<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 January 31, 1996
[ ] 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 _______.
Commission File No. 1-7062
REALTY REFUND TRUST
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
OHIO 34-6647590
- --------------------------------- -------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
1385 Eaton Center Cleveland, Ohio 44114
- --------------------------------------- -------------------------------
(Address of Principal Executive Office) (ZIP Code)
(216) 771-7663
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
- ------------------- ------------------------------------
Shares of Beneficial
Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 X No _____
[Cover Continued on Following Page]
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[Cover Continued From Previous Page]
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 [X]
Aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 18, 1996: $ 5,432,864
---------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Notice of Annual Meeting and Proxy Statement dated
April 5, 1996, as supplemented by a Supplement to Proxy Statement dated April
11, 1996--Part III. The Trust Performance Graph contained in the Registrant's
Notice of Annual Meeting and Proxy Statement dated April 5, 1996, as
supplemented by a Supplement to Proxy Statement dated April 11, 1996, shall not
be deemed incorporated by reference herein.
Portions of the Registrant's 1996 Annual Report--Parts I and II.
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PART I
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Item 1. BUSINESS.
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Introduction.
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The Registrant is an unincorporated Ohio real estate investment
trust under a Declaration of Trust dated April 28, 1971 and has elected to be
taxed as a real estate investment trust, as that term is used in Sections
856-860 of the Internal Revenue Code.
The Registrant historically has specialized in wrap-around
mortgage lending, whereby the borrower is offered a total mortgage loan (the
wrap-around loan), the principal amount of which loan equals the balance
outstanding on an existing prior mortgage loan on the borrower's property, plus
an additional amount supplied by the Registrant, on existing income-producing
commercial, industrial and multi-unit residential real property. Typically, a
wrap-around loan made by the Registrant is subordinate to the lien of the
existing prior mortgage loan that remains on the property.
In addition to mortgage investments, the Trustees in 1990
authorized the Registrant to pursue equity investments in shopping center,
multi-family residential, office building, industrial and warehouse properties.
The Registrant made no mortgage loans during the fiscal year
ended January 31, 1996. Both of the Registrant's existing loans are scheduled to
mature in fiscal year 1997. Accordingly, the Registrant in fiscal year 1996
retained Brown, Gibbons, Lang & Company, L.P., to review the options available
to the Registrant in respect of the future operations of the Registrant. These
options include the merger, sale or restructuring of the Registrant, new
financing sources, both public and private, and the liquidation of the
Registrant.
Wrap-Around Financing and Other Mortgage Loans.
- -----------------------------------------------
Wrap-around financing is desirable for a borrower in those cases
in which an existing mortgage has an interest rate below presently prevailing
interest rates or in which replacing an existing mortgage is either prohibited
entirely or involves a pre-payment penalty. The decline in recent years in
prevailing interest rates coupled with the low cost of traditional refinancing
has decreased significantly the desirability of wrap-around financing as a form
of refinancing.
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In certain cases, the Registrant has provided refinancing in the
form of junior mortgage loans. Such mortgages are substantially similar to the
Registrant's wrap-around mortgages except that the stated principal amount of
the mortgage is only the amount advanced by the Registrant. The Registrant still
requires the borrower to remit to the Registrant an amount equal to the
principal and interest payments due on the prior mortgage loan in addition to
the payments required on the junior mortgage.
In general, the income-producing properties which secure the
Registrant's loans tend to be relatively large. As of January 31, 1996, the
Registrant had investments in two wrap-around loans. The Registrant's original
cash investments in these loans were $9,000,000 and $6,500,000.
The following table sets forth the geographic distribution of the
Registrant's loans as of January 31, 1996:
<TABLE>
<CAPTION>
State Number of Loans
----- ---------------
<S> <C> <C>
Ohio 1
Texas 1
</TABLE>
A partnership in which an affiliate of Alan M. Krause, a Trustee
and the Chairman and Co-Chief Executive Officer of the Registrant, is general
partner accounted for 25.9% of the Registrant's loan investment portfolio (after
consideration of the applicable valuation allowance) as of January 31, 1996. See
"Properties - Toledo, Ohio". In general, the Registrant is not dependent upon a
single borrower or a very few borrowers for making any future loans.
As of January 31, 1996, the Registrant's loans receivable
totalled $17,422,010, all of which represented loans secured by wrap-around
mortgages. Loans payable underlying these wrap-around mortgages totalled
$7,732,450. The Registrant's net investment in its loans receivable at January
31, 1996 totalled $9,689,560. Assuming that all of the mortgages remain in
existence until their respective scheduled maturity dates in fiscal 1997, a
total of $17,116,000 of these loans receivable would be payable to the
Registrant in lump sum "balloon" payments at such maturities. The ability of a
borrower to satisfy the obligation to pay the lump sum at maturity applicable to
its property may be dependent upon the borrower's ability to obtain refinancing.
For a detailed analysis of these totals and a description of the periodic
payment terms and maturity dates of the Registrant's loans receivable as of
January 31, 1996, see Note 10 of Notes to Financial Statements set forth on page
16 of the Registrant's 1996 Annual Report (Exhibit 13), which information is
incorporated herein by reference.
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Equity Investments.
- -------------------
In July 1992, the Registrant, through a wholly-owned corporate
subsidiary, took title in lieu of foreclosure to the leasehold estate in the
Chicago office building upon which the Registrant previously had mortgage loans.
At January 31, 1992, the Registrant's net investment in the Chicago office
building was approximately $11,261,900, net of senior mortgage loans of
approximately $942,000. The Registrant's investment was written down to
$7,260,000, based upon the report of an independent real estate appraisal firm,
with a corresponding charge to the Registrant's operations in the third quarter
of fiscal 1993. In the first quarter of fiscal year 1994, the Registrant,
through a wholly-owned corporate subsidiary, consummated the purchase of an 83%
interest in the underlying fee simple estate in the property for approximately
$897,000. In April 1996, the Registrant, through a wholly-owned corporate
subsidiary, consummated the purchase of the remaining 17% interest in the
underlying fee simple estate for approximately $275,000. Net book value for the
Chicago office building, improvements and land as of January 31, 1996 (including
a $3,000,000 valuation allowance established to reduce the carrying value of the
property to its current estimated net realizable value) was $6,396,364. While
the Registrant presently is operating the office building, its present intention
is to seek a purchaser and not to hold the building as a long-term investment.
The Registrant currently has no other equity investments in real estate.
The Board of Trustees has authorized, and the Registrant's investment advisor is
exploring opportunities for, equity investments by the Registrant, as well as
mortgage loan opportunities, in shopping centers, multi-family residential,
hospitality and other types of properties.
Competition and Inflation.
- --------------------------
In connection with its investments, the Registrant competes
against banks, insurance companies, savings and loan associations, mortgage
bankers, pension funds and other lenders and investors, including a number of
other real estate investment trusts, many of which are larger and have
substantially greater financial resources than the Registrant. The principal
elements of competition include the amount, maturity, interest rate, debt
service charged and other terms of a refinancing, and whether the personal
liability of a borrower is required in addition to the mortgage lien on the
refinanced property.
In respect of equity investments, the Registrant will compete
against insurance companies, pension funds, other real estate investment trusts,
limited partnerships, private investors, owner-operators and numerous other
potential
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investors, many of which may have greater financial resources and more
experience than the Registrant. The Registrant's Chicago property has, and it is
expected that any additional rental properties acquired by the Registrant will
have, substantial competition from similar properties in the vicinity. To the
extent the Registrant has acquired or acquires commercial properties, the
success of the Registrant will depend, in part, upon the ability of its tenants
in competing with businesses similar to those conducted by the tenants and upon
other factors which may affect the economic viability of the tenants.
Generally, inflation affects the Registrant as it affects its
borrowers and the underlying real estate collateral. Although this type of
collateral traditionally has been able to sustain itself during periods of
inflation, there has been a significant down-turn in market values of real
property in the United States over the past few years. The Registrant is unable
to predict future real estate market conditions.
Advisory Agreement And Advisor.
- -------------------------------
The Registrant has an Advisory Agreement with Mid-America ReaFund
Advisors, Inc. (the "Advisor") which provides for the Advisor's services as the
investment advisor and administrator of the day-to-day investment operations of
the Registrant and pursuant to which the Advisor is responsible for providing
the Registrant with a continuing and suitable investment program. Therefore, the
Registrant employs no persons on a full-time basis. The Registrant's Chairman
and President are the sole shareholders of the Advisor.
The Advisory Agreement is renewable annually and can be
terminated upon 60 days' notice by the Registrant and 120 days' notice by the
Advisor. The Advisor receives, subject to certain limitations, an annual fee
equal to 1% of the average invested assets for the year (as defined in the
Advisory Agreement) and an annual incentive fee equal to 10% of the amount by
which the net profits (as defined in the Advisory Agreement) of the Registrant
exceeds 8% of the average net worth for the year, and 10% of any realized net
capital gains of the Registrant.
Lines Of Credit.
- ----------------
The Registrant has an agreement with National City Bank (the
"Bank") providing for a secured revolving line of credit. The loan agreement
provides for borrowings at either the Bank's prime lending rate or a fixed rate
equal to 1.5% over the LIBOR then in effect throughout the term of the loan
agreement, which expires on July 31, 1996. Maximum availability under the line
of credit is $7,000,000. Among other provisions, the loan agreement provides for
a borrowing base equal to 83.3% of the Registrant's
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investments (as defined) and $3,000,000 of availability for working capital,
with the remainder available for new investments. The loan agreement also
provides that the Registrant cannot permit its net worth (including subordinated
debt) to be less than $8,500,000 or its total debt (excluding wrap-around
mortgages) and senior indebtedness to exceed 300% and 225%, respectively, of its
net worth. At January 31, 1996, the Registrant had borrowed $6,295,000 under
this line of credit.
On March 16, 1993, the Registrant sold a $5,000,000 secured note
(the "Note") to Mr. Krause at par. The Note bears interest at the prime lending
rate of the Bank, and will mature on August 31, 1996. The Note is secured by a
lien on the assets of the Registrant, which lien is subordinate to the prior
lien of the Bank. In connection with the closing of the sale of the Note, the
Registrant's Trustees received the written opinion of an independent investment
banking firm that the terms of such sale were fair, from a financial point of
view, to the other Shareholders of the Registrant. The proceeds of the sale of
the Note were used to reduce the outstanding indebtedness of the Registrant to
the Bank under its secured revolving line of credit. At March 18, 1996, the
outstanding principal balance of the Note was $4,500,000.
Item 2. PROPERTIES.
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The Registrant maintains its headquarters in leased facilities in
Cleveland, Ohio which it shares with the Advisor. The Registrant owns no real
property other than the Chicago office building. See "Business-Equity
Investments".
The following is a detailed description of the property owned by
the Registrant as well as the properties underlying each of the Registrant's
mortgage loans. All of the information set forth below in respect of the
Registrant's mortgage loans has been furnished by the respective borrowers.
Financial information concerning the Chicago office building as well as the
Registrant's wrap-around mortgages, including the mortgage loans underlying such
wrap-around mortgages, is outlined in Notes 3, 4, 9, 10 and 12, respectively, to
Notes to Financial Statements set forth on Pages 14 and 16, respectively, of the
Registrant's 1996 Annual Report (Exhibit 13), which information hereby is
incorporated by reference.
1. CHICAGO, ILLINOIS - OFFICE BUILDING. This office building, known as The
Carbide and Carbon Building, is located at 230 North Michigan Avenue in downtown
Chicago, and is a thirty-eight story steel frame, concrete and stone structure.
The building has a total rentable floor area of approximately 192,000 square
feet and is approximately 64 years old. In the opinion of the Registrant's
management, the building is covered adequately by insurance.
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The general market for office leasing in downtown Chicago is very
competitive. According to the fourth quarter 1995 Building Owners and Managers
Association of Chicago occupancy survey, the overall occupancy in the area where
this building is located, the Central Business District/East Loop, was 79.77%,
an increase of .35% since the fourth quarter of 1994 and .17% since the fourth
quarter of 1993. Occupancy for Class C Buildings has decreased to approximately
82.6%. A Class C Building generally is described as an older building in need of
some repair and/or renovation.
The following table sets forth the average occupancy rate and
average rent per square foot for this building as of December 31 for the years
indicated:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average Occupancy 59.0% 61.0% 57.0% 55.0% 63.6%
Rate
Average Rent Per $15.50 $16.19 $15.99 $16.15 $16.35
Square Foot
</TABLE>
No tenant occupies 10% or more of the rentable square footage of
the building. The following table sets forth further information concerning the
office building leases:
<TABLE>
<CAPTION>
Year of Number Net Percentage
Lease of Square Annual of Gross
Expiration Tenants Feet Rent Annual Rent
- ---------- ------- ---- ---- -----------
<C> <C> <C> <C> <C>
1996 18 16,732 $276,468.00 15.33%
1997 10 11,986 $196,692.00 10.90%
1998 19 39,040 $565,368.00 31.34%
1999 9 14,812 $269,112.00 14.92%
2000 6 16,369 $344,760.00 19.11%
2001 3 7,484 $134,940.00 7.48%
2002 0 0 $ 0 0
2003 1 105.9 $ 18,691.00 1.04%
2004 0 0 $ 0 0
2005 0 0 $ 0 0
</TABLE>
For federal income tax purposes, the Registrant's tax basis in
the building, improvements and land is $9,672,000 less accumulated depreciation
on the building and improvements as of January 31, 1996 of $691,000. For federal
income tax purposes, the Registrant depreciates the building and improvements
using the straight line method over a life of 40 years.
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<PAGE> 9
The real estate tax rate is $199.13 per $1,000 of assessed
valuation. The current annual real estate taxes are $448,049.
2. TOLEDO, OHIO - OFFICE BUILDING. This office building, known as The
Fiberglas Tower, is located at 319 Madison Avenue, Toledo, Ohio, and is a
thirty-story structure having a total rentable floor area of approximately
332,570 square feet. The building is owned by Riverview Tower Limited
Partnership, a limited partnership of which an affiliate of Mr. Krause is a
general partner. The building is 25 years old and was acquired by the borrower
on July 31, 1985. In the opinion of the Registrant's management, the building is
covered adequately by insurance.
At January 31, 1996, the outstanding principal balance of the
Registrant's loan was $4,506,055 (net of a valuation allowance of $5,000,000)
and interest accrued thereon at 8.70%. This loan is payable in monthly
installments of approximately $128,000 until maturity thereof on December 31,
1996, at which time the entire principal sum including unpaid interest will be
due. In connection with the extension of such loan maturity to December 31,
1996, the Borrower was required to make principal payments of $1,350,000,
$850,000 and $850,000 in June 1994, January 1995 and January 1996, respectively.
The Owens-Corning Corporation ("Owens"), a manufacturer of
fiberglass products, occupies 100% of the building's office space under leases
dated May 1, 1967 and April 30, 1981, respectively and a lease amendment and
extension agreement dated June 4, 1994 (collectively, the "Owens Lease").
Pursuant to the Owens Lease and two additional agreements for basement storage
space, Owens leases the entire rentable floor area of the building at an annual
base rent of $2,261,000. The initial term of the Owens Lease expired on December
31, 1994; however, Owens and the borrower have negotiated an extension of such
lease until December 31, 1996 with two six-month renewal options. In October
1993, Owens announced that it would be relocating from the building to another
facility. Relocation is expected to be completed in 1996. Such relocation, when
it occurs, will impact directly the borrower's ability to meet timely its loan
obligations to the Registrant. In the event that the borrower defaults in its
obligations to the Registrant, the Registrant may be faced with a write-down of
this investment. The borrower is unable to determine competitive conditions
affecting office space which might exist at the time Owens relocates from this
building. In view of the fact that such loan was made on a non-recourse basis,
the Registrant has established a valuation allowance to reflect the Registrant's
current estimate of the net proceeds of a sale of the building.
The following table sets forth the average occupancy
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rate and average rent per square foot as of December 31 for the
years indicated:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average Occupancy 100% 100% 99% 99% 99%
Rate
Average Rent Per $17.29 $22.43 $11.81 $12.07 $11.62
Square Foot
</TABLE>
For federal income tax purposes, the borrower's tax basis in the
property is $16,705,077, less accumulated depreciation as of December 31, 1995
equal to $9,598,758. The borrower depreciates the building using the
straight-line method over a life of 19 years. The borrower also depreciates
various building improvements using the straight line method over lives of 10
years.
The effective real estate tax rate is $65.68 per $1,000 of
assessed valuation. The current annual real estate taxes are $286,871.
3. FORT WORTH, TEXAS - OFFICE BUILDING. This facility is located on a
portion of the General Dynamics West Campus, Fort Worth, Texas, and consists of
a 44.3 acre site on which is located three buildings having a total rentable
floor area of approximately 550,500 square feet. The facility is owned by
Pacific Place Partners, LTD., a Texas limited partnership. The facility is
approximately five years old and was acquired by the borrower in November 1991.
At January 31, 1995, the outstanding principal balance of the
Registrant's loan was $12,915,955 and interest accrued thereon at 11.4%. This
loan is payable in monthly installments of principal and interest of
approximately $625,000 until maturity thereof on October 31, 1996, at which time
the entire principal sum remaining unpaid will be due.
General Dynamics Corporation ("General Dynamics"), a defense
contractor, leased the entire facility until March 1, 1993, at which time
General Dynamics assigned all of its right, title and interest in, to and under
the lease to Lockheed Corporation. However, General Dynamics remains liable for
all promises, covenants, conditions and agreements to be kept, made or performed
by Lockheed Corporation under the lease. The lease permits Lockheed Corporation
to use the facility for general business office purposes, including engineering
facilities, computer software development facilities and storage facilities
incidental to such uses. However, the property may not be used
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for chemical laboratories. The term of the lease expires in November 1996.
Annual rent for the first lease year was approximately $11,500,000 and for each
lease year thereafter is approximately $7,500,000. The borrower is unable to
determine competitive conditions which might exist at the time the lease
expires.
For federal income tax purposes, the borrower's tax basis in the
property, which was acquired in a Section 1031 exchange, is $48,404,030, less
accumulated depreciation and amortization of deferred charges as of December 31,
1994 equal to $11,240,841. The borrower depreciates the three buildings using
the straight line method over lives of 15 years. Personal property is
depreciated using the declining balance method over lives of five years.
The effective real estate tax rate is $30.50 per $1,000 of
assessed valuation. The current annual real estate taxes are $323,093.
Item 3. LEGAL PROCEEDINGS.
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The Registrant is not a party to any material pending legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The age (as of March 18, 1996), business experience during the
past five years and offices presently held by each of the Registrant's executive
officers are reported below. The Registrant's By-Laws provide that officers
shall hold office until their successors are duly elected and qualified and that
any officer may be removed from office at any time by the Registrant's Trustees.
ALAN M. KRAUSE: Age 66; Chairman of the Board of Trustees and
Co-Chief Executive Officer of the Registrant since 1990 and prior thereto Vice
Chairman of the Board of Trustees of the Registrant since 1971. Chairman of the
Board and Co-Chief Executive Officer of Mid-America ReaFund Advisors, Inc.
(Advisor to the Registrant) since 1990. Principal, The Mid-America Companies
(real estate ownership) since prior to 1983 and President, The Mid-America
Management Corporation (real estate management) since 1983.
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JAMES H. BERICK: Age 62; President, Treasurer and Co-Chief Executive
Officer of the Registrant since 1990 and prior thereto Vice Chairman of the
Board of Trustees and Secretary of the Registrant since 1971. President,
Co-Chief Executive Officer and Treasurer of Mid-America ReaFund Advisors, Inc.
(Advisor to the Registrant) since 1990. Chairman, Berick, Pearlman & Mills Co.,
L.P.A. (attorneys) since 1986.
PART II
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Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
----------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
The Registrant's shares of beneficial interest are traded on the
New York Stock Exchange under the symbol "RRF". As of March 18, 1996, the
Registrant had approximately 632 shareholders.
The following table sets forth the high and low sales prices of
the Registrant's shares of beneficial interest, as well as dividends declared
thereon, for the last two fiscal years:
<TABLE>
<CAPTION>
Price Range
-----------
Fiscal Year 1995 High Low Dividends
- ---------------- ---- --- ---------
<S> <C> <C> <C>
First Quarter 7 5/8 7 .20
Second Quarter 8 1/4 7 1/8 .20
Third Quarter 8 3/8 8 1/4 .20
Fourth Quarter 8 1/2 7 3/4 .20
Fiscal Year 1996 High Low Dividends
- ---------------- ---- --- ---------
First Quarter 8 5/8 7 3/8 .20
Second Quarter 8 1/8 7 1/4 .10
Third Quarter 8 4 1/2 .10
Fourth Quarter 7 4 3/8 .10
</TABLE>
Item 6. SELECTED FINANCIAL DATA.
-----------------------
Information in response to this item is set forth on page 4 of
the Registrant's 1996 Annual Report (Exhibit 13), which information is
incorporated herein by reference.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
OPERATING RESULTS AND FINANCIAL POSITION.
----------------------------------------
Information in response to this Item is set forth on pages 5
through 8 of the Registrant's 1996 Annual Report (Exhibit 13), which information
is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The financial statements of the Registrant and the notes thereto
appear on pages 9 through 18 of the Registrant's 1996 Annual Report, which
information is incorporated herein by reference.
The other financial statements and schedules required herein are
filed as "Financial Statement Schedules" pursuant to Item 14 of this Report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
----------------------------------------------------
None.
PART III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
Information in response to this Item is set forth under the
caption "Election of Trustees" in the Registrant's proxy statement dated April
5, 1996, as supplemented by that Supplement to Proxy Statement dated April 11,
1996 (Exhibit 99(a)), which information is incorporated herein by reference. The
information required by this Item in respect of Executive Officers is set forth
on Page 13 of this Form 10-K and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION.
----------------------
Information in response to this Item is set forth under the
caption "Compensation of Trustees and Executive Officers" in the Registrant's
proxy statement dated April 5, 1996, as supplemented by that Supplement to Proxy
Statement April 11, 1996 (Exhibit 99(a)), which information is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN
-----------------------------
BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------
Information in response to this Item is set forth under
the caption "Ownership of Shares of Beneficial Interest" in the
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Registrant's proxy statement dated April 5, 1996, as supplemented by that
Supplement to Proxy Statement dated April 11, 1996 (Exhibit 99(a)), which
information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
Information in response to this Item is set forth under the
caption "Certain Transactions" in the Registrant's proxy statement dated April
5, 1996, as supplemented by that Supplement to Proxy Statement dated April 11,
1996 (Exhibit 99(a)), which information is incorporated herein by reference.
PART IV
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Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
---------------------------------------------------
ON FORM 8-K.
------------
(a) 1. See the Index to Financial Statements set
forth on page 21 hereof for a list of
financial statements and financial schedules
included or incorporated herein by reference.
2.1 The Financial Statements of Riverview Tower
Limited Partnership, a borrower of the
Registrant (which financial statements were
audited by such borrower's auditors), are set
forth as Exhibit 99(b).
2.2 The Financial Statements of Pacific Place
Partners, LTD., a borrower of the Registrant
(which financial statements were audited by
such borrower's auditors), are set forth as
Exhibit 99(c).
3. The exhibits filed as part of this report are
set forth on the Exhibit Index on pages 16
through 20 hereof and each management contract
or compensatory plan or arrangement required to
be filed as an exhibit hereto has been marked
with an asterisk on the Exhibit Index.
(b) No current reports on Form 8-K were filed during the
last quarter of fiscal year 1996.
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REALTY REFUND TRUST
Dated: April 29, 1996 By: /s/ Alan M. Krause
------------------
Alan M. Krause, Chairman
By: /s/ James H. Berick
-------------------
James H. Berick, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: April 29, 1996 /s/ James H. Berick
-------------------
James H. Berick, Trustee,
Principal Executive Officer,
Principal Financial Officer
and Principal Accounting
Officer
Dated: April 29, 1996 /s/ Alan M. Krause
------------------
Alan M. Krause, Trustee and
Principal Executive
Officer
Frank L. Kennard, Trustee
Alvin M. Kendis, Trustee
Samuel S. Pearlman, Trustee
Dated: April 29, 1996 By: /s/ Alan M. Krause
------------------
Alan M. Krause,
Attorney-In-Fact
Powers of attorney authorizing Alan M. Krause to sign this Form 10-K on
behalf of Trustees of the Registrant are being filed with the Securities and
Exchange Commission herewith (Exhibit 24).
-15-
<PAGE> 16
Index of Exhibits
-----------------
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
3(a) First Amended and Restated Declaration of Trust
(incorporated by reference to Exhibit 3.1 of
Registration Statement No. 2-40238 effective June 17,
1971).
3(b) By-Laws (incorporated by reference to Exhibit 3.2 of the
Registrant's Current Report on Form 8-K dated February 12, 1985
and filed with the Securities and Exchange
Commission on February 13, 1985).
10(a)* Form of Advisory Agreement between the Registrant and
the Advisor (incorporated by reference to Exhibit 12.1
of Registration Statement No. 2-40238 effective June 17,
1971).
10(b)* Amendment dated June 1, 1987 to Advisory Agreement between
Registrant and the Advisor (incorporated by reference to Exhibit
10(b) of the Registrant's Form 10-K for the fiscal year ended
January 31, 1994).
10(c)* Amendment dated June 1, 1988 to Advisory Agreement between the
Registrant and the Advisor (incorporated in Exhibit 10(c) of the
Registrant's Form 10-K for fiscal year ended January 31, 1995).
10(d)* Amendment dated June 1, 1989 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit
10(d) of the Registrant's Form 10-K for the fiscal year ended
January 31, 1990).
10(e)* Amendment dated June 1, 1990 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit
10(e) of the Registrant's Form 10-K for the fiscal year ended
January 31, 1991).
10(f)* Amendment dated June 1, 1991 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit
10(f) of the Registrant's Form 10-K for the fiscal year ended
January 31, 1992).
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C>
10(g)* Amendment dated June 1, 1992 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit
10(g) of the Registrant's Form 10-K for the fiscal year ended
January 31, 1993).
10(h)* Amendment dated June 1, 1993 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit
10(h) of the Registrant's Form 10-K for the fiscal year ended
January 31, 1994).
10(i)* Amendment dated June 1, 1994 to Advisory Agreement between the
Registrant and the Advisor (incorporated by reference to Exhibit
10(i) of Registrant's Form 10-K for fiscal year ended January 31,
1995).
10(j)* Amendment dated June 1, 1995 to Advisory Agreement
between the Registrant and the Advisor.
10(k) Credit Agreement dated July 18, 1990 between the Registrant and
the Bank (incorporated by reference to Exhibit 10(f) of the
Registrant's Form 10-K for the fiscal year ended January 31,
1991).
10(l) Extension Agreement dated June 27, 1991 to Credit
Agreement between the Registrant and the Bank
(incorporated by reference to Exhibit 10(g) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(m) Amendment and Waiver Agreement dated as of July 7, 1992 to Credit
Agreement between the Registrant and the Bank (incorporated by
reference to Exhibit 10.5 of the Registrant's Current Report on
Form 8-K dated March 16, 1993 and filed with the Securities and
Exchange Commission on March 24, 1993).
10(n) Security Agreement (Promissory Notes) dated as of July
7, 1992 between Registrant and the Bank (incorporated by
reference to Exhibit 10.6 of the Registrant's Current
Report on Form 8-K dated March 16, 1993 and filed with
the Securities and Exchange Commission on March 24,
1993).
10(o) Second Amendment dated March 16, 1993 to Credit
Agreement between the Registrant and the Bank
(incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report on Form 8-K dated March 16,
1993 and filed with the Securities and Exchange
Commission on March 24, 1993).
</TABLE>
-17-
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C>
10(p) Third Amendment dated as of July 28, 1994 between the Registrant
and the Bank (incorporated by reference to Exhibit 10(o) of the
Registrant's Form 10-K for the fiscal year ended January 31,
1995).
10(q) Security Agreement (Promissory Notes) dated as of March
16, 1993 between Registrant and the Bank (incorporated
by reference to Exhibit 10.4 of the Registrant's Current
Report on Form 8-K dated March 16, 1993 and filed with
the Securities and Exchange Commission on March 24,
1993).
10(r) Fourth Amendment dated as of July 27, 1995 between the
Registrant and the Bank.
10(s) Fifth Amendment dated as of January 29, 1996 between
Registrant and the Bank.
10(t) Sixth Amendment dated April 16, 1996 between Registrant
and the Bank.
10(u) Security Agreement (Inventory, Receivables and Equipment) dated
as of March 16, 1993 between Registrant and Bank (incorporated by
reference to Exhibit 10.3 of the Registrant's Current Report on
Form 8-K dated March 16, 1993 and filed with the Securities and
Exchange Commission on March 24, 1993).
10(v) Secured Note Purchase Agreement dated March 16, 1993
between the Registrant and Alan M. Krause (incorporated
by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K dated March 16, 1993 and filed with
the Securities and Exchange Commission on March 24,
1993).
10(w)* Employment Agreement dated January 22, 1990 between the
Registrant and Alan M. Krause (incorporated by reference to
Exhibit 10(i) of the Registrant's Form 10-K for the fiscal year
ended January 31, 1992).
10(x)* Amendment No. 1 dated June 1, 1990 to Employment
Agreement between the Registrant and Alan M. Krause
(incorporated by reference to Exhibit 10(j) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(y)* Amendment No. 2 dated June 1, 1991 to Employment
Agreement between the Registrant and Alan M. Krause
(incorporated by reference to Exhibit 10(k) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1992).
</TABLE>
-18-
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C>
10(z)* Amendment No. 3 dated June 1, 1992 to Employment
Agreement between the Registrant and Alan M. Krause
(incorporated by reference to Exhibit 10(s) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1993).
10(aa)* Amendment No. 4 dated June 1, 1993 to Employment
Agreement between the Registrant and Alan M. Krause
(incorporated by reference to Exhibit 10(u) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1994).
10(bb)* Amendment No. 5 dated June 1, 1994 to Employment
Agreement between the Registrant and Alan M. Krause
(incorporated by reference to Exhibit 10(x) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1995).
10(cc)* Amendment No. 6 dated June 1, 1995 to Employment
Agreement between Registrant and Alan M. Krause.
10(dd)* Employment Agreement dated January 22, 1990 between the
Registrant and James H. Berick (incorporated by reference to
Exhibit 10(l) of the Registrant's Form 10-K for the fiscal year
ended January 31, 1992).
10(ee)* Amendment No. 1 dated June 1, 1990 to Employment
Agreement between the Registrant and James H. Berick
(incorporated by reference to Exhibit 10(m) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(ff)* Amendment No. 2 dated June 1, 1991 to Employment
Agreement between the Registrant and James H. Berick
(incorporated by reference to Exhibit 10(n) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1992).
10(gg)* Amendment No. 3 dated June 1, 1992 to Employment
Agreement between the Registrant and James H. Berick
(incorporated by reference to Exhibit 10(w) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1993).
10(hh)* Amendment No. 4 dated June 1, 1993 to Employment
Agreement between the Registrant and James H. Berick
(incorporated by reference to Exhibit 10 (z) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1994).
</TABLE>
-19-
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C>
10(ii)* Amendment No. 5 dated June 1, 1994 to Employment
Agreement between the Registrant and James H. Berick
(incorporated by reference to Exhibit 10(dd) of the
Registrant's Form 10-K for the fiscal year ended January
31, 1995).
10(jj)* Amendment No. 6 dated June 1, 1995 to Employment
Agreement between the Registrant and James H. Berick.
13 The Registrant's 1996 Annual Report.
24 Powers of Attorney.
27** Financial Data Schedule.
99(a) Notice of Annual Meeting and Proxy Statement dated April
5, 1996 and Supplement to Proxy Statement dated April
11, 1996.
99(b) Financial Statements of Riverview Tower Limited
Partnership as at December 31, 1994 and 1995.
99(c) Financial Statements of Pacific Place Partners, Ltd. as
at December 31, 1994 and 1995.
<FN>
*Management contract or compensatory plan or arrangement required
to be filed as an exhibit hereto.
**Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K.
</TABLE>
-20-
<PAGE> 21
REALTY ReFUND TRUST
-------------------
LIST OF FINANCIAL STATEMENTS AND SCHEDULE
-----------------------------------------
The following financial statements of Realty ReFund Trust are included in
Item 8:
Report of Independent Public Accountants
Balance Sheets -- January 31, 1996 and 1995
Statements of Operations -- For the Years Ended January 31,
1996, 1995 and 1994
Statements of Shareholders' Equity -- For the Years Ended
January 31, 1996, 1995 and 1994
Statements of Cash Flows -- For the Years Ended January 31,
1996, 1995 and 1994
Notes to Financial Statements -- January 31, 1996, 1995 and
1994
The following financial statement schedule of Realty ReFund Trust is included
in Item 14(a)1.:
Schedule III -- Real Estate and Accumulated Depreciation
All other schedules are omitted, as the information is not
required or is otherwise furnished.
-21-
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees,
Realty ReFund Trust:
We have audited the accompanying balance sheets of Realty ReFund Trust (an Ohio
unincorporated business trust) as of January 31, 1996 and 1995, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended January 31, 1996. These financial statements
and the schedule referred to below are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. The summarized financial data
contained in Note 12 are based on the financial statements of Riverview Tower
Limited Partnership and Pacific Place Partners, Ltd. which were audited by
other auditors. Their reports have been furnished to us and our opinion,
insofar as it relates to the data in Note 12, is based solely on the reports of
the other auditors.
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 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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Realty ReFund Trust as of January 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended January 31, 1996 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 listed in Item 14(a)1. of
this Form 10-K is the responsibility of the Trust's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states, in all material
respects, the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
------------------------
Cleveland, Ohio,
February 26, 1996.
-22-
<PAGE> 23
SCHEDULE III
REALTY ReFUND TRUST
-------------------
REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------
AS OF JANUARY 31, 1996
----------------------
<TABLE>
<CAPTION>
Cost Capitalized Gross Amount to
Initial Cost Subsequent to Which Carried at
to Trust Acquisition Close of Period
------------------------ ------------------------ ------------------------------------
Buildings and Carrying Buildings and Total
Encumbrances Land Improvements Improvements Costs Land Improvements (A) (B)
------------ -------- ------------- ------------ -------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Building --
Chicago, Illinois $ -- $897,436 $7,260,000 $ -- $ -- $897,436 $6,291,164 $7,188,600
======= ======== ========== ======= ======= ======== ========== ==========
<FN>
(A) Reconciliation of total cost and accumulated depreciation.
</TABLE>
<TABLE>
<CAPTION>
Year
Accumulated Construction Date
Depreciation Completed Acquired Life
------------ ------------ -------- ------
<S> <C> <C> <C> <C>
Office Building --
Chicago, Illinois $792,236 $ -- (C) (D)
======== ======= =====
<FN>
(A) Reconciliation of total cost and accumulated depreciation.
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ ------------------------
Total Accumulated Total Accumulated Total Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, beginning of year $9,009,696 $359,439 $8,387,719 $ 29,256 $7,401,863 $ 2,746
ADDITIONS DURING PERIOD:
Building improvements 491,599 -- 107,000 -- -- --
Tenants improvements 687,305 -- 514,977 -- 88,420 --
Acquisition of land -- -- -- -- 897,436 --
Depreciation expense -- 432,797 -- 330,183 -- 26,510
DEDUCTIONS DURING PERIOD:
Writedown to estimated net realizable value (E) (3,000,000) -- -- -- -- --
---------- -------- ---------- -------- ---------- -------
BALANCE, end of year $7,188,600 $792,236 $9,009,696 $359,439 $8,387,719 $29,256
========== ======== ========== ======== ========== =======
<FN>
(B) For federal income tax purposes, the aggregate cost is $9,672,000 at January 31, 1996.
(C) Building tile was accepted in July 1992. Land was acquired in March and April 1993.
(D) Commencing February 1, 1994, building and building improvements are being depreciated on a straight-line basis over 30 years.
Tenant improvements are depreciated on a straight-line basis over the related lease terms, which range from five to fifteen
years.
(E) In fiscal 1996, the Trust recorded a $3,000,000 provision to reduce the carrying value of the real estate held for sale to its
estimated net realizable value. The amount of the writedown was based upon the Trust's estimate of the amount of net proceeds
which would be realized upon the sale of the real estate.
</TABLE>
-23-
<PAGE> 1
Exhibit 10(j)
Amendment Dated June 1, 1995
to Advisory Agreement Between the
Registrant and the Advisor.
<PAGE> 2
[ReaFund LOGO]
Realty ReFund Trust / 1385 Eaton Center / 1111 Superior Avenue
Cleveland, Ohio 44114/216-771-7663
Fax /216-861-4929
June 1, 1995
Mid-America ReaFund Advisors, Inc.
1385 Eaton Center
Cleveland, Ohio 44114
Attention: James H. Berick, President
Dear Jim:
Please be advised that the Trustees of Realty ReFund Trust (the "Trust") have
agreed to extend the Advisory Agreement between Mid-America ReaFund Advisors,
Inc. (the "Adviser") and the Trust, for an additional term of one (1) year
expiring June, 1996, on the same terms, conditions and provisions contained in
the original Agreement as extended from time to time.
If this Agreement to extend meets with the approval of the Adviser, please
acknowledge the same on the copy of this letter enclosed for that purpose.
Very truly yours,
Realty ReFund Trust
By Alan M. Krause
------------------------------
Alan M. Krause
Chairman
And Christine Turk
------------------------------
Christine Turk
Secretary
/ct
Enclosure
The foregoing extension is hereby accepted.
Mid-America ReaFund Advisors, Inc.
By James H. Berick
------------------------------
James H. Berick, President
<PAGE> 1
Exhibit 10 (r)
Fourth Amendment dated as of July 27, 1995 between
the Registrant and the Bank
<PAGE> 2
FOURTH AMENDMENT
This Fourth Amendment (this "Amendment") is executed in Cleveland, Ohio on
July 27, 1995, by and between REALTY REFUND TRUST ("Borrower") and NATIONAL CITY
BANK ("Bank").
PRELIMINARY STATEMENTS
A. Borrower and Bank entered into a Credit Agreement dated as of July 18,
1990, wherein Bank established a contingent revolving credit facility for
Borrower in a principal amount not to exceed Thirty Million Dollars
($30,000,000), which Credit Agreement was amended pursuant to the Amendment and
Waiver dated as of July 7, 1992 the Second Amendment dated as of March 16,
1993, and the Third Amendment dated as of July 28, 1994, respectively (the
Credit Agreement, as amended, the "Agreement").
B. Borrower and Bank wish to further amend the Agreement on the terms and
conditions set forth hereinafter.
AGREEMENT
For valuable consideration as hereinafter granted each to the other and
intending to be legally bound hereby, the parties acknowledge the preliminary
statements and, effective as of the date hereof, amend the terms, conditions,
and provisions of the Agreement as follows:
1. Effective as of September 1, 1995 (instead of August 1, 1995) the
amount of the "subject commitment" (as defined in the Agreement) shall be
reduced to Ten Million Dollars ($10,000,000).
2. Subsection 5A.07 is hereby deleted and replaced in its entirety by the
following:
5A.07 SEPTEMBER 1, 1995 BALANCE -- If, on September 1, 1995, the then
outstanding balance of the subject indebtedness exceeds Ten Million Dollars
($10,000,000).
IN WITNESS WHEREOF, Borrower and Bank have executed this Amendment at the
time and place first above mentioned.
<TABLE>
<S> <C>
Address: REALTY REFUND TRUST
1385 Eaton Center By: JAMES H. BERICK
1111 Superior Avenue -------------------------
Cleveland, Ohio 44114 Name: James H. Berick
-----------------------
Title: President
----------------------
Address: NATIONAL CITY BANK
1900 East Ninth Street By: JOHN R. FRANZEN
Attn: Real Estate Industries Division -------------------------
Cleveland, Ohio 44114-3484 Name: John R. Franzen
-----------------------
Title: Vice President
----------------------
</TABLE>
<PAGE> 1
Exhibit 10(s)
Fifth Amendment dated as of January 29, 1996 between Registrant and Bank.
<PAGE> 2
FIFTH AMENDMENT
---------------
This Fifth Amendment (this "Amendment") is executed in Cleveland, Ohio on
January 29, 1996, by and between REALTY REFUND TRUST ("Borrower") and NATIONAL
CITY BANK ("National City").
PRELIMINARY STATEMENTS
A. Borrower and National City entered into a Credit Agreement dated as of
July 18, 1990, wherein National City established a contingent revolving credit
facility for Borrower in a principal amount not to exceed Thirty Million
Dollars ($30,000,000), which Credit Agreement was amended pursuant to the
Amendment and Waiver dated as of July 7, 1992, the Second Amendment dated as of
March 16, 1993, the Third Amendment dated as of July 28, 1994, and the Fourth
Amendment dated as of July 27, 1995, respectively (the Credit Agreement, as
amended, the "Agreement").
B. Borrower and National City wish to further amend the Agreement on the
terms and conditions set forth hereinafter.
AGREEMENT
For valuable consideration as hereinafter granted each to the other and
intending to be legally bound hereby, the parties acknowledge the preliminary
statements and amend the terms, conditions, and provisions of the Agreement as
follows:
1. Effective as of the date hereof, the amount of the "subject commitment"
(as defined in the Agreement) shall be reduced to Eight Million Five Hundred
Thousand Dollars ($8,500,000).
2. Subsection 2B.06 (captioned "AMOUNT") is hereby rewritten in its entirety
to read as follows:
2B.06 AMOUNT -- No subject loan shall be made if, after giving effect
thereto, the aggregate unpaid principal balance of the subject loans would
exceed the lesser of the amount of the subject commitment then in effect or
the borrowing base then in effect; provided, however, that the proceeds of
any subject loans made on or after the date hereof may be used, with the
prior approval of Bank, only to purchase eligible investments or to make
capital and tenant improvements, except for subject loans up to a maximum
amount outstanding at any time of Two Hundred Fifty Thousand Dollars, which
may be used without obtaining the prior approval of Bank.
3. Subsection 3D.06 of the Agreement (captioned "WORTH") is hereby amended
its entirety to read as follows:
<PAGE> 3
3D.06 WORTH -- Borrower shall not suffer or permit its net worth at any time
to be less that Twelve Million Dollars ($12,000,000).
This provision shall be tested as of the end of each quarter of each of
Borrower's fiscal years; provided, however, that this provision shall not be
deemed to have been satisfied until Bank has received Borrower's quarterly or
annual report described in subsection 3A.01 for the end of the quarter in
question which establishes that this provision has been satisfied.
IN WITNESS WHEREOF, Borrower and National City have executed this Amendment
at the time and place first above mentioned.
Address: REALTY REFUND TRUST
James H. Berick
1385 Eaton Center By:___________________________
1111 Superior Avenue James H. Berick
Cleveland, Ohio 44114 Name: ________________________
President
Title: _______________________
Address: NATIONAL CITY BANK
1900 East Ninth Street John R. Franzen
Attn: Real Estate Industries Division By:___________________________
Cleveland, Ohio 44114-3484 John R. Franzen
Name: ________________________
Vice President
Title: _______________________
2
<PAGE> 1
Exhibit 10(t)
Sixth Amendment dated April 16, 1996 between
Registrant and the Bank.
<PAGE> 2
SIXTH AMENDMENT
---------------
This Sixth Amendment (this "Amendment") is executed in Cleveland, Ohio on
April 16, 1996, by and between REALTY REFUND TRUST ("Borrower") and NATIONAL
CITY BANK ("National City").
PRELIMINARY STATEMENTS
A. Borrower and National City entered into a Credit Agreement dated as of
July 18, 1990, wherein National City established a contingent revolving credit
facility for Borrower in a principal amount not to exceed Thirty Million
Dollars ($30,000,000), which Credit Agreement was amended pursuant to the
Amendment and Waiver dated as of July 7, 1992, the Second Amendment dated as of
March 16, 1993, the Third Amendment dated as of July 28, 1994, the Fourth
Amendment dated as of July 27, 1995, and the Fifth Amendment dated as of
January 29, 1996, respectively (the Credit Agreement, as amended, the
"Agreement").
B. Borrower and National City wish to further amend the Agreement on the
terms and conditions set forth hereinafter.
AGREEMENT
For valuable consideration as hereinafter granted each to the other and
intending to be legally bound hereby, the parties acknowledge the preliminary
statements and amend the terms, conditions, and provisions of the Agreement as
follows:
1. Effective as of the date hereof the amount of the "subject commitment" (as
defined in the Agreement) shall be reduced to Seven Million Dollars
($7,000,000).
2. Subsection 3D.06 of the Agreement (captioned "WORTH") is hereby amended
its entirety to read as follows:
3D.06 WORTH -- Borrower shall not suffer or permit its net worth at any time
to be less that Eight Million Five Hundred Thousand Dollars ($8,500,000).
This provision shall be tested as of the end of each quarter of each of
Borrower's fiscal years; provided, however, that this provision shall not be
deemed to have been satisfied until Bank has received Borrower's quarterly or
annual report described in subsection 3A.01 for the end of the quarter in
question which establishes that this provision has been satisfied.
<PAGE> 3
IN WITNESS WHEREOF, Borrower and National City have executed this Amendment at
the time and place first above mentioned.
Address: REALTY REFUND TRUST
James H. Berick
1385 Eaton Center By:___________________________
1111 Superior Avenue James H. Berick
Cleveland, Ohio 44114 Name: ________________________
President
Title: _______________________
Address: NATIONAL CITY BANK
1900 East Ninth Street John R. Franzen
Attn: Real Estate Industries Division By:___________________________
Cleveland, Ohio 44114-3484 John R. Franzen
Name: ________________________
Vice President
Title: _______________________
2
<PAGE> 1
Exhibit 10(cc)
Amendment No. 6 Dated June 1, 1995 to Employment
Agreement Between the Registrant and Alan M. Krause.
<PAGE> 2
AMENDMENT NO. 6 TO
------------------
EMPLOYMENT AGREEMENT
--------------------
This Amendment No. 6 to Employment Agreement made as of June 1, 1995 between
REALTY ReFUND TRUST, an unincorporated association in the form of a business
trust organized under the laws of the State of Ohio having its principal
business address at 1385 Eaton Center, Cleveland, Ohio 44114 (the "Trust") and
ALAN M. KRAUSE ("Employee").
RECITALS
--------
The Trust and Employee entered into an Employment Agreement dated as of
January 22, 1990. As of June 1, 1994, the Employment Agreement was amended to
extend its term to January 21, 2005 (subject to the provisions for earlier
termination contained at Section 5 of the Employment Agreement). The January
22, 1990 Employment Agreement, as amended, is herein referred to as the
"Employment Agreement".
The parties desire to extend the term of the Employment Agreement by
re-establishing the expiration date thereof.
<PAGE> 3
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the foregoing, and their mutual
covenants and agreements herein contained, the parties hereto do hereby agree
as follows:
1. The Trust and Employee agree to and do hereby amend the Employment
Agreement so that:
(a) Section 2 on page 3 of the Employment Agreement stating:
"2. Term
----
. . . this Agreement shall commence upon the execution hereof
and shall continue through and including the 21st day of
January, 2005."
is replaced in its entirety as though originally set forth therein with:
"2. Term
----
. . . this Agreement shall commence upon the execution hereof
and shall continue through and including the 21st day of
January, 2006."
and,
b) Section 6 on page 5 of the Employment Agreement stating:
-2-
<PAGE> 4
"6. Covenant Against Competition
----------------------------
(A) During the period commencing with the date hereof and continuing
until the latter of the expiration of the term of this Agreement or
until January 21, 2005 if this Agreement shall be terminated for the
reasons specified in Section 5(a) (i) hereof . . . "
is replaced in its entirety as though originally set forth therein with:
"6. Covenant Against Competition
----------------------------
(A) During the period commencing with the date hereof and continuing
until the latter of the expiration of the term of this Agreement or
until January 21, 2006 if this Agreement shall be terminated for the
reasons specified in Section 5(A) (i) hereof . . . "
2. Except as herein specifically amended, all of the terms and
conditions of the Employment Agreement are hereby ratified and confirmed and
the Employment Agreement is hereby incorporated to the same extent as if fully
rewritten herein.
IN WITNESS WHEREOF, the parties hereto have caused this
-3-
<PAGE> 5
Amendment No. 6 to Employment Agreement to be duly executed as of June 1, 1995.
REALTY ReFUND TRUST
By: /s/ Alan M. Krause
-------------------------
Alan M. Krause,
Chairman
And: /s/ Christine Turk
------------------------
Christine Turk,
Secretary
THE TRUST
/s/ James H. Berick
----------------------------
JAMES H. BERICK
EMPLOYEE
-4-
<PAGE> 1
Exhibit 10(jj)
Amendment No. 6 Dated June 1, 1995
to Employment Agreement Between the
Registrant and James H. Berick
<PAGE> 2
AMENDMENT NO. 6 TO
------------------
EMPLOYMENT AGREEMENT
--------------------
This Amendment No. 6 to Employment Agreement made as of June 1, 1995 between
REALTY ReFUND TRUST, an unincorporated association in the form of a business
trust organized under the laws of the State of Ohio having its principal
business address at 1385 Eaton Center, Cleveland, Ohio 44114 (the "Trust") and
JAMES H. BERICK ("Employee").
RECITALS
--------
The Trust and Employee entered into an Employment Agreement dated as of
January 22, 1990. As of June 1, 1994, the Employment Agreement was amended to
extend its term to January 21, 2005 (subject to the provisions for earlier
termination contained at Section 5 of the Employment Agreement). The January
22, 1990 Employment Agreement, as amended, is herein referred to as the
"Employment Agreement".
The parties desire to extend the term of the Employment Agreement by
re-establishing the expiration date thereof.
<PAGE> 3
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the foregoing, and their mutual
covenants and agreements herein contained, the parties hereto do hereby agree
as follows:
1. The Trust and Employee agree to and do hereby amend the Employment
Agreement so that:
(a) Section 2 on page 3 of the Employment Agreement stating:
"2. Term
. . . this Agreement shall commence upon the execution hereof
and shall continue through and including the 21st day of
January, 2005."
is replaced in its entirety as though originally set forth therein with:
"2. Term
. . . this Agreement shall commence upon the execution hereof
and shall continue through and including the 21st day of
January, 2006."
and,
(b) Section 6 on page 5 of the Employment Agreement stating:
-2-
<PAGE> 4
"6. Covenant Against Competition
(A) During the period commencing with the date hereof and
continuing until the latter of the expiration of the term of this
Agreement or until January 21, 2005 if this Agreement shall be
terminated for the reasons specified in Section 5(a) (i) hereof. . . "
is replaced in its entirety as though originally set forth therein with:
"6. Covenant Against Competition
(A) During the period commencing with the date hereof and
continuing until the latter of the expiration of the term of this
Agreement or until January 21, 2006 if this Agreement shall be
terminated for the reasons specified in Section 5(A) (i) hereof. . ."
2. Except as herein specifically amended, all of the terms and
conditions of the Employment Agreement are hereby ratified and confirmed and
the Employment Agreement is hereby incorporated to the same extent as if fully
rewritten herein.
IN WITNESS WHEREOF, the parties hereto have caused this
-3-
<PAGE> 5
Amendment No. 6 to Employment Agreement to be duly executed as of June 1, 1995.
REALTY ReFUND TRUST
By: /s/ James H. Berick
------------------------
James H. Berick,
President
And: /s/ Christine Turk
-----------------------
Christine Turk,
Secretary
THE TRUST
/s/ Alan M. Krause
---------------------------
ALAN M. KRAUSE
EMPLOYEE
-4-
<PAGE> 1
Exhibit 13
The Registrant's 1996 Annual Report
<PAGE> 2
EXHIBIT 13
1996
REALTY REFUND TRUST
[PHOTO 1: Photo of ten-key tape and a pencil tip superimposed on two buildings]
REALTY REFUND TRUST
Annual Report for
the year ended
January 31, 1996
[STYLIZED REALTY REFUND
TRUST LOGO]
[OUTSIDE FRONT COVER]
<PAGE> 3
[Photo 2: Circular photo of a portion of a ten-key tape and pencil tip]
Realty ReFund Trust
About Realty ReFund Trust
Realty ReFund Trust has specialized in the refinancing of existing
income producing commercial, industrial and multi-unit residential property by
supplementing or replacing existing financing.
The Trust's primary refinancing tool has been the "wrap-around"
mortgage loan. The wrap-around refinancing technique enables both the Trust and
its borrower to utilize the leverage available in the existing first mortgage
on the borrower's property. The Trust offers a borrower a new mortgage loan (a
wrap-around loan) on that property, the principal amount of which equals the
balance outstanding on that property's existing mortgage loan plus an
additional amount supplied by the Trust.
With its current cycle of investments winding down, Realty ReFund is
reviewing all of its options as to how to proceed, including: merger; sale;
restructuring; new financing sources, both public and private; and liquidation
of the Trust.
Established in 1971, Realty ReFund Trust has elected to be taxed as a
real estate investment trust as that term is used in Sections 856-860 of the
Internal Revenue Code of 1954, as amended.
Contents
<TABLE>
<S> <C>
Letter to Shareholders................................................ 1-3
Selected Financial Data............................................... 4
MD&A.................................................................. 5-8
Balance Sheets........................................................ 9
Statements of Operations.............................................. 10
Statements of Shareholders' Equity.................................... 11
Statements of Cash Flows.............................................. 12
Notes................................................................. 13-18
Report of Independent Public Accountants.............................. 19
Trustees and Officers................................................. 20
</TABLE>
[INSIDE FRONT COVER]
<PAGE> 4
To Our Shareholders
SHAREHOLDERS
For the year ended January 31, 1996, Realty ReFund Trust reported a loss of
$(7.40) per share on a net loss of $(7,554,351) compared to prior year's
earnings of $0.66 per share on net income of $670,945. Revenues for the year
were $5,430,006 versus $6,692,051 in 1995.
For the fourth quarter ended January 31, 1996, the Trust reported a loss of
$(2.87) per share on a net loss of $(2,927,661), compared to prior year's
earnings of $0.15 per share on net income of $153,473.
The year-to-date and fourth quarter losses reported in the current year
resulted from the valuation allowances, totaling $8 million, established during
the year on two properties. Later in this letter, we will detail our decisions
to establish these allowances.
As you know, Realty ReFund Trust includes Funds From Operations ("FFO") in
its financial reports to account for the depreciation taken on its equity
investment in Chicago. Essentially, FFO is the sum of the net income plus
depreciation and valuation allowances less capital gains. Like many other REITs
which have equity investments in real estate, we use FFO to provide you with a
more accurate measurement of our year-to-year performance.
<TABLE>
<CAPTION>
Year ended January 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $(7,554,351) $670,945
Funds From Operations 710,522 914,728
Income (loss) per share (7.40) .66
Funds From Operations per share .70 .90
Dividend per share .50 .80
</TABLE>
<TABLE>
<CAPTION>
Three months ended January 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $(2,927,661) $153,473
Funds From Operations 141,262 215,756
Income (loss) per share (2.87) .15
Funds From Operations per share .14 .21
Dividend per share .10 .20
</TABLE>
1
<PAGE> 5
During the calendar year of 1995, the Trust paid dividends of $.60, of which
97.4 percent was taxable and 2.6 percent was non-taxable as a return of capital.
Toledo Property
In the second quarter of 1995, Realty ReFund Trust established a valuation
allowance of $5 million in respect of its mortgage loan on the Riverview Tower.
Riverview Tower Limited Partnership, the owner of this property and a borrower
from the Trust, is seeking to sell this property. In view of the fact that our
loan was made on a non-recourse basis, we have written down the value of the
loan to reflect our current estimate of its market value.
The current book value of the Trust's investment on this property is
approximately $1.4 million.
Chicago Property
Our property enhancement program for the Carbide and Carbon Building in Chicago
continued to produce positive results last year. For the year ended January 31,
1996, the Trust maintained operating profits, before the deductions for
depreciation and amortization of tenant improvements and leasing commissions,
for the second consecutive year. As you will recall, this property was running
at a substantial loss when Realty ReFund took title to it in mid-1992.
Unfortunately, Chicago's office building market has not improved as quickly
as was projected earlier. Accordingly, the Trust established a valuation
allowance of $3 million in the fourth quarter to reflect our current estimate of
the market value of this property should it become necessary to sell it
prematurely.
Loans Paid Off During The Year
As previously announced, the mortgage loan to American Motor Inns in Sarasota
and Orlando, Florida was paid in full at its maturity in August 1995. The net
proceeds of approximately $3.5 million were used to reduce bank debt. The
mortgage loan on the shopping center in Saginaw, Michigan was prepaid in full in
September 1995. The net proceeds of approximately $2.0 million also were
applied to reduce bank debt.
2
<PAGE> 6
BOARD RE-ELECTED
The Trust held its 24th annual meeting on May 15, 1995. At the meeting, the
shareholders re-elected Realty ReFund's Board of Trustees. Management and the
Trustees appreciate this vote of confidence.
98TH CONSECUTIVE DIVIDEND PAID
The Board of Trustees declared a cash dividend of $.10 per share for the quarter
ended January 31, 1996 which was paid on March 15, 1996 to shareholders of
record on March 8, 1996. The Trustees will continue to review future dividend
payments on a quarter-to-quarter basis.
INVESTMENT BANK RETAINED -- OUTLOOK
At the recommendation of its Board of Trustees, Realty ReFund retained the
investment banking firm of Brown, Gibbons, Lang & Company, L.P., in August 1995
to review the future direction of the Trust. With our current cycle of
investments winding down, the Trust has come to a crossroads. Brown, Gibbons has
been asked to review all of the Trust's options as how to proceed, including:
merger; sale; restructuring; new financing sources, both public and private; and
liquidation of the Trust.
Since that time, we have received well over 100 inquiries and have had
numerous plans suggested involving Realty ReFund. We currently are investigating
each proposal and will make our final recommendations to the Board. The Trust
plans to act swiftly should we find a plan that will enhance shareholder value.
If no such plan should become available in the reasonably near future, the Trust
will determine which of its available options to pursue, including the
possibility of an orderly liquidation. We will keep you abreast of our findings
and thank you for your continued loyalty and support.
/s/Alan M. Krause
Alan M. Krause
Chairman and Co-Chief Executive Officer
/s/James H. Berick
James H. Berick
President and Co-Chief Executive Officer
3
<PAGE> 7
Selected Financial Data
The following selected financial data of Realty ReFund Trust for the five years
ended January 31, 1996, have been derived from the audited financial statements
of the Trust, which have been audited by Arthur Andersen LLP, independent public
accountants. All of the data should be read in conjunction with the respective
financial statements and related notes included herein.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the fiscal years ended January 31, 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 5,430,006 $ 6,592,051 $ 7,645,790 $ 6,979,119 $ 4,525,660
--------------------------------------------------------------------------
Income (loss) before unusual item $(7,554,351) $ 670,945 $ 955,121 $(3,535,366) $ 1,755,862
Unusual item -- write-off of deferred
costs associated with failed mergers -- -- -- 1,007,609 --
--------------------------------------------------------------------------
Net income (loss) $(7,554,351) $ 670,945 $ 955,121 $(4,542,975) $ 1,755,862
--------------------------------------------------------------------------
Earnings per share $ (7.40) $ .66 $ .94 $ (4.45) $ 1.72
--------------------------------------------------------------------------
Cash dividends paid
and declared per share $ .50 $ .80 $ .86 $ 1.09 $ 1.72
--------------------------------------------------------------------------
Total assets $24,555,330 $45,165,356 $65,264,638 $70,428,842 $78,638,206
--------------------------------------------------------------------------
Bank and other borrowings $10,795,000 $16,810,000 $24,575,000 $23,525,000 $21,050,000
--------------------------------------------------------------------------
</TABLE>
4
<PAGE> 8
Management's Discussion and Analysis of Operating Results and Financial Position
All references are to the Trust's fiscal year
ended January 31, 1996, as compared to
1995 or the fiscal year ended January 31,
1995, as compared to 1994.
Results of Operations and Financial Position
Following is an analysis of the net interest
income earned on each loan in the Trust's
portfolio during 1996, 1995 and 1994:
OPERATIONS AND FINANCIAL POSITION
ANALYSIS OF NET INTEREST INCOME BY LOAN
<TABLE>
<CAPTION>
AVERAGE LOANS AVERAGE LOANS AVERAGE NET INTEREST INTEREST NET INTEREST AVERAGE
DESCRIPTION RECEIVABLE(a) PAYABLE(a) INVESTMENT(b) INCOME EXPENSE INCOME YIELD (c)
- ---------------------------------------------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wrap-Around mortgage loans:
Fort Worth, Texas $15,814,885 $ 7,456,734 $8,358,151 $1,766,385 $ 617,123 $1,149,262 13.8%(d)
Toledo, Ohio 10,624,356 3,496,911 7,127,445 932,605 209,872 722,733 10.1
Other mortgage loans:
Saginaw, Michigan 2,015,912 -- 2,015,912 149,299 -- 149,399 14.8(e)
Sarasota/Orlando, Florida 3,771,941 -- 3,771,941 207,167 -- 207,167 11.0(f)
Loan prepayment fees
and other income N/A N/A N/A 76,749 N/A 76,749 N/A
----------------------
Totals $3,132,205 $ 826,995
----------------------
1995
- ---------------------------------------------------------------------------------------------------------------------------------
Wrap-Around mortgage loans:
Fort Worth, Texas $21,361,623 $12,920,553 $8,441,070 $2,107,216 $1,061,892 $1,045,324 12.4%(d)
Dallas, Texas 5,459,109 4,059,109 1,400,000 131,102 90,276 40,826 11.7(d)(g)
Toledo, Ohio 12,727,848 4,153,957 8,573,891 1,120,698 249,722 870,976 10.2
Akron, Ohio 9,261,264 1,880,494 7,380,770 143,469 27,032 116,437 7.1(g)
Other mortgage loans:
Saginaw, Michigan 2,041,089 -- 2,041,089 128,074 -- 128,074 12.5(e)
Sarasota/Orlando, Florida 3,863,138 -- 3,863,138 424,417 -- 424,417 11.0
Loan prepayment fees
and other income N/A N/A N/A 217,620 N/A 217,620 N/A
----------------------
Totals (h) $4,272,596 $1,428,922
----------------------
1994
- ---------------------------------------------------------------------------------------------------------------------------------
Wrap-Around mortgage loans:
Fort Worth, Texas $26,623,341 $17,952,191 $8,671,150 $2,431,184 $1,463,929 $ 967,255 11.1%(d)
Dallas, Texas 5,477,869 4,077,869 1,400,000 522,617 377,099 145,518 10.4(d)
Toledo, Ohio 13,894,571 4,772,525 9,122,046 1,213,338 287,239 926,099 10.2
Akron, Ohio 9,602,352 2,427,999 7,174,353 700,502 139,626 560,876 7.8
Other mortgage loans:
Sarasota/Orlando, Florida 3,974,234 - 3,974,234 436,692 - 436,692 11.0
Other income N/A N/A N/A 28,764 N/A 28,764 N/A
----------------------
Totals (h) $5,333,097 $2,267,893
----------------------
</TABLE>
(a) Based upon average month-end balances outstanding during each fiscal year.
(b) Average loans receivable less average loans payable.
(c) Net interest income divided by average net investment.
(d) The Trust's net investment in these loans bears interest at variable rates
based on specified increments over the prime lending rate. As the prime
lending rate increased in fiscal 1996 and 1995, the average yield on these
loans fluctuated accordingly. Reference should be made to the schedule of
investments in loans receivable included in Note 10 to the financial
statements.
(e) This loan was outstanding for approximately six months in 1996 and 1995.
The average yield represents an annualized yield.
(f) This loan was outstanding for approximately six months in 1996. The average
yield represents an annualized yield.
(g) These loans were outstanding for approximately three months in 1995. The
average yield represents an annualized yield.
(h) Mortgage interest expense related to the Chicago, Illinois real estate held
for sale has been excluded from the above analysis.
5
<PAGE> 9
Management's Discussion and Analysis of Operating Results and Financial Position
MANAGEMENT'S DISCUSSION AND ANALYSIS
In July 1995, the Trust established a valuation allowance of $5,000,000 on its
investment in the Toledo, Ohio wrap-around mortgage loan. The owner of the
property and borrower from the Trust, Riverview Tower Limited Partnership, a
related party, is pursuing, among other things, any possible opportunities for a
sale of the property. As the Trust's loan was made on a nonrecourse basis, the
Trust has written down its investment to reflect the estimated sales price of
the property and the estimated net proceeds which would be received by the Trust
on its investment. As the Trust continues to receive, on a timely basis, all
required monthly payments of principal and interest on the mortgage loan,
interest income continues to be recognized based upon the contractual terms of
the mortgage loan. This wrap-around mortgage loan matures in December 1996.
In July 1992, the Trust accepted title in lieu of foreclosure on a commercial
building in Chicago, Illinois. At the time of title acceptance, the Trust
recorded a provision to write down its investment to estimated net realizable
value as it was the Trust's intention to sell the real estate. Since that time,
the carrying value of the investment has increased as a result of considerable
investment in building and tenant improvements. To date, the Trust has not
received a firm offer for the sale of the property. Based on both current market
conditions for similar commercial property in Chicago and the current operating
performance of the property, the Trust recorded a $3,000,000 valuation allowance
in the fourth quarter of fiscal 1996 to reduce the carrying value of the
property to its current estimated net realizable value. The amount of the
writedown is based upon the Trust's best estimate of the amount of net proceeds
which would be realized upon sale of the real estate in the near term future.
Interest income on mortgage loans receivable decreased in 1996 as compared to
1995 due to the prepayment of the Akron, Ohio and Dallas, Texas wrap-around
mortgage loans in April and May 1994, respectively, principal prepayments
aggregating $3,050,000 received on the Toledo, Ohio wrap-around mortgage loan in
fiscal years 1996 and 1995, principal repayment of $2,000,000 received on the
Saginaw, Michigan loan, the maturity of the Sarasota and Orlando, Florida loan
in August 1995 and the normal amortization of mortgage loan balances. In
addition, fiscal 1995 included loan prepayment income of $190,000 as compared to
$59,000 for fiscal 1996. Interest expense on mortgage loans payable decreased in
1996 as compared to 1995, due to the prepayments of the loans underlying the
Akron, Ohio and Dallas, Texas wrap-around loan investments and the normal
amortization of mortgage loan balances.
Interest expense on bank borrowings decreased in 1996 as compared to 1995 due
to lower average borrowing levels. The proceeds received in 1996 and 1995 in
connection with various loan principal repayments were utilized to reduce bank
borrowings. The effect of lower average borrowing levels more than offset the
effect of higher bank interest rates. Interest expense on the note payable to
related party increased due to higher interest rates.
For 1996, the real estate held for sale incurred an operating loss of
$304,000, excluding the $3,000,000 provision to write down the asset carrying
value, but including depreciation and amortization charges of $458,000. These
results compare unfavorably with the 1995 building operating loss of $175,000,
which included depreciation and amortization charges of $336,000. When the
effects of depreciation and amortization charges are removed, operating results
are very comparable. Depreciation and amortization charges increased
considerably in 1996 due to the high level of investment in building and tenant
improvements.
The fee to the investment advisor decreased in 1996 as compared to 1995 due
to the reduction in the Trust's investment in mortgage loans.
6
<PAGE> 10
Other operating expenses decreased in 1996 as compared to 1995 due to lower
levels of legal and professional fees. Such expenses were greater than normal in
1995 due to a higher level of legal activity.
Interest income on mortgage loans receivable decreased in 1995 as compared to
1994 due to the prepayment of the Akron, Ohio and Dallas, Texas wrap-around
mortgage loans in April and May 1994, respectively, and the normal amortization
of mortgage loan balances. The decrease was offset partially by the effect of
higher prime lending rates on variable rate mortgage loans, prepayment fees and
other income aggregating approximately $190,000 related to the previously
mentioned loan prepayments and interest income on the Saginaw, Michigan loan
made in July 1994. Interest expense on mortgage loans payable decreased in 1995
as compared to 1994, due to the prepayments of the loans underlying the Akron,
Ohio and Dallas, Texas wrap-around loan investments and the normal amortization
of mortgage loan balances.
Interest expense on bank borrowings decreased in 1995 as compared to 1994 due
to lower average borrowing levels. The proceeds from the Akron, Ohio and Dallas,
Texas loan prepayments were utilized to reduce bank borrowings. The effect of
lower average borrowing levels more than offset the effect of higher bank
interest rates. Interest expense on the note payable to related party increased
due to higher interest rates.
Commencing February 1, 1994, the Trust began providing for depreciation on
the Chicago building held for sale. For 1995, the building incurred an operating
loss of $175,000, including depreciation and amortization charges of $336,000.
These results compared favorably with the 1994 building operating loss of
$108,000, which included amortization charges of $27,000, when the effect of
depreciation and amortization was removed. The improvement in building operating
results was attributable primarily to lower levels of repair and maintenance
expenditures in 1995.
Other operating expenses increased in 1995 due to higher levels of legal and
professional fees.
LIQUIDITY
To maintain its tax-exempt status, the Trust is required to distribute at least
95% of its taxable income to its shareholders. It is currently the policy of the
Trust to distribute sufficient dividends to maintain its tax-exempt status. As a
result of the substantial loss in 1993, the Trust has available approximately
$4.6 million of net operating loss carryforwards for income tax purposes. The
loss carryforwards can be used to reduce future dividend payment requirements
and still allow the Trust to maintain its tax-exempt status. The Trustees will
assess the level of dividends to be declared on a quarterly basis.
For 1996 as compared to 1995, net cash provided by operating activities
increased due to the receipt of $300,000 in February 1995 for the reimbursement
of building repairs and maintenance expenses and decreased levels of payments to
the investment advisor and other suppliers. These factors more than offset the
effects of greater amounts of prepayment and other income recognized in 1995 on
the Akron, Ohio and Dallas, Texas loan prepayments and the reduction in net
interest received in 1996.
Cash flows from investing activities decreased considerably in 1996 due to
the Akron, Ohio and Dallas, Texas wrap-around mortgage loan prepayments in 1995.
The Trust's aggregate net investment in these loans was approximately
$8,800,000. In 1996, the Sarasota and Orlando, Florida mortgage loan was retired
at its maturity and the Saginaw, Michigan loan was prepaid in full. The Trust's
aggregate investment in these loans was approximately $5,700,000. In addition,
the Trust increased expenditures for tenant and building improvements at the
Chicago property in 1996.
Cash used for financing activities decreased in 1996 as compared to 1995 due
to the lower level of net proceeds received from the loan repayments being
available to pay down bank borrowings and a decrease in dividends paid. The
Trust made principal payments of $500,000 on the note payable to related party
in 1996, pursuant to the terms thereof.
7
<PAGE> 11
For 1995 as compared to 1994, net cash provided by operating activities
decreased as higher levels of payments to the investment advisor and other
suppliers more than offset the improved operating performance of the Chicago
building and the receipt of prepayment and other fees on the Akron, Ohio and
Dallas, Texas loan prepayments.
Cash from investing activities increased considerably in 1995 due to the
Akron, Ohio ($7,400,000 net investment) and Dallas, Texas ($1,400,000 net
investment) loan prepayments, additional principal amortization ($2,200,000)
received on the Toledo, Ohio loan pursuant to a loan extension agreement, the
normal amortization of mortgage loan balances and a lower level of expenditures
for land and building and tenant improvements at the Chicago property. A
partially offsetting factor was the use of $2,050,000 of funds in 1995 for a new
loan on a shopping center in Saginaw, Michigan.
Cash from financing activities decreased in 1995 as compared to 1994 as the
proceeds from the Akron, Ohio and Dallas, Texas loan prepayments and the
additional principal amortization received on the Toledo, Ohio loan were
utilized to reduce bank borrowings. In 1994, the Trust obtained $5,000,000 of
borrowings from a related party.
In connection with the Trust's wrap-around loans, while the entire debt
service is received in cash, the Trust is obligated to the borrower to make debt
service payments on the underlying indebtedness. Additionally, the Trust will be
funding any operating deficits of the Chicago building until such time as it is
sold. The Trust's primary sources of funds are a bank line of credit in the
amount of $7,000,000 and repayments of mortgage loans receivable. The credit
agreement is used to fund any operating deficits of the Chicago building and for
working capital. The credit agreement expires in July 1996. The Trust is
discussing with the lending bank the extension of the expiration date of the
credit agreement. In light of the repayments of mortgage loans receivable, the
accrued loss on the Toledo, Ohio investment and the writedown of the carrying
value of the real estate held for sale, the Trust's lending bank has agreed to
reduce the Trust's minimum required net worth requirement (as defined in the
credit agreement) to $8,500,000. As of January 31, 1996, the Trust had available
$705,000 under the bank credit agreement.
INFLATION
Generally, inflation affects the Trust as it affects its borrowers and the
underlying real estate collateral. This type of collateral traditionally has
been able to sustain itself during periods of inflation.
OTHER
In March 1995, FAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" was issued. The Trust will be
required to adopt this standard in the first quarter of fiscal 1997. Pursuant to
this standard, long-lived assets to be disposed of are to be reported at the
lower of carrying amount or fair value less incremental direct costs to sell.
Long-lived assets to be disposed of shall not be depreciated while being held
for disposal. The Trust's real estate held for sale is within the scope of FAS
No. 121. As a result of the writedown recorded by the Trust on the real estate
held for sale in the fourth quarter of fiscal 1996, adoption of FAS No. 121
should not have a material impact on the Trust's financial condition and results
of operations except that beginning in the first quarter of fiscal year 1997,
the Trust will no longer provide depreciation on the real estate held for sale.
8
<PAGE> 12
Balance Sheets
The accompanying notes
to financial statements are
an integral part of these
balance sheets.
BALANCE SHEETS
<TABLE>
<CAPTION>
As of January 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Loans receivable $12,915,955 $24,476,670
Loan receivable from related party, net of valuation
allowance of $5,000,000 at January 31, 1996 4,506,055 11,033,109
- ---------------------------------------------------------------------------------------------------------
17,422,010 35,509,779
- ---------------------------------------------------------------------------------------------------------
Real estate held for sale, net of accumulated
depreciation and amortization of $793,000 and $360,000
at January 31, 1996 and 1995, respectively, and a $3,000,000
valuation allowance at January 31, 1996 6,396,364 8,650,257
- ---------------------------------------------------------------------------------------------------------
Other assets:
Cash 16,285 39,073
Interest receivable and other assets 720,671 966,247
- ---------------------------------------------------------------------------------------------------------
$24,555,330 $45,165,356
-----------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loans payable underlying wrap-around mortgages $4,577,187 $10,264,669
Loan payable underlying wrap-around mortgage to related party 3,155,263 3,832,317
Note payable to bank 6,295,000 11,810,000
Note payable to related party 4,500,000 5,000,000
Deposits and accrued expenses 1,480,061 1,543,828
- ---------------------------------------------------------------------------------------------------------
20,007,511 32,450,814
- ---------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Shares of beneficial interest without par value;
unlimited authorization; 1,020,586 shares
outstanding in 1996 and 1995 4,547,819 12,714,542
- ---------------------------------------------------------------------------------------------------------
$24,555,330 $45,165,356
=============================
</TABLE>
9
<PAGE> 13
Statements of Operations
The accompanying notes
to financial statements are
an integral part of
these statements.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended January 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Interest income from loans receivable $ 2,199,600 $ 3,151,628 $ 4,119,759
Interest income from loan receivable from related party 932,605 1,120,968 1,213,338
Rental revenue from real estate held for sale 2,297,801 2,319,455 2,312,693
- --------------------------------------------------------------------------------------------------------------
5,430,006 6,592,051 7,645,790
- --------------------------------------------------------------------------------------------------------------
Expenses:
Provision for writedown of loan receivable from related party 5,000,000 -- --
Provision for writedown of real estate held for sale 3,000,000 -- --
Interest on loans underlying wrap-around mortgages 617,123 1,218,159 2,029,240
Interest on loan underlying wrap-around
mortgage to related party 209,872 249,722 287,239
Interest on note payable to bank 717,550 793,731 964,910
Interest on note payable to related party 427,445 411,944 338,077
Fee to related party investment advisor 223,278 294,115 279,938
Legal expense to related party 20,000 41,000 54,000
Operating expenses of real estate held for sale 2,144,150 2,157,957 2,394,279
Depreciation of building held for sale 264,873 243,783 --
Amortization of tenant improvements
and deferred leasing commissions 192,719 92,309 26,510
Other operating expenses 167,347 418,386 316,476
- --------------------------------------------------------------------------------------------------------------
12,984,357 5,921,106 6,690,669
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (7,554,351) $ 670,945 $ 955,121
===========================================
Earnings per share $ (7.40) $ .66 $ .94
===========================================
Cash dividends per share:
Paid $ .40 $ .60 $ .68
Declared .10 .20 .18
- --------------------------------------------------------------------------------------------------------------
$ .50 $ .80 $ .86
===========================================
</TABLE>
10
<PAGE> 14
Statements of Shareholders' Equity
The accompanying notes
to financial statements
are an integral part of
these statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares of Total
Beneficial Undistributed Shareholders'
For the years ended January 31, 1996, 1995 and 1994 Interest Net Income Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 31, 1993 $ 12,833,678 $ -- $ 12,833,678
Net income -- 955,121 955,121
Cash dividends paid -- (949,145) (949,145)
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1994 12,833,678 5,976 12,839,654
Net income -- 670,945 670,945
Cash dividends paid (119,136) (676,921) (796,057)
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1995 12,714,542 -- 12,714,542
Net loss (7,554,351) -- (7,554,351)
Cash dividends paid (612,372) -- (612,372)
- -------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1996 $ 4,547,819 $ -- $ 4,547,819
============================================
</TABLE>
11
<PAGE> 15
Statements of Cash Flows
The accompanying notes
to financial statements
are an integral part of
these statements.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended January 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Interest received $ 3,190,122 $ 3,946,514 $ 4,999,019
Interest paid (2,018,092) (2,709,753) (3,552,499)
Cash payments to investment advisor and other suppliers (626,188) (784,514) (184,830)
Rental revenue received from real estate held for sale 2,240,784 2,319,157 2,306,103
Cash payments for operating costs of real estate held for sale (1,726,371) (2,268,734) (2,413,637)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,060,255 502,670 1,154,156
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Principal collected on mortgage loans receivable 13,087,769 23,158,635 6,391,543
Principal payments on mortgage loans payable (6,364,536) (12,439,672) (6,547,638)
Payments for tenant and building improvements (1,178,904) (621,977) (985,856)
Investments in mortgage loans receivable -- (2,050,000) --
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 5,544,329 8,046,986 (1,141,951)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net bank repayments (5,515,000) (7,765,000) (3,950,000)
Payment of cash dividends (612,372) (796,057) (949,145)
Net borrowings from (repayments to) related party (500,000) -- 5,000,000
Payment of financing fees -- -- (109,526)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (6,627,372) (8,561,057) (8,671)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (22,788) (11,401) 3,534
Cash at beginning of year 39,073 50,474 46,940
- -----------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 16,285 $ 39,073 $ 50,474
===========================================
Reconciliation of net income (loss) to net cash
provided by operating activities:
Net income (loss) $ (7,554,351) $ 670,945 $ 955,121
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for writedown of loan receivable from related party 5,000,000 -- --
Provision for writedown of real estate held for sale 3,000,000 -- --
Depreciation of building held for sale 264,873 243,783 --
Amortization of deferred financing costs, leasing
commissions and tenant improvement costs 192,719 131,257 97,087
Amortization of deferred loan fees (18,000) (27,234) (71,640)
Deferral of interest income -- (137,596) (273,735)
Decrease (increase) in interest receivable and other assets 220,781 (636,221) 78,250
Increase (decrease) in deposits and accrued expenses (45,767) 257,736 369,073
- -----------------------------------------------------------------------------------------------------------------------
$ 1,060,255 $ 502,670 $ 1,154,156
============================================
</TABLE>
12
<PAGE> 16
Notes to Financial Statements
January 31, 1996, 1995 and 1994
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS:
Realty ReFund Trust (the Trust) historically has specialized in mortgage
financing as its investment vehicle, refinancing existing income-producing
commercial, industrial and multi-unit residential real property by supplementing
or replacing existing financing. The primary refinancing technique which the
Trust has employed is wrap-around mortgage lending, which is discussed in Note
2. The Trust has pursued other refinancing techniques, including, but not
limited to, first or junior mortgages which have various durations and may or
may not be self-liquidating.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Investments in Wrap-Around Mortgages
and Related Underlying Loans
In a wrap-around mortgage structure, the principal amount secured by the
mortgage note held by the Trust is equal to the outstanding balance under the
prior mortgage loan plus the amount of funds advanced by the Trust. The notes
held by the Trust are subordinate to the underlying prior indebtedness. The
Trust agrees with the borrower to make principal and interest payments to the
holder of the existing prior mortgage, but only to the extent scheduled payments
are received from the borrower and no other default exists. Generally, the Trust
has the right to pay off the prior indebtedness and succeed to its priority.
The mortgage notes held by the Trust generally are coterminous with the
underlying prior indebtedness and provide for lump-sum payments by the borrower
upon maturity.
Scheduled minimum payments during the five years ending January 31, 2001 are
approximately as follows:
<TABLE>
<CAPTION>
Principal Payments
-------------------------------------
Year Ending Due to Trust on Due from Trust
January 31, Loan Receivable on Loans Payable
- -------------------------------------------------------
<S> <C> <C>
1997 $22,422,000 $5,297,000
1998 -- 764,000
1999 -- 811,000
2000 -- 861,000
2001 -- --
----------- ----------
</TABLE>
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 114, "Accounting by Creditors for
Impairment of a Loan." This standard allows a creditor to measure the impairment
of a loan based on the fair value of the collateral if a loan is collateral
dependent. FAS No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures," issued in October 1994, amends FAS No. 114
to allow a creditor to use existing methods for recognizing interest income on
impaired loans. The Trust adopted the provisions of FAS Nos. 114 and 118 in
fiscal 1996. See Note 3 for a discussion of the impairment of the Trust's loan
on the Toledo, Ohio property.
Principles of Consolidation
The financial statements include the accounts of the Trust and its wholly owned
subsidiaries RRF LP I, Inc. and RRF LP II, Inc. All significant intercompany
transactions and balances have been eliminated in the accompanying financial
statements.
Depreciation and Amortization
Commencing February 1, 1994, the Trust began recording depreciation on the
Chicago building held for sale. Depreciation is being provided on a
straight-line basis over the 30-year estimated economic life of the building.
Accumulated depreciation of the building and building improvements at January
31, 1996 and 1995 was $509,000 and $244,000, respectively.
Included in real estate held for sale at January 31, 1996 and 1995 are tenant
improvement costs of $1,360,000 and $672,000, respectively, which are being
amortized on a straight-line basis over the related lease terms, which range
from five to fifteen years. Accumulated amortization of such costs was $284,000
and $116,000 at January 31, 1996 and 1995, respectively.
Included in interest receivable and other assets at January 31, 1996 and 1995
are deferred leasing commissions of $307,000 and $162,000, respectively, which
are being amortized on a straight-line basis over the related lease terms.
Accumulated amortization of such deferred costs at January 31, 1996 and 1995 is
$31,000 and $6,000, respectively.
Earnings Per Share
Earnings per share have been computed based on the weighted average number of
shares outstanding during the periods. Earnings per share for 1996, 1995 and
1994 were based upon 1,020,586 shares. During these periods the Trust had no
potentially dilutive securities outstanding.
13
<PAGE> 17
Statements of Cash Flows
The Trust considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The Trust was required to adopt the provisions of FAS No. 107, "Disclosures
about Fair Value of Financial Instruments" in fiscal 1996. The standard requires
the Trust to disclose in its financial statements or notes thereto, the fair
value of assets and liabilities which meet the standard's definition of
financial instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Loans receivable -- fair value is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Mortgage loans payable, notes payable to bank and related party -- fair value
is estimated by discounting the future cash flows using the current rates which
would be available to the Trust for similar loans having the same remaining
maturities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In July 1995, the Trust established a valuation allowance of $5,000,000 on
its investment in the Toledo, Ohio wrap-around mortgage loan. At January 31,
1996, the Trust's net investment in the wrap-around loan (amount of mortgage
loan receivable less (i) the recorded loan loss reserve and (ii) the underlying
mortgage loan payable balance) is approximately $1,351,000. As discussed further
in Note 3, the amount which the Trust will ultimately realize on the loan
investment could differ materially in the near term from the amount assumed in
arriving at the provision for writedown of the loan investment.
As discussed further in Note 4, in the fourth quarter of fiscal 1996, the
Trust established a valuation allowance of $3,000,000 to write down the Chicago
real estate held for sale to its estimated net realizable value. Although the
amount of the provision recorded was based upon market information currently
available to the Trust, if the real estate is sold, actual net sales proceeds
could differ materially from the amounts used by the Trust in determining the
amount of the provision recorded in fiscal 1996.
New Accounting Principles
In March 1995, FAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" was issued. The Trust will be
required to adopt this standard in the first quarter of fiscal 1997. Pursuant to
this standard, long-lived assets to be disposed of are to be reported at the
lower of carrying amount or fair value less incremental direct costs to sell.
Long-lived assets to be disposed of shall not be depreciated while being held
for disposal. The Trust's real estate held for sale (discussed in Note 4) is
within the scope of FAS No. 121. As a result of the writedown recorded by the
Trust in the fourth quarter of fiscal 1996, adoption of FAS No. 121 should not
have a material impact on the Trust's financial condition and results of
operations except that beginning in the first quarter of fiscal year 1997, the
Trust will no longer provide depreciation on the real estate held for sale.
3. LOAN IMPAIRMENT:
In July 1995, the Trust established a valuation allowance of $5,000,000 on its
investment in the Toledo, Ohio wrap-around mortgage loan. The commercial
building securing the loan is owned by a partnership of which a corporation
owned by the chairman of the Trust is the general partner. The loan is scheduled
to mature in December 1996. The owner of the property is pursuing, among other
things, the sale of the property. As the Trust's loan was made on a nonrecourse
basis, the Trust has written down its investment to reflect the estimated sale
price of the property, and the estimated net proceeds which would be received by
the Trust as repayment of its loan. As the Trust continues to receive, on a
timely basis, all required monthly payments of principal and interest on the
mortgage loan, interest income continues to be recognized based on the
contractual terms of the mortgage loan.
4. REAL ESTATE HELD FOR SALE:
In July 1992, the Trust accepted title in lieu of foreclosure on a commercial
building in Chicago, Illinois. At the time of title acceptance, the Trust
recorded a provision to write down its investment to estimated net realizable
value as it was the Trust's intention to sell the real estate. Since that time,
the carrying value of the investment increased as a result of considerable
investment in building and tenant improvements.
To date, the Trust has not received a firm offer for the sale of the real
estate. Based on both current market conditions for similar commercial property
in Chicago and the current operating performance of the property, the Trust
established a valuation allowance of $3,000,000 in the fourth quarter of fiscal
1996 to reduce the carrying value of the property to its current estimated net
realizable value. The amount of the writedown is based upon the Trust's best
estimate of the amount of net proceeds which would be realized upon sale of the
real estate in the near term future.
14
<PAGE> 18
5. NOTE PAYABLE TO BANK:
The Trust has a revolving credit agreement with a bank. At the option of the
Trust, borrowings against the credit agreement bear interest at either the
bank's prime lending rate or a fixed rate equal to 1.5% over LIBOR. A commitment
fee of 3/8% is payable on the unused portion of the credit agreement. Among
other provisions, the credit agreement provides that the Trust cannot permit its
net worth, including subordinated debt, to be less than $12 million and that
total debt, excluding wrap-around mortgages, and senior indebtedness are limited
to 300% and 225%, respectively, of the Trust's net worth.
As a result of the writedown provisions recorded in fiscal 1996 with respect
to the Toledo, Ohio loan investment and the Chicago, Illinois real estate held
for sale, certain provisions of the credit agreement were modified.
Specifically, the minimum net worth requirement was reduced from $12 million to
$8.5 million.
As amended, the credit agreement provides for borrowings of up to $7 million.
As of January 31, 1996, the Trust had borrowed $6,295,000 under this agreement.
At January 31, 1996, the Trust had available $705,000 under the amended terms of
the agreement.
The Trust's credit agreement expires on July 31, 1996. The Trust is
discussing with the lending bank the extension of the expiration date of the
credit agreement.
For the years ended January 31, 1996, 1995 and 1994, the average daily bank
borrowings were $9,431,000, $12,427,000 and $20,075,000, respectively, with a
weighted average interest rate (actual interest expense divided by average daily
borrowings) of 7.6%, 6.4% and 4.8%, respectively. The weighted average interest
rates on bank borrowings outstanding at January 31, 1996 and 1995 were 7.1% and
7.3%, respectively. As of January 31, 1996, the prime rate was 8.5%.
6. NOTE PAYABLE TO RELATED PARTY:
In March 1993, the Trust sold a $5,000,000 secured note to the Chairman of the
Trust, at par. The note bears interest at the prime lending rate and had a
stated maturity date of August 1994. As the Trust's bank credit agreement was
extended to July 1996, the Trust exercised its option to extend the maturity of
the note. Pursuant to the terms of the note, the Trust made principal payments
of $500,000 for the year ended January 31, 1996. The note is subordinate to the
Trust's bank line of credit.
7. FEDERAL INCOME TAXES:
No provision for current or deferred income taxes has been made by the Trust on
the basis that it qualifies under Sections 856-860 of the Internal Revenue Code
as a real estate investment trust and has distributed or will distribute all of
its taxable income for the year ended January 31, 1996 to shareholders.
The primary differences between the income tax and financial reporting bases
of the Trust's assets and liabilities relate the Toledo, Ohio loan investment
and the Chicago, Illinois real estate held for sale. The aggregate $8,000,000
valuation allowances recorded on these assets in fiscal 1996 will not be
deductible for income tax purposes until such time as actually realized by the
Trust.
On February 26, 1996, the Trustees declared a dividend, payable on March 15,
1996, in the amount of $.10 per share of beneficial interest, totaling $102,000.
The total dividends per share applicable to operating results for the year ended
January 31, 1996, including the declaration on February 26, 1996, amount to $.50
per share.
An income tax net operating loss of approximately $4,600,000 was incurred in
fiscal 1993 and is available for carryforward until fiscal 2008. A portion of
the dividends paid in the calendar period 1993-1995 represents a return of
capital primarily as a result of the net operating loss in 1993, and for 1994
and 1995, depreciation deductions for tax reporting purposes on the building
held for sale. The quarterly allocation of cash dividends paid per share for
individual shareholders' income tax purposes was as follows:
<TABLE>
<CAPTION>
Calendar 1995 Calendar 1994 Calendar 1993
------------------------------------------------------------------------------------------------
Month Ordinary Return of Total Ordinary Return of Total Ordinary Return of Total
Paid Income Capital Paid Income Capital Paid Income Capital Paid
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March $.195 $.005 $.20 $.121 $.059 $.18 $.148 $.102 $.25
June .195 .005 .20 .135 .065 .20 .148 .102 .25
September .097 .003 .10 .135 .065 .20 .148 .102 .25
December .097 .003 .10 .135 .065 .20 .106 .074 .18
- -----------------------------------------------------------------------------------------------------------
$.584 $.016 $.60 $.526 $.254 $.78 $.550 $.380 $.93
------------------------------------------------------------------------------------------------
</TABLE>
The tax status of distributions to shareholders in calendar 1996 will be
dependent on the level of the Trust's earnings in that year. If taxable income
of the Trust exceeds dividends paid in calendar 1996, such dividends will
represent ordinary income to the recipients irrespective of the net operating
loss carryforward.
15
<PAGE> 19
8. ADVISORY AGREEMENT/EMPLOYMENT AGREEMENTS:
The Trust has an Advisory Agreement with Mid-America ReaFund Advisors, Inc. (the
Advisor) which provides for the administration of the day-to-day investment
operations of the Trust. The Advisor is an entity which is jointly owned by the
present Chairman and President of the Trust. Under the terms of this agreement,
the Advisor is to receive, subject to certain limitations, a monthly fee equal
to 1/12 of 1% of invested assets, as defined in the agreement, and an annual
incentive fee equal to (a) 10% of the amount by which the net income of the
Trust exceeds 8% of the average net worth for the year and (b) 10% of the
difference between net realized capital gains less accumulated net realized
capital losses, as defined. For any fiscal year in which operating expenses of
the Trust exceed certain thresholds specified in the agreement, the Advisor is
required to refund to the Trust the amount of such excess. For fiscal years 1996
and 1994, operating expenses exceeded the specified thresholds by approximately
$18,000 and $22,000, respectively. There was no refund requirement with
respect to fiscal 1995.
The Chairman and President of the Trust have employment agreements with the
Trust, expiring in 2006, each of which have been extended in the past and are
expected to be extended in the future. The employment agreements provide that
these individuals will receive no compensation from the Trust as long as the
Advisory Agreement is in effect. However, should the Advisor no longer provide
services to the Trust, these individuals will then be compensated, collectively,
upon the same annual basis as the Advisor would have been compensated under the
current terms of the Advisory Agreement had it remained in effect.
9. LOANS PAYABLE:
As of January 31, 1996, the Trust had outstanding the following mortgage loans
payable:
<TABLE>
<CAPTION>
Principal Balance as of Total Installments of Principal
Location January 31, 1996 and Interest Per Year Interest Rate Maturity Date
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings -
Fort Worth, Texas $4,577,187 $4,577,187 8.11% October 1996
Toledo, Ohio 3,155,263 890,340 6.05% December 1999
- -------------------------------------------------------------------------------------------------------------------------------
$7,732,450 $5,467,527
===============================================================================================================================
</TABLE>
10. INVESTMENTS IN LOANS RECEIVABLE:
As of January 31, 1996, the Trust had outstanding the following loans
receivable. The Trust's net investment in each of the wrap-around mortgages is
subordinate to underlying prior indebtedness.
<TABLE>
<CAPTION>
Balance, January 31, 1996
--------------------------------------------------------------------
Underlying Trust's
Loans Wrap-Around Trust's Net Original Net
Description Receivable (a) Mortgages Investment Investment
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wrap-Around mortgages:
Office buildings -
Fort Worth, Texas $12,915,955 $4,577,187 $8,338,768 $ 9,000,000
Toledo, Ohio 4,506,055 3,155,263 1,350,792 6,500,000
--------------------------------------------------------------------
$17,422,010 $7,732,450 $9,689,560 $15,500,000
====================================================================
<CAPTION>
Lump-Sum Amounts
At Maturity
------------------------------
Year-End Due to Due From Trust
Interest Rate Final Trust on Underlying
on Loans Maturity Loans Loans
Description Receivable Date Receivable Payable
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wrap-Around mortgages:
Office buildings -
Fort Worth, Texas 11.4% October 1996 $ 8,268,000 $ --
Toledo, Ohio 8.7% December 1996 8,848,000 --
----------------------------
$17,116,000 $ --
============================
</TABLE>
<TABLE>
<CAPTION>
Description Periodic Payment Terms (b)
- ----------------------------------------------------------------------------------------------------
<S> <C>
Wrap-Around mortgages:
Office buildings -
Fort Worth, Texas Principal and interest payable in monthly installments of approximately
$625,000 through October 1996; remaining principal payable at maturity;
prepayment privilege with a penalty, as defined, until maturity.
Toledo, Ohio Payable in monthly installments of approximately $128,000 inclusive of
interest at 10% on the Trust's net investment through December 1996;
required borrower to make principal prepayments of $1,350,000 and
$850,000 in June 1994 and January 1995, respectively, and $850,000 in
January 1996; remaining principal due at maturity; prepayment penalty
of 1% until maturity. Thirty days' prior written notice must be given
to the Trust by mortgagor of intention to prepay mortgage loan.
</TABLE>
16
<PAGE> 20
10. INVESTMENTS IN LOANS RECEIVABLE (continued):
<TABLE>
<CAPTION>
Reconciliation of Mortgage Loans Receivable 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of period $35,509,779 $56,480,818 $62,598,626
-------------------------------------------
Additions:
Office buildings (c) -- 137,596 273,735
Shopping center -- 2,050,000 --
-------------------------------------------
-- 2,187,596 273,735
-------------------------------------------
Collections of principal:
Office buildings 7,255,186 8,245,258 5,682,838
Shopping centers 2,029,068 9,332,144 576,142
Motels 3,803,515 117,280 105,115
Apartments -- 5,463,953 27,448
-------------------------------------------
13,087,769 23,158,635 6,391,543
-------------------------------------------
Valuation allowance on loan receivable
from related party (Note 3) 5,000,000 -- --
-------------------------------------------
Balance, end of period $17,422,010 $35,509,779 $56,480,818
===========================================
</TABLE>
(a) For the Fort Worth, Texas loan receivable, represents investment for both
financial reporting and federal income tax purposes. The federal income tax
basis of the Toledo, Ohio loan investment is $9,506,055 (Note 7).
(b) Unless otherwise stated, ninety days prior written notice must be given to
the Trust by mortgagor of intention to prepay a mortgage loan.
(c) Represents deferred interest applicable to existing loans.
11. RELATED PARTY TRANSACTIONS:
The Trust recorded provisions of $20,000, $41,000 and $54,000 in fiscal years
1996, 1995 and 1994, respectively, for legal services provided by a law firm of
which the President of the Trust and another Trustee are principals.
The Trust has an investment in a wrap-around mortgage loan on a commercial
building located in Toledo, Ohio owned by a partnership of which the present
Chairman of the Trust is the general partner. As of January 31, 1996, the
related party loan receivable and underlying loan payable were approximately
$4,506,000 (net of a $5,000,000 valuation allowance discussed in Note 3) and
$3,155,000, respectively, while at January 31, 1995, the related party loan
receivable and underlying loan payable were approximately $11,033,000 and
$3,832,000, respectively. In the years ended January 31, 1996, 1995 and 1994,
the Trust earned approximately $933,000, $1,121,000 and $1,213,000 of interest
income on this loan, respectively, of which payment of approximately $138,000
and $274,000 was deferred and added to the principal balance of the mortgage
loan receivable for the years ended 1995 and 1994, respectively. The Trust
incurred interest expense of approximately $210,000, $250,000 and $287,000 in
connection with the related underlying loan payable for the years ended January
31, 1996, 1995 and 1994, respectively.
12. SUMMARIZED FINANCIAL INFORMATION -
RIVERVIEW TOWER LIMITED PARTNERSHIP AND PACIFIC PLACE PARTNERS, LTD.:
As required by the Securities and Exchange Commission, the following is
summarized financial information for Riverview Tower Limited Partnership, the
borrower under the Toledo, Ohio wrap-around mortgage loan and Pacific Place
Partners, Ltd., the borrower under the Fort Worth, Texas, wrap-around mortgage
loan. Both Riverview Tower Limited Partnership and Pacific Place Partners, Ltd.
were audited by other auditors. (000's omitted)
Riverview Tower Limited Partnership
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
- ----------------------------------------------------------
<S> <C> <C>
Escrow receivable $ 149 $ 163
Land, building, improvements
and equipment, net 12,231 12,603
Other assets 283 25
- ----------------------------------------------------------
Total assets $12,663 $12,791
==========================================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Accounts payable and accrued expenses $ 516 $ 684
Mortgage payable to Realty ReFund Trust 10,414 11,937
- ---------------------------------------------------------------------------
10,930 12,621
Partners' equity (deficit) 1,733 170
- ---------------------------------------------------------------------------
Total liabilities and partners equity $12,663 $12,791
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $ 6,102 $ 7,497 $ 3,792
Operating expenses 3,179 2,724 2,549
Depreciation and amortization 416 438 438
Interest expense 944 1,141 1,214
- ------------------------------------------------------------------------
Net income (loss) $ 1,563 $ 3,194 $ (409)
========================================================================
</TABLE>
17
<PAGE> 21
12. SUMMARIZED FINANCIAL INFORMATION (continued):
PACIFIC PLACE PARTNERS, LTD.
<TABLE>
<CAPTION>
December 31,
------------------
1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Land, building and equipment, net $38,671 $41,369
Other assets 210 259
- -------------------------------------------------------------
Total assets $38,881 $41,628
=============================================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Accrued expenses $ 91 $ 80
Deferred rent 666 1,466
Mortgage payable 34,113 36,975
- ---------------------------------------------------------------------
34,870 38,521
Partners' capital 4,011 3,107
- ---------------------------------------------------------------------
Total liabilities and partners equity $38,881 $41,628
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues $8,302 $8,302 $8,327
General and administrative expenses 20 1 24
Depreciation and amortization expense 2,744 2,744 2,744
Interest expense 4,634 4,982 5,303
- ----------------------------------------------------------------
Net income (loss) $ 904 $ 575 $ 256
================================================================
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts and fair values of the Trust's significant financial
instruments at January 31, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
=============================================================================
<S> <C> <C>
Loans receivable $17,422,010 $17,319,000
Mortgage loans payable 7,732,450 7,630,000
Notes payable to bank 6,295,000 6,295,000
Notes payable to related party 4,500,000 4,500,000
</TABLE>
14. QUARTERLY RESULTS (UNAUDITED):
The following is an unaudited summary of the results of operations, by quarter,
for the fiscal years ended January 31, 1996 and 1995. Management believes that
all adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of such interim results have been included. The results of
operations for any interim period are not necessarily indicative of those for
the entire fiscal year.
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------
Fiscal 1996 April 30 July 31 October 31 January 31
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $ 1,415,062 $ 1,450,595 $ 1,353,540 $ 1,210,809
======================================================================================================================
Total revenues less interest expense on mortgage loans and
operating expenses, depreciation and amortization expenses
of real estate held for sale 554,846 532,258 519,210 394,955
======================================================================================================================
Provision for writedown of loan receivable from related party -- (5,000,000) -- --
======================================================================================================================
Provision for writedown of real estate held for sale -- -- -- (3,000,000)
======================================================================================================================
Net income (loss) $ 141,138 $(4,899,455) $ 131,626 $(2,927,661)
======================================================================================================================
Earnings per share $ .14 $ (4.80) $ .13 $ (2.87)
======================================================================================================================
Dividends declared per share $ .20 $ .10 $ .10 $ .10
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Quarter ended
-------------------------------------------------
Fiscal 1995 April 30 July 31 October 31 January 31
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $1,928,865 $1,582,849 $1,551,252 $1,529,085
=================================================================================================================
Total revenues less interest expense on mortgage loans and
operating expenses, depreciation and amortization expenses
of real estate held for sale 863,328 584,636 531,956 650,201
=================================================================================================================
Net income $ 226,161 $ 147,829 $ 143,482 $ 153,473
=================================================================================================================
Earnings per share $ .22 $ .14 $ .14 $ .15
=================================================================================================================
Dividends declared per share $ .20 $ .20 $ .20 $ .20
=================================================================================================================
</TABLE>
18
<PAGE> 22
Report of Independent Public Accountants
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES,REALTY REFUND TRUST:
We have audited the accompanying balance sheets of Realty ReFund Trust (an Ohio
unincorporated business trust) as of January 31, 1996 and 1995, and the related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended January 31, 1996. These financial statements are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The summarized
financial data contained in Note 12 are based on the financial statements of
Riverview Tower Limited Partnership and Pacific Place Partners, Ltd. which were
audited by other auditors. Their reports have been furnished to us and our
opinion, insofar as it relates to the data in Note 12, is based solely on the
reports of the other auditors.
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 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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Realty ReFund Trust as of January 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended January 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
February 26, 1996.
19
<PAGE> 23
Trustees and Officers, Corporate Data
TRUSTEES AND OFFICERS
ALAN M. KRAUSE
Chairman and Co-Chief Executive Officer of the Trust and Mid-America ReaFund
Advisors, Inc. (advisor to Trust); Principal, The Mid-America Companies (real
estate ownership); President, The Mid-America Management Corporation (real
estate management)
JAMES H. BERICK
President, Co-Chief Executive Officer and Treasurer of the Trust and Mid-America
ReaFund Advisors, Inc. (advisor to Trust); Chairman, Berick, Pearlman & Mills
Co., L.P.A. (attorneys)
ALVIN M. KENDIS
Retired; formerly Of Counsel, McDonald, Hopkins, Burke & Haber, Co., L.P.A.
(attorneys)
FRANK L. KENNARD
Retired; formerly Senior Vice President, The Huntington National Bank
SAMUEL S. PEARLMAN
Principal, Berick, Pearlman & Mills Co., L.P.A. (attorneys)
MARK S. MISENCIK
Vice President of the Trust
CHRISTINE TURK
Secretary of the Trust
TIMOTHY M. BAIRD
Controller of the Trust
CORPORATE DATA
CORPORATE HEADQUARTERS
1385 Eaton Center
Cleveland, Ohio 44114
216.771.7663
INVESTMENT ADVISOR
Mid-America ReaFund Advisors, Inc.
1385 Eaton Center
Cleveland, Ohio 44114
216.771.7663
TRANSFER AGENTS & REGISTRARS OF SHARES
The Huntington National Bank
Columbus, Ohio
Chemical Mellon Shareholder Services
New York, New York
Telecommunications Devices for the
Deaf can be reached at 800.231.5469
STOCK LISTING
New York Stock Exchange
Symbol: RRF
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
GENERAL COUNSEL
Berick, Pearlman & Mills Co., L.P.A.
Cleveland, Ohio
Shareholders who would like to receive, without charge, the Trust's annual
report on Form 10-K filed with the Securities and Exchange Commission should
write to:
Realty ReFund Trust
1385 Eaton Center
Cleveland, Ohio 44114
Attn.: Timothy M. Baird
20
<PAGE> 24
Realty ReFund Trust
Realty ReFund Trust
1385 Eaton Center
Cleveland, Ohio 44114
[Recycle Symbol] Printed on Recycled Paper
[OUTSIDE BACK COVER]
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
-----------------
The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated
association in the form of a business trust ("Trust"), which Trust anticipates
filing with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K for its year ended January 31, 1996, hereby constitutes and
appoints JAMES H. BERICK and ALAN M. KRAUSE, and each of them, with full power
of substitution and resubstitution, as attorneys or attorney to sign for the
undersigned and in my name, place and stead, as Trustee of said Trust, said
Annual Report and any and all amendments and exhibits thereto, and any and all
applications and documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report, with full power and authority to
do and perform any and all acts and things whatsoever requisite, necessary or
advisable to be done in the premises, as fully and for all intents and purposes
as the undersigned could do if personally present, hereby approving the acts of
said attorneys, and any of them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of February,
1996.
/s/ Samuel S. Pearlman
-----------------------------
Samuel S. Pearlman
<PAGE> 2
POWER OF ATTORNEY
-----------------
The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated
association in the form of a business trust ("Trust"), which Trust anticipates
filing with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K for its year ended January 31, 1996, hereby constitutes and
appoints JAMES H. BERICK, ALAN M. KRAUSE and SAMUEL S. PEARLMAN, and each of
them, with full power of substitution and resubstitution, as attorneys or
attorney to sign for the undersigned and in my name, place and stead, as
Trustee of said Trust, said Annual Report and any and all amendments and
exhibits thereto, and any and all applications and documents to be filed with
the Securities and Exchange Commission pertaining to such Annual Report, with
full power and authority to do and perform any and all acts and things
whatsoever requisite, necessary or advisable to be done in the premises, as
fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of
them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 13th day of March, 1996.
/s/ Frank L. Kennard
---------------------------
Frank L. Kennard
<PAGE> 3
POWER OF ATTORNEY
-----------------
The undersigned Trustee of Realty ReFund Trust, an Ohio unincorporated
association in the form of a business trust ("Trust") , which Trust anticipates
filing with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K for its year ended January 31, 1996, hereby constitutes and
appoints JAMES H. BERICK, ALAN M. KRAUSE and SAMUEL S. PEARLMAN, and each of
them, with full power of substitution and resubstitution, as attorneys or
attorney to sign for the undersigned and in my name, place and stead, as
Trustee of said Trust, said Annual Report and any and all amendments and
exhibits thereto, and any and all applications and documents to be filed with
the Securities and Exchange Commission pertaining to such Annual Report, with
full power and authority to do and perform any and all acts and things
whatsoever requisite, necessary or advisable to be done in the premises, as
fully and for all intents and purposes as the undersigned could do if
personally present, hereby approving the acts of said attorneys, and any of
them and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of February,
1996.
/s/ Alvin M. Kendis
---------------------------
Alvin M. Kendis
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
BALANCE SHEET AS OF JANUARY 31, 1996 AND 1995 AND STATEMENTS OF OPERATIONS FOR
THE YEARS ENDED JANUARY 31, 1996 1995 AND 1994.
</LEGEND>
<CIK> 0000082473
<NAME> REALTY REFUND TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-1-1995
<PERIOD-END> JAN-31-1996
<CASH> 16,285
<SECURITIES> 0
<RECEIVABLES> 22,422,010
<ALLOWANCES> 5,000,000
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 7,189,364
<DEPRECIATION> 793,000
<TOTAL-ASSETS> 24,555,330
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 18,527,450
<COMMON> 4,547,819
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,555,330
<SALES> 0
<TOTAL-REVENUES> 5,430,006
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,012,367
<LOSS-PROVISION> 5,000,000
<INTEREST-EXPENSE> 1,971,990
<INCOME-PRETAX> (7,554,351)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,554,351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,554,351)
<EPS-PRIMARY> (7.40)
<EPS-DILUTED> (7.40)
<FN>
<F1>THE REGISTRANT UTILIZES AN UNCLASSIFIED BALANCE SHEET THEREFORE THE CAPTIONS
"TOTAL CURRENT ASSETS" AND "TOTAL CURRENT LIABILITIES" ARE NOT APPLICABLE.
</FN>
</TABLE>
<PAGE> 1
Exhibit 99-A
[REALTY REFUND TRUST LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Notice is hereby given that the Annual Meeting of Shareholders of Realty
ReFund Trust will be held at the Sheraton Cleveland City Centre, 777 St. Clair
Ave., N.E., Cleveland, Ohio on Monday, May 15, 1996 at 11:30 A.M., local time,
for the purpose of considering and acting upon:
1. The election of five (5) Trustees, each to hold office until the next
Annual Meeting of Shareholders and until his successor shall be elected
and qualified; and
2. The transaction of any other business which properly may come before the
meeting and any adjournments thereof.
Shareholders of Realty ReFund Trust of record at the close of business on
March 18, 1996 are entitled to vote at the Annual Meeting and any adjournments
thereof.
By order of the Board of Trustees
CHRISTINE TURK
Secretary
Cleveland, Ohio
April 5, 1996
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE> 2
April 5, 1996
[REALTY REFUND TRUST LOGO]
REALTY REFUND TRUST
1385 Eaton Center
Cleveland, Ohio 44114
PROXY STATEMENT
The accompanying proxy is solicited by the Trustees of Realty ReFund Trust
(the "Trust") for use at the Annual Meeting of Shareholders to be held on May
15, 1996 and any adjournments thereof.
Shareholders of record at the close of business on March 18, 1996 (the
record date) will be entitled to vote at the Annual Meeting and at any
adjournments thereof. At that date the Trust had issued and outstanding
1,020,586 Shares of Beneficial Interest. Each such Share is entitled to one vote
on all matters properly coming before the Annual Meeting. At least 510,294
Shares of Beneficial Interest of the Trust must be represented at the Annual
Meeting in person or by proxy in order to constitute a quorum for the
transaction of business.
This Proxy Statement and the accompanying form of proxy were first mailed
to Shareholders on April 5, 1996.
ELECTION OF TRUSTEES
At this Annual Meeting, five Trustees are to be elected for a term expiring
at the 1997 Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified. Unless a Shareholder requests that voting of the
proxy be withheld for any one or more of the nominees for Trustee in accordance
with the instructions set forth on the proxy, it presently is intended that
Shares of Beneficial Interest represented by proxies solicited hereby will be
voted for the election as Trustees of the five nominees named in the table
below. All nominees have consented to being named in this Proxy Statement and to
serve if elected. Should any nominee subsequently decline or be unable to accept
such nomination or to serve as a Trustee, an event which the Trustees do not now
expect, the persons voting the Shares of Beneficial Interest represented by
proxies solicited hereby may either vote such Shares for a slate of five persons
which includes a substitute nominee or for a reduced number of nominees, as they
may deem advisable.
1
<PAGE> 3
The information concerning the nominees set forth in the following table is
based in part on information received from the respective nominees and in part
on the Trust's records.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
DURING PAST FIVE YEARS, FIRST
AGE AS OF MARCH 18, 1996 BECAME
NAME OF NOMINEE AND DIRECTORSHIPS HELD TRUSTEE
- ------------------------- --------------------------------------------- ---------
<S> <C> <C>
Alan M. Krause Chairman and Co-Chief Executive Officer of 1971
the Trust since 1990 and, prior thereto, Vice
Chairman of the Trust; Chairman of Mid-
America ReaFund Advisors, Inc. since 1990
(investment advisor to the Trust); Principal,
The Mid-America Companies (real estate
ownership); President, The Mid-America
Management Corporation (real estate man-
agement). Age 66.
James H. Berick President and Treasurer of the Trust since 1971
1990 and, prior thereto, Vice Chairman and
Secretary of the Trust; President and Trea-
surer of Mid-America ReaFund Advisors, Inc.
since 1990 (investment advisor to the Trust);
Chairman, Berick, Pearlman & Mills Co.,
L.P.A. (attorneys). Mr. Berick is a Director
or Trustee of MBNA Corporation, A. Schulman,
Inc., The Tranzonic Companies, and The Town
and Country Trust. Age 62.
Alvin M. Kendis* Retired. Formerly, of Counsel, McDonald, 1971
Hopkins, Burke & Haber Co., L.P.A. (attor-
neys). Age 77.
Frank L. Kennard* Retired. Formerly, Senior Vice President, The 1971
Huntington National Bank. Age 73.
Samuel S. Pearlman* Principal, Berick, Pearlman & Mills Co., 1990
L.P.A. (attorneys). Age 53.
<FN>
- ---------------
*Member of the Audit Committee.
</TABLE>
The Trustees held four meetings during the year ended January 31, 1996. The
Trustees do not have a standing nominating or compensation committee. All incum-
2
<PAGE> 4
bent Trustees attended all of such meetings and all meetings of committees of
the Trustees on which they served during the year.
The Audit Committee has the responsibility of recommending to the Trustees
the selection of the Trust's independent auditors, reviewing the scope and
results of audit and non-audit services, and reviewing internal accounting
controls. The Audit Committee met twice during the fiscal year.
James H. Berick and Samuel S. Pearlman are the Chairman and a principal,
respectively, of the law firm of Berick, Pearlman & Mills Co., L.P.A., general
counsel to the Trust, which received legal fees from the Trust during the year
ended January 31, 1996.
COMPENSATION OF TRUSTEES AND EXECUTIVE OFFICERS
The aggregate compensation, consisting exclusively of Trustees' fees, paid
by the Trust to all Trustees as a group (five persons) for the year ended
January 31, 1996 was $15,000.
The Trust pays Trustees' fees to each Trustee, other than Messrs. Krause
and Berick, in the amount of $250 per month plus $500 for each month in which a
Trustee attends a Board meeting.
TRUST PERFORMANCE GRAPH
The following graph compares total Shareholder returns over the last five
fiscal years to the Standard & Poor's 500 Stock Index ("S&P 500") and the
National Association of Real Estate Investment Trusts, Inc.'s Total Return
Indexes for mortgage real estate investment trusts ("NAREIT"). Total return
values for the S&P 500, NAREIT and the Trust were calculated based upon market
weighting at the beginning of the period and include reinvestment of dividends.
The Shareholder return shown on the following graph is not necessarily
indicative of future performance.
3
<PAGE> 5
The following graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Trust specifically incorporates this information
by reference and otherwise shall not be deemed filed under such Acts.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) TRUST S&P 500 NAREIT
<S> <C> <C> <C>
1/31/91 100.00 100.00 100.00
1/31/92 159.21 122.70 130.84
1/31/93 93.14 135.60 133.63
1/31/94 78.39 153.02 149.06
1/31/95 94.60 153.90 115.77
1/31/96 84.78 213.16 186.46
</TABLE>
CERTAIN TRANSACTIONS
The Trust is a party to an Advisory Agreement under which the Trust
receives certain services from Mid-America ReaFund Advisors, Inc. ("MARA"), a
corporation owned by Alan M. Krause and James H. Berick. The Advisory Agreement
provides that MARA, under the supervision of the Trustees, serves as investment
adviser and consultant in connection with the policy decisions to be made by the
Trustees of the Trust and as administrator of the day-to-day investment
operations of the Trust. In return for MARA's services, the Advisory Agreement
provides, in part, that MARA is to receive (a) a monthly fee of 1/12th of 1% of
the average book value of the invested assets of the Trust during the next
preceding month; (b) 15% of the commitment fees
4
<PAGE> 6
received by the Trust for any stand-by or gap commitment relating to a mortgage
loan which is not closed; and (c) an incentive fee equal to 10% of the amount,
if any, by which the net profits of the Trust exceed 8% of the average monthly
net worth of the Trust for the year. MARA will refund to the Trust the amount,
if any, by which the operating expenses of the Trust in any fiscal year exceed
the lesser of (x) 1 1/2% of the invested assets of the Trust for such fiscal
year or (y) the greater of (i) 1 1/2% of the average month-end net assets of the
Trust for such fiscal year or (ii) 25% of the net income of the Trust for such
fiscal year. The Trust paid an aggregate amount of $223,278 to MARA for services
rendered under the Advisory Agreement during the year ended January 31, 1996.
Each of Messrs. Krause and Berick has an employment agreement with the
Trust, expiring in 2006, which provides that he will receive no compensation
from the Trust as long as the Advisory Agreement is in effect. Should MARA no
longer provide such services, Messrs. Krause and Berick will then be
compensated, collectively, upon the same annual basis as is MARA with each to
receive, as long as he continues to be employed pursuant to his employment
agreement, an amount equal to (a) if both of Messrs. Krause and Berick continue
their employment with the Trust, one-half of the compensation that would have
been paid to MARA or (b) if only one of Messrs. Krause and Berick continues his
employment with the Trust, the full amount of the compensation that would have
been paid to MARA.
The Trust has a wrap-around mortgage loan on an office building in Toledo,
Ohio owned by Riverview Tower Limited Partnership, a limited partnership of
which an affiliate of Mr. Krause is a general partner. The loan bears interest
at a rate per annum equal to 10%. The maturity date of this loan has been
extended to December 31, 1996. During the year ended January 31, 1996, the
largest principal balance of the loan was $10,978,235 and the largest amount of
the Trust's net investment in the loan was $7,200,521. As of March 18, 1996, the
outstanding principal balance of the loan was $9,447,767 and the Trust's net
investment in the loan was $6,350,521.
On March 16, 1993, the Trust borrowed $5,000,000 from Mr. Krause by selling
to him the Trust's $5,000,000 note (the "Note") at par. The Note bears interest
at the base lending rate of National City Bank, Cleveland, Ohio ("NCB") and will
mature on August 31, 1996. During the year ended January 31, 1996, the largest
principal balance under the Note was $5,000,000. As of March 18, 1996, the
outstanding principal balance under the Note was $4,500,000. The Note is secured
by a lien on the assets of the Trust, which lien is subordinate to the prior
lien of NCB. In connection with the closing of such financing, the Trustees
received the written opinion of an independent investment banking firm that the
terms of such financing were fair, from a financial point of view, to the other
Shareholders of the Trust. The proceeds of the
5
<PAGE> 7
sale of the Note were used to reduce the Trust's outstanding indebtedness to NCB
under its revolving line of credit.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Krause has been both an owner and an investor in a significant number
of real estate projects and, directly or through affiliates, is a general
partner in numerous real estate partnerships. A property owned by one of such
real estate partnerships was sold in 1994 through foreclosure.
OWNERSHIP OF SHARES OF BENEFICIAL INTEREST
The following table sets forth information as of March 18, 1996 in respect
of any persons known to the Trustees to be the "beneficial" owner of more than
5% of the Trust's Shares and the number of the Trust's Shares owned
"beneficially" by each Trustee and nominee, and the Trustees, nominees and
executive officers as a group.
FIVE PERCENT BENEFICIAL OWNER; AND
BENEFICIAL OWNERSHIP OF TRUSTEES, NOMINEES AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
SHARES % OF
BENEFICIALLY OUTSTANDING
NAME OWNED SHARES
- ----------------------------------- ---------- ----------
<S> <C> <C>
Alan M. Krause(1) 183,001 17.9%
James H. Berick 14,780(2) 1.4%
Alvin M. Kendis 1,000 (3)
Frank L. Kennard 1,000 (3)
Samuel S. Pearlman 750 (3)
Trustees, Nominees and Executive
Officers as a group (five
persons) 200,531(2) 19.6%
<FN>
- ---------------
(1) Mr. Krause is the only person known to the Trust who beneficially owns more
than 5% of the Trust's outstanding Shares. Mr. Krause's address is 600 Eaton
Center, Cleveland, Ohio 44114.
(2) Includes 100 Shares owned by Mr. Berick's wife, 80 Shares owned by Mr.
Berick's adult children and 14,000 Shares owned by a partnership of which
Mr. Berick's adult children are partners, as to all of which Mr. Berick
disclaims beneficial ownership.
(3) Less than 1%.
</TABLE>
6
<PAGE> 8
SELECTION OF ACCOUNTANTS
The Trustees have selected Arthur Andersen LLP as independent auditors to
examine the books, records and accounts of the Trust for the fiscal year ending
January 31, 1997. Arthur Andersen LLP was the independent auditors of the Trust
for the fiscal year ended January 31, 1996 and is considered by the Trustees to
be well qualified.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
OTHER MATTERS
The Trustees know of no matters to be presented for action at the Annual
Meeting other than those described in this Proxy Statement. Should other matters
come before the meeting, the Shares represented by proxies solicited hereby will
be voted with respect thereto in accordance with the best judgment of the proxy
holders.
SHAREHOLDER PROPOSALS
If a Shareholder intends to present a proposal at the next Annual Meeting
of Shareholders, presently scheduled for May 15, 1997, it must be received by
the Trust for consideration for inclusion in the Trust's Proxy Statement and
form of proxy relating to that meeting on or before December 9, 1996.
REVOCATION OF PROXIES
A proxy may be revoked at any time before a vote is taken or the authority
granted is otherwise exercised. Revocation may be accomplished by the execution
of a later proxy with regard to the same shares or by giving notice in writing
or in open meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Trust. The Trust may
pay compensation for the solicitation of proxies and will pay brokers, nominees,
fiduciaries and custodians their reasonable expenses for sending proxy material
to principals and obtaining their instructions. In addition to solicitation by
mail, proxies may be solicited in person, by telephone or telegraph, or by
Trustees and officers of the Trust.
By order of the Board of Trustees
CHRISTINE TURK
Secretary
April 5, 1996
7
<PAGE> 9
<TABLE>
<S> <C>
REALTY REFUND TRUST P R O X Y
------------------------------------ THIS PROXY IS SOLICITED ON BEHALF
OF
THE TRUSTEES
</TABLE>
The undersigned hereby appoints ALAN M. KRAUSE, JAMES H.
BERICK and SAMUEL S. PEARLMAN as Proxies, each with the full
power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of
beneficial interest of Realty ReFund Trust held of record by the
undersigned on March 18, 1996, at the annual meeting of
shareholders to be held on May 15, 1996, or at any adjournments
thereof.
<TABLE>
<S> <C>
1. Election of Trustees.
FOR all nominees listed below / / WITHHOLD AUTHORITY / /
(except as marked to the contrary below) to vote for all nominees listed
below
</TABLE>
Alan M. Krause, James H. Berick, Alvin M. Kendis,
Frank L. Kennard and Samuel S. Pearlman
(Instruction: To withhold authority to vote for any Individual
nominee, write that nominee's name on the space
provided below.)
-----------------------------------------------------------------
2. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting.
(Continued, and to be signed, on the other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR ITEM 1.
Please sign exactly as name appears below. When shares are held
by joint tenants, both should sign. When signing as attorney, as
executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated: _________________, 1996
______________________________
Signature
______________________________
Signature if held jointly
Please Sign and Return the
Proxy Card Promptly
PLEASE
SIGN AND
RETURN
THIS
PROXY
WHETHER
OR NOT
YOU EXPECT
TO ATTEND
THE
MEETING
YOU MAY
NEVERTHELESS
VOTE IN
PERSON IF
YOU ATTEND
<PAGE> 10
[REALTY REFUND TRUST LOGO]
Realty Refund Trust 1385 Eaton Center 1111 Superior Avenue
Cleveland, Ohio 44114 216-771-7663
Fax 216-861-4929
SUPPLEMENT
TO
PROXY STATEMENT
DATED
APRIL 5, 1996
The Proxy Statement of Realty ReFund Trust (the "Trust"), dated April
5, 1996, is hereby supplemented to add the following information under the
heading "Ownership of Shares of Beneficial Interest":
Based upon a Report on Schedule 13D dated August 8,
1995, as amended on December 6, 1995 (the "Schedule"), filed
with the Securities and Exchange Commission, Mr. Dan Z.
Bochner beneficially owns 132,300 of the Trust's Shares,
constituting 12.96% of the Trust's outstanding Shares. Mr.
Bochner represented in the Schedule that his acquisition of
such Shares was solely for investment. The Schedule reports
Mr. Bochner's business address as being 9480 Charleville
Boulevard, #18, Beverly Hills, California 90212.
This Supplement to Proxy Statement was first mailed to Shareholders on April
11, 1996.
REALTY REFUND TRUST
April 11, 1996
<PAGE> 1
Exhibit 99(b)
Financial Statements of Riverview Tower
Limited Partnership as at December 31, 1994 and 1995
<PAGE> 2
RIVERVIEW TOWER LIMITED PARTNERSHIP
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
As At December 31, 1994
<PAGE> 3
MALITZ, WEINSTEIN & RUBIN Co.
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
December 31, 1994
INDEX
-----
<TABLE>
<S> <C>
AUDITORS' REPORT
BALANCE SHEET EXHIBIT A
As At December 31, 1994
ANALYSIS OF PARTNERS' EQUITY SCHEDULE A-1
For The Year Ended December 31, 1994
STATEMENT OF OPERATIONS EXHIBIT B
For The Year Ended December 31, 1994
STATEMENT OF CHANGES IN CASH POSITION EXHIBIT C
For The Year Ended December 31, 1994
NOTES TO FINANCIAL STATEMENTS EXHIBIT D
SCHEDULE OF PROPERTY AND EQUIPMENT EXHIBIT E
For The Years Ended December 31, 1992, 1993 and 1994
SCHEDULE OF ACCUMULATED DEPRECIATION AND AMORTIZATION EXHIBIT F
OF PROPERTY AND EQUIPMENT
For The Years Ended December 31, 1992, 1993 and 1994
</TABLE>
<PAGE> 4
MALITZ, WEINSTEIN & RUBIN CO.
CERTIFIED PUBLIC ACCOUNTANTS
3690 ORANGE PLACE - SUITE 250
CLEVELAND, OHIO 44122-4422
TELEPHONE (216) 464-9560
TELECOPIER (216) 464-2887
[Letterhead]
February 24, 1995
INDEPENDENT AUDITOR'S REPORT
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
We have audited the accompanying balance sheet of Riverview Tower Limited
Partnership, A Limited Partnership, as of December 31, 1994, and the related
statements of partners' equity, operations and changes in cash position for the
year then ended. These financial statements and the schedules referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Riverview Tower Limited Part-
nership, A Limited Partnership, as at December 31, 1994, and the results of its
Operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The information contained in Exhibits E and F is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. This information has been subjected to the audit-
ing procedures applied in our 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.
/s/ Malitz, Weinstein & Rubin Co.
<PAGE> 5
MALITZ, WEINSTEIN & RUBIN CO . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
BALANCE SHEET Exhibit A
As At December 31, 1994
-----------------------
<TABLE>
<CAPTION>
ASSETS
------
<S> <C> <C>
Cash $ 150.
Accounts Receivable 183.
Escrow Receivable 163,377.
Prepaid Expenses 24,248.
Property and Equipment 6,705,077.
Less: Accumulated Depreciation and
Amortization (4,102,470.)
-------------
TOTAL ASSETS
$12,790,565.
============
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
LIABILITIES
Accounts Payable $ 320,001.
Accrued Interest and Real Estate Taxes 360,280.
Security Deposits 2,482.
Mortgage Payable 11,937,438.
-----------
Total Liabilities $12,620,201.
PARTNERS' EQUITY - SCHEDULE A-1 170,364.
------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $12,790,565.
============
</TABLE>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 6
MALITZ, WEINSTEIN & RUBIN CO . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
ANALYSIS OF PARTNERS' EQUITY Schedule A-1
For The Year Ended December 31, 1994
<TABLE>
<CAPTION>
BALANCE NET BALANCE
BEGINNING INCOME ENDING
--------- ------ ------
<S> <C> <C> <C>
GENERAL PARTNERS $ (403,183.) $ 283,918. $(119,265.)
LIMITED PARTNERS (2,620,485.) 2,910,114. 289,629.
------------ ------------ ---------
TOTALS $(3,023,668.) $ 3,194,032. $ 170.364.
============ ============ ==========
</TABLE>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 7
MALITZ, WEINSTEIN & RUBIN CO. . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS Exhibit B
For The Year Ended December 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INCOME
Rentals $ 4,314,541.
Excess Operating and Tax Charges 2,656,961.
Garage 382,448.
Antenna 142,841.
-----------
Total Income $ 7,496,791.
OPERATING EXPENSES
Custodial and Manager $ 302,628.
Elevator Maintenance 114,630.
Insurance 71,410.
Management Fees 120,000.
Office Expense 67,249.
Professional Fees 43,406.
Repairs and Maintenance 900,374.
Supplies (29,272.)
Taxes - Real Estate 271,360.
Taxes - Other 2,659.
Travel 155.
Utilities 854,087.
General Expenses 4,891.
----------
Total Operating Expenses 2,723,577.
------------
INCOME BEFORE INTEREST EXPENSE, DEPRECIATION
AND AMORTIZATION $ 4,773,214.
LESS: Interest Expense 1,140,730.
------------
INCOME BEFORE DEPRECIATION AND AMORTIZATION $ 3,632,484.
LESS: Depreciation and Amortization 438,452.
------------
NET INCOME FOR THE YEAR $ 3,194,032.
============
</TABLE>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 8
MALITZ, WEINSTEIN & RUBIN CO. . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN CASH POSITION Exhibit C
For The Year Ended December 31, 1994
<TABLE>
<S> <C> <C>
CASH GENERATED BY OPERATIONS:
Net Income $ 3,194,032.
Depreciation Amortization 438,452.
-----------
Total $ 3,632,484.
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Current Assets - (Increase) Decrease
Receivables $ 323.
Prepaids and Escrows
Current Liabilities - Increase (Decrease) (4,987.)
Accounts Payable (1,772,043.)
Security Deposits 2,482.
Accrued Expenses and Taxes (46,094.)
-----------
Total (1,820,319.)
------------
NET CASH PROVIDED BY OPERATIONS $ 1,812,165.
INVESTING ACTIVITIES -0-
FINANCING ACTIVITIES
Decrease In Debt (1,821,177.)
------------
INCREASE (DECREASE) IN CASH $ (9,012.)
CASH BALANCE - BEGINNING 9,162
------------
CASH BALANCE - ENDING $ 150.
============
SUPPLEMENTAL DISCLOSURE
Cash Paid During The Year For Interest $ 1,112,312.
============
</TABLE>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 9
MALITZ, WEINSTEIN & RUBIN CO. . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS Exhibit D
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Accounting Method
-----------------
The Partnership keeps its records and prepares its financial
statements on the accrual basis.
Property and Equipment
----------------------
The fixed assets are recorded at cost and are being depreciated
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Buildings 40 Years Straight-Line
Building Improvements 40 Years Straight-Line
Equipment and Improvements 10 Years Straight-Line
</TABLE>
NOTE 2 - TRANSACTIONS WITH RELATED PARTY
- ----------------------------------------
The property, which is located in Toledo, Ohio is managed by the
Mid America Management Corporation.
Accounts Payable in the amount of $137,244. are due to the
management company.
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 10
MALITZ, WEINSTEIN & RUBIN CO. . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS Exhibit D
(Continued)
NOTE 3 - MORTGAGE PAYABLE
- -------------------------
The land and buildings owned by the Company are encumbered by mortgages
securing two notes; one to New York Life Insurance (due in 1999) and
the other to Realty Refund Trust (due in 1996). One of the limited
partners of the partnership is also Chairman of the Board of Realty
Refund Trust.
The Company has a fixed monthly principal and interest payment of
$74,195. on the first mortgage plus an interest only payment on the
Realty Refund note at 10% per annum. In addition, the Company has
agreed to pay $850,000. against the outstanding amount due on January
1, 1995 and January 1, 1996.
The Company has also agreed to deposit with Realty Refund Trust in
escrow all excess cash flow. The funds will be made available for
tenant improvements or third party leasing commissions. The amount due
for 1994 is $304,291.
NOTE 4 - LEASE AMENDMENT AND EXTENSION
- --------------------------------------
On June 2, 1994, the Company modified its lease with Owens-Corning
Fiberglass Corporation as follows:
The tenant has extended its lease to December 31, 1996 and agreed to a
lease extension fee of $5,000,000. payable June, 1994, January, 1995
and January, 1996. There were also modifications of lease and
operating expense payment terms.
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 11
MALITZ, WEINSTEIN & RUBIN CO. . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
SCHEDULE OF PROPERTY AND EQUIPMENT Exhibit E
For The Years Ended December 31, 1992, 1993 and 1994
<TABLE>
<CAPTION>
1992
----
BALANCE
AT BEGINNING ADDITIONS BALANCE AT END
OF PERIOD AT COST RETIREMENTS OF PERIOD
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Building $13,771,320. $13,771,320.
Building Improvements 1,473,220. $ 1,473,220.
Equipment 551,143. 551,143.
Land 887,000. 887,000.
----------- ------ ----------- -----------
Total $16,682,683. $ -0- $ -0- $16,682,683.
=========== ======= =========== ===========
1993
----
Building $13,771,320. $13,771,320.
Building Improvements 1,473,220. 1,473,220.
Equipment 551,143. $22,394. 573,537.
Land 887,000. 887,000.
----------- ------- ----------- -----------
Total $16,682,683. $22,394. $ -0- $16,705,077.
=========== ======= =========== ===========
1994
----
Building $13,771,320. $13,771,320.
Building Improvements 1,473,220. 1,473,220.
Equipment 573,537. 573,537.
Land 887,000. 887,000.
------------ ------- ----------- -----------
Total $16,705,077. $ -0- $ -0- $16,705,077.
=========== ======= =========== ===========
</TABLE>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 12
MALITZ, WEINSTEIN & RUBIN CO. . CERTIFIED PUBLIC ACCOUNTANTS . CLEVELAND, OHIO
RIVERVIEW TOWER LIMITED PARTNERSHIP
A LIMITED PARTNERSHIP
SCHEDULE OF ACCUMULATED DEPRECIATION AND AMORTIZATION Exhibit F
OF PROPERTY AND
EQUIPMENT For The Years Ended December 31, 1992, 1993 and 1994
1992
----
<TABLE>
<CAPTION>
BALANCE ADDITIONS
AT BEGINNING CHARGED TO BALANCE AT END
PERIOD COSTS & EXPENSES RETIREMENTS OF PERIOD
------------ ---------------- ----------- --------------
<S> <C> <C> <C> <C>
Building $2,233,494. $344,283. $2,567,777.
Building Improvements 231,217. 36,816. 268,033.
Equipment 333,522. 56,234. 389,756.
---------- -------- -------- ----------
Total $2,798,233. $437,333. $ -0- $3,225,566.
========== ======== ======== ==========
1993
----
Building $2,567,777. $344,283. $2,912,060.
Building Improvements 268,033. 36,816. 304,849.
Equipment 389,756. 57,353. 447,109.
---------- -------- -------- ----------
Total $3,225,566. $438,452. $ -0- $3,664,018.
========== ======== ======== ==========
1994
----
Building $2,912,060. $344,283. $3.256,343.
Building Improvements 304,849. 36,816. 341,665.
Equipment 447,109. 57,353. 504,462.
---------- -------- -------- ----------
Total $3,664,018. $438,452. $ -0- $4,102,470.
========== ======== ======== ==========
</TABLE>
SEE ACCOUNTANTS REPORT LETTER AND NOTES TO FINANCIAL STATEMENTS
<PAGE> 13
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
FINANCIAL REPORT - INCOME TAX BASIS
DECEMBER 31, 1995
<PAGE> 14
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
CONTENTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Page
----
<S> <C>
AUDITORS' REPORT ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS:
Statement of assets, liabilities and partners' deficit - income tax basis 2
Statement of revenues and expenses - income tax basis 3
Statement of partners' deficit - income tax basis 4
Statement of cash flows - income tax basis 5
Notes to financial statements 6-8
</TABLE>
<PAGE> 15
[LOGO] HAUSSER + TAYLOR
- -------------------------------------------------------------------------------
1400 NORTH POINT TOWER, CLEVELAND OHIO 44114-1152 216/523-1900
FAX: 216/522-1490
Partners
The Riverview Tower Limited Partnership
Cleveland, Ohio
Independent Auditors' Report
----------------------------
We have audited the accompanying statement of assets,
liabilities and partners' deficit income tax basis of The Riverview Tower
Limited Partnership as of December 31, 1995, and the related statements of
revenues and expenses, partners' deficit, and cash flows - income tax
basis for the year then ended. 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 audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit 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 audit provides a reasonable basis for
our opinion.
As described in the notes to the financial statements,
the Partnership's policy is to prepare its financial statements on the
accounting basis used for income tax purposes, which is a comprehensive
basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the assets, liabilities,
and partners' deficit of The Riverview Tower Limited Partnership as of
December 31, 1995, and its revenues and expenses, partners' deficit, and
cash flows for the year then ended, on the basis of accounting described
in the Organization and Summary of Significant Accounting Policies.
/s/ Hausser and Taylor
Cleveland, Ohio
February 23, 1996
-1-
BUSINESS ADVISORS AND CERTIFIED PUBLIC ACCOUNTANTS / MEMBERS OF
MOORES ROWLAND INTERNATIONAL
CLEVELAND CANTON COLUMBUS ELYRIA
<PAGE> 16
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT -
INCOME TAX BASIS
<TABLE>
<CAPTION>
December 31, 1995
-----------------
<S> <C> <C>
ASSETS
- ------
RENTAL PROPERTY
Land $ 887,000
Building and improvements 15,264,693
Equipment 598,257
-----------
Total 16,749,950
Less accumulated depreciation 9,598,758
-----------
Net rental property $ 7,151,192
OTHER ASSETS
Cash 150
Accounts receivable 44,533
Prepaid expenses 22,846
Real estate escrow 149,017
Capital reserve escrow 214,291
-----------
Total other assets 430,837
-----------
$ 7,582,029
===========
LIABILITIES AND PARTNERS' DEFICIT
- --------------------------------
LIABILITIES
Accounts payable $ 148,316
Accrued interest and real estate taxes 365,075
Security deposits 2,482
Mortgage notes payable 10,413,780
-----------
Total liabilities $10,929,653
PARTNERS' DEFICIT (3,347,624)
-----------
$ 7,582,029
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 17
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
STATEMENT OF REVENUES AND EXPENSES - INCOME TAX BASIS
Year Ended December 31, 1995
----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
REVENUES
Rental income $3,631,044
Garage 390,413
Antenna 154,855
Excess operating and other pass through charges 1,925,473
---------
Total revenues $ 6,101,785
OPERATING EXPENSES
Custodial and manager expenses 180,286
Elevator maintenance 123,746
Insurance 70,302
Management fees 120,000
Office expense and miscellaneous 128,220
Office salaries 55,132
Professional fees 34,623
Repairs and maintenance 743,561
Security expense 22,419
Sellers' fee 90,000
Supplies 36,462
Taxes - payroll 15,726
Taxes - personal property 2,427
Taxes - real estate 286,871
Travel 1,696
Utilities 1,267,731
---------
Total operating expenses 3,179,202
---------
NET OPERATING INCOME 2,922,583
---------
INTEREST EXPENSE 944,283
---------
INCOME BEFORE DEPRECIATION AND AMORTIZATION 1,978,300
---------
DEPRECIATION AND AMORTIZATION 778,933
---------
NET INCOME $ 1,199,367
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 18
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year Ended December 31, 1995
----------------------------
<TABLE>
<CAPTION>
Balance Net Balance
Beginning Income Distributions Ending
--------- ------ ------------- ------
<S> <C> <C> <C> <C>
GENERAL PARTNERS $ (552,055) $ 159,916 $ (392,139)
LIMITED PARTNERS (3,994,936) 1,039,451 (2,955,485)
----------- ----------- -----------
TOTAL $(4,546,991) $ 1,199,367 $ -- $(3,347,624)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 19
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year Ended December 31, 1995
----------------------------
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,199,367
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization $ 778,933
Changes in assets and liabilities:
Increase in accounts receivable (44,350)
Decrease in prepaid expenses 1,402
Decrease in escrow receivables (199,931)
Decrease in accounts payable (171,685)
Increase in accrued interest and taxes 4,795
----------
Total adjustments 369,164
-----------
Net cash provided by operating activities 1,568,531
CASH FLOWS FROM INVESTING ACTIVITIES
Building improvements and equipment purchases (44,873)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (1,523,658)
-----------
NET CHANGE IN CASH -
CASH - BEGINNING OF YEAR 150
-----------
CASH - END OF YEAR $ 150
===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 944,283
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 20
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Purpose -- The Riverview Tower Limited Partnership is an Ohio limited
partnership formed for the purpose of owning, leasing and operating
an office building in Toledo, Ohio. The Partnership commenced
operations on July 26, 1985.
B. Basis of Accounting - The Partnership's policy is to prepare its
financial statements on the basis of accounting used for income tax
purposes. This basis of accounting differs from generally
accepted accounting principles primarily as follows:
Assets will be depreciated over a time period shorter than
their estimated useful lives.
C. Concentration Account - An affiliate of the general partner
utilizes a concentration account for the various properties it
manages. In this way excess cash for all properties may be
invested on a short term basis and cash disbursements made on
behalf of each separate partnership are funded when necessary.
D. Property and Improvements - The building and related
improvements are being depreciated on straight-line or
accelerated cost recovery methods over periods dictated by
statutory requirements.
E. Income Taxes - No provision for income taxes is necessary
because any income or loss is includible in the tax returns of
the partners.
F. Adjustments Necessary to Conform with Generally Accepted Accounting
Principles (GAAP) - As stated in the auditors' report and previously
in Note 1 of the Notes to Financial Statements, the Partnership
has used various depreciation and amortization methods which do not
conform to generally accepted accounting principles (GAAP). Had the
Partnership conformed to GAAP the accumulated depreciation and
amortization and partners' capital accounts would be reflected as
follows:
<TABLE>
<CAPTION>
Beginning Ending
----------- -----------
<S> <C> <C>
BALANCE SHEET
Accumulated depreciation and $ 4,102,470 $ 4,518,193
amortization =========== ===========
Partners' capital $ 170,364 $ 1,732,941
=========== ===========
STATEMENT OF OPERATIONS
Net income for the year $ 1,562,577
===========
</TABLE>
-6-
<PAGE> 21
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. MORTGAGE NOTES PAYABLE
The land and building owned by the Partnership are encumbered by
mortgages securing two notes; one to New York Life Insurance
(due in 1999) and the other to Realty Refund Trust (due in
1996). One of the limited partners of the Partnership is also
Chairman of the Board of Realty Refund Trust.
The Partnership has a fixed monthly principal and interest
payment of $74,195 on the first mortgage plus an interest only
payment on the Realty Refund note at 10% per annum. In addition,
the Partnership has paid $850,000 against the outstanding amount
due on January 1, 1996.
Principal payments on the mortgage note payable as of December 31,
1995 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 $ 7,854,792
1997 756,263
1998 803,308
1999 999,417
-----------
Total $10,413,780
===========
</TABLE>
The fair value of the Partnership's long-term debt is estimated
based on borrowing rates currently available to the partnership
for bank loans with similar terms and maturities and
approximates the carrying value.
NOTE 3. TRANSACTIONS WITH RELATED PARTY
The property is managed by the Mid-America Management
Corporation. Accounts receivable in the amount of $41,405 are
due from the management company.
The Partnership is obligated to pay a management fee to
Mid-America Management Corporation for certain services with
respect to the operations of the Partnership. The amount of the
fee included in expense for the year ended December 31, 1995 is
$120,000.
NOTE 4. OPERATING LEASES
The Partnership's operating revenue is principally obtained from
tenants through rental payments as provided for under
noncancelable operating leases. The tenant leases typically
provide for fixed minimum rent and reimbursement of real estate
taxes and operating costs.
-7-
<PAGE> 22
THE RIVERVIEW TOWER LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. OPERATING LEASES (CONTINUED)
The following is a schedule of minimum future rentals on
noncancelable operating leases as of December 31, 1995 for the
next five years:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 2,418,850
1997 137,660
1998 42,700
1999 19,540
2000 19,200
-----------
Total $ 2,637,950
===========
</TABLE>
NOTE 5. LEASE AMENDMENT AND EXTENSION
On June 2, 1994, the Partnership modified its lease with
Owens-Corning Fiberglas Corporation as follows:
The tenant has extended its lease to December 31, 1996 and
agreed to a lease extension fee of $5,000,000 payable as
follows:
<TABLE>
<CAPTION>
<S> <C>
June 1994 $2,000,000
January 1995 1,500,000
January 1996 1,500,000
----------
Total $5,000,000
==========
</TABLE>
There were also modifications of lease and operating expense
payment terms.
NOTE 6. SUBSEQUENT EVENTS
The Partnership's principal tenant has not renewed its lease and is
expected to vacate the premises during 1996.
The Partnership has listed the building with a broker and is attempting
to dispose of the property.
-8-
<PAGE> 23
[LOGO] Hausser + Taylor
- -------------------------------------------------------------------------------
1400 NORTH POINT TOWER, CLEVELAND, OHIO 44114-1152 216/523-1900
FAX: 216/522-1490
March 20, 1996
Mr. Alan M. Krause
Managing Partner
Riverview Towers Ltd. Partnership
600 Eaton Center
1111 Superior Avenue
Cleveland, Ohio 44114
Dear Mr. Krause:
You have asked us to schedule the amount due Realty Refund Trust re: the
financing agreement with Riverview.
<TABLE>
<CAPTION>
<S> <C>
Income Before Depreciation and Amortizafion $ 1,978,300
Building Improvements and Equipment Purchases (44,873)
Reduction of Mortgage Principal (1,523,658)
-----------
Excess Amount Due Realty Refund Trust 409,769
Provision for Federal Income Tax 239,873
-----------
Excess Due Realty Refund Trust $ 169,896
===========
</TABLE>
Very truly yours,
HAUSSER + TAYLOR
/s/ Charles P. Malitz
---------------------
Charles P. Malitz
Partner
CPM/js
BUSINESS ADVISORS AND CERTIFIED PUBLIC ACCOUNTANTS
/MEMBERS OF MOORES ROWLAND INTERNATIONAL
CLEVELAND CANTON COLUMBUS ELYRIA
<PAGE> 1
Exhibit 99(c)
Financial Statements of
Pacific Place Partners, Ltd.
as at December 31, 1994 and 1995
<PAGE> 2
REPORT OF
---------
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
DECEMBER 31, 1994
-----------------
<PAGE> 3
KONOWITZ, KAHN & COMPANY, P.C.
- ------------------------------------------------------------------------------
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners of
Pacific Place Partners, LTD.
We have audited the accompanying balance sheet of
Pacific Place Partners, LTD. (A Texas Limited Partnership) as of
December 31, 1994 and 1993, and the related statements of income,
partners capital, and cash flows for the years then ended. 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 audit. The 1992 financial statements
of Pacific Place Partners, LTD were audited by other accountants, whose
report dated February 19, 1993 expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit 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 audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position
of Pacific Place Partners, LTD., as of December 31, 1994 and 1993, and
the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Konowitz, Kahn & Company, P.C.
- ----------------------------------
February 11, 1995
110 Washington Avenue [LOGO] (203) 239-6888
P.O. Box 190 Bridgeport (203) 366-6888
North Haven, CT 06473 Fax (203) 234-1553
<PAGE> 4
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
As At As At As At
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 3,883 $ 4,593 $ 3,089
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Land 5,000,000 5,000,000 5,000,000
Building 35,912,072 35,912,072 35,912,072
Equipment 9,000,000 9,000,000 9,000,000
----------- ----------- -----------
Total 49,912,072 49,912,072 49,912,072
Less: Accuutlated depreciation 8,543,039 5,845,237 3,147,435
----------- ----------- -----------
Net Book Value of Property
and Equipment 41,369,033 44,066,835 46,764,637
----------- ----------- -----------
OTHER ASSETS:
Financing fees (net of
accumulated amortization
of $129,333, $87,833
and $46,333) 78,167 119,667 161,167
Acquisition fees (net of
accumulated amortization
of $15,203, $10,390
and $5,577) 177,297 182,110 186,923
----------- ----------- -----------
Total Other Assets 255,464 301,777 348,090
----------- ----------- -----------
TOTAL ASSETS $41,628,380 $44,373,205 $47,115,816
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
As At As At As At
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES:
<S> <C> <C> <C>
Current portion of long-term
debt $ 2,861,851 $ 2,514,736 $ 2,209,722
Accrued interest 80,112 85,561 75,291
Deferred rent 799,590 799,590 766,268
---------- ---------- ----------
Total Current Liabilities 3,741,553 3,399,887 3,051,281
---------- ---------- ----------
LONG TERM LIABILITIES:
Mortgage payable 36,974,896 39,489,632 41,699,354
Less: Current portion 2,861,851 2,514,736 2,209,722
---------- ---------- ----------
34,113,045 36,974,896 39,489,632
Deferred rent 1,465,916 2,265,506 3,065,072
Less: Current portion 799,590 799,590 766,268
---------- ---------- ----------
666,326 1,465,916 2,298,804
---------- ---------- ----------
Total Long-Term Liabilities 34,779,371 38,440,812 41,788,436
---------- ---------- ----------
Total Liabilities 38,520,924 41,840,699 44,839,717
PARTNERS' CAPITAL 3,107,456 2,532,506 2,276,099
---------- ---------- ----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $41,628,380 $44,373,205 $47,115,816
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
INCOME:
Rental income $ 8,301,639 $ 8,301,614 $ 8,301,663
Miscellaneous - 25,000 6,050
----------- ----------- -----------
Total Income 8,301,639 8,326,614 8,307,713
----------- ----------- -----------
EXPENSES:
Interest 4,981,864 5,302,597 5,825,836
Amortization 46,313 46,313 46,313
Depreciation 2,697,802 2,697,802 2,697,802
Legal -- 20,992 3,892
Miscellaneous expenses 710 2,503 -
----------- ----------- -----------
Total Expenses 7,726,689 8,070,207 8,573,843
----------- ----------- -----------
NET INCOME (LOSS) $ 574,950 $ 256,407 $ (266,130)
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
---------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
-----------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
<S> <C> <C> <C>
PARTNERS' CAPITAL -
Beginning of Year $ 2,532,506 $ 2,276,099 $ 2,542,229
NET INCME (LOSS) 574,950 256,407 (266,130)
----------- ----------- ------------
PARTNERS' CAPITAL -
End of Year $ 3,107,456 $ 2,532,506 $ 2,276,099
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1994 December 31, 1993 December 31, 1992
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 574,950 $ 256,407 $ (266,130)
Adjustments to reconcile net ------------ ----------- -----------
income (loss) to net cash
provided by operating
activities:
Depreciation 2,697,802 2,697,802 2,697,802
Amortization 46,313 46,313 46,313
Increase (Decrease) in
Liabilities:
Accrued expenses (5,449) 10,270 75,291
Deferred rent (799,590) (799,566) 2,532,012
------------ ----------- -----------
Total Adjustments 1,939,076 1,954,819 5,351,418
------------ ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,514,026 2,211,226 5,085,288
CASH FLOWS USED IN FINANCING
ACTIVITIES:
Principal payments on
long-term debt (2,514,736) (2,209,722) (5,083,129)
------------ ----------- -----------
NET (DECREASE) INCREASE
IN CASH (710) 1,504 2,159
CASH AT BEGINNING
OF THE YEAR 4,593 3,089 930
------------ ----------- -----------
CASH AT THE END OF THE YEAR $ 3,883 $ 4,593 $ 3,089
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
interest $ 4,987,313 $ 5,292,326 $ 5,750,545
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1994
-----------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Property and Equipment
- ----------------------
The partnership is computing depreciation using the straight-line method
over the estimtated useful lives of the assets over a period of 5-40
years. Expenditures of maintenance, repairs and improvements which do
not materially extend the useful lives of the property are charged to
earnings.
Income Taxes
- ------------
No provision for income taxes is made in the financial statements of
the partnership because, as a partnership, it is not subject to income
tax, as the tax effect of its activities accrue to the partners.
Amortization
- ------------
Fees and expenses incurred in connection with placing the underlying
financing in the amount of $207,500 are being amortized over five years
on a straight-line basis.
Expenses incurred in acquiring the property in the amount of $192,500
are being amortized over forty years on a straight-line basis.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, cash consists of
unrestricted cash in a checking account.
Credit Risk-Economic Dependency
- -------------------------------
On March 1, 1993, Lockheed Corporation purchased the Fort Worth Division
of General Dynamics (the sole tenant). Lockheed purchased all of the
assets held by the division and assumed all of the liabilities,
including those under the lease with the Partnership.
In the process of Lockheed's assumption of the General Dynamics Lease,
the Partnership was able to negotiate a Consent Agreement which granted
Lockheed the right to assume the Lease so long as General Dynamics
remains jointly liable under the lease. As of December 31, 1994, two
years remain on the lease. There are no renewal options in the lease
agreement.
<PAGE> 10
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1994
-----------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Partnership Income
- ------------------
The income of the partnership differs from the taxable ordinary income
of the partnership on the federal income tax return due to tax laws
regarding deferred expenses and depreciation.
<TABLE>
<CAPTION>
<S> <C> <C>
Income Reported on Tax Return $ 679,185
Items (Non-Deductible) Deductible
on Tax Return:
Deferred Rent 799,590
Depreciation (903,825)
---------
Income Per Financial Statements $ 574,950
=========
</TABLE>
NOTE 2 - THE PARTNERSHIP
The partnership was formed on April 1, 1983 under the laws of the State
of Texas for the purpose of acquiring, owning, and operating a
twenty-story office building located in Dallas, Texas. On November 25,
1991, the partnership conveyed its land, building and personal property
to 1910 Associates, LTD. (1910) in exchange for land, buildings and
personal property located in Fort Worth, Texas. That transaction was
reported as qualifying for nonrecognition of gain for income tax
purposes.
ICA Pacific Place, Inc. , is the general partner of the partnership.
NOTE 3 - MORTGAGE PAYABLE
The partnership is indebted to 1910 Associates, LTD. under a wrap-around
mortgage agreement in the initial amount of $48,187,500. The loan bears
interest at 13% per annum during the initial five year term. Payment
terms call for monthly payments in the amount of $958,333.33 for the
first twelve months and $625,170.70 for the succeeding forty-eight
months. During the initial term of the loan, the debt service payments
are equal to the rental payments. The note is secured by the
partnership's land, buildings, and equipment under a Deed of Trust. The
tenant is making payments directly to the mortgagees. The underlying
mortgagees, Principal Mutual Life Insurance Company, Realty Refund Trust
and Prentiss/Copley Investment Group are secured by liens, security
interests and collateral assignments of rents and leases. The initial
term of the wrap loan is five years but may be extended under certain
conditions. The two extension periods are for five and fifteen years,
respectively.
<PAGE> 11
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
---------------------------
NOTES TO FINANCIAL STATEMENTS
------------------------------
DECEMBER 31, 1994
-----------------
NOTE 3 - MORTGAGE PAYABLE (Continued)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
- ------------------------
<S> <C>
1995 $ 2,861,851
1996 34,113,045
-----------
$36,974,896
===========
</TABLE>
<PAGE> 12
REPORT OF
---------
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
DECEMBER 31, 1995
-----------------
<PAGE> 13
KONOWITZ, KAHN & COMPANY, P.C.
- ------------------------------------------------------------------------------
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners of
Pacific Place Partners, LTD.
(A Texas Limited Partnership)
We have audited the accompanying balance sheets of
Pacific Place Partners, LTD. (A Texas Limited Partnership), as at
December 31, 1995, 1994 and 1993, and the related statements of income,
partners capital, and cash flows for the years then ended. 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 audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we plan and
perform the audit 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 audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position
of Pacific Place Partners, LTD. (A Texas Limited Partnership), as at
December 31, 1995, 1994 and 1993, and the results of its operations and
its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Konowitz, Kahn & Company, P.C.
- ---------------------------------
February 19, 1996
110 Washington Avenue (203)239-6888
P.O. Box 190 [LOGO] Bridgeport (203)366-6888
North Haven, CT 06473 Fax (203)234-1553
<PAGE> 14
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
As At As At As At
December 31, 1995 December 31, 1994 December 31, 1993
ASSETS ----------------- ----------------- -----------------
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 828 $ 3,883 $ 4,593
----------- ----------- -----------
PROPERTY AND EQUIPMENT:
Land 5,000,000 5,000,000 5,000,000
Building 35,912,072 35,912,072 35,912,072
Equipment 9,000,000 9,000,000 9,000,000
----------- ----------- -----------
Total 49,912,072 49,912,072 49,912,072
Less: Accumulated depreciation 11,240,841 8,543,039 5,845,237
----------- ----------- -----------
Net Book Value of Property
and Equipment 38,671,231 41,369,033 44,066,835
----------- ----------- -----------
OTHER ASSETS:
Financing fees (net of accumulated
amortization of $170,833,
$129,333 and $87,833) 36,667 78,167 119,667
Acquisition fees (net of accumulated
amortization of $20,016, $15,203,
and $10,390) 172,484 177,297 182,110
----------- ----------- -----------
Total Other Assets 209,151 255,464 301,777
----------- ----------- -----------
TOTAL ASSETS $38,881,210 $41,628,380 $44,373,205
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 15
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
----------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
As At As At As At
December 31, 1995 December 31, 1994 December 31, 1993
----------------- ----------------- -----------------
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,684,407 $ 2,861,851 $ 2,514,736
Accrued interest 73,912 80,112 85,561
Deferred rent 666,325 799,590 799,590
Other liabilities 16,570 - -
----------- ----------- -----------
Total Current Liabilities 3,441,214 3,741,553 3,399,887
----------- ----------- -----------
LONG-TERM LIABILITIES:
Mortgage payable 34,113,045 36,974,896 39,489,632
Less: Current portion 2,684,407 2,861,851 2,514,736
----------- ----------- -----------
31,428,638 34,113,045 36,974,896
Deferred rent 666,325 1,465,916 2,265,506
Less: Current portion 666,325 799,590 799,590
----------- ----------- -----------
- 666,326 1,465,916
----------- ----------- -----------
Total Long-Term Liabilities 31,428,638 34,779,371 38,440,812
----------- ----------- -----------
Total Liabilities 34,869,852 38,520,924 41,840,699
PARTNERS' CAPITAL 4,011,358 3,107,456 2,532,506
----------- ----------- -----------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $38,881,210 $41,628,380 $44,373,205
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 16
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1995 December 31, 1994 December 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
INCOME:
Rental income $8,301,639 $8,301,639 $8,301,614
Miscellaneous - - 25,000
---------- ---------- ----------
Total Income 8,301,639 8,301,639 8,326,614
---------- ---------- ----------
EXPENSES:
Interest 4,633,997 4,981,864 5,302,597
Amortization 46,313 46,313 46,313
Depreciation 2,697,802 2,697,802 2,697,802
Legal 15,845 - 20,992
Miscellaneous expenses 3,780 710 2,503
---------- ---------- ----------
Total Expenses 7,397,737 7,726,689 8,070,207
---------- ---------- ----------
NET INCOME $ 903,902 $ 574,950 $ 256,407
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 17
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
----------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
-----------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31,1995 December 31,1994 December 31,1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
PARTNERS' CAPITAL -
Beginning of Year $3,107,456 $2,532,506 $2,276,099
NET INCOME 903,902 574,950 256,407
---------- ---------- ----------
PARTNERS' CAPITAL -
End of Year $4,011,358 $3,107,456 $2,532,506
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 18
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31,1995 December 31,1994 December 31,1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 903,902 $ 574,950 $ 256,407
Adjustments to reconcile net ----------- ----------- -----------
income to net cash provided
by operating activities:
Depreciation 2,697,802 2,697,802 2,697,802
Amortization 46,313 46,313 46,313
Increase (Decrease) in Liabilities:
Accrued expenses (6,201) (5,449) 10,270
Deferred rent (799,590) (799,590) (799,566)
Other liabilities 16,570 -- --
----------- ----------- -----------
Total Adjustments 1,954,894 1,939,076 1,954,819
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,858,796 2,514,026 2,211,226
CASH FLOWS USED IN
FINANCING ACTIVITIES:
Principal payments on
long-term debt (2,861,851) (2,514,736) (2,209,722)
----------- ----------- -----------
NET (DECREASE) INCREASE
IN CASH (3,055) (710) 1,504
CASH AT THE BEGINNING
OF THE YEAR 3,883 4,593 3,089
----------- ----------- -----------
CASH AT THE END
OF THE YEAR $ 828 $ 3,883 $ 4,593
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 19
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
----------------------------
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31, 1995 December 31, 1994 December 31, 1993
----------------- ----------------- -----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<S> <C> <C> <C>
Cash paid during the year for
interest $4,640,198 $4,987,313 $5,292,326
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 20
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 1995
-----------------
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
- ----------------------
The partnership is computing depreciation using the straight-line
method over the estimated useful lives of the assets over a period of
5-40 years. Expenditures of maintenance, repairs and improvements which
do not materially extend the useful lives of the property are charged to
earnings.
INCOME TAXES
- ------------
No provision for income taxes is made in the fmancial statements of the
partnership because, as a partnership, it is not subject to income tax,
as the tax effect of its activities accrue to the partners.
AMORTIZATION
- ------------
Fees and expenses incurred in connection with placing the underlying
financing in the amount of $207,500 are being amortized over five years
on a straight-line basis.
Expenses incurred in acquiring the property in the amount of $192,500
are being amortized over forty years on a straight-line basis.
STATEMENT OF CASH FLOWS
- -----------------------
For purposes of the statement of cash flows, cash consists of
unrestricted cash in a checking account.
CREDIT RISK-ECONOMIC DEPENDENCY
- -------------------------------
On March 1, 1993, Lockheed Corporation purchased the Fort Worth Division
of General Dynamics (the sole tenant). Lockheed purchased all of the
assets held by the division and assumed all of the liabilities,
including those under the lease with the Partnership.
In the process of Lockheed's assumption of the General Dynamics Lease,
the Partnership was able to negotiate a Consent Agreement which granted
Lockheed the right to assume the Lease so long as General Dynamics
remains jointly liable under the lease. As of December 31, 1995, 11
months remain on the lease. There are no renewal options in the lease
agreement.
<PAGE> 21
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
----------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 1995
-----------------
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On November 17, 1995, the general partner wrote to inform the limited
partners of the sole tenants' decision not to continue the lease beyond
November, 1996. The general partner concurrently sought and subsequently
obtained the permission of a majority of limited partners to sell the
entire rental property, subject to certain conditions stated in that
letter, for a price of at least $19,500,000. If that were to occur, the
general partner anticipates being able to settle the partnership's
outstanding debt for an amount which would allow the distribution of
cash to all partners, but such distribution is likely to be
significantly less than each partner's capital. If the property is not
sold, it would eventually be subject to foreclosure by the wrap mortgage
holder, if as is considered likely, no satisfactory tenant can be found
to lease the property under terms necessary to service the debt. In such
event, the general partner similarly anticipates settling the
partnership's debt for an amount which would allow for a smaller
distribution to partners, but in neither case is the resolution of debt
or a distribution assured.
PARTNERSHIP INCOME
- ------------------
The income of the partnership differs from the taxable ordinary income
of the partnership on the federal income tax return due to tax laws
regarding deferred expenses and depreciation.
<TABLE>
<CAPTION>
<S> <C>
Income Reported on Tax Return $ 1,263,651
Items (Non-Deductible) Deductible on Tax Return:
Deferred Rent 799,590
Depreciation (1,159,339)
----------
Income Per Financial Statements 903,902
==========
</TABLE>
NOTE 2 - THE PARTNERSHIP
The partnership was formed on April 1, 1983 under the laws of the State
of Texas for the purpose of acquiring, owning, and operating a
twenty-story office building located in Dallas, Texas. On November 25,
1991, the partnership conveyed its land, building and personal property
to 1910 Associates, LTD. (1910) in exchange for land, buildings and
personal property located in Fort Worth, Texas. That transaction was
reported as qualifying for nonrecognition of gain for income tax
purposes.
ICA Pacific Place, Inc., is the general partner of the partnership.
<PAGE> 22
PACIFIC PLACE PARTNERS, LTD.
(A TEXAS LIMITED PARTNERSHIP)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
NOTE 3 - MORTGAGE PAYABLE
The partnership is indebted to 1910 Associates, LTD. under a wrap-around
mortgage agreement in the initial amount of $48,187,500. The loan bears interest
at 13% per annum during the initial five year term. Payment terms call for
monthly payments in the amount of $958,333.33 for the first twelve months and
$625,170.70 for the succeeding forty-eight months. During the initial term of
the loan, the debt service payments are equal to the rental payments. The note
is secured by the partnership's land, buildings, and equipment under a Deed of
Trust. The tenant is making payments directly to the mortgagees. The underlying
mortgagees, Principal Mutual Life Insurance Company, Realty Refund Trust and
Prentiss/Copley Investment Group are secured by liens, security interests and
collateral assignments of rents and leases. The initial term of the wrap loan is
five years but may be extended under certain conditions. The general partner
believes the partnership will satisfy the requirements for renewal eligibility
as of November 30, 1996, when the initial five year period ends. The two
extension periods are for five and fifteen years, respectively.
Maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31,
------------------------
1996 $34,113,045
-----------
$34,113,045
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