IR PASS-THROUGH CORPORATION
c/o CONCURRENCY MANAGEMENT CORP
411 West Putnam Avenue
Greenwich, CT 06830
(203) 862-7000
Fax: (203) 862-7461
Writer's Direct Dial:
862-7000
Integrated ARROS Fund I (the "Fund")
- ------------------------------------
August 1996
Dear Unitholder:
Enclosed for your review are the Fund's unaudited financial statements as of
June 30, 1996. As you are aware, the Funds' investments are passive in nature
and consist of interest-bearing payment obligations which originated from a
series of net lease real estate partnerships. As such, the primary source of
payment for these obligations is the lease payments received from the
partnership's corporate tenants. We are pleased to report that all tenant
obligations continue to be met and, on an overall basis, the credit ratings of
these tenants have not materially changed since the initial offering of the
Units.
As previously reported, the Fund has made arrangements with Royal Alliance
Associates (212-551-5100) to act as a market maker and with DCC Securities Corp.
(212-527-0220) to facilitate trading, as a broker, between buyers and sellers of
Units. Please contact these firms directly if you have any questions regarding
such activities.
If you have any specific questions regarding your holdings in the Fund, please
call IFTC at 800-874- 6205.
Sincerely,
Integrated ARROS Fund I
By: IR Pass-through Corporation, Sponsor
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund I
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
<S> <C>
Assets
Cash $ 1,173,548
Investments in payment obligations,
at minimum termination value (cost $2,771,874) ............. 9,211,185
-----------
Total Assets .................................................. 10,384,733
-----------
Liabilities
Distributions payable 23,849
-----------
Net Assets .................................................... $10,360,884
==========
Net Asset Value per unit (2,771 units
outstanding) $ 3,739.04
===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund I
Statement of Operations
Six Months Ended June 30, 1996
(Unaudited)
<S> <C>
Investment income:
Interest and discount earned ......................... $ 1,252,640
============
</TABLE>
See notes to financial statements
<PAGE>
Integrated ARROs Fund I
Statements of Changes in Net Assets
Six Months Ended June 30, 1996
(unaudited)
Increase in net assets from operations:
Net investment income $ 1,252,640
------------
Net increase in net assets resulting from operations 1,252,640
Total declared as distributions to Unitholders (23,849)
------------
Net increase in net assets 1,228,791
Net Assets:
Beginning of period 9,132,093
------------
End of period $ 10,360,884
============
See notes to financial statements
<PAGE>
Integrated ARROs Fund I
Notes to Financial Statements
1. GENERAL
The accompanying unaudited financial statements, notes and discussions should
be read in conjunction with the audited financial statements, related notes
and discussions contained in the Form N-SAR Semi-Annual Report for the year
ended December 31, 1995, which is herein incorporated by reference.
The financial information contained herein is unaudited; however, in the
opinion of management, all adjustments necessary for a fair presentation of
such financial information have been included. All of the aforementioned
adjustments are of a normal recurring nature and there have not been any
non-recurring adjustments included in the results reported for the current
period.
Integrated ARROs Fund I (the "Fund") is a grantor trust created under the
laws of the State of New York and registered under the Investment Company Act
of 1940 as a closed-end, non-diversified management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
Security Valuation
The Payment Obligations are valued at the lower of fair market value (as
determined by the Board of Directors of the Sponsor) or Minimum Termination
Amount (as defined in the Trust Indenture).
Federal Income Taxes
The Fund is classified as a grantor trust. As a consequence, the Fund is not
subject to Federal Income Taxation.
3. CONFLICTS OF INTEREST
Entities directly or indirectly owned by former officers and/or directors of
IR-Pass Through Corporation (the "Sponsor"), and/or Integrated Resources,
Inc. ("Integrated") or its post bankruptcy successor, Presidio Capital Corp.
("Presidio") are the general partners of the underlying net lease
partnerships from which the payment obligations are due (the "Partnerships").
Such general partners have a fiduciary responsibility to make decisions which
are in the best interest of their respective Partnership. There may be
circumstances in which such general partners may make decisions on behalf of
the Partnerships which could conflict with or have an adverse effect on the
rights of unitholders of the Fund. Although the Partnerships must comply with
the terms of the Payment Obligations, there can be no assurance that the
decisions of the general partners on behalf of the Partnerships would not
adversely affect the value of the units and/or the ability of the
Partnerships to fulfill their obligations under the Payment Obligations.
Subject to the rights of the Unitholders under the Trust Indenture, Presidio
is responsible for the administration of the Fund through its indirect
ownership of all of the shares of the Sponsor. Wexford Management LLC
("Wexford") provides administrative services to Presidio, who provides
services for the Fund.
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
The Sponsor will bear all costs of administering the Fund through the period
in which the Fund will be receiving only primary term payments. However, upon
the period when the Fund begins receiving renewal term payments, the Fund
shall bear a portion of such costs equal to the percentage of the renewal
term payments received by the Fund in such year to all of the payments
received by the Fund in such year.
The Sponsor projects, based on a present value estimate of legal, accounting,
trustee fees, and printing and mailing costs, that the $450,000 previously
received by the Sponsor from Integrated in settlement of the Sponsor's claim,
will enable the Sponsor to meet its obligations to the Fund, and its similar
obligations to Fund II, through approximately the year 2000, at which time,
the Sponsor believes, securities held by the Fund and Fund II should begin to
generate cash which could be used to administer the Fund and Fund II. There
can be no assurance that such cash will be generated or that the $450,000
paid by Integrated will be sufficient to fund the Sponsor's obligations
through the year 2000.
5. Distribution Payable
The Sponsor declared a $23,849 ($8.61 per unit) distribution payable to
unitholders of record as of June 28, 1996. Such distribution was paid on July
15, 1996.
6. Significant Transaction
In May 1996, the tenant at the Huntsville, Texas property, one of five
properties owned by Elway Associates, exercised the economic discontinuance
clause contained in its lease. This clause generally allows the tenant to
purchase the property for a predetermined amount set forth in the lease upon
declaring continued use and occupancy of the property economically
unsuitable. As a result, the Trust received proceeds of $1,149,699 from Elway
Associates in partial satisfaction of the Elway payment obligation. While the
Trust Indenture provides for acceptance of involuntary sale (economic
discontinuance) proceeds in prepayment of a payment obligation in which the
underlying partnership has a single property (lease), it does not
specifically provide for acceptance of involuntary sale (economic
discontinuance) proceeds in partial prepayment of a payment obligation where
the underlying partnership has more than one property (lease) comprising the
payment obligation, as is the case here. Consequently, the Sponsor intends to
issue a proposal (the "Proposal") to clarfy the Trust Indenture to provide
for such a circumstance, among other things. It is anticipated that the
Proposal will set forth a methodology to prorate the portion of the
outstanding payment obligation in a multiple lease partnership allocable to
each lease as well as a methodology to calculate the new reduced Primary and
Renewal Term Payments for such payment obligation. It is anticipated that any
such prepayment will be applied toward the allocable portion of the
outstanding balance of the associated payment obligation, first to accrued
unpaid interest and then to principal. It is anticipated that a clarification
<PAGE>
of a voluntary sale of one or more properties in a multiple lease partnership
(somewhat similar to that described above for an involuntary sale) will also
be included in the Proposal. The Proposal will require the approval of
two-thirds of the holders of the Fund's units to become effective. Based on
the above, the $1,149,699 received from Elway represents to $1,022,093 of
interest and $127,606 of principal applied to the portion of the outstanding
Elway payment obligation allocable to the Huntsville, Texas lease, leaving a
$263,353 shortfall. It is anticipated that this shortfall will be funded from
available net cash flow of Elway. The amount received in this case is
substantially in excess of the protion of the Minimum Termination Amount
allocable to the Huntsville, Texas lease. Until such time that the Proposal
has been approved, the Trust has reserved all of its rights under the Trust
Indenture. A distribution of the cash received as a result of the above
transaction has not been declared pending outcome of the Proposal. The
financial statements reflect the receipt of the cash and an adjustment of the
net assets as a result of the transaction as if the Proposal had been
approved.
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund I
Schedule Of Portfolio Investments
JUNE 30, 1996
(Unaudited)
Discount to
Partnership/ Arrive at
Date Payment Original Simple Minimum
Obligation Property Type of Principal Interest Accrued Termination
Incurred Lessee Location Property Amount Rate Interest Amount
- ------------- ------ -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Walando Walgreen Orlando, FL Office/ $ 820,000 13.0% $ 1,631,000 $ 1,437,995
3/18/81 Company Warehouse
Building
Santex Albertson's Venice, FL Retail 570,000 17.0% 1,454,000 953,303
7/1/81(2) Inc. Livermore, CA Facilities
Lando Albertson's Portland, OR Retail 783,451 16.0% 1,843,000 1,750,444
10/21/81 Inc. Orlando, FL Facilities
(amended Huntsville, AL
4/15/82)
Denville Xerox Lewisville, TX Plant 963,048 15.0% 2,099,000 2,199,836
12/22/81 Corporation Facility
(amended
1/27/84)
Elway Safeway Billings, MT Retail 1,429,042 18.5% 3,779,000 3,419,252
3/18/82 Stores, Inc. Huntsville, TX (5) Facilities
Fort Worth, TX
Aurora, CO
Mammoth Lakes, CA
Walstaff Walgreen Flagstaff, AZ Warehouse/ 1,159,771 16.0% 2,639,000 2,357,596
4/15/82 Arizona Distribution
(amended Drug Co. Building
6/17/82) (3)
Walcreek Hercules Walnut Creek, Office 1,306,709 18.5% 3,366,000 2,513,410
8/1/82 Credit Inc. CA Building
(amended (4)
6/29/83,
12/3/84)
---------- ----------- -----------
$7,032,021 $16,811,000 $14,631,836
========== =========== ===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two Payment Obligations, one for each property, treated as one.
(3) Guaranteed by Walgreen Company.
(4) Guaranteed by Hercules Incorporated.
(5) In May 1996, the tenant at the Huntsville, Texas property exercised the
economic discontinuance clause in its lease.
(6) As adjusted due to the exercise of economic discontinuance in the Hunts-
ville, Texas lease.
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund I
Schedule Of Portfolio Investments
JUNE 30, 1996
(Unaudited)
(Continued)
Partnership/
Date Payment Periodic Minimum
Obligation Property Type of Payments During Termination
Incurred Lessee Location Property Primary Term(1) Amount
- ------------- ------ -------- -------- --------------- -------
<S> <C> <C> <C> <C> <C>
Walando Walgreen Orlando, FL Office/ 5/1/96-4/1/06 $ 1,013,005
3/18/81 Company Warehouse $11,883/mo.
Building
Santex Albertson's Venice, FL Retail 9/1/96-8/1/06 1,070,697
7/1/81(2) Inc. Livermore, CA Facilities $13,342/mo.
Lando Albertson's Portland, OR Retail 7/1/97-1/1/07 876,007
10/21/81 Inc. Orlando, FL Facilities $62,656/semi.
(amended Huntsville, AL
4/15/82)
Denville Xerox Lewisville, TX Plant 8/1/98-7/1/08 862,212
12/22/81 Corporation Facility $12,038/mo.
(amended
1/27/84)
Elway Safeway Billings, MT Retail 7/1/97-6/1/07 1,788,790
3/18/82 Stores, Inc. Huntsville, TX(5) Facilities $22,027/mo.
Fort Worth, TX
Aurora, CO
Mammoth Lakes, CA
Walstaff Walgreen Flagstaff, AZ Warehouse/ 12/1/98-6/1/03 1,441,175
4/15/82 Arizona Distribution $156,738/semi.
(amended Drug Co. Building
6/17/82) (3)
Walcreek Hercules Walnut Creek, Office 10/1/97-9/1/07 2,159,299
8/1/82 Credit Inc. CA Building $30,155/mo.
(amended (4)
6/29/83,
12/3/84)
-----------
$ 9,211,185
===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two Payment Obligations, one for each property, treated as one.
(3) Guaranteed by Walgreen Company.
(4) Guaranteed by Hercules Incorporated.
(5) In May 1996, the tenant at the Huntsville, Texas property exercised the
economic discontinuance clause in its lease.
(6) As adjusted due to the exercise of economic discontinuance in the Hunts-
ville, Texas lease.
<PAGE>
Integrated ARROs Fund I
Schedule of Selected Per Unit Operating Performance,
Ratios and Supplemental Data
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
(Unaudited) (Audited)
---------------- -----------------
<S> <C> <C>
Per Unit Operating Performance
- ------------------------------
Net Asset Value, Beginning of Period ...... $ 3,295.59 $ 2,901.11
--------- ---------
Net Investment Income ..................... 452.06 394.48
--------- ---------
Distributions from net investment income... (8.61) -
---------- ----------
Net Asset Value, End of Period ............ $ 3,739.04 $ 3,295.59
========= =========
Total Investment Return ................... $ 452.06 $ 394.48
========= =========
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period ................. $10,360,884 $ 9,132,093
Ratio of Expenses to
Average Net Assets ...................... N/A N/A
Ratio of Net Investment Income to Average
Net Assets .............................. 12.17%(1) 12.73%
Portfolio Turnover Rate ................... N/A N/A
- ------------------
(1) Not annualized
</TABLE>
