FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS, DEF 14A, 1995-02-27

FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS
DEF 14A, 1995-02-27
REAL ESTATE INVESTMENT TRUSTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934

Filed by the registrant /X/

Filed by a party other than the registrant / /

Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

PAUL F. LEVIN
(NAME OF PERSON(S) FILING PROXY STATEMENT)

Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: _____
(2) Aggregate number of securities to which transaction applies: ________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: _________________________________
(4) Proposed maximum aggregate value of transaction: ____________________

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid: _____________________________________________
(2) Form, schedule or registration statement no.: _______________________
(3) Filing party: _______________________________________________________
(4) Date filed: _________________________________________________________

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<PAGE> 2
FIRST UNION
REAL ESTATE INVESTMENTS

March 25, 1994

Dear Shareholder:

As First Union's new Chairman and Chief Executive Officer and a fellow
shareholder, I want to bring you up to date on our newly adopted corporate
strategy and the recent changes we have made in the management team and
dividend policy. By way of background, we are in the process of implementing a
new strategic plan to reinvigorate First Union as a modern property company and
to reverse the downward trend the Trust has experienced in operating income. As
part of our new policy of investor communications, we believe it is important
for you to be aware of First Union's new strategic direction.

Since the retirement of Donald S. Schofield in December of 1993, the Board of
Trustees has approved a corporate strategy which focuses our resources on
retail and apartment properties. We are now implementing a program to preserve
and enhance the cash flows from our existing retail and apartment assets. We
intend to sell properties that do not meet either our minimum short-term
earnings criteria or our long-term investment targets. Our goal is for these
property sales to generate funds for future acquisitions and upgrades of our
core portfolio. We have also re-aligned our management team into specialized
retail and apartment property operating units with specific geographic and
earnings responsibilities.

Since joining First Union in July 1993, I am pleased that we have attracted new
talent to the organization to implement our corporate strategy. Over the past
several months we have recruited a new Chief Financial Officer, a new Director
of Construction, and a Market Research Analyst to sharpen our acquisitions
skills. Additionally, First Union's Board of Trustees has unanimously approved
and recommended for shareholder adoption a Long Term Incentive Performance Plan
which is designed to more closely align the interests of the management team
with those of our shareholders.

After a comprehensive analysis of our capital and investment requirements and
upon consultation with investment advisors, we recently reduced the quarterly
dividend to $0.10 per share from $0.18 per share for the previous nine
quarters. An average of $0.06 per share of the prior dividend was classified as
capital gain which has now been fully recognized. Our dividend decision was
made to provide the funds required for expenditures to refocus and upgrade our
property portfolio. These capital expenditures are designed to increase the
long-term value and marketability of our properties and serve to attract new
tenants. Additionally, this conservation of funds will enhance our future
ability to make acquisitions and eventually return to the equity market to
reduce our debt-to-market capitalization ratio.

With our new strategy, we have created a market driven real estate organization
focused on retail and apartment properties, equipped to take advantage of the
current trends in our industry. We value you as a shareholder, and are most
appreciative of your continuing commitment to First Union and your support of
our "re-birth" as we strive to grow and to enhance shareholder value.

James C. Mastandrea
Chairman, President and
Chief Executive Officer

55 Public Square, Suite 1900, Cleveland, Ohio 44113, 216/781-4030

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{LOGO}
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS

55 PUBLIC SQUARE - SUITE 1900 - CLEVELAND, OHIO 44113-1937

NOTICE OF
1995 ANNUAL MEETING OF SHAREHOLDERS

TO THE SHAREHOLDERS:

Notice is hereby given that the 1995 Annual Meeting of the Shareholders of
First Union Real Estate Equity and Mortgage Investments ("First Union" or the
"Trust") will be held in the National City Bank Auditorium, on the fourth floor
of the National City Center Annex Building, 1900 East Ninth Street, Cleveland,
Ohio, on Tuesday, April 11, 1995, at 10:00 A.M., Eastern Daylight Time, for the
following purposes:

1. To elect three Trustees.

2. To consider and take action upon a shareholder proposal concerning the
tabulation of proxies.

3. To consider and take action upon such other matters as may properly come
before the meeting or any adjournment thereof.

Shareholders of record at the close of business on February 10, 1995, are
entitled to notice of and to vote at the meeting. YOUR INVITATION, RESPONSE CARD
AND CARD OF ADMISSION ARE ENCLOSED WITH THIS PROXY. Only holders of cards of
admission will be permitted to attend.

By order of the Board of Trustees

PAUL F. LEVIN
Senior Vice President -- General Counsel
and Secretary
March 8, 1995

PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED FORM OF PROXY WHETHER OR
NOT YOU EXPECT TO BE PRESENT AT THE MEETING. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 4

FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE - SUITE 1900 - CLEVELAND, OHIO 44113-1937

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PROXY STATEMENT

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ANNUAL MEETING OF SHAREHOLDERS
APRIL 11, 1995

GENERAL INFORMATION

The accompanying proxy is solicited by the Board of Trustees of First Union
for use at the 1995 Annual Meeting to be held on April 11, 1995 and at any
adjournment of that meeting. The Shares of Beneficial Interest, par value $1 per
share ("Shares"), represented by each valid proxy will be voted at the meeting
or any adjournment thereof, and, if a choice is specified in the proxy, the
Shares will be voted in accordance with such specification. If no specification
is made, such Shares will be voted for the Board of Trustees' nominees for
Trustees specified in the proxy card. A shareholder may revoke his proxy,
without affecting any vote previously taken, by giving notice to First Union in
writing or in open meeting. The approximate date on which this Proxy Statement
and the accompanying proxy were sent to shareholders is March 8, 1995.

First Union will bear the cost of preparing and mailing this statement, the
accompanying proxy and any other related materials. First Union has engaged
Corporate Investor Communication Inc. ("CIC") to assist in the solicitation of
proxies from shareholders, at a fee of $15,000 plus $3.50 per shareholder
contacted, plus reimbursement of its out-of-pocket expenses. First Union will
also pay the standard charges and expenses of brokerage houses, or other
nominees or fiduciaries, for forwarding such materials to, and obtaining the
proxies from, shareholders and beneficiaries for whose account they hold
registered title to Shares of First Union. In addition to use of the mail,
proxies may be solicited personally, by telephone or by telegram, by Trustees,
officers and regular employees of First Union without receiving additional
compensation, as well as by employees of CIC. First Union will pay the expense
of such solicitation.

The record date for determination of shareholders entitled to vote at the
Annual Meeting is February 10, 1995. On that date, 18,262,725 Shares were
outstanding. Each Share has one vote.

ELECTION OF TRUSTEES

Under the Declaration of Trust, as amended (the "Declaration of Trust") of
First Union, the Board of Trustees is divided into three classes, with each
class as nearly equal in number to the other classes as possible. The term of
office of each class expires in successive years. Accordingly, at each Annual
Meeting successors to the Trustees whose terms expire at that meeting are
elected to three-year terms. In addition, under the Declaration of Trust, the
number of Trustees may be fixed or changed from time to time by the
shareholders, provided that the number in each class is not set at fewer than
one nor more than five. In the event of an increase or decrease

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in the number of Trustees, the additional or remaining Trustees, as the case may
be, are to be allocated to classes so as to make the classes as nearly equal as
possible. Any vacancy occurring in a class of Trustees may be filled by a
majority vote of the Trustees remaining in office, effective for the remainder
of the term for such class.

NOMINEES

Currently, the Board of Trustees is composed of nine Trustees and is
divided into equal classes known as Class I, II and III whose terms expire in
1997, 1995 and 1996, respectively. It is proposed that three Trustees be elected
to Class II of the Board of Trustees at the Annual Meeting.

The Board of Trustees' three nominees for Class II, the terms of office, if
elected, and certain additional information with respect to each nominee, are as
follows:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
- - - - ---------------------------- ------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
CLASS II
Stephen R. Hardis (59) Mr. Hardis has been Vice Chairman and Chief Financial 1992 to 1998
and Administrative Officer of Eaton Corporation, a man- date
ufacturer of highly engineered products serving the au-
tomotive, industrial, commercial and defense markets,
since 1986. He was Executive Vice President -- Finance
and Administration of Eaton from 1979 to 1986. He has
been a member of the Board of Directors of Eaton since
1983. Mr. Hardis was Executive Vice President -- Fi-
nance and Planning of the Sybron Corporation from 1961
to 1979 and was Assistant to the Controller of General
Dynamics Corporation from 1960 to 1961. Mr. Hardis is a
director of Progressive Companies, Society Corporation,
Society National Bank and Nordson Corporation, is a
trustee of The Cleveland Clinic Foundation and Univer-
sity Circle, Inc., Playhouse Square Foundation, and the
Musical Arts Association (Cleveland Orchestra).
E. Bradley Jones (67) Mr. Jones was Chairman and Chief Executive Officer of 1986 to 1998
LTV Steel Company, an integrated steel company, from date
July 1984 to December 1984. Prior to that he was Chair-
man and Chief Executive Officer from 1982 to 1984, and
President and Chief Operating Officer from 1980 to
1982, of Republic Steel Corporation. Mr. Jones is a
director of TRW Inc., NACCO Industries, Inc.,
Consolidated Rail Corporation, Cleveland-Cliffs, Inc.,
Birmingham Steel Corporation, NACCO Materials Handling
Group and RPM, Inc., and is a trustee of Fidelity
Funds. He is also a trustee of The Cleveland Clinic
Foundation.
</TABLE>

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While the Trustees do not anticipate that any of the nominees will be
unable to serve, if any is not available for election, proxies may be voted for
a substitute as well as for the other persons named.

REMAINING TRUSTEES

The remaining Trustees, whose present terms of office as Trustees will
continue after the meeting and will expire in the year set forth opposite his
name and upon the election and qualification of his successor, and certain
additional information with respect to each of them, are as follows:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
- - - - ---------------------------- ------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
CLASS III
Otes Bennett, Jr. (73) Mr. Bennett was Chief Executive Officer from 1970 to 1984 to 1996
1987, Chairman from 1983 to 1992 and is presently a date
director of The North American Coal Corporation, Cleve-
land, Ohio, an independent coal producer and a diversi-
fied manufacturer.
Allen H. Ford (66) Mr. Ford is a consultant and was, from 1981 to 1986, 1983 to 1996
Senior Vice President -- Finance and Administration of date
The Standard Oil Company (BP America), an integrated
domestic petroleum company engaged in all phases of the
petroleum business. Mr. Ford was Corporate Executive
Vice President and Unit President from 1976 to 1980,
Vice President, Finance, from 1969 to 1976, and
Treasurer during 1969 of Diamond Shamrock Corporation,
a producer of chemicals, petroleum and related
products. Mr. Ford is a director of Parker Hannifin
Corporation, and is a trustee of Case Western Reserve
University, the Musical Arts Association (Cleveland
Orchestra), University Hospitals of Cleveland, the
Western Reserve Historical Society, and University
Circle, Inc. He is also Chairman of the Edison
BioTechnology Center.
</TABLE>

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<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
- - - - ---------------------------- ------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
Daniel G. DeVos (37) Mr. DeVos is Chairman, President and Chief Executive 1994 to 1996
Officer of Landquest International, L.L.C., a private date
real estate investment, development and management com-
pany. He is also Vice-President, Corporate Affairs of
Amway Corporation, a direct sales consumer product
business; Vice Chairman, Governing Board of the Or-
lando Magic, a professional NBA basketball franchise;
President and Chief Executive Officer of West Michigan
Hockey, Inc.; a Partner in RDV Sports, a professional
International Hockey League franchise in Orlando, Flor-
ida; and Chairman and Chief Executive Officer of Geor-
gian Enterprises, Ltd., Barrie, Ontario, Canada, a
group of related companies involved in automobile
sales, aircraft leasing, charter and sales, real estate
development and management; LTS Finished Surfaces,
Grand Rapids, Michigan, a wholesale distributor of
floor products; and Appliance Distributors, Inc.,
Detroit, Michigan, a wholesale distributor of high-end
appliances. Mr. DeVos is a director of Genmar
Industries, Inc., Minneapolis, Minnesota, a boat
manufacturer. He is also a trustee of Butterworth
Hospital, Grand Rapids, Michigan and a member of the
Boards of the Family Outreach Center, Grand Rapids,
Michigan, the Grand Rapids Symphony, and the Mercy
Respite Center.
</TABLE>

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Russell R. Gifford (54) Mr. Gifford is President of CNG Energy Services 1991 to 1997
Corporation an unregulated energy marketing company date
providing gas and electric energy services
throughout North America. He was President and
Chief Executive Officer of The East Ohio Gas Company,
Cleveland, Ohio, a distributor of natural gas, from
1988 to 1994. He was also President of West Ohio Gas
Company, Lima, Ohio; and River Gas Company, Marietta,
Ohio. CNG, East Ohio, West Ohio and River are
subsidiaries of Consolidated Natural Gas Co. of
Pittsburgh, Pennsylvania. Mr. Gifford was Senior Vice
President of The East Ohio Gas from 1985 to 1988. Mr.
Gifford is a director of National City Bank and
Bearings, Inc., a trustee of Baldwin Wallace College,
and a member of the National Board of Governors of the
American Red Cross. Mr. Gifford also served as Chairman
of the Greater Cleveland Growth Association until March
1, 1995.
</TABLE>

COMPENSATION OF TRUSTEES

Trustees, other than Mr. Mastandrea, receive an annual retainer fee of
$12,000 and are paid an attendance fee of $500 for meetings of the Board and
committees, except for certain committee meetings for which an attendance fee of
$250 is paid.

ORGANIZATION OF BOARD OF TRUSTEES

The Board of Trustees held seven Board meetings during 1994. Each of the
present Trustees attended at least 77% of the aggregate of the meetings of the
Board and the committees of the Board on which he served, except Mr. Hardis who
attended 69%. (Mr. Hardis was asbent from two meetings while recovering from
orthopedic surgery.) The Board has standing Executive; Audit; Management,
Organization and Compensation; and Nominating Committees.

EXECUTIVE COMMITTEE

The Executive Committee exercises all of the powers and authority of the
Board during intervals between meetings of the Board except the declaration of
dividends and the filling of vacancies among the Trustees or the Executive
Committee and except as its powers and duties may be limited or proscribed by
the Trustees from time to time. Present members are

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Otes Bennett, Jr., Kenneth K. Chalmers, William E. Conway, Daniel G. DeVos,
Allen H. Ford, Russell R. Gifford, Stephen R. Hardis, E. Bradley Jones and James
C. Mastandrea (Chairman). The Executive Committee held four meetings during
1994.

AUDIT COMMITTEE

The Audit Committee is composed entirely of Trustees who are not employees
of First Union. The Committee recommends to the Board the appointment of
auditors to examine and report on the combined financial statements, reviews
with the independent auditors the arrangements for and results of the audit
engagement, reviews the independence of the auditors, considers the range of
audit and non-audit fees and reviews the reports of First Union's internal
auditor and its system of internal accounting controls. Present members are Otes
Bennett, Jr., Kenneth K. Chalmers and Stephen R. Hardis (Chairman). The Audit
Committee held two meetings during 1994.

MANAGEMENT, ORGANIZATION AND COMPENSATION COMMITTEE

The Management, Organization and Compensation Committee, composed entirely
of Trustees who are not employees of First Union, recommends to the Board on
matters involving management succession, the compensation of officers with
salaries of $75,000 per year or more and the retainer and attendance fees for
Trustees, makes recommendations and determinations concerning First Union's
Share option plans and the 1994 Long Term Incentive Performance Plan, and
reviews compensation arrangements as they relate to key employees. Present
members are William E. Conway (Chairman), Daniel G. DeVos and Russell R.
Gifford. The Management, Organization and Compensation Committee held eight
meetings in 1994.

NOMINATING COMMITTEE

The Nominating Committee recommends qualified candidates for election as
Trustees and considers the performance of incumbent Trustees to determine
whether to recommend them for nomination to stand for re-election. Present
members are Allen H. Ford, E. Bradley Jones and James C. Mastandrea (Chairman).
The Committee held three meetings in 1994. The Nominating Committee will
consider persons for election as Trustees who are recommended to it in writing
by any shareholder. Any shareholder wishing to submit a recommendation to the
Committee should send a signed letter of recommendation to the following
address: First Union Real Estate Equity and Mortgage Investments, Suite 1900, 55
Public Square, Cleveland, Ohio, 44113-1937, Attention: Chairman. Recommendation
letters should state the reasons for the recommendation and contain the full
name and address of each proposed nominee as well as a brief biographical
history setting forth past and present directorships, employment and civic
activities.

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SECURITY OWNERSHIP OF TRUSTEES AND OFFICERS AND OTHERS

The table below sets forth, with respect to Trustees and nominees, certain
named executive officers, and as to all Trustees and executive officers as a
group, information relating to their beneficial ownership of Shares of First
Union as of January 1, 1995:

<TABLE>
<CAPTION>
NAME OF INDIVIDUAL SHARES BENEFICIALLY PERCENT
OR IDENTITY OF GROUP OWNED(1) OF CLASS
- - - - ---------------------------------------- ------------------- --------
<S> <C> <C>
TRUSTEES
Otes Bennett, Jr. 5,000 .027%
Kenneth K. Chalmers 4,000 .022
William E. Conway 9,647 .053
Daniel G. DeVos 2,000 .011
Allen H. Ford 8,840 .048
Russell R. Gifford 500 .003
Stephen R. Hardis 2,000 .011
E. Bradley Jones 8,331 .046
James C. Mastandrea 155,100(2) .849
(also an Executive Officer)

EXECUTIVE OFFICERS
Gregory D. Bruhn 21,000(3) .115
Paul F. Levin 32,900(4) .180
Steven M. Edelman 51,210(5) .280
John J. Dee 49,410(6) .270
All Trustees and executive officers 349,938(7) 1.905
(13 in number) as a group

<FN>
- - - - ---------------

(1) Pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, a person is
deemed to be a beneficial owner if he has or shares voting power or
investment authority in respect of such security or has the right to acquire
beneficial ownership within 60 days. The amounts shown in the above table do
not purport to represent beneficial ownership except as determined in
accordance with this Rule. Each Trustee and executive officer has sole
voting and investment power with respect to the amounts shown or shared
voting and investment powers with his spouse.

(2) Includes 112,500 Shares of restricted stock over which Mr. Mastandrea has
sole voting power but no investment power and 6,250 shares which Mr.
Mastandrea has the vested right to acquire through the exercise of options.

(3) Includes 20,000 Shares of restricted stock over which Mr. Bruhn has sole
voting power but no investment power.

(4) Includes 10,000 Shares of restricted stock over which Mr. Levin has sole
voting power but no investment power and 22,700 shares which Mr. Levin has
the vested right to acquire through the exercise of options.

(5) Includes 10,000 Shares of restricted stock over which Mr. Edelman has sole
voting power but no investment power and 36,390 shares which Mr. Edelman has
the vested right to acquire through the exercise of options.

(6) Includes 10,000 Shares of restricted stock over which Mr. Dee has sole
voting power but no investment power and 39,250 shares which Mr. Dee has the
vested right to acquire through the exercise of options.

(7) Includes 104,590 Shares which executive officers have the vested right to
acquire through the exercise of options and 162,500 Shares of restricted
stock.

Daniel G. DeVos, a Trustee, filed his Form 3 ten days late due to his
absence from the country at the time it was due.

</TABLE>

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The following table sets forth, as of the record date information
concerning each person known by First Union to be the beneficial owner of more
than 5% of the Shares of First Union:

<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- - - - ----------------------------------- ----------------- ----------
<S> <C> <C>
Turkey Vulture Fund XIII, Ltd(1) 954,400 5.2%
and Richard M. Osborne,
its Managing Member
7000 East Avenue,
Mentor, Ohio 44060

<FN>
- - - - ---------------

(1) The information regarding this holder was received by First Union through
the filing of a Schedule 13-d with the Securities and Exchange Commission on
or about January 16, 1995, and an amendment thereto on February 10, 1995.

</TABLE>

EXECUTIVE COMPENSATION

The table below sets forth the compensation paid or earned for services to
First Union during each of the last three years by the executive officers of the
Trust whose total cash compensation exceeded $100,000.

<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------- --------------------------
RESTRICTED
NAME AND PRINCIPAL OTHER ANNUAL STOCK ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS AWARDS(1) COMPENSATION(2)
- - - - ------------------------------- -------- -------- ------------ ------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
James C. Mastandrea 1994 $250,000 $110,610 $ 5,151 162,500 $717,188 $35,630
Chairman, President 1993* 91,026 40,000 25,000
and Chief Executive
Officer
Gregory D. Bruhn 1994* 111,372 46,456 57,219(3) 45,000 127,500
Executive Vice
President and Chief
Financial Officer
Paul F. Levin 1994 93,000 27,652 10,000 63,750 5,006
Senior Vice President - 1993 82,700 20,735 0 3,955
General Counsel and 1992 80,700 12,022 4,000 4,190
Secretary
Steven M. Edelman 1994 87,500 27,652 10,000 63,750 5,064
Senior Vice President - 1993 72,000 27,206 0 4,785
Asset Management 1992 64,150 36,558 7,500 3,609
John J. Dee 1994 86,667 24,887 10,000 63,750 5,014
Senior Vice President - 1993 72,000 27,206 0 4,785
Controller 1992 67,750 36,558 7,500 4,604

<FN>
- - - - ---------------

(1) The Trust's Long Term Incentive Performance Plan was implemented in 1994.
Shares awarded under the plan are entitled to dividends at the same rate and
on the same terms as unrestricted shares of the same class. The aggregate
number and value of restricted shares held by the individuals listed above,
valued as of December 30, 1994, are as follows: James C. Mastandrea 112,500
shares ($745,313); Gregory D. Bruhn, 20,000 shares ($132,500); Paul F.

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<PAGE> 12

Levin, 10,000 shares ($66,250); Steven M. Edelman, 10,000 shares ($66,250);
and John J. Dee, 10,000 shares ($66,250).

(2) Amounts shown are composed of annual contributions made to a defined
contribution pension plan and term life insurance premiums. The pension plan
contribution for each participant is equal to the sum of (i) 3% of the
participant's total cash compensation paid for such year, and (ii) 3% of the
portion of the participant's cash compensation paid for such year which is
in excess of that year's Social Security taxable wage base. The
contributions made by First Union on behalf of the above named individuals
are based on salary earned and paid in that year, plus executive incentive
compensation paid in that year. At December 31, 1994, Messrs. Mastandrea and
Bruhn did not meet the 12-month employment and/or pension plan entrance date
requirements in order to receive a contribution. The insurance premium for
Mr. Mastandrea is net of the amount recoverable by First Union upon his
termination or death. The policy provides a death benefit of $2.5 million to
Mr. Mastandrea's beneficiary.

(3) Includes reimbursement of taxes of $31,961 for relocation expenses,
reimbursement for relocation expenses of $23,500 above the standard First
Union policy and health benefit costs paid by First Union.

* Employed July 19, 1993.

** Employed March 15, 1994.

</TABLE>

EMPLOYMENT AND CONSULTING AGREEMENTS

As of September 1, 1991, the Trust entered into an Employment and
Consulting Agreement with Donald S. Schofield, the former Chairman and Chief
Executive Officer. Mr. Schofield retired from active employment with the Trust
effective December 31, 1993. He has been retained as a consultant during 1994
and 1995 at an annual fee of $250,000. If Mr. Schofield dies before December 31,
1995, the Trust will pay a death benefit of $8,333 per month for 30 months. The
Trust has purchased insurance to provide funds to cover this obligation. If Mr.
Schofield's engagement as consultant is terminated due to disability, the Trust
will provide a disability benefit of at least $12,500 per month through 1995, or
his earlier death. If the Trust terminates Mr. Schofield's engagement as
consultant for reasons other than death, disability or breach of his
obligations, the Trust will pay his annual fee for 1995, so long as he complies
with certain conditions.

In July 1994, the Trust entered into employment agreements with Messrs.
Mastandrea and Bruhn. Each of these agreements has an initial three-year term
and is extended automatically for additional one-year terms unless one of the
parties gives notice of an intention not to renew.

The agreement with Mr. Mastandrea provides that he will have the titles,
and perform the duties, of Chairman of the Board of Trustees, Chairman of the
Executive Committee of the Board of Trustees, and President and Chief Executive
Officer of the Trust. Under the agreement, Mr. Mastandrea receives an annual
base salary of not less than $250,000, subject to annual review and adjustment
by the Board of Trustees; the continuation of the health and welfare benefits
previously provided to him; participation in the Trust's 1994 Long Term
Incentive Performance Plan; and split dollar life insurance in the benefit
amount of $2,500,000.

The premiums on the split dollar life insurance were set with the
expectation that, if Mr. Mastandrea continues to work for the Trust until he
attains age 65, the cash surrender value of the policy will be sufficient to
fund (1) the return to the Trust of all premiums paid by it and (2) paid-up
insurance on the life of Mr. Mastandrea in the amount of $2,500,000. When the
Trust's obligation to pay premiums ceases, whether upon funding in full of the
policy or termination of Mr. Mastandrea's employment, the Trust will be entitled
to a return of all premiums paid by it (up to the cash surrender value of the
policy), and Mr. Mastandrea will own the policy.

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<PAGE> 13

The agreement with Mr. Bruhn provides that he will have the titles, and
perform the duties, of Executive Vice President and Chief Financial Officer. Mr.
Bruhn receives a base salary of not less than $140,000 per year through March
13, 1995, and not less than $160,000 per year after that, subject to review and
adjustment by the Board of Trustees. Mr. Bruhn is also entitled to the
continuation of the health and welfare benefits previously provided to him and
participation in the Trust's 1994 Long Term Incentive Performance Plan.

The agreements provide that, in the event Mr. Mastandrea or Mr. Bruhn
becomes disabled, the Trust will continue to pay his base salary and bonus and
to provide health and welfare benefits for three years, unless he earlier
recovers from the disability, dies, or attains age 65.

The employment of Mr. Mastandrea or Mr. Bruhn may be terminated at any
time. However, if the Trust terminates the employment of Mr. Mastandrea or Mr.
Bruhn without cause (as defined in the agreements), or if either of them
terminates his employment for good reason (as defined), the Trust is required to
continue to pay his base salary and bonus and to provide benefits, including
pension contributions and vesting of options, for a period of three years,
unless he earlier dies or attains age 65. A portion of the Shares of restricted
stock previously granted to Mr. Mastandrea or Mr. Bruhn would also vest.
Notification by the Trust that it does not intend to renew the agreement beyond
the three-year initial term is treated, for this purpose, as a termination by
the Trust.

In the event of a change in control or shift in ownership of the Trust (as
defined), the Trust is required to deposit, in irrevocable escrow accounts,
amounts sufficient to fund all payments that would be due to Messrs. Mastandrea
and Bruhn upon termination without cause or for good reason. In addition, if
termination without cause or for good reason occurs after a change in control or
shift in ownership, the base salary, bonus, and pension contributions payable to
them upon termination become due immediately in lump sum.

In the event a change in the ownership or control occurs within the meaning
of Section 280G of the Internal Revenue Code, the aggregate amount payable to
Mr. Mastandrea or Mr. Bruhn will be limited to the maximum amount that may be
deducted for Federal income tax purposes without constituting "excess parachute
payments" under Section 280G. In addition, Messrs. Mastandrea and Bruhn have
each agreed to defer the receipt of payments that would otherwise not be
deductible due to the $1,000,000 limit under Section 162(m) of the Internal
Revenue Code.

10
<PAGE> 14

<TABLE>

OPTION GRANTS
IN LAST FISCAL YEAR
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF SHARE
----------------------------------------------------- PRICE APPRECIATION
% OF TOTAL FOR 8 OR
OPTIONS 10 YEAR OPTION
GRANTED EXERCISE TERM(2)
OPTIONS TO EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED IN 1994 SHARE DATE 5% 10%
- - - - ------------------------------- ------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James C. Mastandrea............ 112,500 (1a) 52.6% $ 6.375 07-13-2002 $342,425 $820,168
50,000 (1b) 67% 7.375 05-04-2004 231,905 587,693
Gregory D. Bruhn............... 20,000 (1a) 9.4% 6.375 07-13-2002 60,876 145,808
25,000 (1b) 33% 7.375 05-04-2004 115,952 293,846
Paul F. Levin.................. 10,000 (1a) 4.7% 6.375 07-13-2002 30,438 72,904
Steven M. Edelman.............. 10,000 (1a) 4.7% 6.375 07-13-2002 30,438 72,904
John J. Dee.................... 10,000 (1a) 4.7% 6.375 07-13-2002 30,438 72,904

<FN>
- - - - ---------------

(1a) Options granted under the 1994 Long Term Incentive Performance Plan (the
"1994 Plan") may be in the form of Incentive Stock Options (qualifying as
such under Section 422A of the Internal Revenue Code, as amended) and
Nonstatutory Stock Options. Options granted are at prices not less than the
fair market value of the Shares at the date of grant and expire not later
than eight years after the date granted. Options are exercisable only after
the optionee has been continuously employed by the Trust for twelve months
from the date of grant and thereafter to the extent of one-third during the
second year, two-thirds during the third year and in full during the fourth
through eighth years. In the event of any change in control of the Trust, a
defined term in the 1994 Plan, including liquidation or dissolution of the
Trust, or a merger or consolidation with respect to which the Trust shall
not be the surviving entity, all options become exercisable immediately.

(1b) Options granted under the Share Option Plan adopted in 1981 (the "1981
Option Plan") may be in the form of Incentive Stock Options (qualifying as
such under Section 422A of the Internal Revenue Code, as amended) and
Nonstatutory Stock Options. Options granted are at prices not less than the
fair market value of the Shares at the date of grant and expire not later
than ten years after the date granted. Options are exercisable only after
the optionee has been continuously employed by the Trust for twelve months
from the date of grant and thereafter to the extent of 25% during the
second year, 50% during the third year, 75% during the fourth year and 100%
during the fifth through tenth years. In the event of any change in control
of the Trust, a defined term in the 1981 Option Plan, including liquidation
or dissolution of the Trust, or a merger or consolidation with respect to
which the Trust shall not be the surviving entity, all options become
exercisable immediately.

(2) The appreciation calculation is a required disclosure. The appreciation
examples shown above do not reflect past experience of the Trust's options
granted, nor can they be expected to predict future performance.
</TABLE>
11
<PAGE> 15

<TABLE>

AGGREGATED SHARE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END
ON VALUE ------------------------------- -------------------------------
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- - - - ------------------------- --------- -------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James C. Mastandrea...... $ 0 $ 0 181,250 6,250 $ 28,125 0
Gregory D. Bruhn......... 0 0 45,000 0 5,000 0
Paul F. Levin............ 0 0 13,250 22,700 2,500 0
Steven M. Edelman........ 0 0 15,250 36,390 2,500 0
John J. Dee.............. 0 0 15,250 39,250 2,500 0
</TABLE>

MANAGEMENT, ORGANIZATION AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

The Management, Organization and Compensation Committee (the "Committee")
is composed of Messrs. Conway, Gifford and DeVos, all outside trustees. The
Committee recommends to the Board compensation of officers with salaries of
$75,000 per year or more, grants of options under the 1981 Employee Share Option
Plan and awards to employees under the 1994 Long Term Incentive Performance
Plan.

GENERAL APPROACH TO EXECUTIVE COMPENSATION

Compensation for executive officers consists of four principal elements:
base salaries, annual cash/stock bonus awards, stock options, and restricted
stock.

Base Salaries. The base salaries are established at levels that, on
average, are comparable to base salaries paid by organizations of similar size
in comparable industries. The base salary paid to particular individuals may
vary from this average based on performance.

Annual Cash/Stock Bonus Awards. The primary goals of the annual cash/stock
bonus awards are to provide a direct link between compensation and annual
performance, to provide a strong incentive to attain Trust and operating unit
goals, to recognize and reward employees for performance beyond regular,
competent, job performance, and to build and reinforce the concept of a team by
focusing on the key measure of the Trust's performance -- funds from operations
for the current year. Awards are designed to be comparable in amount to the
average of awards paid by organizations of similar size in comparable industries
when target performance is met; awards will be above this average when the
target is exceeded, or below this average when the target is not achieved.
Awards are paid partially in stock in order to encourage Share ownership.

Stock Options. The primary goal of the stock options is to link
shareholder and employee interest by providing a way for both to gain from
appreciation in the market price of Shares over time. Stock options are granted
to executive officers as well as others in the organization on the theory that
the best performance for shareholders will be attained when a broad group of
employees has a mutual interest with the shareholders.

12
<PAGE> 16

Restricted Stock. The restricted stock awards are designed to encourage
senior executives to think and act like shareholders and, as a result, to
promote the long term growth and performance of the Trust and increase the
market price of the Shares. The level of the awards are recognized to be above
average for organizations of similar size in comparable industries, but the goal
required to earn the restricted stock in less than eight years is challenging
(the market price of the Shares has to attain $21 per Share for 20 consecutive
trading days). Restricted stock is granted only to the most senior
officers -- those who have the greatest impact on the performance of the Trust.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

During 1994, Mr. Mastandrea served as Chairman of the Board of Trustees,
Chairman of the Executive Committee of the Board of Trustees, and President and
Chief Executive Officer of the Trust. For the year ended December 31, 1994, he
received a base salary of $250,000, and an annual bonus of $110,610, options to
purchase 162,500 Shares, and 112,500 Shares of restricted stock under the 1994
Long Term Incentive Performance Plan. See the tables entitled "Summary
Compensation Table" and "Option Grants in Last Fiscal Year."

The Committee believes that Mr. Mastandrea's compensation is consistent
with its general approach to executive compensation, which is described above,
as well as Mr. Mastandrea's position and responsibilities with the Trust and his
individual performance during 1994. Mr. Mastandrea's compensation is also
consistent with commitments made to him when he was hired by the Trust in July
1993, which are reflected in an employment agreement discussed above under the
heading "Employment Agreements."

COMPENSATION OF OTHER NAMED EXECUTIVE OFFICERS

As is the case with Mr. Mastandrea, the Committee believes that the
compensation provided to other executive officers named in the "Summary
Compensation Table" is consistent with the Committee's general approach to
executive compensation, which is described above, as well as the position and
responsibilities with the Trust and individual performance of each of these
executive officers during 1994.

Mr. Bruhn's compensation is also consistent with commitments made to him
when he was hired by the Trust in March 1994, which are reflected in an
employment agreement with him discussed above under the heading "Employment
Agreements."

WILLIAM E. CONWAY (CHAIRMAN) DANIEL G. DEVOS RUSSELL R. GIFFORD

MEMBERS OF THE COMMITTEE

13
<PAGE> 17

PERFORMANCE GRAPH

The performance graph assumes $100 invested on December 31, 1989 in First
Union Shares, All REITs and the NYSE Composite, with dividends reinvested when
paid and share prices as of the last day of each calendar year. The total return
for All REITs was compiled by the National Association of Real Estate Investment
Trusts (NAREIT).

FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) FIRST UNION ALL REITS NYSE COMPOSITE
<S> <C> <C> <C>
1989 100 100 100
1990 50 83 96
1991 53 112 124
1992 76 126 130
1993 85 149 148
1994 62 150 145
</TABLE>

14
<PAGE> 18

PROPOSAL 2

SHAREHOLDER PROPOSAL

Statement in Support and Proposal

Mr. Allen Wolff, D.V.M., Trustee, 4241 Center Road, Brunswick, Ohio
44212-0474, who is the beneficial owner of 520 Shares of Beneficial Interest,
has advised the Trust that he intends to present at the Annual Meeting the
following proposal, for which the Board of Trustees and the Trust accept no
responsibility:

I have invested my life savings in various equities to try to provide for
retirement and old age, and I want the funds to be there when I need them.
Throughout corporate America, many stockholder proposals have been introduced to
try to control compensation to directors and top management and to try to tie
them in with profits and dividends. Management opposes this! . . . Most
shareholder proposals fail because (1) the investors are not organized and have
no alternative, (2) management already controls a large number of votes and then
rewards itself with more shares to vote against such proposals, and (3) we are
not playing on a level field; management gets to count unmarked proxies as
voting in favor of their position and then is allowed to solicit proxies at the
company's expense.

I feel that many Boards of Directors have lost touch with the investors,
and it seems that they are giving more and more rewards for less and less
success. In Junior High School, we learned that there were three (3) parts to
any business: CAPITAL, LABOR AND MANAGEMENT. The boards seem to have forgotten
this lesson. The boards, in general, are self-perpetuating groups seemingly
intent on rewarding themselves and members of management, at the expense of the
investor.

I am particularly dismayed at the statement on proxies that "Proxies
signed, but not specifically marked, will be voted as management has suggested."

Management says that stockholders clearly understand how their votes will
be counted if they don't put Xs in the boxes; yet many shareholders didn't
understand THAT (and I have letters about that). They say that this process
allows the stockholder not to be burdened with making THREE OR FOUR Xs. WOW! How
many shareholders even understand what they are being asked to vote on?

Last April at the annual meeting of First Union Real Estate Trust, a
company that also has reduced its dividends in the last two years, there was a
management proposal to increase compensation ("because that's what we have to do
to attract top executives"). An interesting question from the floor to the CEO:
"Without this incentive, would you not work very hard at your base salary?"
Answer muted. The proposal passed by 69% (including the UNMARKED proxies). An
astute investor in the audience did some quick arithmetic and pointed out that
less than 50% of the shares voted were actually voted for the proposal.

When I go to the polls and figure there is no clear choice among candidates
and leave that space "unmarked", it is not voted in favor of the incumbent or
the incumbent's party; it is merely a non-vote.

15
<PAGE> 19

Therefore, be it resolved that in future proxies of this company, there
will be no discretionary power of voting by the named proxy-holder on any issues
where no direction has been given, including ANY ISSUE "WHICH MAY PROPERLY COME
UP AT THE MEETING."

Board of Trustees' Recommendation and Statement

The Board of Trustees recommends that the beneficiaries vote AGAINST this
proposal for the following reasons:

This proposal seeks to eliminate the right and ability of First Union's
beneficiaries to have their Shares voted by simply signing and returning a proxy
card. As a convenience, First Union provides its beneficiaries with the
opportunity to return a signed and dated but unmarked proxy card, thereby
authorizing the designated proxies to vote in accordance with the
recommendations of the Board. In such a case, the beneficiaries actually vote
their Shares in accordance with the recommendations of the Board, but are simply
not required to specifically mark each item listed on the proxy card.
Beneficiaries are advised, in bold letters on each proxy card, as to the effect
of returning such an unmarked proxy card. In addition, all beneficiaries
continue to have the opportunity, if these so desire, to submit a proxy card
with separate instructions for each item by marking the appropriate FOR,
AGAINST, or ABSTAIN box for each issue as applicable.

The proposal will not serve to provide shareholders with any new rights or
powers; to the contrary, it will simply deprive First Union's shareholders of a
convenient method of participating in annual or special meetings.

VOTE REQUIRED. Approval of this proposal will require the affirmative vote
of the holders of a majority of the Shares present in person or by proxy and
voting at the meeting.

16
<PAGE> 20

SELECTION OF AUDITORS

Arthur Andersen & Co. has been selected as auditors of First Union for the
ensuing year. Arthur Andersen & Co. has been First Union's auditors since the
founding of the Trust in 1961. Representatives of Arthur Andersen & Co. are
expected to be present at the 1995 Annual Meeting with the opportunity to make a
statement if they so desire and to respond to shareholder questions.

VOTING

The affirmative vote of the holders of a majority of the Shares present in
person or by proxy and voting at the meeting is required for approval of the
matters described in this Proxy Statement. If the requisite approval is not
obtained with respect to a particular matter, the proposal referred to in such
matter will not be implemented.

As far as the Trustees are aware, no matters other than those outlined in
this Proxy Statement will be presented to the meeting for action on the part of
the shareholders. If any other matters are brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote the Shares to
which the proxy relates in accordance with their best judgment.

SHAREHOLDER PROPOSALS

Any shareholder proposals intended to be presented at the 1996 Annual
Meeting of Shareholders must be received by First Union for inclusion in First
Union's proxy statement and form of proxy relating to that meeting on or before
November 11, 1995. Any such proposals should be sent to the following address:
First Union Real Estate Equity and Mortgage Investments, Suite 1900, 55 Public
Square, Cleveland, Ohio, 44113-1937, Attention: Paul F. Levin, Secretary.

FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS

PAUL F. LEVIN
Senior Vice President -- General
Counsel and Secretary
March 8, 1995

17
<PAGE> 21

FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS -- PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.

Allen H. Ford, E. Bradley Jones and James C. Mastandrea, or any one of
them, are hereby authorized, with full power of substitution, to
represent and to vote the shares which the undersigned may be entitled
to vote, including reinvestment shares, if any, at the Annual Meeting
of Shareholders of First Union Real Estate Equity and Mortgage
Investments to be held on April 11, 1995, or at any adjournment
thereof, as follows:

<TABLE>
<S> <C>
1. ELECTION OF TRUSTEES WITHHOLD AUTHORITY / /
FOR all nominees listed below / / to vote for all nominees listed below
(except as indicated to the contrary below)
</TABLE>

Stephen R. Hardis, E. Bradley Jones, James C. Mastandrea

INSTRUCTION: (To withhold authority to vote for any individual nominee
write that nominee's name in the space provided below)

----------------------------------------------------------------------

2. SHAREHOLDER PROPOSAL CONCERNING TABULATION OF PROXIES

/ / FOR / / AGAINST / / ABSTAIN

3. In their discretion, as to such other business as may properly come
before the meeting or at any adjournment thereof.

(Continued, and to be signed on other side)

PROXY NO. SHARES

(Continued from the other side)

IF NO SPECIFICATION IS MADE, AUTHORITY IS GRANTED TO CAST THE VOTE OF
THE UNDERSIGNED IN FAVOR OF PROPOSAL 1 AND AGAINST PROPOSAL 2.

Dated...................., 1995

...............................

Please sign as name appears on
the share certificates (as
indicated on this card). When
shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title as such. If the share
certificate is issued in the
name of a corporation, please
sign in full corporation name
by a duly authorized officer.
If a partnership, please sign
in partnership name by a duly
authorized person.

PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.