trust and the Operating Partnership will
investigate other investment opportunities for the Exchange Offering, including
property interests held by unaffiliated owners and interests in 13 additional
residential apartment properties held by certain other limited partnerships
managed by Affiliates of the Managing Shareholder and property interests held by
a limited partnership managed by an Affiliate of the Dealer Manager. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER," THE TRUST" and
"INVESTMENT OBJECTIVES AND POLICIES."
Audited statements of revenues and certain expenses for the 11 residential
apartment properties described herein and the combined statement of revenues and
certain expenses for such properties for the years ended December 31, 1996 and
December 31, 1997 are included in Exhibit D to this Prospectus. The statements
of revenues and certain expenses exclude material expenses described in the
notes thereto (including partnership administrative expenses, major maintenance,
depreciation, amortization and professional fees) that would not be comparable
to those resulting from the proposed future operations of the Exchange
Properties.
Strategic Management Services Company currently manages all of the Exchange
Properties. During 1997, the Exchange Partnerships paid an aggregate of
approximately $208,000 in property management fees. After the Exchange Offering,
it is expected that some or a substantial portion of the properties to be
acquired in the Exchange Offering will ultimately be managed by an Affiliate of
the Trust.
In the initial transactions of the Exchange Offering, the Operating
Partnership anticipates that it will offer to issue Operating Partnership Units
to each individual Exchange Limited Partner in exchange for his respective
limited partnership interest in an Exchange Partnership. Each Exchange Limited
Partner in the Exchange Partnerships will receive a prospectus covering all the
material details of the Exchange Offering and will have the opportunity to elect
on an individual basis either (i) to accept Operating Partnership Units in
exchange for his limited partnership interest in his respective Exchange
Partnership or (ii) retain his interest in the Exchange Partnership on
substantially the same terms and conditions as currently exist. The approval of
Exchange Limited Partners holding a specified percentage of the limited
partnership interests in a particular Exchange Partnership will not be required
for the Operating Partnership to consummate the Exchange Offering in respect
thereof. After the
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completion of the Exchange Offering, each Exchange Partnership will continue to
own its interest in its respective Exchange Property, but all of the limited
partnership interests therein would then be owned by the Operating Partnership,
if all Exchange Limited Partners in such Exchange Partnership elect to accept
the Exchange Offering, or by the Operating Partnership and any Exchange Limited
Partners who elect not to accept the Exchange Offering.
The number of Operating Partnership Units to be offered to each Exchange
Limited Partner for his interest in a given Exchange Partnership have a deemed
value in the range of 102% to 110% of the amount of an Exchange Limited
Partner's original investment in the partnership. For such purposes, each
Operating Partnership Unit will be initially valued at $10, the same offering
price of each Trust Common Share offered in this Offering. As described above,
holders of Operating Partnership Units may exchange their Units into an
equivalent number of Common Shares at any time, subject to certain conditions.
See "SUMMARY OF THE TRUST AND USE OF PROCEEDS."
The number of Operating Partnership Units to be offered in respect of each
Exchange Property will differ based upon a number of factors, including, among
others, the operating history of the property, the amount of distributed cash
flow generated by the property, the period of time that the property has been
held by the underlying Exchange Partnership and the property's overall condition
and estimated appraised market value. An Affiliate of one of the Original
Investors has agreed to supplement the number of Operating Partnership Units
offered to Exchange Limited Partners in certain partnerships by contributing to
the Operating Partnership at no cost a portion of his appraised interest in an
unrelated residential property. Each Exchange Property in which the Operating
Partnership intends to acquire an interest has been appraised by a qualified and
licensed independent appraisal firm and each additional property in which it
intends to acquire an interest will be appraised in advance.
All expenses incurred in connection with the proposed Exchange Offering to
produce, file, print and distribute the prospectus will be paid by the Trust. No
special fees or commissions were or will be paid to the Managing Shareholder,
any corporate general partner of an Exchange Partnership, or any of their
respective Affiliates, in connection with the Exchange Offer. Broker-dealers who
assist the Operating Partnership in consummating the Exchange Offering with
individual offerees who accept the offering will be paid as a commission a
number of unregistered Common Shares of the Trust equal to 5% of the Units
issued to offerees as a result of their efforts.
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Property Information
Initial Properties - Exchange Offering
The table set forth below summarizes certain information relating to the
initial 11 properties in which the Operating Partnership intends to acquire an
interest in connection with the Exchange Offering, including (i) the name and
location of the properties, (ii) the year each property was completed, (iii) the
number of units, acreage, rentable area, average unit size, average rental rate
per unit and per square feet of rentable area as of April 1, 1998, and (iv) the
weighted average physical occupancy of each property as of April 1, 1998.
<TABLE>
<CAPTION>
Approx. 4/1/98 Physical
Number Rentable Average Average Rental Rates/ Occupancy
Year Of Approx. Area Unit Size Month As of
Property Location Completed Units Acres (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/98
-------- -------- --------- ----- ------- --------- --------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blossom Corners Orlando, 1980 70 3.67 39,300 561 $431 $.77 100%
Apartments (Phase I) Florida
Blossom Corners Orlando, 1981 68 3.51 38,100 560 $431 $.77 100%
Apartments (Phase II) Florida
Bridgepoint Apartments Jacksonville 1986 48 3.39 27,360 570 $450 $.79 100%
(Phase II) Florida
Eagle Lake Apartments Port 1987 77 4.68 45,504 591 $445 $.75 100%
Orange,
Florida
Forest Glen Apartments Daytona 1985 52 6.85 62,692 1,205 $655 $.54 94%
(Phase I) Beach,
Florida
Forest Glen Apartments Daytona 1985 30 6.85 34,231 1,141 $638 $.56 93%
(Phase II) Beach,
Florida
Forest Glen Apartments Daytona 1985 26 6.85 29,931 1,151 $641 $.56 92%
(Phase III) Beach,
Florida
Forest Glen Apartments Daytona 1985 8 6.85 9,166 1,146 $639 $.56 94%
(Phase IV) Beach,
Florida
Glen Lake Apartments St. 1986 144 7.16 79,200 550 $674 $1.23 94%
Petersburg,
Florida
Grove Hamlet Deland, 1986 56 6.21 45,504 813 $467 $.57 96%
Apartments Florida
Stadium Club Apartments Statesboro, 1987 59 3.50 50,736 860 $853 $.99 92%
Georgia
-------------------------------------------------------------------------------
TOTAL
PROPERTIES: 638 59.52 461,724 724 $570 $.78 96%
===============================================================================
</TABLE>
- ----------
* Includes only residential apartment units and excludes common areas.
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Mortgage Information
Initial Properties - Exchange Offering
The table below sets forth certain information relating to the indebtedness
secured by or associated with the initial 11 properties in which the Operating
Partnership intends to acquire an interest in connection with the Exchange
Offering, including (i) the name and location of the properties, (ii) the
principal balances as of March 1, 1998, (iii) the interest rates, (iv) the
annual debt service, (v) the amortization term, (vi) the maturity dates, (vii)
the balances due on maturity, (viii) the monthly payments, and (ix) the name of
the lending institution.
<TABLE>
<CAPTION>
3/98 Annual Balance
Principal Interest Debt Amortization Maturity Due On Monthly
Property Location Balance Rate Service Term Date Maturity Payment Lender
-------- -------- ------- ---- ------- ------------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blossom Corners Orlando, $1,038,151 9.04% $105,288 25 years 11/1/06 $882,430 $8,774 Column Financial,
Apartments Florida Inc.
(Phase I)
Blossom Corners Orlando, 1,119,428 8.24% 107,793 25 years 3/1/02 1,050,024 8,841 Main America
Apartments Florida Capital
(Phase II)
Bridgepoint Jacksonville, 724,971 9.52% 77,096 25 years 7/1/06 625,327 6,381 Huntington
Apartments Florida Mortgage
(Phase II) Co.
Eagle Lake Port 1,463,114 8.56% 144,638 25 years 11/1/05 1,244,562 12,053 Column Financial,
Apartments Orange, Inc.
Florida
Forest Glen Daytona 1,836,576 7.01% 145,921 30 years 3/05 1,681,926 12,160 Prudential Mortgage
Apartments Beach, Capital
(Phase I) Florida
Forest Glen Daytona 1,072,132 7.01% 85,188 30 years 3/05 981,813 7,099 Prudential Mortgage
Apartments Beach, Capital
(Phase II) Florida
Forest Glen Daytona 854,708 7.01% 67,909 30 years 3/05 782,744 5,659 Prudential Mortgage
Apartments Beach, Capital
(Phase III) Florida
Forest Glen Daytona 236,584 7.01% 18,797 30 years 3/05 216,712 1,566 Prudential Mortgage
Apartments Beach, Capital
(Phase IV) Florida
Glen Lake St. 2,738,157 9.55% 298,709 25 years 5/18/00 2,652,341 24,475 Republic Bank
Apartments Petersburg, 361,952 8.00% 34,728 25 years 5/1/05 343,772 2,894 Glen Lake Arms
Florida Joint Venture
Grove Hamlet Deland, 1,323,137 9.50% 156,030 25 years 6/27/98 1,314,872 13,002 Midland Loan
Apartments Florida Services
Stadium Club Statesboro, 1,750,000 7.87% 151,271 30 years 10/1/05 1,615,458 12,606 GMAC
Apartments Georgia
----------- ---------- --------
TOTAL
PROPERTIES: $14,518,910 $1,393,368 $115,510
=========== ========== ========
</TABLE>
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FEDERAL INCOME TAX CONSIDERATIONS
The Trust intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the Code.
No assurance can be given, however, that such requirements will be met. The
following is a summary of the Federal income tax considerations for the Trust
and its Shareholders with respect to the treatment of the Trust as a REIT. Since
these provisions are highly technical and complex, each prospective purchaser of
the Trust's Common Shares is urged to consult his own tax advisor with respect
to the Federal, state, local, foreign and other tax consequences of the
purchase, ownership and disposition of the Common Shares.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Trust, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to Shareholders. This treatment
substantially eliminates the "double taxation" (i.e., at both the corporate and
Shareholder levels) that generally results from the use of corporations.
If the Trust fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and its
Shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Trust could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its Shareholders would be reduced or eliminated.
The Managing Shareholder of the Trust currently expects that the Trust will
operate in a manner that permits it to elect, and that it will elect, REIT
status for the taxable year ending December 31, 1998, and in each taxable year
thereafter. There can be no assurance, however, that this expectation will be
fulfilled, since qualification as a REIT depends on the Trust continuing to
satisfy numerous asset, income and distribution tests described below, which in
turn will be dependent in part on the Trust's operating results.
The following summary is based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of Federal income taxation that may be relevant to a prospective
Shareholder in light of his particular circumstances or to certain types of
Shareholders (including insurance companies, tax-exempt entities, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the Federal income tax laws.
Taxation of the Trust
General. In any year in which the Trust qualifies as a REIT, in general it
will not be subject to Federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to Shareholders. The Trust may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualification as a REIT, the Trust may also be subject
to taxation in certain other circumstances. If the Trust should fail to satisfy
either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% test
or 95% test, multiplied by a fraction intended to reflect the Trust's
profitability. The Trust will also be subject to a tax of 100% on net income
from any "prohibited transaction" as described below, and if the Trust has (i)
net income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to tax
on such income from foreclosure property at the highest corporate rate. In
addition, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, the Trust would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. For taxable years beginning after August 5, 1997, the Trust may
elect to retain rather than distribute its
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net long-term capital gains. The effect of such election is that (i) the Trust
is required to pay the tax on such gains within 30 days after the close of the
Trust's taxable year, (ii) Shareholders, while required to include their
proportionate share of the undistributed long-term capital gains in income, will
receive a credit or refund for their share of the tax paid by the Trust, and
(iii) the tax basis of a Shareholder's beneficial interest in the Trust would be
increased by the amount of undistributed long-term capital gains (less the
amount of capital gains tax paid by the Trust) included in the Shareholder's
long-term capital gains. To designate amounts as undistributed capital gains,
the designation must be made in a written notice to Shareholders and mailed at
any time prior to the expiration of 60 days after the close of the Trust's
taxable year or mailed with its annual report for the taxable year. The Trust
may also be subject to the corporate alternative minimum tax, as well as tax in
certain situations not presently contemplated. The Trust will use the calendar
year both for Federal income tax purposes, as is required of a newly organized
REIT, and for financial reporting purposes.
In order to qualify as a REIT, the Trust must meet, among others, the
following requirements:
Stock Ownership Tests. The Trust's Shares must be held by a minimum of 100
persons for at least 335 days in each taxable year (or a proportional number of
days in any short taxable year). In addition, at all times during the second
half of each taxable year, no more than 50% in value of the Shares of the Trust
may be owned, directly or indirectly and by applying certain constructive
ownership rules, by five or fewer individuals, which for this purpose includes
certain tax-exempt entities. For purposes of this test, in general, any Shares
held by a qualified domestic pension or other retirement trust will be treated
as held directly by its beneficiaries in proportion to their actuarial interest
in such trust rather than by such trust. These stock ownership requirements need
not be met until the second taxable year of the Trust for which a REIT election
is made.
In order to ensure compliance with the foregoing stock ownership tests, the
Trust has placed certain restrictions on the transfer of its Shares to prevent
additional concentration of share ownership. Moreover, to evidence compliance
with these requirements, under Treasury regulations the Trust must maintain
records which disclose the actual ownership of its outstanding Shares. In
fulfilling its obligations to maintain records, the Trust must and will demand
written statements each year from the record holders of designated percentages
of its Shares disclosing the actual owners of such Shares (as prescribed by
Treasury regulations). Under the 1997 Act, for taxable years beginning after
August 5, 1997, if the Trust complies with the Treasury regulations for
ascertaining its actual ownership and did not know, or exercise reasonable
diligence would not have reason to know, that more than 50% in value of its
outstanding Shares were held, actually or constructively, by five or fewer
individuals, then the Trust will be treated as meeting such requirement. A list
of those persons failing or refusing to comply with such demand must be
maintained as a part of the Trust's records. A Shareholder failing or refusing
to comply with the Trust's written demand must submit with his tax return a
similar statement disclosing the actual ownership of Shares and certain other
information. In addition, the Declaration of Trust for the Trust provides
restrictions regarding the transfer of its Shares that are intended to assist
the Trust in continuing to satisfy the stock ownership requirements. See
"CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and Transfer."
Asset Tests. At the close of each quarter of the Trust's taxable year, the
Trust must satisfy three tests relating to the nature of its assets (determined
in accordance with generally accepted accounting principles). First, at least
75% of the value of the Trust's total assets must be represented by real estate
assets (which for this purpose includes (i) its allocable share of real estate
assets held by partnerships (such as the Operating Partnership) in which the
Trust owns an interest ("Related Partnerships"); (ii) stock or debt instruments
purchased with the proceeds of a stock offering and held for not more than one
year from the date the Trust receives such proceeds), cash, cash items and
government securities and (iii) stock in other real estate investment trusts).
Second, not more than 25% of the Trust's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class, securities in this class may not exceed (i) in
the case of securities of any one non-government issuer, 5% of the value of the
Trust's total assets or (ii) 10% of the outstanding voting securities of any one
such issuer. See "FEDERAL INCOME TAX CONSIDERATIONS - Tax Aspects of the Trust's
Investments in Partnerships - General." The Trust's investment in any properties
through its interest in the Operating Partnership and in one or more other
Related Partnerships would be intended to constitute an investment in qualified
assets for purposes of the 75% asset test.
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Gross Income Tests. There are currently three separate percentage tests
relating to the sources of the Trust's gross income which must be satisfied for
each taxable year. For purposes of these tests, where the Trust invests in one
or more Related Partnerships (such as the Operating Partnership), the Trust will
be treated as receiving its share of the income and loss of such partnerships,
and the gross income of the partnerships will retain the same character in the
hands of the Trust as it has in the hands of the respective partnerships. See
"FEDERAL INCOME TAX CONSIDERATIONS - Tax Aspects of the Trust's Investments in
Partnerships - General" below. The three tests are as follows:
1. The 75% Test. At least 75% of the Trust's gross income for the
taxable year must be "qualifying income." Qualifying income generally
includes (i) rents from real property (except as described below); (ii)
interest on obligations secured by mortgages on, or interests in, real
property; (iii) gains from the sale or other disposition of interests in
real property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Trust's trade
or business ("dealer property"); (iv) dividends or other distributions on
shares in other REITs, as well as gain from the sale of such shares; (v)
abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of a
foreclosure of the mortgage secured by such property ("foreclosure
property"); (vii) commitment fees received for agreeing to make loans
secured by mortgages on real property or to purchase or lease real
property; and (viii) qualified temporary investment income.
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test
described below) if the Trust, or an owner of 10% or more of the Trust,
directly or constructively owns 10% or more of such tenant. In addition, if
rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will
not qualify as rents from real property. Moreover, an amount received or
accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is based
in whole or in part on the income or profits of any person, although an
amount received or accrued generally will not be excluded from "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales. Finally, for rents received to qualify as
rents from real property, the Trust generally must not operate or manage
the property or furnish or render services to tenants, other than through
an "independent contractor" from whom the Trust derives no income, except
that the "independent contractor" requirement does not apply to the extent
that the services provided by the Trust are "usually or customarily
rendered" in connection with the rental of space for occupancy only, or are
not otherwise considered "rendered to the occupant for his convenience."
For taxable years beginning after August 5, 1997, a REIT is permitted to
render a de minimis amount of impermissible services to tenants, or in
connection with the management of property, and still treat amounts
received with respect to that property as rents from real property.
The amount received or accrued by the Trust during the taxable year
for the impermissible services with respect to a property may not exceed 1%
of all amounts received or accrued by the Trust directly or indirectly from
the property. The amount received for any service (or management operation)
for this purpose shall be deemed to be not less than 150% of the direct
cost of the Trust in furnishing or rendering the service (or providing the
management or operation).
Brentwood Management, LLC, an Affiliate of the Managing Shareholder
which is wholly owned by the sole stockholder of the Managing Shareholder
(which is expected to satisfy the independent contractor standard), or one
or more other Affiliates of the Managing Shareholder (each of which is
expected to satisfy the independent contractor standard) (collectively,
"Brentwood"), may perform property management services in respect of one or
more of the properties in which the Trust acquires an interest. The Trust
believes that the services that may be provided by Brentwood on such
properties would be of the type usually or customarily rendered in
connection with the rental of space for occupancy only, and therefore, that
the provision of such services would not cause the rents received with
respect to such properties to fail to qualify as rents from real property
for purposes of the 75% and the 95% gross income
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tests. The Trust intends to monitor any services that may be provided by
Brentwood as property management agent as well as those provided by
managers on other properties in which it owns an interest.
2. The 95% Test. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Trust's gross income for the
taxable year must be derived from the above-described qualifying income,
and from dividends, interest, or gains from the sale or other disposition
of Shares or other securities that are not dealer property. Dividends and
interest on any obligations not collateralized by an interest in real
property are included for purposes of the 95% test, but not for purposes of
the 75% test.
For purposes of determining whether the Trust complies with the 75%
and 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a
sale of property if such property is held by the Trust for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made thereto)
are satisfied. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the
Trust - General" and " - Tax Aspects of the Trust's Investments in
Partnerships - Sale of Trust Properties."
The Trust believes that, for purposes of both the 75% and 95% gross
income tests, its investment in properties directly or through the
Operating Partnership and one or more other Related Partnerships will in
major part give rise to qualifying income in the form of rents, and that
gains on sales of properties, or of the Trust's interest in the Operating
Partnership and any other Related Partnership, generally will also
constitute qualifying income. The Trust intends to closely monitor its
non-qualifying income and anticipates that any non-qualifying income on its
investments and activities will not result in the Trust failing either the
75% or 95% gross income test.
Even if the Trust fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if: (i) the Trust's
failure to comply was due to reasonable cause and not to willful neglect;
(ii) the Trust reports the nature and amount of each item of its income
included in the tests on a schedule attached to its tax return; and (iii)
any incorrect information on this schedule is not due to fraud with intent
to evade tax. If these relief provisions apply, however, the Trust will
nonetheless be subject to a 100% tax on the greater of the amount by which
it fails either the 75% or 95% gross income test, multiplied by a fraction
intended to reflect the Trust's profitability.
3. The 30% Test. For taxable years beginning on or before August 5,
1997, a REIT was required to derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities (including an interest
rate swap or cap agreement) held for less than one year; and (iii) property
in a prohibited transaction. The Trust does not anticipate that it will
have difficulty in complying with this test. The 30% test has been repealed
for taxable years beginning after August 5, 1997.
Annual Distribution Requirements. In order to qualify as a REIT, the Trust
is required to distribute dividends (other than capital gain dividends) to its
Shareholders each year in an amount at least equal to (A) the sum of (i) 95% of
the Trust's REIT taxable income (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. For taxable years beginning after August 5, 1997 the Act (i)
expands the class of non-cash income that is excluded from the distribution
requirement to include income from the cancellation of indebtedness, and (ii)
extends the treatment of original issue discount ("OID") (over cash and the fair
market value of property received on the instrument) as such non-cash income to
OID instruments generally and for REITs that use an accrual method of
accounting. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Trust timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. To the extent that the Trust does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will
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be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be. For taxable years beginning
after August 5, 1997, the Trust may elect to retain rather than distribute its
net long-term capital gains. The effect of such election is that (i) the Trust
is required to pay the tax on such gains within 30 days after the close of the
Trust's taxable year, (ii) Shareholders, while required to include their
proportionate share of the undistributed long-term capital gains in income, will
receive a credit or refund for their share of the tax paid by the Trust, and
(iii) the tax basis of a Shareholder's beneficial interest in the Trust would be
increased by the amount of undistributed long-term capital gains (less the
amount of capital gains tax paid by the Trust) included in the Shareholder's
long-term capital gains. To designate amounts as undistributed capital gains,
the designation must be made in a written notice to Shareholders and mailed at
any time prior to the expiration of 60 days after the close of the Trust's
taxable year or mailed with its annual report for the taxable year.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the preceding paragraph. In this
regard, the Declaration authorizes the Managing Shareholder of the Trust to take
such steps as may be necessary to cause the Operating Partnership and any other
Related Partnerships in which the Trust may own an interest to distribute to
their respective partners an amount sufficient to permit the Trust to meet these
distribution requirements. It is possible that the Trust may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement, due to
timing differences between the actual receipt of income and actual payment of
expenses, on the one hand, and the inclusion of such income and deduction of
such expenses in computing the Trust's REIT taxable income, on the other hand;
due to the Operating Partnership's or any other Related Partnership's inability
to control cash distributions with respect to those properties as to which it
does not have decision making control; or for other reasons. To avoid any
problem with the 95% distribution requirement, the Trust will closely monitor
the relationship between its REIT taxable income and cash flow and, if
necessary, intends to borrow funds (or cause the Operating Partnership or other
applicable Related Partnerships or other Affiliates to borrow funds) in order to
satisfy the distribution requirement. However, there can be no assurance that
such borrowing would be available at such time.
If the Trust fails to meet the 95% distribution requirement as a result of
an adjustment to the Trust's tax return by the Internal Revenue Service (the
"Service"), the Trust may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
Failure to Qualify. If the Trust fails to qualify for taxation as a REIT in
any taxable year and the relief provisions do not apply, the Trust will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to Shareholders in any year in
which the Trust fails to qualify as a REIT will not be deductible by the Trust,
nor generally will they be required to be made under the Code. In such event, to
the extent of current and accumulated earnings and profits, all distributions to
Shareholders will be taxable as ordinary income, and, subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Trust also will be disqualified from re-electing taxation as a
REIT for the four taxable years following the year during which qualification
was lost.
Tax Aspects of the Trust's Investments in Partnerships
General. The Trust will hold a partnership interest in the Operating
Partnership and may hold an interest in one or more other Related Partnerships
in which all or a portion of its real estate assets might be held and its real
estate operations might be conducted. See "INVESTMENT OBJECTIVES AND POLICIES."
In general, a partnership is a "pass-through" entity which is not subject to
Federal income tax. Rather, partners are allocated their proportionate shares of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. For purposes of the various REIT
gross income and asset tests, the Trust will include its proportionate share of
the assets and income of any partnership (including the Operating Partnership)
in which it holds an interest. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation
of the Trust - General" and " - Gross Income Tests."
Accordingly, any resultant increase in the Trust's REIT taxable income from
its interest in the Operating Partnership and in any other Related Partnerships
(whether or not a corresponding cash distribution is also received
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from the Operating Partnership or any such other Related Partnership) will
increase its distribution requirements (see "FEDERAL INCOME TAX CONSIDERATIONS -
Taxation of the Trust - Annual Distribution Requirements"), but will not be
subject to Federal income tax in the hands of the Trust provided that an amount
equal to such income is distributed by the Trust to its Shareholders. Moreover,
for purposes of the REIT asset tests (see "FEDERAL INCOME TAX CONSIDERATIONS -
Taxation of the Trust - Asset Tests"), the Trust will include its proportionate
share of assets held by the Operating Partnership and any other Related
Partnerships.
Entity Classification. The Trust's interest in the Operating Partnership
involves special tax considerations, and if the Trust holds an interest in one
or more other Related Partnerships, special tax considerations will arise,
including the possibility of a challenge by the Service of the status of the
Operating Partnership or a particular other Related Partnership as a partnership
(as opposed to an association taxable as a corporation for Federal income tax
purposes). If the Operating Partnership or any other Related Partnership were to
be treated as an association, it would be taxable as a corporation and therefore
subject to an entity-level tax on its income. In such a situation, the character
of the Trust's assets and items of gross income would change, which would
preclude the Trust from satisfying the REIT asset tests and the REIT gross
income tests (see "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust -
Asset Tests" and " - Gross Income Tests"), which in turn would prevent the Trust
from qualifying as a REIT. (See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of
the Trust - Failure to Qualify" above, for a discussion of the effect of the
Trust's failure to meet such tests.)
Tax Allocations with Respect to Trust Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic arrangements among the partners. The
utilization of the Operating Partnership or any other Related Partnership by the
Trust for its real estate operations may include contributions of appreciated
property by the seller of the property in exchange for a limited partner
interest in the applicable partnership. Consequently, in such cases, the
partnership agreement that would govern the relationship between the Trust
(which would serve as the general partner) and the limited partner would require
certain allocations to be made in a manner consistent with Section 704(c) of the
Code.
In general, in such cases, the seller as a contributor of one or more
properties or interests therein would be allocated lower amounts of depreciation
deductions for tax purposes and increased taxable income and gain on sale by the
particular Related Partnership on the contributed properties. In addition,
depending on the method of allocation that is selected, the property contributor
could be allocated items of income for tax purposes to offset depreciation which
is allocated to other partners in excess of depreciation otherwise permitted to
be allocated to such other partners by the ceiling rule of the Treasury
regulations. This would tend to eliminate the Book-Tax Difference over the life
of the Related Partnership. However, the special allocation rules of Section
704(c) do not always entirely rectify the Book-Tax Difference on an annual basis
or with respect to a specific taxable transaction such as a sale, and
accordingly variations from normal Section 704(c) principles could arise.
Treasury regulations under Section 704(c) of the Code require that
allocations from the partnership be made using a reasonable method consistent
with Section 704(c) so that allocations of income, gain, loss and deduction with
respect to property contributed to the partnership will take into account any
variation between the contributed property's adjusted basis and its fair market
value at the time of contribution. The regulations generally apply on a
property-by-property basis, and different methods may be used with respect to
different items of contributed property, provided the method selected for each
property is applied consistently.
With respect to any property purchased by the Operating Partnership or any
other Related Partnership subsequent to the admission of the Trust to the
Operating Partnership or such other Related Partnership, as the case may be, in
general, such property would initially have a tax basis equal to its fair market
value and Section 704(c) of the Code will not apply.
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Sale of Trust Properties. The Trust's share of any gain realized by the
Operating Partnership or any other Related Partnership on the sale of any dealer
property generally will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. See "FEDERAL INCOME TAX CONSIDERATIONS -
Taxation of the Trust - General" and " - Gross Income Tests - The 95% Test."
Under existing law, whether property is dealer property is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership and other Related Partnership utilized by
the Trust for its real estate operations would be expected to hold properties
for investment with a view to long-term appreciation, to engage in the business
of acquiring, owning, operating and developing the properties, and to make such
occasional sales of the properties as are consistent with the Trust's investment
objectives. Based upon the Trust's investment objectives, the Trust believes
that overall, properties acquired by it or the Operating Partnership or any
other Related Partnership utilized by it should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
would not be material.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Trust qualifies
as a REIT, distributions made to the Trust's taxable domestic Shareholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions (and for taxable years beginning after August 5, 1997,
undistributed amounts) that are designated as capital gain dividends will be
taxed as long-term capital gains (to the extent they do not exceed the Trust's
actual net capital gain for the taxable year) without regard to the period from
which the Shareholder has held its Common Shares. However, corporate
Shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. To the extent that the Trust makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the Shareholders, reducing
the tax basis of a Shareholder's Common Shares by the amount of such excess
distribution (but not below zero), with distributions in excess of the
Shareholder's tax basis being taxed as capital gains (if the Common Shares is
held as a capital asset). In addition, any dividend declared by the Trust in
October, November or December of any year and payable to a Shareholder of record
on a specific date in any such month shall be treated as both paid by the Trust
and received by the Shareholder on December 31 of such year, provided that the
dividend is actually paid by the Trust during January of the following calendar
year. Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of the Trust. Federal income tax rules
may also require that certain minimum tax adjustments and preferences be
apportioned to Shareholders.
In general, any loss upon a sale or exchange of Common Shares by a
Shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Trust required to be treated by such
Shareholder as long-term capital gains.
The 1997 Act made certain changes to the Code with respect to taxation of
long-term capital gains earned by taxpayers other than a corporation. In
general, for sales made after May 6, 1997, the maximum tax rate for individual
taxpayers on net long-term capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) is lowered to 20% for most
assets. This 20% rate applies to sales on or after July 29, 1997 only if the
asset was held more than 18 months at the time of disposition. Capital gains on
the disposition of assets on or after July 29, 1997 held for more than one year
and up to 18 months at the time of disposition will be taxed as "mid-term gain"
at a maximum rate of 28%. Also, so called "unrecaptured Section 1250 gain" is
subject to a maximum federal income tax rate of 25%. "Unrecaptured Section 1250
gain" generally includes the long-term capital gain realized on (i) the sale
after May 6, 1997 of a real property asset described in Section 1250 of the
Code, or (ii) the sale after July 28, 1997 of a real property asset described in
Section 1250 of the Code which the taxpayer has held for more than 18 months,
but in each case not in excess of the amount of depreciation (less the gain, if
any, treated as ordinary income under Code Section 1250) taken on such asset.
The rate of 18% instead of 20% will apply after December 31, 2000 for assets
held more than five years. However, the 18% rate applies only to assets acquired
after December 31, 2000 unless the taxpayer elects to treat an asset held prior
to such date as sold for fair market value on January 1, 2001. In the case of
individuals whose ordinary income is taxed at a 15% rate, the 20% rate is
reduced to 10%, and the 10% rate for assets held more than five years is reduced
to 8%.
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On November 12, 1997, the IRS issued Notice 97-64 which describes temporary
Treasury regulations that will be issued under Section 1(h) of the Code and
provides guidance regarding the application of the 1997 Act's new capital gain
rates to the sale of assets by REITs and other pass-through entities.
Shareholders of the Trust should consult their tax advisor with regard to
(i) the application of the changes made by the 1997 Act with respect to taxation
of capital gains and capital gain dividends, and (ii) to state, local and
foreign taxes on capital gains.
Backup Withholding. The Trust will report to its domestic Shareholders and
to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a Shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such Shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact; or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
Shareholder that does not provide the Trust with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
Shareholder's income tax liability. U.S. Shareholders should consult their own
tax advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption. The Trust may be required to
withhold a portion of capital gain distributions made to any Shareholders who
fail to certify their non-foreign status to the Trust. See "Taxation of Foreign
Shareholders" below.
Taxation of Tax-Exempt Shareholders. The Service has issued a revenue
ruling in which it held that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based
upon such ruling and the statutory framework of the Code, distributions by the
Trust to a Shareholder that is a tax-exempt entity should also not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its Common Shares with "acquisition indebtedness" within the meaning of the
Code, that the Common Shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity, and that the Trust, consistent with its
present intent, does not hold a residual interest in a "real estate mortgage
investment conduit" ("REMIC").
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
Taxation of Foreign Shareholders. The rules governing United States Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign Shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of Federal, state, local and foreign income tax
laws with regard to an investment in Common Shares, including any reporting
requirements. The Trust will qualify as a "domestically-controlled REIT" so long
as less than 50% in value of its Shares is held by foreign persons (i.e.,
non-resident aliens, and foreign corporations, partnerships, trusts and
estates). The Trust currently anticipates that it will qualify as a
domestically-controlled REIT. Under these circumstances, gain from the sale of
Common Shares by a foreign person should not be subject to United States
taxation, unless such gain is effectively connected with such person's United
States business or, in the case of an individual foreign person, such person is
present within the United States for more than 182 days during the taxable year.
However, notwithstanding the Trust's current anticipation that the Trust will
qualify as a domestically controlled REIT, because the Common Shares will be
freely tradable by Shareholders, no assurance can be given that the Trust will
continue to so qualify.
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Distributions of cash generated by the Trust's real estate operations (but
not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign Shareholder
files with the Trust the required form evidencing such lower rate, or (ii) the
foreign Shareholder files an IRS Form 4224 with the Trust claiming that the
distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United
States real property interests of the Trust are subject to income and
withholding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), and may be subject to branch profits tax in the hands of a
Shareholder which is a foreign corporation if it is not entitled to treaty
relief for exemption. The Trust is required by applicable Treasury Regulations
to withhold 35% of any distribution to a foreign person that could be designated
by the Trust as a capital gain dividend; this amount is creditable against the
foreign Shareholder's FIRPTA tax liability.
The Federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in the Trust should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investments in
the Trust.
Other Tax Considerations
Possible Legislative or Other Actions Affecting Tax Consequences.
Prospective Shareholders should recognize that the present Federal income tax
treatment of investment in the Trust may be modified by legislative, judicial or
administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with Federal
income taxation are constantly under review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in Federal tax laws and interpretations thereof could
adversely affect the tax consequences of investment in the Trust.
State and Local Taxes. The Trust and its Shareholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the Trust
and its Shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective Shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in Common Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
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SUMMARY OF DECLARATION OF TRUST
In connection with this Offering, Investors who acquire Common Shares in
the Offering will have the rights and obligations of Investors under the
Declaration of Trust for the Trust (the "Declaration"). The following briefly
summarizes material provisions of the Declaration not described elsewhere in
this Prospectus and is qualified in its entirety by express reference to the
provisions of the agreement. The Trust will deliver a copy of the Declaration to
each requesting prospective Investor without charge.
Term
The term of the Trust commenced on July 31, 1997 and will end on the
earliest to occur of (a) December 31, 2098, (b) the determination of the holders
of at least a majority of the Shares then outstanding to dissolve the Trust; (c)
the sale of all or substantially all of the Trust's Property, (d) the withdrawal
of the Offering by the Managing Shareholder prior to the Termination Date of the
Offering, and (e) the occurrence of any other event which, by law, would require
the Trust to terminate. Upon dissolution, the Managing Shareholder or a
liquidity receiver or trustee selected by the Managing Shareholder or the
Investors will liquidate the Trust's assets. (See Recitals and Article 9 of the
Declaration.)
Control of Operations
The Managing Shareholder will manage and control the affairs of the Trust
and the Operating Partnership, subject to general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and to prior approval authority of the Board and/or the Independent
Trustees in respect of certain actions. The Declaration requires that a majority
of the Board of the Trust be comprised of Independent Trustees not affiliated
with the Managing Shareholder or its Affiliates. The Managing Shareholder will
be obligated to devote to the Trust such time as may be reasonably necessary to
conduct the Trust's business. The Investors will have no participation in or
control over the management of the Trust or the Operating Partnership. The
Managing Shareholder is obligated to manage the Trust in the best interest of
its Partners. (See "FIDUCIARY RESPONSIBILITY" and Article 7 of the Declaration.)
The following discussion describes certain actions of the Trust and the
Operating Partnership, as applicable, which require approval and/or supervision
of the Board and/or the Independent Trustees and certain other provisions,
restrictions and limitations affecting the operations of the Trust and the
Operating Partnership. (See Section 1.9 of the Declaration.)
o At, or prior to, the initial meeting of the Board of the Trust, the
Declaration and the Operating Partnership Agreement must be reviewed and
ratified by a majority vote of the Board and of the Independent Trustees.
(See Section 1.9(b) of the Declaration.)
o The Board must establish written policies on investments and any borrowing
to be made by the Trust and Operating Partnership and monitor the
administrative procedures, investment operations and performance of the
Trust, the Operating Partnership and the Managing Shareholder to ensure
that such policies are being carried out. (See Section 1.9(c) of the
Declaration.)
o The Board must evaluate the performance of the Managing Shareholder (and
any successor advisor of the Trust) prior to entering into or renewing a
management agreement relating to the administration and management of the
Trust (other than the initial term of the Trust Management Agreement which
is described in this Prospectus (see "MANAGEMENT - Trust Management
Agreement"), which is deemed to have been approved by Investors who acquire
Common Shares in the Offering, by a majority of the Board and a majority of
the Independent Trustees). Any such management agreement may not have a
term of more than one year and must be terminable by a majority of the
Independent Trustees or the Managing Shareholder (or any successor advisor,
as the case may be) on at least 60 days prior written notice without cause
or penalty. The Board must determine that any successor to the Managing
Shareholder (or any successor advisor) possesses
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sufficient qualifications to perform the advisory function for the Trust
and justify the compensation provided for in the applicable management
agreement. (See Section 1.9(d) of the Declaration.)
o The Independent Trustees must determine, at least annually, that the total
fees and expenses of the Trust and the Operating Partnership are reasonable
in light of their investment performance, their net assets, their net
income, and the fees and expenses of other comparable unaffiliated REITs.
(See Section 1.9(f) of the Declaration.)
o The Independent Trustees must determine that organizational and offering
expenses payable by the Trust and the Operating Partnership in connection
with the formation of the Trust and the Operating Partnership and any
offerings of Shares or Units is reasonable and in no event exceeds an
amount equal to 15% of the gross proceeds of the particular offering. (See
Section 1.9(g) of the Declaration.)
o The Independent Trustees must determine that the total amount of any
acquisition fee and expenses payable by the Trust or the Operating
Partnership in connection with acquiring its investments is reasonable and
in no event exceeds an amount equal to 6% of the purchase price of the
subject property, or in the case of a mortgage loan made or acquired by the
Trust or the Operating Partnership, 6% of the funds advanced, unless a
majority of the disinterested members of the Board and a majority of the
disinterested Independent Trustees approve payment of an acquisition fee in
excess of such amounts based upon their determination that such excess fee
is commercially competitive, fair and reasonable to the Trust and the
Operating Partnership. (See Section 1.9(h) of the Declaration.)
o The Independent Trustees have the fiduciary responsibility of limiting the
total operating expenses (less certain items described below) of each of
the Trust and the Operating Partnership in any fiscal year to the greater
of (i) 2% of the aggregate book value of their respective investments, or
(ii) 25% of their respective net income for such year unless the
Independent Trustees make a finding that, based on such unusual and
non-recurring factors which they deem sufficient, a higher level of such
operating expenses is justified for such year. Within 60 days after the end
of each fiscal year in which the Trust or the Operating Partnership incurs
operating expenses in excess of such amount, the Trust or the Operating
Partnership, as the case may be, must send to the Shareholders and
Unitholders written disclosure of such fact, together with an explanation
of the factors the Independent Trustees considered in arriving at their
finding that such higher operating expenses were justified. If the
Independent Trustees do not determine such excess expenses are justified,
the Managing Shareholder must reimburse the Trust or the Operating
Partnership, as applicable, at the end of such fiscal year the amount by
which the total operating expenses paid or incurred by the Trust or the
Operating Partnership exceed the limitations herein provided. For purposes
of determining "total operating expenses" the following items are excluded:
(i) the expenses of raising capital, including without limitation
organizational and offering expenses, legal, audit, accounting,
underwriting, brokerage, listing, registration and other fees, printing and
other such expenses, and tax incurred in connection with the issuance,
distribution, transfer, registration, and stock exchange listing, if any,
of the Trust's Shares and the Operating Partnership's Units; (ii) interest
payments; (iii) taxes; (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves; (v) incentive compensation paid which
is based on the gain from the sale of Trust or Operating Partnership
assets; and (e) acquisition fees and expenses, real estate commissions on
resale of property and other expenses connected with the acquisition,
disposition, and ownership of real estate interests, mortgage loans, or
other property. (See Section 1.9(i) of the Declaration.)
o A majority of the Independent Trustees must determine that any real estate
commission paid to the Managing Shareholder, a Trustee, any other member of
the Board or any of their respective Affiliates in connection with the
resale of any Trust or Operating Partnership asset is reasonable, customary
and competitive in light of the size, type and location of such property
and in no event exceeds 3% of the sale price, and that the amount of such
commissions payable when added to the commissions payable to unaffiliated
real estate brokers does not exceed the lesser of such competitive real
estate commission or an amount equal to 6% of the sale price. (See Section
1.9(j) of the Declaration.)
o The Independent Trustees must determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder
(or any successor advisor) is reasonable in relation to the nature and
quality
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of services performed and that such compensation is within the limits
prescribed in the fourth item above in this section. The Independent
Trustees must also supervise the performance of the Managing Shareholder
(and any successor advisor) and the compensation payable to it by the Trust
to determine that the terms and conditions of the contract are being
carried out. (See Section 1.9(k) of the Declaration.)
o Neither the Trust nor the Operating Partnership may acquire property or any
equity interest in any entity owning one or more properties from the
Managing Shareholder, a Trustee, any other member of the Board, or any of
their respective Affiliates unless a majority of the disinterested members
of the Board and a majority of the disinterested Independent Trustees
review the proposed transaction and determine that it is fair and
reasonable to the Trust and the Operating Partnership and that the purchase
price to the Trust or the Operating Partnership, as applicable, for such
property or equity interest is no greater than the cost of the property or
equity interest to such proposed seller, or if the purchase price to the
Trust or the Operating Partnership is in excess of such cost, that
substantial justification for such excess exists and such excess is
reasonable, provided, however, in no event may the purchase price for the
property exceed its current appraised value. In addition, the Trust and the
Operating Partnership may not acquire any properties or assets presently
held by any Affiliate of the Trust, the Operating Partnership, the Managing
Shareholder or any other promoter unless the possibility of such
acquisitions is disclosed in this Prospectus, as it may be amended or
supplemented, and there is appropriate disclosure of the material facts
concerning each such acquisition. (See Section 1.9(l) of the Declaration.)
o Neither the Managing Shareholder, any Trustee, any other member of the
Board nor any of their respective Affiliates may acquire or lease any
assets from the Trust or the Operating Partnership unless a majority of the
disinterested members of the Board and a majority of the disinterested
Independent Trustees determine that the proposed transaction is fair and
reasonable to the Trust and the Operating Partnership. (See Section 1.9(m)
of the Declaration.)
o No loans may be made by the Trust or the Operating Partnership to the
Managing Shareholder, a Trustee, any other member of the Board, any
officer, principal or promoter of the Trust, the Operating Partnership or
the Managing Shareholder or any of their respective Affiliates or
principals except as provided below or to any wholly owned subsidiary of
the Trust or the Operating Partnership. (See Section 1.9(n) of the
Declaration.)
o Neither the Trust nor the Operating Partnership may borrow money from or
invest in joint ventures with the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective Affiliates unless a
majority of the disinterested members of the Board and a majority of the
disinterested Independent Trustees determine that such proposed transaction
is fair, competitive, and commercially reasonable and no less favorable to
the Trust and the Operating Partnership than such transactions between
unaffiliated parties under the same circumstances. (See Section 1.9(o) of
the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in equity
securities unless a majority of the disinterested members of the Board and
a majority of the disinterested Independent Trustees determine that such
proposed transaction is fair, competitive, and commercially reasonable.
(See Section 1.9(q) of the Declaration.)
o The Independent Trustees must review the investment policies of the Trust
at least annually to determine that the policies being followed by the
Trust at any time are in the best interests of the Shareholders and the
Unitholders. (See "INVESTMENT OBJECTIVES AND POLICIES" and Section 1.9(r)
of the Declaration.)
o In the event that the Trust or the Operating Partnership and one or more
other investment programs sponsored by the Managing Shareholder or an
Affiliate of the Managing Shareholder seek to acquire similar types of
properties, the Board (including the Independent Trustees) must review the
method described in "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies
with Respect to Certain Activities - Investment Policies" for allocating
the acquisition of properties among the Trust or the Operating Partnership,
as applicable, and such other programs in order to determine that such
method is applied fairly to the Trust and the Operating Partnership. (See
Section 1.9(s) of the Declaration.)
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o Any other transaction not described in this section between the Trust or
the Operating Partnership and the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective Affiliates requires
the determination of a majority of the disinterested members of the Board
and a majority of the disinterested Independent Trustees that the proposed
transaction is fair and reasonable to the Trust and the Operating
Partnership and on terms and conditions no less favorable to the Trust and
the Operating Partnership than those available from unaffiliated parties.
(See Section 1.9(t) of the Declaration.)
o The purchase price payable for property to be acquired by the Trust and the
Operating Partnership must be based on the fair market value of the
property as determined by a majority of the members of the Board, provided,
however, in cases in which a majority of the Independent Trustees in their
sole discretion determine, and in all cases in which the Trust or the
Operating Partnership proposes to acquire property from the Managing
Shareholder, a Trustee, any other member of the Board or any of their
respective Affiliates, such fair market value must be determined by a
qualified independent appraiser selected by the Independent Trustees. (See
Section 1.9(u) of the Declaration.)
o In connection with a proposed Roll-up (as defined below) involving the
assets of the Trust or the Operating Partnership, an appraisal of all such
assets must be obtained from a qualified independent appraiser and
delivered to the Shareholders and Unitholders in connection with the
proposed transaction. The sponsor of the transaction must offer to
Shareholders and Unitholders who vote against the proposal the choice of:
(i) accepting the securities of the Roll-up entity (i.e., the entity
surviving the Roll-up) or (ii) either (x) remaining as Shareholders in the
Trust or Unitholders in the Operating Partnership, as applicable, and
preserving their interests therein on the same terms and conditions as
existed previously or (y) receiving cash in an amount equal to their
respective pro rata share of the appraised value of the net assets of the
Trust or the Operating Partnership, as applicable. The Trust is prohibited
from participating in certain types of Roll-ups specified in the
Declaration. Generally, a "Roll-up" is a transaction involving the
acquisition, merger, conversion, or consolidation either directly or
indirectly of the Trust or the Operating Partnership and the issuance of
securities of a Roll-up entity. (See Section 1.9(v) of the Declaration.)
o The aggregate borrowings of each of the Trust and the Operating
Partnership, secured and unsecured, must be reasonable in relation to their
respective net assets and must be reviewed at least quarterly by the Board.
The maximum amount of such borrowings in relation to such net assets may
not exceed 300%, in the absence of a satisfactory showing that higher level
of borrowing is appropriate. Any borrowing in excess of such amount
requires the approval of a majority of the Independent Trustees and must be
disclosed to Shareholders and the Unitholders in the next quarterly report
of the Trust, along with an explanation of the justification of such
excess. (See Section 1.9(w) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest more than 10% of
its total assets in unimproved real property or mortgage loans on such type
of property. (See Section 1.9(x) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in commodities
or commodity future contracts, excluding future contracts used solely for
hedging purposes in connection with the Trust's or the Operating
Partnership's ordinary business of investing in real estate assets and
mortgages. (See Section 1.9(y) of the Declaration.)
o Neither the Trust nor the Operating Partnership may invest in or make
mortgage loans (other than loans insured or guaranteed by a government or
government agency) unless an appraisal of replacement cost is obtained
concerning the underlying property. In cases in which a majority of the
Independent Trustees in their sole discretion determine, and in all cases
in which the proposed transaction is with the Managing Shareholder, a
Trustee, any other member of the Board or any of their respective
Affiliates, the appraisal must be obtained from a qualified independent
appraiser. The appraisal must be maintained in the Trust's records for at
least five years, and must be available for inspection and duplication by
any Shareholder or Unitholder at the Shareholder's or Unitholder's own
expense. In addition to the appraisal, the Trust or the Operating
Partnership, as applicable, must also obtain a mortgagee's or owner's title
insurance policy or commitment as to the priority
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of the mortgage or the condition of the title. The Trust and the Operating
Partnership are prohibited from (i) investing in real estate contracts of
sale (i.e., land sale contracts), unless such contracts are in recordable
form and appropriately recorded in the chain of title; (ii) investing in or
making any mortgage loans on any one property if the aggregate amount of
all mortgage loans outstanding on the property, including the loans of the
Trust or the Operating Partnership, as applicable, would exceed an amount
equal to 80% of the replacement cost of the property as determined by the
Managing Shareholder unless substantial justification exists; and (iii)
making or investing in any mortgage loans that are subordinate to any
mortgage or equity interest of the Managing Shareholder, Trustees, any
other members of the Board or any of their respective Affiliates. (See
Section 1.9(z) of the Declaration.)
o The Trust and the Operating Partnership may not issue options or warrants
to purchase Shares or Units to the Managing Shareholder, the Trustees, any
other member of the Board or any of their respective Affiliates except on
the same terms as such options or warrants are sold to the general public.
The Trust and the Operating Partnership may issue options or warrants to
persons not so connected with the Trust or the Operating Partnership but
not at exercise prices less than the fair market value of such securities
on the date of grant and for consideration (which may include services)
that in the judgment of the Independent Trustees has a market value less
than the value of such option on the date of grant. Options or warrants
issuable to the Managing Shareholder, the Trustees, any other member of the
Board or any of their respective Affiliates must not exceed an amount equal
to 10% of the outstanding Common Shares or other securities of the Trust or
of the Units or other securities of the Operating Partnership on the date
of grant of any options or warrants. (See Section 1.9(cc) of the
Declaration.)
o The payment by the Trust and the Operating Partnership of an interest in
the gain from the sale of their respective assets, for which full
consideration is not paid in cash or property of equivalent value, is
allowed provided the amount or percentage of such interest is reasonable.
Such an interest is considered reasonable if it does not exceed 15% of the
balance of such net proceeds remaining after payment to Shareholders or
Unitholders (as applicable), in the aggregate, of an amount equal to 100%
of the original issue price of their Shares or Units, plus an amount equal
to 6% of the original issue price of their Shares or Units, per annum
cumulative. For purposes of this calculation, the original issue price of
Shares and Units may be reduced by prior cash distributions to Shareholders
and Unitholders, as applicable. (See Section 1.9(ee) of the Declaration.)
o No properties or assets held by the Trust may be acquired for the account
of the Managing Shareholder or any affiliated person, regardless of whether
the proposed price equals or is greater than the appraised value of such
properties or assets, provided, however, if a particular property or asset
is in distress, or is a debt obligation of an insolvent obligor, or
otherwise has substantially lost its value, the Managing Shareholder, if
permitted by law, its organizational documents and the Statement of Policy
Regarding Real Estate Investment Trusts issued by the North American
Securities Administrators Association, may acquire such property or assets
from the Trust at the full unliquidated cost to the Trust. (See Section
(gg) of the Declaration.)
Liability and Indemnification
Neither the Managing Shareholder, the Trustees, any other members of the
Board nor any of their respective Affiliates are liable to the Trust or to any
Shareholder for any loss suffered by the Trust which arises out of any action or
inaction of such person, if such person, in good faith, determines that such
course of conduct was in the Trust's best interest and such course of conduct
was within the scope of the Declaration and did not constitute negligence or
misconduct in the case of a person who is not an Independent Trustee, or gross
negligence or willful misconduct, in the case of any such person who is an
Independent Trustee. (See Section 3.5 of the Declaration.)
The Trust will indemnify the Managing Shareholder, the Independent
Trustees, any other member of the Board and each of its Affiliates and each of
their respective officers, directors, shareholders, partners, agents and
employees (provided such persons act within the scope of the Declaration)
against any loss, liability or damage (including costs of litigation and
attorneys' fees) incurred by such person arising out of or incidental to the
Offering and the management of the Trust's affairs within the scope of the
Declaration, unless such person's negligence or intentional or criminal
wrongdoing is involved. Notwithstanding the foregoing, the exculpatory
provisions do not
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include indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), unless (i) there has been a successful
adjudication on the merits of each claim involving alleged securities law
violations as to the particular indemnitee, (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee, or (iii) a court of competent jurisdiction approves a
settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In
addition, the exculpatory provisions do not include indemnification for
liabilities arising from or out of intentional or criminal wrongdoing. See
Section 3.7(b) of the Declaration of Trust. It is the position of the Securities
and Exchange Commission and certain state securities administrators that any
attempt to limit the liability of a Managing Shareholder or persons controlling
an issuer under the federal securities laws or state securities laws is contrary
to public policy and, therefore, is unenforceable. (See Sections 3.7 and 3.8 of
the Declaration.)
Assuming compliance with the Declaration and applicable formative and
qualifying requirements in Delaware and any other jurisdiction in which the
Trust conducts its business, a Shareholder will not be personally liable under
Delaware law for any obligations of the Trust, except for indemnification
liabilities arising from any misrepresentation made by him in the Investor
Subscription Documents submitted to the Trust. The Trust will, to the extent
practicable, endeavor to limit the liability of the Investors in each
jurisdiction in which the Trust operates. (See Section 3.4 of the Declaration.)
The law governing whether a jurisdiction other than Delaware will honor the
limitation of liability extended under Delaware law to the Investors is
uncertain. Many states have enacted legislation recognizing the limited
liability provisions of the Delaware business trust. In other states, there has
been no authoritative legislative or judicial determination as to whether the
limitation of liability would be honored. The Trust will make all equity
investments in properties through the Operating Partnership, a Delaware limited
partnership, which provides the Trust limited liability. Therefore, regardless
of the local treatment of business trusts, the Trust believes that the Investors
will not be subject to personal liability for property liabilities and that with
regard to the operation of the Trust itself the limitation of Investors'
liability under Delaware law will govern.
Under certain federal and state environmental laws of general application,
entities that own or operate properties contaminated with hazardous substances
may be liable for cleanup liabilities regardless of other limitations of
liability. The Trust is not aware of any case where such environmental
liabilities were imposed on non-management participants in a business trust. See
"THE TRUST - Regulations."
The Delaware Act does not contain any provision imposing liability on an
Investor for participation in the control of the Trust, although no Investor has
any rights to do so except through the rights to propose and vote on matters
described above. The Delaware Act does not require an Investor who receives
distributions that are made when the Trust is or would be rendered insolvent to
return those distributions under equitable principles enforced by courts. Under
Delaware decisions, a trust beneficiary who receives overpayments from a trust
is obligated to return those payments, with interest, subject to equitable
defenses. The application of these cases to beneficiaries of a business trust is
uncertain. The Declaration has been signed by the Corporate Trustee as of the
date of this Memorandum and the Managing Shareholder is the initial beneficiary.
BY SIGNING THE SUBSCRIPTION DOCUMENTS (EITHER IN PERSON OR BY THEIR
REPRESENTATIVES) AND OBLIGATING THEMSELVES TO PAY THE PRICE OF COMMON SHARES,
THE INVESTORS BECOME BOUND BY THE PROVISIONS OF THE DECLARATION AT THE TIMES
THEIR SUBSCRIPTIONS ARE ACCEPTED BY THE TRUST, EVEN THOUGH THEY DO NOT SIGN THE
DECLARATION.
Distributions
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. In order to maintain its
qualification as a REIT under the Code, the Trust must make annual distributions
to Shareholders of at least 95% of its taxable income, determined without regard
to the deduction for dividends paid and by excluding any net capital gains. For
taxable years beginning after August 5, 1997, the 1997 Act (1) expands the class
of excess noncash items that are excluded from the distribution requirement to
include income from the cancellation of indebtedness and (2) extends the
treatment of original issue discount and coupon
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interest as excess noncash items to REITs, like the Trust, that use an accrual
method of accounting. Under certain circumstances, the Trust may be required to
make distributions in excess of cash flow available for distribution to meet
such distribution requirements. Shareholders will be entitled to receive any
distributions declared on a pro rata basis for each outstanding class of Shares
taking into account the relative rights of priority of each class entitled to
distributions. (See Section 6.7 of the Declaration.)
The Trust is expected to adopt a distribution reinvestment program at the
initial meeting of the Board of the Trust scheduled for the second quarter of
1998. Upon the adoption of the plan, the Trust will provide material information
to Shareholders regarding the plan and the effect of reinvesting distributions
from the Trust, including the tax consequences thereof. The Trust will provide
Shareholders updated information at least annually. (See Section 2.8 of the
Declaration.)
Quarterly and Annual Reports
The Trust will provide each Investor with quarterly and annual reports as
described below at "REPORTS TO SHAREHOLDERS." (See also Section 5.3 of the
Declaration.)
Accounting
The accounting period of the Trust will end on December 31 of each year.
The Trust will utilize the accrual method of accounting for the Trust's
operations on the basis used in preparing the Trust's federal income tax returns
with such adjustments as may be in the Trust's best interest. (See Section 5.1
of the Declaration.)
Books and Records; Tax Information
The Trust will keep appropriate records relating to its activities. All
books, records and files of the Trust will be kept at its principal offices at
Cincinnati, Ohio or Wilmington, Delaware. An independent certified public
accounting firm will prepare the Trust's federal income tax returns as soon as
practicable after the conclusion of each year. The Trust will use its reasonable
best efforts to obtain the information for those returns as soon as possible and
to cause the resulting accounting and tax information to be transmitted to the
Shareholders as soon as possible after receipt from the accounting firm.
Investors have the right under the terms of the Declaration to request and
obtain other information relating to the Trust, including all books and records,
and may, upon payment of a reasonable reproduction fee determined by the Trust,
obtain a list of the names and addresses of the Investors for proper Trust
purposes. (See Sections 5.2, 5.3(c), and 6.4 of the Declaration.)
Governing Law
All provisions of the Declaration will be construed according to the laws
of the State of Delaware except as may otherwise be required by law in any other
state. (See Section 9.2 of the Declaration.)
Amendments and Voting Rights
The Managing Shareholder may amend the Declaration without notice to or
approval of the Investors for the following purposes: to cure ambiguities or
errors; to conform the Declaration to the description in this Prospectus; to
equitably resolve issues arising under the Declaration so long as similarly
situated Investors are not treated materially differently; to make other changes
that will not materially and adversely affect any Investor's interest; to
maintain the federal income tax status of the Trust as a REIT (unless the
Managing Shareholder determines that it is in the best interests of the
Shareholders to disqualify the Trust's REIT status and a majority of Common
Shares entitled to vote approve such determination); or to comply with law. (See
Section 9.6(a) of the Declaration.)
Other amendments to the Declaration may be proposed either by the Managing
Shareholder or holders of at least 10% of the Common Shares, either by calling a
meeting of the Shareholders or by soliciting written consents. The procedure for
such meetings or solicitations is found at Section 6.5 of the Declaration. Such
proposed
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amendments require the approval of a majority in interest of the Shareholders
entitled to vote given at a meeting of Shareholders or by written consents. (See
Section 9.6(b) of the Declaration.) Other voting rights of Shareholders are
described below at " - Meeting and Voting Rights."
Shares in the Trust owned by the Managing Shareholder, the Trustees, other
members of the Board of the Trust, the Original Investors and their respective
Affiliates may not vote regarding the removal of the Managing Shareholder, the
Trustees or any other member of the Board or any transaction between the Trust
(or the Operating Partnership) and any of them.
Dissolution of Trust
The term of the Trust will end on the earliest to occur of (a) December 31,
2098, (b) the vote of a majority in interest of the Shareholders, (c) the sale
of all or substantially all of the Trust's Property, (d) the withdrawal of the
Offering by the Managing Shareholder prior to the Termination Date of the
Offering, (e) any other event requiring dissolution by law. The Trust will wind
up its business after dissolution unless (i) any remaining Managing Shareholder
and a majority in interest of the Shareholders (calculated without regard to
Common Shares held by the Managing Shareholder) or (ii) if there is no remaining
Managing Shareholder or its Affiliates, a majority in interest of the
Shareholders, elects to continue the Trust. The Managing Shareholder (or in the
absence thereof, a liquidating trustee chosen by the Investors) will liquidate
the Trust's assets if it is not continued. (See Article 8 of the Declaration.)
Removal and Resignation of the Managing Shareholder
The holders of at least 10% of the Common Shares may propose the removal of
the Managing Shareholder, either by calling a meeting or soliciting consents in
accordance with the terms of the Declaration. Removal of the Managing
Shareholder requires either the affirmative vote of a majority of the Common
Shares (excluding Common Shares held by the Managing Shareholder which is the
subject of the vote, the Trustees, other members of the Board of the Trust, the
Original Investors or any of their respective Affiliates) or the affirmative
vote of a majority of the Independent Trustees. The Shareholders entitled to
vote thereon may replace a removed Managing Shareholder or fill a vacancy by
vote of a majority in interest of such Shareholders. (See Sections 6.6(b) and
7.11 of the Declaration.)
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. Upon the termination of the Trust Management
Agreement, the Managing Shareholder must cooperate with the Trust and take all
reasonable steps requested to assist the Board in making an orderly transition
of the management, administrative and advisory function. (See Section 7.3(d) of
the Declaration and Article VI of the Trust Management Agreement.)
Transferability of Shareholders' Interests
The Common Shares are freely transferable by the Shareholders, subject to
certain restrictions on transfer which the Managing Shareholder deems necessary
to comply with the REIT provisions of the Code. (See Section 2.5 and Article 2A
of the Declaration.) Such limitations are described at "CAPITAL STOCK OF THE
TRUST Restrictions on Ownership and Transfer."
Independent Activities
Provided that they comply with any fiduciary obligation to the Trust, the
Managing Shareholder and each Shareholder may engage in whatever activities they
choose, whether or not such activities are competitive with the Trust, without
any obligation to offer any interest in such activities to the Trust or to any
other Shareholders. (See Sections 6.2 and 7.9 of the Declaration.)
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Power of Attorney
In the Declaration, the Shareholders acknowledge that the Managing
Shareholder has been granted an irrevocable power of attorney to execute and
file (i) all amendments, alterations or changes in the Declaration of the Trust
which comply with the terms of the Declaration; (ii) all other instruments which
the Managing Shareholder believes to be in the best interest of the Trust to
file; (iii) all certificates or other instruments necessary to qualify or
maintain the Trust as a REIT or as a business trust in which the Shareholders
have limited liability in the jurisdictions where the Trust may conduct
business; and (iv) all instruments necessary to effect a dissolution,
termination, liquidation or continuation of the Trust when such dissolution,
termination, liquidation, cancellation or continuation is called for under the
Declaration. (See Section 9.3 of the Declaration.)
Meetings and Voting Rights
The Trust will conduct an annual meeting of Shareholders at which all
members of the Board (including all Independent Trustees) (except where the
Managing Shareholder and a Majority of the Shareholders entitled to vote on such
matter approve staggered elections for such positions, in which case only the
class up for election) will be elected or reelected and any other proper
business may be conducted. Each Common Share entitles the holder to one vote on
all matters requiring a vote of Shareholders, including the election of members
of the Board. The Shareholders meeting will be held upon reasonable notice and
within 30 days after the delivery of the Trust's annual report to Shareholders,
but in any event no later than the end of the sixth month following the end of
the prior full fiscal year. Special meetings of the Shareholders may be called
at any time, either by the Managing Shareholder, a majority of the Independent
Trustees, any officer of the Trust, or Shareholders who hold 10% or more of the
Common Shares then outstanding, for any matter on which such Shareholders may
vote. The Trust may not take any of the following actions without approval of
the holders of at least a majority of the Shares entitled to vote:
(1) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of the Trust's assets if not in the ordinary course of
operation of Trust Property or in connection with liquidation and dissolution.
(2) Merge or otherwise reorganize the Trust.
(3) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(4) Amend the Declaration; provided, however, the Declaration may be
amended by the Managing Shareholder without notice or approval of the
Shareholders for the following purposes: (i) to cure ambiguities or errors; (ii)
to conform the Declaration to the description in this Prospectus; (iii) to
equitably resolve issues arising under the Declaration so long as similarly
situated Shareholders are not treated differently; (iv) to make other changes
that will not materially and adversely affect any Shareholder's interest; (v) to
maintain the federal income tax status of the Trust (unless the Managing
Shareholder determines (with the concurrence of a Majority of the Shareholders
entitled to vote on such matter) that it is in the best interest of Shareholders
to change the Trust's tax status); and (vi) to comply with law. (See Sections
1.9(ff), 6.5, 6.6 and 7.3(b) of the Declaration.)
In addition to any other actions of the Trust requiring the approval of
Shareholders under the Declaration, a Majority of the Shareholders present in
person or by proxy at an annual meeting at which a quorum is present, may,
without the necessity for concurrence by the Board, vote to amend the
Declaration, terminate the Trust, and elect and/or remove one or more members of
the Board. (See Section 6.6(b) of the Declaration.)
Additional Offerings of Shares
There will be no mandatory assessments of Shareholders in respect of the
Common Shares or any additional Shares the Trust may issue in the future. To the
extent that the Board desires to obtain additional capital, the Trust may raise
such capital through additional public and private equity offerings, debt
financing, retention of cash flow (subject to satisfying the Trust's
distribution requirements under the REIT rules) or a combination of these
methods. The Trust may determine to issue securities senior to the Common
Shares, including Preferred Shares, debt securities, or Units of limited
partnership interest in the Operating Partnership (either of which may be
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convertible into Common Shares or be accompanied by warrants to purchase Common
Shares). The Trust may also finance acquisitions of properties or interests in
properties through the exchange of properties or through the issuance of Shares
or debt securities or the issuance of Units of limited partnership interest in
the Operating Partnership in which it will conduct all of its real estate
operations. (See Article 2 of the Declaration.)
The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
the Operating Partnership, to refinance existing indebtedness or to finance
acquisitions or capital improvements of new properties. (See Section 1.8(a) of
the Declaration.)
Temporary Investments
Pending the commitment of Trust funds for the purposes described in this
Prospectus, for distributions to Shareholders or for application of reserve
funds to their purposes, the Managing Shareholder has full authority and
discretion to make short-term investments in: (i) obligations of banks or
savings and loan associations that either have assets in excess of $5 billion or
are insured in their entirety by the United States government or its agencies
and (ii) obligations of or guaranteed by the United States government or its
agencies. Such short-term investments would be expected to earn rates of return
which are lower than those earned in respect of properties in which the Trust
may invest. (See Sections 1.2(a) and 5.5 of the Declaration.)
REPORTS TO SHAREHOLDERS
The Trust will keep each Investor currently advised as to activities of
the Trust by reports furnished at least quarterly. Each quarterly report will
contain a condensed statement of "cash flow from operations" for the year to
date as determined by the Managing Shareholder in conformity with generally
accepted accounting principles on a basis consistent with that of the annual
financial statements and showing its derivation from net income. (See Section
5.3(a) of the Declaration.)
Within 120 days after the end of each fiscal year following the completion
of the Offering, the Trust is required to prepare and mail to each Shareholder
as of a record date determined by the Managing Shareholder, an annual report
which includes the following:
(1) Financial statements prepared in accordance with generally accepted
accounting principles which are audited and reported on by the Trust's
independent certified public accountants;
(2) The ratio of the costs of raising capital during the period to the
capital raised;
(3) The aggregate amount of advisory fees and the aggregate amount of other
fees paid to the Managing Shareholder and any of its Affiliates during the
period by the Trust and including fees or charges paid to them by third parties
doing business with the Trust;
(4) The total operating expenses (as defined in Section 1.9(i) of the
Declaration), stated as a percentage of the book amount of the Trust's
investments and as a percentage of its net income;
(5) A report from the Independent Trustees that the policies being followed
by Trust are in the best interests of its Shareholders and the basis for such
determination; and
(6) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving the Trust, the Managing
Shareholder, the Trustees, any other members of the Board and any of their
respective Affiliates occurring in the year for which the annual report is made.
(See Section 5.3(b) of the Declaration.)
The Common Shares being sold in the Offering have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Trust does not
intend to register the Common Shares under the Securities
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Exchange Act of 1934, as amended (the "Exchange Act") or list them on any
securities exchange immediately after the commencement of the Offering. The
Trust will apply for listing on the American Stock Exchange ("AMEX") of the
Common Shares being offered in this Offering and Common Shares into which Units
are exchangeable and expects to qualify for AMEX listing and register such
Common Shares under the Exchange Act in the third or fourth quarter of 1998.
However, there can be no assurance whether the Trust will qualify for such
listing on AMEX or any other stock exchange and, if so, of the timing of the
effectiveness of any such listing.
Although the Common Shares acquired by Investors in the Offering will be
freely tradable securities, there can be no assurance that an active trading
market will be established or maintained for the Common Shares. The Trust will
be required to file periodic reports (Form 10-KSB or Form 10-K annual reports,
Form 10-QSB or Form 10-Q quarterly reports and Form 8-KSB or Form 8-K current
reports) under the Exchange Act for the fiscal year in which its Securities Act
registration statement becomes effective and for any subsequent fiscal year in
which it has more than 300 Shareholders in any such year or it is otherwise
required by applicable law to do so. The Trust is expected to have at least 300
Shareholders after the completion of the Offering and accordingly would be
required to file such reports on a continuing basis.
CAPITAL STOCK OF THE TRUST
General
The Declaration authorizes the Trust to issue up to 25,000,000 Shares of
beneficial interest, no par value per Share, consisting of Common Shares and of
Preferred Shares of such classes with such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing Shareholder
may create and authorize from time to time in accordance with Delaware law and
the Declaration. Prior to the Offering there were no Shares outstanding. The
Trust is offering for sale up to 2,500,000 Common Shares in the Offering. If the
Exchange Offering is completed as contemplated, sellers of property interests
would receive up to 2,500,000 Units in the Operating Partnership which would be
exchangeable into 2,500,000 additional Common Shares.
The following description summarizes all material terms and provisions of
the Common Shares. The Common Shares when paid for and issued will be fully paid
and non-assessable. Each Common Share is equal in all respects to every other
Common Share and entitles the holder to one vote on all matters requiring a vote
of Shareholders, including the election of members of the Board. Holders of
Common Shares do not have the right to cumulate their votes in the election of
members of the Board, which means that the holders of a majority of the
outstanding Common Shares can elect all of the nominees for Board positions then
standing for election. Shareholders are entitled to such distributions as may be
declared from time to time by the Managing Shareholder out of funds legally
available therefor. Shareholders will be entitled to receive any distributions
declared by the Managing Shareholder on a pro rata basis for each outstanding
class of Shares taking into account the relative rights of priority of each
class entitled to distributions. Holders of Common Shares have no conversion,
redemption, preemptive or exchange rights to subscribe to any securities issued
by the Trust in the future. In the event of a liquidation, dissolution or
winding up of the affairs of the Trust, the Shareholders are entitled to share
ratably in the assets of the Trust remaining after provision for payment of all
liabilities to creditors and payment of liquidation preferences and accrued
dividends, if any, on any series of Preferred Shares that may have been issued.
Transfer Agent
The escrow agent for the Offering and the transfer agent and registrar for
the Common Shares will be American Stock Transfer & Trust Company, New York, New
York. The company will also hold in an escrow account the Units acquired by the
Original Investors in connection with the formation of the Trust and the
Operating Partnership as described at "THE TRUST - Formation Transactions."
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Restrictions on Ownership and Transfer
The Trust's Declaration contains certain restrictions on the number of
Shares of the Trust that individual Shareholders may own. For the Trust to
qualify as a REIT under the Code, no more than 50% in value of its Shares may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a shorter taxable year. The
Shares must also be beneficially owned (other than during the first taxable
year) by 100 or more persons during at least 335 days of each taxable year or
during a proportionate part of a shorter taxable year. Because the Trust expects
to qualify as a REIT, the Declaration of the Trust contains restrictions on the
acquisition of Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration, no Shareholder
(other than the Original Investors) may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 5.0% (the "Ownership Limit")
of the Trust's Shares. The Managing Shareholder (upon receipt of a ruling from
the Internal Revenue Service (the "Service") or an opinion of counsel or other
evidence satisfactory to the Managing Shareholder and upon such other conditions
as the Managing Shareholder may require) may in its discretion waive the
Ownership Limit depending on the then existing facts and circumstances
surrounding the proposed transfer, including without limitation, the identity of
the party requesting such waiver, the number and extent of Share ownership of
other Shareholders, the aggregate number of outstanding Shares and the extent of
any contractual restrictions (other than that contained in the Declaration of
Trust) on any Shareholders relating to transfer of their Shares. See Section
2A.12 of the Declaration of Trust. As a condition of such exemption, the
intended transferee must give written notice to the Trust of the proposed
transfer no later than the fifteenth day prior to any transfer which, if
consummated, would result in the intended transferee owning Shares in excess of
the Ownership Limit. The Managing Shareholder of the Trust may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT. Any transfer of the Shares that would (i) create a direct or indirect
ownership of the Shares in excess of the Ownership Limit, (ii) result in the
Shares being owned by fewer than 100 persons or (iii) result in the Trust being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the Shares. The
foregoing restrictions on transferability and ownership will not apply if the
Managing Shareholder determines, which determination must be approved by the
Shareholders, that it is no longer in the best interests of the Trust to attempt
to qualify, or to continue to qualify, as a REIT.
Any purported transfer of Shares that would result in a person owning
Shares in excess of the Ownership Limit or cause the Trust to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"), which will be
transferred by operation of law to the Trust as trustee for the exclusive
benefit of the person or persons to whom the Excess Shares are ultimately
transferred, until such time as the intended transferee retransfers the Excess
Shares. While these Excess Shares are held in trust, they will not be entitled
to vote or to share in any dividends or other distributions. Subject to the
Ownership Limit, the Excess Shares may be transferred by the intended transferee
to any person (if the Excess Shares would not be Excess Shares in the hands of
such person) at a price not to exceed the price paid by the intended transferee
(or, if no consideration was paid, fair market value), at which point the Excess
Shares will automatically be exchanged for the Shares to which the Excess Shares
are attributable. In addition, such Excess Shares held in trust are subject to
purchase by the Trust at a purchase price equal to the lesser of the price paid
for the Shares by the intended transferee (or, if no consideration was paid,
fair market value) as reflected in the last reported sales price reported on the
New York Stock Exchange ("NYSE") on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales price
of such Shares on the trading day immediately preceding the relevant date as
reported on any exchange or quotation system over which such Shares may be
traded, or if not then traded over any exchange or quotation system, then the
market price of such Shares on the relevant date as determined in good faith by
the Managing Shareholder of the Trust.
From and after the intended transfer to the intended transferee of the
Excess Shares, the intended transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to such Shares
except the right to payment of the purchase price of the Shares on the
retransfer of Shares as provided above. Any dividend or
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distribution paid to a proposed transferee on Excess Shares prior to the
discovery by the Trust that such Shares have been transferred in violation of
the provisions of the Trust's Declaration shall be repaid to the Trust upon
demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at the option of the
Trust, to have acted as an agent on behalf of the Trust in acquiring such Excess
Shares and to hold such Excess Shares on behalf of the Trust.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding Shares of the Trust must give a written notice to
the Trust by January 31 of each year. In addition, each Shareholder shall upon
demand be required to disclose to the Trust in writing such information with
respect to the direct, indirect and constructive ownership of Shares as the
Managing Shareholder deems reasonably necessary to comply with the provisions of
the Code applicable to a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
Shares might receive a premium for their Shares over the then prevailing market
price or which such holders might believe to be otherwise in their best
interest.
CAPITALIZATION
The following table sets forth the capitalization of the Trust on a pro
forma basis, assuming the completion of the sale of a minimum number of 50,000
Common Shares and a maximum number of 2,500,000 Common Shares being offered. The
subscription price for each Common Share being offered in the Offering is
$10.00, and is payable in full in cash upon subscription. For purposes of
determining capitalization, such amount has been calculated after deducting
commissions, fees, expenses and other costs of the Offering, estimated to be
approximately $1.00 per each Common Share, as set forth under "SOURCES AND USES
OF FUNDS," to be paid out of the proceeds of this Offering. The capitalization
of the Trust set forth below does not take into account (i) any proposed
acquisitions of property interests by the Operating Partnership in exchange for
Units to be registered by the Trust in connection with the proposed Exchange
Offering and the subsequent exchange by Unitholders of such Units for Common
Shares or (ii) any exercise of Common Share purchase warrants which may be
issued to the Dealer Manager or any broker-dealer participating in the Offering.
The Original Investors provided initial capitalization of the Operating
Partnership in the amount of $50,000 cash and other consideration. See "THE
TRUST - Formation Transactions."
<TABLE>
<CAPTION>
Minimum Common Shares Maximum Common Shares
Sold in Offering (50,000) Sold in Offering (2,500,000)
------------------------- ----------------------------
<S> <C> <C>
Shareholders' equity:
Common Shares $450,000 $22,500,000
-------- -----------
Total Capitalization $450,000 $22,500,000
</TABLE>
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TERMS OF THE OFFERING
The Trust is offering a maximum of 2,500,000 Common Shares of beneficial
interest in the Trust at $10.00 per Common Share ($25,000,000 in the aggregate)
which is payable in full upon subscription. See "CAPITAL STOCK OF THE TRUST" and
"CAPITALIZATION." The Trust believes that the type of person who might benefit
from an investment in the Trust is a person looking for (i) current cash flow in
the form of regular distributions generated from rental payments from the rental
of residential apartment properties and (ii) the opportunity for capital
appreciation through the sale of one or more such properties.
As described below, funds received will be held in escrow until the minimum
number of Common Shares (50,000) is sold. All of the Common Shares to be issued
or sold by the Trust in the Offering will be tradable without restriction under
the Securities Act, but will be subject to certain restrictions designed to
permit the Trust to qualify and maintain its REIT status under the Code for
federal income tax purposes. See above at "THE TRUST - Ownership of the Trust
and the Operating Partnership" for a description of the ownership of the Common
Shares being offered hereby and the Units of limited partnership interest in the
Operating Partnership on a pro forma basis, assuming that all or a portion of
the Common Shares being offered are sold and the proposed Exchange Offering is
completed in whole or in part.
Each Investor will receive his beneficial interest in the Trust upon the
latest to occur of (i) acceptance of his Subscription Documents by the Managing
Shareholder, (ii) receipt and collection by the Trust of the purchase price of
the Common Shares subscribed for, and (iii) the Escrow Date (described below).
Each Investor will own a share of beneficial interests in the Trust attributable
to Common Shares in proportion to his respective ownership of Common Shares.
Until the Escrow Date occurs, subscriber's checks from the purchase of
Common Shares in the Offering will be required to be delivered by the
participating broker-dealer to American Stock Transfer & Trust Company (the
"Escrow Agent either by (i) noon of the next business day after receipt thereof
by the broker-dealer or (ii) noon of the second business day after the receipt
of the subscription documents by the Trust or Managing Shareholder. If the
latter option is used, the subscription documents must be forwarded to the Trust
or the Managing Shareholder by noon of the next business day after receipt of
the funds. The Escrow Agent, in turn, will deposit the proceeds in the name of
the Trust in a separate segregated interest-bearing escrow account at a
commercial bank until the Escrow Date, which is the later of the date on which
(i) the Trust accepts the subscription that results in the gross proceeds from
the sale of Common Shares in the Offering to exceed $500,000, and (ii) full cash
payment for at least 50,000 Common Shares has been collected and deposited in
the escrow account. The Trust will not accept any subscriptions from New York
investors, and no sales will be completed in New York, unless and until the
Trust has sold, and collected the proceeds from, at least 250,000 Common Shares
in this Offering ($2,500,000 gross proceeds). The Trust will not accept any
subscriptions from Ohio investors and no sales will be completed in Ohio, unless
and until the Trust has sold, and collected the proceeds from, at least 100,000
Common Shares in this Offering (gross proceeds of $1,000,000). The Escrow Date
may not be later than December 31, 1998.
After the Escrow Date, the Trust's funds, net of fees described in this
Prospectus, will be maintained in the name of the Trust, in one or more
separate, segregated accounts at commercial banks or in interim investments
described at "INVESTMENT OBJECTIVES AND POLICIES." As soon as funds have been
released from the escrow account, they will be used to pay selling commissions
and fees to cover offering expenses. After payment of these commissions and
fees, the remaining funds released from the escrow account will be contributed
to the Operating Partnership to be used to fund investments or to pay expenses
other than those associated with the Offering, as determined by the Trust in its
discretion. See "THE TRUST - The Operating Partnership." Upon release of
proceeds from the escrow account, the Trust will hold such proceeds in trust for
the benefit of the Investors until they are utilized for the purposes described
at "SUMMARY OF THE TRUST AND USE OF PROCEEDS Summary of Use of Proceeds." Any
proceeds from this Offering which are not invested or committed for investment
within two years following the date of effectiveness of the Offering (less any
amounts retained as necessary operating capital) will be distributed pro rata to
the Shareholders as a return of capital.
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The Common Shares will be offered and sold on a non-exclusive best efforts
basis through Sigma Financial Corporation (the "Dealer Manager"), a Michigan
corporation which is a member of the National Association of Securities Dealers,
Inc. ("NASD") and registered as a broker-dealer with the Securities and Exchange
Commission and with the appropriate authority of each state where offers of the
Common Shares will be made. Sigma Financial Corporation, which is not affiliated
with the Managing Shareholder or any of its Affiliates, has acted as dealer
manager for certain private offerings of limited partner interests in real
estate investment limited partnerships sponsored by Affiliates of the Managing
Shareholder and is expected to act as dealer manager in certain future programs
sponsored by Affiliates of the Managing Shareholder. In addition, an Affiliate
of the Dealer Manager is the general partner of two real estate limited
partnerships, each of which owns a residential apartment property and whose
limited partnership interests the Operating Partnership anticipates it will
offer to acquire in connection with the proposed Exchange Offering. The Dealer
Manager may select other NASD member firms as co-manager or selected
broker-dealers to participate in the Offering.
The Dealer Manager and participating broker-dealers will enter into an
Underwriting Agreement with the Trust pursuant to Appendix F of the Rules of
Fair Practice of the NASD. The Dealer Manager and participating broker-dealers
will receive selling commissions in an amount equal to 8% of the subscription
price for all Common Shares sold by them. See "SUMMARY OF THE TRUST AND USE OF
PROCEEDS." The Dealer Manager may reallocate a portion or all of its commission.
The selling commissions will be due and payable promptly after the latest to
occur of (i) acceptance by the Managing Shareholder of an Investor's
subscription, (ii) the receipt and collection by the Trust of the gross purchase
price of the Common Shares in question, and (iii) the Escrow Date. In addition,
the Dealer Manager will be entitled to receive a warrant ("Warrant") to acquire
a number of Common Shares in an amount equal to 8.5% of the number of Common
Shares sold in the Offering by it or participating broker-dealers selected by
it, at a purchase price equal to $13.00 per Common Share. The Warrant will be
exercisable for a period of four years following the first anniversary of the
grant of the Warrant. For a period of six years following the grant of the
Warrant, any registered holder of the Warrant or Common Shares issued upon
exercise of the Warrant may request that the Trust include such securities as
well as any Common Shares underlying any unexercised portion of the Warrant in
any registration statement that the Trust determines to file under the
Securities Act. Such registration would be at the Trust's expense, excluding
underwriter's compensation and expense allowance relating to the requesting
holder's securities to be registered and fees and expenses of such holder's
counsel. The Trust is not obligated to file a registration statement during the
six-year period and may, at any time prior to the effective date of any
registration statement filed, determine not to offer the securities to which the
registration statement relates, without liability to holders of the Warrant
requesting registration of their Warrant and/or Common Shares issuable upon
exercise of the Warrant, except that the Trust must pay the same expenses in
connection with such discontinued registration as if such registration had been
completed.
The Warrant may not be sold, transferred, assigned, pledged or hypothecated
prior to the first anniversary of the effective date of the Offering, except
that after the completion of the Offering it may be (i) assigned in whole or in
part to or among the officers or partners of the Dealer Manager, any
broker-dealer which sells Common Shares in the Offering, or any of such
broker-dealer's officers or partners; (ii) transferred by operation of law as a
result of the death of any assignee or transferee of this Warrant and (iii)
transferred to any successor to the business of the Dealer Manager or of any
such broker-dealer.
Pursuant to the Underwriting Agreement, the Dealer Manager and
participating broker-dealers will not be obligated to purchase any Common
Shares, but will only be required to use their best efforts to sell Common
Shares to suitable offerees. The agreement may be terminated by either party in
certain circumstances. The Trust and the Dealer Manager have agreed to indemnify
each other against or to contribute to losses arising out of certain
liabilities, including liabilities arising under the Securities Act. The Trust
has been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. Nevertheless, the parties may seek to enforce such
indemnification and rights to contribution which are expressly provided under
the agreement.
Under the agreement, the Manager Shareholder, the Dealer Manager and each
participating broker-dealer are required to make every reasonable effort to
determine that the purchase of Common Shares is a suitable and appropriate
investment for each Investor, based on information provided by the Investor
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regarding the Investor's financial situation and investment objectives. The
Trust intends to exercise any legal remedies available to it, including a suit
for damages against an Investor, in the event any of the representations made by
the Investor in the Subscription Documents are inaccurate, and such inaccuracies
result in damages to the Trust or the Managing Shareholder or any Affiliates.
The Trust will pay to the Managing Shareholder a non-accountable fee in an
amount equal to 1% of the aggregate subscription price paid for Common Shares in
the Offering to cover distribution, due diligence and organizational expenses
associated with the formation of the Trust and the Operating Partnership and
with the Offering. To the extent the distribution, due diligence and
organizational expenses exceed 1% of gross proceeds of the Offering, those
expenses will not be reimbursed. The Trust will pay the Managing Shareholder a
non-accountable fee in an amount equal to 1% of the aggregate subscription price
paid for Common Shares in the Offering to cover legal, accounting and consulting
fees and printing, filing, recording, postage and other miscellaneous expenses
associated with the Offering. Any such expenses of the Managing Shareholder in
excess of the fee will be paid by the Managing Shareholder. The fees described
above will be payable at the same time that selling commissions are payable. See
"SOURCES AND USES OF FUNDS."
The Trust will also pay the Managing Shareholder a non-accountable
investment fee in an amount (up to $1,000,000) equal to 4% of the aggregate
subscription price paid for Common Shares in the Offering for its services and
expenses in investigating and evaluating investment opportunities for the Trust
and assisting the Trust in effecting its investments. Half of the investment fee
will be payable at the same time that selling commissions are payable and the
balance will be payable proportionately upon the consummation of each of the
Trust's investments based on the amount invested.
The Common Shares will be sold only to persons who represent in the
Subscription Documents at the time of purchase that they meet the suitability
standards described herein under the caption "INVESTOR SUITABILITY STANDARDS."
In order to subscribe for Common Shares, a purchaser must complete and execute a
Subscription Document, including an Investor Questionnaire and a Subscription
Agreement. A minimum purchase of 200 Common Shares is required for each
prospective Investor.
The Managing Shareholder has the right to reject subscriptions if the
Managing Shareholder based upon a review of all information obtained from a
prospective Shareholder (including the age, investment objectives, net worth,
financial situation and other investments of the prospective Shareholder, and
other pertinent factors) determines that such person's acquisition of Common
Shares in connection with the Offering is not a suitable and appropriate
investment for such person because such person does not meet the minimum income
and net worth standards described above at "INVESTOR SUITABILITY STANDARDS;" can
not reasonably benefit from the Trust based on the prospective Shareholder's
overall investment objectives and portfolio structure; is not able to bear the
economic risk of the investment based on the prospective Shareholder's overall
financial situation; or does not have an apparent understanding of the material
elements of the proposed investment. In the event this Offering is
over-subscribed, the Managing Shareholder will allocate the number of Common
Shares available for sale on a "first come, first served" basis among suitable
prospective Shareholders. Prior to the Escrow Date, payments for the
subscription price should be made by check payable to the order of "American
Stock Transfer & Trust Company, Escrow Agent for Baron Capital Trust." After the
Escrow Date has occurred, payments for the subscription price should be made by
check payable to the order of "Baron Capital Trust." Payments received for
rejected subscription offers will be refunded promptly with any interest earned
thereon. Each Investor has the right to rescind his purchase and have all funds
paid returned in full, upon written notification to the Managing Shareholder
received no later than five days from the date the Investor subscribed to
purchase Common Shares.
The termination date of the Offering (the "Termination Date") is scheduled
to be December 31, 1998 or an earlier or later date (no later than
________________, 1999) [the end of the eighteenth month following the
commencement of the Offering] determined by the Managing Shareholder as
specified below. The Managing Shareholder may in its sole discretion terminate
the Offering at any time before the scheduled Termination Date or extend the
scheduled Termination Date to any date or from date to date which is no later
than the earlier to occur of the date by which all 2,500,000 Common Shares being
offered have been sold (provided that the Escrow Date has
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occurred prior to such rescheduled termination date) and ____________, 1999 [the
end of the eighteenth month following the commencement of the Offering].
The Managing Shareholder will have the right to withdraw the Offering of
Common Shares at any time prior to the Termination Date, in which case the Trust
will be immediately dissolved at the expense of the Managing Shareholder and all
subscription funds will be returned promptly to the subscribers. If the Managing
Shareholder withdraws the Offering, any person that has received fees or other
payments from the proceeds of the Offering will be required to return such fees
or payments to the Trust upon the demand of the Managing Shareholder.
The Common Shares being sold in the Offering have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The Trust does not
intend to register the Common Shares under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), or list them on any securities exchange
immediately after the commencement of the Offering. The Trust will apply for
listing on the American Stock Exchange ("AMEX") of the Common Shares being
offered in this Offering and of the Common Shares into which Units to be offered
in the proposed Exchange Offering are exchangeable and expects to qualify for
AMEX listing and register such Common Shares under the Securities Exchange Act
of 1934, as amended, as early as the third or fourth quarter of 1998. However,
there can be no assurance whether the Trust will qualify for such listing on
AMEX or any other stock exchange and, if so, of the timing of the effectiveness
of any such listing.
The eligibility for listing or quotation privileges in respect of a
particular national securities exchange or over-the-counter market is based on
several factors, including without limitation the number of shareholders and
market makers, the bid price of the issuer's security, the number and market
value of outstanding securities owned by non-Affiliates of the issuer, total
assets of the issuer, and the amount of shareholders' equity in the issuer.
Although the Common Shares acquired by Investors in the Offering will be freely
tradable securities, there can be no assurance that an active trading market
will be established or maintained for the Common Shares. The Trust will be
required to file periodic reports (Form 10-KSB or Form 10-K annual reports, Form
10-QSB or Form 10-Q quarterly reports and Form 8-KSB or Form 8-K current
reports) under the Exchange Act for the fiscal year in which its Securities Act
registration statement becomes effective and for any subsequent fiscal year in
which it has more than 300 Shareholders in any such year or it is otherwise
required by applicable law to do so. The Trust is expected to have at least 300
Shareholders after the completion of the Offering and accordingly would be
required to file such reports on a continuing basis.
OTHER INFORMATION
General
The Trust undertakes to make available to each prospective Investor or his
representative, or both, during the course of the Offering and prior to the
Investor's purchase of Common Shares, the opportunity to ask questions of and
receive answers from the Trust or any person acting on its behalf relating to
the terms and conditions of the Offering and the proposed Exchange Offering and
to obtain any additional information necessary to verify the accuracy of
information made available to such purchaser.
Prior to making an investment decision respecting the Common Shares, a
prospective Investor should carefully review and consider this entire Prospectus
and any Exhibits hereto. Prospective Investors are urged to make arrangements
with the Trust to inspect any books, records, contracts, or instruments referred
to in this Prospectus and other data relating thereto. The Trust is available to
discuss with prospective Investors any matter set forth in this Prospectus or
any other matter relating to the Common Shares, so that Investors and their
advisors, if any, may have available to them all information, financial and
otherwise, necessary to formulate a well-informed investment decision.
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Authorized Sales Material
Sales material may be used in connection with the Offering of the Common
Shares only when accompanied or preceded by the delivery of this Prospectus.
Only sales material that indicates that it is distributed by the Trust or the
Dealer Manager may be distributed to prospective Investors. Currently, the Trust
and the Dealer Manager intend to distribute to prospective Investors (i) a sales
brochure or other written or graphic communications depicting certain
information regarding the Managing Shareholder, the Trust and the residential
real estate industry, and (ii) summaries of material aspects of properties which
become probable investments for the Trust during the offering period. In
addition, the Trust or the Dealer Manager may distribute a summary of the
Offering containing highlights or other summary information concerning the
Offering, information regarding the Managing Shareholder, the Trust, the
Operating Partnership or previous real estate investment programs sponsored by
Affiliates of the Managing Shareholder, or information regarding the residential
apartment real estate industry. All such additional sales material will be
signed by or otherwise identified as authorized by the Trust. Any other sales
material or information has not been authorized for use by the Trust or the
Dealer Manager and must be disregarded by Investors.
In certain jurisdictions, some or all of this sales material may not be
distributed pursuant to securities law requirements, and in all jurisdictions,
this Offering is made only by this Prospectus.
All authorized sales material will be consistent with this Prospectus, as
supplemented. Nevertheless, sales material by its nature does not purport to be
a complete description of this Offering and Investors must review this
Prospectus and supplements carefully for a complete description of the Offering.
Authorized sales material should not be considered to be the basis for the
Offering of Shares or an Investor's decision to purchase Common Shares. Sales
material is not a part of this Prospectus and is not incorporated by reference
into this Prospectus unless expressly stated in this Prospectus or supplements
hereto.
Financial Statements
The Trust, the Operating Partnership and the Managing Shareholder are newly
formed and as of the date of this Prospectus have not acquired any significant
assets or incurred any significant liabilities. The audited balance sheets of
the Trust and the Operating Partnership as of February 3, 1998 and the audited
balance sheet of the Managing Shareholder as of February 28, 1998 are set forth
in Exhibit C hereto. To date, the Trust, the Operating Partnership and the
Managing Shareholder have not conducted material business operations.
The statements of revenues and certain expenses for 11 residential
apartment properties described in this Prospectus which the Operating
Partnership anticipates it will offer to acquire in the initial transactions of
the proposed Exchange Offering and the combined statement of revenues and
certain expenses for such properties for the years ended December 31, 1996 and
December 31, 1997 are set forth in Exhibit D hereto.
LITIGATION
There are no pending legal proceedings to which the Trust, the Operating
Partnership or the Managing Shareholder is a party which are material to the
operations of the Trust, and the Managing Shareholder has no knowledge that any
such legal proceedings are contemplated or threatened by any third party.
EXPERTS
The audited balance sheets of the Trust and the Operating Partnership as of
February 3, 1998 and the audited balance sheet of the Managing Shareholder as of
February 28, 1998 have been included herein and in the Registration Statement in
reliance upon the report of Rachlin Cohen & Holtz, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
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The statements of revenues and certain expenses for 11 residential
apartment properties described in this Prospectus which the Operating
Partnership anticipates it will offer to acquire in the initial transactions of
the proposed Exchange Offering and the combined statement of revenues and
certain expenses for such properties for the years ended December 31, 1996 and
December 31, 1997 have been included herein and in the Registration Statement in
reliance upon the reports of Elroy D. Miedema, an independent certified public
accountant, appearing herein, and upon the authority of said independent
certified public accountant as an expert in accounting and auditing.
LEGAL MATTERS
The authority of the Trust to issue the Common Shares offered hereby is
being passed upon for the Managing Shareholder by Schoeman, Marsh & Updike, LLP,
New York, New York, counsel to the Managing Shareholder. Copies of the draft
opinion letter of counsel as to the Trust 's authority to issue the Common
Shares may be obtained by writing to the Managing Shareholder. Keating, Muething
& Klekamp, P.L.L., Cincinnati, Ohio, has passed on certain tax matters as
described under "FEDERAL INCOME TAX CONSIDERATIONS." Counsel to the Managing
Shareholder will not represent or advise the Trust or any prospective Investor
in connection with the Offering. THEREFORE, EACH PROSPECTIVE INVESTOR SHOULD
CONSULT THE INVESTOR'S OWN LEGAL, TAX AND INVESTMENT COUNSEL.
The representation of counsel to the Managing Shareholder has been limited
to matters specifically addressed to it. No Investor should assume that counsel
to the Managing Shareholder has in any manner investigated the merits of an
investment in the Common Shares, or undertaken any role other than assisting in,
and reviewing items specifically referred to it with regard to, the preparation
of this Prospectus and the issuance of the opinions referred to above. In
assisting in the preparation of this Prospectus, counsel to the Managing
Shareholder has relied upon the representations and statements of the Managing
Shareholder as to facts regarding the Managing Shareholder, the Trust, the
Operating Partnership and their respective Affiliates and the proposed
activities and has not independently verified such representations and
statements.
ADDITIONAL INFORMATION
The Trust is not a reporting company under the Securities Exchange Act of
1934, as amended. The Trust has filed with the Commission a Registration
Statement (of which this Prospectus is a part) on Form SB-2 under the Securities
Act with respect to the Common Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained in this Prospectus as to the content of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference and the exhibits and schedules hereto. For
further information regarding the Trust and the Common Shares offered hereby,
reference is hereby made to the Registration Statement and such exhibits and
schedules.
The Registration Statement, the exhibits and schedules forming a part
thereof filed by the Trust with the Commission can be inspected and copies
obtained from the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Trust will furnish its Shareholders with annual reports containing
financial statements audited by its independent certified public accountants and
with quarterly reports containing unaudited condensed consolidated financial
statements for each of the first three quarters of each fiscal year.
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GLOSSARY
Whenever used in this Prospectus, the following terms shall have the
meanings set forth below, unless the context indicates otherwise. The singular
shall include the plural and the masculine gender shall include the feminine,
and vice versa, as the context requires. In addition, the term "person" and its
pronouns "he," "she," "him," and "her" as used in this Prospectus shall include
natural persons of the masculine and feminine gender and entities, including,
without limitation, corporations, partnerships, limited liability companies and
trusts, unless the context indicates otherwise.
"Admission Date" means the date that an Investor is admitted as an Investor
into the Trust. Unless a subscription is rejected, the Managing Shareholder will
admit a prospective Investor into the Trust on the later of the date on which
the Managing Shareholder of the Offering has received from the Investor (i)
payment in cash and (ii) properly executed and dated Subscription Documents.
"Affiliate" An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) Any person directly or indirectly owning, controlling or holding, with
power to vote 10% or more of the outstanding voting securities of such other
person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive officer,
director, trustee or general partner.
"AMEX" refers to the American Stock Exchange or any successor exchange.
"Baron Advisors" means Baron Advisors, Inc., a Delaware corporation which
is the initial Managing Shareholder of the Trust.
"Baron Properties" means Baron Capital Properties, Inc., a Delaware
corporation which is the initial Corporate Trustee of the Trust, with its
principal place of business located at 1105 North Market Street, Wilmington,
Delaware 19899.
"Board" refers to the Managing Shareholder and the Independent Trustees,
acting together as the Board of the Trust in accordance with the terms of the
Declaration, and their successors.
"Certificate" means the Certificate of Trust of the Trust, as amended from
time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Share" means a beneficial interest in the Trust designated as a
Common Share by the Trust in accordance with Sections 1.6 and 2.1 of the
Declaration.
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"Corporate Trustee" means Baron Capital Properties, Inc., a Delaware
corporation which is the trustee of the Trust under the Declaration, and its
successors. The Corporate Trustee acts as legal holder of the Trust Property,
subject to the terms of the Declaration. Its address is 1105 North Market
Street, Wilmington, Delaware 19899.
"Dealer Manager" refers to Sigma Financial Corporation, a Michigan
corporation which is the broker-dealer selected by the Managing Shareholder to
be the dealer manager of the Offering.
"Declaration" means the Amended and Restated Declaration of Trust for the
Trust made as of ________________, 1998 by the Corporate Trustee that
establishes the Trust and the rights and obligations of the Managing
Shareholder, the Trustees, other members of the Board of the Trust and the
Shareholders.
"Delaware Act" means the Delaware Business Trust Act, as amended, currently
codified as Chapter 38 of Title 12, Delaware Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Date" means the later to occur of the date on which the Trust (i)
accepts the subscription that results in the gross proceeds from Common Shares
sold in the Offering pursuant to this Prospectus to exceed $500,000, or (ii) has
deposited at least $500,000 in collected funds from the Offering in escrow under
the Declaration, provided, however, the Escrow Date may not be later than
December 31, 1998.
"Exchange Act" refers to the Securities Exchange Act of 1934, as amended,
and any rules and regulations promulgated thereunder.
"Exchange Limited Partners" refers to the individual limited partners to
which the Operating Partnership anticipates it will make the proposed Exchange
Offering in connection with the initial transactions thereunder, including the
limited partners in 10 real estate limited partnerships managed by Affiliates of
the Managing Partnership and the limited partners in a real estate limited
partnership managed by an Affiliate of the Dealer Manager of this Offering. See
"THE TRUST - Proposed Real Estate Investments."
"Exchange Offering" refers to the proposed offering, pursuant to a separate
prospectus, of registered Units by the Operating Partnership in exchange for
property interests. See "THE TRUST."
"Exchange Partnerships" refers to the 10 real estate limited partnerships
managed by Affiliates of the Managing Partnership and a real estate limited
partnership managed by an Affiliate of the Dealer Manager of this Offering all
of whose existing property interests the Operating Partnership anticipates it
will indirectly acquire by acquiring the limited partnership interests of their
individual limited partners in the proposed Exchange Offering in connection with
the initial transactions thereunder. See "THE TRUST - Proposed Real Estate
Investments."
"Exchange Properties" refers to the 11 properties initially targeted for
acquisition by the Operating Partnership in connection with its proposed
Exchange Offering. See "THE TRUST - Proposed Real Estate Investments."
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"Fiscal Period" means a quarter ending on March 31, June 30, September 30
or December 31 of each Fiscal Year.
"Fiscal Year" means a year ending on December 31. The Trust's first Fiscal
Year may begin after January 1 and consequently have a duration of less than 12
months. The Trust's last Fiscal Year may end before December 31 and consequently
have a duration of less than 12 months.
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"Independent Trustee" means a Trustee of the Trust who meets certain
qualifications described herein at "MANAGEMENT - The Board of the Trust and
Trustees - Independent Trustees" who becomes an Independent Trustee of the Trust
under the terms of the Declaration. See Section 7.5 of Declaration of Trust.
"Investors" means purchasers of Common Shares or of any other Shares which
the Trust may issue subsequent to the completion of the Offering.
"IRAs" means individual retirement accounts.
"IRS" or "Service" means the Internal Revenue Service.
"Junior Mortgage" refers to a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of one or more
Mortgages and (ii) must be satisfied before such other charges or liens (other
than prior Mortgages) are entitled to participate in the proceeds of any sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
"Limited Partner" or "Unitholder" means an owner of Units in the Operating
Partnership (which will include without limitation the Trust).
"Managing Shareholder" refers to Baron Advisors, Inc. or such substitute or
different Managing Shareholder as may subsequently be admitted to the Trust
pursuant to the terms of the Declaration, which will have all of the powers and
obligations of the Managing Shareholder to operate the Trust as described in
this Prospectus.
"Managing Person" means any of the following: (a) Trust or Operating
Partnership officers, agents, or Affiliates; the Managing Shareholder; a
Trustee; any other member of the Board; Affiliates of the Managing Shareholder,
a Trustee and any other member of the Board and (b) any directors, officers or
agents of any organizations named in (a) above when acting for the Managing
Shareholder, a Trustee, any other member of the Board or any of their respective
Affiliates on behalf of the Trust.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"Mortgage Loan" refers to a note, bond or other evidence of indebtedness or
obligation which is secured or collateralized by a Mortgage.
"NASD" refers to the National Association of Securities Dealers, Inc.
"1997 Act" refers to the Taxpayer Relief Bill of 1997.
"Offering" means the offering of Common Shares of beneficial interest in
the Trust pursuant to and as described in this Prospectus.
"Operating Partnership" means Baron Capital Properties, L.P., a Delaware
limited partnership of which the Trust is the general partner and through which
the Trust's interests in residential apartment properties it acquires will be
held and real estate operations will be conducted.
"Operating Partnership Agreement" means the Agreement of Limited
Partnership of Baron Capital Properties, L.P.
"Operating Partnership Units" refer to units of limited partnership
interest in the Operating Partnership.
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"Original Investors" refers to Gregory K. McGrath and Robert S. Geiger, the
founders of the Trust and the Operating Partnership. See "THE TRUST - Formation
Transactions."
"Person" refers to any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"Plans" means employee benefit plans and IRAs.
"Preferred Share" refers to a share of beneficial interest with such
preferences and rights (in relation to other Shares authorized and issued by the
Trust) as the Managing Shareholder may designate under Section 2.1(c) of the
Declaration for sale or issuance subsequent to completion of the Offering.
"Property" means all real or personal property owned or acquired by the
Trust, which is expected to include but not be limited to (i) the land,
buildings and improvements comprising one or more existing residential apartment
properties in which the Trust may make an equity investment, and (ii) its rights
in connection with Mortgage Loans it may make or acquire which are secured by
Mortgages on the land, buildings and improvements comprising residential
apartment properties. See "INVESTMENT OBJECTIVES AND POLICIES."
"Prospectus" means this Prospectus of the Trust dated _______________,
1998, as the same may be amended or supplemented from time to time.
"Regulations" means the applicable Treasury Regulations promulgated or
proposed under the Code.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"Second Mortgage" means a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of a First Mortgage
and (ii) must be satisfied before such other charges or encumbrances (other than
the First Mortgage) are entitled to participate in the proceeds of any sale.
"Second Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Second Mortgage.
"Securities Act" means the Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.
"Senior Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"Senior Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Senior Mortgage.
"Service" or "IRS" means the Internal Revenue Service.
"Share" means a beneficial interest in the Trust which is either a Common
Share or a Preferred Share authorized for issuance and designated as such by the
Managing Shareholder in accordance with the Declaration.
"Shareholder" means an owner of Shares in the Trust.
"Subscription Documents" means the subscription documents which each
prospective Investor must fully complete, date and sign in order to subscribe
for Common Shares in the Offering. The Subscription Documents are comprised of
an Investor Questionnaire and Subscription Agreement.
"Termination Date" means the date upon which the Trust terminates the
Offering of Common Shares. The Termination Date is scheduled to be December 31,
1998 but may be an earlier date or later date (no later than
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______________, 1999) [the end of the eighteenth month following the
commencement of the Offering] determined by the Managing Shareholder in
accordance with the Declaration which is no later than the date by which all
2,500,000 Common Shares being offered have been sold provided that the Escrow
Date has occurred by such earlier or later termination date.
"Trust" means the issuer of the Common Shares being offered under this
Prospectus, Baron Capital Trust, a Delaware business trust created by the
Corporate Trustee and having a principal office at 7826 Cooper Road, Cincinnati,
Ohio 45242.
"Trustee" and "Trustees" "Trustee" means a person serving as a Corporate
Trustee or an Independent Trustee of the Trust; the term "Trustees" refers to
the Corporate Trustee and the Independent Trustees collectively.
"Trust Management Agreement" means the Trust Management Agreement dated as
of _______________, 1998 between the Trust and the Managing Shareholder, under
which the Managing Shareholder will perform certain management, administrative
services and investment advisory services for the Trust.
"Trust Property" means all property owned or acquired by the Trust or on
its behalf as part of the trust estate established under the Declaration.
"Unitholder" or "Limited Partner" means an owner of Units in the Operating
Partnership (which will include without limitation the Trust).
"Units" refer to units of limited partnership interest in the Operating
Partnership.
"Warrant" refers to the warrant to be issued to the Dealer Manager in
connection with this Offering to acquire a number of Common Shares in an amount
equal to 8.5% of the number of Common Shares sold in the Offering by it or
participating broker-dealers selected by it, at a purchase price equal to $13.00
per Common Share. See "TERMS OF THE OFFERING."
110
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE OF AFFILIATES
OF
MANAGING SHAREHOLDER
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
The following table summarizes the experience of Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., in organizing 32 investment
programs whose offerings closed in the most recent three years. The 32 programs
have investment objectives similar to those of the Trust in that the programs
provided financing in respect of residential properties for current income and
capital appreciation (except in the case of a mortgage fund).
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund VIII, Appreciation Fund
I, Ltd. (Baron Ltd. (Baron Capital I, Ltd. (Baron Capital
Capital IV, Inc., IV, Inc., general IV, Inc., general
general partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $940,000 $1,020,000 $ 840,000
Dollar amount raised:
(percent relative to 940,000 1,020,000 205,000
amount offered): (100%) (100%) (10%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 94,000 94,400 20,500
(10%) (9%) (9%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 846,000 849,600 184,500
(90%) (91%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 846,000 849,600 184,500
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 0 0
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 2/94 3/94 4/94
Length of offering (in months): 3 3 2
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 3 2
</TABLE>
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THIS OFFERING WILL EXPERIENCE
RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE TABLES ABOVE AND BELOW. INVESTORS SHOULD NOTE THAT
THE INVESTMENT OBJECTIVES OF ALL OF THE PARTNERSHIP DESCRIBED IN THE FOLLOWING
TABLES DIFFERED AT LEAST IN PART FROM THE INVESTMENT OBJECTIVES OF THE TRUST AND
THAT INVESTORS WILL NOT HAVE ANY INTEREST IN ANY OF THE PARTNERSHIPS AS A RESULT
OF THE ACQUISTION OF COMMON SHARES IN THE TRUST EXCEPT AS OTHERWISE INDICATED IN
THE PROSPECTUS.
I-1
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Clearwater First
Home Buyer Fund Home Buyer Time Homebuyer
V, Ltd. (Baron Mortgage Fund IV, Program, Ltd.
Capital XXIX, Inc., Ltd. (Baron Capital (Baron Capital XVI,
general partner) XXVIII, Inc., general Inc., general
partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 $ 750,000
Dollar amount raised:
(percent relative to 500,000 500,000 750,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 50,000 45,000 77,500
(10%) (9%) (10%)
Cash reserve accounts: 25,000 0 0
(6%)
Amount raised available for
investment (percentage): 425,000 430,000 672,500
(85%) (86%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 425,000 430,000 672,500
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 25,000 0
(6%)
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 1/96 6/96 3/96
Length of offering (in months): 4 5 7
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 4 6
</TABLE>
I-2
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Income Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture Fund I,
Ltd. (Baron Capital Apartments, Ltd. Ltd. (Baron Capital
XI, Inc., general (Baron Capital IX, XXVI, Inc., general
partner) Inc., general partner)
partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,150,000 $700,000 $ 900,000
Dollar amount raised:
(percent relative to 1,150,000 700,000 900,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 125,000 80,000 119,000
(11%) (11%) (13%)
Cash reserve accounts: 142,000 0 90,000
(6%) (10%)
Amount raised available for
investment (percentage): 1,025,000 620,000 781,000
(89%) (89%) (87%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 825,500 580,000 601,000
of existing limited partners: (72%) (83%) (67%)
Investment fee: 57,500 40,000 90,000
(5%) (6%) (10%)
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 10/95 4/96 5/96
Length of offering (in months): 16 6 5
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 6 4 4
</TABLE>
I-3
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund, Investment Fund Investment Fund
Ltd. (Baron II, Ltd. VI, Ltd. (Baron
Capital XXXIII, (Baron Capital XXXI, Capital XXXI,
Inc., general Inc., general Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,200,000 $800,000 $ 1,200,000
Dollar amount raised:
(percent relative to 1,200,000 800,000 1,200,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 140,000 100,000 130,000
(12%) (13%) (11%)
Cash reserve accounts: 120,000 80,000 120,000
(10%) (10%) (10%)
Amount raised available for
investment (percentage): 1,060,000 700,000 1,070,000
(88%) (87%) (89%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 796,000 524,000 806,000
of existing limited partners: (66%) (66%) (67%)
Investment fee: 144,000 96,000 144,000
(12%) (12%) (12%)
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 6/96 7/96 11/96
Length of offering (in months): 6 3 5
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 5 2 4
</TABLE>
I-4
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund, Ltd. Income Fund, Ltd. Income Fund II,
(Baron Capital II, (Baron Capital I, Ltd. (Baron Capital
Inc., general Inc., general IV, Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $807,000 $1,050,000 920,000
Dollar amount raised:
(percent relative to 807,000 1,050,000 920,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,700 115,000 102,000
(11%) (11%) (11%)
Cash reserve accounts: 0 165,500 199,000
0 (18%) (24%)
Amount raised available for
investment (percentage): 716,300 935,000 818,000
(89%) (89%) (89%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 656,300 589,500 548,000
of existing limited partners: (92%) (63%) (67%)
Investment fee: 60,000 180,000 71,000
(12%) (19%) (9%)
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 11/94 12/94 1/95
Length of offering (in months): 6 8 6
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 7 4
</TABLE>
I-5
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital Florida Tax Credit
Income Partners, Income Fund III, Fund, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital
III, Inc., general VII, Inc., general VI, Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $800,000 $ 626,000
Dollar amount raised:
(percent relative to 800,000 800,000 626,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,000 90,000 80,000
(11%) (11%) (13%)
Cash reserve accounts: 143,000 121,000 0
(20%) (17%) 0
Amount raised available for
investment (percentage): 710,000 710,000 546,000
(89%) (89%) (87%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 543,000 549,000 546,000
of existing limited partners: (76%) (77%) (100%)
Investment fee: 24,000 40,000 0
(4%) (6%) 0
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 8/95 6/95 6/95
Length of offering (in months): 3 5 11
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 4 9
</TABLE>
I-6
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
GSU Stadium Florida Capital Brevard Mortgage
Student Apartment Income Fund IV, Program, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital
X, Inc., general V, Inc., general XII, Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,000,000 $1,820,000 $ 575,000
Dollar amount raised:
(percent relative to 1,000,000 1,820,000 575,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 110,000 202,000 67,500
(11%) (11%) (12%)
Cash reserve accounts: 100,000 305,200 57,500
(20%) (17%) (13%)
Amount raised available for
investment (percentage): 690,000 1,212,800 450,000
(69%) (67%) (78%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 690,000 1,212,800 450,000
of existing limited partners: (100%) (100%) (100%)
Investment fee: 100,000 100,000 0
(14%) (8%) 0
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 11/95 1/95 1/96
Length of offering (in months): 4 16 4
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 3 10 3
</TABLE>
I-7
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Baron First Time
Home Buyer Homebuyer Home Buyer
Mortgage Fund II, Mortgage Fund III, Mortgage Fund, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital VIII,
XV, Inc., general XXVII, Inc., general Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 500,000
Dollar amount raised:
(percent relative to 500,000 500,000 500,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 45,000 50,000 50,000
(9%) (10%) (10%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 455,000 450,000 450,000
(91%) (90%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 455,000 450,000 450,000
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 0 0
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 2/96 5/96 1/96
Length of offering (in months): 6 4 4
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 4 3 3
</TABLE>
I-8
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Baron Income Baron Mortgage
Development Fund, Property Mortgage Development Fund
IX, Ltd. (Baron Fund VI, Ltd. (Baron Capital VII, Ltd (Baron
Capital XLII, Inc., XXIX, Inc., general Capital XXXVII, Inc.,
general partner) partner) general partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $750,000 $700,000
Dollar amount raised:
(percent relative to 800,000 750,000 700,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 122,000 105,000 115,000
(15%) (14%) (16%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 678,000 645,000 585,000
(85%) (86%) (84%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 678,000 645,000 585,000
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 0 0
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 1/97 8/96 11/96
Length of offering (in months): 8 16 8
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 4 9 6
</TABLE>
I-9
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Baron Mortgage Baron Mortgage
Development Fund, Development Fund, Development Fund
X, Ltd. (Baron XI, Ltd. (Baron Capital XVIII, LP (Baron
Capital XLIII, Inc., XXXIII, Inc., general Capital LXV, Inc.,
general partner) partner) general partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $800,000 $800,000
Dollar amount raised:
(percent relative to 800,000 800,000 800,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 122,000 122,000 132,000
(15%) (15%) (17%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 678,000 678,000 668,000
(85%) (85%) (83%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 678,000 678,000 668,000
of existing limited partners: (100%) (100%) (100%)
Investment fee: 0 0 0
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 11/96 3/97 7/97
Length of offering (in months): 16 5 4
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 8 2 2
</TABLE>
I-10
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic
Investment Fund V, Investment Fund VII,
Ltd. (Baron Capital Ltd. (Baron Capital
XL, Inc., general XLI, Inc., general
partner) partner)
------------------ -------------------
<S> <C> <C>
Dollar amount offered: $1,200,000 $1,900,000
Dollar amount raised:
(percent relative to 1,200,000 1,900,000
amount offered): (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 142,000 229,000
(12%) (12%)
Cash reserve accounts: 120,000 190,000
(10%) (10%)
Amount raised available for
investment (percentage): 818,000 1,253,000
(68%) (66%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 818,000 1,253,000
of existing limited partners: (100%) (100%)
Investment fee: 120,000 228,000
(10%) (12%)
Percent leverage (mortgage financing
divided by total acquisition cost)
Date offering began: 11/96 1/97
Length of offering (in months): 7 11
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 6 6
</TABLE>
I-11
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS
The following table summarizes the payments made to Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., by 32 real estate investment
programs sponsored by Affiliates of the Managing Shareholder from their
inception through December 31, 1997. The prior programs have investment
objectives similar to those of the Trust in that the programs provided financing
in respect of residential properties for current income and capital appreciation
(except in the case of a mortgage fund).
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund Appreciation
I, Ltd. VIII, Ltd. Fund I, Ltd.
-------------- ------------------ --------------
<S> <C> <C> <C>
Date offering began: 2/94 3/94 4/94
Dollar amount raised: $940,000 $944,000 $205,000
Amount paid of Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence expenses: $ 94,000 $ 94,400 $ 20,500
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (76,860) $ (103,015) $ (8,891)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $28,085 $34,209 $12,223
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-1
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund, Income Fund, Income
Ltd. Ltd. Fund II, Ltd.
--------------- ------------- ---------------
<S> <C> <C> <C>
Date offering began: 11/94 9/94 1/95
Dollar amount raised: $807,000 $1,050,000 $920,000
Amount paid of Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $90,700 $115,000 $ 102,000
Acquisiton fees: $60,000 $180,000 $71,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (206,594) $ (15,632) $ (75,620)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $44,773 $47,729 $36,059
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-2
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital Florida Tax
Income Partners, Income Fund III, Credit Fund,
Ltd. Ltd. Ltd.
------------------- ---------------- ------------
<S> <C> <C> <C>
Date offering began: 8/95 6/95 6/95
Dollar amount raised: $800,000 $800,000 $626,000
Amount paid of Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $90,000 $90,000 $ 80,000
Acquisiton fees: $24,000 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (83,231) $ (85,491) $ (58,193)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $27,010 $19,276 $30,107
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-3
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Florida Captial GSU Student
Homebuyer Mortgage Income Fund IV, Stadium Apartments+H196,
Fund, Ltd. Ltd. Ltd.
------------------ --------------- ------------------------
<S> <C> <C> <C>
Date offering began: 1/96 1/95 11/95
Dollar amount raised: $500,000 $1,820,000 $1,000,000
Amount paid of Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $50,000 $202,000 $ 110,000
Acquisiton fees: 0 0 $100,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ 10,327 $ (508,617) $ (242,440)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 $63,115 $35,980
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-4
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Brevard Mortgage Baron First Time Clearwater First
Program, Ltd. Homebuyer Time Home Buyer
Mortgage Fund II, Program, Ltd.
Ltd.
---------------- ----------------- ----------------
<S> <C> <C> <C>
Date offering began: 1/96 2/96 3/96
Dollar amount raised: $575,000 $500,000 $750,000
Amount paid of Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $67,500 $45,000 $ 77,500
Acquisiton fees: 0 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (4,789) $ 6,331 $ 1,546
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-5
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Baron First Time
Homebuyer Homebuyer Homebuyer Mortgage
Mortgage Fund III, Mortgage Fund V, Fund IV, Ltd.
Ltd. Ltd.
------------------ ---------------- ------------------
<S> <C> <C> <C>
Date offering began: 5/96 1/96 6/96
Dollar amount raised: $500,000 $500,000 $500,000
Amount paid of Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence expenses: $50,500 $50,000 $ 45,000
Acquisiton fees: 0 0 0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: 10862 15500 14108
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-6
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Income Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture
Ltd. Apartments, Ltd. Fund I, Ltd.
-------------- ---------------- ---------------
<S> <C> <C> <C>
Date offering began: 10/95 4/96 5/96
Dollar amount raised: $1,150,000 $700,000 $900,000
Amount paid of Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence expenses: $125,500 $80,000 $ 119,000
Acquisiton fees: $57,500 $40,000 $90,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (213,239) $ (76,904) $ (88,795)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $24,687 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-7
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund, Investment Fund Investment
Ltd. II, Ltd. Fund VI, Ltd.
---------------- --------------- ---------------
<S> <C> <C> <C>
Date offering began: 6/96 7/96 11/96
Dollar amount raised: $1,200,000 $800,000 $1,200,000
Amount paid of Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence expenses: $140,000 $100,000 $ 130,000
Acquisiton fees: $144,000 $96,000 $144,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (84,157) $ (31,200) $ (78,733)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-8
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Development Baron Income Baron Mortgage
Fund IX, Ltd. Property Mortgage Development
Fund VI, Ltd. Fund VII, Ltd.
----------------- ----------------- --------------
<S> <C> <C> <C>
Date offering began: 1/97 8/96 11/96
Dollar amount raised: $800,000 $750,000 $700,000
Amount paid of Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence expenses: $80,000 $75,000 $70,000
Acquisiton fees: $0 $0 $0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (14,327) $ (6,776) $ (22,192)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-9
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Baron Mortgage Baron Mortgage
Development Fund X, Development Fund Development
Ltd. XI, Ltd. Fund XVIII, LP
------------------- ---------------- --------------
<S> <C> <C> <C>
Date offering began: 11/96 3/97 7/97
Dollar amount raised: $800,000 $800,000 $800,000
Amount paid of Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence expenses: $80,000 $80,000 $80,000
Acquisiton fees: $0 $0 $0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (25,669) $ (61,109) $ (13,141)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-10
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic
Investment Fund, Investment Fund
V, Ltd. VII, Ltd.
---------------- ---------------
<S> <C> <C>
Date offering began: 11/96 1/97
Dollar amount raised: $1,200,000 $1,900,000
Amount paid of Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence expenses: $120,000 $190,000
Acquisiton fees: $0 $0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (74,687) $ (87,764)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0
Property Management
and Administrative Fees: 0 0
Partnership Management
Fees: 0 0
Reimbursements: 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs:
II-11
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS
The following table includes operating results for the periods indicated of 32
programs sponsored by Affiliates of the Managing Shareholder of the Trust, Baron
Advisors, Inc. which closed in the most recent five years. The prior programs
have investment objectives similar to those of the Trust in that the programs
provided financing in respect of residential properties for current income and
capital appreciation (except in the case of a mortgage fund).
Florida Capital Income Fund, Ltd.
---------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $346,154 $348,348 $377,296
Other: 21,065 32,140 3,670
Less:
Operating Expenses: (182,429) (169,938) (201,404)
Interest Expenses: (158,727) (159,163) (128,897)
Depreciation and Amortization: (64,402) (63,327) (69,441)
Other: Major Maintenance: (19,712) 0 (40,663)
Net Income (Loss) - Tax Basis: (58,051) (11,940) (59,439)
Cash generated from operations: (14,714) 19,247 6,332
Less: Cash distributions: 80,700 80,700 56,059
Cash generated after cash distributions: (95,414) (61,453) (49,727)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (72) (15) (73)
Cash distributions to investors: 100 100 69
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-1
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Advantage Fund, Ltd.
-----------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $170,175 $180,549 $165,493
Other: 7,031 5,721 47,756
Less:
Operating Expenses: (79,292) (73,049) (89,479)
Interest Expenses: (49,070) (49,964) (29,185)
Depreciation and Amortization: (70,922) (50,446) (49,641)
Major Maintenance Expense (18,353) 0 (28,185)
Net Income (Loss) - Tax Basis: (40,431) 12,811 16,759
Cash generated from operations: 23,460 57,536 18,644
Less: Cash distributions: 0 82,500 94,000
Cash generated after cash distributions: 23,460 (24,964) (75,356)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (43) 14 18
Cash distributions to investors: 0 88 100
Annualized cash on cash yield
to investors: 0% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-2
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Realty Opportunity Income Fund VIII, Ltd.
-----------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $159,093 $181,587 $216,535
Other: 6,252 3,616 37,068
Less:
Operating Expenses: (93,216) (89,343) (98,705)
Interest Expenses: (60,222) (59,048) (38,897)
Depreciation and Amortization: (56,180) (55,941) (55,265)
Other: Major Maintenance: (21,967) 0 (23,632)
Net Income (Loss) - Tax Basis: (66,240) (19,129) 37,104
Cash generated from operations: (16,312) 33,196 55,301
Less: Cash distributions: 0 80,800 94,400
Cash generated after cash distributions: (16,312) (47,604) (39,099)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (70) (20) 39
Cash distributions to investors: 0 86 100
Annualized cash on cash yield
to investors: 0% 8% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-3
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Appreciation Fund I, Ltd.
----------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $56,139 $57,348 $69,986
Other: 2,437 2,565 8,944
Less:
Operating Expenses: (26,488) (26,417) (36,080)
Interest Expenses: (17,843) (15,898) (13,692)
Depreciation and Amortization: (16,264) (16,172) (10,878)
Other: Major Maintenance: (6,317) 0 (9,754)
Net Income (Loss) - Tax Basis: (8,336) 1,426 8,526
Cash generated from operations: 5,491 15,033 10,460
Less: Cash distributions: 0 19,375 20,500
Cash generated after cash distributions: 5,491 (4,342) (10,040)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (41) 7 41
Cash distributions to investors: 0 95 100
Annualized cash on cash yield
to investors: 0 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-4
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Tampa Capital Income Fund, Ltd.
-------------------------------
<TABLE>
<CAPTION>
1,996 1995
------ ----
<S> <C> <C>
Gross Revenues: $409,146 $404,384
Other: 0 0
Less:
Operating Expenses: (207,313) (213,327)
Interest Expenses: (131,405) (88,632)
Depreciation and Amortization: (77,185) (69,040)
Other: Major Maintenance: 0 (25,157)
Net Income (Loss) - Tax Basis: (6,757) 8,228
Cash generated from operations: 70,428 77,268
Less: Cash distributions: 105,000 58,328
Cash generated after cash distributions: (34,572) 18,940
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (6) 8
Cash distributions to investors: 100 56
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
In January, 1997 the partnership sold the asset acquired by it with the net
proceeds of its offering.
III-5
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund II, Ltd.
------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $379,763 $319,640 $355,612
Other: 7,968 16,405 3,084
Less:
Operating Expenses: (158,953) (154,720) (195,088)
Interest Expenses: (149,908) (130,820) (66,611)
Depreciation and Amortization: (79,077) (78,505) (76,341)
Other: Major Maintenance: (86,899) 0 (43,168)
Net Income (Loss) - Tax Basis: (87,106) (28,000) (22,512)
Cash generated from operations: (15,997) 34,100 50,745
Less: Cash distributions: 0 92,000 52,468
Cash generated after cash distributions: (15,997) (57,900) (1,723)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (95) (30) (24)
Cash distributions to investors: 0 100 57
Annualized cash on cash yield
to investors: 0 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-6
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Opportunity Income Partners, Ltd.
-----------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $218,018 $311,719 $207,207
Other: 0 0 9,634
Less:
Operating Expenses: (153,765) (149,572) (100,163)
Interest Expenses: (98,851) (78,273) (47,679)
Depreciation and Amortization: (44,069) (47,371) (24,532)
Other: Major Maintenance: (22,392) 0 (8,649)
Net Income (Loss) - Tax Basis: (101,059) 36,503 35,818
Cash generated from operations: (56,990) 83,874 50,716
Less: Cash distributions: 80,000 77,441 3,390
Cash generated after cash distributions: (136,990) 6,433 47,326
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (126) 46 45
Cash distributions to investors: 100 97 4
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-7
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Captial Income Fund III, Ltd.
-------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ross Revenues: $212,608 $228,451 $106,625
Other: 6,605 7,884 0
Less:
Operating Expenses: (116,044) (112,640) (54,323)
Interest Expenses: (69,345) (68,759) (12,597)
Depreciation and Amortization: (36,890) (37,979) (18,548)
Other: Major Maintenance: (13,630) 0 (3,488)
Net Income (Loss) - Tax Basis: (16,696) 16,957 17,669
Cash generated from operations: 13,589 47,052 36,217
Less: Cash distributions: 80,000 79,867 22,482
Cash generated after cash distributions: (66,411) (32,815) 13,735
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (21) 21 22
Cash distributions to investors: 100 100 28
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-8
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Tax Credit Fund, Ltd.
-----------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $282,587 $266,240 $274,862
Other: 0 0 0
Less:
Operating Expenses: (191,445) (172,489) (194,953)
Interest Expenses (67,422) (69,122) (99,684)
Depreciation and Amortization: (51,408) (47,236) (25,740)
Major Maintenance Expense (28,357) (20,067) (13,149)
Net Income (Loss) - Tax Basis: (56,045) (42,674) (58,664)
Cash generated from operations: (4,637) 4,562 (32,924)
Less: Cash distributions: 0 25,194 0
Cash generated after cash distributions: (4,637) (20,632) (32,924)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (90) (68) (94)
Cash distributions to investors: 0 40 0
Annualized cash on cash yield
to investors: 1% 4% 2%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-9
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund, Ltd.
----------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $70,341 $46,970
Other: 0
Less:
Operating Expenses: (774) (674)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 69,567 46,296
Cash generated from operations: 69,567 46,296
Less: Cash distributions: 60,000 45,536
Cash generated after cash distributions: 9,567 760
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 139 93
Cash distributions to investors: 120 91
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-10
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund IV, Ltd.
------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $745,649 $695,308 $422,209
Other: 22,536 60,265 9,640
Less:
Operating Expenses: (469,088) (435,005) (301,870)
Interest Expenses: (310,603) (312,704) (173,711)
Depreciation and Amortization: (132,061) (137,316) (120,000)
Other: Major Maintenance: (36,903) 0 (1,750)
Net Income (Loss) - Tax Basis: (180,470) (129,452) (165,482)
Cash generated from operations: (70,945) (52,401) (55,122)
Less: Cash distributions: 180,233 149,240 676
Cash generated after cash distributions: (251,178) (201,641) (55,798)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (99) (71) (91)
Cash distributions to investors: 99 82 0
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-11
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
GSU Stadium Student Apartments, Ltd.
------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $458,687 $427,919 $200,668
Other: 27,710 21,809
Less:
Operating Expenses: (242,603) (212,984) (106,361)
Interest Expenses: (146,120) (122,433) (50,645)
Depreciation and Amortization: (65,135) (66,830) (66,999)
Other: Major Maintenance: (35,113) (54,112) (46,277)
Net Income (Loss) - Tax Basis: (2,574) (6,631) (69,614)
Cash generated from operations: 34,851 38,390 (2,615)
Less: Cash distributions: 203,105 84,961 25,000
Cash generated after cash distributions: (168,254) (46,571) (27,615)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (3) (7) (70)
Cash distributions to investors: 203 85 25
Annualized cash on cash yield
to investors: 10% 10% 0
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 1
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-12
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Brevard Mortgage Program, Ltd.
------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $17,009 $73,267
Other: 0 0
Less:
Operating Expenses: (2,119) (874)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 14,890 72,393
Cash generated from operations: 14,890 72,393
Less: Cash distributions: 57,500 34,572
Cash generated after cash distributions: (42,610) 37,821
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 26 126
Cash distributions to investors: 100 60
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-13
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund II, Ltd.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $69,051 $41,748
Other: 45 0
Less:
Operating Expenses: (938) (611)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 68,158 41,137
Cash generated from operations: 68,113 41,137
Less: Cash distributions: 60,300 42,619
Cash generated after cash distributions: 7,813 (1,482)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 136 82
Cash distributions to investors: 121 85
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-14
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Clearwater First Time Homebuyer Program, Ltd.
---------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $88,149 $46,999
Other: 0 0
Less:
Operating Expenses: (132) (93)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 88,017 46,906
Cash generated from operations: 88,017 46,906
Less: Cash distributions: 90,000 43,377
Cash generated after cash distributions: (1,983) 3,529
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 117 62
Cash distributions to investors: 120 58
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-15
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund III, Ltd.
--------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $70,425 $29,006
Other: 0 0
Less:
Operating Expenses: (315) (408)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 70,110 28,598
Cash generated from operations: 70,110 28,598
Less: Cash distributions: 60,000 27,846
Cash generated after cash distributions: 10,110 752
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 140 57
Cash distributions to investors: 120 56
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-16
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund V, Ltd.
------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $75,400 $26,198
Other: 0 0
Less:
Operating Expenses: (713) (245)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 74,687 25,953
Cash generated from operations: 74,687 25,953
Less: Cash distributions: 60,000 25,140
Cash generated after cash distributions: 14,687 813
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 149 52
Cash distributions to investors: 120 50
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out net proceeds of the program's offering.
III-17
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebyer Mortgage Fund IV, Ltd.
------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $74,020 $14,529
Other: 0 0
Less:
Operating Expenses: (164) (377)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 73,856 14,152
Cash generated from operations: 73,856 14,152
Less: Cash distributions: 60,000 13,900
Cash generated after cash distributions: 13,856 252
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 147 28
Cash distributions to investors: 120 28
Annualized cash on cash yield
to investors: 12% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-18
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Growth Fund V, Ltd.
----------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 273,596 $ 278,590
Other: 20,987 26,698
Less:
Operating Expenses: (163,172) (172,943)
Interest Expenses: (94,358) (98,805)
Depreciation and Amortization: (52,504) (56,381)
Major Maintenance Expense (16,416) (27,704)
Net Income (Loss) - Tax Basis: (31,867) (45,963)
Cash generated from operations: (350) (20,862)
Less: Cash distributions: 114,988 77,039
Cash generated after cash distributions: (115,338) (97,901)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): -28 (40)
Cash distributions to investors: 100 67
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-19
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Lamplight Court of Bellefontaine Apartments, Ltd.
-------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 9,973 733
Other: 0 0
Less:
Operating Expenses: (1,262) (230)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 8,711 503
Cash generated from operations: 8,711 503
Less: Cash distributions: 69,525 16,593
Cash generated after cash distributions: (60,814) (16,090)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 12 1
Cash distributions to investors: 9 23
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, " cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-20
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Vulture Fund I, Ltd.
------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 28,581 $ 3,731
Other: 0 0
Less:
Operating Expenses: (16,705) (464)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 11,876 3,267
Cash generated from operations: 11,876 3,267
Less: Cash distributions: 89,894 14,044
Cash generated after cash distributions: (78,018) (10,777)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 13 4
Cash distributions to investors: 100 16
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents supplemental or guaranteed payments made to the program
for major maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-21
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund, Ltd.
-------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 61,000 $ 2,479
Other: 1,906 0
Less:
Operating Expenses: (25,685) (403)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 37,221 2,076
Cash generated from operations: 35,315 2,076
Less: Cash distributions: 112,664 8,884
Cash generated after cash distributions: (77,349) (6,808)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 31 2
Cash distributions to investors: 94 7
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-22
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund II, Ltd.
----------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 50,185 $ 1,666
Other: 3,349 0
Less:
Operating Expenses: (144) (364)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 53,390 1,302
Cash generated from operations: 50,041 1,302
Less: Cash distributions: 79,601 2,942
Cash generated after cash distributions: (29,560) (1,640)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 67 2
Cash distributions to investors: 100 4
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-23
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VI, Ltd.
----------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 8,050 $ 400
Other: 4,500 0
Less:
Operating Expenses: (1,962) (218)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 10,588 182
Cash generated from operations: 6,088 182
Less: Cash distributions: 85,003 0
Cash generated after cash distributions: (78,915) 182
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 9 0
Cash distributions to investors: 71 0
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-24
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Development Fund IX, Ltd.
-------------------------------
<TABLE>
<CAPTION>
1,997
-----
<S> <C>
Gross Revenues: $ 55,304
Other: 749
Less:
Operating Expenses: (11,234)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 44,819
Cash generated from operations: 44,070
Less: Cash distributions: 58,397
Cash generated after cash distributions: (14,327)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 56
Cash distributions to investors: 73
Annualized cash on cash yield
to investors: 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-25
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Income Property Mortgage Fund VI, Ltd.
--------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 60,807 $ 5,740
Other: 389 85
Less:
Operating Expenses: (1,479) (260)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 59,717 5,565
Cash generated from operations: 59,328 5,480
Less: Cash distributions: 65,250 6,334
Cash generated after cash distributions: (5,922) (854)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 80 7
Cash distributions to investors: 87 8
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-26
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund VII, Ltd.
-----------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 54,692 $ --
Other: 542 2
Less:
Operating Expenses: (1,703) (10,079)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 53,531 (10,077)
Cash generated from operations: 52,989 (10,079)
Less: Cash distributions: 65,075 27
Cash generated after cash distributions: (12,086) (10,106)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 76 (2)
Cash distributions to investors: 93 0
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash reserves
funded out of net proceeds of the program's offering.
III-27
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund X, Ltd.
---------------------------------------
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Gross Revenues: $ 62,026 $ --
Other: $ 1,789 23
Less:
Operating Expenses: (584) (10,033)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 63,231 (10,010)
Cash generated from operations: 61,442 (10,033)
Less: Cash distributions: 76,878 200
Cash generated after cash distributions: (15,436) (10,233)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 79 (13)
Cash distributions to investors: 96 0
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-28
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XI, Ltd.
----------------------------------------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ --
Other: 0
Less:
Operating Expenses: 0
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 0
Cash generated from operations: 0
Less: Cash distributions: 61,109
Cash generated after cash distributions: (61,109)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 0
Cash distributions to investors: 76
Annualized cash on cash yield
to investors: 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash reserves
funded out of net proceeds of the program's offering.
III-29
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XVIII, LP
-----------------------------------------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 33,273
Other: 759
Less:
Operating Expenses: (20,279)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 13,753
Cash generated from operations: 12,994
Less: Cash distributions: 26,135
Cash generated after cash distributions: (13,141)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 17
Cash distributions to investors: 33
Annualized cash on cash yield
to investors: 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-30
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund V, Ltd.
---------------------------------------
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Gross Revenues: $ 3,423 $ --
Other: 0 109
Less:
Operating Expenses: (5,117) (10,125)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: (1,694) (10,016)
Cash generated from operations: (1,694) (10,125)
Less: Cash distributions: 62,868 0
Cash generated after cash distributions: (64,562) (10,125)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (1) -8
Cash distributions to investors: 52 0
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-31
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VII, Ltd.
-----------------------------------------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 3,050
Other: 0
Less:
Operating Expenses: (13,606)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: (10,556)
Cash generated from operations: (10,556)
Less: Cash distributions: 77,208
Cash generated after cash distributions: (87,764)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (6)
Cash distributions to investors: 41
Annualized cash on cash yield
to investors: 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
"Other" represents portion of cash reserve accounts used for major
maintenance, asset enhancement or distribution supplements.
In certain cases, "cash distributions" may include a portion of cash
reserves funded out of net proceeds of the program's offering.
III-32
<PAGE>
Table IV - RESULTS OF COMPLETED PROGRAMS
The following table includes information relating to the financial results of
one program sponsored by an affiliate of the Managing Shareholder of the Trust,
Baron Advisors, Inc., which completed operations within the last five years. The
prior program had investment objectives similar to those of the Trust in that
the program provided financing in respect of residential properties for current
income and capital appreciation (except in the case of a mortgage fund).
Tampa Capital Income Fund, Ltd.
-------------------------------
Dollar Amount Raised: $ 1,050,000
Number of Properties Purchased: one
Date of Closing of Offering: 7/95
Date of Acquisition of Property: 12/94
Date of Sale of Property: 2/97
Tax and Distribution Data Per $1,000
Investment Through 1996:
Federal Income Tax Results:
Ordinary Income (loss):
from operations: 171 est.
from recapture: Not applicable
Capital Gain (loss): 138
Deferred Gain(1):
Capital: 138
Ordinary: Not applicable
Cash Distribution to Investors: 10%
Source (on GAAP basis):
Investment Income: $ 180,000
Return of capital: $ 900,000
Source (on cash basis):
Sales: $ 900,000
Refinancing: Not applicable
Operations: $ 180,000
Other: Not applicable
Receivable on Net Purchase Money Financing $295,000 (2)
- ----------
(1) "Deferred Gain" represents the amount of capital gain or ordinary gain that
is realized upon receipt of installment payments under the promissory note
received in exchange for the property sold.
(2) Portion of purchase price paid with promissory note payable in 36 equal
monthly payments including 9% annual interest rate.
IV-1
<PAGE>
TABLE V: SALES OR DISPOSAL OF PROPERTIES
The following table includes certain financial information concerning the sale
of a property within the most recent three years by an investment program
sponsored by an Affiliate of the Managing Shareholder.
Tampa Capital Income Fund, Ltd.
-------------------------------
<TABLE>
<S> <C>
Property: Lakewood Apartments
Date Acquired: 12/94
Date of Sale: 2/97
Selling Price, Net of Closing Costs and GAAP Adjustments: $2,795,000
Cash Received net of closing costs: $ 900,000
Mortgage Balance at time of sale: $1,500,000
Purchase money mortgage taken back by program: $ 295,000(1)
Adjustments resulting from application of GAAP: Not applicable
Total $2,695,000(2)
Cost of Properties Including Closing and Soft Costs:
Original Mortgage Financing: $1,500,000
Total acquisition cost, capital improvements,
closing and soft costs: $1,050,000(3)
Total $2,550,000
Excess of Property Operating Cash Receipts
Over Cash Expenditures: $180,000 est.
</TABLE>
- ----------
(1) Portion of purchase price paid with promissory note payable in 36 equal
monthly payments including 9% annual interest rate.
(2) The entire gain ($145,000) will be treated as a capital gain for tax
purposes.
(3) Does not include offering costs.
V-1
<PAGE>
OTHER PROGRAMS SPONSORED BY
AFFILIATES OF MANAGING SHAREHOLDER
<TABLE>
<CAPTION>
MAXIMUM
DATE CAPITAL
FORMED RAISE PARTNERSHIP NAME GENERAL PARTNER
- ------ ------- ---------------- ---------------
<S> <C> <C> <C>
10/22/96 1,000,000 Baron Strategic Investment Fund IV, Ltd. Baron Capital XVII, Inc.
07/22/96 310,000 Florida Tax Credit Fund II, Ltd. Baron Capital XXXIV, Inc.
10/18/96 700,000 Baron Mortgage Development Fund VII, Ltd. Baron Capital XXXVII,
Inc.
02/26/97 1,200,000 Baron Strategic Investment Fund VIII, Ltd. Baron Capital XLIV, Inc.
04/02/97 1,000,000 Baron Mortgage Development Fund XII, Ltd. Baron Capital XLVI, Inc.
03/31/97 1,000,000 Baron Mortgage Development Fund XIV, Ltd. Baron Capital XLVII, Inc.
05/23/97 700,000 Baron Mortgage Development Fund XV, Ltd. Baron Capital XLVIII,
Inc.
05/20/97 1,000,000 Baron First Mortgage Development Fund XVI, Ltd. Baron Capital LX, Inc.
05/22/97 1,000,000 Baron First Mortgage Development Fund XVII, Baron Capital LXI, Inc.
Ltd.
06/03/97 1,200,000 Baron Strategic Investment Fund IX, Ltd. Baron Capital LXII, Inc.
06/26/97 1,200,000 Baron Strategic Investment Fund X, Ltd. Baron Capital LXIV, Inc.
09/15/97 1,000,000 Baron Mortgage Development Fund XIX, L.P. Baron Capital LXVI, Inc.
09/10/97 1,000,000 Baron Mortgage Development Fund XX, L.P. Baron Capital LXVII, Inc.
11/24/97 1,000,000 Baron Mortgage Development Fund XXI, L.P. Baron Capital LXVIII,
Inc.
</TABLE>
<PAGE>
EXHIBIT B
SUMMARY OF EXCHANGE PROPERTY
AND EXCHANGE PARTNERSHIP INFORMATION
<PAGE>
<TABLE>
<CAPTION>
FLORIDA INCOME GROWTH FUND V, LTD.
(GP: Baron Capital XI, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
--------------------
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1980
BLOSSOM CORNERS Fee Simple
APARTMENTS - PHASE I
2001 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.67
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 15 300 $360
--------------------------------------------------------------------------------------
1 BR 49 600 $440
--------------------------------------------------------------------------------------
2 BR 6 900 $540
--------------------------------------------------------------------------------------
Total 70 39,300
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $2,195,000
1997 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 1/98
1996 AVG. MONTHLY OCCUPANCY %: 89%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/06
Column Financial, Inc.
3414 Peachtree Road N.E.
Suite 1140
Atlanta, Georgia 30326-1113
INITIAL PRINCIPAL BALANCE: $1,050,000 ANNUAL DEBT SERVICE: $105,228
3/1/98 BALANCE: $1,038,151 MONTHLY PAYMENT: $ 8,774
BALANCE DUE AT MATURITY: $ 882,430
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 9.04% and amortizes on a 25-year
basis.
PREPAYMENT PROVISIONS: Prepayment penalty equal to 1% of prepayment amount if prepaid prior to fifth anniversary of loan; no
prepayment penalty thereafter.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 10/95 NUMBER OF UNITS SOLD: 2,300
NUMBER OF INVESTORS: 49 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,060,000 DATE OFFERING TERMINATED: 2/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, the GP is entitled to
receive any remaining net proceeds until it has received a similar return on its capital contribution; thereafter the
investors and the GP share any remaining net proceeds 70%/30%
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 108 Units Short Term Capital Gain (assuming 20% rate): $155
valued at $10 per Unit (or $1,080) Long Term Capital Gain (assuming 39% rate): $ 79
- ----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BARON STRATEGIC INVESTMENT FUND, LTD.
(GP: Baron Capital XXXII, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1981
BLOSSOM CORNERS Unrecorded Second Mortgage
APARTMENTS - PHASE II
2001 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.51
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 16 300 $360
--------------------------------------------------------------------------------------
1 BR 45 600 $440
--------------------------------------------------------------------------------------
2 BR 7 900 $540
--------------------------------------------------------------------------------------
Total 68 38,100
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $2,250,000
1997 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 1/98
1996 AVG. MONTHLY OCCUPANCY %: 81%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/1/02
Main America Capital
800 Mount Vernon Highway
Suite 120
Atlanta, Georgia 30328-4225
INITIAL PRINCIPAL BALANCE: $1,130,000 ANNUAL DEBT SERVICE: $107,793
3/1/98 BALANCE: $1,119,428 MONTHLY PAYMENT: $ 8,841
BALANCE DUE AT MATURITY: $1,050,024
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 8.24% and amortizes on a 25-year
basis.
PREPAYMENT PROVISIONS: Prepayment penalty equal to 1% of prepayment amount if prepaid prior to third anniversary of loan; no
prepayment penalty thereafter.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 6/96 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 42 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 12/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 12.5% non-cumulative return on their capital contributions; thereafter, the investors and the GP share any
remaining distributable cash during the fiscal year 50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After the investors have received an aggregate amount
(including prior distributions) equal to their capital contributions plus a 12.5% yearly cash-on-cash return, the GP is
entitled to receive a similar return on its capital contribution; thereafter the investors and the GP share any remaining
net proceeds 50%/50%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $108
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $ 56
------------------------------------------------------------ --------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND III, LTD.
(GP: Baron Capital VII, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1986
BRIDGE POINT APARTMENTS - PHASE II Fee Simple
1500 Monument Road
Suite 1102
Jacksonville, Florida 32225
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.39
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 6 288 $389
--------------------------------------------------------------------------------------
1 BR 37 576 $439
--------------------------------------------------------------------------------------
2 BR 5 864 $600
--------------------------------------------------------------------------------------
Total 48 27,360
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $1,520,000
1997 AVG. MONTHLY OCCUPANCY %: 93% APPRAISAL DATE: 5/95
1996 AVG. MONTHLY OCCUPANCY %: 95%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 7/1/06
Huntington Mortgage Co.
41 South High Street
Suite 900
Columbus, Ohio 43215
INITIAL PRINCIPAL BALANCE: $735,000 ANNUAL DEBT SERVICE: $77,096
3/1/98 BALANCE: $724,971 MONTHLY PAYMENT: $ 6,381
BALANCE DUE AT MATURITY: $625,327
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 9.52% and amortizes on a 25-year
basis.
PREPAYMENT PROVISIONS: Prepayment permitted only after 7/1/05.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 6/95 NUMBER OF UNITS SOLD: 1,600
NUMBER OF INVESTORS: 32 PRICE PER UNIT: $500
PAID IN CAPITAL: $800,000 DATE OFFERING TERMINATED: 11/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, the GP is entitled to
receive any remaining net proceeds until it has received a similar return on its capital contribution; thereafter the
investors and the GP share any remaining net proceeds 70%/30%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 109 Units Short Term Capital Gain (assuming 20% rate): $101
valued at $10 per Unit (or $1,090) Long Term Capital Gain (assuming 39% rate): $ 52
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND, LTD.
(GP: Baron Capital II, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1987
EAGLE LAKE APARTMENTS Fee Simple
1025 Eagle Lake Trail
Port Orange, Florida 32119
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 4.68
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 BR 73 576 $439
--------------------------------------------------------------------------------------
2 BR 4 864 $550-555
--------------------------------------------------------------------------------------
Total 77 45,504
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $2,530,000
1997 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
1996 AVG. MONTHLY OCCUPANCY %: 96%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/05
Column Financial, Inc.
3414 Peachtree Road N.E.
Suite 1140
Atlanta, Georgia 30325-1113
INITIAL PRINCIPAL BALANCE: $1,500,000 ANNUAL DEBT SERVICE: $144,638
3/1/98 BALANCE: $1,463,114 MONTHLY PAYMENT: $ 12,053
BALANCE DUE AT MATURITY: $1,244,562
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 8.56% through maturity and amortizes
on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid after 10/25/00 with prepayment penalty equal to 1% of prepayment amount.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 11/94 NUMBER OF UNITS SOLD: 1,614
NUMBER OF INVESTORS: 31 PRICE PER UNIT: $500
PAID IN CAPITAL: $807,000 DATE OFFERING TERMINATED: 6/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return (and, in the case of a
property sale, after the holders of second mortgage financing have received 10% of the net sale proceeds remaining after
the investors have received an aggregate amount equal to their capital contributions), the GP is entitled to receive any
remaining net proceeds until it has received a similar return on its capital contribution; thereafter, investors and the
GP share any remaining net proceeds 70%/30%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFFERED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 20% rate): $216
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 39% rate): $111
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND II, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE I Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 28 1,075 $619
--------------------------------------------------------------------------------------
3 BR 24 1,358 $699
--------------------------------------------------------------------------------------
Total 52 62,692
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $3,408,000
1997 AVG. MONTHLY OCCUPANCY %: 82% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 85%
=============================================================================================================================
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $1,836,576 ANNUAL DEBT SERVICE: $145,921
3/98 BALANCE: $1,836,576 MONTHLY PAYMENT: $ 12,160
BALANCE DUE AT MATURITY: $1,681,926
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 7.01% and amortizes on a 30-year
basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until 10/2004; thereafter prepayable without penalty.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 2/95 NUMBER OF UNITS SOLD: 2,000*
NUMBER OF INVESTORS: 38 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000* DATE OFFERING TERMINATED: 7/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, (and, in the case of a
property sale, after the holder of collateral mortgage financing has received 10% of the net sale proceeds remaining after
investors have received an aggregate amount equal to their capital contributions), the GP is entitled to receive any
remaining net proceeds until it has received a similar return on its capital contribution; thereafter the investors and
the GP share any remaining net proceeds 70%/30%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $181
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $ 93
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
* Includes 1,840 units sold in the program's offering plus 160 units issued to four investors in exchange for property
interests acquired by them in an earlier unrelated program which was terminated.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REALTY OPPORTUNITY INCOME FUND VIII, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE II Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 23 1,075 $619
--------------------------------------------------------------------------------------
3 BR 7 1,358 $699
--------------------------------------------------------------------------------------
Total 30 34,231
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 93% ESTIMATED APPRAISED VALUE: $1,966,000
1997 AVG. MONTHLY OCCUPANCY %: 73% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 82%
=============================================================================================================================
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 1,072,132 ANNUAL DEBT SERVICE: $85,188
3/98 BALANCE: $ 1,072,132 MONTHLY PAYMENT: $ 7,099
BALANCE DUE AT MATURITY: $ 981,813
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 7.01% and amortizes on a 30-year
basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until 10/2004; thereafter prepayable without penalty.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 3/94 NUMBER OF UNITS SOLD: 944
NUMBER OF INVESTORS: 45 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $944,000 DATE OFFERING TERMINATED: 6/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF INTEREST IN NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount
(including prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar return on its capital contribution;
thereafter the investors and the GP share any remaining net proceeds 70%/30%.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $312
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $160
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
* The GP became a manager of this program in July 1995, replacing Realty Capital I, Inc., the initial sponsor.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA INCOME ADVANTAGE FUND I, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE III Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
(Sq. Ft.) RENTAL RATE
UNIT TYPE NUMBER
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 19 1,075 $619
--------------------------------------------------------------------------------------
3 BR 7 1,358 $699
--------------------------------------------------------------------------------------
Total 26 29,931
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 92% ESTIMATED APPRAISED VALUE: $1,678,000
1997 AVG. MONTHLY OCCUPANCY %: 88% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 94%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 854,708 ANNUAL DEBT SERVICE: $67,909
3/98 BALANCE: $ 854,708 MONTHLY PAYMENT: $ 5,659
BALANCE DUE AT MATURITY: $ 782,744
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 7.01% and amortizes on a 30-year
basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until 10/2004; thereafter prepayable without penalty.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 2/94 NUMBER OF UNITS SOLD: 940
NUMBER OF INVESTORS: 46 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $940,000 DATE OFFERING TERMINATED: 6/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, the GP is entitled to
receive any remaining net proceeds until it has received a similar return on its capital contribution; thereafter the
investors and the GP share any remaining net proceeds 70%/30%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $84
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $43
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
The GP became a manager of this program in July 1995, replacing Realty Capital IV, Inc., the initial sponsor.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA INCOME APPRECIATION FUND I, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE IV Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
(Sq. Ft.) RENTAL RATE
UNIT TYPE NUMBER
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 6 1,075 $619
--------------------------------------------------------------------------------------
3 BR 2 1,358 $699
--------------------------------------------------------------------------------------
Total 8 9,166
----------------------------------------------------------------
<CAPTION>
<S> > <C> <C>
4/1/98 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $524,000
1997 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 91%
=============================================================================================================================
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 236,584 ANNUAL DEBT SERVICE: $18,797
3/98 BALANCE: $ 236,584 MONTHLY PAYMENT: $ 1,566
BALANCE DUE AT MATURITY: $ 216,712
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 7.01% and amortizes on a 30-year
basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until 10/2004; thereafter prepayable without penalty.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 4/94 NUMBER OF UNITS SOLD: 205
NUMBER OF INVESTORS: 13 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $205,000 DATE OFFERING TERMINATED: 9/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, the GP is entitled to
receive any remaining net proceeds until it has received a similar return on its capital contribution; thereafter the
investors and the GP share any remaining net proceeds 70%/30%
- -----------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $106
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $ 55
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
The GP became a manager of this program in July 1995, replacing Realty Capital II, Inc., the initial sponsor.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND IV, LTD.
(GP: Baron Capital V, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1986
GLEN LAKE ARMS APARTMENTS Limited partnership interest in
2000 Gandy Boulevard North limited partnership which holds
St. Petersburg, Florida 33702 fee simple
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 7.16
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
1 BR 144 550 $674
--------------------------------------------------------------------------------------
Total 144 79,200
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $6,433,079
1997 AVG. MONTHLY OCCUPANCY %: 78% APPRAISAL DATE: 3/98
1996 AVG. MONTHLY OCCUPANCY %: 81%
=============================================================================================================================
<CAPTION>
MORTGAGE INFORMATION
<S> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: SECOND MORTGAGE HOLDER AND ADDRESS:
Republic Bank Glen Lake Arms Joint Venture
1301 Sixth Avenue West 10490 Gandy Boulevard North, Suite 2E
Bradenton, Florida 34205 St. Petersburg, Florida 33702
INITIAL PRINCIPAL BALANCE: $2,812,500 INITIAL PRINCIPAL BALANCE: $375,000
3/1/98 BALANCE: $2,738,157 1/1/98 BALANCE: $361,952
BALANCE DUE AT MATURITY: $2,652,341 BALANCE DUE AT MATURITY: $343,772
MATURITY DATE: 5/18/00 MATURITY DATE: 5/01/05
ANNUAL DEBT SERVICE: $298,709 ANNUAL DEBT SERVICE: $34,728
MONTHLY PAYMENT: $ 24,475 MONTHLY PAYMENT: $2,894
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan
bears a fixed interest rate of 9.55% and amortizes on a bears a fixed interest rate of 8.0% and amortizes on a
25-year basis. 25-year basis.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 1/85 NUMBER OF UNITS SOLD: 3,640
NUMBER OF INVESTORS: 60 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,820,000 DATE OFFERING TERMINATED: 6/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar
return on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash
during the fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return (and, in the case of a
property sale, after the holder of collateral mortgage financing has received 10% of the net sale proceeds remaining
after investors have received an aggregate amount equal to their capital contributions), the GP is entitled to receive
any remaining net proceeds until it has received a similar return on its capital contribution; thereafter the investors
and the GP share any remaining net proceeds 70%/30%.
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 108 Units Short Term Capital Gain (assuming 20% rate): $135
valued at $10 per Unit (or $1,080) Long Term Capital Gain (assuming 39% rate): $ 69
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD.
(GP: Sigma Financial Capital, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1986
GROVE HAMLET APARTMENTS Fee Simple
815B Grove Hamlet Way
Deland, Florida 32720
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.21
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 BR 10 576 $409
--------------------------------------------------------------------------------------
2 BR 46 864 $479
--------------------------------------------------------------------------------------
Total 56 45,504
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 96% ESTIMATED APPRAISED VALUE: $2,508,900
1997 AVG. MONTHLY OCCUPANCY %: 71% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 75%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 10/1/05
Midland Loan Services
210 West 10th Street
Kansas City, Missouri 64105
INITIAL PRINCIPAL BALANCE: $1,400,000 ANNUAL DEBT SERVICE: $ 156,030
3/1/98 BALANCE: $1,323,137 MONTHLY PAYMENT: $ 13,002
BALANCE DUE AT MATURITY: $1,314,872
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 9.50% and amortizes on a 25-year
basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 8/94 NUMBER OF UNITS SOLD: 2,100
NUMBER OF INVESTORS: 48 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,050,000 DATE OFFERING TERMINATED: 10/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, the GP is entitled to
receive any remaining net proceeds until it has received a similar return on its capital contribution; thereafter the
investors and the GP share any remaining net proceeds 70%/30%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 102 Units Short Term Capital Gain (assuming 20% rate): $227
valued at $10 per Unit (or $1,020) Long Term Capital Gain (assuming 39% rate): $116
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GSU STADIUM STUDENT APARTMENTS, LTD.
(GP: Baron Capital X, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1987
STADIUM CLUB APARTMENTS Fee Simple
210 Lanier Drive
Statesboro, Georgia 30458
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.50
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
(Sq. Ft.) RENTAL RATE
UNIT TYPE NUMBER
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 2 288 $375
--------------------------------------------------------------------------------------
3 BR 2 880 $688
--------------------------------------------------------------------------------------
4 BR 55 880 $876
--------------------------------------------------------------------------------------
Total 59 50,736
----------------------------------------------------------------
<S> <C> <C>
4/1/98 OCCUPANCY %: 92% ESTIMATED APPRAISED VALUE: $2,800,000
1997 AVG. MONTHLY OCCUPANCY %: 86% APPRAISAL DATE: 9/97
1996 AVG. MONTHLY OCCUPANCY %: 90%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 10/1/05
GMAC
650 Dresher Road
Horsham, Pennsylvania 19044
INITIAL PRINCIPAL BALANCE: $1,750,000 ANNUAL DEBT SERVICE: $151,271
3/1/98 BALANCE: $1,750,000 MONTHLY PAYMENT: $ 12,606
BALANCE DUE AT MATURITY: $1,615,458
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 7.87% and amortizes on a 30-year
basis.
PREPAYMENT PROVISIONS: Prepayable with prepayment fee in an amount equal to 1% of the then outstanding principal balance.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 11/95 NUMBER OF UNITS SOLD: 2,000
NUMBER OF INVESTORS: 38 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000 DATE OFFERING TERMINATED: 2/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is distributed to the investors until they have
received a 10% non-cumulative return on their capital contributions; the GP is then entitled to receive a similar return
on its capital contribution. Thereafter, the investors are entitled to receive any remaining distributable cash during the
fiscal year less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors have received an aggregate amount (including
prior distributions) equal to their capital contributions plus a 10% yearly cash-on-cash return, the GP is entitled to
receive any remaining net proceeds until it has received a similar return on its capital contribution; thereafter the
investors and the GP share any remaining net proceeds 70%/30%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 110 Units Short Term Capital Gain (assuming 20% rate): $125
valued at $10 per Unit (or $1,100) Long Term Capital Gain (assuming 39% rate): $ 64
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
Endnotes:
1. The First Mortgage Loan is not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed.
2. The Property is in good overall condition and is suitable and adequate for
the purpose for which it was built.
3. The Property is subject to significant competition from other multi-family
residential apartment properties in the general vicinity of the Property.
4. In the opinion of the Managing Shareholder, the Property is covered by
insurance of the types and amounts which are comparable for similar
properties located in the general vicinity of the Property.
5. The Property is a multi-family residential apartment property which
generally leases units to tenants under one-year term lease agreements
common in the industry.
6. The estimated appraised value of the Property was determined by a qualified
and licensed independent appraisal firm. See the Prospectus at "THE TRUST -
The Operating Partnership."
7. Offerees who accept the Exchange Offering will not incur any immediate tax
liability for any taxable gain in connection with such transaction. Any
such tax liability will be deferred until a later date. The schedule at
"Estimated Deferred Taxable Gain from Exchange Offering (per $1,000 of
Investors' original investment)" indicates the amount of taxable gain each
Offeree who accepts the Exchange Offering will defer in connection with
such transaction per each $1,000 of his original investment. See "THE TRUST
- The Operating Partnership."
<PAGE>
EXHIBIT C
FINANCIAL STATEMENTS OF THE TRUST,
THE OPERATING PARTNERSHIP AND
THE MANAGING SHAREHOLDER
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
BARON CAPITAL TRUST
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
Balance Sheet F-2
Notes to Financial Statements F-3
BARON CAPITAL PROPERTIES, L.P.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-4
FINANCIAL STATEMENTS
Balance Sheet F-5
Notes to Financial Statements F-6
BARON ADVISORS, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-7
FINANCIAL STATEMENTS
Balance Sheet F-8
Notes to Financial Statements F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Trustees and Shareholders
Baron Capital Trust
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Capital Trust (the
"Trust") as of February 3, 1998. This financial statement is the responsibility
of the Trust's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Baron Capital Trust as of
February 3, 1998 in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
March 20, 1998
F-1
<PAGE>
BARON CAPITAL TRUST
BALANCE SHEET
FEBRUARY 3, 1998
ASSETS
Current Assets:
Cash $100
====
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Common shares, no par value; 25,000,000 shares
authorized; none issued and outstanding $ --
Additional paid-in-capital 100
----
$100
====
See notes to financial statements.
F-2
<PAGE>
BARON CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1998
NOTE 1. ORGANIZATION
Baron Capital Trust (the "Trust"), a Delaware business trust, and its
affiliate, Baron Capital Properties, L.P. (the "Operating Partnership"), a
Delaware limited partnership, constitute a self-administered and
self-managed real estate company which has been organized to indirectly
acquire equity interests in existing residential apartment properties
located in the United States and to provide or acquire debt financing
secured by mortgages on such types of property. The Trust intends to
acquire, own, operate, manage and improve residential apartment properties
for long-term ownership, and thereby to seek to maximize current and
long-term income and the value of its assets.
The Trust's Declaration authorizes it to issue up to 25,000,000 shares of
beneficial interest, no par value per share, consisting of common shares
and of preferred shares of such classes with such preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing
Shareholder may create and authorize from time to time in accordance with
Delaware law and the Declaration. Prior to the proposed offering referred
to below, there were no shares outstanding.
NOTE 2. PROPOSED PUBLIC OFFERING
The Trust is proposing to offer, in an initial public offering, a maximum
of 2,500,000 common shares of beneficial interest in the Trust at $10 per
common share, which is payable in full upon subscription, for proposed
total gross proceeds of $25,000,000. Funds received will be held in escrow
until the minimum of 50,000 common shares is sold. All of the common shares
to be issued or sold by the Trust in the offering will be tradable without
restriction under the Securities Act, but will be subject to certain
restrictions designed to permit the Trust to qualify and maintain its
status as a Real Estate Investment Trust under the Internal Revenue Code.
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
Baron Capital Properties. L.P.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Capital Properties, L.P.
(the "Partnership") as of February 3, 1998. This financial statement is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Baron Capital Properties, L.P.
as of February 3, 1998 in conformity with generally accepted accounting
principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
March 20, 1998
F-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
BALANCE SHEET
FEBRUARY 3, 1998
ASSETS
Current Assets:
Cash $50,000
=======
PARTNERS' CAPITAL
Partners' Capital:
General partner $ --
Limited partners 50,000
-------
$50,000
=======
See notes to financial statements.
F-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1998
NOTE 1. ORGANIZATION
Baron Capital Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership, is the operating partner of Baron Capital Trust (the
"Trust"). Together, both the Trust and Operating Partnership constitute a
self-administered and self-managed real estate company which has been
organized to indirectly acquire equity interests in existing residential
apartment properties located in the United States and to provide or acquire
debt financing secured by mortgages on such types of property. The Trust
intends to acquire, own, operate, manage and improve residential apartment
properties for long-term ownership, and thereby to seek to maximize current
and long-term income and the value of its assets.
The operations of the Trust will be carried on through the Operating
Partnership. Substantially all of the Trust's assets (including the
property interests acquired) will be held by, and its operations conducted
through, the Operating Partnership. As its sole general partner, the Trust
will control the Operating Partnership as well as hold units representing
an economic interest in the Operating Partnership. The Operating
Partnership will be responsible for, and pay when due, its share of all
administrative and operating expenses of properties in which it acquires an
interest.
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder
Baron Advisors, Inc.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Advisors, Inc. (the
"Managing Shareholder") as of February 28, 1998. This financial statement is the
responsibility of the Managing Shareholder's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Baron Advisors, Inc. as of
February 28, 1998 in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
March 26, 1998
F-7
<PAGE>
BARON ADVISORS, INC.
BALANCE SHEET
FEBRUARY 28, 1998
ASSETS
Current Assets:
Cash $100
====
SHAREHOLDER'S EQUITY
Shareholder's Equity:
Common shares, no par value; 1,000 shares
authorized; none issued and outstanding $ --
Additional paid-in-capital 100
----
$100
====
F-8
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1998
NOTE 1. ORGANIZATION
Baron Advisors, Inc., the Managing Shareholder of the Baron Capital Trust
("the Trust") was incorporated in July 1997 as a Delaware corporation.
As Managing Shareholder of the Trust, Baron Advisors, Inc. will have direct
and exclusive discretion in management and control of the affairs of the
Trust and Baron Capital Properties, L.P. (the "Operating Partnership"),
subject to general supervision and review by the Independent Trustees and
the Managing Shareholder acting together as the Board of the Trust and to
prior approval authority of a majority of the Board and a majority of the
Independent Trustees in respect of certain specified actions. The Corporate
Trustee, Baron Capital Properties, Inc. (an affiliate of the Managing
Shareholder), will act on the instructions of the Managing Shareholder, and
will not take independent discretionary action on behalf of the Trust.
NOTE 2. TRUST MANAGEMENT AGREEMENT
The Trust will enter into a Trust Management Agreement with the Managing
Shareholder under which the Managing Shareholder will be obligated to
provide management, administrative and investment advisor services to the
Trust from the commencement of the Offering. The services to be rendered
will include, among other things, communicating with and reporting to
investors, administering accounts, providing to the Trust office space,
equipment and facilities and other services necessary for the Trust's
operation, and representing the Trust in its relations with custodians,
depositories, accountants, attorneys, brokers and dealers, corporate
fiduciaries, insurers, banks and others, as required. The Managing
Shareholder will also be responsible for determining which real estate
investments and non-real estate investments (including the temporary
investment of the Trust's available funds prior to their commitment to
particular real estate investments) the Trust will make and for making
divestment decisions, subject to the provisions of the Declaration. The
Trust Management Agreement has an initial term of one year and may be
extended on a year-to-year basis on approval of (i) the Board or a majority
of the shareholders entitled to vote on such matter or (ii) a majority of
the Independent Trustees.
The Trust will reimburse the Managing Shareholder for all Trust expenses
paid by it. As compensation for the Managing Shareholder's performance
under the Trust Management Agreement, beginning June 1, 1998, the Trust
will pay to the Managing Shareholder, on a monthly basis during the term of
the agreement, an annual management fee in an amount equal to 1% of the
aggregate subscription price paid for common shares in the proposed public
offering of the Trust's common shares and of the initial value of units
issued in connection with the proposed exchange offering. The Managing
Shareholder in its sole discretion may elect to receive payment for its
service in the form of common shares with an equivalent value.
F-9
<PAGE>
EXHIBIT D
FINANCIAL STATEMENTS OF THE EXCHANGE PROPERTIES
<PAGE>
EXHIBIT D
BARON CAPITAL TRUST
INDEX TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
OF EXCHANGE PROPERTIES PURSUANT TO REGULATION SB 310
EXCHANGE PROPERTIES (Combined):
Independent Auditors Report
Combined Statement of Revenues and Certain Expenses
for the Years Ended December 31, 1996 and 1997
BLOSSOM CORNERS APARTMENTS PHASE I:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
BLOSSOM CORNERS APARTMENTS PHASE II:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
BRIDGEPOINT APARTMENTS PHASE II:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
EAGLE LAKE APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
FOREST GLEN APARTMENTS PHASE I:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
FOREST GLEN APARTMENTS PHASE II:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
FOREST GLEN APARTMENTS PHASE III:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS PHASE IV:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
GLEN LAKE ARMS APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
GROVE HAMLET APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
STADIUM CLUB APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION
The Board of Baron Capital Trust:
I have audited the statements of revenues and certain expenses (defined as being
operating revenues less direct operating expenses) for the years ended December
31, 1996 and 1997 of the following apartment properties:
Blossom Corners Apartments, Phase I
Blossom Corners Apartments, Phase II
Bridgepoint Apartments
Eagle Lake Apartments
Forest Glen Apartments, Phases I, II, III, IV (Combined)
Glen Lake Arms Apartments
Grove Hamlet Apartments
Stadium Club Apartments
The audits were made primarily to form an opinion on the statement of revenues
and certain expenses for each property separately. The accompanying supplemental
combined statement of revenues and certain expenses for these properties is
presented hereafter only for analysis purposes and is not a required part of the
basic audited financial statements.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 12, 1998
<PAGE>
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997:
- -----------------------------
Blossom Blossom Forest
Corners Corners Eagle Glen
Phase I Phase II Bridgepoint Lake Phases I-IV
------- -------- ----------- ---- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income $ 273,596 $ 296,025 $ 212,608 $ 346,154 $ 705,170
Other income 20,987 18,612 6,605 21,065 23,688
---------- ---------- ---------- ---------- ----------
Total revenues 294,583 314,637 219,213 367,219 728,858
---------- ---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 38,493 37,555 14,531 34,983 79,318
Advertising and promotion 9,946 6,318 5,783 9,811 18,292
Utilities 23,989 19,454 36,174 26,117 20,547
Repairs and maintenance 30,808 29,923 17,054 30,289 87,761
Real estate taxes and insurance 33,224 29,850 24,715 49,694 100,094
Mortgage interest expense 94,358 145,636 69,345 158,727 277,043
Management fees 20,039 25,331 14,751 26,702 39,306
Other operating expenses 6,673 3,116 3,036 4,833 12,631
---------- ---------- ---------- ---------- ----------
Total certain expenses 257,530 297,183 185,389 341,156 634,992
---------- ---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 37,053 $ 17,454 $ 33,824 $ 26,063 $ 93,866
========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1996:
- -----------------------------
REVENUES
Rental income $ 278,590 $ 271,230 $ 228,451 $ 348,348 $ 739,124
Other income 26,698 18,237 7,884 32,140 28,307
---------- ---------- ---------- ---------- ----------
Total revenues 305,288 289,467 236,335 380,488 767,431
---------- ---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 40,705 44,561 11,767 29,559 68,595
Advertising and promotion 8,660 4,564 5,075 5,020 13,401
Utilities 19,108 19,146 28,846 30,819 18,726
Repairs and maintenance 40,641 23,139 21,224 25,777 75,906
Real estate taxes and insurance 36,627 39,547 26,194 49,359 105,642
Mortgage interest expense 98,805 124,833 68,759 159,163 255,729
Management fees 21,186 20,931 17,019 24,129 48,622
Other operating expenses 6,016 5,191 2,515 5,275 9,240
---------- ---------- ---------- ---------- ----------
Total certain expenses 271,748 281,912 181,399 329,101 595,861
---------- ---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 33,540 $ 7,555 $ 54,936 $ 51,387 $ 171,570
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997:
- -----------------------------
Glen Lake Grove Stadium Combined
Arms Hamlet Club Total
--------- ------ ---- -----
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 745,649 $ 221,070 $ 458,687 $3,258,959
Other income 22,536 7,510 27,710 148,713
---------- ---------- ---------- ----------
Total revenues 768,185 228,580 486,397 3,407,672
---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 85,191 31,912 72,107 394,090
Advertising and promotion 20,726 1,530 11,885 84,291
Utilities 120,687 13,915 49,370 310,253
Repairs and maintenance 67,235 8,245 31,966 303,281
Real estate taxes and insurance 118,041 35,289 36,528 427,435
Mortgage interest expense 310,603 125,177 146,120 1,327,009
Management fees 42,276 14,028 25,469 207,902
Other operating expenses 14,932 3,912 15,278 64,411
---------- ---------- ---------- ----------
Total certain expenses 779,691 234,008 388,723 3,118,672
---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES ($ 11,506) ($ 5,428) $ 97,674 $ 289,000
========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1996:
- -----------------------------
REVENUES
Rental income $ 695,308 $ 228,459 $ 427,919 $3,217,429
Other income 60,265 10,945 21,809 206,285
---------- ---------- ---------- ----------
Total revenues 755,573 239,404 449,728 3,423,714
---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 81,963 42,952 67,232 387,334
Advertising and promotion 25,227 1,388 10,074 73,409
Utilities 122,890 18,450 39,341 297,326
Repairs and maintenance 36,584 27,052 26,020 276,343
Real estate taxes and insurance 118,627 32,966 30,980 439,942
Mortgage interest expense 312,704 126,382 122,433 1,268,808
Management fees 43,434 15,889 28,041 219,251
Other operating expenses 6,280 4,748 11,296 50,561
---------- ---------- ---------- ----------
Total certain expenses 747,709 269,827 335,417 3,012,974
---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 7,864 ($ 30,423) $ 114,311 $ 410,740
========== ========== ========== ==========
</TABLE>
[LETTERHEAD OF ELROY D. MIEDEMA]
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Blossom Corners Apartments, Phase I, for the years ended December 31, 1996 and
1997. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Blossom Corners Apartments, Phase I, for the years ended December 31,
1996 and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 9, 1998
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
----------- ------------
REVENUES
Rental income $273,596 $278,590
Other income 20,987 26,698
-------- --------
Total revenues 294,583 305,288
-------- --------
CERTAIN EXPENSES
Personnel 38,493 40,705
Advertising and promotion 9,946 8,660
Utilities 23,989 19,108
Repairs and maintenance 30,808 40,641
Real estate taxes and insurance 33,224 36,627
Mortgage interest expense 94,358 98,805
Management fees 20,039 21,186
Other operating expenses 6,673 6,016
-------- --------
Total certain expenses 257,530 271,748
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 37,053 $ 33,540
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Blossom Corners Apartments, Phase I, consist of 70 units located in
Orlando, Florida. The property was acquired by purchase July 7, 1995 by
Florida Income Growth Fund V, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1996 83%
December 31, 1997 93%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Blossom Corners Apartments, Phase
I.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Blossom Corners Apartments, Phase II, for the years ended December 31, 1995 and
1996. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Blossom Corners Apartments, Phase II, for the years ended December 31,
1995 and 1996 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
December 10, 1997
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE II
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
September 30, September 30, December 31, December 31,
1997 1996 1996 1995
------------- ------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 219,057 $ 199,372 $ 271,230 $ 230,871
Other income 11,424 16,181 18,237 19,978
--------- --------- --------- ---------
Total revenues 230,481 215,553 289,467 250,849
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 28,994 31,457 44,561 36,160
Advertising and promotion 4,029 3,480 4,564 13,785
Utilities 14,466 14,591 19,146 24,244
Repairs and maintenance 25,202 15,137 23,139 22,154
Real estate taxes and insurance 25,922 29,881 39,547 37,027
Mortgage interest expense 104,723 92,409 124,833 126,886
Management fees 20,619 14,921 20,931 9,388
Other operating expenses 2,291 4,752 5,191 4,226
--------- --------- --------- ---------
Total certain expenses 226,246 206,628 281,912 273,870
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 4,235 $ 8,925 $ 7,555 $ (23,021)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Descriptions and Summary of Significant Accounting Policies
Description
Blossom Corners Apartments, Phase II, consist of 68 units located in
Orlando, Florida. The property was acquired during 1981 by Blossom Corners
Apartments II, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1995 96%
September 30, 1996 93%
December 31, 1996 97%
September 30, 1997 91%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Blossom Corners Apartments, Phase
II.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of
Bridgepoint Apartments for the years ended December 31, 1996 and 1997. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of Bridgepoint Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
BRIDGEPOINT APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $212,608 $228,451
Other income 6,605 7,884
-------- --------
Total revenues 219,213 236,335
-------- --------
CERTAIN EXPENSES
Personnel 14,531 11,767
Advertising and promotion 5,783 5,075
Utilities 36,174 28,846
Repairs and maintenance 17,054 21,224
Real estate taxes and insurance 24,715 26,194
Mortgage interest expense 69,345 68,759
Management fees 14,751 17,019
Other operating expenses 3,036 2,515
-------- --------
Total certain expenses 185,389 181,399
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 33,824 $ 54,936
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Bridgepoint Apartments consist of 48 units located in Jacksonville,
Florida. The property was acquired by purchase July 17, 1995 by Florida
Capital Income Fund III, Ltd. The following percentage of units that were
occupied at the various period ending dates:
December 31, 1996 92%
December 31, 1997 85%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Bridgepoint Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Eagle Lake Apartments for the years ended December 31, 1996 and 1997. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Eagle Lake Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
EAGLE LAKE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $346,154 $348,348
Other income 21,065 32,140
-------- --------
Total revenues 367,219 380,488
-------- --------
CERTAIN EXPENSES
Personnel 34,983 29,559
Advertising and promotion 9,811 5,020
Utilities 26,117 30,819
Repairs and maintenance 30,289 25,777
Real estate taxes and insurance 49,694 49,359
Mortgage interest expense 158,727 159,163
Management fees 26,702 24,129
Other operating expenses 4,833 5,275
-------- --------
Total certain expenses 341,156 329,101
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 26,063 $ 51,387
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Eagle Lake Apartments consist of 77 units located in Port Orange, Florida.
The property was acquired by purchase July 12, 1994 by Florida Capital
Income Fund, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1996 96%
December 31, 1997 94%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Eagle Lake Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase I, for the years ended December 31, 1996 and 1997.
This financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase I, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $319,763 $319,640
Other income 7,968 16,405
-------- --------
Total revenues 327,731 336,045
-------- --------
CERTAIN EXPENSES
Personnel 35,958 30,797
Advertising and promotion 7,548 5,897
Utilities 8,955 8,939
Repairs and maintenance 38,692 35,151
Real estate taxes and insurance 45,223 49,696
Mortgage interest expense 149,908 130,820
Management fees 17,219 20,223
Other operating expenses 5,358 4,017
-------- --------
Total certain expenses 308,861 285,540
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 18,870 $ 50,505
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase I, consist of 52 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Capital Income
Fund II, Ltd. and three other limited partnerships). Under a land trust
agreement, Florida Capital Income Fund II, Ltd. owns beneficial interest
in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase I of the Forest Glen Property.
The following percentage of units were occupied at the various period
ending dates:
December 31, 1996 98%
December 31, 1997 87%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase I.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase II, for the years ended December 31, 1996 and
1997. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase II, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $159,093 $181,587
Other income 6,252 3,616
-------- --------
Total revenues 165,345 185,203
-------- --------
CERTAIN EXPENSES
Personnel 20,767 17,966
Advertising and promotion 4,802 3,462
Utilities 5,827 4,397
Repairs and maintenance 23,120 20,667
Real estate taxes and insurance 25,939 26,594
Mortgage interest expense 60,222 59,048
Management fees 9,454 12,281
Other operating expenses 3,307 2,047
-------- --------
Total certain expenses 153,438 146,462
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 11,907 $ 38,741
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase II, consist of 30 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Realty Opportunity
Income Fund VIII, Ltd. and three other limited partnerships). Under a land
trust agreement, Realty Opportunity Income Fund VIII, Ltd. owns beneficial
interest in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase II of the Forest Glen Property.
The following percentage of units were occupied at the various period
ending dates:
December 31, 1996 77%
December 31, 1997 70%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase II.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase III, for the years ended December 31, 1996 and
1997. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase III, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $170,175 $180,549
Other income 7,031 5,721
-------- --------
Total revenues 177,206 186,270
-------- --------
CERTAIN EXPENSES
Personnel 17,461 15,378
Advertising and promotion 4,557 3,033
Utilities 4,271 4,050
Repairs and maintenance 19,603 15,315
Real estate taxes and insurance 21,947 22,105
Mortgage interest expense 49,070 49,964
Management fees 8,646 11,062
Other operating expenses 2,807 2,106
-------- --------
Total certain expenses 128,362 123,013
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 48,844 $ 63,257
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase III, consist of 26 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Income Advantage
Fund I, Ltd. and three other limited partnerships). Under a land trust
agreement, Florida Income Advantage Fund I, Ltd. owns beneficial interest
in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase III of the Forest Glen Property.
The following percentage of units were occupied at the various period
ending dates:
December 31, 1996 96%
December 31, 1997 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase III.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase IV, for the years ended December 31, 1996 and
1997. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase IV, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $56,139 $57,348
Other income 2,437 2,565
------- -------
Total revenues 58,576 59,913
------- -------
CERTAIN EXPENSES
Personnel 5,132 4,454
Advertising and promotion 1,385 1,009
Utilities 1,494 1,340
Repairs and maintenance 6,346 4,773
Real estate taxes and insurance 6,985 7,247
Mortgage interest expense 17,843 15,897
Management fees 3,987 5,056
Other operating expenses 1,159 1,070
------- -------
Total certain expenses 44,331 40,846
------- -------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $14,245 $19,067
======= =======
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase IV, consist of 8 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Income
Appreciation Fund I, Ltd. and three other limited partnerships). Under a
land trust agreement, Florida Income Appreciation Fund I, Ltd. owns
beneficial interest in, and is obligated to pay operating expenses in
respect of, the residential units comprising Phase IV of the Forest Glen
Property.
The following percentage of units were occupied at the various period
ending dates:
December 31, 1996 100%
December 31, 1997 100%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase IV.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the Glen
Lake Arms Apartments for the years ended December 31, 1996 and 1997. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Glen Lake Arms Apartments for the years ended December 31, 1996 and 1997
in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 3, 1998
<PAGE>
GLEN LAKE ARMS APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $ 745,649 $ 695,308
Other income 22,536 60,265
--------- ---------
Total revenues 768,185 755,573
--------- ---------
CERTAIN EXPENSES
Personnel 85,191 81,963
Advertising and promotion 20,726 25,227
Utilities 120,687 122,890
Repairs and maintenance 67,235 36,584
Real estate taxes and insurance 118,041 118,627
Mortgage interest expense 310,603 312,704
Management fees 42,276 43,434
Other operating expenses 14,932 6,280
--------- ---------
Total certain expenses 779,691 747,709
--------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (11,506) $ 7,864
========= =========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Glen Lakes Arms Apartments consist of 144 units located in St. Petersburg,
Florida. The property was acquired by purchase May 18, 1995 by Glen Lake
Investors, Ltd. in which Florida Capital Income Fund IV, Ltd. owns a 99%
limited partnership interest. The following percentage of units were
occupied at the various period ending dates:
December 31, 1996 79%
December 31, 1997 81%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Glen Lake Arms Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Grove Hamlet Apartments for the years ended December 31, 1996 and 1997. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Grove Hamlet Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
GROVE HAMLET APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $ 221,070 $ 228,459
Other income 7,510 10,945
--------- ---------
Total revenues 228,580 239,404
--------- ---------
CERTAIN EXPENSES
Personnel 31,912 42,952
Advertising and promotion 1,530 1,388
Utilities 13,915 18,450
Repairs and maintenance 8,245 27,052
Real estate taxes and insurance 35,289 32,966
Mortgage interest expense 125,177 126,382
Management fees 14,028 15,889
Other operating expenses 3,912 4,748
--------- ---------
Total certain expenses 234,008 269,827
--------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (5,428) $ (30,423)
========= =========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GROVE HAMLET APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Grove Hamlet Apartments consist of 57 units located in Deland, Florida. The
property was acquired by purchase December 29, 1993 by Central Florida
Income Appreciation Fund, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1996 86%
December 31, 1997 82%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Grove Hamlet Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Stadium Club Apartments for the years ended December 31, 1996 and 1997. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Stadium Club Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 3, 1998
<PAGE>
STADIUM CLUB APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $458,687 $427,919
Other income 27,710 21,809
-------- --------
Total revenues 486,397 449,728
-------- --------
CERTAIN EXPENSES
Personnel 72,107 67,232
Advertising and promotion 11,885 10,074
Utilities 49,370 39,341
Repairs and maintenance 31,966 26,020
Real estate taxes and insurance 36,528 30,980
Mortgage interest expense 146,120 122,433
Management fees 25,469 28,041
Other operating expenses 15,278 11,296
-------- --------
Total certain expenses 388,723 335,417
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 97,674 $114,311
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Descriptions and Summary of Significant Accounting Policies
Description
Stadium Club Apartments consist of 229 units located in Statesboro,
Georgia. The property was acquired by purchase June 30, 1995 by GSU Stadium
Student Apartments, Ltd. The following percentage of units were occupied at
the various period ending dates:
December 31, 1996 90%
December 31, 1997 86%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Stadium Club Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units, which are student housing, are rented under lease
agreements that correspond to the school semesters.
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Trust or the Dealer Manager. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Shares in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Trust since the date hereof.
SUMMARY OF TABLE OF CONTENTS
Page
----
Investor Suitability Standards ............................................ 11
Summary of the Trust and Use of Proceeds ................................. 13
Summary of Risk Factors ................................................... 18
Tax Status of the Trust ................................................... 20
Compensation of the Managing Shareholder and
Affiliates .............................................................. 20
Conflicts of Interest ..................................................... 24
Fiduciary Responsibility .................................................. 26
Risk Factors .............................................................. 27
Prior Performance of Affiliates of Managing
Shareholder ............................................................. 40
Management ................................................................ 48
The Trust ................................................................. 54
Investment Objectives and Policies ........................................ 61
Proposed Real Estate Investments .......................................... 65
Federal Income Tax Considerations ......................................... 68
Summary of Declaration of Trust ........................................... 77
Reports to Shareholders ................................................... 86
Capital Stock of the Trust ................................................ 87
Capitalization ............................................................ 89
Terms of the Offering ..................................................... 90
Other Information ......................................................... 93
Experts .................................................................. 94
Litigation ................................................................ 94
Legal Matters ............................................................. 94
Additional Information .................................................... 94
Glossary .................................................................. 95
Exhibits
A ... Prior Performance of Affiliates of Managing Shareholder
B ... Summary of Exchange Property and Exchange Partnership Information
C ... Financial Statements of the Trust, the Operating Partnership and the
Managing Shareholder
D ... Financial Statements of the Exchange Properties
Until _______, 1998 (90 days after the commencement of the Offering), all
dealers effecting transactions in the Common Shares, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
BARON CAPITAL TRUST
----------
2,500,000 Common Shares
Beneficial Interest
PROSPECTUS
________, 1998
----------
Sigma Financial Corporation
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under Section 3817 of the Delaware Business Trust Act, subject to such
standards and restrictions, if any, as are set forth in the governing instrument
of a Delaware business trust, a business trust shall have the power to indemnify
and hold harmless any trustee or beneficial owner or other person from and
against any and all claims and demands whatsoever, and the absence of such a
provision shall not be construed to deprive any trustee or beneficial owner or
other person of any right to indemnity which is otherwise available to such
person under the laws of Delaware.
Under Sections 3.7 and 3.8 of the Declaration of Trust for the Trust
("Registrant"), each of the Registrant's officers, agents, and Affiliates, the
Managing Shareholder, the Trustees, any other members of the Board of the Trust,
each Affiliate of the Managing Shareholder, a Trustee, other member of the
Board, and any directors, officers or agents of any of the foregoing when acting
for the Managing Shareholder, a Trustee, any other member of the Board or any of
their respective Affiliates on behalf of the Registrant (collectively, "Managing
Persons," and individually a "Managing Person") shall be indemnified out of the
assets of the Registrant against any losses, liabilities, judgments, expenses
and amounts paid in settlement of any claims sustained by him in connection with
the Registrant or claims by the Registrant, in right of the Registrant or by or
in right of any Shareholders of the Registrant, if the Managing Person, in good
faith, determined that its course of conduct was in the Registrant's best
interest, within the scope of the Declaration and did not constitute negligence
or misconduct in the case of any Managing Person who is not an Independent
Trustee and did not constitute gross negligence or willful misconduct in the
case of any Managing Person who is an Independent Trustee, and in addition, in
the case of Managing Persons other than the Managing Shareholder, Trustees and
other members of the Board, the indemnitees were acting within the scope of
authority validly delegated to them by the Managing Shareholder, Trustees or any
other members of the Board. In no case, however, will a Managing Person or any
broker-dealer be indemnified, or be advanced expenses for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws, unless (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (ii) those claims have been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the particular
indemnitee or (iii) a court of competent jurisdiction approves a settlement of
the claims against the particular indemnitee and finds that indemnification of
the settlement and the related costs should be made. In any claim for federal or
state securities law violations, the party seeking indemnification shall place
before the court the positions of the Securities and Exchange Commission and of
securities administrators of states in which securities of the Registrant were
offered or sold to the extent required by them with respect to the issue of
indemnification for securities law violations.
The following provisions apply to all rights of indemnification and
advances of expenses under the Declaration:
(a) Expenses, including attorneys' fees, incurred by a Managing Person in
defending any action, suit or proceeding may be paid by the Registrant in
advance of the final disposition of the action, suit or proceeding only if all
of the following conditions are satisfied:
(i) The action, suit or proceeding relates to acts or omissions with
respect to the performance of duties or services on behalf of the
Registrant;
II-1
<PAGE>
(ii) The action, suit or proceeding is initiated by a third party who
is not a Shareholder or it is initiated by a Shareholder acting in its
capacity as such and a court of competent jurisdiction specifically
approves such advancement; and
(iii) The Managing Person seeking advancement of expenses undertakes
to repay such amount, together with the applicable legal rate of interest
thereon, if it shall ultimately be determined that the Managing Person is
not entitled to be indemnified by the Registrant under the Declaration or
otherwise and if at least one of the following conditions is satisfied:
(1) The Managing Person provides appropriate security for the
undertaking;
(2) The Managing Person is insured against losses or expenses of
defense or settlement so that the advances may be recovered or
(3) Either a majority of the Independent Trustees who are not
parties to the action, suit or proceeding, or independent legal
counsel in a written opinion, determines, based upon a review of the
then readily available facts, that there is reason to believe that the
Managing Person will be found to be entitled to indemnification under
the terms and conditions of the Declaration.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for the reciprocal indemnification by the underwriter of the
Registrant, and its directors, officers and controlling persons, and by the
Registrant of the underwriter, and its directors, officers and controlling
persons, against certain liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The following table itemizes the expenses incurred by the Registrant
(excluding underwriting discounts and commissions) in connection with the
offering of the Common Shares being registered. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee and the
NASD fee.
II-2
<PAGE>
Item Amount
- ---- ------
SEC Registration Fee ............................................. $ 7,576
NASD Fee ......................................................... 1,500
Transfer Agent's and Registrar's Fee ............................. 2,500
Printing and Engraving Fees ...................................... 75,000
Legal Fees and Expenses (other than Blue Sky) .................... 125,000
Accounting Fees and Expenses ..................................... 30,000
Blue Sky Fees and Expenses (including fees of counsel) .......... 70,000
Insurance Premium for Officers'/Directors' Liability ............. 20,000
Sales Expenses (including presentations) ......................... 100,000
Miscellaneous Expenses ........................................... 50,000
--------
Total ............................. $481,576
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits.
A list of exhibits included as part of this Registration Statement is set
forth in the Index to Exhibits which immediately precedes such exhibits.
Item 28. Undertakings.
The Trust undertakes to do the following:
1. If the Trust is registering the securities under Rule 415 of the
Securities Act of 1933, as amended (the "Securities Act"), the Trust
will:
(a) File, during the period in which it offers or sell securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement; and
(iii)Include any additional or changed material information on
the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
II-3
<PAGE>
(c) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
2. The Trust will provide to the underwriter of the offering at the
closings specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
3. If the Registrant requests acceleration of the effective date of the
registration statement under Rule 461 under the Securities Act:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
4. If the Registrant relies on Rule 430A under the Securities Act, the
Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time the Commission declared it effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
5. The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period describing
each property not identified in the Prospectus at such time as there
arises a reasonable probability that such property will be acquired
and to consolidate all such stickers into a post-effective amendment
filed at least once every three months, with the information contained
in such amendment provided simultaneously to the existing
Shareholders. Each sticker supplement should disclose all compensation
and fees received by the Managing Shareholder and its affiliates in
connection with any such acquisition. The post-effective amendment
shall include audited financial statements meeting the requirements of
Rule 3-14 of Regulation S-X (or Rule 310 of Regulation S-B, if
applicable) only for properties acquired during the distribution
period.
II-4
<PAGE>
6. The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the
financial statements and any additional information required by Rule
3-14 of Regulation S-X (or Rule 310 of Regulation S-B, if applicable),
to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the
use of 10% or more (on a cumulative basis) of the net proceeds of the
offering and to provide the information contained in such report to
the Shareholders at least once each quarter after the distribution
period of the offering has ended.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 2
to the Registration Statement to be signed on its behalf by the undersigned, in
the City of Cincinnati, State of Ohio on April 24, 1998.
BARON CAPITAL TRUST
By: Baron Advisors, Inc.,
Managing Shareholder
By: /s/Gregory K. McGrath
-----------------------------
Gregory K. McGrath, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement was signed by the following person
in the capacity and on the date stated.
Name Title Date
---- ----- ----
/s/Gregory K. McGrath President of Baron Advisors, Inc.,
- --------------------- Managing Shareholder of Registrant April 24, 1998
Gregory K. McGrath
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Document Description Page No.
- ------ -------------------- --------
<S> <C> <C>
1.1+ Form of Underwriting Agreement, dated as of ________, 1998, between
Sigma Financial Corporation and the Registrant _______
3.1** Certificate of Business Trust Registration of the Registrant --
3.2+ Amended and Restated Declaration of Trust for the Registrant made as of
__________, 1998 _______
3.3* Form of By-laws of the Registrant --
4.1+ Form of Common Share Certificate _______
5.1** Form of Opinion of Schoeman, Marsh & Updike, LLP as to legality of
securities being registered --
5.2** Form of Opinion of Keating, Muething & Klekamp P.L.L. on certain tax
matters --
10.1** Form of Trust Management Agreement, dated as of _________, 1998, between
the Registrant and Baron Advisors, Inc. --
10.2** Form of Escrow Agreement, dated as of ___________________, 1998, between
the Registrant and Sigma Financial Corporation --
10.3+ Form of Indemnification Agreement among the Registrant, Baron Advisors,
Inc., and the Registrant's Independent Trustees and officers (included
in Sections 3.6 and 3.7 of the Amended and Restated Declaration of Trust
attached hereto as Exhibit 3.2) --
10.4+ Form of Warrant Purchase Agreement, dated as of ____________, 1998,
between the Registrant and Sigma Financial Corporation ______
10.5** Form of Subscription Documents --
10.6** Form of Agreement of Limited Partnership of Baron Capital Properties,
L.P. dated as of _____________, 1998 --
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.7** Form of Security Escrow Agreement dated as of __________, 1998 among
Gregory K. McGrath, Robert S. Geiger, Baron Capital Trust
and American Stock Transfer & Transfer Company --
23.1** Consent of Schoeman, Marsh & Updike, LLP (included in the opinion filed
as Exhibit 5.1 to this Registration Statement) --
23.2** Consent of Keating, Muething & Klekamp, P.L.L. (included in the opinion
filed as Exhibit 5.2 to this Registration Statement) --
99.1** Consent of James H. Bownas to being named as prospective Independent
Trustee of the Registrant --
99.2** Consent of Peter M. Dickson to being named as prospective Independent
Trustee of the Registrant --
99.3+ Prior Performance Table VI: Acquisitions of Properties by Program
required under Guide 5 relating to preparation of registration
statements relating to interests in real estate limited partnerships. _____
99.4+ Consent of Elroy D. Miedema, Certified Public Accountant ______
99.5+ Consent of Rachlin Cohen & Holtz, Independent Certified Public
Accountants ______
</TABLE>
- -------
+ Filed herewith
* To be filed by amendment
** Previously filed
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT,
DATED AS OF __________, 1998,
BETWEEN SIGMA FINANCIAL CORPORATION
AND THE REGISTRANT
<PAGE>
Draft 4-24-98
BARON CAPITAL TRUST
FORM OF
UNDERWRITING AGREEMENT
Cincinnati, Ohio
April __, 1998
Sigma Financial Corporation
4261 Park Road
Ann Arbor, Michigan 48103
Attention: Jerome S. Rydell,
President
Gentlemen:
Baron Capital Trust (the "Company"), a Delaware business trust, proposes to
offer, and issue and sell, through Sigma Financial Corporation (the
"Underwriter"), up to 2,500,000 shares of beneficial interest in the Company,
without par value ("Shares"). The offering of the Shares (the "Offering") is
further described in the Registration Statement filed on Form SB-2 with the U.
S. Securities and Exchange Commission ("Commission").
1. Representations and Warranties and Covenants of the Company. In order to
induce the Underwriter to enter into this Agreement, the Company represents and
warrants or covenants, as the case may be, as follows. All of the
representations and warranties and covenants shall survive the performance or
termination of this Agreement.
(a) The Company has filed a Registration Statement (No. 333-35063) on Form
SB-2 relating to the Shares with the Commission pursuant to the Securities Act
of 1933 ("Act"), as amended, and the Registration Statement was declared
effective on _______, 1998. The Company has furnished to the Underwriter two
signed and ten conformed copies of the Registration Statement together with all
amendments and exhibits. As used in this Agreement, the term "Registration
Statement" means the Registration Statement, including the Prospectus, the
exhibits and the financial statements, and all amendments, including any
amendments after the effective date of the Registration Statement. The term
"Prospectus" means the prospectus filed as a part of Part I of the Registration
Statement, including all pre-effective and post-effective amendments and
supplements thereto.
(b) The Registration Statement and all other documents previously filed or
filed after the date hereof with the Commission conform, and will conform, with
all of the requirements of
<PAGE>
the Act in all material respects. Neither the Registration Statement, the
Prospectus nor the other material filed, or to be filed, with the Commission
contains nor will contain any untrue statements of material fact nor are there,
or will there be, any omissions of material facts required to be stated therein
or that are necessary to make the statements therein not misleading, except that
this representation and warranty and covenant, as the case may be, does not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by and with respect to you,
or any dealer through you, expressly for use in the Registration Statement or
Prospectus or any amendment or supplement thereto.
(c) The Company will, if required, obtain a CUSIP number for the Shares.
The Company has used its best efforts to qualify the Shares for offering and
sales in each state specified on Exhibit A hereto. The materials previously
filed or filed after the date hereof with any such state (or any other state in
which, at the Underwriter's request, the Company may, but shall not be obligated
to, qualify the Shares for offerings and sales) do not and will not contain any
untrue statements of material fact nor are there or will there be any omissions
of material facts required to be stated therein or that are necessary to make
the statements therein not misleading.
(d) Prior to the Offering, the Company will have no outstanding capital
stock. The Shares, Warrants (as defined in paragraph 6 hereof) and Warrant
Shares (as defined in paragraph 6 hereof) have been duly and validly authorized
and, when issued and delivered against payment as provided in this Agreement,
will be validly issued, fully paid and nonassessable. The Shares and Warrant
Shares, upon issuance, will not be subject to the preemptive rights of any
shareholders of the Company. The Warrants, when sold and delivered, will
constitute valid and binding obligations of the Company enforceable in
accordance with their terms. A sufficient number of Shares have been reserved
for issuance upon exercise of the Warrants. The Shares, Warrant Shares and
Warrants will confirm to all statements in the Registration Statement and
Prospectus. Upon delivery of and payment for the Warrants to be sold by the
Company as set forth in this Agreement, the Underwriter and its designees will
receive good and marketable title thereto, free and clear of all liens,
encumbrances, charges and claims except those created by, through or under the
Underwriter and except restrictions on transfer arising under federal and state
securities laws and their rules and regulations. The Company will have on the
date the Commission declares the Registration Statement to be effective (the
"Effective Date") and at the time of delivery of such Warrants full legal right
and power and all authorization and approval required by law to sell, transfer
and deliver such Warrants in the manner provided hereunder.
(e) The Company has been legally organized as a business trust in the State
of Delaware and is now, and always during the period of the Offering will be, a
validly existing business trust under the laws of the State of Delaware,
lawfully qualified to conduct the business for which it was organized and which
it proposes to conduct. The Company will always during the period of the
Offering be qualified to conduct business as a foreign corporation in each
jurisdiction where the nature of its business requires such qualification.
2
<PAGE>
(f) The Company has an authorized capitalization of 25,000,000 shares of
capital stock comprised of Common Shares (including Shares to be offered in the
Offering) and any Preferred Shares that the Trust may issue in the future
pursuant to the Declaration of Trust for the Trust (the "Declaration"). There
are no outstanding options, warrants or other rights to purchase securities of
the Company, however characterized, except as described in the Registration
Statement. There are no securities of the Company, however characterized, held
in its treasury.
(g) Except as described in the Registration Statement and the Prospectus,
the Company has no subsidiaries nor contemplates acquiring subsidiaries or
engaging in mergers with or the acquisition of any companies.
(h) Except as disclosed in the Registration Statement and the Prospectus,
the Company does not have any contingent liabilities, obligations, or claims nor
has it received threats of claims or regulatory action. Further, except as
disclosed in the Registration Statement and the Prospectus, subsequent to the
date information is given in the Registration Statement and definitive
Prospectus, and prior to the close of the Offering: (a) there shall not be any
material adverse change in the management or condition, financial or otherwise,
of the Company or in its business taken as a whole; (b) there shall not have
been any material transaction entered into by the Company other than
transactions in the ordinary course of business; (c) the Company shall not have
incurred any material obligations, contingent or otherwise, which are not
disclosed in the Registration Statement and the Prospectus; (d) there shall not
have been nor will there be any change in the capital or long term debt (except
current payments) of the Company; and (e) the Company has not and will not have
paid or declared any dividends or other distributions on its securities.
(i) The Company's securities, however characterized, are not subject to
preemptive rights.
(j) The Company will have the legal right and authority to enter into this
Agreement upon its execution, to effect the proposed sale of the Shares, to
execute the Warrants and to effect all other transactions contemplated by this
Agreement.
(k) The Company knows of no person who rendered any services in connection
with the introduction of the Company to the Underwriter. No person acting by,
through or under the Company will be entitled to receive from the Company or the
Underwriter any finder's fees or similar payments.
(l) The Company is eligible to use Form SB-2 for the Offering.
(m) The Company and its Affiliates (as such term is defined under the Act
and regulations thereunder) are not currently offering any securities nor has
the Company or its Affiliates offered or sold any securities except as required
to be described in the Registration Statement.
3
<PAGE>
(n) The Company will not file any amendment or supplement to the
Registration Statement, Prospectus, or exhibits if the Underwriter and its
counsel have not been previously furnished a copy, or if the Underwriter or its
counsel have reasonably objected in writing to the filing of the amendment or
supplement.
(o) All original documents and other information relating to the Company's
affairs has been and will continue to be made available upon request to the
Underwriter and to its counsel at the Company's office or at the office of the
Company's counsel and copies of any such documents will be furnished upon
request to the Underwriter and to its counsel. Included within the documents
made available have been at least the Declaration, Bylaws, if any, minutes of
all of the meeting of the Board of the Trust, all financial statements and
copies of all agreements to which the Company is a party or in which the Company
has an interest and all current drafts of any agreements to which the Company
intends to become a party, as described in the Registration Statement.
(p) The Company has appointed American Stock Transfer & Trust Company, New
York, N.Y., as the Company's transfer agent. The Company will continue to retain
a transfer agent reasonably satisfactory to the Underwriter for so long as the
Company is subject to the reporting requirements under Section 12(g) or Section
15(d) of the Securities Exchange Act of 1934, as amended. The Company will make
arrangements to have available at the office of the transfer agent sufficient
quantities of the Company's share certificates as may be needed for the quick
and efficient transfer of the Shares.
(q) The Company will use the proceeds from the sale of the Shares as set
forth in the Registration Statement and Prospectus.
(r) There are no contracts or other documents which are required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or its rules and regulations which have not
been so described or filed. Each agreement to which the Company is a party has
been duly and validly executed, is in full force and effect in all material
respects in accordance with its respective terms, and no agreements have been
assigned by the Company, except as disclosed in the Registration Statement and
Prospectus. The Company knows of no present situation, condition or fact which
would prevent compliance with the terms of such agreements. Except for
amendments or modifications of agreements in the ordinary course of business and
except as disclosed in the Registration Statement and Prospectus, the Company
has no intention of exercising any right which would cancel any of its
obligations under any agreement, and has no knowledge that any other party to
any agreement, in which the Company has an interest, has any intention not to
render full performance under such contract.
(s) The Company is not in material default under any of the agreements to
which it is a party. The Offering will not cause the Company to be in material
default under any of its agreements nor will it create a conflict between the
Company and any of the contracting parties to the agreements. The execution and
delivery of this Agreement and the consummation of the
4
<PAGE>
transactions herein contemplated and compliance with the terms of this Agreement
will not conflict with or result in a breach of any of the material terms,
conditions or provisions of, or constitute a material default under, the
Declaration or Bylaws of the Company, as amended, or any agreement or instrument
to which the Company is a party or by which it or any of its property is bound,
or any existing law, order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company or its
property. The consent, approval, authorization, or order of any court or
governmental instrumentality, agency or body is not required for the
consummation of the transactions herein contemplated except such as may be
required under the Act, under the Blue Sky or securities laws of any state or
jurisdiction, or the rules of the NASD (as defined in paragraph 2(a) hereof).
(t) The Company has not made any representation, whether oral or in
writing, to anyone that any of the Shares will be reserved for or directed to
them during the Offering.
(u) Except as disclosed in the Registration Statement and Prospectus, there
is, and prior to the close of the Offering there will be, no action, suit or
proceeding before any court or governmental agency, authority or body pending or
to the knowledge of the Company threatened which might result in judgments
against the Company not adequately covered by insurance or which collectively
might result in any material adverse change in the condition (financial or
otherwise), the business or the prospects of the Company, or would materially
affect the properties or assets of the Company.
(v) The financial statements, together with related notes, included in the
Registration Statement and Prospectus present fairly the financial condition of
the Company and are reported upon by independent public accountants in
accordance with the rules and regulations of the Commission.
2. Representations and Warranties and Covenants of the Underwriter. The
Underwriter represents and warrants or covenants, as the case may be, as
follows. All of the representations and warranties and covenants shall survive
the performance or termination of this Agreement.
(a) The Underwriter is (i) registered as a broker-dealer with the
Commission, in good standing with the Michigan Division of Securities and is
registered, to the extent registration is required, with the appropriate
governmental agency in each state in which it offers or sells the Shares, (ii)
properly licensed, and its restriction letter authorizes the Underwriter, to
perform broker-dealer services for a public offering of the nature of the
Offering, (iii) is a member of the National Association of Securities Dealers,
Inc. ("NASD") and (iv) will use its best efforts to maintain such registrations,
qualifications and memberships throughout the term of the Offering.
5
<PAGE>
(b) To the knowledge of the Underwriter, no action or proceeding is pending
against the Underwriter or any of its officers or directors concerning the
Underwriter's activities as a broker or dealer that would affect the Offering.
(c) The Underwriter will offer the Shares only in the states specified on
Exhibit A hereto and any other states in which the Company, at the request of
the Underwriter, may, in its sole discretion, qualify or register the offering
and sale of Shares and in the quantities that are identified in the Blue Sky
Memorandum from the Company's counsel to the Underwriter that the offering of
the Shares has been qualified for offering and sale under the applicable state
statutes and regulations. The Underwriter agrees that it will not commence
offering the Shares in any state until it has received confirmation in writing
from the Company or the Company's counsel that the particular state has approved
registration of the Shares or a portion thereof, or otherwise cleared such
Shares, for sale in such state.
(d) The Underwriter, in connection with the offer and sale of the Shares
and in the performance of its duties and obligations under this Agreement,
agrees to comply with all applicable federal laws, the laws of the states or
other jurisdictions in which the Shares are offered and sold, and the rules and
regulations of the NASD.
(e) The Underwriter is a corporation duly organized, validly existing and
in good standing under the laws of the State of Michigan with all requisite
power and authority to enter into this Agreement and to carry out its
obligations hereunder.
(f) This Agreement has been duly authorized, executed and delivered by the
Underwriter and is a valid agreement on the part of the Underwriter.
(g) Neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby will result in any breach of any of the terms
or conditions of, or constitute a default under, the articles of incorporation
or Bylaws of the Underwriter or any indenture, agreement or other instrument to
which the Underwriter is a party or violate any order directed to the
Underwriter of any court or any federal or state regulatory body or
administrative agency having jurisdiction over the Underwriter or its
affiliates.
(h) The Underwriter knows of no person who rendered any services in
connection with the introduction of the Company to the Underwriter. No person
acting by, through or under the Underwriter will be entitled to receive from the
Underwriter or from the Company any finder's fees or similar payments.
(i) The written information provided by the Underwriter for inclusion in
the Registration Statement and Prospectus consists of certain information on the
front and back Prospectus cover pages, and that set forth under "Terms of the
Offering" in the Prospectus.
6
<PAGE>
(j) The Underwriter will, reasonably promptly after the closing of the
Offering, supply the Company with all information required from the Underwriter
for the completion of Form SR and such additional information as the Company may
reasonably request to be supplied to the securities commissions of such states
in which the Shares have been qualified for sale.
3. Employment of the Underwriter. In reliance upon the representations and
warranties and covenants of each party in favor of the other party set forth in
this Agreement, including without limitation Sections 1 and 2, and subject to
the terms and conditions of this Agreement:
(a) The Company employs the Underwriter as its agent to sell for the
Company's account the Shares, on a cash basis only, at a price of $10 per Share.
The Underwriter agrees to use its best efforts, as agent for the Company, to
sell the Shares subject to the terms and conditions set forth in this Agreement.
It is agreed between the parties that (i) there is no firm commitment by the
Underwriter to purchase any or all of the Shares, (ii) the agency arrangement
provided for in this Agreement is on a non-exclusive basis, and (ii) the
Company, in its sole discretion, may engage other broker-dealers to sell Shares
in the Offering or may sell Shares in the Offering itself and waive the payment
of any commission by one or more investors, in which case the cost of such
Shares acquired by such investors will be less than the cost of Shares to an
investor paying a commission. In addition, the parties agree that (x) the
Underwriter and each other participating broker-dealer shall deliver a copy of
the subscription documents for each prospective purchaser to the Company by
overnight delivery by a reputable national firm on the same date as the
Underwriter or participating broker-dealer, as the case may be, receives an
executed copy of the subscription documents from the prospective purchaser and
(y) the Managing Shareholder of the Company shall have sole approval rights in
respect of each prospective purchaser.
(b) The obligation of the Underwriter to offer the Shares is subject to (i)
receipt by it of written advice from the Commission that the Registration
Statement is effective, (ii) the Shares being qualified for offering under
applicable laws in the states specified on Exhibit A hereto and any other states
in which the Company, upon the request of the Underwriter may, in its sole
discretion, qualify the offering and sale of Shares, (iii) the absence of any
prohibitory action by any governmental body, agency or official, and (iv) the
terms and conditions contained in this Agreement and in the Registration
Statement covering the Offering.
(c) The Company and the Underwriter agree that unless all of the Shares to
be offered are sold within 150 days after the Effective Date (which period may
be extended for an additional period not to exceed 30 days by mutual agreement
between the Company and the Underwriter), the Underwriter will have the right to
terminate this Agreement effective immediately upon providing notice thereof to
the Underwriter. Prior to the sale of at least the minimum number of Shares
required to be sold under the Escrow Agreement as a condition of the release of
funds from the escrow account (the "Minimum Escrow Shares") and the payment and
collection of the purchase price therefrom, all proceeds received from the sale
of the Shares
7
<PAGE>
will be deposited in an escrow account entitled ["American Stock Transfer &
Trust Company Baron Capital Trust Escrow Account"] with American Stock Transfer
& Trust Company, New York, N.Y. (the "Escrow Agent") pursuant to the Escrow
Agreement (the "Escrow Agreement"), dated as of _____, 1998, between the
Company, the Underwriter and the Escrow Agent attached hereto as Exhibit B.
(d) The Company, the Underwriter and the Escrow Agent will, prior to the
beginning of the Offering, enter into the Escrow Agreement. The Company and the
Underwriter mutually agree to faithfully perform their obligations under the
Escrow Agreement. The Underwriter will promptly deliver the funds into the
escrow account in accordance with Rule 15(c)2-4 of the Securities Exchange Act
of 1934, as amended, but in any event not to exceed three business days after
receipt of such funds.
(e) The Underwriter shall have the right to associate with other
underwriters and dealers as it may determine and shall have the right to grant
to such persons such concessions out of the commissions to be received by the
Underwriter as the Underwriter may determine, under and pursuant to a Best
Efforts Selling Agreement in the form filed as an exhibit to the Registration
Statement.
(f) Subject to the sale of at least the Minimum Escrow Shares and the
payment and collection of the purchase price therefrom, the Company agrees to
pay to the Underwriter an underwriting commission computed at the rate of $.80
(8% of the public offering price) for each of the Shares sold by the Underwriter
at the public offering price of $10 per Share. Commissions shall be payable in
certified funds upon the release of the funds which have been deposited in the
escrow account in accordance with the terms and conditions of the Escrow
Agreement.
(g) The parties acknowledge that there is no assurance that the Shares to
be offered in the Offering will be registered under the Securities Exchange Act
of 1934, as amended, or any of the states listed in Exhibit A hereto or other
states requested by the Underwriter or will qualify for listing or quotation on
any securities exchange in the future.
4. Expenses of the Underwriter.
The Underwriter agrees that it will pay all expenses incurred or to be
incurred by it or its personnel or representatives, including Underwriter's
attorney's fees and expenses, in connection with the Offering, excluding
expenses which the Company has agreed to pay under Section 5. The Underwriter
agrees that it shall not be entitled to reimbursement by the Company, Baron
Advisors, Inc., any trustees of the Company or any of their respective
Affiliates for any such expenses the Underwriter has agreed to pay in the
preceding sentence.
5. Expenses of the Company. The Company agrees that it will pay the
following fees and expenses in connection with the Offering:
8
<PAGE>
(a) All fees and expenses of its legal counsel which has been engaged to
prepare certain information, documents and papers for filing with the
Commission, state or local securities authorities and the NASD;
(b) All fees and expenses of its accountants incurred in connection with
the Offering and the preparation of all documents and filings made as part of
the Offering;
(c) All costs in issuing and delivering the Shares;
(d) All costs of printing and delivering to the Underwriter and
participating broker-dealers as many copies of the Registration Statement and
amendments, preliminary Prospectuses and definitive Prospectuses as reasonably
requested by the Underwriter;
(e) All of the Company's mailing, telephone, travel, clerical and other
office costs incurred or to be incurred in connection with the Offering;
(f) All fees and costs which may be imposed by the Commission, the various
state of local securities authorities and the NASD for review of the Offering;
and
(g) All other expenses incurred by the Company in performance of its
obligations under this Agreement.
6. Warrants.
(a) Subject to the sale of all of the Shares offered for sale in the
Offering in acordance with the terms and conditions of this Agreement, the
Company agrees to sell to the Underwriter warrants to purchase Shares
("Warrants"), on the terms and conditions set forth in the Underwriter's Warrant
Agreement attached hereto as Exhibit B (the "Warrant Agreement"), a number of
Shares ("Warrant Shares") in an amount equal to 8.5% of the number of Shares
that the Underwriter actually sells in the Offering.
(b) The Company will not be required to pay any underwriting commissions,
discounts or similar expenses relating to the Warrants and/or Warrant Shares.
7. Threat of Regulatory Action. The Company and the Underwriter agree to
advise each other immediately and confirm in writing the receipt of any threat
of or the initiation of any steps or procedures which would impair or prevent
the right to offer the Shares or the issuance of any "suspension orders" or
other prohibitions preventing or impairing the Offering. In the case of the
occurrence of any such event, neither the Company nor the Underwriter will
acquiesce in such steps, procedures or suspension orders if such acquiescence
would adversely affect the other party and, in such event, each party agrees to
actively defend any such actions or orders unless both parties agrees to
actively defend any such actions or orders unless both parties agree in
9
<PAGE>
writing to acquiesce in such actions or orders or unless counsel for each party
advises the parties that the probability of successfully defending against such
actions or order is remote.
8. Further Agreement of the Company. The Company further agrees with the
Underwriter as follows:
(a) The Company will advise the Underwriter as soon as the Company is
advised of any comments by the Commission of (i) any request made by the
Commission for an amendment to the Registration Statement or Prospectus or for
supplemental information and (ii) any order or of the institution of any adverse
proceedings with respect to the Offering. The Company will immediately deliver
to the Underwriter copies of any papers involved therewith.
(b) The Company will provide the Underwriter with copies of all
applications for the registration and qualification of Shares filed with the
various state authorities and will provide the Underwriter and its counsel with
copies of all comments and orders received from these authorities.
(c) The Company will deliver to the Underwriter and to other broker-dealers
as directed by the Underwriter as many copies of preliminary Prospectuses as the
Underwriter may reasonably request during the period commencing with the filing
of Amendment No. 1 to the Registration Statement and ending on the Effective
Date. The Company will deliver to the Underwriter and to other broker-dealers as
requested by the Underwriter as many copies of the definitive Prospectus as the
Underwriter may reasonably request during the period of the Offering.
(d) For a period of nine months following the commencement of the Offering,
the Company will furnish the Underwriter copies of any reports which the Company
may elect or be required under the Declaration or applicable federal or state
securities laws to file with the Commission, any state securities regulatory
agency or the NASD or deliver to the Shareholders following the Offering. Upon
request in writing from the Underwriter, the Company will provide the
Underwriter with such other information as may reasonably be requested
concerning the properties, business and affairs of the Company and its
subsidiaries, if any.
(e) The Company agrees to notify the Underwriter after the Effective Date
and during the Offering of any event that materially affects the Company or its
securities and that should be set forth in an amendment or supplement to the
Prospectus in order to make the statements made therein not misleading.
Similarly the Company agrees to as soon as possible thereafter prepare and
furnish to the Underwriter as many copies as the Underwriter may request of an
amended Prospectus or a supplement to the Prospectus in order that the
Prospectus as amended or supplemented will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or that is necessary in order to make the statements made therein not
misleading.
10
<PAGE>
(f) Subject to Section 2(j), the Company will file with the Commission the
required Reports on Form SR and will file with the appropriate state securities
commissioners any sales and other reports required by the rules and regulations
of such agencies and will supply copies to the Underwriter.
(g) The Company agrees to file a listing application with the American
Stock Exchange ("AMEX") as soon as practicable after the Effective Date and to
use its reasonable best efforts to have the Shares listed for trading on AMEX
immediately prior to the completion of the Offering.
(h) As soon as practicable, but in any event not later than 15 months after
the Effective Date, the Company will make generally available to its securities
holders, in accordance with Section 11(a) of the Act, an earnings statement of
the Company in reasonable detail covering a period of at least 12 months
beginning after the Effective Date and will advise the Underwriter in writing
that such statement has been made available.
9. Company's Indemnification.
(a) The Company agrees to indemnify, defend and hold harmless the
Underwriter from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable legal or other expenses) incurred by the
Underwriter in connection with defending or investigating any such claims or
liabilities, whether or not resulting in any liability to the Underwriter, which
the Underwriter may incur under the federal or state securities laws and
regulations thereunder, state statutes or at common law or otherwise, but only
to the extent that such losses, claims, damages, liabilities and expenses shall
arise out of or be based upon a violation or alleged violation of the federal or
state securities laws or regulations promulgated thereunder, a state statute or
the common law resulting from any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or in any application
or other papers filed with the various state securities authorities (hereinafter
collectively called "Blue Sky Applications") or shall arise out of or be based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
provided, however, that this indemnity agreement shall not apply to any such
losses, claims, damages, liabilities or expenses arising out of or based upon
any such violation based upon a statement or omission made in reliance upon
written information furnished for use in the Registration Statement or in a Blue
Sky Application by the Underwriter.
(b) The foregoing indemnity of the Company in favor of the Underwriter
shall not be deemed to protect the Underwriter against any liability to which
the Underwriter would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of the Underwriter's duties, or by
reason of the Underwriter's reckless disregard of the Underwriter's obligations
and duties under the Act or this Agreement.
11
<PAGE>
(c) The Underwriter agrees to give the Company an opportunity to
participate in the defense or preparation of the defense of any action brought
against the Underwriter to enforce any such claim or liability and the Company
shall have the right to so participate. The agreement of the Company under the
foregoing indemnity is expressly conditioned upon notice of any such action
having been sent by the Underwriter to the Company, by letter or telegram
(addressed as provided in this Agreement), promptly after the receipt of written
notice of such action against the Underwriter such notice either being
accompanied by copies of papers served or filed in connection with such action
or by a statement of the nature of the action to the extent known to
Underwriter. Failure to notify the Company as herein provided shall not relieve
it from any liability which it may have to the Underwriter other than on account
of the indemnity agreement contained in this Section 9.
10. Underwriter's Indemnification.
(a) The Underwriter agrees to indemnify, defend and hold harmless the
Company against any and all losses, claims, damages, liabilities and expenses
(including reasonable legal or other expenses) to which the Company may become
subject, arising out of or based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or in any
Blue Sky Application or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, resulting from the use of written information furnished
to the Company by the Underwriter for use in the preparation of the Registration
Statement or in any Blue Sky Application, (ii) any untrue statement or alleged
untrue statement of any material fact made by the Underwriter, its employees,
agents or affiliates to any offeree or purchaser of any of the Shares (other
than any such statement which has been included in the Registration Statement or
Prospectus or any amendment or supplement thereto, except any such statements
that were based on information furnished by Underwriter to the Company for use
in the preparation of the Registration Statement or in any blue Sky Application,
which shall be subject to item (i) above), (iii) any omission by the
Underwriter, its employees, agents or affiliates to state to any offeree or
purchaser of any of the Shares a material fact necessary in order to make the
statements made to such offeree or purchaser, in light of the circumstances
under which they were made, not misleading (unless such omission of a material
fact related to statements contained in the Registration Statement or Prospectus
or any amendment or supplement thereto and was omitted therefrom, except any
such omissions related to statements that were based on information furnished by
Underwriter to the Company for use in the preparation of the Registration
Statement or in any blue Sky Application, which shall be subject to item (i)
above), or (iii) any other violation of federal or state securities laws by the
Underwriter, its employees, agents or affiliates.
(b) The Company agrees to give the Underwriter an opportunity to
participate in the defense or preparation of the defense of any action brought
against the Company to enforce any such claim or liability and the Underwriter
shall have the right to so participate. The Underwriter's liability under the
foregoing indemnity is expressly conditioned upon notice of any such action
having been sent by the Company to the Underwriter, by letter or telegram
12
<PAGE>
(addressed as provided in this Agreement), promptly after the receipt of written
notice of such action against the Underwriter such notice either being
accompanied by copies of papers served or filed in connection with such action
or by a statement of the nature of the action to the extent known to Company.
Failure to notify the Underwriter as herein provided shall not relieve the
Underwriter from any liability which it may have to the Company other than on
account of the indemnity agreement contained in this Section 10.
(c) The provisions of Sections 9 and 10 shall not in any way prejudice any
right or rights which the Underwriter may have against the Company, or which the
Company may have against the Underwriter, under any statute, including the Act,
at common law or otherwise.
(d) The indemnity agreements contained in Section 9 and 10 shall survive
the termination of this Agreement and shall inure to the benefit of the Company,
the Underwriter, their respective successors and the persons specified in
Section 16(c) below, and their respective heirs, personal representatives and
successors and shall be valid irrespective of any investigation made by or on
behalf of the Underwriter or the Company.
11. Contribution. If the indemnification provided for in Sections 9 and 10
is unavailable to or insufficient to hold harmless an indemnified party under
Sections 9 and 10 in respect of any losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, expenses or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect not only (i) the
relative benefits received by the Company, on the one hand, and the Underwriter,
on the other hand, from the Offering, but also (ii) the relative fault of the
Company and the Underwriter in connection with the statements, omissions or
actions which resulted in such losses, claims, damages, expenses or liabilities
(or action in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriter, on the other hand, shall be deemed to be in the same
proportion as the total net proceeds from the Offering received by the Company
bear to the total underwriting commissions received by the Underwriter in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Underwriter and their respective intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriter agree that it would not be just and equitable if
contribution pursuant to this Section 11 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 11. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to above in
this Section 11 shall be deemed to include any legal or other expenses to which
such indemnified party would be entitled if Sections 9 and 10 were applicable.
Notwithstanding the provisions of this Section 11, the Underwriter shall not be
13
<PAGE>
required to contribute any amount in excess of the amount by which the total
price which the Shares underwritten by it and distributed to the public exceeds
the amount of any damages which the Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission plus the Underwriter's proportionate share of such legal or other
expenses, and any punitive or exemplary damages if the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by or statements made by the
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11 of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
12. Conditions Precedent to the Obligations of the Underwriter. All
obligations of the Underwriter under this Agreement are subject to the following
conditions precedent unless waived by the Underwriter in particular cases:
(a) Counsel for the Underwriter shall have completed a review of the form
and content of the Registration Statement and Prospectus, of the organization
and present legal status of the Company and of the legality and validity of the
authorization and issuance of the Shares.
(b) The Company shall have performed all of its obligations under this
Agreement and all of the statements, representations and warranties made by the
Company in this Agreement shall be complete and true in all material respects.
(c) From the date of this Agreement until the completion of the Offering,
no material adverse changes shall have occurred in the business, properties and
assets of the Company other than changes occurring in the ordinary course of
business.
(d) From the date of this Agreement until the completion of the Offering,
no claims or litigation shall have been instituted or threatened against the
Company for substantial amounts or which would materially adversely affect the
Company, its business or its property and no reasonable basis shall exist for
any such claims or threats. Further, no proceeding shall have been instituted or
threatened against the Company before any regulatory body wherein an unfavorable
ruling would have a material adverse effect on the Company.
(e) From the date of this Agreement until the completion of the Offering,
no material adverse change shall have occurred in the operation, financial
condition, management or credit of the Company or in any conditions affecting
the prospects of its business.
(f) From the date of this Agreement until the completion of the Offering,
the Company shall not have sustained any loss on account of fire, flood,
accident or calamity of such character as materially adversely affects its
business or property, regardless of whether or not the loss has been insured.
14
<PAGE>
(g) On the Effective Date and on the date of release of funds held in
escrow under the Escrow Agreement, the Underwriter shall have received from the
Chief Executive Officer of the Company a certificate dated as of such date that:
(i) The representations and warranties of the Company contained in
Section 1 of this Agreement are true and accurate in all material respects.
(ii) All of the conditions precedent in Sections 12(b) through 12(f)
of this Agreement that are required to be performed by the Company by such
date have been performed in all material respects and the representation
and warranty made as to the performance of such conditions precedent is
true.
(iii) No stop order or other proceedings have been instituted or
threatened by the Commission or any state authority which would adversely
affect the Offering.
(iv) This Agreement and the Warrants have been duly authorized and
executed and constitute valid agreements of the Company and with respect to
the Warrants are binding agreements and are enforceable according to their
terms.
(v) Each person who has signed the Registration Statement has
carefully examined the Registration Statement and definitive Prospectus and
any amendments and supplements, and to the best of their knowledge the
Registration Statement and definitive Prospectus and any amendments and
supplements thereto contain all statements required to be stated therein.
All statements contained therein are true and correct, and neither the
Registration Statement, definitive Prospectus nor any amendment, supplement
or sticker thereto includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading.
(h) On the Effective Date, the Underwriter shall have received from the
Company's legal counsel a copy of a Blue Sky Memorandum setting forth the states
in which the Shares may be sold and the number of Shares that may be sold in
each such state.
(i) On the Effective Date and on the date of release of funds held in
escrow under the Escrow Agreement, the Underwriter shall have received a written
opinion from the Company's counsel as of such date in form substantially in
accordance with the following:
(i) The Company has filed with the Commission a Registration Statement
on Form SB-2 relating to the Shares pursuant to the Act, the Registration
Statement has become effective under the Act and the Registration
Statement, Prospectus and all other documents filed with the Commission
comply as to form with all requirements of the Act in all material respects
(except for the financial statements and other financial data included
therein, as to which counsel need express no opinion).
15
<PAGE>
(ii) Counsel is unaware of any contracts or other documents required
to be described in the Registration Statement or in the Prospectus or to be
filed as exhibits to the Registration Statement which have not been
described or filed as required.
(iii) Counsel is unaware of any contracts or documents that have not
been disclosed in the Prospectus that are material to the representations
in the Prospectus and that would require disclosure in order to make
statements made not misleading.
(iv) To the best knowledge of counsel, the Company is not in default
of any of the material terms and conditions of any agreements to which it
is a party which are material to the operation of the Company; the Offering
will not cause the Company to be in default of any of such agreements nor
will it create a conflict between the Company and any of the contracting
parties to any such agreements; all of such agreements are in full force
and effect; and there are no claims against the Company concerning its
rights under such agreements.
(v) This Agreement and the Warrants issued to the Underwriter or its
designees have been duly authorized and executed by the Company and
constitute valid agreements of the Company except that no opinion need be
expressed as to the validity of the indemnification provisions insofar as
they are or may be held to be violative of public policy (under either
state or federal law), the availability of specific performance or other
equitable remedies, the effects of bankruptcy, insolvency, moratorium and
all other similar laws and decisions affecting the rights of creditors
generally and as to whether or not this Agreement may be an illusory
contract.
(vi) To the best knowledge of counsel, no claim or litigation has been
instituted or threatened against the Company.
(vii) To the best knowledge of counsel, no stop order or other
proceedings have bee instituted or threatened by the Commission, any state
or local authority or the NASD which would adversely affect the Offering.
(viii) To the best knowledge of counsel, the Underwriter has been
furnished copies of, or access to the Trust's files of, all documents and
contracts relating to the Company's affairs which are material to the
operations of the Trust.
(ix) To the best knowledge of counsel, neither the Company nor any of
its Affiliates is currently offering any securities for sale except as
described in the Registration Statement.
(x) No preemptive rights exist with respect to the Company's
securities.
(xi) Counsel is unaware of any subsidiaries of the Company other than
those described in the Registration Statement or the Prospectus.
16
<PAGE>
(xii) Counsel has participated in the preparation of the Registration
Statement and Prospectus and no facts have come to the attention of such
counsel to lead counsel to believe that either the Registration Statement
or the Prospectus or any amendment or supplement thereto (except for the
financial statements and other financial data included therein, as to which
such counsel need express no opinion) contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(xiii) The Company has an authorized capitalization of 25,000,000
Shares, comprised of Common Shares, including the Shares to be offered in
the Offering, and Preferred Shares, which the Trust may determine to issue
in the future in accordance with the Declaration and applicable law. There
are no outstanding options, warrants or other rights to purchase Shares
known to counsel other than as described in the Registration Statement and
the Prospectus.
(xiv) The Company has been organized and is a validly existing
business trust under the laws of the state of Delaware and has full
business trust power and authority under such laws to own its properties
and to conduct its business as described in the Registration Statement. To
the best of counsel's knowledge, the Company is qualified to conduct
business as a foreign business trust in each jurisdiction where the nature
of its business activities requires such qualification except where failure
to so qualify would not have a material adverse effect upon the business or
financial condition of the Company.
(xv) The Shares and Warrant Shares when issued and paid for in
accordance with their terms will be fully paid and non-assessable. The
Shares conform to the description thereof contained in the Registration
Statement. The Company has authorized the issuance of the Shares, Warrants
and Warrant Shares and has full power and authority to issue and sell the
Shares, Warrants and Warrant Shares on the terms and conditions herein set
forth.
The foregoing opinion may be rendered in part by regular corporate counsel
and, in part, by securities counsel to the Company.
13. Termination.
(a) This Agreement may be terminated by the Underwriter by notice to the
Company in the event that the Company shall have failed or been unable to comply
in any material respect with any of the terms, conditions or provisions of this
Agreement on the part of the Company to be performed, complied with or fulfilled
within the respective times herein provided for, unless compliance therewith or
performance or satisfaction thereof shall have been expressly waived by the
Underwriter in writing.
(b) This Agreement may be terminated by the Underwriter by notice to the
Company if the Underwriter reasonably believes that any material adverse changes
have occurred in the management of the Company, that material adverse changes
have occurred in the financial
17
<PAGE>
condition or obligations of the Company or if the Company shall have sustained a
loss by strike, fire, flood, accident or other calamity of such a character as,
in the sole judgment of the Underwriter, may interfere materially with the
conduct of the Company's business and operations regardless of whether or not
such loss shall have been insured.
(c) The Company shall have the right on three days' written notice thereof
to the Underwriter to terminate this Agreement without any liability to the
Underwriter of any kind in the event any action or proceeding shall be
instituted or threatened against the Underwriter either in (i) any court of
competent jurisdiction, before the Commission, any state securities commission
or the NASD concerning its activities as a broker or dealer that would prevent
the Underwriter from acting as such, at any time prior to the Effective Date, or
(ii) any court pursuant to any federal, state, local or municipal statute, a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of the Underwriter's assets or if the
Underwriter makes an assignment for the benefit of creditors.
(d) This Agreement will terminate in the event the Company notifies the
Underwriter that it is withdrawing the Offering in accordance with the terms and
conditions of the Declaration of Trust of the Company.
(e) Any termination of this Agreement pursuant to this Section 13 shall be
without liability of any character (including, but not limited to, loss of
anticipated profits or consequential damages) on the part of any party hereto to
the other party.
14. Notices. All notices required or permitted to be given hereunder shall
be in writing and shall be delivered at or mailed to the following addresses or
sent by facsimile to the following addresses with written confirmation
thereafter:
To the Company:
Baron Capital Trust
7826 Cooper Road
Cincinnati, Ohio 45242
Attention: Gregory K. McGrath, Chief Executive Officer
To the Underwriter:
Sigma Financial Corporation
4261 Park Road
Ann Arbor, Michigan
Attention: Jerome S. Rydell, President
15. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the Company and the Underwriter (including the participating
broker-dealers as provided in
18
<PAGE>
Sections 9 and 10) and their successors. Nothing expressed in this Agreement is
intended to give any person other than the persons mentioned in the preceding
sentence any legal or equitable right, remedy or claim under this Agreement.
However, the representations, warranties and indemnities and defense obligations
of the Company included in this Agreement also inure to the benefit of any
person who controls the Underwriter and participating broker-dealer within the
meaning of Section 15 of the Act and the representations, warranties,
indemnities and defense obligations of the Underwriter and participating
broker-dealers inure to the benefit of Baron Advisors, Inc., each officer who
signs the Registration Statement, each trustee of the Company and each person
who controls the Company within the meaning of Section 15 of the Act.
16. Miscellaneous Provisions.
(a) This Agreement shall be construed according to the laws of the state of
New York without regard to conflicts of laws provisions thereof.
(b) The representations and warranties made in this Agreement shall survive
the termination of this Agreement and shall continue in full force and effect
regardless of any investigation made by the party relying upon any such
representation or warranty.
(c) This Agreement is made solely for the benefit of the Company, its
officers, trustees and controlling persons within the meaning of Section 15 of
the Act, and for the benefit of Baron Advisors, Inc., the Managing Shareholder
of the Company, and of the Underwriter and its officers, directors and
controlling persons within the meaning of Section 15 of the Act, and their
respective successors, heirs and personal representatives, and no other person
shall acquire or have any right under or by virtue of this Agreement. The term
"successor" as used in this Agreement shall not include any purchaser, as such,
of the Shares.
(d) On the Effective Date, the Underwriter will provide the Company a list
of all the names and addresses of all participating broker-dealers and shall
provide the Company with such changes of address or name of such participating
broker-dealers as occur and of which the Underwriter is notified. Further, the
Underwriter shall use its best efforts to maintain the current name and address
of all participating broker-dealers during the terms of this Agreement.
19
<PAGE>
If this Agreement correctly sets forth our understanding, please indicate
your acceptance in the space provided below for that purpose.
Very truly yours,
BARON CAPITAL TRUST,
a Delaware business trust
By: Baron Advisors, Inc.,
Managing Shareholder
By:_________________________________
Gregory K. McGrath, President
Confirmed and accepted as of
the date first above written:
SIGMA FINANCIAL CORPORATION,
a Michigan corporation
By:_____________________________
Jerome S. Rydell, President
20
<PAGE>
EXHIBIT A
BLUE SKY STATES
- --------------------------------------------------------------------------------
Arizona New Jersey
Connecticut New York
Florida North Carolina
Georgia Ohio
Illinois Pennsylvania
Indiana Texas
Louisiana Virginia
Michigan Washington
Minnesota Wisconsin
- --------------------------------------------------------------------------------
21
EXHIBIT 3.2
AMENDED AND RESTATED
DECLARATION OF TRUST FOR THE REGISTRANT
MADE AS OF ______________, 1998
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
FOR
BARON CAPITAL TRUST
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article and
Section
Number Heading Page
- ------ ------- ----
<S> <C> <C>
Article 1 Organization and Powers............................................................. 1
1.1 Trust Estate; Name.................................................................. 1
1.2 Purpose............................................................................. 2
1.3 Relationship among Shareholders; No Partnership..................................... 2
1.4 Organization Certificates........................................................... 2
1.5 Principal Place of Business........................................................ 2
1.6 Admission of Shareholders........................................................... 2
1.7 Duration of the Trust............................................................... 4
1.8 Powers of the Trust................................................................. 4
1.9 Provisions, Restrictions and Prohibitions regarding Trust Operations................ 4
Article 2 Shares.............................................................................. 12
2.1 Shares, Certificates of Beneficial Interest......................................... 12
2.2 Sale of Shares...................................................................... 13
2.3 Offering of Shares.................................................................. 13
2.4 Treasury Shares..................................................................... 13
2.5 Transferability of Shares........................................................... 14
2.6 Effect of Transfer of Shares or Death, Insolvency or Incapacity of Shareholders.... 14
2.7 Repurchase of Shares................................................................ 14
2.8 Distribution Reinvestment Plan...................................................... 14
Article 2A Restriction on Transfer, Acquisition and Redemption of Shares....................... 14
2A.1 Definitions......................................................................... 14
"Beneficial Ownership".............................................................. 14
"Beneficiary"....................................................................... 14
"Debt".............................................................................. 15
"Equity Shares"..................................................................... 15
"Excess Share Trust"................................................................ 15
"Existing Holder"................................................................... 15
"Existing Holder Limit"............................................................. 15
"Initial Public Offering"........................................................... 15
"Market Price"...................................................................... 15
"Ownership Limit"................................................................... 15
"Person"............................................................................ 15
"Purported Beneficial Transferee"................................................... 16
"Purported Record Transferee"....................................................... 16
"Restriction Termination Date"...................................................... 16
"Transfer".......................................................................... 16
"Units"............................................................................. 16
2A.2 Ownership Limitation................................................................ 16
2A.3 Excess Shares....................................................................... 17
2A.4 Prevention of Transfer.............................................................. 17
2A.5 Notice to Trust..................................................................... 17
2A.6 Information for Trust............................................................... 17
2A.7 Other Action by Board............................................................... 18
2A.8 Ambiguities......................................................................... 18
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
2A.9 Modification of Existing Holder Limits.............................................. 18
2A.10 Increase or Decrease in Ownership Limit............................................. 18
2A.11 Limitations on Changes in Existing Holder and Ownership Limits...................... 19
2A.12 Waivers by Managing Shareholder..................................................... 19
2A.13 Legend.............................................................................. 19
2A.14 Severability........................................................................ 19
2A.15 Trust for Excess Shares............................................................. 19
2A.16 No Distribution for Excess Shares................................................... 20
2A.17 No Voting Rights for Excess Shares.................................................. 20
2A.18 Non-Transferability of Excess Shares................................................ 20
2A.19 Call by Trust on Excess Shares...................................................... 20
Article 3 Liabilities......................................................................... 21
3.1 Liability and Obligations of Corporate Trustee...................................... 21
3.2 Liability and Obligations of Managing Shareholder, Independent Trustees,
and Other Members of the Board.................................................... 21
3.3 Liability of Managing Shareholder, Independent Trustees and Other Members
of the Board to Third Parties..................................................... 21
3.4 Liability of Shareholders in General................................................ 21
3.5 Liability of Shareholders to the Trust, Managing Shareholder, Trustees, Members
of the Board and Other Shareholders............................................... 22
3.6 Liability of Managing Persons to Trust and Shareholders............................. 22
3.7 Indemnification of Managing Persons................................................. 22
3.8 General Provisions.................................................................. 22
3.9 Dealings with Trust................................................................. 23
Article 4 Payment of Trust Expenses........................................................... 23
4.1 Selling Commissions................................................................. 23
4.2 Organization and Offering Expenses.................................................. 24
4.3 Investment Fee...................................................................... 24
4.4 Property Management Fee............................................................. 24
4.5 Other Expenses...................................................................... 24
4.6 Payment and Recoupment of Fees...................................................... 25
Article 5 Accounting and Reports.............................................................. 25
5.1 Elections........................................................................... 25
5.2 Books and Records................................................................... 25
5.3 Reports............................................................................. 25
5.4 Bank Accounts....................................................................... 26
5.5 Interim Assets...................................................................... 26
Article 6 Rights and Obligations of Shareholders.............................................. 26
6.1 Participation in Management......................................................... 26
6.2 Rights to Engage in Other Ventures.................................................. 27
6.3 Transferability of Shares........................................................... 27
6.4 Information......................................................................... 27
6.5 Shareholders' Meetings.............................................................. 28
6.6 Voting.............................................................................. 29
6.7 Distributions....................................................................... 29
6.8 Notice of Non-liability............................................................. 30
Article 7 Powers, Duties and Limitations on Managing Shareholder, Board and
Independent Trustees.............................................................. 30
7.1 Management of the Trust............................................................ 30
7.2 Acceptance of Subscriptions......................................................... 30
7.3 Specific Limitations................................................................ 30
7.4 Powers of Managing Shareholder...................................................... 31
7.5 Independent Trustees................................................................ 33
7.6 Board of the Trust.................................................................. 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
7.7 Officers of Trust................................................................... 35
7.8 Presumption of Power................................................................ 36
7.9 Obligations Not Exclusive........................................................... 36
7.10 Rights to Deal with Affiliates..................................................... 36
7.11 Removal of Managing Shareholder..................................................... 36
Article 8 Dissolution, Termination and Liquidation............................................ 36
8.1 Dissolution......................................................................... 36
8.2 Continuation of the Trust........................................................... 37
8.3 Obligations on Dissolution.......................................................... 37
8.4 Liquidation Procedure............................................................... 37
8.5 Liquidating Trustee................................................................. 37
8.6 Death, Insanity, Dissolution or Insolvency of Managing Shareholder, a Trustee
or a Shareholder.................................................................. 38
8.7 Withdrawal of Offering.............................................................. 38
Article 9 Miscellaneous....................................................................... 38
9.1 Notices............................................................................. 38
9.2 Delaware Laws Govern................................................................ 38
9.3 Power of Attorney.................................................................. 38
9.4 Disclaimer.......................................................................... 39
9.5 Corporate Trustee Resignation and Replacement....................................... 39
9.6 Amendment and Construction of Declaration........................................... 39
9.7 Bonds and Accounting................................................................ 39
9.8 Binding Effect...................................................................... 39
9.9 Headings............................................................................ 40
9.10 Bylaws.............................................................................. 40
9.11 Severability........................................................................ 40
Article 10 Definitions......................................................................... 40
</TABLE>
Exhibit
-------
A Shareholders' Names, Addresses and Share Ownership
iii
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
FOR
BARON CAPITAL TRUST
This AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration") is made
as of _________________, 1998, by BARON CAPITAL PROPERTIES, INC., a Delaware
corporation ("Baron Properties"), which, with its successors as trustees under
this Declaration, is referred to as the "Corporate Trustee," and BARON ADVISORS,
INC., the Managing Shareholder of the Trust, for the benefit of those persons
who are accepted as holders of shares of beneficial interest under this
Declaration.
WHEREAS, the Corporate Trustee has organized BARON CAPITAL TRUST (the
"Trust") as a business trust under the Delaware Business Trust Act, to provide
for the management of the Trust by Baron Advisors, Inc., a Delaware corporation
("Baron Advisors," or "Managing Shareholder" when acting hereunder in such
capacity), and to provide for the sale of beneficial interests in the Trust, the
operation of the Trust and the rights of the Corporate Trustee, other persons
acting as trustees (together with the Corporate Trustee, the "Trustees") and
owners of beneficial interests;
WHEREAS, a Certificate of Trust (the "Certificate") was filed by the
Corporate Trustee on July 31, 1997 with the Secretary of State of Delaware to
evidence the existence of the Trust;
WHEREAS, the Corporate Trustee and the Managing Shareholder executed a
Declaration of Trust for the Trust as of August 31, 1997;
WHEREAS, the Corporate Trustee and the Managing Shareholder desire to amend
and restate the Declaration of Trust to include the terms and conditions set
forth herein;
WHEREAS, the Corporate Trustee and the Managing Shareholder desire that the
Trust qualify as a "real estate investment trust" ("REIT") under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, the Corporate Trustee declares that it constitutes and
appoints itself trustee of the sum of $10.00 owned by it, together with all
other property that it acquires under this Declaration as trustee, together with
the proceeds thereof, to hold, IN TRUST, to manage and dispose of for the
benefit of the holders, from time to time, of beneficial interests in the Trust,
subject to the provisions of this Declaration as follows. Capitalized terms used
in this Declaration shall have the respective meanings ascribed to them in
Article 10 hereof, and, in the absence of any such definition, shall have the
respective meanings ascribed to them in the Prospectus (as defined in Article
10) if defined therein, unless the context indicates otherwise. All references
to section numbers herein shall refer to section numbers of this Declaration
unless otherwise stated herein.
ARTICLE 1
ORGANIZATION AND POWERS
1.1 Trust Estate; Name. The Trust, comprised of the Trust estate created
under this Declaration and the business conducted hereunder, shall be designated
as "Baron Capital Trust," which name shall refer to the trust estate and to the
Corporate Trustee in its capacity as trustee of the trust estate but not in any
other capacity and which shall not refer to the officers, agents, other trustees
or beneficial owners of the Trust. To the extent possible, the Trustees shall
conduct all business and execute all documents relating to the Trust in the name
of the Trust and
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not as trustees. The Trustees may conduct the business of the Trust or hold its
property under other names as necessary to comply with law or to further the
affairs of the Trust as it deems advisable in their sole discretion. This
Declaration, the Certificate and any other documents, and any amendments of any
of the foregoing, required by law or appropriate, shall be recorded in all
offices or jurisdictions where the Trust shall determine such recording to be
necessary or advisable for the conduct of the business of the Trust.
1.2 Purpose. (a) The purpose of the Trust is to acquire equity interests in
and/or provide or acquire mortgage loans (including without limitation Junior
Mortgage Loans and First Mortgage Loans) secured by mortgages on existing
residential apartment properties located in the United States, and the
acquisition, ownership, management, operation, acquire by leasing, leasing to
others, improvement, administration and disposition of such types of real
property or any interest therein (the "Property") as the Trust may designate.
The Trust may invest its funds or participate in entities organized for the
purpose of acquiring, owning, managing, operating, acquiring by leasing, leasing
to others, improving, administering or disposing of properties described in the
preceding sentence. The Trust shall have the power to perform any and all acts
and activities with respect to this general purpose that are customary or
incidental thereto including by way of illustration the acquisition, ownership,
management, operation, leasing, improvement, administration and disposition of
such properties or any interest therein as the Trust shall designate. Pending
the commitment of Trust funds to investments in such types of property,
distribution of Trust funds to Shareholders (as defined in Article 10) or
application of reserve funds to their purposes, the Trust shall have full
authority and discretion to utilize Trust funds as provided in Section 5.5. The
Trust shall have all the powers granted to real estate investment trusts
generally by the Code or any successor statute and shall have any other and
further powers as are not inconsistent with and are appropriate to promote and
attain the purposes of the Trust as set forth in this Declaration.
(b) The Trust may engage in real estate operations with others when, in the
judgment of the Trust, it is prudent and desirable under the circumstances. In
any such operations, the Trust may acquire, own, hold, manage, operate, acquire
by lease, lease to others, improve, administer and dispose of the types of
property described in the preceding paragraph, either as principal, agent,
partner, syndicate member, associate, joint venturer or otherwise and may invest
funds in any such business, and may do any and all things necessary or
incidental to the conduct of any such activities. Without limiting the
foregoing, the Trust may supply security for debt of properties or enter into
lease transactions or acquire goods and services for the benefit of a property.
1.3 Relationship among Shareholders; No Partnership. As among the Trust,
the Managing Shareholder, the Trustees, the Shareholders and the officers and
agents of the Trust, a trust and not a partnership is created by this
Declaration irrespective of whether any different status may be held to exist as
far as others are concerned for tax purposes or in any other respect. The
Shareholders hold only the relationship of trust beneficiaries to the Trustees
with only such rights as are conferred on them by this Declaration.
1.4 Organization Certificates. The parties hereto shall cause to be
executed and filed (a) the Certificate, (b) such certificates as may be required
by so-called "assumed name" laws in each jurisdiction in which the Trust has a
place of business, (c) all such other certificates, notices, statements or other
instruments required by law or appropriate for the formation and operation of a
Delaware business trust in all jurisdictions where the Trust may elect to do
business, and (d) any amendments of any of the foregoing required by law or
appropriate.
1.5 Principal Place of Business. The principal place of business of the
Trust shall be 7826 Cooper Road, Cincinnati, Ohio 45242 or such other place as
the Trust may from time to time designate by notice to all Shareholders. The
Trust's office in the State of Delaware and the principal place of business of
Baron Properties, the Corporate Trustee, are located at 1105 North Market
Street, Wilmington, Delaware 19899, or such other place as the Trust may
designate from time to time by notice to all Shareholders. The Trust may
maintain such other offices at such other places as the Trust may determine to
be in the best interests of the Trust.
1.6 Admission of Shareholders. (a) The Trust is authorized to offer for
sale in a public offering (the "Initial Offering") pursuant to the prospectus
(the "Prospectus") dated _____________, 1998, as it may be supplemented or
amended from time to time, at a purchase price of $10 per Share, up to 2,500,000
of the Shares authorized for issuance under Article 2 of this Declaration, and
such Shares sold shall be designated as Common
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Shares. The Trust shall have the unrestricted right at all times prior to the
Termination Date (as defined in Article 10) of the Initial Offering to admit to
the Trust such Shareholders as it may deem advisable, provided the aggregate
subscriptions received for the purchase of Common Shares (as defined in Article
10) of the Shareholders and accepted by the Trust do not exceed $25,000,000
immediately following the admission of such Shareholders. After the Termination
Date of the Initial Offering, any sale of Shares (including Common Shares and
Preferred Shares) by the Trust shall be governed by Section 2. The Trust is also
authorized to cause Baron Capital Properties, L.P. (the "Operating
Partnership"), its Affiliate through which it will conduct its real estate
operations, to register up to 2,500,000 units of limited partnership interest
("Units") in the Operating Partnership to use to acquire interests in
residential apartment properties (consistent with the Trust's investment
objectives and policies) in connection with the proposed Exchange Offering
described in the Prospectus. In connection therewith, the Trust is authorized
(i) to exchange unissued Common Shares (in addition to the 2,500,000 to be
offered for sale in the Initial Offering) on a one for one basis for Units
tendered by holders of Units requesting such exchange and (ii) file a
registration statement in respect of such additional Common Shares on the
applicable form of the Securities and Exchange Commission.
(b) Each Shareholder who acquires Common Shares in the Initial Offering
shall execute Subscription Documents (as defined in Article 10) and pay the
purchase therefor to the Trust as subscribed by the Shareholder. Subject to the
acceptance thereof by the Trust, each Shareholder who executes Subscription
Documents shall be admitted to the Trust as an Shareholder. All funds received
from such subscriptions will be deposited in the Trust's name in an
interest-bearing escrow account at American Stock Transfer & Trust Company until
the Escrow Date (as defined in Article 10). The Trust will not accept any
subscriptions from New York investors, and no sales will be completed in New
York, unless and until the Trust has sold, and collected the proceeds from, at
least 250,000 Common Shares in this Offering ($2,500,000 gross proceeds). The
Trust will not accept any subscriptions from Ohio investors and no sales will be
completed in Ohio, unless and until the Trust has sold, and collected the
proceeds from, at least 100,000 Common Shares in this Offering (gross proceeds
of $1,000,000).
(c) If, by the close of business on December 31, 1998, at least 50,000
Common Shares (representing $500,000 of gross Initial Offering proceeds) have
not been sold or if the Trust withdraws the Initial Offering of Common Shares in
accordance with the terms of this Declaration, the Trust shall be immediately
dissolved at the expense of the Managing Shareholder and all subscription funds
shall be forthwith returned to the respective subscribers together with any
interest earned thereon. As soon after the Termination Date as practicable, the
Trust shall advise each Shareholder of the Termination Date and the aggregate
amount of proceeds raised by the Trust in the Initial Offering. Any proceeds
from this Offering which are not invested or committed for investment within two
years following the date of effectiveness of the Initial Offering (less any
amounts retained as necessary operating capital) will be distributed pro rata to
the Shareholders as a return of capital. In addition, the Trust may not sell
Common Shares in the Offering to, or accept as a Shareholder, any Ohio investor
whose investment would exceed 10% of his liquid net worth.
(d) The full cash price for Shares must be paid to the Trust at the time of
subscription.
(e) Shareholders who acquire Common Shares from the Trust in the Initial
Offering shall meet the following suitability standards prior to consummating
such acquisition:
(i) Minimum annual gross income of $45,000 and a minimum net worth
(determined exclusive of home, home furnishings, and automobiles) of
$45,000; or
(ii) Minimum net worth of $150,000 (determined exclusive of home, home
furnishings, and automobiles).
The Managing Shareholder and each participating broker-dealer selling Common
Shares in connection with the Initial Offering shall make every reasonable
effort to determine that the acquisition of Common Shares in the Initial
Offering is a suitable and appropriate investment for each Shareholder by
ascertaining that the prospective Shareholder meets the following
qualifications:
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(i) Meets the minimum income and net worth standards set forth in this
Section 1.6;
(ii) Can reasonably benefit from the Trust based on the prospective
Shareholder's overall investment objectives and portfolio structure;
(iii) Is able to bear the economic risk of the investment based on the
prospective Shareholder's overall financial situation;
(iv) Has apparent understanding of the fundamental risks of the
investment; of the risk that the Shareholder may lose the entire
investment; of the lack of liquidity of Common Shares; of the restrictions
on transferability of Common Shares as a result of the Trust's status as a
REIT for federal income tax purposes; of the background and qualifications
of the Managing Shareholder; and of the tax consequences of the investment.
Such suitability determination will be made on the basis of all information
obtained from a prospective Shareholder, including at least the age, investment
objectives, net worth, financial situation and other investments of the
prospective Shareholder, and other pertinent factors. The Managing Shareholder
or the participating broker-dealer who sells the particular Common Shares shall
maintain records of the information used to make the suitability determination
for at least six years from the date of sale. The securities administrator of
any state in which the Trust may sell Common Shares in connection with the
Initial Offering may require minimum initial and subsequent cash investment
amounts.
1.7 Duration of the Trust. For all purposes, this Declaration, as it may be
amended or restated from time to time in accordance with its terms, shall be
effective until the Trust is terminated in accordance with Section 8.1.
1.8 Powers of the Trust. Without limiting any powers granted to the Trust
under this Declaration or applicable law, the Trust shall have the following
additional powers, subject to applicable law:
(a) To borrow money or to loan money and to pledge or mortgage any and all
Trust Property and to execute conveyances, mortgages, security agreements,
assignments and any other contract or agreement deemed proper and in furtherance
of the Trust's purposes and affecting it or any Trust Property (including
without limitation the Trust Management Agreement (as defined in Article 10));
provided, however, that the Trust shall not loan money to the Managing
Shareholder, the Trustees or any other Managing Person except as provided in
Section 1.9(z) below or to any wholly owned subsidiary of the Trust;
(b) To pay all indebtedness, taxes and assessments due or to be due with
regard to Trust Property and to give or receive notices, reports or other
communications arising out of or in connection with the Trust's business or
Trust Property;
(c) To collect all moneys due the Trust;
(d) To establish, maintain and supervise the deposit of funds or Trust
Property into, and the withdrawals of the same from, Trust bank accounts or
securities accounts;
(e) To employ accountants to prepare required tax returns and provide other
professional services and to pay their fees as a Trust expense;
(f) To make election to be treated as a REIT for federal income tax
purposes under Section 856 through 860 of the Code;
(g) To employ legal counsel for Trust purposes and to pay their fees and
expenses as a Trust expense;
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(h) To conduct the affairs of the Trust with the general objective of
achieving capital appreciation and distributable income from the Trust Property;
(i) To serve as the general partner of the Operating Partnership and of any
other real estate limited partnership, including, without limitation, any
Exchange Partnership, which directly or indirectly owns property interests,
regardless of whether the Trust or the Operating Partnership owns all or a
portion of such partnership's limited partnership interest; and
(j) To waive the payment of all or a part of a commission by one or more
investors in connection with offerings of the Trust's securities, in which case
the cost of the such securities acquired by such investors will be less than the
cost of equivalent securities to an investor paying a commission.
1.9 Provisions, Restrictions and Prohibitions regarding Trust Operations.
Notwithstanding anything to the contrary set forth in this Declaration, the
Trust, Operating Partnership, Managing Shareholder and Trustees, as the case may
be, shall conform to the following provisions, restrictions and prohibitions in
the operations of the Trust and the Operating Partnership:
(a) A majority of the Independent Trustees shall confirm that prior to the
completion of the Initial Offering and the proposed Exchange Offering, the
Original Investors have contributed to the Operating Partnership as an initial
investment in the Operating Partnership cash in the total amount of $50,000 and
other consideration described in the Prospectus. In exchange for such
consideration, each Original Investor shall be entitled to receive an amount of
Units which are exchangeable (subject to the provisions of a securities escrow
agreement entered into with the escrow agent for the Initial Offering which is
referred to in Section 1.6(b) hereof) into 9.5% of the Common Shares outstanding
after the completion of the Initial Offering and the proposed Exchange Offering,
on a fully diluted basis assuming that all then outstanding Units (other than
those owned by the Trust) have been exchanged into an equivalent number of
Common Shares. The Units issuable to the Original Investors and the Common
Shares into which they are exchangeable shall be in addition to the 2,500,000
Common Shares which the Trust is offering for sale in the Initial Offering, the
2,500,000 Units to be registered by the Operating Partnership in connection with
proposed Exchange Offering, and the 2,500,000 additional Common Shares into
which the registered Units are exchangeable. To the extent the Units issuable to
the Original Investors are released from escrow in accordance with the
securities escrow agreement referred to above, the Original Investors may
dispose of all or a portion of such Units or Common Shares in the same manner in
which other Unitholders or Shareholders may dispose of their Units or Common
Shares.
(b) At, or prior to, the initial meeting of the Board of the Trust, this
Declaration and the Operating Partnership Agreement shall be reviewed and
ratified by a majority vote of the Board and of the Independent Trustees.
(c) The Board shall establish written policies on investments and any
borrowing to be made by the Trust and Operating Partnership and monitor the
administrative procedures, investment operations and performance of the Trust,
Operating Partnership and the Managing Shareholder to ensure that such policies
are being carried out.
(d) The Board shall evaluate the performance of the Managing Shareholder
(and any successor Advisor of the Trust) prior to entering into or renewing a
management agreement (including without limitation the Trust Management
Agreement which is described in the Prospectus) relating to the administration
and management of the Trust (other than the initial term of the Trust Management
Agreement, which shall be deemed to have been approved by Shareholders who
acquire Common Shares in the Offering and by a majority of the Board and a
majority of the Independent Trustees). The criteria used in such evaluation
shall be reflected in the minutes of such Board meeting. Any such management
agreement shall not have a term of more than one year and shall be terminable by
a majority of the Independent Trustees or the Managing Shareholder (or any
successor Advisor, as the case may be) on at least 60 days prior written notice
without cause or penalty. Upon the termination of the Trust Management Agreement
or any other management agreement that may be entered into by the Trust and the
Managing Shareholder (or any successor Advisor), the Managing Shareholder or
other Advisor, as the case may be, shall cooperate with the Trust and take all
reasonable steps requested to assist the Board in making an orderly
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transition of the advisory function. The Board shall determine that any
successor to the Managing Shareholder (or any successor Advisor) possesses
sufficient qualifications to perform the management, administrative and
investment advisory function for the Trust and justify the compensation provided
for in the applicable management agreement.
(e) A majority of the Board and a majority of the Independent Trustees
shall determine whether the conditions set forth in Section 3.7 have been fully
satisfied for indemnification or for advancement of Trust and Operating
Partnership funds for legal expenses and other costs incurred as a result of any
legal action for which indemnification is being sought in respect of the
Managing Shareholder, any Trustee, a broker-dealer, or any Affiliate of the
Managing Shareholder or a Trustee, provided, however, any party seeking
indemnification under Section 3.7 which is the Managing Shareholder, a Trustee
or an Affiliate of the Managing Shareholder or a Trustee shall not be eligible
to participate in making any such determination.
(f) The Independent Trustees shall determine, at least annually, that the
total fees and expenses of the Trust and the Operating Partnership are
reasonable in light of their investment performance, their net assets, their net
income, and the fees and expenses of other comparable unaffiliated REITs. Each
such determination shall be reflected in the minutes of the meeting of the
Board.
(g) The Independent Trustees shall determine that the Organization and
Offering Expenses (as defined below) (including the distribution, due diligence
and organizational fee specified in Section 4.2 of this Declaration) payable by
the Trust and the Operating Partnership in connection with the formation of the
Trust and the Operating Partnership and any offerings of Shares or Units is
reasonable and in no event exceeds an amount equal to 15% of the gross proceeds
of the particular offering. For purposes of this Declaration, the term
"Organization and Offering Expenses" means all expenses incurred by and to be
paid from the assets of the Trust and the Operating Partnership in connection
with and in preparing the Trust and the Operating Partnership for registration
and subsequently offering and distributing Shares and Units to the public,
including, but not limited to, total underwriting and brokerage discounts and
commissions (including any fees of the underwriters' attorneys payable by the
Trust or the Operating Partnership), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of transfer
agents, registrars, trustees, escrow holders, depositaries, experts, expenses of
qualification of the sale of the securities under Federal and State laws,
including taxes and fees, accountants' and attorneys' fees.
(h) The Independent Trustees shall determine that the total amount of any
Acquisition Fee (including the investment fee specified in Section 4.3 of this
Declaration) and Acquisition Expenses (as such terms are defined below) payable
by the Trust or the Operating Partnership is reasonable and in no event exceeds
an amount equal to six percent of the purchase price of the subject property, or
in the case of a mortgage loan made or acquired by the Trust or the Operating
Partnership, six percent of the funds advanced, unless a majority of the
"disinterested" members of the Board and a majority of the "disinterested"
Independent Trustees approve payment of an Acquisition Fee in excess of such
amounts based upon their determination that such excess fee is commercially
competitive, fair and reasonable to the Trust and the Operating Partnership. For
purposes of this Declaration, the term "Acquisition Fee" means the total of all
fees and commissions paid by any party to any other party in connection with
making or investing in Mortgage Loans or the purchase, development or
construction of property by the Trust or the Operating Partnership, including
any real estate commission, selection fee, development fee, construction fee,
non-recurring management fee, loan fees or points or any fee of a similar
nature, however designated, but excluding development fees and construction fees
paid to persons not affiliated with the Managing Shareholder in connection with
the actual development and construction of a project. For purposes of this
Declaration, the term "Acquisition Expenses" means all expenses related to the
selection and acquisition of properties, whether or not acquired, including, but
not limited to legal fees and expenses, travel and communications expenses,
costs of appraisals, nonrefundable option payment on property not acquired,
accounting fees and miscellaneous expenses. For purposes of this Declaration,
disinterested members of the Board and disinterested Independent Trustees with
respect to a particular transaction or matter concerning the Trust's or the
Operating Partnership's operations shall include those persons who have no other
interest in any such transaction or matter beyond their role on the Board or as
Independent Trustees.
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(i) The Independent Trustees shall have the fiduciary responsibility of
limiting the Total Operating Expenses (as defined below) of each of the Trust
and the Operating Partnership in any fiscal year to the greater of (i) two
percent of their respective Average Invested Assets (as defined below) or (ii)
twenty-five percent of their respective Net Income (as defined below) for such
year unless the Independent Trustees make a finding that, based on such unusual
and non-recurring factors which they deem sufficient, a higher level of such
operating expenses is justified for such year. Any such finding and the reasons
in support thereof shall be reflected in the minutes of the meeting of the
Board. Within 60 days after the end of each fiscal year for which the Trust or
the Operating Partnership incurs operating expenses in excess of such amount,
the Trust shall send to the Shareholders and Unitholders written disclosure of
such fact, together with an explanation of the factors the Independent Trustees
considered in arriving at their finding that such higher operating expenses were
justified. If the Independent Trustees do not determine such excess expenses are
justified, the Managing Shareholder shall reimburse the Trust or the Operating
Partnership, as the case may be, at the end of such fiscal year the amount by
which the Total Operating Expenses paid or incurred by the Trust or the
Operating Partnership, respectively, exceed the limitations herein provided.
For purposes of this Declaration, "Total Operating Expenses" means the
aggregate expenses of every character paid or incurred by the Trust and the
Operating Partnership as determined under generally accepted accounting
principles, including the Managing Shareholder's (and any successor Advisor's)
fees, but excluding the following: (a) the expenses of raising capital such as
Organization and Initial Offering Expenses (defined above), legal, audit,
accounting, underwriting, brokerage, listing, registration and other fees,
printing and other such expenses, and tax incurred in connection with the
issuance, distribution, transfer, registration, and stock exchange listing, if
any, of the Trust's Shares or the Operating Partnership's Units; (b) interest
payments; (c) taxes; (d) non-cash expenditures such as depreciation,
amortization and bad debt reserves; (e) incentive fees paid in compliance with
subsection (ee) below; (e) Acquisition Fees and Acquisition Expenses (defined
above), real estate commissions on resale of property and other expenses
connected with the acquisition, disposition, and ownership of real estate
interests, mortgage loans, or other property (such as the costs of foreclosure,
insurance premiums, legal services, maintenance, repair, and improvement of
property).
For purposes of this Declaration, "Average Invested Assets" means, for any
period, the average of the aggregate book value of the assets of each of the
Trust and the Operating Partnership invested, directly or indirectly, in equity
interests in and loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves computed by taking the average
of such values at the end of each month during such period.
For purposes of this Declaration, "Net Income" means, for any period, total
revenues applicable to such period, less the expenses applicable to such period
other than additions to reserves for depreciation or bad debts or other similar
non-cash reserves. If the Managing Shareholder receives an incentive fee paid in
compliance with subsection (ee) below, Net Income, for purposes of calculating
Total Operating Expenses in this subsection, shall exclude the gain from the
sale of the assets of the Trust or the Operating Partnership, as applicable.
(j) A majority of the Independent Trustees shall determine that the
conditions set forth in Section 4.5(b) for payment to the Managing Shareholder,
a Trustee, or any of their respective Affiliates of real estate commissions on
purchase or sale of a Trust or Operating Partnership Property have been fully
satisfied, that any such commission payable does not exceed a real estate
commission which is reasonable, customary and competitive in light of the size,
type and location of such property and in no event exceeds three percent of the
sale price, and that the amount of such commissions payable when added to the
commissions payable to unaffiliated real estate brokers does not exceed the
lesser of such competitive real estate commission or an amount equal to six
percent of the sale price.
(k) The Independent Trustees shall determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder (or
any successor Advisor) is reasonable in relation to the nature and quality of
services performed and that such compensation is within the limits prescribed in
subsection (f) above. The Independent Trustees shall also supervise the
performance of the Managing Shareholder (and any successor Advisor) and the
compensation payable to it by the Trust to determine that the terms and
conditions of the contract are being carried out. Each such determination shall
be based on the factors set forth below and all other factors the
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Independent Trustees may deem relevant. The findings of the Independent Trustees
on each of such factors shall be recorded in the minutes of the meetings of the
Board.
(i) The size of the management fee in relation to the size,
composition and profitability of the portfolio of the Trust and the
Operating Partnership.
(ii) The success of the Managing Shareholder in generating
opportunities that meet the investment objectives of the Trust.
(iii) The rates charged to other REITs and to investors other than
REITs by Advisors performing similar services.
(iv) Additional revenues realized by the Managing Shareholder and any
Affiliates through their relationship with the Trust and the Operating
Partnership, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether
paid by the Trust or the Operating Partnership or by others with whom the
Trust or the Operating Partnership does business.
(v) The quality and extent of service and advice furnished by the
Managing Shareholder.
(vi) The performance of the investment portfolio of the Trust and the
Operating Partnership, including income, conservation or appreciation of
capital, frequency of problem investments, and competence in dealing with
distress situations.
(vii) The quality of the portfolio of the Trust and the Operating
Partnership in relationship to the investments generated by the Managing
Shareholder for its own account.
(l) Neither the Trust nor the Operating Partnership shall purchase property
or any equity interest in any entity which owns title to one or more properties
from the Managing Shareholder, a Trustee, or any of their respective Affiliates
unless a majority of the disinterested members of the Board and a majority of
the disinterested Independent Trustees review the proposed transaction and
determine that it is fair and reasonable to the Trust and the Operating
Partnership and that the purchase price to the Trust or the Operating
Partnership for such property or equity interest is no greater than the cost of
the property or equity interest to such proposed seller, or if the purchase
price to the Trust or the Operating Partnership is in excess of such cost, that
substantial justification for such excess exists and such excess is reasonable,
provided, however, in no event may the purchase price for the property or equity
interest exceed its current appraised value. In addition, the Trust and the
Operating Partnership may not acquire any properties or assets presently held by
any affiliate of the Trust, the Operating Partnership, the Managing Shareholder
or any other promoter unless the possibility of such acquisitions is disclosed
in this Prospectus, as it may be amended or supplemented, and there is
appropriate disclosure of the material facts concerning each such acquisition.
(m) Neither the Managing Shareholder, any Trustee, nor any of their
respective Affiliates shall acquire or lease any assets from the Trust or the
Operating Partnership unless a majority of the disinterested members of the
Board and a majority of the disinterested Independent Trustees determine that
the proposed transaction is fair and reasonable to the Trust and the Operating
Partnership.
(n) No loans may be made by the Trust or the Operating Partnership to the
Managing Shareholder, a Trustee, any officer, principal or promoter of the
Trust, the Operating Partnership or the Managing Shareholder or any of their
respective Affiliates or principals except as provided in subsection (z) below
or to any wholly owned subsidiary of the Trust or the Operating Partnership.
(o) Neither the Trust nor the Operating Partnership may borrow money from
the Managing Shareholder, a Trustee, or any of their respective Affiliates
unless a majority of the disinterested members of the Board and a majority of
the disinterested Independent Trustees determine that such proposed transaction
is fair,
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competitive, and commercially reasonable and no less favorable to the Trust and
the Operating Partnership than loans between unaffiliated parties under the same
circumstances.
(p) Neither the Trust nor the Operating Partnership shall invest in joint
ventures with the Managing Shareholder, a Trustee, or any of their respective
Affiliates unless a majority of the disinterested members of the Board and a
majority of the disinterested Independent Trustees determine that such proposed
transaction is fair and reasonable to the Trust and the Operating Partnership
and on substantially the same terms and conditions as those received by other
joint venturers.
(q) Neither the Trust nor the Operating Partnership shall invest in equity
securities unless a majority of the disinterested members of the Board and a
majority of the disinterested Independent Trustees determine that such proposed
transaction is fair, competitive, and commercially reasonable.
(r) The Independent Trustees shall review the investment policies of the
Trust with sufficient frequency at least annually to determine that the policies
being followed by the Trust at any time are in the best interests of the
Shareholders. Each such determination and the basis therefor shall be reflected
in the minutes of meetings of the Board.
(s) In the event that the Trust or the Operating Partnership and one or
more other investment programs sponsored by the Managing Shareholder or an
Affiliate of the Managing Shareholder seek to acquire similar properties, the
Board (including the Independent Trustees) shall review the method described in
the Prospectus for allocating the acquisition of properties among the Trust or
the Operating Partnership, as applicable, and such other programs in order to
determine that such method is applied fairly to the Trust and the Operating
Partnership.
(t) Any other transaction not described in this Section 1.9 between the
Trust or the Operating Partnership and the Managing Shareholder, a Trustee, or
any of their respective Affiliates shall require the determination of a majority
of the disinterested members of the Board and a majority of the disinterested
Independent Trustees that the proposed transaction is fair and reasonable to the
Trust and the Operating Partnership and on terms and conditions no less
favorable to the Trust and the Operating Partnership than those available from
unaffiliated parties.
(u) The consideration that the Trust and the Operating Partnership pays for
any property or for any equity interest in any entity owning title to one or
more properties shall be based on the fair market value of such property or
equity interest as determined by a majority of the Board, provided, however, in
cases in which a majority of the Independent Trustees in their sole discretion
determine, and in all cases in which the Trust or the Operating Partnership
proposes to acquire any property or equity interest in any entity owning title
to one or more properties from the Managing Shareholder, a Trustee, or any of
their respective Affiliates, such fair market value shall be determined by an
Independent Expert selected by the Independent Trustees. In addition, the Trust
and the Operating Partnership shall not make an equity investment in respect of
any property where the amount invested plus the amount of any existing
indebtedness or refinancing indebtedness in respect of such property exceeds the
appraised value of the property.
(v) In connection with a proposed Roll-up (as defined below) involving the
assets of the Trust or the Operating Partnership, an appraisal of all such
assets shall be obtained from an Independent Expert. If the appraisal will be
included in a prospectus to be used to offer the securities of a Roll-up Entity
(as defined below), the appraisal shall be filed with the Commission and
applicable states as an exhibit to the registration statement for the offering.
The appraisal shall be based on an evaluation of all relevant information, shall
indicate the value of such assets as of a date immediately prior to the
announcement of the proposed transaction, and shall assume an orderly
liquidation of such assets over a 12-month period. The terms of the engagement
of the Independent Expert shall clearly state that the engagement is for the
benefit of the Trust, the Operating Partnership, the Shareholders and the
Unitholders. A summary of the appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Shareholders and
Unitholders in connection with the proposed transaction.
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In connection with a proposed Roll-up transaction involving such assets,
the sponsor of the transaction shall offer to Shareholders and Unitholders who
vote against the proposal the choice of:
(i) Accepting the securities of the Roll-up Entity offered in the proposed
transaction, or
(ii) One of the following:
(1) Remaining as Shareholders in the Trust or Unitholders of the
Operating Partnership, as applicable, and preserving their interests
therein on the same terms and conditions as existed previously; or
(2) Receiving cash in an amount equal to their respective pro rata
share of the appraised value of the Net Assets (as defined below) of
the Trust or the Operating Partnership, as applicable.
Neither the Trust nor the Operating Partnership shall participate in any
proposed Roll-up transaction:
(i) which would result in the Shareholders or the Unitholders having
rights in the Roll-up Entity that are less favorable than those provided
for Shareholders under this Declaration or Unitholders under the Operating
Partnership Agreement, respectively;
(ii) which includes provisions which would operate to materially
impede or frustrate the accumulation of shares by any purchaser of the
securities of the Roll-up Entity (except to the minimum extent necessary to
preserve the tax status of the Roll-up Entity);
(iii) which would limit the ability of a Shareholder or Unitholder to
exercise the voting rights of its securities of the Roll-up Entity on the
basis of the number of the Trust's Shares held by such Shareholder or the
Operating Partnership's Units held by such Unitholder.
(iv) in which the rights of access of the Shareholder or the
Unitholders to the records of the Roll-up Entity will be less favorable
than those provided for under this Declaration or the Operating
Partnership, respectively; or
(v) in which any of the costs of the transaction would be borne by the
Trust or the Operating Partnership if the Roll-up transaction is not
approved by the Shareholders or the Unitholders, respectively.
For purposes of this Declaration, "Roll-up" means a transaction involving
the acquisition, merger, conversion, or consolidation either directly or
indirectly of the Trust or the Operating Partnership and the issuance of
securities of a Roll-up Entity. Such term does not include the following: (a) a
transaction involving securities of the Trust or the Operating Partnership that
have been for at least 12 months listed on a national securities exchange or
traded through the National Association of Securities Dealers Automated
Quotation National Market System; or (b) a transaction involving the conversion
to corporate, trust, or association form of only the Trust or the Operating
Partnership if, as a consequence of the transaction there will be no significant
adverse change in any of the following: (i) voting rights of the Shareholders or
Unitholders, as applicable; (ii) the term of existence of the Trust or the
Operating Partnership; (iii) compensation payable to the sponsor or advisor of
the Roll-up transaction; or (iv) the Trust's investment objectives. For purposes
of this Declaration, "Roll-Up Entity" means a partnership, real estate
investment trust, corporation, trust, or other entity that would be created or
would survive after the successful completion of a proposed Roll-up transaction.
For purposes of this Declaration, "Net Assets" means the total assets (other
than intangibles) at cost before deducting depreciation or other non-cash
reserves less total liabilities, calculated at least quarterly on a basis
consistently applied.
(w) The aggregate borrowings of each of the Trust and the Operating
Partnership, secured and unsecured, shall be reasonable in relation to their
respective Net Assets (defined above) and shall be reviewed at least quarterly
by the Board. The maximum amount of such borrowings in relation to such Net
Assets shall not exceed 300%, in the absence of a satisfactory showing that
higher level of borrowing is appropriate. Any
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borrowing in excess of such amount shall require the approval of a majority of
the Independent Trustees and be disclosed to Shareholders and Unitholders in the
next quarterly report of the Trust, along with an explanation of the
justification of such excess.
(x) Neither the Trust nor the Operating Partnership may invest more than
10% of its total assets in Unimproved Real Property (as defined below) or
mortgage loans on such type of property. For purposes of this Declaration,
"Unimproved Real Property" means the real property which has the following three
characteristics: (a) an equity interest in real property which was not acquired
for the purpose of producing rental or other operating income; (b) has no
development or construction in process on such land; and (c) no development or
construction on such land is planned in good faith to commence on such land
within one year.
(y) Neither the Trust nor the Operating Partnership may invest in
commodities or commodity future contracts, excluding future contracts used
solely for hedging purposes in connection with the Trust's and Operating
Partnership's ordinary business of investing in real estate assets and
mortgages.
(z) Neither the Trust nor the Operating Partnership may invest in or make
mortgage loans (other than loans insured or guaranteed by a government or
government agency) unless an appraisal is obtained concerning the underlying
properties. In cases in which a majority of the Independent Trustees in their
sole discretion determine, and in all cases in which the proposed transaction is
with the Managing Shareholder, a Trustee, or any of their respective Affiliates,
the appraisal must be obtained from an Independent Expert. The appraisal shall
be maintained in the Trust's records for at least five years, and shall be
available for inspection and duplication by any Shareholder or Unitholder at the
Shareholder's or Unitholder's own expense. In addition to the appraisal, the
Trust and the Operating Partnership must also obtain a mortgagee's or owner's
title insurance policy or commitment as to the priority of the mortgage or the
condition of the title. In addition, the Managing Shareholder and the Board
shall observe the following policies in connection with investing in or making
mortgage loans:
(i) The Trust and the Operating Partnership shall not invest in real
estate contracts of sale, otherwise known as land sale contracts, unless
such contracts are in recordable form and appropriately recorded in the
chain of title.
(ii) The Trust and the Operating Partnership shall not invest in or
make any mortgage loans, including construction loans, on any properties if
the aggregate amount of all mortgage loans outstanding on the properties,
including the loans of the Trust or the Operating Partnership, as
applicable, would exceed an amount equal to 80% of the estimated
replacement cost of the properties as determined by the Managing
Shareholder unless substantial justification exists because of the presence
of other underwriting criteria (such as the net worth of the borrower, the
credit rating of the borrower based on historical financial performance, or
collateral adequate to justify waiver from application of the foregoing
restriction) or of other factors (including without limitation, the
availability of loan insurance or guarantees from a government or
government agency, the existence of security for the loan in the form of a
pledge or assignment of other real estate or another real estate mortgage,
or the existence of an assignment of rents under leases where tenants have
demonstrated the ability to satisfy the terms of the leases). In applying
such restriction, the aggregate amount of all outstanding mortgage loans
shall include all interest (other than contingent participation in income
and/or appreciation in value of the mortgaged property) the current payment
of which may be deferred under the terms of such loans, to the extent that
deferred interest on each loan exceeds five percent per annum of the
principal balance of the loan.
(iii) The Trust and the Operating Partnership shall not make or invest
in any mortgage loans that are subordinate to any mortgage or equity
interest of the Managing Shareholder, Trustees or any of their respective
Affiliates.
(aa) Except as otherwise permitted by this Declaration and the Agreement of
Limited Partnership of the Operating Partnership, the Trust and the Operating
Partnership may not issue redeemable equity securities.
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(bb) The Trust and the Operating Partnership may not issue debt securities
unless the historical debt service coverage (in the most recently completed
fiscal year) as adjusted for known changes is sufficient to properly service
such higher level of debt.
(cc) The Trust and the Operating Partnership may not issue options or
warrants to purchase Shares or Units to the Managing Shareholder, the Trustees
or any of their respective Affiliates except on the same terms as such options
or warrants are sold to the general public. The Trust and the Operating
Partnership may issue options or warrants to persons not so connected with the
Trust or the Operating Partnership but not at exercise prices less than the fair
market value of such Shares or Units on the date of grant and for consideration
(which may include services) that in the judgment of the Independent Trustees
has a market value less than the value of such option on the date of grant.
Options or warrants issuable to the Managing Shareholder, the Trustees or any of
their respective Affiliates shall not exceed an amount equal to 10% of the
outstanding Shares or of the Units on the date of grant of any options or
warrants.
(dd) The Trust and the Operating Partnership may not issue Shares or Units
on a deferred payment basis or other similar arrangement.
(ee) The payment by the Trust and the Operating Partnership of an interest
in the gain from the sale of their respective assets, for which full
consideration is not paid in cash or property of equivalent value, shall be
allowed provided the amount or percentage of such interest is reasonable. Such
an interest in gain from the sale of Trust or Operating Partnership assets shall
be considered presumptively reasonable if it does not exceed fifteen percent of
the balance of such net proceeds remaining after payment to Shareholders or
Unitholders, as applicable, in the aggregate, of an amount equal to the original
issue price of Shares or Units, plus an amount equal to six percent of the
original issue price of Shares or Units, per annum cumulative. For purposes of
this subsection, the calculation of the original issue price of Shares and the
Units may be reduced by prior cash distributions to Shareholders and
Unitholders, as applicable. In the case of multiple Trust Advisors (including
the Managing Shareholder), such Advisors and any of their respective Affiliates
shall be allowed incentive fees provided such fees are distributed by a
proportional method reasonably designed to reflect the value added to Trust and
Operating Partnership assets by each respective Advisor or any Affiliate.
(ff) The Managing Shareholder shall use its reasonable best efforts to
cause the Trust to qualify for federal income tax treatment as a REIT under
Sections 856 - 860 of the Code. In furtherance of the foregoing, the Managing
Shareholder shall use its reasonable best efforts to take such actions from time
to time as are necessary, and is authorized to take such actions as in its sole
judgment and discretion are desirable, to preserve the status of the Trust as a
REIT; provided, however, that if the Managing Shareholder determines, with the
affirmative vote of a Majority of Shareholders entitled to vote on such matter
approving the Managing Shareholder's determination, that it is no longer in the
best interests of the Trust to continue to have the Trust qualify as a REIT, the
Managing Shareholder may revoke or otherwise terminate the Trust's REIT election
pursuant to applicable federal tax law.
(gg) No properties or assets held by the Trust may be acquired for the
account of the Managing Shareholder or any affiliated person, regardless of
whether the proposed price equals or is greater than the appraised value of such
properties or assets, provided, however, if a particular property or asset is in
distress, or is a debt obligation of an insolvent obligor, or otherwise has
substantially lost its value, the Managing Shareholder, if permitted by law, its
organizational documents and the Statement of Policy Regarding Real Estate
Investment Trusts issued by the North American Securities Administrators
Association, may acquire such property or assets from the Trust at the full
unliquidated cost to the Trust.
ARTICLE 2
SHARES
2.1 Shares, Certificates of Beneficial Interest. (a) The units into which
the beneficial interest in the Trust shall be divided shall be designated as
Shares, with no par value per Share. Ownership of Shares shall be evidenced by
certificates in such form as shall be determined by the Managing Shareholder
from time to time in
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accordance with the law of the State of Delaware. The owners of such Shares, who
are the beneficiaries of the Trust, shall be designated as Shareholders. The
certificates shall be negotiable and title thereto shall be transferred by
assignment or delivery in all respects as a stock certificate of a Delaware
corporation. The Trust shall have authority to issue an aggregate of 25,000,000
Shares. As specified in Section 1.6 of this Declaration, the Trust will offer
for sale in the Initial Offering up to 2,500,000 Shares designated as Common
Shares at a purchase price per share of $10. The consideration payable for the
issuance of Shares other than those offered in the Initial Offering shall be
determined by the Managing Shareholder and shall consist of money paid or
property actually received. Shares shall not be issued until the full amount of
the consideration has been received by the Trust. The Managing Shareholder may
authorize Share dividends or Share splits. All Shares issued hereunder shall be,
when issued, fully paid, and no assessment shall ever be made upon the
Shareholders.
(b) The Shareholders shall have no legal title or interest in the property
of the Trust and no right to a partition thereof or to an accounting during the
continuance of the Trust but only to the rights expressly provided in this
Declaration.
(c) The Managing Shareholder may classify or reclassify any unissued Shares
from time to time by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the Shares in accordance
with any applicable law of the State of Delaware. The Managing Shareholder is
authorized to issue from the authorized but unissued Shares of the Trust,
additional Common Shares as well as Preferred Shares in one or more series and
to establish from time to time the number of Preferred Shares to be included in
each such series and to fix the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the shares of each
series. Except for Preferred Shares so classified or reclassified and issued
hereunder, all other Shares shall be designated as Common Shares, each of which
Common Shares shall be equal in all respects to every other Common Share. Each
Common Share shall entitle the holder to one vote on all matters requiring a
vote of Shareholders, including the election of members of the Board of the
Trust. The authority of the Managing Shareholder with respect to each unissued
series of Preferred Shares shall include, but not be limited to, determination
of the following:
(i) The number of Shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the Shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on Shares of that
series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, if any, and, if so, the terms of such voting
rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions for
adjustment of the conversion rate in such events as the Board shall
determine;
(v) Whether or not the Shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable, and the amount per
Share payable in case of redemption, which amount may vary under different
conditions and at different redemption rates; provided however, that any
proposed issuance of Shares which are redeemable at the option of the
holder shall be approved by Shareholders holding a majority of the Trust's
outstanding Shares of all classes;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of Shares of that series, and, if so, the terms and amount of
such sinking fund;
(vii) The rights of the Shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Trust, and the relative rights of priority, if any, of payment of Shares of
that series;
(viii) Any other relative rights, preferences and limitations of that
series.
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2.2 Sale of Shares. The Managing Shareholder, in its discretion, may from
time to time cause the Trust to issue or sell or contract to issue or sell
Shares, including Shares held in the treasury, to such party or parties and for
money or property actually received, as allowed by the laws of the State of
Delaware, at such time or times, and on such terms as the Managing Shareholder
may deem appropriate, subject to any prior approval of the Board and/or the
Independent Trustees whenever required under Section 1.9 of this Declaration. In
connection with any sale or issuance of Shares, the Managing Shareholder, in its
discretion, may provide for the sale or issuance of fractional Shares or may
provide for the sale or issuance of scrip for fractions of Shares and determine
the terms of such scrip including, without limiting the generality of the
foregoing, the time within which any such scrip must be surrendered in exchange
for Shares and the right, if any, of holders of scrip upon the expiration of the
time so fixed, the right, if any, to receive proportional distributions, and the
right, if any, to redeem scrip for cash, or the Managing Shareholder may, in its
discretion, or if it sees fit at the option of each holder, provide in lieu of
scrip for the adjustment of fractions in cash. The Shareholders shall have no
preemptive rights of any kind whatsoever (preemptive rights hereby defined as
including, but not limited to, the right to purchase or subscribe for or
otherwise acquire any Shares of the Trust of any class, whether now or hereafter
authorized, or any securities or obligations convertible into or exchangeable
for, or any right, warrant or option to purchase such Sharers whether or not
such Shares are issued and/or disposed of for cash, property, or other
consideration of any kind). Options or warrants issued by the Trust to purchase
Shares shall not be exercisable later than five years from the date of issuance
thereof.
2.3 Offering of Shares. The Managing Shareholder is authorized to cause to
be made from time to time offerings of the Shares of the Trust to the public at
public offering prices deemed appropriate. For this purpose, the Managing
Shareholder is authorized to enter into a contract with an underwriter or
distributing company (hereinafter referred to as the "Distributor"), which shall
be granted such commissions for its services as may be agreed upon by the
parties. Any such contract shall be for an initial term of not more than two
years, and thereafter terminable at will by the Managing Shareholder upon 60
days written notice to the Distributor. Such contract shall not be assignable by
the Distributor, without the written consent of the Trust.
2.4 Treasury Shares. The Trust may repurchase or otherwise acquire its own
Shares at the prevailing market price and for this purpose the Trust may create
and maintain such reserves as are deemed necessary and proper. Shares issued
hereunder and purchased or otherwise acquired for the account of the Trust shall
not, so long as they belong to the Trust, either receive distributions (except
that they shall be entitled to receive distributions payable in Shares of the
Trust) or be voted at any meeting of the Shareholders. Such Shares may, in the
discretion of the Managing Shareholder, be held in the treasury and be disposed
of by the Managing Shareholder at such time or times, to such party or parties,
and for such consideration, as it may deem appropriate.
2.5 Transferability of Shares. (a) Except as otherwise provided in Article
2A and elsewhere in this Declaration, Shares in the Trust shall be transferable
in accordance with the procedure prescribed from time to time in the Trust
Bylaws. The persons in whose name the Shares are registered on the books of the
Trust shall be deemed the absolute owners thereof and, until a transfer is
effected on the books of the Trust, the Managing Shareholder shall not be
affected by any notice, actual or constructive, of any transfer. In the sole
discretion of the Trust, any person acquiring Shares pursuant to any of the
provisions of this Section 2.5 may be required to bear all costs and expenses
necessary to effect a transfer of such Shares. No sale or assignment of Shares
shall release the transferor from those liabilities to the Trust which survive
such assignment or sale as a matter of law or that are imposed under Section
3.4. No transfer of Shares, whether voluntary, involuntary or by operation of
law, shall entitle the transferor to demand or obtain immediate valuation,
accounting or payment of the transferred Shares.
(b) Any sale, issuance, redemption or transfer of Shares which would
operate to disqualify the Trust as a real estate investment trust for purposes
of Federal income tax, is null and void (unless the Managing Shareholder with
the concurrence of a Majority of the Shareholders, prior to such acquisition,
shall have determined that the disqualification of the Trust is advantageous to
Shareholders), and such transaction will be canceled when so determined in good
faith by the Managing Shareholder.
2.6 Effect of Transfer of Shares or Death, Insolvency or Incapacity of
Shareholders. Neither the transfer of Shares nor the death, insolvency or
incapacity of any Shareholder shall operate to dissolve or terminate the Trust,
nor shall it entitle any transferee, legal representative or other person to a
partition of the property of the Trust or to any accounting.
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2.7 Repurchase of Shares. The Trust is not obligated to repurchase any
issued Shares unless it specifically agrees to do so in writing. The Trust may
elect to repurchase Shares if such repurchase does not impair the capital or
operations of the Trust and is effected in compliance with any applicable
federal or state securities laws or other applicable laws. The Managing
Shareholder (and any successor Advisor of the Trust), the Trustees, and any of
their respective Affiliates may not receive a fee in connection with any such
repurchase.
2.8 Distribution Reinvestment Plan. Any distribution reinvestment plan that
the Trust may adopt shall, at a minimum, provide that: (i) all material
information regarding the distribution to the Shareholders and the effect of
reinvesting such distribution, including the tax consequences thereof, shall be
provided to the Shareholders at least annually, and (ii) each participating
Shareholder shall have a reasonable opportunity to withdraw from the plan at
least annually after the receipt of such information.
ARTICLE 2A
RESTRICTION ON TRANSFER, ACQUISITION
AND REDEMPTION OF SHARES
2A.1 Definitions. For the purposes of this Article 2A, the following terms
shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Equity Shares by a Person
who would be treated as an owner of such Equity Shares under Section 542(a)(2)
of the Code either directly or constructively through the application of Section
544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial Owner," "Beneficially Owns," "Beneficially Own" and "Beneficially
Owned" shall have the correlative meanings.
"Beneficiary" shall mean the beneficiary of the Excess Share Trust as
determined pursuant to Section 2A.18.
"Debt" shall mean indebtedness of (a) the Trust or (b) any partnership
formed or acquired by the Trust in which all or a portion of its real estate
assets might be held and its operations might be conducted.
"Equity Shares" shall mean Shares that are either Common Shares or
Preferred Shares.
"Excess Share Trust" shall mean the trust created pursuant to Section
2A.15.
"Existing Holder" shall mean (a) any Person who is, or would be upon the
exchange of Units, Debt or any other security of the Trust, the Beneficial Owner
of Common Shares and/or Preferred Shares in excess of the Ownership Limit both
upon and immediately after the closing of the Initial Public Offering, so long
as, but only so long as, such Person Beneficially Owns or would, upon exchange
of Units, Debt or any other security of the Trust, Beneficially Own Common
Shares and/or Preferred Shares in excess of the Ownership Limit and (b) any
Person to whom an Existing Holder Transfers, subject to the limitations provided
in this Article 2A, Beneficial Ownership of Common Shares and/or Preferred
Shares causing such transferee to Beneficially Own Common Shares and/or
Preferred Shares in excess of the Ownership Limit.
"Existing Holder Limit" (a) for any Existing Holder who is an Existing
Holder by virtue of clause (a) of the definition thereof, shall mean, initially,
the percentage of the outstanding Equity Shares Beneficially Owned, or which
would be Beneficially Owned upon the exchange of Units, Debt or any other
security of the Trust, by such Existing Holder upon and immediately after the
date of the closing of the Initial Public Offering, and, after any adjustment
pursuant to Section 2A.9, shall mean such percentage of the outstanding Equity
Shares as so adjusted, and (b) for any Existing Holder who becomes an Existing
Holder by virtue of clause (b) of the definition thereof, shall mean, initially,
the percentage of the outstanding Equity Shares Beneficially Owned by such
Existing Holder at the time that such Existing Holder becomes an Existing
Holder, but in no event shall such percentage be greater than the Existing
Holder Limit for the Existing Holder who Transferred Beneficial Ownership of the
Common
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Shares and/or Preferred Shares or, in the case of more than one transferor, in
no event shall such percentage be greater than the smallest Existing Holder
Limit of any transferring Existing Holder, and, after any adjustment pursuant to
Section 2A.9, shall mean such percentage of the outstanding Equity Shares as so
adjusted. From the date of the Initial Public Offering and until the Restriction
Termination Date, the Trust shall maintain and, upon request, make available to
each Existing Holder, a schedule which sets forth the then current Existing
Holder Limits for each Existing Holder.
"Initial Public Offering" shall mean the sale of Common Shares pursuant to
the Trust's first effective registration statement for such Common Shares filed
under the Securities Act of 1933, as amended.
"Market Price" shall mean the last reported sales price reported on the New
York Stock Exchange of Common Shares or Preferred Shares, as the case may be, on
the trading day immediately preceding the relevant date, or if not then traded
on the New York Stock Exchange, the last reported sales price of the Common
Shares or Preferred Shares, as the case may be, on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system over
or through which the Common Shares or Preferred Shares, as the case may be, may
be traded, or if not then traded over or through any exchange or quotation
system, then the market price of the Common Shares and/or Preferred Shares, as
the case may be, on the relevant date as determined in good faith by the
Managing Shareholder of the Trust.
"Ownership Limit" shall initially mean 5.0%, in number of shares or value,
of the outstanding Equity Shares of the Trust, and after any adjustment as set
forth in Section 2A.10, shall mean such greater percentage of the outstanding
Equity Shares as so adjusted. The number and value of the outstanding Equity
Shares of the Trust shall be determined by the Managing Shareholder in good
faith, which determination shall be conclusive for all purposes hereof.
"Person" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code),
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity; but does not include an underwriter which participated in a
public offering of the Common Shares and/or Preferred Shares for a period of 25
days following the purchase by such underwriter of the Common Shares and/or
Preferred Shares.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer which results in Excess Shares as defined below in Section 2A.3, the
purported beneficial transferee for whom the Purported Record Transferee would
have acquired shares of Equity Shares, if such Transfer had been valid under
Section 2A.2.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Shares, the record holder of the Equity Shares
if such Transfer had been valid under Section 2A.2.
"Restriction Termination Date" shall mean the first day after the date of
the Initial Public Offering on which the Managing Shareholder determines, which
determination must be approved by the Shareholders, that it is no longer in the
best interests of the Trust to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Equity Shares (including (a) the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares, (b) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for Equity Shares, but
excluding the exchange of Units, Debt or any other security of the Trust for
Equity Shares and (c) any transfer or other disposition of any interest in
Equity Shares as a result of a change in the marital status of the holder
thereof), whether voluntary or involuntary, whether of record or beneficially
and whether by operation of law or otherwise. The terms "Transfers" and
"Transferred" shall have the correlative meanings.
"Units" shall mean units of limited partnership of any partnership formed
or acquired by the Trust in which all or a portion of the Trust's real estate
assets might be held and its operations might be conducted.
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2A.2 Ownership Limitation.
(a) Except as provided in Section 2A.12, from the date of the Initial
Public Offering and until the Restriction Termination Date, no Person (other
than an Existing Holder) shall Beneficially Own Common Shares and/or Preferred
Shares in excess of the Ownership Limit and no Existing Holder shall
Beneficially Own Common Shares and/or Preferred Shares in excess of the Existing
Holder Limit for such Existing Holder.
(b) Except as provided in Sections 2A.9 and 2A.12, from the date of the
Initial Public Offering and until the Restriction Termination Date, any Transfer
that, if effective, would result in any Person (other than an Existing Holder)
Beneficially Owning Common Shares and/or Preferred Shares in excess of the
Ownership Limit shall be void ab initio as to the Transfer of such Common Shares
and/or Preferred Shares which would be otherwise Beneficially Owned by such
Person in excess of the Ownership Limit; and the intended transferee shall
acquire no rights in such Common Shares and/or Preferred Shares.
(c) Except as provided in Sections 2A.9 and 2A.12, from the date of the
Initial Public Offering and until the Restriction Termination Date, any Transfer
that, if effective, would result in any Existing Holder Beneficially Owning
Common Shares and/or Preferred Shares in excess of the applicable Existing
Holder Limit shall be void ab initio as to the Transfer of such Common Shares
and/or Preferred Shares which would be otherwise Beneficially Owned by such
Existing Holder in excess of the applicable Existing Holder Limit; and such
Existing Holder shall acquire no rights in such Common Shares and/or Preferred
Shares.
(d) Except as provided in Section 2A.12, from the date of the Initial
Public Offering and until the Restriction Termination Date, any Transfer that,
if effective, would result in the Common Shares and/or Preferred Shares being
beneficially owned (as provided in Section 856(a) of the Code) by less than 100
Persons (determined without reference to any rules of attribution) shall be void
ab initio as to the Transfer of such Common Shares and/or Preferred Shares which
would be otherwise beneficially owned (as provided in Section 856(a) of the
Code) by the transferee; and the intended transferee shall acquire no rights in
such Common Shares and/or Preferred Shares.
(e) From the date of the Initial Public Offering and until the Restriction
Termination Date, any Transfer that, if effective, would result in the Trust
being "closely held" within the meaning of Section 856(h) of the Code shall be
void ab initio as to the Transfer of the Common Shares and/or Preferred Shares
which would cause the Trust to be "closely held" within the meaning of Section
856(h) of the Code; and the intended transferee shall acquire no rights in such
Common Shares and/or Preferred Shares.
(f) Nothing contained in this Article 2A shall impair the settlement of
transactions entered into on the facilities of the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market or .
2A.3 Excess Shares.
(a) If, notwithstanding the other provisions contained in this Article 2A,
at any time after the date of the Initial Public Offering and until the
Restriction Termination Date, there is a purported Transfer or other change in
the capital structure of the Trust (except for a change resulting from the
exchange of Units for Equity Shares) such that any Person would Beneficially Own
Common Shares and/or Preferred Shares in excess of the applicable Ownership
Limit or Existing Holder Limit, then, except as otherwise provided in Sections
2A.9 and 2A.12, such Common Shares and/or Preferred Shares in excess of such
Ownership Limit or Existing Holder Limit (rounded up to the nearest whole share)
shall constitute "Excess Shares" and be treated as provided in this Article 2A.
Such designation and treatment shall be effective as of the close of business on
the business day prior to the date of the purported Transfer or change in
capital structure (except for a change resulting from the exchange of Units for
Equity Shares).
(b) If, notwithstanding the other provisions contained in this Article 2A,
at any time after the date of the Initial Public Offering and until the
Restriction Termination Date, there is a purported Transfer or other change
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in the capital structure of the Trust (except for a change resulting from the
exchange of Units for Equity Shares) which, if effective, would cause the Trust
to become "closely held" within the meaning of Section 856(h) of the Code, then
the Common Shares and/or Preferred Shares being Transferred which would cause
the Trust to be "closely held" within the meaning of Section 856(h) of the Code
(rounded up to the nearest whole share) shall constitute Excess Shares and be
treated as provided in this Article 2A. Such designation and treatment shall be
effective as of the close of business on the business day prior to the date of
the purported Transfer or change in capital structure (except for a change
resulting from the exchange of Units for Equity Shares).
2A.4 Prevention of Transfer. If the Managing Shareholder or its designee
shall at any time determine in good faith that a Transfer has taken place in
violation of Section 2A.2 or that a Person intends to acquire or has attempted
to acquire beneficial ownership (determined without reference to any rules of
attribution) or Beneficial Ownership of any Shares of the Trust in violation of
Section 2A.2, the Managing Shareholder or its designee shall take such action as
it deems advisable to refuse to give effect to or to prevent such transfer,
including, but not limited to, refusing to give effect to such Transfer on the
books of the Trust or instituting proceedings to enjoin such Transfer; provided,
however, that any Transfers or attempted Transfers in violation of Sections
2A.2(b), 2(c), 2(d) and 2(e) shall automatically result in the designation and
treatment described in Section 2A.3, irrespective of any action (or non-action)
by the Managing Shareholder.
2A.5 Notice to Trust. Any Person who acquires or attempts to acquire Equity
Shares in violation of Section 2A.2, or any Person who is a transferee such that
Excess Shares results under Section 2A.3, shall immediately give written notice
or, in the event of a proposed or attempted Transfer, give at least 15 days
prior written notice to the Trust of such event and shall provide to the Trust
such other information as the Trust may request in order to determine the
effect, if any, of such Transfer or attempted Transfer on the Trust's status as
a REIT.
2A.6 Information for Trust. From the date of the Initial Public Offering
and until the Restriction Termination Date:
(a) every Beneficial Owner of more than 5.0% (or such other percentage,
between 1/2 of 1% and 5.0%, as provided in the income tax regulations
promulgated under the Code) of the number or value of outstanding Equity Shares
of the Trust shall, within 30 days after January 1 of each year, give written
notice to the Trust stating the name and address of such Beneficial Owner, the
number of Shares Beneficially Owned, and a description of how such Shares are
held. Each such Beneficial Owner shall provide to the Trust such additional
information as the Trust may reasonably request in order to determine the
effect, if any, of such Beneficial Ownership on the Trust's status as a REIT.
(b) each Person who is a Beneficial Owner of Common Shares and/or Preferred
Shares and each Person (including the Shareholder of record) who is holding
Common Shares and/or Preferred Shares for a Beneficial Owner shall provide to
the Trust in writing such information with respect to direct, indirect and
constructive ownership of Shares as the Managing Shareholder deems reasonably
necessary to comply with the provisions of the Code applicable to a REIT, to
determine the Trust's status as a REIT, to comply with the requirements of any
taxing authority or governmental agency or to determine any such compliance.
2A.7 Other Action by Board. Subject to clause (f) of Section 2A.2, nothing
contained in this Article 2A shall limit the authority of the Managing
Shareholder to take such other action as it deems necessary or advisable to
protect the Trust and the interests of its Shareholders by preservation of the
Trust's status as a REIT.
2A.8 Ambiguities. In the case of an ambiguity in the application of any of
the provisions of this Article 2A, including any definition contained in Section
2A.1, the Managing Shareholder shall have the power to determine the application
of the provisions of this Article 2A with respect to any situation based on the
facts known to it.
2A.9 Modification of Existing Holder Limits. The Existing Holder Limits may
be modified as follows:
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(a) Subject to the limitations provided in Section 2A.11, the Managing
Shareholder of the Trust may grant options which result in Beneficial Ownership
of Common Shares and/or Preferred Shares by an Existing Holder pursuant to an
option plan approved by the Managing Shareholder, the Board of the Trust and/or
the Shareholders of the Trust. Any such grant shall increase the Existing Holder
Limit for the affected Existing Holder to the maximum extent possible under
Section 2A.11 to permit the Beneficial Ownership of the Common Shares and/or
Preferred Shares issuable upon the exercise of such option.
(b) Subject to the limitations provided in Section 2A.11, an Existing
Holder may elect to participate in a dividend reinvestment plan approved by the
Managing Shareholder or the Board of the Trust which results in Beneficial
Ownership of Common Shares and/or Preferred Shares by such participating
Existing Holder and any comparable reinvestment plan of any partnership formed
or acquired by the Trust in which all or a portion of its real estate assets
might be held and its operations might be conducted, wherein those Existing
Holders holding Units are entitled to purchase additional Units. Any such
participation shall increase the Existing Holder Limit for the affected Existing
Holder to the maximum extent possible under Section 2A.11 to permit Beneficial
Ownership of the Common Shares and/or Preferred Shares acquired as a result of
such participation.
(c) The Managing Shareholder will reduce the Existing Holder Limit for any
Existing Holder after any Transfer permitted in this Article 2A by such Existing
Holder by the percentage of the outstanding Equity Shares so Transferred or
after the lapse (without exercise) of an option described in Section 2A.9(a) by
the percentage of the Equity Shares that the option, if exercised, would have
represented, but in either case no Existing Holder Limit shall be reduced to a
percentage which is less than the Ownership Limit.
2A.10 Increase or Decrease in Ownership Limit. Subject to the limitations
provided in Section 1.2 or Section 2A.11, the Managing Shareholder may from time
to time increase or decrease the Ownership Limit; provided, however, that any
decrease may only be made prospectively as to subsequent holders (other than a
decrease as a result of a retroactive change in existing law, in which case such
decrease shall be effective immediately).
2A.11 Limitations on Changes in Existing Holder and Ownership Limits.
(a) Neither the Ownership Limit nor any Existing Holder Limit may be
increased (nor may any additional Existing Holder Limit be created) if, after
giving effect to such increase (or creation), five Beneficial Owners of Common
Shares (including all of the then Existing Holders) could Beneficially Own, in
the aggregate, more than 50% in number or value of the outstanding Equity
Shares.
(b) Prior to the modification of any Ownership Limit or Existing Holder
Limit pursuant to Sections 2A.9 or 2A.10, the Managing Shareholder may require
such opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT.
(c) No Existing Holder Limit shall be reduced to a percentage which is less
than the Ownership Limit.
2A.12 Waivers by Managing Shareholder. The Managing Shareholder, upon
receipt of a ruling from the Internal Revenue Service or an opinion of counsel
or other evidence satisfactory to the Managing Shareholder and upon at least 15
days written notice from a transferee prior to the proposed Transfer which, if
consummated, would result in the intended transferee owning shares in excess of
Ownership Limit or Existing Holder Limit, as the case may be, and upon such
other conditions as the Managing Shareholder may direct, may in its discretion
waive the Ownership Limit or the Existing Holder Limit, as the case may be, with
respect to such transferee depending on the then existing facts and
circumstances surrounding the proposed transfer, including without limitation,
the identity and extent of ownership of Shares of the party requesting such
waiver, the number and extent of Share ownership of other Shareholders and the
aggregate number of outstanding Shares, and the extent of any contractual
restrictions (other than that contained in this Declaration) on any Shareholders
relating to transfer of their Shares.
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2A.13 Legend. Each certificate for Common Shares and/or Preferred Shares
shall bear substantially the following legend:
The securities represented by this certificate are subject
to restrictions on transfer for the purpose of the Trust's
maintenance of its status as a real estate investment trust
under the Internal Revenue Code of 1986, as amended. Except
as otherwise provided pursuant to the Declaration of Trust
for the Trust, no Person may Beneficially Own Shares of
Common Shares and/or Preferred Shares in excess of 5.0% (or
such greater percentage as may be determined by the Managing
Shareholder of the Trust) of the number or value of the
outstanding Equity Shares of the Trust (unless such Person
is an Existing Holder). Any Person who attempts or proposes
to Beneficially Own Common Shares and/or Preferred Shares in
excess of the above limitations must notify the Trust in
writing at least 15 days prior to such proposed or attempted
Transfer. All capitalized terms in this legend have the
meanings defined in the Declaration of Trust for the Trust,
a copy of which, including the restrictions on transfer,
will be sent without charge to each Shareholder who so
requests. If the restrictions on transfer are violated, the
securities represented hereby will be designated and treated
as Excess Shares which will be held in trust by the Trust.
2A.14 Severability. If any provision of this Article 2A or any application
of any such provision is determined to be void, invalid or unenforceable by any
court having jurisdiction over the issue, the validity and enforceability of the
remaining provisions shall be affected only to the extent necessary to comply
with the determination of such court.
2A.15 Trust for Excess Shares. Upon any purported Transfer that results in
Excess Shares pursuant to Section 2A.3, such Excess Shares shall be deemed to
have been transferred to the Trust, as trustee of an "Excess Share Trust" for
the benefit of such Beneficiary or Beneficiaries to whom an interest in such
Excess Shares may later be transferred pursuant to Section 2A.18. Excess Shares
so held in trust shall be issued and outstanding Shares of the Trust. The
Purported Record Transferee shall have no rights in such Excess Shares except
the right to designate a Beneficiary of an interest in the Excess Share Trust
(representing the number of shares of Excess Shares held by the Trust
attributable to a purported Transfer that resulted in the Excess Shares) upon
the terms specified in Section 2A.18. The Purported Beneficial Transferee shall
have no rights in such Excess Shares except as provided in Section 2A.18.
2A.16 No Distributions for Excess Shares. Excess Shares shall not be
entitled to any distributions (whether as dividends or as distributions upon
liquidation, dissolution or winding up). Any dividend or distribution paid prior
to the discovery by the Trust that the Common Shares and/or Preferred Shares
have been Transferred so as to be deemed Excess Shares shall be repaid to the
Trust upon demand.
2A.17 No Voting Rights for Excess Shares. The holders of Excess Shares
shall not be entitled to vote on any matter.
2A.18 Non-Transferability of Excess Shares. Excess Shares in the Excess
Share Trust shall not be transferable. The Purported Record Transferee may
freely designate a Beneficiary of an interest in the Excess Share Trust
(representing the number of Excess Shares held by the Trust attributable to a
purported Transfer that resulted in the Excess Shares), if (a) the Excess Shares
held in the Excess Share Trust would not be Excess Shares in the hands of such
Beneficiary and (b) the Purported Beneficial Transferee does not receive a price
for designating such Beneficiary that reflects a price per share for such Excess
Shares that exceeds (i) the price per share such Purported Beneficial Transferee
paid for the Common Shares and/or Preferred Shares, as the case may be, in the
purported Transfer that resulted in the Excess Shares, or (ii) if the Purported
Beneficial Transferee did not give value for such Excess Shares (through a gift,
devise or other transaction), a price per share equal to the Market Price for
the Excess Shares on the date of the purported Transfer that resulted in the
Excess Shares. Upon such transfer of an interest in the Excess Share Trust, the
corresponding Excess Shares in the Excess Share Trust shall be automatically
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exchanged for an equal number of Common Shares and/or Preferred Shares, as
applicable, and such Common Shares and/or Preferred Shares, as applicable, shall
be transferred of record to the transferee of the interest in the Excess Share
Trust if such Common Shares and/or Preferred Shares, as applicable, would not be
Excess Shares in the hands of such transferee. Prior to any transfer of any
interest in the Excess Share Trust, the Purported Record Transferee must give
advance notice to the Trust of the intended transfer and the Trust must have
waived in writing its purchase rights under Section 2A.19.
Notwithstanding the foregoing, if a Purported Beneficial Transferee
receives a price for designating a Beneficiary of an interest in the Excess
Share Trust that exceeds the amounts allowable under this Section 2A.18, such
Purported Beneficial Transferee shall pay, or cause such Beneficiary to pay,
such excess to the Trust.
If any of the foregoing restrictions on transfer of Excess Shares are
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Trust, to have acted as an agent of the Trust in acquiring such Excess
Shares and to hold such Excess Shares on behalf of the Trust.
2A.19 Call by Trust on Excess Shares. Excess Shares shall be deemed to have
been offered for sale to the Trust, or its designee, at a price per share equal
to the lesser of (a) the price per share in the transaction that created such
Excess Shares (or, in the case of a devise, gift or other transaction in which
no value was given for such Excess Shares, the Market Price at the time of such
devise, gift or other transaction) and (b) the Market Price of the Common Shares
and/or Preferred Shares to which such Excess Shares relates on the date the
Trust, or its designee, accepts such offer. The Trust shall have the right to
accept such offer for a period of 90 days after the later of (x) the date of the
Transfer which resulted in such Excess Shares and (y) the date the Managing
Shareholder determines in good faith that a Transfer resulting in Excess Shares
has occurred, if the Trust does not receive a notice of such Transfer pursuant
to Section 2A.5 but in no event later than a permitted Transfer pursuant to and
in compliance with the terms of Section 2A.18.
ARTICLE 3
LIABILITIES
3.1 Liability and Obligations of Corporate Trustee. (a) To the fullest
extent permitted by the Delaware Act, the Corporate Trustee in its capacity as a
trustee of the Trust shall not be personally liable to any person other than the
Trust and its Shareholders for any act or omission of the Trustees or the Trust,
or any obligation of the Trust or the Trustees. The trust estate shall be
directly liable for the payment or satisfaction of all obligations and
liabilities of the Trust incurred by the Trustees and the officers and agents of
the Trust within their authority.
(b) The Corporate Trustee, as trustee, may be made party to any action,
suit or proceeding to enforce any obligation, liability or right of the Trust,
but it shall not solely on account thereof be liable separate from the Trust and
it shall be a party in that case only insofar as may be necessary to enable such
obligation or liability to be enforced against the trust estate. The Corporate
Trustee shall not exercise any management or administrative powers in respect of
the Trust except at the direction of the Managing Shareholder or the Board.
3.2 Liability and Obligations of Managing Shareholder, Independent
Trustees, and other Members of the Board in General. (a) As permitted by Section
3808 of the Delaware Act, the Managing Shareholder, Independent Trustees and any
other members of the Board shall not hold title to or have any legal or
possessory interest in any Trust Property. It shall not be necessary or
effective for any of the Managing Shareholders, Independent Trustees or any
other member of the Board to be made a party to any action, suit or proceeding
to enforce any obligation, liability or right of the Trust.
(b) The Managing Shareholder, the Trustees and other members of the Board
of the Trust are deemed to be in a fiduciary relationship to the Trust and the
Shareholders. The Trustees and other members of the Board of the Trust also have
a fiduciary duty to the Shareholders to supervise the relationship of the Trust
with the Managing
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Shareholder. In performing their responsibilities under this Declaration, the
Managing Shareholder, the Trustees and other members of the Board of the Trust
shall be under a fiduciary duty and obligation to act in the best interests of
the Trust, including the safekeeping and use of all Trust funds and assets for
which they are responsible under this Declaration. In interpreting the scope of
this obligation, the Managing Shareholder, Independent Trustees and other
members of the Board will have the responsibilities of and will be entitled to
the defenses of directors of a Delaware corporation.
3.3 Liability of Managing Shareholder, Independent Trustees and other
Members of the Board to Third Parties. The Managing Shareholder, Independent
Trustees and any other members of the Board of the Trust shall have no rights of
indemnity or exoneration against any Shareholder individually with regard to any
liability or obligation of the Trust; but, as hereinafter provided, the Managing
Shareholder, Independent Trustees and any other members of the Board may satisfy
any claims they have against the Trust out of the Trust assets. Neither the
Managing Shareholder, Independent Trustees nor any other members of the Board
shall be liable for any act or neglect of any person or firm with respect to the
performance of any duty, service or act which has been delegated to such person
or firm by the Managing Shareholder, Independent Trustees or any other members
of the Board, as the case may be, pursuant to authority contained in this
Declaration; the Managing Shareholder, Independent Trustees and any other member
of the Board shall, however, use good faith in selecting and appointing agents
or representatives to whom authority to act on behalf of the Trust is delegated.
Neither the Managing Shareholder, Independent Trustees nor any other member of
the Board shall be individually liable for any obligation or liability incurred
by or on behalf of the Trust or by the Managing Shareholder, Independent
Trustees or any other member of the Board for the benefit and on behalf of the
Trust.
3.4 Liability of Shareholders in General. No Shareholder in his capacity as
an Shareholder shall have any liability for the debts and obligations of the
Trust in any amount beyond the unpaid amount, if any, of the subscriptions for
the purchase of Shares made by him in the Initial Offering or any subsequent
offerings of the Trust. Each Shareholder shall have the same limitation on his
liability for the Trust's debts and obligations as a stockholder of a Delaware
corporation has for debts and obligations of the corporation. Each written
contract to which the Trust is a party shall include a provision that the
Shareholders shall not be personally liable thereon.
3.5 Liability of Shareholders to the Trust, Managing Shareholder, Trustees,
Members of the Board and Other Shareholders. No Shareholder in his capacity as a
Shareholder shall be liable, responsible or accountable in damages or otherwise
to the Trust, the Managing Shareholder, the Trustees, any other members of the
Board or any other Shareholders for any claim, demand, liability, cost, damage
and cause of action of any nature whatsoever that arises out of or that is
incidental to the management of the Trust's affairs.
3.6 Liability of Managing Persons to Trust and Shareholders. (a) No
Managing Person (as defined in Section 10) shall have liability to the Trust or
to any other Shareholder for any loss suffered by the Trust that arises out of
any action or inaction of the Managing Person if the Managing Person, in good
faith, determined that such course of conduct was in the Trust's best interest
and such course of conduct was within the scope of this Declaration and did not
constitute (i) negligence or misconduct in the case of any Managing Person who
is a Trustee (excluding the Independent Trustees), Managing Shareholder or an
Affiliate of such Trustee or Managing Shareholder or (ii) gross negligence or
willful misconduct in the case of any Managing Person who is an Independent
Trustee.
(b) No act of the Trust shall be affected or invalidated by the fact that a
Managing Person may be a party to or has an interest in any contract or
transaction of the Trust if the interest of the Managing Person has been
disclosed or is known to the Shareholders or such contract or transaction is at
prevailing rates or is on terms at least as favorable to the Trust as those
available from persons who are not Managing Persons.
3.7 Indemnification of Managing Persons. (a) Each Managing Person shall be
indemnified out of the Trust Property against any losses, liabilities,
judgments, expenses and amounts paid in settlement of any claims sustained by
him in connection with the Trust or claims by the Trust, in right of the Trust
or by or in right of any Shareholders, if the Managing Person would not be
liable under the standards of Section 3.6 and, in the case of Managing Persons
other than the Managing Shareholder, Trustees and other members of the Board,
the indemnitees
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were acting within the scope of authority validly delegated to them by the
Managing Shareholder, Trustees or any other members of the Board. The
termination of any action, suit or proceeding by judgment, order or settlement
shall not, of itself, create a presumption that the Managing Person charged did
not act in good faith and in a manner that he reasonably believed was in the
Trust's best interests. To the extent that any Managing Person is successful on
the merits or otherwise in defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein, the Trust shall indemnify that
Managing Person against the expenses, including attorneys' fees, actually and
reasonably incurred by him in connection therewith.
(b) Notwithstanding the foregoing, no Managing Person nor any broker-dealer
shall be indemnified, nor shall expenses be advanced on its behalf, for any
losses, liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws, unless (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee, or (ii) those claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee or (iii) a court of competent jurisdiction approves
a settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In any
claim for federal or state securities law violations, the party seeking
indemnification shall place before the court the published positions of the
Securities and Exchange Commission and of securities administrators of states in
which securities of the Trust were offered or sold to the extent required by
them with respect to the issue of indemnification for securities law violations.
(c) The Trust shall not incur the cost of that portion of any insurance,
other than public liability insurance, that insures any person against any
liability for which indemnification hereunder is prohibited.
3.8 General Provisions. The following provisions shall apply to all rights
of indemnification and advances of expenses under this Declaration and all
liabilities described in this Article 3:
(a) Expenses, including attorneys' fees, incurred by a Managing Person in
defending any action, suit or proceeding may be paid by the Trust in advance of
the final disposition of the action, suit or proceeding only if all of the
following conditions are satisfied:
(i) The action, suit or proceeding relates to acts or omissions with
respect to the performance of duties or services on behalf of the Trust;
(ii) The action, suit or proceeding is initiated by a third party who
is not a Shareholder or it is initiated by a Shareholder acting in its
capacity as such and a court of competent jurisdiction specifically
approves such advancement; and
(iii) The Managing Person seeking advancement of expenses undertakes
to repay such amount, together with the applicable legal rate of interest
thereon, if it shall ultimately be determined that the Managing Person is
not entitled to be indemnified by the Trust under this Declaration or
otherwise and if at least one of the following conditions is satisfied:
(1) The Managing Person provides appropriate security for the
undertaking;
(2) The Managing Person is insured against losses or expenses of
defense or settlement so that the advances may be recovered or
(3) Either a majority of the Independent Trustees who are not
parties to the action, suit or proceeding, or independent legal
counsel in a written opinion, determines, based upon a review of the
then readily available facts, that there is reason to believe that the
Managing Person will be found to be entitled to indemnification under
Section 3.7. In so doing, it shall not be necessary to employ hearing
or trial-like procedures.
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(b) Rights to indemnification and advances of expenses under this
Declaration are not exclusive of any other rights to indemnification or advances
to which a Managing Person may be entitled, both as to action in a
representative capacity or as to action in another capacity taken while
representing another.
(c) Each Managing Person shall be entitled to rely upon the opinion or
advice of or any statement or computation by any counsel, engineer, accountant,
investment banker or other person retained by such Managing Person or the Trust
which he believes to be within such person's professional or expert competence.
In so doing, he will be deemed to be acting in good faith and with the requisite
degree of care unless he has actual knowledge concerning the matter in question
that would cause such reliance to be unwarranted.
3.9 Dealings with Trust. With regard to all rights of the Trust and all
actions to be taken on its behalf, the Trust and not the Trustees, nor the
Managing Shareholder, the Board or its members, the Trust's officers and agents,
or the Shareholders shall be the principal and the Trust shall be entitled as
such to the extent permitted by law to enforce the same, collect damages and
take all other action. All agreements, obligations and actions of the Trust
shall be executed or taken in the name of the Trust, by an appropriate nominee,
or by the Corporate Trustee as trustee but not in its individual capacity. Money
may be paid and property delivered to any duly authorized officer or agent of
the Trust who may receipt therefor in the name of the Trust and no person
dealing in good faith thereby shall be bound to see to the application of any
moneys so paid or property so delivered. No entity whose securities are held by
the Trust shall be affected by notice of such fact or be bound to see to the
execution of the Trust or to ascertain whether any transfer of its securities by
or to the Trust or the Corporate Trustee is authorized.
ARTICLE 4
PAYMENT OF TRUST EXPENSES
4.1 Selling Commissions. The Trust shall be authorized to pay out of Trust
Property to the Dealer Manager (as defined in Section 10)or to any broker-dealer
selected by the Trust or the Dealer Manager who effects the sale of one or more
whole or fractional Shares (including Common Shares in the Initial Offering),
cash selling commissions in an aggregate amount equal to up to eight percent of
the gross proceeds from the sale of Share as determined by the Managing
Shareholder. Such commissions payable in respect of sales of Common Shares in
the Initial Offering shall be due and payable promptly after the later to occur
of (i) acceptance by the Trust of an Shareholder's subscription, (ii) the Escrow
Date or (iii) the receipt by the Trust of the gross purchase price for the
Shares. Such commissions in respect of additional sales of Shares by the Trust
subsequent to completion of the Initial Offering shall be due and payable upon
the later of such date on which purchase proceeds are accepted and collected by
the Trust or the fulfillment of any applicable escrow conditions.
4.2 Organization and Offering Expenses. (a) The Trust shall be authorized
to pay a fee to the Managing Shareholder to cover Organization and Offering
Expenses (as defined in Section 1.9(g)) which conform with Section 1.9(g) in
connection with any offering of Shares.
(b) The Trust shall be authorized to pay to the Managing Shareholder out of
Trust Property a non-accountable fee in an amount equal to one percent of gross
proceeds from the sale of Common Shares in the Initial Offering to cover
distribution, due diligence and organizational expenses relating to formation of
the Trust and the Operating Partnership and to the Initial Offering and a
non-accountable fee in an amount equal to one percent of gross proceeds from the
sale of Common Shares in the Initial Offering to cover legal, accounting,
consulting and recording fees and printing, filing, postage and other
miscellaneous costs associated with the Offering. These fees shall be payable at
the same time that selling commissions are payable. To the extent that the
amount of the expenses covered by the respective fee exceeds the amount payable,
those expenses will be payable by the Managing Shareholder.
4.3 Investment Fee. The Trust shall be authorized to pay to the Managing
Shareholder out of Trust Property an investment fee in an amount equal to four
percent of the gross proceeds from the sale of Common Shares in the Initial
Offering and from each subsequent offering of Shares. The investment fee payable
in respect of sales of Common Shares in the Initial Offering in 1998 is to
compensate for the services of the Managing
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Shareholder in investigating and evaluating real estate investment opportunities
and effecting transactions for investing the net sale proceeds of the Initial
Offering through 1998, and the investment fee payable in a later year is for
those services rendered in that year. One-half of the investment fee payable in
respect of investment of net proceeds from the Initial Offering shall be payable
on the Escrow Date as to Common Shares purchased through that date and on each
date thereafter on which the Trust receives and collects full payment for
additional accepted subscriptions for Common Shares in connection with the
Offering, and the balance of the fee shall be payable proportionately upon the
consummation of each of the Trust's real estate investments based on the amount
invested. In addition, the Trust shall be authorized to pay to the Managing
Shareholder an investment fee in an amount equal to four percent of gross
proceeds received by the Trust in connection with offers and sales of Shares
pursuant to Article 2.2 or 2.3, for similar services rendered by the Managing
Shareholder during the year in which such funds are received by the Trust.
One-half of the fee in respect of services performed by the Managing Shareholder
during any year in which such additional funds are received by the Trust shall
be payable upon the later of each date on which payment is accepted and
collected by the Trust or the fulfillment of any applicable escrow conditions,
and the balance shall be payable proportionately upon the consummation of each
of the Trust's real estate investments based on the amount of such funds
invested.
4.4 Property Management Fee. The Trust shall be authorized to pay to
Brentwood Management, LLC ("Brentwood"), an Affiliate of the Managing
Shareholder, or any other Affiliate of the Managing Shareholder a fee in an
amount equal to five percent of collected rental income from residential
apartment property for which Brentwood (or such other Affiliate) performs
management services plus a monthly bookkeeping fee of $325. Such property
manager may also earn an additional performance fee of $2.00 per residential
unit per month if greater than 96% of gross potential rents are collected.
4.5 Other Expenses. (a) The Trust shall be authorized to reimburse the
Managing Shareholder for all other actual and necessary direct expenses paid or
incurred in connection with the operation of the Trust, including but not
limited to accounting, legal and consulting fees, to the extent that those
expenses were incurred by the Managing Shareholder in carrying out
responsibilities assigned to it by this Declaration, were consistent with this
Declaration and do not constitute payment of expenses covered by other fees
payable under this Declaration. The Trust shall reimburse the Corporate Trustee
for all actual and necessary expenses paid or incurred in connection with the
operation of the Trust, including the Trust's allocable share of the Corporate
Trustee's overhead.
(b) In respect of the acquisition or disposition of all or a portion of the
investments that the Trust may make in properties, the Trust may be required to
or may find it most advantageous to engage a broker or similar adviser and to
pay a brokerage fee to the broker or other persons responsible for bringing the
acquisition or disposition opportunity to the Trust's attention or for
investigating, evaluating or negotiating the acquisition or disposition of the
Trust's interest therein. Where permitted, if the Managing Shareholder or an
Affiliate performs those services in respect of an investment acquisition or
disposition opportunity for the Trust relating to a particular property, the
Managing Shareholder or Affiliate so providing those services shall be entitled
to receive a brokerage fee from the Trust which conforms with the limitations
set forth in Section 1.9(j) of this Declaration. In certain cases, the Trust may
acquire one or more First Mortgage Loans or Junior Mortgage Loans or accounts
receivable from existing creditors of such obligations or title to a particular
property or an equity interest in the entity which owns title to a particular
property at a discount to the appraised value of such property or equity
interest determined at the time of such acquisition. In that event, the Managing
Shareholder or an Affiliate shall be authorized to receive compensation, if
available, from the seller of such debt, title or equity interest in an amount
which does not exceed in the aggregate in all such cases, five percent of the
gross proceeds raised in the Offering.
(c) As compensation for the Managing Shareholder's performance under the
Trust Management Agreement, the Trust shall pay the Managing Shareholder a
management fee, pay expenses of the Trust and reimburse the Managing Shareholder
for Trust expenses paid by the Managing Shareholder, all in accordance with the
terms of the agreement.
4.6 Payment and Recoupment of Fees. As soon as proceeds from the Initial
Offering have been released to the Trust from the escrow account referred to in
Section 1.6, they may be used to pay the fees and expenses referred to in
Sections 4.1, 4.2, 4.3, and 4.4 then due. If the Managing Shareholder withdraws
the Initial
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Offering under the terms of this Declaration, any person that has received
payments from the proceeds of the Initial Offering shall return such payments to
the Trust upon demand by the Managing Shareholder.
ARTICLE 5
ACCOUNTING AND REPORTS
5.1 Elections. The Trust shall elect the calendar year as its fiscal year.
The Trust shall adopt the accrual method of accounting or such other method of
accounting as the Trust shall determine. The Trust shall elect to be taxed as a
REIT, unless the Board determines that it is in the best interest of the
Shareholders as a group that the Trust terminate its status as a REIT and a
Majority of the Shareholders entitled to vote, at a Shareholders' meeting duly
convened under the terms and conditions of this Declaration, votes to cause the
Trust to terminate its REIT status.
5.2 Books and Records. The Trust's books and records shall be kept at the
principal place of business of the Trust and shall be maintained on the basis
utilized in preparing the Trust's federal income tax return with such
adjustments in accounting as the Trust determines would be in the best interests
of the Trust.
5.3 Reports.
(a) Quarterly. The Trust will keep each Shareholder currently advised as to
activities of the Trust by reports furnished at least quarterly. Each quarterly
report will contain a condensed statement of "cash flow from operations" for the
year to date as determined by the Managing Shareholder in conformity with
generally accepted accounting principles on a basis consistent with that of the
annual financial statements and showing its derivation from net income.
(b) Annual. Within 120 days after the end of each fiscal year following the
completion of the Initial Offering, the Trust shall cause to be prepared and
mailed or delivered to each Shareholder as of a record date determined by the
Managing Shareholder, an annual report which shall include the following:
(i) Financial statements prepared in accordance with generally
accepted accounting principles which are audited and reported on by
independent certified public accountants selected by the Trust;
(ii) The ratio of the costs of raising capital during the period to
the capital raised;
(iii) The aggregate amount of management fees and the aggregate amount
of other fees paid to the Managing Shareholder and any of its Affiliates
during the period by the Trust and including fees or charges paid to them
by third parties doing business with the Trust;
(iv) The Total Operating Expenses (as defined in Section 1.9(i)) of
the Trust, stated as a percentage of Average Invested Assets (as defined in
Section 1.9(i)) and as a percentage of its Net Income (as defined in
Section 1.9(i));
(v) A report from the Independent Trustees that the policies being
followed by the Trust are in the best interests of its Shareholders and the
basis for such determination; and
(vi) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving the Trust, Managing
Shareholder, Trustees, any other members of the Board and any of their
respective Affiliates occurring in the year for which the annual report is
made.
Independent Trustees shall examine and comment in the report on the fairness of
the transactions referred to in item (iv) above. The Board, including the
Independent Trustees, shall be required to take reasonable steps to insure that
the requirements set forth in this Section 5.3 are met.
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(c) Tax. An independent certified public accounting firm selected by the
Trust will prepare the Trust's federal income tax return as soon as practicable
after the conclusion of each year and each Shareholder will be furnished, at
that time, with the necessary accounting information for each Shareholder to
take into account and report separately such Shareholder's distributive share of
the income and deductions of the Trust. The Trust will use its reasonable best
efforts to obtain the information necessary for the accounting firm as soon as
practicable and to transmit the resulting accounting and tax information to the
Shareholders as soon as possible after receipt from the accounting firm.
5.4 Bank Accounts. The Trust shall maintain separate segregated accounts in
its name at one or more commercial banks, and the cash funds of the Trust shall
be kept in any of those accounts as determined by the Trust.
5.5 Interim Assets. The Trust may purchase, to the extent the Trust's funds
are not otherwise committed to real estate transactions or required for other
purposes, either or both of the following:
(a) Obligations of banks or savings and loan associations that either (i)
have assets in excess of $5 billion or (ii) are insured in their entirety by
agencies of the United States government; and
(b) Obligations of or guaranteed by the United States government or its
agencies.
ARTICLE 6
RIGHTS AND OBLIGATIONS OF SHAREHOLDERS
6.1 Participation in Management. No Shareholder (other than the Managing
Shareholder, a Trustee or any other member of the Board acting in his or its
management capacity) shall have the right, power, authority or responsibility to
participate in the ordinary and routine management of the Trust's affairs or to
bind the Trust in any manner.
6.2 Rights to Engage in Other Ventures. No Shareholder or any officer,
director, shareholder, member or other person holding a legal or beneficial
interest in any Shareholder shall, by virtue of his ownership of a direct or
indirect interest in the Trust, be in any way prohibited from or restricted in
engaging in, or possessing an interest in, any other business venture of a like
or similar nature including any venture involving the residential real estate
industry.
6.3 Transferability of Shares. Shares in the Trust shall be transferable in
accordance with Section 2.5, subject to certain limitations set forth in Article
2A.
6.4 Information. Each Shareholder's rights to obtain information from the
Trust from time to time are set forth in this Section.
(a) In addition to information provided under Section 5.3, each Shareholder
shall be provided on request with the following:
(1) True and full information regarding the status of the Trust's
business and financial condition;
(2) Promptly after becoming available, a copy of the Trust's federal,
state and local income tax returns or information returns for the preceding
year and prior years to the extent reasonably available;
(3) A copy of the Certificate and this Declaration and all amendments
thereto and restatements thereof;
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(4) True and full information regarding the amount of cash and a
description and statement of the agreed value of any other property or
services contributed by each Shareholder and which any Shareholder has
agreed to contribute in the future, and the date on which each current
Shareholder acquired his Shares; and
(5) Such other information regarding the Trust's affairs as is just
and reasonable.
(b) Upon prior written demand stating a proper Trust purpose, any
Shareholder and any representative thereof specifically designated as such in
writing shall be permitted reasonable access to records of the Trust at all
reasonable times, and may inspect and copy any of them. Inspection of the
Trust's books and records by the securities administrator of any state in which
the Trust offers and sells Shares shall be provided upon reasonable notice and
during normal business hours.
(c) The Trust shall maintain as part of the books and records of the Trust
an alphabetical list of the names, addresses, and telephone numbers of the
Shareholders along with the number of Shares held by each of them (the
"Shareholder List") and, upon receipt of prior written demand stating a proper
Trust purpose, make it reasonably available for inspection at the home office of
the Trust by any Shareholder or his representative specifically designated as
such in writing. The Trust shall update the Shareholder List at least quarterly
to reflect changes in the information contained therein. Alternatively, the
Trust may mail a copy of the Shareholder List to any Shareholder requesting it
for a proper Trust purpose specified in writing. The Trust may charge a
reasonable fee for such copy.
(d) The Trust shall establish reasonable standards governing without
limitation the information and documents to be furnished and the time and the
location, if appropriate, of furnishing that information and documents. Costs of
providing information and documents shall be borne by the requesting Shareholder
except for de minimis amounts consistent with the Trust's ordinary practices.
The Trust shall be entitled to reimbursement for its direct, out-of-pocket
expenses incurred in declining unreasonable requests (in whole or in part) for
information.
(e) The Trust may keep confidential from Shareholders for such period of
time as it deems reasonable any information that it reasonably believes to be in
the nature of trade secrets or other information that the Trust in good faith
believes would not be in the best interests of the Trust to disclose or that
could damage the Trust or its business or that the Trust is required by law or
by agreement with a third party to keep confidential.
(f) The Trust may keep its records in other than written form if capable of
conversion into written form within a reasonable time.
(g) All demands or requests for information under this Section shall be
solely for a proper Trust purpose reasonably related to the Shareholder's
interest in the Trust. All requests or demands for information under this
Section shall be in writing and shall state the purpose of the demand; the
Trust's acceptance of oral requests shall not waive or limit the scope of this
provision. Any action to enforce rights under this Section may be brought in the
Delaware Court of Chancery, subject to Section 9.4.
6.5 Shareholders' Meetings. (a) There shall be an annual meeting of the
Shareholders at such time and place, either within or without the State of
Delaware, as the Managing Shareholder shall prescribe, at which all members of
the Board (including all Independent Trustees) (except in the case of staggered
elections which have been approved by the Managing Shareholder and a Majority of
the Shareholders entitled to vote, in which case, only the class up for election
or reelection) shall be elected or reelected and any other proper business may
be conducted. The annual meeting of Shareholders shall be held upon reasonable
notice and within a reasonable period (not less than 30 days) following delivery
of the annual report specified in Section 5.3(b), but in any event such meeting
must be held within six months after the end of each full fiscal year. Special
meetings of Shareholders may be called by the Managing Shareholder, a majority
of the members of the Board, a majority of the Independent Trustees, or by any
officer of the Trust, and shall be called upon the written request of
Shareholders holding in the aggregate not less than ten percent of the
outstanding Shares of the Trust entitled to vote at such meeting in the manner
provided in the Bylaws. Unless requested by the Shareholders entitled to cast a
majority of all votes entitled to be cast at such meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter
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voted on at any special meeting of the Shareholders held during the preceding 12
months. If there shall be no Managing Shareholder and no remaining members of
the Board, the officers of the Trust shall promptly call a special meeting of
the Shareholders for the election of successor members of the Board. Written or
printed notice stating the place, date and hour of the Shareholders' meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than 10 nor more than 60 days
before the day of the meeting either personally or by mail, by or at the
direction of the Managing Shareholder or any officer or person calling the
meeting, to each Shareholder of record entitled to vote at such meeting. No
other business than that which is stated in the call for a special meeting shall
be considered at such meeting.
(b) A majority of the outstanding Shares entitled to vote at any meeting
represented in person or by proxy shall constitute a quorum at any such meeting.
Whenever any action is to be taken by the Shareholders, it shall, except as
otherwise authorized by law or this Declaration or the Bylaws, be authorized by
a majority of the votes cast at a meeting of Shareholders by holders of Shares
entitled to vote thereon.
(c) At the discretion of the Managing Shareholder or Shareholders holding
ten percent or more of the outstanding Shares entitled to vote on a particular
matter, as the case may be, any consent required by this Declaration or any vote
or action by the Shareholders or any subgroup thereof may be effected without a
meeting by a consent or consents in writing signed by the persons required to
give such consent, to vote or to take action. The Managing Shareholder may
solicit consents or Shareholders holding ten percent or more of the outstanding
Shares entitled to vote on the matter may demand a solicitation of consents by
giving notice to the Trust stating the purpose of the consent and including a
form of consent. The Trust shall effect a solicitation of consents by giving all
Shareholders entitled to vote a notice of solicitation stating the purpose of
the consent, a form of consent and the date on which the consents are to be
tabulated, which shall be not less than 15 days nor more than 45 days after the
Trust transmits the notice of solicitation for consents. If Shareholders holding
ten percent or more of the outstanding Shares entitled to vote on the matter
demand a solicitation, the Trust shall transmit the notice of solicitation not
later than 20 days after receipt of the demand.
(d) To the extent not inconsistent with this Declaration, Delaware law
governing stockholders' meetings, proxies and consents for corporations shall
apply as to the procedure, validity and use of meetings, proxies and consents.
Any Shareholder may waive notice of or attendance at any meeting or notice of
any consent, whether before or after any action is taken. The date on which the
Trust transmits the notice of meeting or notice soliciting consents shall be the
record date for determining the right to vote or consent.
6.6 Voting. (a) At each meeting of the Shareholders, each Shareholder
entitled to vote shall have the right to vote, in person or by proxy, the number
of Shares of the Trust owned by him upon each matter upon which the vote of the
Shareholders is taken. In any election in which more than one vacancy on the
Board is to be filled, each Shareholder may vote the number of Shares of the
Trust owned by him for each such vacancy to be filled. There shall be no right
of cumulative voting. Each outstanding Common Share shall be entitled to one
vote on each matter submitted to a vote at a meeting of Shareholders except (a)
to the extent that this Declaration (to the extent permitted by Delaware law)
limits or denies voting rights to the holders of the Shares of any class or
series, or (b) as otherwise provided by Delaware law. Preferred Shares shall
have such voting rights as the Managing Shareholder may designate in accordance
with Section 2.1(c).
(b) In addition to any other actions of the Trust requiring the approval of
Shareholders under this Declaration (including without limitation Section
7.3(b), a Majority of the Shareholders present in person or by proxy at an
annual meeting at which a quorum is present, may, without the necessity for
concurrence by the Board, vote to amend this Declaration, terminate the Trust,
and elect and/or remove one or more members of the Board.
(c) Shares in the Trust owned by the Managing Shareholder, the Trustees,
other members of the Board of the Trust, the Original Investors and any of their
respective affiliates may not vote regarding the removal of the Managing
Shareholder, the Trustees or any other member of the Board or any transaction
between the Trust and any of them.
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6.7 Distributions. (a) The Managing Shareholder may from time to time
declare and pay to Shareholders such dividends or distributions in cash,
property or other assets of the Trust or in Shares or from any other source as
the Managing Shareholder in its discretion shall determine. Any such dividends
and distributions shall be made to Shareholders on a pro rata basis for each
class of Shares taking into account the relative rights of priority of each
class of Shares entitled thereto. The Managing Shareholder shall endeavor to
declare and pay such dividends and distributions as shall be necessary for the
Trust to qualify as a REIT under the Code (so long as such qualification, in the
opinion of the Managing Shareholder, is in the best interests of the
Shareholders); however, Shareholders shall have no right to any dividend or
distribution unless and until declared by the Managing Shareholder. The exercise
of the powers and rights of the Managing Shareholder pursuant to this Section
shall be subject to the provisions of any class or series of Shares at the time
outstanding. The receipt by any person in whose name any Shares are registered
on the records of the Trust or by his duly authorized agent shall be a
sufficient discharge for all dividends or distributions payable or deliverable
in respect of such Shares and from all liability to see to the application
thereof.
(b) Distributions in Kind. (i) The Trust may make distributions in kind of
any asset of the Trust only if the distribution in kind is comprised of (1)
readily marketable securities, (2) beneficial interests in a liquidating trust
established for the dissolution of the Trust and the liquidation of its assets
in accordance with the terms and conditions of this Declaration, or (3) other
property, in which case the Managing Shareholder must advise each Shareholder of
the risks associated with direct ownership of such other property; offer each
Shareholder the election of receiving the property; and distribute the property
only to those Shareholders who accept the Managing Shareholder's offer.
(ii) If the Trust elects to make distribution in kind of any of its assets,
the Managing Shareholder shall give notice of the Trust's election to each
Shareholder, specifying the nature and value of all such assets to be
distributed in kind, the deadline for giving notice of refusal to accept a
distribution in kind and to the extent advisable, the estimated time necessary
for the Trust to liquidate assets if those assets are not distributed and other
information as required. In making such election, the Trust shall not
arbitrarily value assets to be distributed in kind nor shall it specify assets
to be distributed in kind in such a manner as to unreasonably advantage or
disadvantage any Shareholder. A Shareholder may refuse to accept a distribution
in kind by giving written notice to the Trust not later than 30 days after the
effective date of the Trust's notice of distribution. If a Shareholder refuses
distribution in kind, the Trust shall retain in the Trust's name the portion of
the assets which were to be distributed in kind and which were to be allocated
to the refusing Shareholder (the "Retained Assets") and shall liquidate the
Retained Assets in accordance with this Declaration. Upon liquidation of the
Retained Assets, the sum realized shall be distributed to the Shareholder
refusing distribution in kind in full discharge of the Trust's obligation to
distribute the Retained Assets.
6.8 Notice of Non-liability. The Managing Shareholder shall use every
reasonable means to assure that all persons having dealings with the Trust shall
be informed that the private property of the Shareholders, the Managing
Shareholder, the Trustees, and any other members of the Board shall not be
subject to claims against and obligations of the Trust to any extent whatever.
The Trustee shall cause to be inserted in every written agreement, undertaking
or obligation made or issued on behalf of the Trust, an appropriate provision to
the effect that the Shareholders, the Managing Shareholder, the Trustees and any
other members of the Board shall not be personally liable thereunder, and that
all parties concerned shall look solely to the Trust Property for the
satisfaction of any claim thereunder, and appropriate reference shall be made to
this Declaration. The omission of such a provision from any such agreement,
undertaking or obligation, or the failure to use any other means of giving such
notice, shall not, however, render the Shareholders, the Managing Shareholder,
the Trustees or any other members of the Board personally liable.
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ARTICLE 7
POWERS, DUTIES AND LIMITATIONS ON MANAGING SHAREHOLDER, BOARD
AND INDEPENDENT TRUSTEES
7.1 Management of the Trust. The Managing Shareholder shall have full,
exclusive and complete discretion in the management and control of the Trust,
except as otherwise provided herein. The Managing Shareholder agrees to manage
and control the affairs of the Trust to the best of its ability and to conduct
the operations contemplated under this Declaration in a careful and prudent
manner and in accordance with good industry practice. The Managing Shareholder
may bind the Trust.
7.2 Acceptance of Subscriptions. The Managing Shareholder shall not cause
the Trust to accept any subscription for Common Shares in connection with the
Initial Offering except as provided Section 1.6.
7.3 Specific Limitations. (a) The Managing Shareholder shall not take any
of the following actions:
(1) Any act in contravention of this Declaration or the Certificate;
(2) Any act that would make it impossible to carry on the Trust's
ordinary business;
(3) Effecting a confession of judgment against the Trust in an amount
exceeding 10% of the aggregate Capital Contributions;
(4) Causing the dissolution or termination of the Trust prior to the
expiration of its term, except as provided under Article 8;
(5) Possessing Trust Property or assigning rights in specific Trust
Property for other than a Trust purpose; or
(6) Constituting any other person as a Managing Shareholder, except as
provided in Article 8.
(b) The Managing Shareholder shall not cause the Trust to take any of the
following actions without the approval of a Majority of the Shareholders given
at a duly convened Shareholders' meeting at which a quorum is present or by
written consent:
(i) Amend this Declaration except as otherwise specified in this
Declaration and except for amendments which do not adversely affect the
rights, preferences and privileges of Shareholders, including amendments to
provisions relating to qualifications of the Trustees and members of the
Board, fiduciary duty, liability and indemnification, conflicts of
interest, investment policies or investment restrictions.
(ii) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of the Trust's assets if not in the ordinary course of
operation of Trust Property or in connection with liquidation and
dissolution.
(iii) Merge or otherwise reorganize the Trust.
(iv) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(c) The Trustees, the Trust and the Trust's agents shall not take any
action that is prohibited to the Managing Shareholder by this or any other
provision of this Declaration and shall take all actions necessary or advisable
to carry out actions specified in this Section that are approved as specified
herein.
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(d) The Managing Shareholder (or any successor Advisor of the Trust), a
majority of the Independent Trustees, or a Majority of the Shareholders (by
voting at an annual or special meeting at which a quorum is present, without the
necessity for concurrence by the Board) may terminate the Trust Management
Agreement (or subsequent management, administrative and investment advisory
agreement), and the Managing Shareholder (or any successor Advisor) may resign
as Managing Shareholder (or Advisor) of the Trust in accordance with the terms
and conditions of Section 1.9(d) and, if not inconsistent with the Section
1.9(d), the terms and conditions of the Trust Management Agreement (or any
subsequent agreement) entered into by the Managing Shareholder (or any successor
Advisor) and the Trust.
7.4 Powers of Managing Shareholder. The Managing Shareholder shall have all
the powers necessary, convenient or appropriate to effectuate the purposes of
the Trust and may take any action which it deems necessary or desirable and
proper to carry out such purposes, except as otherwise provided in this
Declaration. Any determination of the purposes of the Trust made by the Managing
Shareholder in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of the grant of powers to
the Managing Shareholder. In addition to the powers and duties otherwise
provided in this Declaration, the Managing Shareholder has the following powers
and duties, subject to (i) the supervision and review by the Board under Section
7.5; (ii) the obligations and prior approval rights of the Board and/or
Independent Trustees set forth in Section 1.9 and elsewhere in this Declaration;
and (iii) any other limitations, restrictions or other provisions set forth
herein, including without limitation, Section 1.9:
(a) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, and to acquire, sell, mortgage, own,
acquire on lease, hold, manage, operate, lease to others, improve, option,
exchange, release, and partition real estate interests of every nature,
including freehold, leasehold, mortgage, ground rent and other interests
therein, and to erect, construct, alter, repair, demolish or otherwise change
buildings and structures of every nature.
(b) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, option, sell and exchange stocks, bonds,
notes, certificates of indebtedness and securities of every nature.
(c) To purchase, acquire through the issuance of Shares in the Trust,
obligations of the Trust or otherwise, acquire, sell, mortgage, own, acquire on
lease, hold, manage, improve, lease to others, option and exchange personal
property of every nature.
(d) To hold legal title to Trust Property in the name of the Trust, or in
the name of one or more of the Trustees for the Trust, or of any other person as
nominee for the Trust, without disclosure of the interest of the Trust therein.
(e) To borrow money for the purposes of the Trust (including without
limitation the payment of dividends to Shareholders, working capital, property
acquisitions, refinancings of existing indebtedness and acquisitions of
additional interests in any partnership formed or acquired by the Trust in which
all or a portion of the Trust's real estate assets might be held and its
operations might be conducted) and to give notes or other negotiable or
nonnegotiable instruments of the Trust therefor; to enter into other obligations
or guarantee the obligations of others on behalf of and for the purposes of the
Trust; and to mortgage or pledge or cause to be mortgaged or pledged real and
personal property of the Trust to secure such notes, debentures, bonds,
instruments or other obligations.
(f) To lend money on behalf of the Trust and to invest the funds of the
Trust.
(g) To create reserve funds for such purposes as it deems advisable.
(h) To deposit funds of the Trust in banks and other depositories without
regard to whether such accounts will draw interest.
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(i) To pay taxes and assessments imposed upon or chargeable against the
Trust, the Managing Shareholder or the Trustees by virtue of or arising out of
the existence, property, business or activities of the Trust.
(j) To purchase, issue, sell or exchange Shares of the Trust as provided in
Article 2 hereof.
(k) To exercise with respect to Trust Property, all options, privileges and
rights, whether to vote, assent, subscribe or convert, or of any other nature;
to grant proxies; and to participate in and accept securities issued under any
voting trust agreement.
(l) To participate in any reorganization, readjustment, consolidation,
merger, dissolution, sale or purchase of assets, lease, or similar proceedings
of any corporation, partnership or other organization in which the Trust shall
have an interest and in connection therewith to delegate discretionary powers to
any reorganization, protective or similar committee and to pay assessments and
other expenses in connection therewith.
(m) To engage or employ agents, representatives and employees of any
nature, or independent contractors, including, without limiting the generality
of the foregoing, transfer agents for the transfer of Shares in the Trust,
registrars, underwriters for the sale of Shares in the Trust, independent
certified public accountants, attorneys at law, appraisers, and real estate
agents and brokers; and to delegate to one or more Trustees, agents,
representatives, employees, independent contractors or other persons such powers
and duties as the Managing Shareholder deems appropriate.
(n) To determine conclusively the allocation between capital and income of
the receipts, holdings, expenses and disbursements of the Trust, regardless of
the allocation which might be considered appropriate in the absence of this
provision.
(o) To determine conclusively the value from time to time and to re-value
the real estate, securities and other property of the Trust by means of
independent appraisals.
(p) To compromise or settle claims, questions, disputes and controversies
by, against or affecting the Trust.
(q) To solicit proxies of the Shareholders.
(r) To adopt a fiscal year for the Trust and to change such fiscal year.
(s) To adopt and use a seal.
(t) To merge the Trust with or into any other trust or corporation in
accordance with the laws of the State of Delaware and any other applicable law.
(u) To deal with the Trust Property in every way, including joint ventures,
partnerships and any other combinations or associations, that it would be lawful
for an individual to deal with the same, whether similar to or different from
the ways herein and hereinabove specified.
(v) To determine whether or not, at any time or from time to time, to
attempt to cause the Trust to qualify for taxation as a REIT.
(w) To make, adopt, amend or repeal Bylaws containing provisions relating
to the business of the Trust, the conduct of its affairs, its rights or powers
and the rights or powers of the Managing Shareholder and the Trust's
Shareholders, Trustees or officers not inconsistent with applicable law or this
Declaration.
(x) To direct or supervise the Corporate Trustee, the Trust and the Trust's
agents in the exercise of any action relating to the Trust's affairs, including
without limitation the powers described in Section 1.8.
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(y) To take the actions specified in Section 7.3 if the approvals specified
therein are obtained.
(z) To amend this Declaration as specified in Section 9.8(a) or other
provisions of this Declaration.
(aa) To lend money to the Trust in accordance with Section 1.9(o).
(bb) To terminate the Initial Offering at any time prior to the Termination
Date, provided that the Escrow Date has occurred.
(cc) To withdraw the Initial Offering at any time as provided in Section
1.6.
(dd) To acquire on behalf of the Trust such assets or properties, real or
personal, including without limitation residential properties, undeveloped land,
stocks, bonds, notes, partnership interests and other securities, as the
Managing Shareholder in its sole discretion deems necessary or appropriate for
the conduct of the Trust's business and to sell, exchange, distribute to
Shareholders in kind or otherwise dispose of any part of the Trust Property in
the ordinary course of the operation of the Trust Property.
(ee) To take such steps as may be necessary to cause any partnership formed
or acquired by the Trust in which all or a portion of the Trust's real estate
assets might be held and its operations might be conducted, to distribute to its
partners an amount sufficient to permit the Trust to meet the annual
distribution requirements of the REIT provisions of the Code.
(ff) To do all such other acts and things as are incident to any of the
foregoing and to exercise all powers which are necessary or useful to carry on
the business of the Trust, to promote any of the purposes of the Trust, and to
carry out the provisions of this Declaration.
7.5 Independent Trustees. (a) There shall be at least two Independent
Trustees of the Trust at all times. The Independent Trustees shall have such
responsibilities and rights as are prescribed in this Declaration. The number of
Independent Trustees may be increased (but to not more than five) or decreased
(but to not fewer than two) from time to time by action of a majority of the
Managing Shareholder and the Independent Trustees, acting together
(collectively, the "Board").
(b) To qualify to serve the Trust as an Independent Trustee, a person may
not be "associated" (as such term is defined below) or have been "associated"
within the last two years, directly or indirectly, with the Managing Shareholder
(or any successor Advisor to the Trust). A person is deemed to be associated
with the Managing Shareholder if he (i) owns an interest in, is employed by, or
is an officer, director or trustee of the Managing Shareholder or any of its
Affiliates; (ii) performs services, other than as a Trustee, for the Trust;
(iii) is a Trustee for more than three REITs organized or advised by the
Managing Shareholder; or (iv) has any "material business or professional
relationship" with the Managing Shareholder or any of its Affiliates. For
purposes of determining whether there exists such a material business or
professional relationship, the gross revenue derived by the prospective
Independent Trustee from the Managing Shareholder and its Affiliates is deemed
to be material per se if it exceeds five percent of the prospective Independent
Trustee's (i) annual gross revenue, derived from all sources, during either of
the last two years, or (ii) net worth, on a fair market value basis. For
purposes of determining the qualification of a person to serve the Trust as an
Independent Trustee, an indirect relationship shall include circumstances in
which any spouse, parent, child, sibling, mother- or father-in-law, son- or
daughter-in-law, or brother- or sister-in-law of a prospective Independent
Trustee is or has been associated with the Trust, the Managing Shareholder (or
any successor Advisor of the Trust) or any of the Managing Shareholder's (or
successor Advisor's) Affiliates.
(c) The term of each Independent Trustee shall be one year (subject to a
shorter term in the case of an Independent Trustee who resigns, dies or is
incapacitated or removed prior to the end of the term or was elected to replace
a vacancy). Each Independent Trustee (other than one who is elected to fill the
unexpired term of another Independent Trustee) shall be elected by a vote of the
Shareholders. Any person may serve an unlimited number of terms. Vacancies
created in the authorized number of Independent Trustees prior to the end of a
term shall be filled
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by a majority of the remaining Board members. If, in such case, no member of the
Board remains, the Managing Shareholder shall call a special meeting of
Shareholders for the purpose of electing Independent Trustees to fill such
vacancy within 90 days after the last vacancy occurs. The Independent Trustees
shall nominate replacements for vacancies created in the authorized number of
Independent Trustees prior to the end of a term.
(d) The Independent Trustees shall supervise and review, in accordance with
the terms and conditions of this Declaration, the actions of the Managing
Shareholder in managing the Trust and shall have the right to require action by
the Managing Shareholder to the extent necessary to carry out the fiduciary
duties of the Independent Trustees. Except as expressly authorized by this
Declaration, the Independent Trustees shall not have any management,
administrative or investment advisory powers over the Trust or the Trust
Property. The Independent Trustees shall not take any action except at a meeting
of the Board or by unanimous written consent of the Independent Trustees and the
Managing Shareholder.
(e) Any Independent Trustee may resign if he gives notice to the Trust of
his intent to resign and cooperates fully with any successor Independent Trustee
appointed under this Section 7.5. Such resignation shall be effective on the
designation of the successor Independent Trustee.
(f) Any Independent Trustee may be removed (x) for cause by the action of
at least two-thirds of the remaining members of the Board or (y) by action of
the holders of at least a majority of the then outstanding Common Shares.
Removal of an Independent Trustee shall not affect the validity of any actions
taken prior to the date of removal.
7.6 Board of the Trust. (a) The Trust shall have a Board of the Trust which
shall have such responsibilities and rights as shall be prescribed in this
Declaration. There shall be at least three members of the Board at all times.
The number of members of the Board may be increased (but to not more than nine)
or decreased (but to not fewer than three) from time to time by action of a
majority of the members of the Board. At all times a majority of the members of
the Board shall be Independent Trustees. No person shall qualify as a member of
the Board until he shall have agreed in writing to be bound by this Declaration.
Each member of the Board shall have had at least three years of relevant
experience demonstrating the knowledge and experience required to successfully
acquire and manage the type of assets to be acquired by the Trust. At least one
of the Independent Trustees must have at least three years of relevant real
estate experience. The term of each member of the Board shall be one year
(subject to a shorter term in the case of a member who resigns, dies, is
incapacitated or removed prior to the end of the term, or was elected to replace
a vacancy). Each member of the Board (other than one who is elected to fill the
unexpired term of another member) shall be elected by a vote of the
Shareholders. Each member of the Board may serve an unlimited number of terms.
Vacancies created in the authorized number of Board members prior to the end of
a term shall be filled by a majority of the remaining Board members. If, in such
case, no member of the Board remains, the Managing Shareholder shall call a
special meeting of Shareholders for the purpose of electing members to fill such
vacancies within 90 days after the last vacancy occurs. The Independent Trustees
shall nominate replacements for vacancies created in the authorized number of
members of the Board prior to the end of a term.
(b) The Board shall supervise and review, in accordance with the terms and
conditions of this Declaration, the actions of the Managing Shareholder in
managing the Trust and shall have the right to require action by the Managing
Shareholder to the extent necessary to carry out the fiduciary duties of the
Board's members. The Board may establish such committees they deem appropriate,
provided, the majority of the members of any such committee are Independent
Trustees.
(c) The Board shall meet at least annually on the call of the Managing
Shareholder and at such other times as determined by the Board. Except to the
extent conflicting with the Delaware Act or this Declaration, the law of
Delaware governing meetings of directors of corporations shall govern meetings,
voting and consents by the members of the Board. The Managing Shareholder may be
represented for any purpose by any of its officers.
(d) As compensation for services rendered to the Trust, each Independent
Trustee and each other member of the Board who is not affiliated or associated
with the Trust or the Managing Shareholder or any of its Affiliates shall be
paid by the Trust the sum of $6,000 annually in quarterly installments and shall
be reimbursed for
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all reasonable out-of-pocket expenses relating to attendance at meetings or
otherwise performing his duties hereunder. The Board may review annually the
compensation payable to the Independent Trustees and such other members of the
Board and may increase or decrease it as the Board sees reasonable. No
compensation for consulting services shall be paid to Independent Trustees or
such other members of the Board without prior Board approval. No compensation
shall be payable by the Trust to other Managing Persons for their services
except as specified by this Declaration, under a management agreement or other
agreement approved under the terms and conditions of this Declaration or
indirectly as an officer, director, stockholder or employee of the Managing
Shareholder or other Managing Person otherwise entitled to receive compensation
hereunder.
(e) Any member of the Board may resign if he gives notice to the Trust of
his intent to resign and cooperates fully with any successor member appointed
under this Section 7.5. Any such resignation shall be effective on the
designation of the successor member.
(f) Any member of the Board may be removed (x) for cause by the action of
at least two-thirds of the remaining members of the Board or (y) by action of
the holders of at least a majority of the then outstanding Common Shares.
Removal of any member shall not affect the validity of any actions of the Board
taken prior to the date of removal.
7.7 Officers of Trust. (a) The Managing Shareholder shall appoint a Chief
Executive Officer, President, Chief Operating Officer, one or more Vice
Presidents as designated by the Managing Shareholder, a Secretary and such other
officers and agents of the Trust as the Managing Shareholder may from time to
time consider appropriate, none of whom need be a Shareholder. Except as
otherwise prescribed by the Managing Shareholder or in this Declaration or the
Bylaws of the Trust, each officer shall have the powers and duties usually
appertaining to a similar officer of a Delaware corporation under the direction
of the Managing Shareholder and shall hold office during the pleasure of the
Managing Shareholder. Any two or more offices may be held by the same person.
Any officer may resign by delivering a written resignation to the Managing
Shareholder and such resignation shall take effect upon delivery or as specified
therein.
(b) All conveyances of real property or any interest therein by the Trust
may be made by the Corporate Trustee, which shall execute on behalf of the Trust
any instruments necessary to effect the conveyance. A certificate of the
Secretary of the Trust stating compliance with this Section 7.7(b) shall be
conclusive in favor of any person relying thereon.
(c) All other documents, agreements, instruments and certificates that are
to be made, executed or endorsed on behalf of the Trust shall be made, executed
or endorsed by such officers or persons as the Managing Shareholder shall from
time to time authorize and such authority may be general or confined to specific
instances. In the absence of other provisions, the President is authorized to
execute any document, to take any action on behalf of the Trust under this
Section 7.7(c), and to authorize other officers to execute confirmatory
documents or certificates.
7.8 Presumption of Power. The execution by the Corporate Trustee, the
Managing Shareholder or the officers on behalf of the Trust of leases,
assignments, conveyances, contracts or agreements of any kind whatsoever shall
be sufficient to bind the Trust. No person dealing with the Managing Shareholder
or the Trust's officers shall be required to determine their authority to make
or execute any undertaking on behalf of the Trust, nor to determine any fact or
circumstances bearing upon the existence of their authority nor to see the
application or distributions of revenues or proceeds derived therefrom, unless
and until such person has received written notice to the contrary.
7.9 Obligations Not Exclusive. The Managing Shareholder, Trustees and any
other members of the Board shall be required to devote only such part of their
time as is reasonably needed to manage the business of the Trust, it being
understood that they have and shall have other business interests and therefore
shall not be required to devote their time exclusively to the Trust. The
Managing Shareholder, Trustees and any other members of the Board shall in no
way be prohibited from or restricted in engaging in, or possessing an interest
in, any other business venture of a like or similar nature including any venture
involving the residential real estate industry.
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Nothing in this Section 7.9 shall relieve the Managing Shareholder, Trustees or
any other members of the Board of other fiduciary obligations to the
Shareholders, except as limited in Article 3. Notwithstanding anything to the
contrary contained in this Article or elsewhere in this Declaration, the
Managing Shareholder shall have no duty to take any affirmative action with
respect to management of the Trust business or the Trust Property which might
require the expenditure of moneys by the Trust or the Managing Shareholder
unless the Trust is then possessed of such moneys available for the proposed
expenditure. Under no circumstances shall the Managing Shareholder be required
to expend its own funds in connection with the day to day operation of Trust
business.
7.10 Right to Deal with Affiliates. No act of the Trust shall be affected
or invalidated by the fact that a Managing Person may be a party to or have an
interest in any contract or transaction of the Trust, provided that (i) such
arrangement involving the Managing Person conforms with any applicable
provisions of Section 1.9, and (ii) the fact of the Managing Person's interest
shall be disclosed or shall have been known to the Shareholders or the contract
or transaction is at prevailing rates or on terms at least as favorable to the
Trust as those available from persons who are not Managing Persons.
7.11 Removal of Managing Shareholder. The holders of at least ten percent
of the Common Shares may propose the removal of the Managing Shareholder (or any
successor Advisor of the Trust), either by calling a meeting or soliciting
consents in accordance with the terms of this Declaration. On the affirmative
vote of a Majority of the Shareholders entitled to vote (excluding Common Shares
held by the Managing Shareholder that is the subject of the vote or by its
Affiliates), such Managing Shareholder shall be removed. A majority of the
Independent Trustees may also remove the Managing Shareholder. In the event of
any such removal or the death, dissolution, resignation, insolvency, bankruptcy
or other legal incapacity of the Managing Shareholder or any other event which
would legally disqualify the Managing Shareholder from acting hereunder, the
former Managing Shareholder shall not be entitled to any uncollected fees
specified in Article 4 to the extent not accrued before the date of such removal
or other incapacity.
ARTICLE 8
DISSOLUTION, TERMINATION AND LIQUIDATION
8.1 Dissolution. The Trust shall be dissolved promptly if prior to the
Termination Date of the Initial Offering the Managing Shareholder decides to
withdraw the Initial Offering in accordance with Section 7.4(cc). On or after
the Termination Date, the Trust shall be dissolved and its business shall be
wound up upon the earliest to occur of the following events, unless the
provisions of Section 8.2 are elected:
(a) December 31, 2098;
(b) The sale of all or substantially all of the Trust Property in one
transaction or in a series of related transactions;
(c) The vote of a Majority of Shareholders; or
(d) The occurrence of any other event which, by law, would require the
Trust to be dissolved.
8.2 Continuation of the Trust. Upon the occurrence of any event of
dissolution described in Sections 8.1(a) through (c), the Trust shall be
dissolved and wound up unless (i) the Managing Shareholder and a Majority of the
Shareholders (calculated without regard to Common Shares owned by the Managing
Shareholder or its Affiliates) within 90 days after the occurrence of any such
event of dissolution elect to continue the Trust or, (ii) if there is no
remaining Managing Shareholder, within 90 days after the occurrence of any such
event of dissolution, a Majority of the Shareholders shall elect, in writing,
that the Trust shall be continued on the terms and conditions herein contained
and shall designate one or more persons willing to be substituted as a Managing
Shareholder or Managing Shareholders. In the event there is no remaining
Managing Shareholder and a Majority of the Shareholders elect to continue the
Trust, it shall be continued with the new Managing Shareholder or Managing
Shareholders who shall succeed to and assume all of the powers, privileges and
obligations of the previous
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Managing Shareholder or Managing Shareholders hereunder.
8.3 Obligations on Dissolution. The dissolution of the Trust shall not
release any of the parties hereto from their contractual obligations under this
Declaration.
8.4 Liquidation Procedure. Upon dissolution of the Trust for any reason:
(a) A reasonable time shall be allowed for the orderly liquidation of the
assets of the Trust and the discharge of liabilities to creditors so as to
enable the Trust to minimize the losses normally attendant to a liquidation;
(b) The Shareholders shall continue to receive dividends or distributions
as may be declared by the Managing Shareholder; and
(c) The Managing Shareholder (or in its absence, any other liquidating
trustee appointed under Section 8.5) shall proceed to liquidate the Trust
Properties to the extent that they have not already been reduced to cash unless
the Managing Shareholder (or other liquidating trustee) elects to make
distributions in kind to the extent and in the manner provided herein, and such
net cash proceeds, if any, and property in kind, shall be applied and
distributed to the Shareholders on a pro rata basis for each class of Shares
taking into account the relative rights of priority of each class.
8.5 Liquidating Trustee. (a) If the dissolution of the Trust is caused by
circumstances under which no Managing Shareholder shall be acting as a Managing
Shareholder or if all liquidating Managing Shareholders are unable or refuse to
act, a majority of the Board shall appoint a liquidating trustee who shall
proceed to wind up the business affairs of the Trust. The liquidating trustee
shall have no liability to the Trust or to any Shareholder for any loss suffered
by the Trust which arises out of any action or inaction of the liquidating
trustee if the liquidating trustee, in good faith, determined that such course
of conduct was in the best interests of the Shareholders and such course of
conduct did not constitute negligence or misconduct of the liquidating trustee.
The liquidating trustee shall be indemnified by the Trust against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by it in connection with the Trust, provided that the same were not
the result of negligence or misconduct of the liquidating trustee.
(b) Notwithstanding the above, the liquidating trustee shall not be
indemnified and no expenses shall be advanced on its behalf for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws, unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (3) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee.
(c) In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
position of the Securities and Exchange Commission and of any applicable state
securities administrators, if required, with respect to the issue of
indemnification for securities law violations.
(d) The Trust shall not incur the cost of that portion of any insurance,
other than public liability insurance, which insures any party against any
liability the indemnification of which is herein prohibited.
8.6 Death, Insanity, Dissolution or Insolvency of Managing Shareholder, a
Trustee or a Shareholder. The death, insanity, dissolution, winding up,
insolvency, bankruptcy, receivership or other legal termination of the Managing
Shareholder, a Trustee, a member of the Board or a Shareholder shall have no
effect on the life of the Trust and the Trust shall not be dissolved thereby.
8.7 Withdrawal of Offering. Dissolution of the Trust resulting from
withdrawal of the Initial Offering is governed by Section 1.6(c) and Section
7.4(cc).
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ARTICLE 9
MISCELLANEOUS
9.1 Notices. Notices or instruments of any kind which may be or are
required to be given hereunder by any person to another shall be in writing and
deposited in the United States Mail, first class, certified or registered or
overnight mail by a nationally recognized mail service, postage prepaid,
addressed to the respective person at the address appearing in the records of
the Trust. Any Shareholder may change his address by giving notice in writing,
stating his new address, to the Trust. Any notice shall be deemed to have been
given effective as of 72 hours, excluding Saturdays, Sundays and holidays, after
the depositing of such notice in an official United States Mail receptacle and
as of the next business day after depositing of such notice with any such
overnight mail service. Notice to the Trust may be addressed to its principal
office.
9.2 Delaware Laws Govern. This Declaration shall be governed and construed
in accordance with the laws of the State of Delaware, and venue for any
litigation between or against any of the parties hereto may be maintained in New
Castle County, Delaware.
9.3 Power of Attorney. Each Shareholder irrevocably constitutes and
appoints the Managing Shareholder as his true and lawful attorney-in-fact and
agent to effectuate and to act in his name, place and stead, in effectuating the
purposes of the Trust including the execution, verification, acknowledgment,
delivery, filing and recording of this Declaration as well as all authorized
amendments thereto and hereto, all assumed name and doing business certificates,
documents, bills of sale, assignments and other instruments of conveyances,
leases, contracts, loan documents and counterparts thereof; and all other
documents which may be required to effect a continuation of the Trust and which
the Trust deems necessary or reasonably appropriate, including documents
required to be executed in order to correct typographical errors in documents
previously executed by such Shareholder, documents required to maintain the
federal tax status of the Trust (unless the Managing Shareholder determines that
it is in the best interests of Shareholders to change the Trust's tax status and
a Majority of the Shareholders concur) and all conveyances and other instruments
or other certificates necessary or appropriate to effect an authorized
dissolution and liquidation of the Trust. The power of attorney granted herein
shall be deemed to be coupled with an interest, shall be irrevocable and shall
survive the death, incompetency or legal disability of an Shareholder.
9.4 Disclaimer. In forming this Trust, all Shareholders recognize that the
residential apartment real estate business is highly speculative and that
neither the Trust nor the Managing Shareholder, any Trustee, any other member of
the Board, or any other Managing Person makes any guaranty or representation to
any Shareholder as to the probability or amount of gain or loss from the conduct
of Trust business.
9.5 Corporate Trustee Resignation and Replacement. The Managing Shareholder
may increase or decrease the number of Corporate Trustees so long as there is at
least one Corporate Trustee which meets the requirements of Section 3807 of the
Delaware Act. A Corporate Trustee may resign by delivering a written resignation
to the Managing Shareholder not less than 60 days prior to the effective date of
the resignation. The Managing Shareholder may remove a Corporate Trustee at any
time, provided that if there is no incumbent, at least one new Corporate Trustee
is concurrently appointed. In the event of the absence, death, resignation,
removal, dissolution, insolvency, bankruptcy or legal incapacity of a Corporate
Trustee or if an additional Corporate Trustee is to be appointed, the Managing
Shareholder shall appoint the Corporate Trustee in writing and shall
subsequently give notice to the Shareholders, although such notice is not
necessary to the validity of the appointment. A Corporate Trustee so appointed
shall qualify by filing his written acceptance at the Trust's principal place of
business. If there are multiple Corporate Trustees, each is vested with an
undivided interest in the trust estate and may exercise all powers vested in the
Corporate Trustee as directed by the Managing Shareholder.
9.6 Amendment and Construction of Declaration. (a) This Declaration may be
amended by the Managing Shareholder, without notice to or the approval of the
Shareholders, from time to time for the following purposes: (1) to cure any
ambiguity, formal defect or omission or to correct or supplement any provision
herein that may be inconsistent with any other provision contained herein or in
the Prospectus or to effect any amendment
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without notice to or approval by Shareholders as specified in other provisions
of this Declaration; (2) to make such other changes or provisions in regard to
matters or questions arising under this Declaration that will not materially and
adversely affect the interest of any Shareholder; (3) to otherwise equitably
resolve issues arising under the Prospectus or this Declaration so long as
similarly situated Shareholders are not treated materially differently; (4) to
maintain the federal tax status of the Trust (unless the Managing Shareholder
determines that it is in the best interests of Shareholders to change the
Trust's tax status and a Majority of the Shareholders concur); and (5) to comply
with law.
(b) Other amendments to this Declaration may be proposed by either the
Managing Shareholder or Shareholders owning 10% or more of the outstanding
Shares entitled to vote, in each case by calling a meeting of Shareholders or
requesting consents under Section 9.2(b) and specifying the text of the
amendment and the reasons therefor. Unless otherwise provided herein, all
amendments must be approved by the holders of a Majority of the outstanding
Shares entitled to vote (calculated without regard to Shares owned by the
Managing Shareholder and its Affiliates), and, if the terms of a series of
Shares so require, by the vote of the holders of such class, series or group
specified therein.
(c) The Managing Shareholder has power to construe this Declaration and to
act upon any such construction. Its construction of the same and any action
taken pursuant thereto by the Trust or a Managing Person in good faith shall be
final and conclusive.
9.7 Bonds and Accounting. The Trustees and other Managing Persons shall not
be required to give bond or otherwise post security for the performance of their
duties and the Trust waives all provisions of law requiring or permitting the
same. No person shall be entitled at any time to require the Trust, Managing
Shareholder, Trustees, any other member of the Board or any Shareholder to
submit to a judicial or other accounting or otherwise elect any judicial,
administrative or executive supervisory proceeding applicable to non-business
trusts.
9.8 Binding Effect. This Declaration shall be binding upon and shall inure
to the benefit of the Shareholders (and their spouses if the Shares of such
Shareholders shall be community property) as well as their respective heirs,
legal representatives, successors and assigns. This Declaration constitutes the
entire agreement among the Trust, the Trustees and the Shareholders with respect
to the formation and operation of the Trust, other than the Subscription
Agreement entered into between the Trust and each Shareholder and the Trust
Management Agreement.
9.9 Headings. Headings of Articles and Sections used herein are for
descriptive purposes only and shall not control or alter the meaning of this
Declaration as set forth in the text.
9.10 Bylaws. The Bylaws of the Trust may be altered, amended or repealed,
and new Bylaws may be adopted, at any meeting of the Board by a majority of the
Board, subject to repeal or change by action of the Shareholders entitled to
vote thereon.
9.11 Severability. If any provision of this Declaration shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other provision of this Declaration, and the Declaration shall be carried
out, if possible, as if such invalid or unenforceable provision were not
contained therein.
ARTICLE 10
DEFINITIONS
The following terms, whenever used herein, shall have the meanings assigned
to them in this Article 10 unless the context indicates otherwise. References to
sections and articles without further qualification denote sections and articles
of this Declaration. The singular shall include the plural and the masculine
gender shall include the feminine, and vice versa, as the context requires, and
the terms "person" and "he" and their derivations whenever
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used herein shall include natural persons and entities, including, without
limitation, corporations, partnerships and trusts, unless the context indicates
otherwise.
"Advisor" refers to any Person (including the Managing Shareholder)
responsible for directing or performing the day-to-day business affairs of a
real estate investment trust.
"Affiliate" - An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) Any person directly or indirectly owning, controlling or holding, with
power to vote 10% or more of the outstanding voting securities of such other
person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive officer,
director, trustee or general partner.
"Baron Advisors" refers to Baron Advisors, Inc., a Delaware corporation
which is the initial Managing Shareholder of the Trust.
"Baron Properties" refers to Baron Capital Properties, Inc., a Delaware
corporation having its principal office at 1105 North Market Street, Wilmington,
Delaware 19899, which is the initial Corporate Trustee.
"Board" refers to the Managing Shareholder and the Independent Trustees, or
their successors as members of the Board of the Trust, acting together as the
Board of the Trust in accordance with the terms hereof.
"Brentwood" means Brentwood Management, LLC, an Ohio limited liability
company affiliated with the Managing Shareholder which may manage properties in
which the Trust may invest.
"Certificate" refers to the Certificate of Trust for the Trust, as amended
from time to time.
"Code" refers to the Internal Revenue Code of 1986, as amended from time to
time, and any rules and regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Share" refers to a share of beneficial interest in the Trust
designated as a Common Share by the Trust in accordance with Section 2.1 of this
Declaration.
"Corporate Trustee" refers to Baron Properties or its successors as
Corporate Trustee, which acts as legal title holder of the Trust Property,
subject to the terms of this Declaration.
"Dealer Manager" refers to Sigma Financial Corporation, a Michigan
corporation, with its principal place of business at 4261 Park Road, Ann Arbor,
Michigan 48103.
"Declaration" refers to this Amended and Restated Declaration of Trust, as
amended from time to time.
"Delaware Act" refers to the Delaware Business Trust Act, as amended from
time to time (currently codified as title 12, chapter 38 of the Delaware Code).
41
<PAGE>
"Exchange Offering" refers to the proposed offering of Units by the
Operating Partnership in exchange for property interests as contemplated in the
Prospectus.
"Escrow Date" refers to the later to occur of the dates on which the Trust
(i) accepts the subscription that results in the gross proceeds from the Initial
Offering exceeding $500,000, and (ii) deposits at least $500,000 in collected
funds in escrow under Section 1.6(b), provided, however, the Escrow Date shall
not be later than December 31, 1998.
"Exchange Act" refers to the federal Securities Exchange Act of 1934, as
amended.
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior Mortgages on a particular property.
"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"Independent Expert" refers to a person with no material current or prior
business or personal relationship with the Managing Shareholder, any Trustee or
any other member of the Board of the Trust who is engaged to substantial extent
in the business of rendering opinions regarding the value of assets of the type
to be held by the Trust.
"Independent Trustee" refers to any individual meeting certain
qualifications under Section 7.5(b) who becomes an Independent Trustee of the
Trust under the terms of this Declaration.
"Initial Offering" refers to the initial public offering and sale of up to
2,500,000 Common Shares by the Trust pursuant to the Prospectus.
"Junior Mortgage" refers to a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of one or more
Mortgages and (ii) must be satisfied before such other charges or liens (other
than prior Mortgages) are entitled to participate in the proceeds of any sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
"Majority" - Unless otherwise specified herein, when used with respect to
any consent to be given or decision to be made or action to be taken by the
Shareholders or group of Shareholders entitled to vote on a particular matter, a
majority in interest of all the then current Shareholders or members of the
group entitled to vote.
"Managing Person" refers to any of the following: (a) Trust officers,
agents, or Affiliates, the Managing Shareholder, the Trustees, any other members
of the Board, Affiliates of the Managing Shareholder, a Trustee, or any other
member of the Board, and (b) any directors, officers or agents of any
organizations named in (a) above when acting for a Trustee, the Managing
Shareholder, any other member of the Board or any of their Affiliates on behalf
of the Trust.
"Managing Shareholder" refers to Baron Advisors and any substitute or
different Managing Shareholder as may subsequently be created under the terms of
this Declaration.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"Mortgage Loan" refers to a note, bond or other evidence of indebtedness or
obligation which is secured or collateralized by a Mortgage.
42
<PAGE>
"Operating Partnership" refers to Baron Capital Properties, L.P., a
Delaware limited partnership which will conduct all the Trust's real estate
operations and hold all property interests acquired by the Trust. The Trust is
the general partner of the Operating Partnership and by virtue of the
acquisition of Units in the Operating Partnership will own an economic interest
therein.
"Original Investors" refers to Gregory K. McGrath and Robert S. Geiger, the
founders of the Trust and the Operating Partnership.
"Person" refers to any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"Preferred Share" refers to a share of beneficial interest with such
preferences and rights (in relation to other Shares authorized and issued by the
Trust) as the Managing Shareholder may designate under Section 2.1(c) of this
Declaration for sale or issuance subsequent to completion of the Initial
Offering.
"Prospectus" refers to the Prospectus dated _____________, 1998, as
supplemented and amended from time to time, pursuant to which the Trust will
offer the Common Shares for sale to the public.
"REIT" means a real estate investment trust as defined in Section 856 of
the Code which meets the requirements for qualification as a REIT described in
Sections 856 through 860 of the Code.
"Second Mortgage" means a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of a First Mortgage
and (ii) must be satisfied before such other charges or encumbrances (other than
the First Mortgage) are entitled to participate in the proceeds of any sale.
"Second Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Second Mortgage.
"Securities Act" refers to the federal Securities Act of 1933, as amended,
and any rules and regulations promulgated thereunder.
"Share" refers to a share of beneficial interest in the Trust which is
either a Common Share or a Preferred Share authorized for issuance and
designated as such by the Managing Shareholder in accordance with Section 2.1(c)
of this Declaration.
"Shareholder" refers to an owner of Shares (which will include the Managing
Shareholder to the extent it acquires Shares).
"Subscription Documents" refers to the form of subscription documents which
each prospective Shareholder must execute in order to subscribe for Common
Shares in the Initial Offering.
"Termination Date" refers to the date the Initial Offering terminates,
which date shall be December 31, 1998, or an earlier or later date determined by
the Trust in its discretion as follows:
(a) The Trust may designate any date prior to December 31, 1998 as the
Termination Date if the Escrow Date has occurred prior to such date;
(b) The Trust from time to time may designate any date after December 31,
1998, but no later than __________________ [the end of the eighteenth month
following the commencement of the Initial Offering] as the Termination Date if
the Escrow Date has occurred prior to the extension of the Termination Date; and
(c) If the Trust elects to withdraw the Initial Offering of Common Shares
under this Declaration, the Termination Date shall be the date of that election.
43
<PAGE>
"Trust" refers to Baron Capital Trust, a Delaware business trust which is
the issuer of Shares of the Trust.
"Trustee" and "Trustees"- "Trustee" means a person serving as a Corporate
Trustee or an Independent Trustee of the Trust under this Declaration; the term
"Trustees" refers to the Corporate Trustee and the Independent Trustees
collectively.
"Trust Management Agreement" refers to the Trust Management Agreement dated
as of _____________ __, 1998 between the Trust and the Managing Shareholder
under which the Managing Shareholder will perform certain management,
administrative and investment advisory services for the Trust as described in
the Prospectus.
"Trust Property" refers to all real and personal property owned or acquired
by the Corporate Trustee as part of the trust estate under this Declaration,
which is expected to include but not be limited to (i) the land, buildings and
improvements comprising one or more existing residential apartment properties in
which the Trust may make an equity investment, and (ii) its rights in connection
with Mortgage Loans it may acquire or make which are secured by Mortgages on the
land, buildings and improvements comprising residential apartment properties.
"Units" refers to units of limited partnership interest in the Operating
Partnership.
IN WITNESS WHEREOF, the undersigned have signed this Declaration as of the
date first above written.
BARON CAPITAL PROPERTIES, INC.,
Grantor and Corporate Trustee
By: ______________________________
Gregory K. McGrath, President
BARON ADVISORS, INC.,
Managing Shareholder
By: ______________________________
Gregory K. McGrath, President
44
<PAGE>
EXHIBIT A
Number of Shares
Shareholder Name Address Oned and Class
- ---------------- ------- --------------
45
EXHIBIT 4.1
FORM OF COMMON SHARE CERTIFICATE
<PAGE>
<TABLE>
<S> <C>
COMMON SHARES OF BENEFICIAL INTEREST COMMON SHARES OF BENEFICIAL INTEREST
CUSIP
----------------
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR CERTAIN DEFINITIONS
NEW YORK, NEW YORK AND IMPORTANT NOTICE
BARON CAPITAL TRUST
A BUSINESS TRUST
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS IS TO CERTIFY
----------------------------------------------------
is the owner of
----------------------------------------------------
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE BENEFICIAL INTEREST, NO PAR VALUE, OF Baron Capital Trust (the "Company"), a
Delaware business trust formed under the laws of the State of Delaware and under and subject to the provisions of the Declaration of
Trust and the Bylaws of the Company, both as amended from time to time. The shares represented by this Certificate are subject to
all of the provisions of the Declaration of Trust of the Company and any amendments thereto and are transferable only on the share
transfer books of the Company by the holder of record hereof in person or by duly authorized attorney or legal representative upon
surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Company's
transfer agent and registrar.
In Witness Whereof, the Company has caused this Certificate to be executed on its behalf by its duly authorized officers.
Dated:
------------------
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR BARON CAPITAL TRUST
BY:
----------------------------------------- --------------------------- --------------------------------
AUTHORIZED SIGNATURE Secretary Chief Executive Officer
</TABLE>
<PAGE>
<TABLE>
<S> <C>
BARON CAPITAL TRUST
IMPORTANT NOTICE
The securities represented by this certificate are subject to restrictions on transfer for the purpose of the Trust's maintenance of
its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended. Except as otherwise provided
pursuant to the Declaration of Trust for the Trust, no Person may Beneficially Own Shares of Common Shares and/or Preferred Shares
in excess of 5.0% (or such greater percentage as may be determined by the Managing Shareholder of the Trust) of the number or value
of the outstanding Equity Shares of the Trust (unless such Person is an Existing Holder). Any Person who attempts or proposes to
Beneficially Own Common Shares and/or Preferred Shares in excess of the above limitations must notify the Trust in writing at least
15 days prior to such proposed or attempted Transfer. All capitalized terms in this legend have the meanings defined in the
Declaration of Trust for the Trust, a copy of which, including the restrictions on transfer, will be sent without charge to each
Shareholder who so requests. If the restrictions on transfer are violated, the securities represented hereby will be designated and
treated as Excess Shares which will be held in trust by the Trust.
The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they
were written out in full according to applicable laws and regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _______ Custodian ____________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act _______________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[_____________________]_____________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
Please print or typwrite name and address including postal zip code of assignee
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
______________shares of beneficial interest of the Company represented by this Certificate, and do hereby irrevocably constitute and
appoint _____________ attorney to transfer the said shares on the books of the Company, with full power of substitution in the
premises.
Date:______________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER
SIGNATURE GUARANTEED:_____________________________________________________________________________________________________
THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17 Ad-15.
</TABLE>
EXHIBIT 10.4
FORM OF WARRANT PURCHASE AGREEMENT,
DATED AS OF _______________, 1998,
BETWEEN THE REGISTRANT AND
SIGMA FINANCIAL CORPORATION
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT MADE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT. THIS WARRANT MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNTIL
_______________, 199__ [FIRST ANNIVERSARY OF THE EFFECTIVE DATE OF THE
OFFERING], EXCEPT AS PROVIDED IN SECTION (D) HEREOF.
Void after 5:30 P.M., New York Time, on _________, 200_
FORM OF WARRANT TO PURCHASE SHARES OF BENEFICIAL INTEREST
This Is to Certify That, FOR VALUE RECEIVED, SIGMA FINANCIAL CORPORATION
("Sigma") or registered assigns (the "Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from Baron Capital Trust, a Delaware business
trust (the "Company"), at any time on or after ________________, 199__ [first
anniversary of the execution date] and not later than 5:30 P.M., New York time
on ____________, 200__ [fifth anniversary of the execution date], a number of
Common Shares of beneficial interest in the Company, having no par value (such
shares being of the same class as shares of beneficial interest to be offered
for sale in the Company's initial public offering referred to below)("Shares"),
in an amount equal to 8.5% of the number of Shares that may be sold in the
Company's public offering of up to 2,500,000 Shares (the "Offering"), on a best
efforts basis, by Sigma and participating broker-dealers to be selected by Sigma
and the Company, at a purchase price per Share underlying this Warrant of
$13.00; provided, however, this Warrant shall not become effective unless and
until the terms and conditions of any escrow arrangements in connection with the
Offering have been fully satisfied. The number of Shares to be received upon the
exercise of this Warrant and the price to be paid for a Share may be adjusted
from time to time as hereinafter set forth. The Shares deliverable upon such
exercise, and as adjusted from time to time, are hereinafter referred to as
"Warrant Shares" and the exercise price of a Share in effect at any time and as
adjusted from time to time is hereinafter referred to as the "Exercise Price."
(a) Exercise of Warrant. Subject to the provisions of Section (k) hereof,
this Warrant may be exercised in whole or in part at any time or from time to
time on or after _____________, 199__ [first anniversary of the execution date],
but not later than 5:30 P.M., New York Time, on _______________, 200__ [fifth
anniversary of the execution date], or if __________, 200_, is a day on which
banking institutions are authorized by law to close, then on the next succeeding
day which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of Shares specified in such form, together with all federal
and state taxes applicable upon such exercise. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and
<PAGE>
deliver a new Warrant evidencing the right of the Holder to purchase the balance
of the Shares purchasable hereunder. Upon receipt by the Company of this Warrant
at the office of the Company or the stock transfer agent, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the Shares
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such Shares
shall not then be actually delivered to the Holder.
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Shares as shall be required for issuance or delivery upon
exercise of this Warrant.
(c) Fractional Shares. No fractional Shares or scrip representing
fractional Shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional Share, determined as
follows:
(1) If Shares are listed on a national securities exchange or admitted to
unlisted trading privileges on such exchange, the current value shall be the
last reported sale price of such Shares on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average closing bid and asked prices for such day on such
exchange; or
(2) If Shares are not so listed or admitted to unlisted trading privileges,
the current value shall be the mean of the last reported bid and asked prices
reported by the National Association of Securities Dealers Quotation System
("NASDAQ") (or, if not so quoted on NASDAQ, by the National Quotation Bureau,
Inc.) on the last business day prior to the date of the exercise of this
Warrant; or
(3) If Shares are not so listed or admitted to unlisted trading privileges
and bid and asked prices are not so reported, the current market value shall be
an amount, not less than book value, determined in such reasonable manner as may
be prescribed by the Board of the Company, such determination to be final and
binding on the Holder.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the holder thereof to
purchase in the aggregate the same number of Share purchasable hereunder. This
Warrant may not be sold, transferred, assigned, pledged or hypothecated until
_______________, 199__ [first anniversary of the effective date of the
Offering], except that after the completion of the Offering it may be (i)
assigned in whole or in part to or among the officers or partners of Sigma, any
broker-dealer which sells Shares in the Offering, or any of such broker-dealer's
officers or partners; (ii) transferred by operation of law as a result of the
death of any assignee or transferee of this
2
<PAGE>
Warrant; and (iii) transferred to any successor to the business of Sigma or of
any such broker-dealer. Any assignment of the Warrant in whole or in part shall
be made by surrender of this Warrant to the Company or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and funds sufficient to pay any transfer tax; whereupon the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other Warrants, if
any, which carry the same rights upon presentation hereof at the office of the
Company or at the office of its stock transfer agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants issued in substitution for or replacement of this Warrant,
or into which this Warrant may be divided or exchanged. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and, in the case of loss, theft or destruction, of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will execute and deliver a new Warrant
of like tenor and date.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Anti-Dilution Provisions.
(1) Adjustment of Exercise Price. If the Company at any time issues
Shares or any shares or other securities convertible into or exchangeable
for Shares ("Convertible Securities") by way of dividend or other
distribution on any securities of the Company (including without limitation
Shares and Convertible Securities) or subdivides or combines the
outstanding Shares, the Exercise Price shall be proportionately decreased
in the case of such issuance (on the day following the date fixed for
determining Shareholders entitled to receive such dividend or other
distribution), proportionately decreased in the case of such subdivision,
and proportionately increased in the case of such combination (on the date
that such subdivision or combination shall become effective.)
(2) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one percent, but when
the cumulative net effect of more than one adjustment so determined shall
be to change the actual Exercise Price by at least one percent, such change
in the Exercise Price shall thereupon be given effect.
(3) Number of Shares Adjusted. Upon any adjustment of the Exercise
3
<PAGE>
Price hereunder, the holder of this Warrant shall thereafter (until another
such adjustment) be entitled to purchase, at the new Exercise Price, the
number of Shares, calculated to the nearest full Share, obtained by
multiplying the number of Shares initially issuable upon exercise of this
Warrant by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the new Exercise Price.
(4) Shares Defined. Whenever reference is made in this Section (f) to
the issue or sale of Shares, the term "Shares" shall mean the shares of
beneficial interest in the Company authorized as of the date hereof which
are of the same class as shares issued in connection with the Offering and
any other class of securities of the Company ranking on a parity with such
Shares. However, subject to the provisions of Section (i) hereof, Shares
issuable upon exercise of this Warant shall include only shares of the
class designated as shares of beneficial interest in the Company as of the
date hereof.
(g) Officer=s Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall promptly
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer agent, if any, an officer=s certificate
showing the adjusted Exercise Price and adjusted number of Shares issuable under
this Warrant determined as herein provided and setting forth in reasonable
detail the facts requiring such adjustments. Each such officer=s certificate
shall be made available at all reasonable times for inspection by the Holder,
and the Company shall, promptly after each such adjustment, deliver a copy of
such certificate to the Holder. Such certificate shall be conclusive as to the
correctness of such adjustment.
(h) Notices to Warrant Holders. So long as this Warrant shall be
outstanding and unexercised, (i) if the Company shall pay any dividend or make
any distribution upon the Shares, (ii) if the Company shall offer to the holders
of Shares for subscription or purchase by them any shares of securities of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Shares of record shall be entitled to
exchange their Shares or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Shares
(other than a change in par
4
<PAGE>
value, or from par value to no par value, or from no par value to par value, or
as a result of an issuance of Shares by way of dividend or other distribution or
of a subdivision or combination), in case of any consolidation or merger of the
Company with or into a third party (other than a merger with a subsidiary of the
Company in which merger the Company is the continuing entity and which does not
result in any reclassification, capital reorganization or other change of
outstanding Shares) or in case of any sale or conveyance to a third party of the
property of the Company as an entirety or substantially as an entirety, the
Company shall cause effective provision to be made so that the Holder shall have
the right thereafter, by exercising this Warrant, to purchase the kind and
amount of shares of stock and other securities and property receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Shares and to successive consolidations, mergers, sales or
conveyances.
(j) Spin-Offs. In the event the Company spins-off a subsidiary by
distributing to the shareholders of the Company as a dividend or otherwise the
stock of the subsidiary, the Company shall reserve for the life of the Warrant
shares of the subsidiary to be delivered to the Holders of the Warrants upon
exercise to the same extent as if they were owners of record of the Warrant
Shares on the record date for payment of the shares of the subsidiary.
(k) Registration under the Securities Act of 1933.
(1) Subject to the terms and conditions of this Agreement, in the
event that, subsequent to the completion of the Offering and prior to the
expiration of the entire unexercised portion of this Warrant, the Company
files a registration statement (defined herein to include a Form 1-A
Offering Statement under Regulation A under the Act (defined below) and the
Offering Circular included therein) under the Securities Act of 1933, as
amended (the "Act"), which relates to a current offering of securities of
the Company (except in connection with an offering solely to employees),
such registration statement and the prospectus included therein shall also,
at the written request to the Company by the registered owners of any
outstanding portion of this Warrant or Warrant Shares acquired upon
exercise of any portion of this Warrant, include and relate to, and meet
the requirements of the Act with respect to, the public offering of any
outstanding portion of this Warrant, any outstanding Warrant Shares and
Warrant Shares issuable upon exercise of the outstanding Warrants
(collectively, "Registrable Shares") so as to permit the public sale
thereof in compliance with the Act. The Company shall give written notice
to the Holders of its intention to file a registration statement under the
Act relating to a current offering of the aforesaid securities of the
Company, 30 or more days prior to the filing of such registration
statement, and the written request provided for in the first sentence of
this subsection shall be made by the owners of Registrable Securities 15 or
more days prior to the date specified in the notice as the date on which it
is intended to file
5
<PAGE>
such registration statement. Neither the delivery of such notice by the
Company nor of such request by such owners shall in any way obligate the
Company to file such registration statement and notwithstanding the filing
of such registration statement, the Company may, at any time prior to the
effective date thereof, determine not to offer the securities to which such
registration statement relates, without liability to such owners, except
that the Company shall pay such expenses as are contemplated to be paid by
it under subsection (3) of this Section. The registration rights set forth
in this Section (k) shall expire upon the sixth anniversary of the
execution date of this Warrant and (ii) continue during such period
regardless of the exercise or surrender of this Warrant.
(2) In each instance in which pursuant to subsection (1) of this
Section the Company shall take any action to permit a public offering or
sale or other distribution of the Warrant or Warrant Shares, the Company
shall:
(A) Supply to Sigma as representative of the Holders intending to
make a public distribution of their Warrant or Warrant Shares (the
Holder by his receipt of this Warrant hereby acknowledging his
appointment of Sigma as his representative for purposes of this
Warrant), two executed copies of each registration statement and a
reasonable number of copies of the preliminary, final and other
prospectus or offering circular in conformity with requirements of the
Act and the rules and regulations promulgated thereunder and such
other documents as Sigma shall reasonably request;
(B) Cooperate in taking such action as may be necessary to
register or qualify the Registrable Securities under such other
securities acts or blue sky laws of such states as Sigma shall
reasonably request and to do any and all other acts and things which
may be necessary or advisable to enable the holders of such
Registrable Securities to consummate such proposed sale or other
disposition of such Registrable Securities in any such state;
provided, however, that in no event shall the Company be obligated, in
connection therewith, to qualify to do business or to file a general
consent to service of process in any state where it shall not then be
qualified;
(C) Keep effective for a period of not less than 90 days after
the initial effectiveness thereof all such registrations under the Act
and cooperate in taking such action as may be necessary to keep
effective such other state registrations and qualifications, and do
any and all other acts and things for such period, not to exceed 12
months, as may be necessary to permit the public sale or other
disposition of such Registrable Securities by such Holders.
(D) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Registrable Securities, from and against
any and all losses, claims, damages, and liabilities (including, but
not limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim) arising
from (i) any untrue statement of a material fact contained in any
registration statement or any
6
<PAGE>
amendment to any registration statement or in any prospectus or
offering circular included therein furnished pursuant to clause (A) of
this subsection or (ii) any omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading (unless such untrue statement or omission was
based upon information furnished or required to be furnished in
writing to the Company by such Holder or underwriter expressly for use
therein), which indemnification shall include each person, if any, who
controls any such Holder or underwriter within the meaning of the Act;
provided, however, that the Company shall not be so obligated to
indemnify any such Holder or underwriter or controlling person unless
such Holder, underwriter or controlling person, as the case may be,
shall at the same time indemnify the Company, Baron Advisors, Inc.
(the managing shareholder of the Company), members of the Board and
officers of the Company and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all
losses, claims, damages and liabilities (including, but not limited
to, any and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim) arising
from (x) any untrue statement of a material fact contained in any
registration statement or any amendment to any registration statement
or prospectus or offering circular furnished pursuant to Clause (A) of
this subsection, or (y) any omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of such holder, underwriter
or controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing to the
Company by such holder, underwriter or controlling person expressly
for use therein. The indemnity agreement of the Company herein shall
not inure to the benefit of any such underwriter (or to the benefit of
any person who controls such underwriter) on account of any losses,
claims, damages, liabilities (or actions or proceedings in respect
thereof) arising from the sale of any of such Registrable Securities
by such underwriter to any person if such underwriter failed to send
or give a copy of the prospectus or offering circular furnished
pursuant to Clause (A) of this subsection, as the same may then be
supplemented or amended (if such supplement or amendment shall have
been furnished to Sigma pursuant to said Clause (A)), to such person
with or prior to the written confirmation of the sale involved.
(3) The Company shall comply with the requirements of subsection (1)
and (2) at its own expense, provided, however, it shall not be obligated to
pay underwriting commissions, transfer taxes, fees and expenses of Holders=
counsel or any underwriter=s expense allowance in respect of the
Registrable Securities to be registered at the request of Holders.
(4) The Company=s obligation under said subsection (1) shall be
conditioned as to each such public offering, upon a timely receipt by the
Company in writing of such information as the Company may reasonably
require from such Holders, or any underwriter for any of them, for
inclusion in such registration statement or post-effective amendment.
7
<PAGE>
(5) Any notices or certificates by the Company to the Holder and by
the Holder to the Company shall be deemed delivered hereunder if in writing
and delivered personally or sent by certified mail, to the Holder,
addressed to him in care of Sigma Financial Corporation, 4251 Park Road,
Ann Arbor, Michigan 48103, Attention: Jerome S. Rydell or, if the Holder
has designated, by notice in writing to the Company, any other address, to
such other address, and, if to the Company, addressed to Baron Capital
Trust, 7826 Cooper Road, Cincinnati, Ohio 45242. The Company may change its
address by written notice to Sigma (and any such designees) and Sigma may
change its address by written notice to the Company.
(l) Transfers to Comply with the Securities Act of 1933.
(1) This Warrant or the Warrant Shares or any other security issued or
issuable upon exercise of this Warrant may not be offered or sold except in
conformity with the Act, and then only against receipt of an agreement of
such person to whom such offer or sale is made to comply with the
provisions of this Section (1) with respect to any resale or other
disposition of such securities.
(2) The Company may cause the following legend to be set forth on each
Warrant and certificate representing Warrant Shares or any other security
issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the
public pursuant to Section (k) hereof, unless counsel for the Company is of
the opinion as to any such certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered for sale,
sold or otherwise transferred except pursuant to an effective registration
statement made under the Securities Act of 1933 (the "Act"), or pursuant to
an exemption from registration under the Act.
(m) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware without giving effect to
Delaware laws governing conflicts of law.
(n) Notice of Non-liability. Under the Delaware Business Trust Act and
Sections 3.3 and 3.4 of the Declaration of Trust for the Company made as of
August 31, 1997, neither the Shareholders of the Company, Baron Advisors, Inc.
(the Managing Shareholder of the Company), the Trustees of the Company, nor any
other members of the Board of the Company shall be personally liable hereunder,
and the Holder shall look solely to the Company property for the satisfaction of
any claim hereunder against the Company.
BARON CAPITAL TRUST
By ______________________________
Gregory K. McGrath, President
Date: ______________, 199_
Attest:
8
EXHIBIT 99.3
PRIOR PERFORMANCE TABLE VI:
ACQUISITIONS OF PROPERTIES BY PROGRAMS
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Income Appreciation Fund I, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase IV
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 8 Units
square feet of units: 9,800 total square feet
Date investment made: 4/94
Principal amount of mortgage
financing existing at date of
investment: $173,000
Contract Investment Price (1): $184,500
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $184,500
</TABLE>
Florida Capital Income Fund, Ltd.
---------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Eagle Lake Apartments
Port Orange, Florida
Residential Apartment Community
Number of units and total 77 units
square feet of units: 45,504 total square feet
Date investment made: 11/94
Principal amount of mortgage
financing existing at date of
investment: $1,443,000
Contract Investment Price (1): $656,300
Cash Reserve: $0
Acquisition Fee: $60,000
Total Investment Cost: $716,300
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-2
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
The following table includes information concerning the acquisition of property
interests by 32 prior programs sponsored by Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., in the most recent three years.
The prior programs have investment objectives similar to those of the Trust in
that the programs provided financing in respect of residential properties for
current income and capital appreciation (other than the mortgage funds).
Florida Income Advantage Fund I, Ltd.
-------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase III
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 26 Units
square feet of units: 30,654 total square feet
Date investment made: 2/94
Principal amount of mortgage
financing existing at date of
investment: $625,000
Contract Investment Price (1): $846,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $846,000
</TABLE>
Realty Opportunity Income Fund VIII, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase II
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 30 Units
square feet of units: 38,802 total square feet
Date investment made: 3/94
Principal amount of mortgage
financing existing at date of
investment: $784,000
Contract Investment Price (1): $849,600
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $849,600
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-1
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Tampa Capital Income Fund, Ltd,
-------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Lakewood Apartments
Brandon, Florida
Residential Apartment Community
Number of units and total 83 Units
square feet of units: 44,928 total square feet
Date investment made: 12/94
Principal amount of mortgage
financing existing at date of
investment: $1,500,000
Contract Investment Price (1): $589,500
Cash Reserve: $165,500
Acquisition Fee: $180,000
Total Investment Cost: $935,000
</TABLE>
Florida Capital Income Fund II, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase I
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 52 Units
square feet of units: 62,696 total square feet
Date investment made: 1/95
Principal amount of mortgage
financing existing at date of
investment: $1,343,000
Contract Investment Price (1): $548,000
Cash Reserve: $199,000
Acquisition Fee: $71,000
Total Investment Cost: $818,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-3
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Opportunity Income Partners, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Camellia Court Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 60 Units
square feet of units: 34,848 total square feet
Date investment made: 3/95
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $543,000
Cash Reserve: $143,000
Acquisition Fee: $24,000
Total Investment Cost: $710,000
</TABLE>
Florida Capital Income Fund III, Ltd.
-------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Bridgepoint Apartments
Jacksonville, Florida
Residential Apartment Community
Number of units and total 48 Units
square feet of units: 27,360 total square feet
Date investment made: 7/95
Principal amount of mortgage
financing existing at date of
investment: $700,000
Contract Investment Price (1): $549,000
Cash Reserve: $121,000
Acquisition Fee: $40,000
Total Investment Cost: $710,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-4
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Tax Credit Fund, Ltd.
-----------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Spring Glade Apartments
Tampa, Florida
Residential Apartment Community
Number of units and total 78 Units
square feet of units: 42,912 total square feet
Date investment made: 6/95
Principal amount of mortgage
financing existing at date of
investment: $564,000
Contract Investment Price (1): $564,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $546,000
</TABLE>
Baron First Time Homebuyer Mortgage Fund, Ltd.
----------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Pleasant Grove
Louisville, Kentucky
Residential Community
Number of units and total 39 Units
square feet of units: 54,600 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-5
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Capital Income Fund IV, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Glen Lake Apartments
St. Petersburg, Florida
Residential Apartment Community
Number of units and total 144 Units
square feet of units: 79,200 total square feet
Date investment made: 5/94
Principal amount of mortgage
financing existing at date of
investment: $2,812,500
Contract Investment Price (1): $1,820,000
Cash Reserve: $305,200
Acquisition Fee: $100,100
Total Investment Cost: $1,414,700
</TABLE>
GSU Stadium Student Apartments, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Stadium Club Apartments
Statesboro, Georgia
Student Residential Apartment Community
Number of units and total 60 Units
square feet of units: 51,624 total square feet
Date investment made: 11/95
Principal amount of mortgage
financing existing at date of
investment: $1,372,000
Contract Investment Price (1): $1,000,000
Cash Reserve: $100,000
Acquisition Fee: $100,000
Total Investment Cost: $800,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-6
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Brevard Mortgage Program, Ltd.
------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Meadowdale Apartments
Melbourne, Florida
Residential Apartment Community
Number of units and total 64 Units
square feet of units: 39,168 total square feet
Date investment made: 12/95
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $575,000
Cash Reserve: $57,500
Acquisition Fee: $0
Total Investment Cost: $517,500
</TABLE>
Baron First Time Homebuyer Mortgage Fund II, Ltd.
-------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: East Bay Village
Louisville, Kentucky
Residential Community
Number of units and total 54 Units
square feet of units: 75,600 total square feet
Date investment made: 2/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-7
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Clearwater First Time Homebuyer Program, Ltd.
---------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Palm Bay Condominiums
Seminole, Florida
Residential Condominium Community
Number of units and total 195 Units
square feet of units: 165,750 total square feet
Date investment made: 3/96
Principal amount of mortgage
financing existing at date of
investment: $672,500
Contract Investment Price (1): $672,500
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $672,500
</TABLE>
Baron First Time Homebuyer Mortgage Fund III, Ltd.
--------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Independence Condominium
Independence, Kentucky
Residential Condominium Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 5/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-8
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron First Time Homebuyer Mortgage Fund V, Ltd.
------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Independence Condominiums
Independence, Kentucky
Residential Condominium Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $25,000
Acquisition Fee: $0
Total Investment Cost: $500,000
</TABLE>
Baron First Time Homebuyer Mortgage Fund IV, Ltd.
<TABLE>
<S> <C>
Name, location, type of
property: Villas at Meadowview
Louisville, Kentucky
Residential Community
Number of units and total 84 Units
square feet of units: 88,200 total square feet
Date investment made: 6/96
Principal amount of mortgage
financing existing at date of
investment: $500,000
Contract Investment Price (1): $500,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $500,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-9
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Florida Income Growth Fund V, Ltd.
----------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Blossom Corners Apartments
Orlando, Florida
Residential Apartments Community
Number of units and total 70 Units
square feet of units: 37,728 total square feet
Date investment made: 4/96
Principal amount of mortgage
financing existing at date of
investment: $1,050,000
Contract Investment Price (1): $825,500
Cash Reserve: $142,000
Acquisition Fee: $57,500
Total Investment Cost: $1,875,500
</TABLE>
Lamplight Court of Bellefontaine Apartments, Ltd.
-------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Lamplight Court Apartments
Bellefontaine, Ohio
Residential Apartment Community
Number of units and total 80 Units
square feet of units: 46,944 total square feet
Date investment made: 7/96
Principal amount of mortgage
financing existing at date of
investment: $1,400,000
Contract Investment Price (1): $580,000
Cash Reserve: $0
Acquisition Fee: $40,000
Total Investment Cost: $1,980,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-10
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Vulture Fund I, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Curiosity Creek Apartments
Tampa, Florida
Residential Apartment Community
Number of units and total 81 Units
square feet of units: 44,064 total square feet
Date investment made: 10/96
Principal amount of mortgage
financing existing at date of
investment: $1,200,000
Contract Investment Price (1): $601,000
Cash Reserve: $90,000
Acquisition Fee: $90,000
Total Investment Cost: $1,801,000
</TABLE>
Baron Strategic Investment Fund, Ltd.
-------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Blossom Corners II Apartments
Orlando, Florida
Residential Apartment Community
Number of units and total 68 Units
square feet of units: 36,576 total square feet
Date investment made: 10/96
Principal amount of mortgage
financing existing at date of
investment: $1,000,000
Contract Investment Price (1): $796,000
Cash Reserve: $120,000
Acquisition Fee: $144,000
Total Investment Cost: $1,796,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-11
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Investment Fund II, Ltd.
<TABLE>
<S> <C>
Name, location, type of
property: Gaslight Apartments
Anderson, Indiana
Residential Apartment Community
Number of units and total 72 Units
square feet of units: 42,720 total square feet
Date investment made: 11/96
Principal amount of mortgage
financing existing at date of
investment: $1,254,307
Contract Investment Price (1): $524,000
Cash Reserve: $80,000
Acquisition Fee: $96,000
Total Investment Cost: $1,778,307
</TABLE>
Baron Strategic Investment Fund VI, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Pine View Apartments
Orlando, Florida
Residential Apartment Community
Number of units and total 91 Units
square feet of units: Approximately 50,000 total square feet
Date investment made: N/A
Principal amount of mortgage
financing existing at date of
investment: N/A
Contract Investment Price (1): $806,000
Cash Reserve: $120,000
Acquisition Fee: $144,000
Total Investment Cost: $806,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-12
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Mortgage Development Fund IX, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Glen Oaks
Louisville, Kentucky
Single Family Homes
Number of units and total 320 Units
square feet of units: Development Only
Date investment made: 1/97
Principal amount of mortgage
financing existing at date of
investment: $0
Contract Investment Price (1): $800,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $800,000
</TABLE>
Baron Income Property Mortgage Fund VI, Ltd.
--------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Brentwood at Independance Apartments Phase 1
Independance, Kentucky
Residential Apartment Community
Number of units and total 150 Units
square feet of units: 136,500 total square feet
Date investment made: Aug-96
Principal amount of mortgage
financing existing at date of
investment: $5,400,000
Contract Investment Price (1): $750,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $650,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-13
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Mortgage Development Fund VII, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Brentwood at Alexandria Apartments Phase 1
Alexandria, Kentucky
Residential Apartment Community
Number of units and total 84 Units
square feet of units: 76,440 total square feet
Date investment made: 12/96
Principal amount of mortgage
financing existing at date of
investment: $3,875,000
Contract Investment Price (1): $700,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $650,000
</TABLE>
Baron Mortgage Development Fund X, Ltd.
---------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Townhomes at Aspen Glen
Cincinnati, Ohio
Residential Condominium Community
Number of units and total 226 Units
square feet of units: 305,100 total square feet
Date investment made: Dec-96
Principal amount of mortgage
financing existing at date of
investment: $450,000
Contract Investment Price (1): $1,000,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $1,000,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-14
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Mortgaqe Development Fund XI, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: The Vilas at Lake Sycamore
Cincinnati, Ohio
Residential Condominium Community
Number of units and total 168 Units
square feet of units: 226,800 total square feet
Date investment made: 4/97
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $800,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $800,000
</TABLE>
Baron Mortgage Development Fund XVIII, LP
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Brentwood at Independance Apartments Phase II
Independance, Kentucky
Residential Apartment Community
Number of units and total 150 Units
square feet of units: 136,500 total square feet
Date investment made: Jul-97
Principal amount of mortgage
financing existing at date of
investment: $0
Contract Investment Price (1): $800,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $800,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-15
<PAGE>
Table VI: ACQUISTION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Investment Fund V, Ltd.
---------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Sunrise I,Curiosity
Titisville,Tampa, Florida
Residential Apartment Community
Number of units and total 141 Units
square feet of units: 74,5400 total square feet
Date investment made: 1/97
Principal amount of mortgage
financing existing at date of
investment: $1,810,000
Contract Investment Price (1): $818,000
Cash Reserve: $0
Acquisition Fee: $120,000
Total Investment Cost: $938,000
</TABLE>
Baron Strategic Investment Fund VII, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Crystal I, Longwood II, Sunrise II
Lakeland,Cocoa Beach,Titisville, Florida
Residential Apartment Community
Number of units and total 145 Units
square feet of units: 76,654 total square feet
Date investment made: Apr-97
Principal amount of mortgage
financing existing at date of
investment: $1,860,000
Contract Investment Price (1): $1,253,000
Cash Reserve: $0
Acquisition Fee: $228,000
Total Investment Cost: $1,481,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property or to redeem limited partner interests of prior limited partners.
VI-16
EXHIBIT 99.4
CONSENT OF ELROY D. MIEDEMA,
CERTIFIED PUBLIC ACCOUNTANT
<PAGE>
Consent of Independent Auditor
The Board of Baron Capital Trust:
I consent to the use of my report in respect of certain residential
apartment properties included in this Form SB-2 Registration Statement of Baron
Capital Trust and incorporated herein by reference and to the reference to my
firm and such report under the heading "Experts" in the prospectus.
Elroy D. Miedema
Certified Public Accountant
Miami, Florida
April 2, 1998
EXHIBIT 99.5
CONSENT OF RACHLIN COHEN & HOLTZ,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated March 20, 1998 relating
to the financial statements of Baron Capital Trust appearing in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
RACHLIN COHEN & HOLTZ
Miami, Florida
April 1, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated March 20, 1998 relating
to the financial statements of Baron Capital Properties, L.P. appearing in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
RACHLIN COHEN & HOLTZ
Miami, Florida
April 1, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated March 26, 1998 relating
to the financial statements of Baron Advisors, Inc. appearing in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
RACHLIN COHEN & HOLTZ
Miami, Florida
April 1, 1998
