ANNUAL REPORT
FOR THE PERIOD ENDED
DECEMBER 31, 1996
FELLOW PARTNERS:
Now that we have initiated the disposition phase of your Fund,
the amount of your distributions and the estimated value of a
Fund unit will be influenced more by sales than by operations. As
a result, we thought it appropriate to begin this report by
providing you with the estimated unit value of the Fund and an
update on property dispositions as well as your fourth quarter
distribution.
At this stage of your Fund's life cycle, our primary focus
is shifting from the production of income to the strategic
positioning of Fund properties to maximize potential sales
proceeds.
Unit Valuation
As you know, at the end of each year we employ a third-party
appraiser to review and assess the analysis and assumptions used
to prepare an estimated current value of the properties held in
your Fund. We then use these valuations to prepare an estimated
unit value, which may not be representative of the value of your
units when the Fund ultimately liquidates. Nor is there any
assurance that you could sell your units today at a price equal
to the current estimated value.
At December 31, 1996, the estimated unit value of the Fund
was $147. After adjusting for our February distribution of $2,
the estimated value per unit is $145. Total appreciation for the
year, including net appreciation on the property sold, is 8.4%.
As you may recall, we mailed this information to you in a
letter dated January 22, 1997, in response to offerings made to
you by other investors. While we cannot assure that you will
ultimately receive the exact amount of the estimated unit value,
we believe our valuation process has been sound, and we want you
to be as well-informed as possible about the value of your
investment. Our objective is to supply you with the information
you need to make the best decisions based on your particular
circumstances.
Disposition Update
The three industrial properties that are held for sale -
Winnetka, Wood Dale, and Riverview - have been marketed with two
similar holdings in Realty Income Fund II. We signed a letter of
intent with a potential buyer for the entire package in January
and hope to complete the transaction in April, although there is
no assurance the sale will be consummated.
In addition, we signed a listing agreement to sell South
Point Plaza, in which the Fund has a 50% interest. The property,
a shopping center in Tempe, Arizona, is being actively marketed
by the listing broker. We will update you on all these properties
held for sale in our next quarterly report.
Cash Distributions
The Fund declared a fourth quarter distribution from operations
of $2 per unit, bringing the total distributions from operations
for the year to $8. Additionally, $21.60 per unit was paid out to
you during the year from sales proceeds for the Fund's 56% share
of Fairchild, resulting in total distributions of $29.60 per unit
for 1996. Future distributions will be determined each quarter
based on cash flow, anticipated capital requirements, and the
status of property dispositions.
Results of Operations
The Fund had a loss of $724,000 from operations in 1996, before
the gain on the Fairchild sale, compared with net income of
$1,783,000 in 1995. This difference is primarily due to downward
property valuation adjustments at Scripps Terrace, Tierrasanta,
and Clark Avenue totaling $2,750,000, which were partly offset by
an increased contribution to income of $327,000 from River Run.
This property's contribution increased as a result of the Fund's
acquisition of the asset through foreclosure late in 1995. While
conditions in the markets where these properties are located are
generally improving, the shortened anticipated holding period due
to our disposition plans caused us to adjust the carrying values
downward. Property carrying amounts for financial statement
purposes should not be confused with the estimated fair market
values used to determine your estimated unit value.
The sale of Fairchild in 1996 had a negative effect on
earnings amounting to $45,000 because of the loss of the
property's income for four months of the year. However, the Fund
realized a gain of $1,630,000 on the sale.
Revenues from rental income and interest totaled $6,280,000
for the year compared with $6,094,000 a year earlier. This
comparison was negatively affected by the absence of a full
year's rental income from Fairchild but was positively affected
by an increased contribution to income from River Run. Results
were helped by a decline of $166,000 in operating expenses before
valuation adjustments during the year.
At the property level, the year-end leased status of Fund
properties increased by three percentage points. This change was
driven by increases in occupancy at Scripps Terrace and South
Point from the end of the previous year. At the former property,
located in the San Diego market, two substantial leases were
completed in the fourth quarter and a total of five throughout
the year, including three new and two renewal leases.
Real Estate Investments (Dollars in thousands)
_________________________________________________________________
Average Contribution
Leased Status Leased Status to Net Income
___________ _____________ ____________
Gross Twelve Twelve
Leasable Months Ended Months Ended
Property Area December 31, December 31, December 31,
Name (Sq. Ft.) 1996 1995 1996 1995 1996
_________ __________ __________ _____ _____ _____ _____
Scripps
Terrace 56,796 90% 82% 76% $ 120 $
(959 )
Tierrasanta 104,236 62 75 87 80 (732)
Clark Avenue 40,000 72 79 72 114 (715)
Westbrook
Commons 121,558 98 98 96 459 398
River Run 92,787 93 - 93 307 634
________ ____ ____ __________ ______
415,377 84 85 88 1,080
(1,374)
Held for Sale
Winnetka 188,260 100 96 100 364 491
South Point
Plaza 50,497 90 67 74 84 (50)
Wood Dale 89,718 70 99 86 223 155
Riverview 113,700 100 93 99 212 294
________ ____ ____ ____ ______ ______
857,552 89 90 91 1,963 (484)
Properties Sold - - - - 87 1,672
Fund Expenses
Less Interest
Income - - - - (267) (282)
________ ____ ____ __________ ______
Total 857,552 89% 90% 91% $ 1,783$
906
We reported previously that a tenant who occupied 38% of
Tierrasanta did not renew upon expiration of the lease at the end
of August. There is interest in the property and the market is
tightening; however, several competitive properties have
comparable space available, and we cannot be sure when this space
will be re-leased.
Occupancy increased to 93% at River Run, due to the signing
of three new and one renewal lease representing 6% of the total
space. This more than offset the loss of one tenant whose lease
expired and another whose lease was terminated prior to
expiration, in exchange for an early termination payment.
Outlook
We continue to make progress toward the disposition of the Fund's
properties during the next two years. Some of you have asked why
we are beginning to sell now, just as the market has been
exhibiting signs of strengthening.
Our primary goal is to take advantage of rising property
values as the Fund nears the end of its planned lifespan. As real
estate markets have been improving during the past few years, we
have used the opportunity to capture higher prices for investors.
As usually happens in improving markets, the turnaround in
real estate is broadly encouraging an increasing supply of new
properties, which could eventually lead to an oversupply and
softer prices down the road. This is normal as the real estate
cycle runs its course. While we do not expect a recession in
either real estate or the general economy to emerge in the near
future, the country's economic expansion is almost six years old
and is approaching an advanced stage, by historical measures.
It is possible that by selling Fund properties during the
next few years, we might miss some further advances in real
estate values. However, with prices currently rising due to
strong tenant and investor demand, supply growing in many
markets, and the Fund nearing the end of its planned lifespan, we
believe it is prudent to sell into that strength while prices are
on the upswing.
Sincerely,
James S. Riepe
Chairman
February 7, 1997
REAL ESTATE HOLDINGS
December 31, 1996
(In thousands)
Date Carrying
Property Name Type and Location Acquired Amount
_______________ _______________ _________ ________
Scripps Terrace Business Park 2/88 $2,185
San Diego,
California
Tierrasanta Business Park 4/88 1,727
San Diego,
California
Clark Avenue R&D/Office 10/88 2,597
King of Prussia,
Pennsylvania
River Run Retail 6/89 7,515
Miramar,
Florida
Westbrook Commons Retail 12/90 4,911
Westchester,
Illinois
_______
18,935
Held for Sale
Wood Dale Industrial 9/88 2,969
Wood Dale,
Illinois
Winnetka Industrial 3/88 4,082
Crystal,
Minnesota
Riverview Industrial 12/88 3,220
St. Paul,
Minnesota
South Point Retail 4/88 1,515
Tempe, Arizona _______
$30,721
_______
_______
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,December 31,
1996 1995
_______________________
Assets
Real Estate Property Investments
Land. . . . . . . . . . . . . . . . $ 6,882 $
12,181
Buildings and Improvements. . . . . 13,112 33,139
________ ________
19,994 45,320
Less: Accumulated Depreciation and
Amortization . . . . . . . . . . (1,059) (7,831)
________ ________
18,935 37,489
Held for Sale . . . . . . . . . . . 11,786 -
________ ________
30,721 37,489
Cash and Cash Equivalents. . . . . . 2,468 3,436
Accounts Receivable (less allowances of
$131 and $230). . . . . . . . . . . 445 529
Other Assets . . . . . . . . . . . . 318 279
________ ________
$33,952 $ 41,733
________ ________
________ ________
Liabilities and Partners' Capital
Security Deposits and Prepaid Rents. $ 439 $ 391
Accrued Real Estate Taxes. . . . . . 450 433
Accounts Payable and Other
Accrued Expenses. . . . . . . . . . 217 335
________ ________
Total Liabilities. . . . . . . . . . 1,106 1,159
Partners' Capital. . . . . . . . . . 32,846 40,574
________ ________
$33,952 $ 41,733
________ ________
________ ________
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per-unit amounts)
Years Ended December 31,
1996 1995 1994
_________ __________________
Revenues
Rental Income. . . . . . . . $ 6,091 $ 5,502 $ 5,369
Interest Income from
Participating Mortgage
Loan . . . . . . . . . . . - 429 858
Other Interest Income. . . . 189 163 130
_______ _______ _______
6,280 6,094 6,357
_______ _______ _______
Expenses
Property Operating Expenses. 1,329 1,284 1,249
Real Estate Taxes. . . . . . 1,083 1,002 936
Depreciation and
Amortization . . . . . . . 1,268 1,266 1,572
Decline (Recovery) of Property
Values . . . . . . . . . . 2,750 (109) 1,385
Provision for Loan Loss. . . - 202 -
Management Fee to General
Partner. . . . . . . . . . 164 282 342
Partnership Management
Expenses . . . . . . . . . 410 384 374
_______ _______ _______
7,004 4,311 5,858
_______ _______ _______
Income (Loss) from Operations
before Real Estate
Sold . . . . . . . . . . . (724) 1,783 499
Gain on Real Estate Sold . . 1,630 - 80
_______ _______ _______
Net Income . . . . . . . . . $ 906 $ 1,783 $ 579
_______ _______ _______
_______ _______ _______
Activity per Limited
Partnership Unit
Net Income . . . . . . . . . $ 3.54 $ 6.96 $ 2.26
_______ _______ _______
_______ _______ _______
Cash Distributions Declared
from Operations. . . . . . $ 8.00 $ 11.11 $ 13.53
from Sale Proceeds . . . . 21.60 - 3.92
_______ _______ _______
Total Distributions Declared $ 29.60 $ 11.11 $ 17.45
_______ _______ _______
_______ _______ _______
Units Outstanding. . . . . . 253,599 253,599 253,605
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
General Limited
Partner Partners Total
________ ________ ________
Balance, December 31, 1993 . $ (158) $44,835 $44,677
Net Income . . . . . . . . . 6 573 579
Redemption of Units. . . . . - (1) (1)
Cash Distributions . . . . . (34) (4,400) (4,434)
_______ _______ _______
Balance, December 31, 1994 . (186) 41,007 40,821
Net Income . . . . . . . . . 18 1,765 1,783
Redemption of Units. . . . . - (1) (1)
Cash Distributions . . . . . (20) (2,009) (2,029)
_______ _______ _______
Balance, December 31, 1995 . (188) 40,762 40,574
Net Income . . . . . . . . . 9 897 906
Cash Distributions . . . . . (19) (8,615) (8,634)
_______ _______ _______
Balance, December 31, 1996 . $ (198) $33,044 $32,846
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
1996 1995 1994
_________ __________________
Cash Flows from Operating
Activities
Net Income (Loss) . . . . . $ 906 $ 1,783 $ 579
Adjustments to Reconcile Net
Income to Net CasH Provided
by Operating Activities
Depreciation and
Amortization . . . . . . 1,268 1,266 1,572
Decline (Recovery) of
Property Values. . . . . 2,750 (109) 1,385
Change in Loan Loss
Provision. . . . . . . . - 202 -
Gain on Real Estate Sold . (1,630) - (80)
Change in Accounts
Receivable, Net of
Allowances . . . . . . . 77 (95) (95)
Increase in Other Assets . (48) (101) (62)
Change in Accounts Payable and
Other Accrued
Expenses . . . . . . . . (118) 35 (52)
Other Changes in Assets
and Liabilities. . . . . 65 (2) 13
_______ _______ _______
Net Cash Provided by Operating
Activities . . . . . . . . 3,270 2,979 3,260
_______ _______ _______
Cash Flows from Investing
Activities
Proceeds from Property
Dispositions . . . . . . . 5,477 - 994
Investments in Real Estate . (1,081) (1,176) (665)
_______ _______ _______
Net Cash Provided by
(Used in)
Investing Activities . . . 4,396 (1,176) 329
_______ _______ _______
Cash Flows Used in Financing
Activities
Cash Distributions . . . . . (8,634) (2,029) (4,434)
Redemption of Units. . . . . - (1) (1)
_______ _______ _______
Net Cash Used in Financing
Activities . . . . . . . . (8,634) (2,030) (4,435)
_______ _______ _______
Cash and Cash Equivalents
Net Decrease during
Year . . . . . . . . . . . (968) (227) (846)
At Beginning of Year . . . . 3,436 3,663 4,509
_______ _______ _______
At End of Year . . . . . . . $ 2,468 $ 3,436 $ 3,663
_______ _______ _______
_______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Realty Income Fund III, America's
Sales-Commission-Free Real Estate Limited Partnership (the
"Partnership"), was formed on October 20, 1986, under the Delaware
Revised Uniform Limited Partnership Act for the purpose of
acquiring, operating, and disposing of existing income-producing
commercial and industrial real estate properties. T. Rowe Price
Realty Income Fund III Management, Inc., is the sole General
Partner. The initial offering resulted in the sale of 253,641
limited partnership units at $250 per unit.
In accordance with provisions of the partnership agreement,
income from operations is allocated and related cash distributions
are generally paid to the General and Limited Partners at the rates
of 1% and 99%, respectively. Sale or refinancing proceeds are
generally allocated first to the Limited Partners in an amount
equal to their capital contributions, next to the Limited Partners
to provide specified returns on their adjusted capital
contributions, next 3% to the General Partner, with any remaining
proceeds allocated 85% to the Limited Partners and 15% to the
General Partner. Gain on property sold is generally allocated first
between the General Partner and Limited Partners in an amount equal
to the depreciation previously allocated from the property and then
in the same ratio as the distribution of sale proceeds. Cash
distributions, if any, are made quarterly based upon cash available
for distribution, as defined in the partnership agreement. Cash
available for distribution will fluctuate as changes in cash flows
and adequacy of cash balances warrant.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership's financial statements are prepared in accordance
with generally accepted accounting principles which requires the
use of estimates and assumptions by the General Partner.
The accompanying consolidated financial statements include the
accounts of the Partnership and its pro-rata share of the accounts
of South Point Partners, Tierrasanta 234, and Penasquitos 34
(Westbrook Commons), all of which are California general
partnerships, in which the Partnership has 50%, 30%, and 50%
interests, respectively. They also include the Partnership's
pro-rata share of the accounts of Fairchild 234, a California
general partnership in which the Partnership had a 56% interest
prior to disposition of the property on August 28, 1996. The other
partners in these ventures are affiliates of the Partnership. All
intercompany accounts and transactions have been eliminated in
consolidation.
Depreciation is calculated primarily on the straight-line
method over the estimated useful lives of buildings and
improvements, which range from five to 40 years. Lease commissions
and tenant improvements are capitalized and amortized over the life
of the lease using the straight-line method.
Cash equivalents consist of money market mutual funds, the
cost of which approximates fair value.
The Partnership uses the allowance method of accounting for
doubtful accounts. Provisions for uncollectible tenant receivables
in the amounts of $143,000, $192,000, and $89,000 were recorded in
1996, 1995, and 1994, respectively. Bad debt expense is included in
Property Operating Expenses.
The Partnership will review its real estate property
investments for impairment whenever events or changes in
circumstances indicate that the property carrying amounts may not
be recoverable. Such a review results in the Partnership recording
a provision for impairment of the carrying value of its real estate
property investments whenever the estimated future cash flows from
a property's operations and projected sale are less than the
property's net carrying value. The General Partner believes that
the estimates and assumptions used in evaluating the carrying value
of the Partnership's properties are appropriate; however, changes
in market conditions and circumstances could occur in the near term
which would cause these estimates to change.
Rental income is recognized on a straight-line basis over the
term of each lease. Rental income accrued, but not yet billed, is
included in Other Assets and aggregates $262,000 and $205,000 at
December 31, 1996 and 1995, respectively.
Under provisions of the Internal Revenue Code and applicable
state taxation codes, partnerships are generally not subject to
income taxes; therefore, no provision has been made for such taxes
in the accompanying consolidated financial statements.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
As compensation for services rendered in managing the affairs of
the Partnership, the General Partner earns a partnership management
fee equal to 9% of net operating proceeds. The General Partner
earned partnership management fees of $164,000, $282,000, and
$342,000 in 1996, 1995, and 1994, respectively. In addition, the
General Partner's share of cash available for distribution from
operations, as discussed in Note 1, totaled $20,000, $28,000, and
$34,000 in 1996, 1995, and 1994, respectively.
In accordance with the partnership agreement, certain
operating expenses are reimbursable to the General Partner. The
General Partner's reimbursement of such expenses totaled $90,000,
$77,000, and $74,000 for communications and administrative services
performed on behalf of the Partnership during 1996, 1995, and 1994,
respectively.
An affiliate of the General Partner earned a normal and
customary fee of $4,000, $12,000, and $15,000 from the money market
mutual funds in which the Partnership made its interim cash
investments during 1996, 1995, and 1994, respectively.
LaSalle Advisors Limited Partnership ("LaSalle") is the
Partnership's advisor and is compensated for its advisory services
directly by the General Partner. LaSalle is reimbursed by the
Partnership for certain operating expenses pursuant to its contract
with the Partnership to provide real estate advisory, accounting,
and other related services to the Partnership. LaSalle's
reimbursement for such expenses during each of the last three years
totaled $120,000.
An affiliate of LaSalle earned $87,000, $61,000, and $37,000
in 1996, 1995, and 1994, respectively, for property management fees
and leasing commissions on tenant renewals and extensions at
several of the Partnership's properties.
NOTE 4 - PROPERTIES HELD FOR SALE AND DISPOSITIONS
In September 1994, the Partnership sold the smallest of the three
Wood Dale industrial buildings, the Beinoris Building, and received
net proceeds of $994,000. The net book value of this property at
the time of disposition was $914,000, after accumulated
depreciation expense. Accordingly, the Partnership recognized a
gain of $80,000.
On August 28, 1996, Fairchild Corporate Center, an office
property in which the Partnership had a 56% interest was sold. The
Partnership received net proceeds of $5,477,000. The net book
value of the Partnership's interest at the date of sale was
$3,847,000, after deduction of accumulated depreciation, and
previously recorded impairments. Accordingly, the Partnership
recognized a $1,630,000 gain on the sale of this property.
The Partnership began actively marketing its three midwest
industrial properties, Wood Dale, Winnetka, and Riverview, in late
1996 and has subsequently signed a letter of intent with a
prospective buyer. In late 1996, the Partnership also began
marketing South Point Plaza, a shopping center in which the
Partnership has a 50% interest. The Partnership has classified the
carrying amounts of these four properties as held for sale in the
accompanying December 31, 1996, balance sheet. Results of
operations for properties held for sale at December 31, 1996, and
properties sold during the past three years are summarized below:
1996 1995 1994
_________ ________ ________
Recovery (Decline) of $(29,000) $ 109,000 $ 82,000
Other Components of
Operating Income 961,000 967,000 729,000
_________ _________ ________
Results of Operations $ 932,000 $1,076,000 $ 811,000
NOTE 5 - FORECLOSURE OF MORTGAGE LOAN
In July 1995, the Partnership began consensual foreclosure on the
participating mortgage loan secured by the River Run Shopping
Center and ceased the accrual of interest income. At September 30,
1995, the carrying value of the loan was reduced to $7,700,000, the
estimated fair value of the property. On October 10, 1995, the
Partnership purchased the property and, in connection therewith,
reclassified the participating mortgage loan as an investment in
real estate.
NOTE 6 - PROPERTY VALUATIONS
On January 1, 1996, the Partnership adopted 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 changed the Partnership's method of accounting for its real
estate property investments when circumstances indicate that the
carrying amount of a property may not be recoverable. Measurement
of an impairment loss on an operating property is now based on the
estimated fair value of the property, which becomes the property's
new cost basis, rather than the sum of expected future cash flows.
Properties held for sale will continue to be reflected at the lower
of historical cost or estimated fair value less anticipated selling
costs. In addition, properties held for sale are no longer
depreciated.
Based upon a review of current market conditions, estimated
holding period, and future performance expectations of each
property, the General Partner has determined that the net carrying
value of certain Partnership properties held for operations may not
be fully recoverable. Charges recognized for such impairments
aggregated $2,721,000 in 1996 and $1,467,000 in 1994.
NOTE 7 - LEASES
Future minimum rentals (in thousands) to be received by the
Partnership under noncancelable operating leases in effect at
December 31, 1996, are:
1997 $ 3,729
1998 3,349
1999 2,447
2000 1,709
2001 1,041
Thereafter 8,464
_______
Total $20,739
_______
_______
NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 2, the Partnership has not provided for an
income tax liability; however, certain timing differences exist
between amounts reported for financial reporting and federal income
tax purposes. These differences are summarized below for the last
three years:
1996 1995 1994
___________________ ________
(in thousands)
Book net income
(loss) . . . . . . . . . . $ 906 $ 1,783 $ 579
Allowance for
doubtful accounts. . . . . (97) (4) 71
Property valuation
allowance and losses
on dispositions. . . . . . (6,540) (109) 1,385
Normalized and
prepaid rents. . . . . . . 7 (23) (103)
Interest income. . . . . . . - 661 633
Depreciation . . . . . . . . (23) (283) 353
Provisions for
loan loss. . . . . . . . . - (1,956) -
Other items. . . . . . . . . (12) 16 (1)
________ ________ ________
Taxable income (loss). . . . ($5,759) $ 85 $ 2,917
NOTE 9 - SUBSEQUENT EVENT
The Partnership declared a quarterly cash distribution of $2.00 per
unit to Limited Partners of the Partnership as of the close of
business on December 31, 1996. The Limited Partners will receive
$507,000, and the General Partner will receive $5,000.
INDEPENDENT AUDITORS' REPORT
To the Partners
T. Rowe Price Realty Income Fund III,
America's Sales-Commission-Free Real Estate Limited Partnership:
We have audited the accompanying consolidated balance sheets of T.
Rowe Price Realty Income Fund III, America's Sales-Commission-Free
Real Estate Limited Partnership and its consolidated ventures as of
December 31, 1996 and 1995, and the related consolidated statements
of operations, partners' capital and cash flows for each of the
years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of T. Rowe Price Realty Income Fund III, America's
Sales-Commission-Free Real Estate Limited Partnership and its
consolidated ventures as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 30, 1997
