UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file 2-99171
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THE METROPOLITAN FUND: DOVER PENSION INVESTORS - 1986
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(Exact name of registrant as specified in its charter)
Pennsylvania 51-0283765
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 500, 1521 LOCUST STREET, PHILADELPHIA, PA 19102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 735-5001
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 8,592.5 Units
UNITS OF LIMITED PARTNERSHIP INTEREST
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes ___ No X
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of Units held by non-affiliates of the
Registrant: Not Applicable*
* Securities not quoted in any trading market to Registrant's
knowledge.
<PAGE>
PART I
Item 1. Business
a. General Development of Business
The Metropolitan Fund: Dover Pension Investors - 1986
("Registrant") is a limited partnership formed in 1985 under the
Pennsylvania Uniform Limited Partnership Act. As of December 31,
1996, Registrant had outstanding 8,592.5 units of limited partnership
interest (the "Units").
The following is a summary of significant transactions
involving the Registrant's interests:
On October 3, 1996, the City of Philadelphia Municipal
Pension Fund and the Philadelphia Gas Works Retirement Reserve Fund
sold all of their right, title and interest in 5,000 Units and 2,000
Units, respectively, in the Registrant to Resource Properties XXV,
Inc. ("RP XXV"). For a description of the legal proceedings, see Item
3. Legal Proceedings.
b. Financial Information about Industry Segments
The Registrant operates in one industry segment.
c. Narrative Description of Business
Registrant is in the business of making,
acquiring, holding, selling, exchanging and otherwise dealing in
mortgage loans with respect to real property and interests therein,
and to engage in any and all activities related or incidental thereto.
The Registrant has made six loans; one such loan
has been paid in full, including additional interest. A second loan
was satisfied in 1993 (see 1. Canton Cove). Two additional loans have
been transferred in connection with the settlement of certain legal
proceedings initiated by limited partners of the Registrant, (see 2.
Axewood and 3. Stein). The loans are described below:
1. Canton Cove - On October 7, 1987, Registrant
entered into a loan transaction with Canton Cove Corporation,
Enterprise Development Company and Struever Bros. Realty, Inc.,
(together referred to as Canton Cove Joint Venture or "CCJV") all of
Baltimore, Maryland, to provide a credit facility of $2,000,000 with
respect to a condominium project in Baltimore. The loan was
nonrecourse and was collateralized by a third lien on the project.
Prior liens on the condominium project had been placed to secure a
construction loan from Signet Bank/Maryland in the amount of
$18,400,000 and a purchase money mortgage in the amount of $248,380
from the Mayor and Council of Baltimore. A party related to the
borrowers (James W. Rouse) had advanced $1,500,000 (the "Rouse Loan")
on a parity with, and on substantially the same terms as the
Registrant's loan.
On May 31, 1990, Registrant entered into an
agreement with CCJV to amend the October 1987 loan documents. The
agreement provided for the following: (1) the $1,500,000 Rouse Loan
was subordinated in all respects to the Registrant's loan; (2) at such
time as the aggregate of the purchase prices (as specified in the
agreement) of all unsold units equaled $1,000,000, a deed to all
unsold units would be transferred to the Registrant, and (3) the
Signet Bank and Council of Baltimore loans would be paid in full by
the borrower so that the property would be free of all liens. In
order to properly account for this transaction, the Registrant
established a loan loss reserve in the amount of $1,222,333 to be
applied against the Canton Cove loan and the related accrued interest
in order to reduce its carrying value to $1,000,000. In addition, the
Registrant ceased accruing interest at that time.
As of October 1992, the remaining unsold units had
an aggregate purchase price of $1,098,000. At that time, Registrant
requested the transfer of the deeds to the unsold units in accordance
with the May 1990 agreement. Shortly thereafter, the Registrant was
named as a defendant in a complaint filed November 20, 1992 by CCJV
and the stockholders of Canton Cove Corporation. The complaint
alleged that the Registrant economically coerced CCJV to enter the
agreement dated May 31, 1990 and asked that the agreement be
rescinded. The complaint also claimed unspecified monetary damages
and asked that the remaining condominium units be released for sale by
CCJV.
The Registrant responded to the complaint and also
asserted its counterclaims against CCJV. Shortly thereafter,
settlement discussions between the partnership and CCJV commenced. On
December 3, 1993, a settlement agreement was reached whereby the
Registrant took title to three condominium units and ten boat slips
located at the Canton Cove Condominium, subject to the mortgages on
the condominium units. The Registrant satisfied the underlying
mortgages and paid the closing costs of the transaction by borrowing
$395,000, subject to a note collateralized by a Deed of Trust covering
the three condominium units and ten boat slips. The principal balance
of the note is $236,616 at December 31, 1996, bears interest at 9.25%
and is payable monthly in the amount of $1,005 (principal and
interest). The note matures on January 1, 1999.
On October 18, 1995, the Registrant sold one of
the condominium units at a sales price of $400,000. The sales
proceeds were used to pay a portion of the principal balance of the
note, settlement costs, administrative expenses of the Registrant and
repay an advance to the Registrant. The Registrant recognized a loss
of $45,929 on the sale based on the excess of the book value of the
unit over the sales price less the selling costs. The Registrant
recognized an impairment loss of $232,872 for the year ended December
31, 1996 in relation to the remaining condominium units and boat
slips. For additional information, see Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of
Operations.
On March 31, 1997, the Registrant sold one of the
two remaining condominium units at a sales price of $350,000. The
sales proceeds were used to pay a portion of the principal balance of
the note, settlement costs, and limited partner distribution. The
Registrant recognized a gain of $3,947 on the sale based on the excess
of the sales price less the selling costs over the book value of the
unit. The Registrant intends to sell the remaining condominium unit
and boat slips, but until such time as those sales occur, they have
been leased at monthly rents aggregating $1,800.
2. Axewood - On October 31, 1988, Registrant entered
into a loan agreement in the amount of $1,600,000 with Axewood
Associates, a Pennsylvania limited partnership, that owned the Axewood
Office Complex in Ambler, Pennsylvania. The loan accrued interest at
a rate of 12% per year with interest payable at a rate of 9% per year.
The loan matured fifteen years from loan closing or upon earlier sale
or refinancing, and was payable interest only to maturity. The loan
was nonrecourse, secured by a third mortgage on the property. A party
affiliated with an affiliate of Registrant, Diversified Pension
Investors ("DPI") advanced $900,000 on a parity with, and on
substantially the same terms as the Registrant. In the event of a
sale or refinancing of the property, Registrant was to receive
additional interest equal to its proportionate share of 5% of the
difference between (i) the sale price or fair market value of the
property and (ii) $5,000,000.
In February 1991, Registrant entered into an
amendment of the loan agreement increasing the interest accrual rate
to 13% with interest payable at 5%. On May 21, 1991, Registrant and
DPI exercised their rights under the Collateral Assignment of Leases
and Rents delivered in connection with these loans and directed all
tenants of the borrower to make monthly payments to DPI. The first
and second mortgages with an approximate aggregate balance of
$1,690,770 have been kept current with rent income received from
tenants. In August 1992, the Registrant and DPI formed a corporation,
Skippack Pike Properties, Inc. ("Skippack"), to act as their joint
agent and straw party for the purpose of holding all documents
relating to the Axewood loans. Skippack executed a judgment against
Axewood Associates, began collecting the rents of the property, and
scheduled a foreclosure sale for May 1993. However, in May 1993,
Axewood Associates filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. In October 1993, after a lengthy trial in which
Registrant and DPI's rights were affirmed by the Bankruptcy Court, the
bankruptcy was dismissed and another foreclosure sale was scheduled.
In anticipation of the foreclosure sale, the Registrant and DPI sold
all their right, title and interest in their mortgages to Skippack SLC
Associates ("SLC") in consideration for new notes on terms virtually
identical to the existing notes from Axewood. The new notes were
secured by interests in the assigned mortgage documents. SLC, DPI and
the Registrant agreed that, upon completion of the foreclosure sale,
SLC would execute and deliver new mortgages to secure the new notes.
Skippack continued to hold legal title to the assigned mortgage
documents, and became agent and straw party for SLC, which owned the
equitable interests therein. On February 16, 1994, Skippack
foreclosed on the property. Skippack, as agent, holds legal title to
the property and is the agent for SLC, which has the beneficial
ownership of the property. At that time, SLC also delivered new
mortgages to the Registrant and DPI. In January 1996, the bank
holding the first and second mortgages made an additional loan of
$360,000 to be used for capital and tenant improvements. In
connection with certain legal proceedings brought by limited partners
of the Registrant, as described in Item 3, Legal Proceedings, on
November 27, 1996, as part of the overall settlement agreement
relating to such actions, this loan was transferred to RP XXV and the
Registrant recognized an extraordinary loss of $1,892,056 as a result
of the transfer.
3. Stein - On November 25, 1988, Registrant entered
into a loan agreement in the amount of $2,000,000 with Mr. Richard
Stein, as principal and representative of a group of foreign
investors. The borrower entered into a contract with the partners of
Washington Properties Limited Partnership ("WPLP"), a District of
Columbia limited partnership, to purchase certain of the issued and
outstanding partnership interests of WPLP. The loan is secured by a
pledge of the WPLP partnership interests. WPLP owns 1301 Connecticut
Avenue, N.W. a retail/office building on DuPont Circle in Washington,
DC (the "Property"). The loan accrued interest at a rate of 12% per
year.
In January 1992, WPLP terminated the ground lease
with the owner of the office building. On March 20, 1992, WPLP
granted to Registrant an absolute assignment of leases which
Registrant exercised immediately thus becoming mortgagee-in-
possession. Also on March 20, 1992, WPLP filed a petition of
reorganization pursuant to Chapter 11 of the U.S. Bankruptcy Code.
From that time until July 2, 1992, all rents from the property were
collected by the Registrant, all expenses of the property were paid
from the rents, and the net cash flow remaining (approximately
$295,000) was applied against accrued interest receivable on the Stein
loan. On July 2, 1992, a Consent Order was issued regarding rent
collections. From that day forward, all rents were to be collected by
WPLP and deposited in a Debtor-In-Possession account, and all
expenditures were to be approved by both the entity ("CAT I") which
claimed to hold the first mortgage on the office building, and the
Registrant. Since that time, CAT I only approved three payments of
the monthly debt service due to the Registrant. In 1993, on the
advice of counsel, the Registrant deposited the net cash flow
collected from the property from March 20, 1992 until June 30, 1992
into a court-supervised, WPLP Debtor-In-Possession account. However,
the Registrant reserved all of its rights to assert that it was
entitled to the collection of those funds.
After a lengthy trial in Bankruptcy Court, in
November 30, 1994, WPLP's Second Amended Plan of Reorganization ("the
Plan") was confirmed. The Plan provided for, among other things, the
payment to CAT I in cash of $7,750,000 together with a subordinated
note of $275,000 from WPLP with an interest rate of 9.5% per annum,
payable from available cash and a maturity date of November 30, 1998.
The funds needed for the CAT I payments were provided by RAI
Financial, Inc. ("RFI"), an affiliate of RPXXV. The terms of the RFI
loan are as follows: the RFI loan is a wrap-around mortgage loan in
the amount of $12,000,000 which includes (i) a restated first mortgage
loan (held by RFI) in the amount of $9,000,000 and (ii) a restated
second mortgage in favor of the Registrant in the amount of
$3,000,000. The Registrant and RFI entered into an agreement whereby
the Registrant irrevocably and unconditionally agreed that RFI will
hold the note and security documents in its name and that the note and
security documents shall evidence, encompass, secure and include both
RFI's and the Registrant's indebtedness. All interest received on
account of the Note is payable first to RFI until RFI receives
interest in an amount equal to 12% per annum. After RFI receives
this, all additional interest received will be apportioned between the
Registrant and RFI, with (i) Registrant receiving interest at 2/3 of
the 30 day U.S. Treasury Bill Rate in effect on the most recent June
8, (ii) RFI receiving the balance of such interest. Interest payments
of $72,294 and $84,473 were made in 1996 and 1995, respectively. In
connection with certain legal proceedings brought by limited partners
of the Registrant, as described in Item 3, Legal Proceedings, on
November 27, 1996, as part of the overall settlement agreement
relating to such actions, this loan was transferred to RP XXV and the
Registrant recognized a extraordinary loss of $3,025,811 as a result
of the transfer.
4. St. Julien - On May 31, 1989, Registrant entered
into a loan commitment in the amount of $300,000 with St. Julien Corp.
("St. Julien"), a District of Columbia corporation; on May 31, 1989,
Registrant disbursed $300,000 under such commitment. On September 15,
1989, the amount of principal outstanding was increased by an
additional $300,000. On March 24, 1992, the amount of principal
outstanding was increased by an additional $372,000. The loan accrues
interest at the rate of 14% per year with interest payable currently
at the minimum rate of 0% and a maximum rate of 10% per year to the
extent of cash flow and matures on December 31, 1998 or upon earlier
sale or refinancing. The loan is payable interest only to maturity.
This loan is secured by property located at 1606 New Hampshire Avenue,
Washington, DC. If at any time this property is sold or refinanced,
Registrant is also entitled to 5% of the proceeds receivable by the
owner of the property, in excess of $3,000,000. In the case of a
transfer, Registrant is entitled to 5% of the excess fair market value
of the property over $3,000,000.
The first mortgage on the property was scheduled
to mature on March 24, 1994. The first mortgage holder notified St.
Julien that without a substantial paydown of the outstanding loan
balance, the loan would not be renewed. Also, the Registrant
discovered that St. Julien was not paying its bills as they became due
and, as a result, became concerned that such non-payment could
adversely affect the value of the property. In order to forestall the
threatened demand by the first mortgage lender for payment in full on
the loan, and avoid any deterioration in the value of the property,
the Registrant filed an involuntary petition under Chapter 11 of the
U.S. Bankruptcy Code against St. Julien on February 22, 1994. St.
Julien pursued settlement discussions with the first mortgage holder,
however in October 1994, the mortgage note was sold. An agreement was
entered into with the new holder of the mortgage whereby the note
maturity was extended to September 1999 and monthly payments of
interest are to be made in an amount equal to net operating income,
with a minimum of $8,000 per month. In 1996, the Registrant
recognized bad debt expense of $810,841 to reduce the carrying value
of the loan to its net realizable value. As of December 31, 1996, the
outstanding loan balance plus accrued interest equals $435,457. No
interest payments were made in 1996 or 1995. See Part II. Item 7 (3)
Results of Operations. In addition, the Registrant is no longer
accruing interest on this loan.
5. St. Julien IV - On November 17, 1989, Registrant
entered into a loan commitment in the amount of $235,000 with St.
Julien IV Corp., a Pennsylvania corporation. The loan accrues
interest at a rate of 13% per year with interest only payable
currently at a rate of 8% per year and matures December 31, 2004.
Repayment of this note is secured in part by (i) a Deed of Trust
secured against real property located in Winston-Salem, North
Carolina; and (ii) a collateral assignment of rents and leases with
respect to leases, subleases or rights of use of all or any portion of
the property. In addition, the borrower granted the Registrant a
security interest in any personalty, fixtures or equipment installed
or situated in or on the property. Interest payments of $14,500 and
$17,250 were made in 1996 and 1995, respectively. In 1996, the
Registrant recognized bad debt expense of $158,717 to reduce the
carrying value of the loan to its net realizable value. As of
December 31, 1996, the outstanding loan balance plus accrued interest
equals approximately $250,000. See Part II. Item 7 (3) Results of
Operations. In addition, the Registrant is no longer accruing
interest on this loan.
Financial Information about Foreign and Domestic
Operations and Export Sales
See Item 8, Financial Statements and Supplementary Data
Item 2. Properties
As described in Item 1.c.1 Canton Cove, the Registrant
owns one condominium unit and ten boat slips located in Baltimore,
Maryland.
Item 3. Legal Proceedings
The Registrant was named as a defendant in a lawsuit
filed December 27, 1989 by two limited partners, the City of
Philadelphia Municipal Pension Fund and the Philadelphia Gas Works
Retirement Reserve Fund (the "Funds"). The lawsuit alleged that the
Axewood loan, the Stein loan and the 1508 Walnut Street loan
("Disputed Loans") made by the Partnership were not in accordance with
the prospectus and the Agreement of Limited Partnership. In the
lawsuit, the plaintiffs requested a return of their initial
investments plus interest and unspecified damages.
In June of 1992, a settlement agreement was reached
which provided that as investments made by the Registrant matured or
were refinanced, the proceeds from these investments would be
distributed to the limited partners. The settlement agreement also
guaranteed the Funds a minimum return of 100% of their principal
investment in the Disputed Loans (without interest) and a period of
three years in which to liquidate the Disputed Loans, and two optional
one-year extensions with interest accruing at a rate equal to the rate
for 30-day U.S. Treasury bills as set forth in The Wall Street
Journal. As a result of the settlement, $1,073,600, which was derived
from amounts collected as a result of the satisfaction of the 1508
Walnut Street loan, was distributed to the limited partners on July 8,
1992.
In June of 1996, the Registrant was at the end of the
first extension period and the Funds were threatening additional
litigation. On October 3, 1996, the Funds sold all of their right,
title and interest in 7,000 Units to RP XXV. On November 27, 1996, RP
XXV agreed to settle the Disputed Loans by releasing the Registrant
from all claims in exchange for the transfer and assignment of the
Disputed Loans to RP XXV. The Registrant recognized a extraordinary
loss of $4,917,868 from this transaction in 1996.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fiscal years covered
by this report to a vote of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
a. There is no established public trading market for
the Units. Registrant does not anticipate any such market will
develop. Trading in the units occurs solely through private
transactions. Registrant's records indicate that 7,060 units were
sold or exchanged of record in 1996.
b. As of December 31, 1996, there were 129 record
holders of Units.
c. Registrant did not declare any cash dividends in
1996 or 1995.
Item 6. Selected Financial Data
The following selected financial data are for the five
years ended December 31, 1996. The data should be read in conjunction
with the consolidated financial statements included elsewhere herein.
This data is not covered by the independent auditors' report.
1996 1995 1994 1993 1992
Interest income $ 120,408 $ 308,667 $ 43,686 $ 356,231 $ 446,276
Rental income 31,417 46,127 50,000 4,232 0
Net (loss) income (6,181,943) 111,052 (233,731) 184,079 260,297
Net (loss) income
per Unit (669.10) 12.02 (25.30) 19.92 28.17
Total assets (net of
depreciation and
amortization 1,346,276 7,510,243 7,682,934 7,772,347 7,006,525
Debt obligations 236,616 239,748 391,136 395,000 0
Distributions to Partners 0 0 0 0 1,073,600
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(1) Liquidity
At December 31, 1996, Registrant had cash of
approximately $1,430. The Registrant will have to rely on rental
payments from the Canton Cove property and debt service payments from
the St. Julien IV loan to service the first mortgage on the Canton
Cove property and the administrative expenses of the Registrant. The
Registrant is not aware of any additional sources of liquidity.
(2) Notes Receivable
The balance sheet caption "Notes Receivable"
includes the outstanding principal balance of the loans. The decrease
from 1995 to 1996 is due to the transfer of the Stein and Axewood
loans and the bad debt expense recognized on the St. Julien and St.
Julien IV loans. See Item 7 (3) Results of Operations. The increase
of $1,000,000 from 1994 to 1995 relates to the restructuring of the
Stein loan which added accrued interest to the principal balance. See
Item 1. Part c. The Registrant believes that as of December 31, 1996,
all notes receivable are stated at their net realizable value.
(3) Results of Operations
In 1996, Registrant earned $120,408 of interest
income, of which $652 was earned on deposits with banks and $119,756
was earned from lending transactions, compared to $308,667 of interest
income in 1995 of which $415 was earned on deposits with banks and
$308,252 was earned from lending transactions, compared to $43,686 of
interest income in 1994, of which $0 was earned on deposits with banks
and $43,686 was earned from lending transactions. The change from
1995 to 1996 and 1994 to 1995 relates to the accrual of interest in
1995 on the Stein loan as a result of the restructuring of the loan.
Rental income decreased from $50,000 in 1994 to $46,127
in 1995 and to $31,417 in 1996. Rental income relates to the
Registrant's ownership of condominium units and boat slips at Canton
Cove Condominiums which are triple-net leased. The decrease from 1994
to 1995 and from 1995 to 1996 results from the sale of one unit in
October 1995.
General and administrative expenses decreased from
$228,306 in 1994 to $103,374 in 1995 and increased to $151,795 in
1996. The increase from 1995 to 1996 is due to an increase in legal
fees incurred in connection with the settlement agreement. See Item
3, Legal Proceedings. The decrease from 1994 to 1995 is mainly the
result of legal fees incurred associated with the foreclosure of the
Axewood property, and the bankruptcies and related litigation of both
the Stein and St. Julien loans in 1994.
Depreciation expense decreased from $56,280 in 1994 to
$53,036 in 1995 and to $37,654 in 1996. The decrease from 1994 to
1995 and from 1995 to 1996 results from the sale of one condominium
unit in October 1995.
Interest expense decreased from $42,831 in 1994 to
$41,403 in 1995 and to $22,046 in 1996. The decrease from 1995 to
1996 is due to a reduction in the principal balance of the note on the
Canton Cove units due to the sale of one unit in October 1995.
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long - Lived Assets and for Long -
Lived Assets to be Disposed Of," which requires impairment losses to
be recognized for long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The impairment
loss is measured by comparing the fair value of the asset to its
carrying amount. In the fourth quarter of 1996, the Registrant
recorded an impairment loss of $232,872 as a result of sales contracts
for the remaining two condominium units at Canton Cove where the sales
prices were lower than the current carrying value of the condominium
units.
The bad debt expense relates to the St. Julien and St.
Julien IV loans, whose underlying properties were appraised in 1996 at
a value lower than the carrying value of the first and second
mortgages combined. Therefore, the Registrant recognized bad debt
expense of $810,841 on the St. Julien loan and $158,717 on the St.
Julien IV loan to reduce the carrying value of the loans to their net
realizable value.
The loss on sale of unit relates to the sale of one of
the condominium units at Canton Cove in 1995 at a sales price of
$400,000. The sales proceeds were used to pay a portion of the
principal balance of the note, settlement costs, administrative
expenses of the Registrant and to repay an advance to the Registrant.
The Registrant recognized a loss of $45,929 on the sale based on the
difference between the book value of the unit and the sales price less
the selling costs.
Item 8. Financial Statements and Supplementary Data
Registrant is not required to furnish the supplementary
financial information referred to in Item 302 of Regulation S-K.
<PAGE>
Independent Auditor's Report
To the Partners
The Metropolitan Fund: Dover Pension Investors - 1986
We have audited the accompanying balance sheets of The Metropolitan
Fund: Dover Pension Investors - 1986 (a Pennsylvania Limited
Partnership) as of December 31, 1996 and 1995 and the related
statements of operations, changes in partners' equity and cash flows
for the years ended December 31, 1996, 1995 and 1994. These financial
statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial
position of The Metropolitan Fund: Dover Pension Investors - 1986 as
of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years December 31, 1996, 1995 and 1994 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedule of Real
Estate and Accumulated Depreciation on page 21 is presented for the
purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
Gross, Kreger and Passio, L.L.C.
Philadelphia, Pennsylvania
February 11, 1997
<PAGE>
METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
(a limited partnership)
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Financial statements: Page
Balance Sheets at December 31, 1996 and 1995 13
Statements of Operations for the Years Ended
December 31, 1996, 1995, and 1994 14
Statements of Changes in Partners' Equity
for the Years Ended December 31, 1996, 1995 and 1994 15
Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994 16
Notes to financial statements 17-19
Financial statement schedules:
Schedule XI - Real Estate and Accumulated Depreciation 21
Notes to Schedule XI 22
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
<PAGE>
THE METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
(a limited partnership)
BALANCE SHEETS
December 31, 1996 and 1995
Assets
1996 1995
Rental properties at cost:
Building and improvements $ 660,000 $1,006,999
Less: accumulated depreciation (7,444) (83,917)
--------- ---------
652,556 923,082
Cash and cash equivalents 1,430 43,324
Accounts and notes receivable 692,290 5,810,833
Interest receivable 0 733,004
--------- ---------
Total $1,346,276 $7,510,243
========= =========
Liabilities and Partners' Equity
Liabilities:
Debt obligations $ 236,616 $ 239,748
Accounts payable:
Trade 162,213 146,971
Related parties 61,370 80,927
Other liabilities 57,423 32,000
--------- ---------
Total liabilities 517,622 499,646
Partners' equity 828,654 7,010,597
--------- ---------
Total $1,346,276 $7,510,243
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
(a limited partnership)
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Rental income $ 31,417 $ 46,127 $ 50,000
Interest income 120,408 308,667 43,686
--------- ------- -------
Total revenues 151,825 354,794 93,686
--------- ------- -------
Costs and expenses:
Rental operations 1,975 0 0
General and administrative 151,795 103,374 228,306
Depreciation 37,654 53,036 56,280
Interest 22,046 41,403 42,831
Impairment of long-lived assets 232,872 0 0
Bad debt expense 969,558 0 0
Loss on sale of unit 0 45,929 0
--------- ------- -------
Total costs and expenses 1,415,900 243,742 327,417
--------- ------- -------
(Loss) income before extraordinary item (1,264,075) 111,052 (233,731)
Extraordinary loss (4,917,868) 0 0
--------- ------- -------
Net (loss) income ($6,181,943) $111,052 ($233,731)
========= ======= =======
Net (loss) income per limited partnership unit:
(Loss) income before extraordinary item ($ 136.82) $ 12.02 ($ 25.30)
Extraordinary loss ( 532.28) 0 0
--------- ------- -------
($ 669.10) $ 12.02 ($ 25.30)
========= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
Dover
1986 Limited
Advisors (1) Partners (2) Total
Percentage participation in profit or loss 7% 93% 100%
Balance at December 31, 1993 55,662 7,077,614 7,133,276
Net loss (16,361) (217,370) (233,731)
------ --------- ---------
Balance at December 31, 1994 39,301 6,860,244 6,899,545
Net income 7,774 103,278 111,052
------ --------- ---------
Balance at December 31, 1995 47,075 6,963,522 7,010,597
Net loss (61,819) (6,120,124)(6,181,943)
------ --------- ---------
Balance at December 31, 1996 ($14,744) $ 843,398 $ 828,654
====== ========= =========
(1) General Partner.
(2) 8,592.5 limited partnership units outstanding at December 31,
1996, 1995, and 1994.
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
(a limited partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net (loss) income ($6,181,943) $111,052 ($233,731)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Loss on sale of unit 0 45,929 0
Depreciation 37,654 53,036 56,280
Extraordinary loss 4,917,868 0 0
Impairment loss 232,872 0 0
Bad debt expense 969,558 0 0
Changes in assets and liabilities:
Increase (decrease) in accounts payable
- trade 15,242 (43,716) 104,037
(Decrease) increase in accounts payable
- related (19,557) (94,639) 18,145
Increase in other liabilities 25,423 6,000 26,000
--------- --------- ------
Net cash (used in) provided by
operating activities: (2,883) 77,662 (29,269)
--------- --------- ------
Cash flows from investing activities:
(Increase) decrease in accounts and note
receivable (18,000) (1,000,000) 3,350
(Increase) decrease in interest receivable (17,879) 788,268 34,192
--------- --------- ------
Net cash (used in) provided by investing
activities: (35,879) (211,732) 37,542
--------- --------- ------
Cash flows from financing activities:
Principal payments (3,132) (151,388) (3,864)
Proceeds from sale of unit 0 323,982 0
--------- --------- ------
Net cash (used in) provided by financing
activities: (3,132) 172,594 (3,864)
--------- --------- ------
(Decrease) increase in cash and cash
equivalents (41,894) 38,524 4,409
Cash and cash equivalents at beginning of year 43,324 4,800 391
--------- --------- ------
Cash and cash equivalents at end of year $ 1,430 $ 43,324 $ 4,800
========= ========= ======
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 22,046 $ 33,722 $33,346
The accompanying notes are an integral part of these financial statements.
<PAGE>
THE METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
Metropolitan Fund: Dover Pension Investors - 1986 (the "Partnership")
is a Pennsylvania limited partnership formed in May 1985 to serve as
an investment vehicle for qualified profit-sharing, pension, and other
investment trusts, HR-10 (Keogh) Plans, Individual Retirement
Accounts, and other entities exempt from Federal income taxation. The
Partnership intends to make, acquire, hold, sell, exchange, and
otherwise deal in mortgage loans with respect to real property and
interests therein, and to engage in any and all activities related or
incidental thereto.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
1. Issuance Costs
Costs incurred in connection with the offering and sale of limited
partnership units were charged against partners' equity as incurred.
The General Partner is required to reimburse the Partnership for
issuance costs to the extent total issuance costs exceed certain
defined limitations.
2. Net Income Per Limited Partnership Unit
Net income per limited partnership unit is based on the weighted
average number of limited partnership units outstanding during the
period (8,592.5 in 1996, 1995, and 1994).
3. Income Taxes
Federal and state income taxes are payable by the individual partners
or their beneficiaries; accordingly, no provision or liability for
income taxes is reflected in the financial statements.
4. Cash and Cash Equivalents
The Registrant considers all highly liquid investments purchased with
a maturity of three months or less to be cash equivalents.
5. Depreciation
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Buildings and improvements are
depreciated over 25 years and furniture and fixtures over five years.
6. Revenue Recognition
Revenues are recognized when interest is due on a straight-line basis.
Interest payments received in advance are deferred until earned.
7. New Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long - Lived Assets and for Long -
Lived Assets to be Disposed Of," which requires impairment losses to
be recognized for long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets' carrying amount. The impairment
loss is measured by comparing the fair value of the asset to its
carrying amount. In the fourth quarter of 1996, the Partnership
recorded an impairment loss of $232,872 as a result of sales contracts
for the remaining two condominium units at Canton Cove where the sales
prices were lower than the current carrying value of the condominium
units.
NOTE C - PARTNERSHIP AGREEMENT
The significant terms of the Agreement of Limited Partnership (the
"Agreement"), as they relate to the financial statements, follow:
All distributable cash from operations (as defined in the Agreement of
Limited Partnership) will be distributed 7% to the General Partner and
93% to the limited partners.
Net income or loss from operations of the Partnership is allocated 7%
to the General Partner and 93% to the limited partners.
NOTE D - DEBT OBLIGATIONS
Debt obligations are as follows:
December 31,
1996 1995
Mortgage loan, interest at 9.25%;
interest and principal payable in
monthly installments of $1,005; due
January 1, 1999; collateralized by
the related rental property $ 236,616 $ 239,748
-------- --------
$ 236,616 $ 239,748
======== ========
Approximate maturities of the mortgage loan obligation at December 31,
1996, for each of the succeeding three years are as follows:
1997 $ 3,434
1998 3,765
1999 229,417
-------
$236,616
=======
NOTE E - TRANSACTIONS WITH RELATED PARTIES
The Partnership is obligated to pay the General Partner a fee equal to
one-quarter of one percent per annum of outstanding loans serviced by
the General Partner. Such fees aggregated $21,433, $25,259 and
$22,227 in 1996, 1995, and 1994, respectively.
NOTE F - INCOME TAX BASIS RECONCILIATION
Certain items enter into the determination of the results of
operations in different time periods for financial reporting ("book")
purposes and for income tax ("tax") purposes. The reconciliation of
the results of operations follows:
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
Net income (loss) - book ($6,181,943) $ 111,052 ($ 233,731)
Excess of tax over book depreciation 3,404 (10,418) (13,174)
Loss on sale 0 3,893 0
Legal fees 0 (63,686) 63,686
Impairment of long-lived assets 232,872 0 0
Bad debt expense 969,558 0 0
Extraordinary loss 4,917,868 0 0
Timing differences 27,840 0 0
--------- --------- ---------
Net income (loss) - tax ($ 30,401) $ 40,841 ($ 183,219)
========= ========= =========
A reconciliation between partners' equity for book and tax purposes follows:
Partners' equity - book $ 828,654 $7,010,597 $6,899,545
Costs of issuance 658,440 658,440 658,440
Cumulative tax over (under) book income 6,119,125 (32,417) 37,794
--------- --------- ---------
Partners' equity - tax $7,606,219 $7,636,620 $7,595,779
========= ========= =========
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
THE METROPOLITAN FUND - DOVER PENSION INVESTORS - 1986
(a limited partnership)
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Initial Cost to Gross Amount at which
Partnership (b) Carried at December 31, 1996
Buildings
and Accum. Date of Date
Description Encumbrances Land Improvements Total(a)(b) Depr. Constr Acquired
(d) (b)(c) (a)
2 condominium
units and 10
boat slips in
Baltimore, MD $236,616 - $660,000 $660,000 $7,444 12/3/93 1990
------- ----- ------- ------- -----
$236,616 $0 $660,000 $660,000 $7,444
======= ===== ======= ======= =====
<PAGE>
THE METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
(a limited partnership)
NOTES TO SCHEDULE XI
December 31, 1996
(A) The aggregate cost of real estate for Federal income tax
purposes is approximately $995,000.
(B) Reconciliation of real estate:
1996 1995 1994
Balance at beginning of year $1,006,999 $1,406,999 $1,406,999
Deductions during the year (346,999) (400,000) 0
--------- --------- ---------
Balance at end of year $ 660,000 $1,006,999 $1,406,999
========= ========= =========
Reconciliation of accumulated depreciation:
1996 1995 1994
Balance at beginning of year $ 83,917 $ 60,970 $ 4,690
Depreciation expense for the year 37,654 53,036 56,280
Deductions during the year (114,127) (30,089) 0
--------- --------- ---------
Balance at end of year $ 7,444 $ 83,917 $ 60,970
========= ========= =========
(C) See Note B to the financial statements for depreciation method
and lives.
(D) See Note D to the financial statements for further information.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
a. Identification of Directors - Registrant has no
directors.
b. Identification of Executive Officers
The General Partner of the Registrant is Dover
1986 Advisors, a Pennsylvania general partnership. The partners of
Dover 1986 Advisors are as follows:
Name Age Position Term of Office Period Served
Gerald Katzoff 49 Partner in No fixed term May 1985 - May
Dover 1986 1997
Advisors
DHP, Inc. -- Partner in No fixed term May 1985 - May
(Formerly Dover Dover 1986 1997
Historic Properties, Advisors
Inc.)
SWDHA, Inc. -- Partner in No fixed term Since
Dover 1986 May 1997
Advisors
EPK, Inc. -- Partner in No fixed term Since
Dover 1986 May 1997
Advisors
For further description, see paragraph e. of this Item. There
is no arrangement or understanding between either person named above
and any other person pursuant to which any person was or is to be
selected as an officer.
c. Identification of Certain Significant Employees.
Registrant has no employees. Its administrative and operational
functions are carried out by a property management and partnership
administration firm engaged by the Registrant.
d. Family Relationships. There is no family relationship
between or among the executive officers and/or any person nominated or
chosen by Registrant to become an executive officer.
e. Business Experience. Dover 1986 Advisors is a general
partnership formed in May 1985. The General Partner is responsible
for management and control of Registrant's affairs and will have
general responsibility and authority in conducting its operations.
The General Partner may retain its affiliates to manage certain of the
Properties.
On May 13, 1997, SWDHA, Inc. replaced Gerald Katzoff
and EPK, Inc. replaced DHP, Inc. as partners of Dover 1986 Advisors.
Spencer Wertheimer, the President of SWDHA, Inc., is an attorney with
extensive experience in real estate activities ventures.
EPK, Inc. is a Delaware corporation formed for the
purpose of managing properties or interests therein. EPK, Inc. is a
wholly-owned subsidiary of D, LTD, an entity formed in 1985 to act as
the holding company for various corporations engaged in the development
and management of historically certified properties and conventional
real estate as well as a provider of financial (non-banking) services.
EPK, Inc. is an affiliate of Dover 1986 Advisors.
The officers and directors of EPK, Inc. are described
below.
Donna M. Zanghi (age 40) was appointed on May 13, 1997
as Secretary and Treasurer of EPK, Inc. Ms. Zanghi previously served
as Secretary and Treasurer of DHP, Inc. since June 14, 1993 and as a
Director and Secretary/Treasurer of D, LTD. She was associated with
DHP, Inc. and its affiliates since 1984 except for the period from
December 1986 to June 1989 and the period from November 1, 1992 to
June 14, 1993.
Michele F. Rudoi (age 32) was appointed on May 13, 1997
as Assistant Secretary and Director of EPK, Inc. Ms. Rudoi previously
served as Assistant Secretary and Director of both D, LTD. and DHP,
Inc. since January 27, 1993.
Item 11. Executive Compensation
a. Cash Compensation - During 1996, Registrant has
paid no cash compensation to Dover 1986 Advisors, any partner therein
or any person named in paragraph c. of Item 10. Certain fees have
been paid to affiliates of DHP, Inc. by Registrant. See paragraph a.
of Item 13.
As of the date hereof, Registrant has paid no cash
compensation to the General Partner, any partner therein or any person
named in paragraph c. of Item 10 except as set forth below. Pursuant
to Registrant's Amended and Restated Agreement of Limited Partnership,
the General Partner is entitled to 7% of the Registrant's Net Cash
Flow distributed in each year, to 1/4% mortgage servicing fee, and to
reimbursement for administrative salaries and expenses.
During 1996, the General Partner received $-0- as a
distribution of the Registrant's net cash flow, and charged $21,443 as
a mortgage servicing fee.
b. Compensation Pursuant to Plans - Registrant has no
plan pursuant to which compensation was paid or distributed during
1996, or is proposed to be paid or distributed in the future, to Dover
1986 Advisors, any partner therein, or any person named in paragraph
c. of Item 10 of this report.
c. Other Compensation - No compensation not referred
to in paragraph a. or paragraph b. of this Item was paid or
distributed to date, to Dover 1986 Advisors, any partner therein, or
any person named in paragraph c. of Item 10.
d. Compensation of Directors - Registrant has no
directors.
e. Termination of Employment and Change of Control
Arrangement -
Registrant has no compensatory plan or arrangement, with respect to
any individual, which results or will result from the resignation or
retirement of any individual, or any termination of such individual's
employment with Registrant or from a change in control of Registrant
or a change in such individual's responsibilities following such a
change in control.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
a. Security Ownership of Certain Beneficial Owners -
The City of Philadelphia Municipal Pension Fund is the beneficial
owner of 5,000 units, constituting 58.19% of the aggregate issued and
outstanding units, and The Philadelphia Gas Works Retirement Fund is
the beneficial owner of 2,000 units constituting 23.28% of the
aggregate issued and outstanding units. On October 3,1996, all 7,000
units were sold to Resource Properties XXV, Inc., constituting 81.47%
of the aggregate issued and outstanding units.
b. Security Ownership of Management - No equity
securities of Registrant other than the interest of Dover 1986
Advisors are beneficially owned by any of Registrant's executive
officers or by any person named in paragraph c. of Item 10.
c. Changes in Control - Registrant does not know of
any arrangement, the operation of which may at a subsequent date
result in a change in control of Registrant.
Item 13. Certain Relationships and Related Transactions
a. Transactions with Management and Others -
Registrant is required to pay the General Partner a mortgage servicing
fee of 1/4% per year of the outstanding loans made by Registrant
serviced by the General Partner. In 1996, Registrant had accrued such
fees in the amount of $21,443.
During 1993, the General Partner advanced $123,980
to the Registrant for working capital needs. Interest accrues on this
obligation at 8% per annum. During 1995, interest accrued was $7,681
and payments of $127,579 were made to satisfy the obligation.
b. Certain Business Relationships - Registrant has no
directors. For a description of business relationships between
Registrant and certain affiliated persons, see paragraph a. of this
Item.
c. Indebtedness of Management - No executive officer
or significant employee of Registrant, Registrant's general partner
(or any employee thereof), or any affiliate of any such person, is or
has at any time been indebted to Registrant.
<PAGE>
PART IV
Item 14. (A) Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
1. Financial Statements:
a. Balance Sheets at December 31, 1996 and 1995.
b. Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994.
c. Statements of Changes in Partners' Equity for
the Years Ended December 31, 1996, 1995 and 1994.
d. Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.
e. Notes to consolidated financial statements.
2. Financial statement schedules:
a. Schedule XI - Real Estate and Accumulated Depreciation.
b. Notes to Schedule XI.
3. Exhibits:
(a) Exhibit Document
Number
3 Registrant's Amended and Restated
Certificate of Limited Partnership and
Agreement of Limited Partnership,
previously filed as part of Amendment
No. 1 of Registrant's Registration
Statement on Form S-11, are
incorporated herein by reference.
(b) Reports on Form 8-K:
The Metropolitan Fund: Dover Pension Investors -
1986 filed a report on Form 8-K dated October 3,
1996 reporting the following under "Item 1.
Changes in Control of Registrant": the sale
of 81.47% of the Registrant's interests to
Resource Properties XXV, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE METROPOLITAN FUND:
DOVER PENSION INVESTORS - 1986
Date: July 2, 1997 By: Dover 1986 Advisors, General Partner
-------------
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi
-------------------
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi
--------------------
MICHELE F. RUDOI,
Assistant Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
DOVER 1986 ADVISORS General Partner
By: EPK, Inc., Partner
By: /s/ Donna M. Zanghi June 24, 1997
DONNA M. ZANGHI,
Secretary and Treasurer
By: /s/ Michele F. Rudoi June 24, 1997
MICHELE F. RUDOI,
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,430
<SECURITIES> 0
<RECEIVABLES> 692,290
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 652,556
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,346,276
<CURRENT-LIABILITIES> 281,006
<BONDS> 236,616
0
0
<COMMON> 0
<OTHER-SE> 828,654
<TOTAL-LIABILITY-AND-EQUITY> 1,346,276
<SALES> 0
<TOTAL-REVENUES> 151,825
<CGS> 0
<TOTAL-COSTS> 153,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,046
<INCOME-PRETAX> (1,264,075)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,264,075)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,917,868)
<CHANGES> 0
<NET-INCOME> (6,181,943)
<EPS-PRIMARY> (669.10)
<EPS-DILUTED> 0
</TABLE>
