SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 17, 1994
Vanguard Real Estate Fund I, A Sales-Commission-Free Income Properties Fund
- - ---------------------------------------------------------------------------
(Exact name of the registrant as specified in its character)
Massachusetts 0-16785 23-6861048
- - ------------- ------- -----------
(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Vanguard Financial Center, Malvern, PA 19355
- - -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant s telephone number, including area code (610) 669-1000
<PAGE>
INDEX
Cover Page. . . . . . . . . . . . . . . . . . . . . . . . . -
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ITEM
NO.
Item 1.Change in Control of Registrant . . . . . . . . . . .2
Item 2.Acquisition or Disposition of Assets. . . . . . . . .2
Item 3.Bankruptcy or Receivership. . . . . . . . . . . . . .2
Item 4.Changes in Registrant s Certifying Accountant . . . .2
Item 5.Other Events. . . . . . . . . . . . . . . . . . . . .2
Item 6.Resignation of Registrant s Directors . . . . . . . .2
Item 7.Financial Statements and Exhibits
Pro forma Statement of Operations, year ended
December 31, 1993 . . . . . . . . . . . . . . . .3
Notes to pro forma Statement of Operations, year
ended December 31, 1993 . . . . . . . . . . . . .4
Pro forma Statement of Operations, six-months
ended June 30, 1994 . . . . . . . . . . . . . . .5
Notes to pro forma Statement of Operations,
six-months ended June 30, 1994. . . . . . . . . .6
Pro forma Balance Sheet at June 30, 1994 . . . . .7
Notes to pro forma Balance Sheet at
June 30, 1994 . . . . . . . . . . . . . . . . . .8
Item 8.Change in Fiscal Year . . . . . . . . . . . . . . . .2
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>
Item 1.Change in Control of Registrant
None
Item 2.Acquisition or Disposition of Assets
On August 17, 1994, Vanguard Real Estate Fund I (the "Fund") sold the
Arden Hills building in its Minnesota Portfolio for $5,550,000. Arden
Hills, purchased in February 1988 for $7,275,000, is the largest of
the three office buildings in the Minnesota Portfolio. In accordance
with the terms of the advisory agreement between the Fund and Aldrich,
Eastman and Waltch (AEW), the Fund paid an acquisition fee of
$145,500, representing 2% of the purchase price, and will pay a dispo-
sition fee of $111,000, representing 2% of the sales price, in connec-
tion with its investment in the Arden Hills building. The Fund also,
at closing, paid a brokerage commission of $111,000. The Fund expects
to realize a capital loss of approximately $1,200,000 on the sale of
the Arden Hills building, substantially all of which was recognized
via a write-down of the investment s carrying value in the second
quarter of 1994.
Item 3.Bankruptcy or Receivership
None
Item 4.Changes in Registrant s Certifying Accountant
None
Item 5.Other Events
None
Item 6.Resignation of Registrant s Directors
None
Item 7.Financial Statements and Exhibits
Unaudited pro forma statements of operations for the year ended Decem-
ber 31, 1993 and for the six-months ended June 30, 1994, respectively,
and an unaudited pro forma balance sheet at June 30, 1994, are filed
as part of this report.
Item 8.Change in Fiscal Year
None
2
<PAGE>
The following unaudited pro forma statement of operations presents the
results of operations of Vanguard Real Estate Fund I ("VREF I") as of
December 31, 1993, as if the August 17, 1994 disposition of the Arden Hills
building ("Arden Hills") and the 1993 dispositions of Carmel Office Park
("Carmel") and Citadel II each occurred on January 1, 1993. Such pro forma
information is based upon the historical results of operations for VREF I,
Arden Hills, Carmel and Citadel II for the year ended December 31, 1993,
giving effect to the pro forma adjustments relating only to those items
which will have a continuing impact on the Fund's Statement of Operations
described below. This statement does not purport to be indicative of
results of operations that actually would have resulted if VREF I had
disposed of Arden Hills, Carmel, and Citadel II on January 1, 1993. This
statement should be read in conjunction with the financial statements of
VREF I included in its 1993 Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q.
VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993 (7)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Adjustments
Historical Adjustments 1993 Pro Forma
VREF I Arden Hills Dispositions Results
(000) (000) (000) (000)
<S> <C> <C> <C> <C>
REAL ESTATE INCOME
Rental Income $7,517 ($908) (1) ($1,273) (5) $5,336
Mortgage Interest Income 1,279 - - 1,279
Net Income from
In-Substance
Foreclosed Assets 2,499 - (915) (5) 1,584
------- ------- -------- -------
11,295 (908) (2,188) 8,199
------- ------- -------- -------
REAL ESTATE EXPENSES
Mortgage Interest Expense 1,030 - (778) (5) 252
Real Estate Taxes 823 (226) (1) (178) (5) 419
Property Operating Expenses 1,042 (42) (1) (432) (5) 568
Depreciation and Amortization 1,503 (162) (1) (430) (5) 911
Provision for Possible Losses 2,798 - (298) (6) 2,500
------- ------- -------- -------
7,196 (430) (2,116) 4,650
------- ------- -------- -------
INCOME FROM REAL ESTATE 4,099 (478) (72) 3,549
INVESTMENT INCOME FROM
SHORT-TERM INVESTMENTS 367 - (2) (169) (2) 198
------- ------- -------- -------
4,466 (478) (241) 3,747
------- ------- -------- -------
ADMINISTRATIVE EXPENSES
Investment Advisory Fee 421 (28) (3) (67) (3) 326
Administrative Fee 350 (25) (4) (47) (4) 278
Other Administrative Expenses 357 - - 357
------- ------- -------- -------
1,128 (53) (114) 961
------- ------- -------- -------
NET INCOME $3,338 ($425) ($127) $2,786
======= ======= ======== =======
Weighted Average Shares
Outstanding 11,039,590 11,039,590
========== ==========
Net Income per Share $0.30 $0.25
====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(1) To record decreases in rental income, real estate taxes, property
operating expenses, and depreciation and amortization based on the
historical operating results of Arden Hills included in VREF I's
historical results of operations for the year ended December 31, 1993.
(2) The Fund currently anticipates that the net proceeds of the Arden
Hills transaction will be paid out with its year-end 1994 distribution
to shareholders. For purposes of pro forma presentation of the Fund's
operating results for the year ended December 31, 1993, Fund manage-
ment has assumed that the net proceeds made available from the Arden
Hills and Carmel transactions were immediately distributed to share
holders on January 1, 1993, and, accordingly, (i) no investment earn-
ings have been imputed on the Arden Hills net proceeds and (ii) a pro
forma adjustment to decrease short-term investment income by $169,000
has been recorded to reverse income earned during the last five months
of 1993 on the funds received from the payoff of the Carmel mortgage
loan investment.
(3) To record a decrease in the investment advisory fee based upon the
decrease in real estate assets held by the Fund.
(4) To record a decrease in the administrative fee based upon the decrease
in assets held by the Fund.
(5) To record decreases in rental income, net income from in-substance
foreclosed assets, mortgage interest expense, real estate taxes,
property operating expenses, and depreciation and amortization based
on the historical operating results of Citadel II and Carmel included
in VREF I s historical results of operations for the year ended Decem-
ber 31, 1993.
(6) To reverse the amount recorded in the provision for possible losses in
1993 related to Carmel and Citadel II.
(7) The estimated $1,200,000 loss on the sale of Arden Hills has not been
included in the pro forma statement of operations for the year ended
December 31, 1993 since such loss is a nonrecurring loss after income
from continuing operations.
Pursuant to the Fund s prospectus, the Fund may not reinvest the net
proceeds received from sales in additional real estate investments
after December 31, 1993. If cash available for investment (giving
effect to Arden Hills and Carmel as if they had been disposed of on
January 1, 1993) were assumed to have been invested in short-term
money market instruments (it is, in the opinion of the Fund's manage
ment, impracticable to assume that a suitable real estate investment
consistent with the Fund s investment objectives would have been
identified for the investment of such available cash) and not assumed
to have been distributed on January 1, 1993, the Fund would have
earned approximately an additional $399,000 in short-term investment
income, using an average interest rate of 3.0%, on a pro forma basis
for the year ended December 31, 1993, resulting in investment income
from short-term investments of $766,000.
4
<PAGE>
The following unaudited pro forma statement of operations presents the
results of operations of Vanguard Real Estate Fund I ("VREF I") as of June
30, 1994, as if the disposition of the Arden Hills building ("Arden Hills")
occurred on January 1, 1993. Such pro forma information is based upon the
historical results of operations for VREF I and Arden Hills for the six-
months ended June 30, 1994, giving effect to the pro forma adjustments
described below. This statement does not purport to be indicative of
results of operations that actually would have resulted if VREF I had
disposed of Arden Hills on January 1, 1993. This statement should be read
in conjunction with the financial statements of VREF I included in its 1993
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX-MONTHS ENDED JUNE 30, 1994 (6)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
VREF I Arden Hills Results
(000) (000) (000)
<S> <C> <C> <C>
REAL ESTATE INCOME
Rental Income $3,638 ($473) (1) $3,165
Mortgage Interest Income 521 - 521
Net Income from
In-SubstanceForeclosed Assets 341 - 341
------ ------ ------
4,500 (473) 4,027
------ ------ ------
REAL ESTATE EXPENSES
Mortgage Interest Expense 123 - 123
Real Estate Taxes 368 (107) (1) 261
Property Operating Expenses 485 (15) (1) 470
Depreciation and Amortization 597 (80) (1) 517
Provision for Possible Losses/
(Charge Offs) 780 (1,070) (2) (290)
------ ------ ------
2,353 (1,272) 1,081
------ ------ ------
INCOME FROM REAL ESTATE 2,147 799 2,946
INVESTMENT INCOME FROM
SHORT-TERM INVESTMENTS 157 - (3) 157
------ ------ ------
2,304 799 3,103
------ ------ ------
ADMINISTRATIVE EXPENSES
Investment Advisory Fee 173 (14) (4) 159
Administrative Fee 149 (12) (5) 137
Other Administrative Expenses 163 - 163
------ ------ ------
485 (26) 459
------ ------ ------
NET INCOME $1,819 $825 $2,644
====== ====== ======
Weighted Average Shares
Outstanding 11,019,978 11,019,978
========== ==========
Net Income per Share $0.17 $0.24
===== =====
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX-MONTHS ENDED JUNE 30, 1994
(1) To record decreases in rental income, real estate taxes, property
operating expenses, and depreciation and amortization based on the
historical operating results of Arden Hills included in VREF I's
historical results of operations for the six-months ended June 30,
1994.
(2) To reverse the provision for possible losses recorded in the second
quarter of 1994 to reduce the carrying value of the Arden Hills build
ing to its estimated fair value minus selling costs.
(3) The Fund currently anticipates that the net proceeds of the Arden
Hills transaction will be paid out with its year-end 1994 distribution
to shareholders. For purposes of pro forma presentation of the Fund's
operating results for the six-months ended June 30, 1994, Fund manage-
ment has assumed that the net proceeds made available from this trans-
action were immediately distributed to shareholders on January 1,
1993, and, accordingly, no investment earnings have been imputed on
the Arden Hills net proceeds.
(4) To record a decrease in the investment advisory fee based upon the
decrease in real estate assets held by the Fund.
(5) To record a decrease in the administrative fee based upon a decrease
in assets, resulting from the assumed January 1, 1993 distribution to
shareholders of the net proceeds of the Arden Hills transaction, held
by the Fund.
(6) Pursuant to the Fund s prospectus, the Fund may not reinvest the net
proceeds received from sales in additional real estate investments
after December 31, 1993. If cash available for investment, giving
effect to Arden Hills if it had been disposed of on January 1, 1993,
were assumed to have been invested in short-term money market instru-
ments for the first six months of 1994, and not assumed to have been
distributed on January 1, 1993, the Fund would have earned approxi-
mately $82,000 in short-term investment income, using an average
interest rate of 3.0%, on a pro forma basis for the six-months ended
June 30, 1994.
6
<PAGE>
The following unaudited pro forma balance sheet presents the financial
position of Vanguard Real Estate Fund I ("VREF I") as of June 30, 1994 as
the disposition of the Arden Hills building ("Arden Hills") had occurred
as of June 30, 1994. Such pro forma information is based upon the histor-
ical balance sheet data of VREF I and Arden Hills as of that date, giving
effect to the pro forma adjustments described below. This pro forma finan-
cial information should be read in conjunction with the financial state-
ments of VREF I included in its 1993 Annual Report on Form 10-K and Quar-
terly Reports on Form 10-Q.
VANGUARD REAL ESTATE FUND I,
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND
PRO FORMA BALANCE SHEET
JUNE 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments
VREF I Arden Hills Pro Forma
(000) (000) (000)
<S> <C> <C> <C>
ASSETS
Investments in Real Estate:-
Direct Ownership Investments:
Land $15,766 ($870) (1) $14,896
Building and Improvements 42,823 (6,622) (1) 36,201
------- ------- -------
58,589 (7,492) 51,097
Less - Accumulated Depreciation 5,237 (1,040) (1) 4,197
------- ------- -------
53,352 (6,452) 46,900
Mortgage Loans Receivable 10,646 - 10,646
------- ------- -------
Net Investment Portfolio 63,998 (6,452) 57,546
Short - Term Investments:
Marketable Securities - REMICs 2,202 - 2,202
Vanguard Money Market Reserves -
Prime Portfolio 1,982 5,434 (2) 7,416
Temporary Cash Investments 7,496 - 7,496
Other Assets 1,255 (74) (1) 1,181
------- ------- -------
TOTAL ASSETS $76,933 ($1,092) $75,841
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage Loan $2,431 - $2,431
Due to Affiliates 161 111 (3) 272
Dividends Payable 1,653 - 1,653
Other Liabilities 434 (11) (1) 423
------- ------- -------
TOTAL LIABILITIES 4,679 100 4,779
------- ------- -------
Shares of Beneficial Interest,
without par value, unlimited shares
authorized 80,608 - 80,608
Accumulated Distributions in Excess of
Net Income 8,354 1,192 (4) 9,546
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 72,254 (1,192) 71,062
------- ------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $76,933 ($1,092) $75,841
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
NOTES TO JUNE 30, 1994 PRO FORMA BALANCE SHEET
(1) To record the reduction in land, building and improvements, accumu
lated depreciation, other assets and other liabilities based on the
historical financial position of Arden Hills included in VREF I's
historical balance sheet at June 30, 1994.
(2) To record the increase in short-term investments resulting from the
investment of the estimated net proceeds of the Arden Hills disposi-
tion. The Fund currently anticipates that the net proceeds of the
Arden Hills transaction will be paid out with its year-end 1994 dis-
tribution to shareholders.
(3) To record the 2% disposition fee due the Fund's Adviser.
(4) To record the estimated loss on the disposition of Arden Hills.
8
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VANGUARD REAL ESTATE FUND I
A SALES-COMMISSION-FREE INCOME PROPERTIES FUND
DATE: September 1, 1994 BY: Ralph K. Packard
Vice President & Controller
9
