UNITED STATES
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
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period from ___________________ to ______________________
Commission file number 0-18294
METRIC INCOME TRUST SERIES, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3087630
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One California Street
San Francisco, California 94111-5415
- --------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 678-2000
(800) 347-6707 in all states
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
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 ___
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 ]
No market for the Shares of Common Stock exists and therefore a market
value for such Shares cannot be determined.
Shares of Common Stock outstanding as of February 26, 1998: 6,321,641
DOCUMENTS INCORPORATED HEREIN BY REFERENCE:
Information with respect to directors in Item 10 and the information required by
Items 11-13 is incorporated by reference from the proxy material of the
Registrant in connection with its Annual Meeting of Shareholders scheduled for
June 1998.
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
PART I
Item 1. Business.
Metric Income Trust Series, Inc., a California corporation (hereinafter referred
to as the "Fund" or "Registrant"), was formed in 1989. On April 1, 1997, the
operations of Metric Realty, which had been the Advisor to the Fund since the
Fund's inception, and certain related companies were merged with MetLife Realty
Group, Inc. ("MRG") into SSR Realty Advisors, Inc. ("SSR Realty"), a Delaware
corporation. All companies involved in this transaction are wholly owned by
Metropolitan Life Insurance Company. Metric Realty's managing partner as of
April 1, 1997 became SSR Realty, which maintains its principal office in White
Plains, New York, and a major corporate office in San Francisco, California. The
Advisory Agreement between Metric Realty and the Fund was assigned by Metric
Realty to SSR Realty, effective March 27, 1997, with the consent of the Fund's
Independent Directors. This assignment has had no material effect on the
advisory services provided to the Fund. At the Board Meeting held on February
26, 1998, the Independent Directors also approved the extension of the Advisory
Agreement to December 31, 1998.
The Fund's initial Registration Statement, filed pursuant to the Securities Act
of 1933 (No. 33-27083), was declared effective by the Securities and Exchange
Commission on June 30, 1989. The Registrant marketed its securities pursuant to
its Prospectus dated June 30, 1989 and thereafter supplemented (hereinafter the
"Prospectus"). Such Prospectus was filed with the Commission pursuant to Rule
424(b) of the Securities Act of 1933.
The principal business of the Fund is to acquire income producing net lease real
properties and investments in mortgage-backed securities which are guaranteed as
to payment of principal and interest by the U.S. Government, U.S. Government
agencies or instrumentalities, or federally chartered corporations. The Fund
qualifies as a real estate investment trust ("REIT") under Sections 856 through
860 of the Internal Revenue Code. The proceeds of the offering were used to
purchase mortgage-backed securities and twenty-five net lease properties which
are described in Item 2.
Beginning in July 1989 through June 1990 the Fund offered and sold $60,254,000
in Shares of Common Stock. Through December 31, 1991, additional funding of
$2,800,000 was provided from the Dividend Reinvestment Plan ("DRP"). Effective
with the dividend paid on January 15, 1992 to Shareholders of record on December
31, 1991, the DRP was suspended as a result of the Chapter 11 bankruptcy filing
by National Convenience Stores, Inc. ("NCS"), which was the lessee of 19
convenience stores owned by the Fund (see Item 7 for further information
regarding the NCS bankruptcy and related events). All DRP participants received
the 1992, 1993 and January 15, 1994 dividends in cash. In September, 1993, the
Board of Directors voted unanimously to reinstate the DRP and activate the
Liquidity Option Program ("LOP") effective for the first quarter 1994 dividend
which was paid in May 1994. In June 1996, the Board of Directors voted
unanimously to terminate the DRP and LOP effective as to dividend payments made
after August 15, 1996 and to proceed with the liquidation of the Fund's
portfolio over the next several years. To date all but one of the Fund's
properties have been sold.
Environmental site assessments were performed for five of the Fund's convenience
stores and all other properties at the time of property acquisition. No material
adverse environmental conditions or liabilities were identified at that time. In
no case has the Fund received notice that it is a potentially responsible party
with respect to an environmental clean-up site. However, Phase I Environmental
Site Assessments commissioned by MITS in connection with the marketing for sale
of the convenience stores revealed that the tenant of the property in Rubidoux,
California had reported hydrocarbon contaminants at the site to regulatory
authorities in April 1994. Per the terms of the lease, the lessee was required
to notify MITS at the time of discovery of these contaminants and to promptly
remediate the problem but no such action was taken. The Advisor notified the
tenant of its default and asserted the rights and remedies available under the
lease. In December 1997 San Bernardino County approved a plan submitted by the
tenant requiring that the contamination be monitored only. The Advisor is
finalizing negotiations for an agreement with the tenant whereby the tenant will
agree to indemnify both MITS and any purchaser of the property, and is working
with the tenant to define the exact terms of the indemnification.
The Fund or its tenant maintains property and liability insurance coverage on
the Fund's one property and the Fund believes such coverage to be adequate.
1
<PAGE>
Investment in the Fund is subject to certain risks, including the lack of any
public market for the Fund's Shares which adversely affects the liquidity of
Shareholders' investments in the Fund; potential restrictions on transfers of
Shares which might jeopardize the Fund's qualification as a REIT; limitations on
the percentage of the Fund's Shares owned by any one person; market risks of
mortgage-backed securities related to their sensitivity to interest rate changes
(such as the fact that an increase in interest rates will result in a decrease
in the value of such securities and a decrease in rates may result in an
increased incidence of prepayment of principal at a time when reinvestment at
favorable rates would be impossible); the possibility that the Fund might not
continue to qualify as a REIT; normal risks generally attendant upon the
ownership of real estate such as vacancies, rent levels, changes in general
economic or fiscal conditions, regulatory risks, including zoning and other land
use laws, and natural disasters; costs or liabilities which may arise from any
hazardous materials affecting the Fund's properties; potential non-compliance
with Americans with Disabilities Act; losses which could result from the default
or bankruptcy of any tenant of the Fund; and uninsured losses.
In anticipation of the year 2000, the Advisor is implementing a Year
2000-compliant accounting software product to replace its existing system. The
new system will be fully operational by early 1999. All software programs
currently in use by the Advisor have been inventoried and programs were
identified which will require modification to correct date handling methodology.
Any necessary modifications will be completed by the end of 1998. The Fund's
Servicing and Transfer Agent, Gemisys, utilizes a platform programmed to
correctly interpret the change to the new century. All necessary changes will be
undertaken at no cost to the Fund.
Item 2. Properties.
A description of the properties now or formerly owned by the Fund is as follows:
Date of Date of
Name and Location Purchase Sale Type Size
- ----------------- -------- ---- ---- ----
Pearle Express Stores: (3)
24 Orland Square Drive 11/89 7/96 Retail 5,900
Orland Park, Illinois sq. ft.
1281 Southlake Circle 11/89 3/98 Retail 5,800
Morrow, Georgia sq. ft.
National Convenience Stores:
Stop N Go Store #2092 (5) 11/89 -- Retail 3,100
Mission Road sq. ft.
Rubidoux, California
Stop N Go Store #1332 (12) 11/89 12/97 Retail 3,100
N. Little School Road sq. ft.
Arlington (Kennedale), Texas
Stop N Go Store #1386 (12) 11/89 12/97 Retail 3,100
Babcock Road sq. ft.
San Antonio, Texas
Stop N Go Store #2065 (5) 11/89 12/97 Retail 3,100
Baseline Road sq. ft.
Fontana, California
Stop N Go Store #2374 (5) 11/89 12/97 Retail 3,100
E. Orangethorpe Road sq. ft.
Placentia, California
2
<PAGE>
Item 2. Properties (continued).
Date of Date of
Name and Location Purchase Sale Type Size
- ----------------- -------- ---- ---- ----
Stop N Go Store #2406 (5) 11/89 12/97 Retail 3,100
Windy Hill sq. ft.
Marietta, Georgia
Stop N Go Store #285 (12) 11/89 12/97 Retail 3,100
Altamesa Blvd sq. ft.
Fort Worth, Texas
Stop N Go Store #308 (12) 11/89 12/97 Retail 3,100
West Tarrant Blvd sq. ft.
Grand Prairie, Texas
Stop N Go #328 (12) 11/89 12/97 Retail 3,600
Fredericksburg Blvd sq. ft.
San Antonio, Texas
Stop N Go Store #2378 (11) 11/89 7/97 Retail 3,100
Green Oaks Blvd sq. ft.
Arlington, Texas
Stop N Go #3592 (10) 11/89 3/97 Retail 2,400
25th/Loop 197 sq. ft.
Texas City, Texas
Stop N Go Store #655 (9) 11/89 3/97 Retail 3,100
Northwest Highway sq. ft.
Dallas, Texas
Stop N Go #3571 (8) 11/89 3/97 Retail 2,400
N. Circle sq. ft.
Sealy, Texas
Stop N Go #3583 (7) 11/89 2/97 Retail 2,400
Hwy 288 sq. ft.
Clute, Texas
Stop N Go Store #674 (5) 11/89 11/96 Retail 3,100
Archibald sq. ft.
Rancho Cucamonga, California
Stop N Go Store #3755 (6) 11/89 12/96 Retail 2,900
FM 1960 sq. ft.
Houston, Texas
Stop N Go Store #1714 (1) 11/89 12/93 Retail 3,100
Grand Avenue Parkway sq. ft.
Pflugerville, Texas
Stop N Go Store #3531 (1) 11/89 08/93 Retail 2,400
Seawall Blvd sq. ft.
Galveston, Texas
Stop N Go Store #3254 (1) 11/89 06/93 Retail 2,400
Stedwick Street sq. ft.
San Antonio, Texas
3
<PAGE>
Item 2. Properties (continued).
Date of Date of
Name and Location Purchase Sale Type Size
- ----------------- -------- ---- ---- ----
Other Stores:
Wickes Furniture Store 1/90 12/97 Retail 51,000
Torrance, California sq. ft.
Haverty's Furniture Store 12/94 10/97 Retail 55,000
Plano, Texas sq. ft.
Sam's Club (2) 5/90 6/96 Retail 108,000
Menomonee Falls, Wisconsin sq. ft.
Former Phar-Mor Store (4) 12/90 3/95 Retail 56,400
Franklin Township, Ohio sq. ft.
(1) In December 1991 NCS filed a petition with the U.S. Bankruptcy Court
for reorganization under Chapter 11 of the federal Bankruptcy Code. As
a result of the bankruptcy proceedings, three stores were closed in
1992 for which the leases were rejected and those properties were
subsequently sold to unaffiliated buyers (see Item 7).
(2) Formerly Wholesale Club. The Fund's store was vacated in April 1992 and
100% of the building was subleased in 1994 and 1995. On June 25, 1996,
the building was sold to an unaffiliated buyer.
(3) Formerly Eyelab Superstores. On July 10, 1996, the Orland Park,
Illinois store was sold to an unaffiliated buyer, and on March 3, 1998,
the Morrow, Georgia store was sold to an unaffiliated buyer.
(4) On March 15, 1995, the building was sold to an unaffiliated buyer.
(5) In April 1994, through a purchase and exchange transaction with NCS,
Circle K became the operator of five of the Fund's stores, four in
California and one in Georgia. Although lease payments for the
remaining store owned by the Fund are now received from Circle K, NCS
remains financially liable under the terms of the lease. On November
12, 1996, the store located in Rancho Cucamonga, California was sold to
an unaffiliated buyer, and on December 23, 1997, the stores located in
Fontana and Placentia, California, and the store located in Marietta,
Georgia were sold to an unaffiliated buyer.
(6) In August 1994, a portion of the land was sold through condemnation.
On December 19, 1996, the store was sold to an unaffiliated buyer.
(7) On February 28, 1997 the store in Clute, Texas was sold to an
unaffiliated buyer. (8) On March 5, 1997 the store in Sealy, Texas
was sold to an unaffiliated buyer. (9) On March 12, 1997 the store in
Dallas, Texas was sold to an unaffiliated buyer. (10) On March 28, 1997
the store in Texas City, Texas was sold to an unaffiliated buyer.(11)
On July 24, 1997 the store in Arlington (Green Oaks Blvd.), Texas was
sold to an unaffiliated buyer.
(12) On December 23, 1997 the stores in San Antonio, Arlington (Babcock
Road), Arlington (Kennedale), Grand Prairie and Fort Worth, Texas were
sold to an unaffiliated buyer.
All of the Registrant's properties are or were owned in fee.
4
<PAGE>
See Selected Financial Data in Item 6 for lease income. See the Consolidated
Financial Statements in Item 8 for information regarding the Fund's properties.
An occupancy summary is set forth on the chart following:
OCCUPANCY SUMMARY
Occupancy rate (%)
at December 31
1997 1996 1995
---- ---- ----
COMMERCIAL BUILDINGS:
Pearle Express Stores (1) ..... 100% 100% 100%
National Convenience Stores (2) 100 100 100
Wickes Furniture Store ........ N/A 100 100
Sam's Club (4) ................ N/A N/A 100
Former Phar-Mor Store (3) ..... N/A N/A N/A
Haverty's Furniture Store ..... N/A 100 100
(1) Represents occupancy at the Pearle Express store in Morrow, Georgia,
which was sold in March 1998. In July 1996, the Orland Park, Illinois
store was sold.
(2) Represents occupancy at the remaining store owned by the Fund. In April
1994, through a purchase and exchange transaction with NCS, Circle K
became the operator of five of the Fund's stores, four in California
and one in Georgia. In November and December 1996, two of the stores
were sold, followed by another in February 1997, three in March 1997,
one in July 1997, and eight in December 1997. See Note 9 to the
consolidated financial statements. Although lease payments for the
remaining store, located in Rubidoux, California, are now received from
Circle K, NCS remains financially liable under the terms of the lease.
(3) In August 1992 Phar-Mor filed for protection under Chapter 11 of the
federal Bankruptcy Code (see Item 7 and Item 8, Note 7 to the
consolidated financial statements). Phar-Mor rejected the Fund's lease
effective May 15, 1993 after closing the store at the end of April. The
store was subdivided in 1994 and 24,709 square feet was leased to
Superpetz, Inc. The building was subsequently sold on March 15, 1995.
(4) Represents economic occupancy at December 31, 1995. Lessee vacated the
store in April 1992, but remained current in its lease obligations to
the Fund. During the fourth quarter of 1994 and first quarter of 1995,
the Fund's Advisor reviewed and approved two subleases presented by the
lessee and the building was 100% occupied until it was sold in June
1996.
Item 3. Legal Proceedings.
The Fund has been a creditor in bankruptcy proceedings filed by Phar-Mor (See
Item 7 and Item 8, Note 7 to the consolidated financial statements). In December
1994, Phar-Mor filed in these proceedings a preference recovery action against
several hundred vendors and landlords, including the Fund. The amount of the
preferential payments alleged to have been made to the Fund was $90,250,
consisting of rent paid to the Fund within 90 days of the filing of the Phar-Mor
bankruptcy petitions. This preference action was dismissed in connection with
the confirmation of a reorganization plan for Phar-Mor. In August 1995, the
Court confirmed Phar-Mor's proposed reorganization plan which called for
unsecured creditors to receive a portion of a pool of the company's new stock,
as well as warrants to purchase additional stock at a fixed price. In October
1996, the Fund received approximately $19,000 from Phar-Mor to satisfy its
administrative claim and agreed to settle its remaining outstanding lease
rejection claim for approximately $629,000. This settlement was approved by the
Bankruptcy Court in January 1997. To satisfy its claim, in March 1997, the Fund
received 1,058 shares of stock and 881 warrants, which were sold in June 1997
for approximately $7,000.
5
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period covered
by this Report.
PART II
Item 5. Market for Registrant's Shares of Common Stock and Related Stockholder
Matters.
No public market for the Shares exists, nor is one expected to develop. However,
Shares of Common Stock were sold through the Dividend Reinvestment Plan (DRP)
pursuant to the Liquidity Option Program (LOP). The per Share price for Shares
acquired through the DRP with the proceeds of the dividends was established by
the Fund's Board of Directors, pursuant to a formula having as its components
independent third-party appraisals of the Fund's properties as of December 31 of
each year, the market value of the Fund's mortgage-backed securities, and the
net book value of its other assets and liabilities as of each quarter end prior
to the dividend payment. In June 1996 the Board of Directors voted to terminate
the DRP and LOP effective as to dividend payments made after August 15, 1996.
The Board of Directors believed that with the implementation of a formal
disposition strategy for the Fund, the Plan was no longer a viable purchase and
liquidation vehicle. It is the intention of the Fund's Advisor, however, to
continue to provide, on a quarterly basis, an estimated net asset value per
Share utilizing the same method as previously used to determine the DRP per
Share price. The estimated net asset value per Share as of December 31, 1997 has
been determined to be $0.597. The change in the estimated net asset value per
Share from $3.34 as of September 30, 1997 to $0.597 as of December 31, 1997 is
primarily the result of the dividend paid from the proceeds of the sale of
Haverty's, Wickes, and eight convenience store properties.
Many factors are involved in determining the actual fair market value of the
shares of stock of a company. Therefore, no assurance can be given that the
estimated net asset value per Share determined by the Advisor to the Fund as of
any valuation date will represent actual fair market value of a Share of stock
of the Fund.
In addition, the property values utilized in the calculation were based upon
estimated net proceeds should the two properties held at December 31, 1997 be
sold at their asking prices. One of the Fund's two remaining properties at
December 31, 1997, the Pearle Express store in Morrow, Georgia, was sold in
March 1998 at the price utilized for the valuation. These values do not
necessarily reflect the price which the Fund would ultimately receive upon the
sale of the asset. Since methods for determining values vary, if an alternate
method of valuation were used, it could result in a value different from the
value utilized.
As of December 31, 1997 the approximate number of Shareholders was as follows:
Number of
Title of Class Record Holders
-------------- --------------
Common Stock 4,587
Item 6. Selected Financial Data.
The following table presents selected financial data for the Fund for the years
ended December 31, 1997, 1996, 1995, 1994 and 1993. The data should be read in
conjunction with the consolidated financial statements included elsewhere
herein. Dividends were declared from operations and sales and were paid
quarterly or subsequent to sale upon recommendation and approval of the Fund's
Board of Directors.
<TABLE>
<CAPTION>
For-the-Year-Ended
December 31
---------------------------------------------------
1997(1) 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Amounts in thousands except per unit data)
TOTAL REVENUES .................. $ 3,954 $ 4,886 $ 5,156 $ 4,670 $ 4,886
GAIN (LOSS) ON SALE OF PROPERTIES $ (469) $ 760 $ 126 $ (32) --
NET INCOME ...................... $ 2,459 $ 4,552 $ 3,930 $ 2,888 $ 2,644
NET INCOME PER SHARE ............ $ .39 $ .72 $ .62 $ .46 $ .42
TOTAL ASSETS .................... $ 21,625 $35,939 $42,211 $ 45,603 $49,510
DIVIDENDS PER SHARE ............. $ 4.79 $ 2.08 $ 1.26 $ .85 $ .85
<FN>
(1) See discussion in Item 7 regarding future results of operations.
</FN>
</TABLE>
6
<PAGE>
Lease Income
The following Lease Income table presents lease income for the properties by
lessee included in the Fund's consolidated financial statements:
For the Year Ended
December 31
-------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
National Convenience Stores (1)(2) $1,238 $1,825 $1,852 $1,552 $1,527
Pearle Express Stores (5) ........ 119 217 283 282 265
Wickes Furniture Store (7) ....... 1,365 1,372 1,202 1,135 1,036
Sam's Club (6) ................... -- 284 524 511 511
Former Phar-Mor Store (3) ........ -- -- 28 6 135
Haverty's Furniture Store (4) .... 330 411 411 11 --
------ ------ ------ ------ ------
Total ............................ $3,052 $4,109 $4,300 $3,497 $3,474
====== ====== ====== ====== ======
- -------
(1) As a result of bankruptcy proceedings, three stores were closed in 1992
for which the leases were rejected and the properties were subsequently
sold in June, August and December 1993 (see Item 7). In April 1994,
through a purchase and exchange transaction with NCS, Circle K became
the operator of five of the Fund's stores, four in California and one
in Georgia. Lease payments for the one remaining Circle K store are now
received from Circle K; however, NCS remains financially liable under
the terms of the lease. In December 1995 Diamond Shamrock purchased the
outstanding stock of NCS and subsequently merged with Ultramar
Corporation to form Ultramar Diamond Shamrock Corporation. In November
and December 1996, two stores were sold (one of which was operated by
Circle K), followed by another in February 1997 and three in March
1997, one in July 1997, and eight in December 1997 (See Note 9 to the
consolidated financial statements).
(2) Includes $151,000, $245,000 and $279,000 deferred lease income in 1997,
1996 and 1995, respectively.
(3) On March 15, 1995, the building was sold to an unaffiliated buyer.
(4) Acquired in December 1994, and sold to an unaffiliated buyer in
December 1997.
(5) The Orland Park, Illinois store was sold in July 1996. See Note 9 to
the consolidated financial statements.
(6) The property was sold in June 1996. See Note 9 to the consolidated
financial statements.
(7) Includes $79,000 and $162,000 deferred lease income in 1997 and 1996,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
The Fund is in the process of winding down its operations and has sold the
majority of its assets as of December 31, 1997. Accordingly, historical
financial information will not be representative of future results. Future
results of operations will be limited to the sale of the Fund's remaining
properties and the orderly liquidation of its assets and liabilities.
Results of Operations
Income before net gain (loss) on sale of properties decreased $864,000 from 1997
compared to 1996. The 1997 decrease was primarily due to sales-related decreases
in lease income and interest on mortgage-backed securities, which were partially
offset by gain on sale of mortgage-backed securities and an increase in other
income as well as a decrease in expenses.
Lease income decreased $1,057,000 in 1997 compared to 1996 primarily due to the
sale of Sam's Club in June 1996, the Pearle Express Store in Orland Park,
Illinois in July 1996, the NCS Stores in Rancho Cucamonga, California and
Houston Texas in November and December 1996, respectively, the NCS store in
Clute, Texas in February 1997, the NCS stores located in Sealy, Dallas, and
7
<PAGE>
Texas City, Texas in March 1997, the NCS stores located in Arlington, Texas in
July 1997, and Haverty's Furniture Store located in Plano, Texas in October 1997
(see Note 9 to the consolidated financial statements).
Interest on the Fund's mortgage-backed securities declined $210,000 in 1997
compared to 1996 due to the reduction in the amount of securities owned by the
Fund resulting from principal repayments prior to the end of the third quarter
of 1997 and to the sale of the remaining portfolio at the end of the third
quarter. The sale resulted in a net gain of $226,000 (see Note 3 to the
consolidated financial statements).
Interest and other income increased $109,000 in 1997 compared to 1996 due
primarily to the receipt of $76,000 towards settlement of the Fund's claim filed
in conjunction with the bankruptcy and subsequent reorganization of NCS (see
Note 7 to the consolidated financial statements). There was also an increase in
interest income due primarily to interest income earned on the proceeds of the
sales of mortgage-backed securities and the proceeds of the sale of Haverty's
Furniture Store.
Depreciation expense decreased $269,000 in 1997 compared to 1996 due to
depreciation not being provided for the NCS stores in 1997, nor for any of the
remaining properties after the second quarter of 1997 (see Note 5 to the
consolidated financial statements) and the sale of the Orland Park Pearle
Express Store in July 1996 (see Note 9 to the consolidated financial
statements).
General and administrative expense increased $159,000 in 1997 compared to 1996
due primarily to an accrual for the purchase of a directors and officers'
liability insurance policy at a cost of $274,000. This was partially offset by a
decrease in advisory and appraisal fees due to the sale of several stores in
1997 and 1996 as discussed above.
An impairment provision for real estate held for sale was booked in 1997 for the
Pearle Express store in order to reduce the carrying value of the property to
its estimated fair market value less cost to sell (see Note 5 to the
consolidated financial statements).
As discussed in Note 9 to the consolidated financial statements, the Fund sold
thirteen convenience stores, Haverty's Furniture Store and Wickes Furniture
Store in 1997, resulting in a net loss of $469,000.
1996 Compared to 1995
Income before net gain on sale of properties decreased $12,000 in 1996 compared
to 1995. The 1996 decrease was primarily due to decreases in lease income and
interest on mortgage-backed securities, which were partially offset by the
decrease in depreciation, as discussed below.
Lease income in 1996 decreased $191,000 when compared to 1995 primarily due to
the sale of Sam's Club in June 1996, the Pearle Express store in Orland Park,
Illinois in July 1996, and the NCS stores in Rancho Cucamonga, California and
Houston, Texas in November and December 1996, respectively, which decrease was
partially offset by the increase in lease income from the Wickes Furniture store
as a result of recording deferred lease income of $162,000 in 1996.
Interest on the Fund's mortgage-backed securities portfolio declined 13% in 1996
compared to 1995 due to the reduction in the amount of securities owned by the
Fund. The total of the Fund's mortgage-backed securities was reduced due to
principal repayments. These repayment proceeds were used to support dividend
payments to Shareholders. Other income increased in 1996 compared to 1995
primarily due to the receipt of the administrative claim of approximately
$19,000 from Phar-Mor for post-petition real estate taxes for the period through
May 15, 1993 (see Note 7 to the consolidated financial statements).
Depreciation expense decreased in 1996 compared to 1995 primarily due to the
sale of the Pearle Express store in July 1996 and the classification of Sam's
Club in 1995 and the NCS properties in the third quarter of 1996 as Real Estate
Held for Sale and depreciation not being provided for subsequent to the
classification (see Note 9 and Note 5 to the consolidated financial statements).
General and administrative expense decreased slightly in 1996 as compared to
1995 primarily due to the decrease in advisory fee as a result of the sales of
properties in 1996 and 1995 (see Note 9 to the consolidated financial
statements) and the decrease in legal fees relating to the Phar-Mor bankruptcy
proceedings (see Note 7 to the consolidated financial statements). The decreases
were partially offset by the increase in administrative expenses reimbursed to
the Fund's Advisor.
8
<PAGE>
As discussed in Item 8, Note 9, in June, July, November, and December 1996, the
Fund sold the Sam's Club, Pearle Express -Orland Park, Illinois, NCS store in
Rancho Cucamonga, California and NCS store in Houston, Texas, respectively, and
recognized a net gain totaling $760,000.
Fund Liquidity and Capital Resources
Introduction
The Fund intends to meet its cash needs from cash flow generated by its
remaining property and securities and from the proceeds from the sale of such
property and securities. In order to continue to qualify as a REIT for income
tax purposes, the Fund is required, among other things, to distribute 95 percent
of its REIT taxable income to its Shareholders annually. The level of quarterly
cash dividends to Shareholders in 1997 was sustained by cash provided from net
operating activities, from principal repayments on the mortgage-backed
securities, from capital gains from the sale of securities, and from property
sale proceeds.
Since inception, the principal source of capital resources has been proceeds
from the sale of the Fund's common stock. Through June 30, 1992, proceeds from
the sale of common stock totaled $63,054,000, including proceeds raised through
the DRP of $2,800,000. The DRP was to have purchased newly issued Shares until
June 30, 1992, and thereafter, Shares from Shareholders wishing to sell Shares,
if any. However, the DRP was suspended effective with the January 15, 1992
distribution to Shareholders of record on December 31, 1991 as a result of the
Chapter 11 bankruptcy filing by National Convenience Stores ("NCS"). The Board
of Directors extended the suspension of the DRP with respect to the dividends
paid in 1992, 1993 and January 20, 1994 and all DRP participants received the
dividends in cash.
In September, 1993, the Board of Directors voted unanimously to reinstate the
DRP and activate the LOP. Purchases of Shares through the DRP (to the extent of
participation in the DRP) commenced with respect to the dividend paid for the
first quarter of 1994. In June 1996 the Board of Directors voted unanimously to
terminate the DRP and LOP effective as to dividends paid after August 15, 1996
as the Fund had begun its disposition phase. The Fund's Advisor will continue to
provide, on a quarterly basis, an estimated net asset value per Share utilizing
the same methods previously utilized to calculate the DRP per Share purchase
price. Based on the anticipated net sales proceeds to the Fund for its two
remaining properties at December 31, 1997 and carrying value of its other assets
and liabilities as of December 31, 1997, the Advisor estimated the per Share net
asset value to be $0.597.
As presented in the Consolidated Statement of Cash Flows, cash was provided by
operating activities. In addition, cash was provided by investing activities
from proceeds from sales of properties and mortgage-backed securities and
principal payments received on mortgage-backed securities. Cash was used by
investing activities for expenses incurred in the sales of properties. Cash was
used by financing activities for dividends paid to Shareholders.
NCS was the seller and lessee of 19 properties operated as Stop N Go convenience
stores acquired by the Fund in November 1989. In March 1993, NCS had a
reorganization plan confirmed by the Court which became effective March 9, 1993
(NCS had filed a petition for reorganization under Chapter 11 in December 1991).
As payment for a claim filed by the Fund with the Bankruptcy Court with respect
to three rejected leases, NCS agreed to issue new shares of its common stock to
the Fund. Through May 1995, the Fund received 17,161 shares of NCS stock which
were immediately sold and resulted in net proceeds of $230,000. In June 1996 the
Fund received $32,000 in lieu of 1,170 shares of NCS common stock from Diamond
Shamrock Corporation, the firm which purchased the majority of the outstanding
NCS stock in December 1995. In late 1996 Diamond Shamrock Corporation merged
with Ultramar Corporation to form Ultramar Diamond Shamrock Corporation (UDS).
In August 1997 the Fund received $76,000 in lieu of 2,638 shares of common stock
plus accrued interest, bringing the total compensation received under the terms
of the settlement to approximately $338,000.
In April 1994, NCS completed an exchange and sale of stores with another
convenience store operator, Circle K Corporation. NCS exchanged 53 stores in
Southern California for 88 Circle K stores in the Dallas and Houston markets. In
addition, Circle K purchased 27 NCS stores in the Atlanta market. Five of the
Fund's stores, four in Southern California and one in Atlanta, were included in
the transactions and during the third quarter of 1994 were converted to Circle K
operations. Although lease payments for the Fund's single remaining store,
operated as Circle K, are received from Circle K Corporation, NCS remains
financially liable under the terms of the lease.
9
<PAGE>
In November 1996 the Fund sold the store located in Rancho Cucamonga, California
(operated by Circle K), and in December 1996 the Fund sold the store in Houston,
Texas. In February 1997, the Fund sold the store located in Clute, Texas,
followed by the sales of the stores located in Texas City, Dallas, and Sealy,
Texas in March 1997. In July 1997, the Fund sold the store located in Arlington,
Texas. In December 1997, the Fund sold the stores located in San Antonio
(Fredericksburg Blvd. and Babcock Road), Arlington (Kennedale- N. Little School
Road), Grand Prairie, and Fort Worth, Texas. Also in December 1997, the Fund
sold the stores located in Marietta, Georgia, and in Placentia and Fontana,
California (all operated by Circle K) (see Note 9 to the consolidated financial
statements).
The Fund remains the owner of one convenience store property, located in
Rubidoux, California. In connection with the marketing of the convenience
stores, the Fund had commissioned Phase I Environmental Site Assessments which
revealed that Circle K, the tenant of the Rubidoux property, had reported
hydrocarbon contaminants to regulatory authorities in April 1994. Per the terms
of the lease, the lessee was required to notify the Fund at the time of
discovery and to promptly remediate the problem but no such action was taken.
The Advisor has been assured by Circle K that it will indemnify both the Fund
and any purchaser of the property. The Fund is currently in negotiations with
the tenant for adequate indemnification and security, as required under the
terms of the lease. With this indemnification, the Fund believes that the
contamination, as it is now defined, will not materially adversely affect an
ultimate sales price. Marketing efforts for the property continue.
In June 1996 the Fund sold Sam's Club located in Menomonee Falls, Wisconsin (see
Note 9 to the consolidated financial statements). Of the proceeds received by
the Fund, $108,000 was deposited into an escrow account to secure payment for
construction work to be completed by the tenant at the property. The tenant
subsequently claimed that the work specified was beyond the requirements under
the original lease. The tenant will complete the work to the extent required
under the lease, and the remainder will be completed and paid for from the
escrowed funds. Once the work is complete, any remaining funds from the escrow
account will be released to the Fund. As of December 31 1997, it was estimated
that $72,000 of the construction work would be paid from the escrowed funds.
During the fourth quarter of 1995, the Fund successfully negotiated a three
year, eight month lease extension for the Pearle Express location in Orland
Park, Illinois, which took effect December 1, 1995. In July 1996 the Fund sold
the Orland Park location (see Note 9 to the consolidated financial statements).
In the first quarter of 1997 the Fund negotiated an amended lease for the
Morrow, Georgia location, which extended the term of the lease by eight years in
exchange for a blending of existing market rental rates with the terms of the
original lease. Subsequent to the close of 1997, the Fund entered into a sales
contract for the property, and the sale was completed on March 3, 1998 (see Note
10 to the consolidated financial statements).
The Fund's former Phar-Mor store was sold March 15, 1995, subsequent to
negotiations following an unsolicited purchase offer for the building (see Note
9 to the consolidated financial statements).
In October 1997, the Fund sold Haverty's Furniture store, located in Plano,
Texas (see Note 9 to the consolidated financial statements).
In December 1997 the Fund sold Wickes Furniture Store, located in Torrance,
California (see Note 9 to the consolidated financial statements).
The Fund will request that its Shareholders approve a plan of liquidation (the
"Liquidation Plan") at its Annual Meeting, scheduled for June 17, 1998. The
Liquidation Plan will be described in the Fund's Proxy Statement and will
specify a two-year wind-down period. The Fund has requested a letter of
"no-action" from the Securities and Exchange Commission, allowing for reduced
filing and reporting requirements during this period. The Board of Directors
voted unanimously at its December 10, 1997 meeting to maintain $2,000,000 as a
reserve to protect the Fund from any unforseen claims or operating
contingencies. At this time the proceeds from the March 3, 1998 sale of the
Morrow, Georgia Pearle Express Store and from the anticipated sale of the Fund's
remaining convenience store property, located in Rubidoux, California, will also
be maintained as reserves until such time as the Board determines to distribute
such proceeds. The majority of these reserves will be invested in
mortgage-backed securities. Income generated by the reserves will be utilized to
cover operating costs during the wind-down period. Any income in excess of that
used for operating expenses will be paid to Shareholders, subject to the
approval of the Board of Directors. All remaining funds will be paid to
Shareholders at the end of the wind-down period, at which time the Fund will be
dissolved.
10
<PAGE>
Item 8. Financial Statements and Financial Statement Schedules.
METRIC INCOME TRUST SERIES, INC.,
a California corporation
TABLE OF CONTENTS
Page
----
Report of Independent Auditors........................................... 12
Consolidated Financial Statements:
Balance Sheets at December 31, 1997 and 1996 ..................... 13
Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995................................................... 14
Statements of Shareholders' Equity for the Years Ended December
31, 1997, 1996 and 1995......................................... 15
Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995................................................... 16
Notes to Consolidated Financial Statements........................ 17
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997............................................... 24
11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Metric Income Trust Series, Inc., a California corporation:
We have audited the accompanying consolidated balance sheets of Metric Income
Trust Series, Inc., a California corporation ("the Fund"), as of December 31,
1997 and 1996 and the related consolidated statements of operations,
Shareholders' equity and cash flows for the three years in the period ended
December 31, 1997. Our audits also included the financial statement schedule of
the Fund listed in the accompanying table of contents. These financial
statements and financial statement schedule are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Fund at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information shown therein.
Ernst & Young LLP
San Francisco, California
February 2, 1998, except Note 10 as
to which the date is March 3, 1998.
12
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
A California corporation
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
1997 1996
---- ----
ASSETS
Cash $ 19,762,000 $ 3,781,000
Accounts and Interest Receivable 65,000 669,000
Investment in Mortgage-Backed Securities - Net -- 7,251,000
Rental Properties -- 14,798,000
Accumulated Depreciation -- (1,286,000)
------------ ------------
Properties and Improvements - Net -- 13,512,000
Real Estate Held for Sale 1,744,000 10,612,000
Prepaid and Other Assets 54,000 114,000
------------ ------------
Total Assets $ 21,625,000 $ 35,939,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Dividends Payable $ 17,385,000 $ 3,888,000
Payable to Sponsor and Affiliates 50,000 9,000
Other Accounts Payable and Accrued Liabilities 326,000 187,000
------------ ------------
Total Liabilities 17,761,000 4,084,000
------------ ------------
Commitments and Contingencies
Shareholder's Equity:
Common Stock - no par value, stated at $0.001,
12,250,000 Shares authorized and 6,321,641
Shares issued and outstanding 6,000 6,000
Additional Paid-in Capital 55,200,000 55,200,000
Accumulated Dividends in Excess of Net Income (51,342,000) (23,521,000)
Unrealized Holding Gain on Investment
in Mortgage-Backed Securities - Net -- 170,000
------------ ------------
Total Shareholder's Equity 3,864,000 31,855,000
------------ ------------
Total Liabilities and Shareholder's Equity $ 21,625,000 $ 35,939,000
============ ============
See notes to consolidated financial statements
13
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Revenues:
Lease income $ 3,052,000 $ 4,109,000 $ 4,300,000
Interest on mortgage-backed securities 401,000 611,000 702,000
Interest and other income 275,000 166,000 138,000
Gain on sale of mortgage-backed
securities - net 226,000 -- 16,000
----------- ----------- -----------
Total Revenues 3,954,000 4,886,000 5,156,000
----------- ----------- -----------
Expenses (including $389,000, $467,000
and $454,000 paid or payable to advisor
and affiliates in 1997, 1996 and 1995):
Depreciation 128,000 397,000 652,000
General and administrative 856,000 697,000 700,000
Impairment provision for real estate
held for sale 42,000 -- --
----------- ----------- -----------
Total Expenses 1,026,000 1,094,000 1,352,000
----------- ----------- -----------
Income before Gain (Loss) on Sale
of Properties 2,928,000 3,792,000 3,804,000
Gain (Loss) on Sale of Properties - Net (469,000) 760,000 126,000
----------- ----------- -----------
Net Income $ 2,459,000 $ 4,552,000 $ 3,930,000
=========== =========== ===========
Net Income per Share
Income before gain (loss) on sale
of properties $ 0.46 $ 0.60 $ 0.60
Gain (loss) on sale of properties - net (0.07) 0.12 0.02
----------- ----------- -----------
Net Income per Share $ 0.39 $ 0.72 $ 0.62
=========== =========== ===========
Dividends per Share $ 4.79 $ 2.08 $ 1.26
=========== =========== ===========
See notes to consolidated financial statements
14
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
A California corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Unrealized
Holding
Accumulated Gain/(Loss)
Common Stock Additional Dividends on Investment in
------------ Paid-in in Excess Mortgage-Backed
Shares Amount Capital of Net Income Securities - Net Total
------ ------ ------- ------------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 6,321,641 $ 6,000 $ 55,200,000 $(10,912,000) $ (319,000) $ 43,975,000
Unrealized Holding Gain
on Investment in Mortgage-Backed
Securities - Net -- -- -- -- 677,000 677,000
Income Before Gain on
Sale of Property -- -- -- 3,804,000 -- 3,804,000
Gain on Sale of Property -- -- -- 126,000 -- 126,000
Dividends Declared -- -- -- (7,965,000) -- (7,965,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 6,321,641 6,000 55,200,000 (14,947,000) 358,000 40,617,000
Unrealized Holding Loss
on Investment in Mortgage-Backed
Securities - Net -- -- -- -- (188,000) (188,000)
Income Before Gain on
Sale of Properties -- -- -- 3,792,000 -- 3,792,000
Gain on Sale of Properties - Net -- -- -- 760,000 -- 760,000
Dividends Declared -- -- -- (13,126,000) -- (13,126,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 6,321,641 6,000 55,200,000 (23,521,000) 170,000 31,855,000
Realization of Unrealized Holding
Gain on Investmentin Mortgage-
Backed Securities - Net -- -- -- -- (170,000) (170,000)
Income Before Net Loss on
Sale of Properties -- -- -- 2,928,000 -- 2,928,000
Loss on Sale of Properties - Net -- -- -- (469,000) -- (469,000)
Dividends Declared -- -- -- (30,280,000) -- (30,280,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 6,321,641 $ 6,000 $ 55,200,000 $(51,342,000) $ -- $ 3,864,000
============ ============ ============ ============ ============ ============
See consolidated financial statements
15
</TABLE>
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net Income $ 2,459,000 $ 4,552,000 $ 3,930,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 122,000 389,000 642,000
Gain on sale of mortgage-backed securities - net (226,000) -- (16,000)
Impairment provision for real estate held for sale 42,000
(Gain) loss on sale of properties - net 469,000 (760,000) (126,000)
Changes in operating assets and liabilities:
Increase in accounts and interest receivable (178,000) (332,000) (296,000)
(Increase) decrease in prepaid and other assets 1,000 (106,000) 9,000
Increase (decrease) in payable to sponsor and affiliates 41,000 (13,000) (48,000)
Increase (decrease) in other accounts payable and
accrued liabilities 139,000 (121,000) 93,000
------------ ------------ ------------
Net cash provided by operating activities 2,869,000 3,609,000 4,188,000
------------ ------------ ------------
Investing Activities
Rental properties acquisitions and additions -- -- (59,000)
Purchase of cash investments -- -- (2,855,000)
Proceeds from cash investments -- -- 2,855,000
Purchase of mortgage-backed securities -- -- (301,000)
Proceeds from sale of mortgage-backed securities 6,698,000 -- 303,000
Principal payments received on mortgage-backed securities 615,000 1,144,000 626,000
Proceeds from sales of properties 23,812,000 9,039,000 3,050,000
Cash used for selling costs of properties (1,229,000) (485,000) (126,000)
------------ ------------ ------------
Net cash provided by investing activities 29,896,000 9,698,000 3,493,000
------------ ------------ ------------
Financing Activities
Dividends paid to Shareholders (16,784,000) (10,502,000) (8,044,000)
------------ ------------ ------------
Cash used by financing activities (16,784,000) (10,502,000) (8,044,000)
------------ ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents 15,981,000 2,805,000 (363,000)
Cash and cash equivalents at beginning of year 3,781,000 976,000 1,339,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 19,762,000 $ 3,781,000 $ 976,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized holding gain (loss) on investment in mortgage-backed securities - see Note 3
Sale of rental properties - see Note 9
See notes to consolidated financial statements
16
</TABLE>
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization - Metric Income Trust Series, Inc., a California
corporation ("Fund"), was organized in 1989 under the laws of the State
of California to acquire income producing real properties and
investments in securities which are guaranteed as to payment of
principal and interest by the U.S. Government, U.S. Government agencies
or instrumentalities, or federally chartered corporations. The Fund
qualifies as a real estate investment trust ("REIT") under Sections 856
through 860 of the Internal Revenue Code.
Effective April 1, 1997, Metric Holdings Inc., the indirect Parent of
Metric Realty, the former Advisor, was merged into a newly formed
entity known as SSR Realty Advisors, Inc. ("SSR"). SSR was incorporated
under the laws of Delaware on February 25, 1997 and is a registered
investment adviser in accordance with the Investment Advisers Act of
1940. With the consent of the Fund, the Advisory Agreement was assigned
to SSR by Metric Realty on March 27, 1997. SSR is a subsidiary of
Metropolitan Life Insurance Company. Under the advisory agreement, SSR
furnishes day-to-day management and carries out the investment
objectives and policies established by the Board of Directors. An
affiliate of the advisor owns 21,506 shares of common stock. The Fund
is currently in the process of liquidating its real estate assets and
winding down its affairs.
Consolidation - The consolidated financial statements include the
statements of the Fund and its wholly-owned subsidiary which owned all
properties located in Texas prior to their sale. All significant
intercompany transactions and balances have been eliminated.
Fair Value of Financial Instruments - Except for the Fund's investment
in mortgaged-backed securities, the fair values of the Fund's financial
instruments approximate their historic cost, as reported in the balance
sheet. In accordance with FASB Statement 115, the Fund's investments in
mortgage-backed securities are reported at fair value.
Accounting Pronouncement - The Fund has adopted Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" ("SFAS 121"). This statement requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets
during the holding period are less than the assets' carrying amount.
SFAS 121 also provides for long-lived assets that are expected to be
disposed of to be recorded at the lower of carrying value or fair
market value less estimated cost to sell. An impairment provision for
real estate held for sale was recorded in 1997 (See Note 5).
Use of Estimates - The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Fund considers highly liquid
investments with an original maturity date of three months or less at
the time of purchase to be cash equivalents.
Rental Properties - Rental properties were stated at cost at December
31, 1996.
Real Estate Held for Sale - Real estate held for sale is stated at the
lower of its carrying amount or estimated fair value less disposal
costs. Depreciation is not recorded on assets classified as held for
sale.
Revenue Recognition - Rental revenue under tenant lease agreements is
recognized on the straight-line method over the lease terms except
where such amounts are immaterial or where the underlying tenants are
experiencing financial difficulties. Once difficulties are resolved,
rental revenue is straight lined (unless the adjustment is immaterial)
on prospective rental streams for tenants who have resolved or
mitigated their financial difficulties.
17
<PAGE>
Depreciation - Depreciation is computed using the straight-line method
over estimated useful lives of 30 years for buildings and improvements.
Beginning in the fourth quarter of 1995, properties categorized as real
estate held for sale are not depreciated as a result of the Fund
adopting SFAS 121.
Mortgage-Backed Securities - Mortgage-backed securities consisted of
certificates originated under or in connection with Federal housing
programs of the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), and Federal Home Loan
Mortgage Corporation ("FHLMC") and are guaranteed as to payment of
principal and interest. The Fund held these securities as
available-for-sale investments until the sale of the remaining
portfolio in 1997. Discounts were amortized over the terms of the
related securities using the interest method. In accordance with FASB
Statement No. 115, mortgage-backed securities were carried at fair
value.
Net Income and Dividends Per Share - Net income and dividends per Share
are based upon 6,321,641 Shares outstanding for each of the years ended
December 31, 1997, 1996 and 1995. Dividends per Share were composed of
$.37 ordinary income, $.02 capital gains and $4.40 return of capital in
1997, $.52 ordinary income, $.10 capital gains and $1.46 return of
capital in 1996, and $.47 ordinary income, $.01 capital gains and $.78
return of capital in 1995.
Income Taxes - The Internal Revenue Code provides that a corporation
can qualify as a REIT if, among other things, the corporation
distributes at least 95 percent of its taxable income to Shareholders
each year. If the corporation distributes at least 95 percent of its
taxable income to Shareholders, such distributions can be treated as
deductions for income tax purposes. Because the Fund qualifies as a
REIT and had distributed amounts in excess of its taxable income for
1997, 1996, and 1995, no provision for income taxes has been made in
the accompanying consolidated financial statements.
The tax basis of the Shareholders' equity differs at December 31, 1997
from the amounts presented in the consolidated balance sheet as
follows:
Financial statement basis of Shareholders' equity $ 3,864,000
Tax basis of Shareholders' equity 3,910,000
-----------
Difference $ (46,000)
===========
The difference consists primarily of adjustments made for depreciation
less straight-lined rental revenue.
2. Transactions with Advisor and Affiliates
In accordance with the Advisory Agreement, the Fund pays the Advisor
and affiliates compensation for services provided to the Fund. Amounts
earned by the Advisor and its affiliates for the years ended December
31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
---- ---- ----
Reimbursement of administrative expenses $200,000 $200,000 $160,000
Securities management fee .............. 25,000 38,000 44,000
Advisory fee ........................... 164,000 229,000 250,000
-------- -------- --------
$389,000 $467,000 $454,000
======== ======== ========
The securities management fee was earned by State Street Research &
Management Company, an affiliate of Metropolitan Life Insurance
Company.
Pursuant to an amendment of the Advisory Agreement approved by the
Independent Directors in March 1994, the quarterly advisory fees
payable to the Advisor under the Advisory Agreement commencing April 1,
1994, are calculated at a rate of 0.75 percent per annum of the
appraised value of the properties. Such fees are payable in full only
if the Fund makes annualized dividend payments equaling at least 8.5
18
<PAGE>
percent of the Shareholders' adjusted capital contribution. To the
extent that the dividend paid for a calendar quarter is less than 8.5
percent on an annualized basis, the advisory fee payable to the Advisor
will be proportionately reduced.
3. Mortgage-Backed Securities
In September 1997, the Fund sold the remainder of its investments in
mortgage-backed securities. Net proceeds from the sale were $6,698,000
resulting in gross realized gains of $244,000 and gross realized losses
of $18,000. Proceeds from the sale of mortgage backed securities in
1995 were $303,000 resulting in gross realized gains of $16,000.
Specific identification was used to determine amortized cost in
computing the gains and losses.
In accordance with FASB statement No. 115 and Management's intentions,
the Fund's investment in mortgage-backed securities was classified as
"available-for-sale securities" and reported at fair value, with
unrealized gains and losses reported as a net amount in a separate
component of Shareholder's Equity. In 1996 and 1995 the Fund incurred a
$188,000 unrealized holding loss and $677,000 unrealized holding gain
on investments in mortgage-backed securities, respectively, resulting
in a cumulative net unrealized holding gain of $170,000 at December 31,
1996. Fair values of mortgage-backed securities at December 31, 1996
were as follows:
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
---- ----- ------ -----
GNMA........... $5,227,000 $113,000 $ 82,000 $5,258,000
FNMA........... 1,049,000 75,000 -- 1,124,000
FHLMC.......... 806,000 63,000 -- 869,000
---------- -------- ---------- ----------
$7,082,000 $251,000 $ 82,000 $7,251,000
========== ======== ========== ==========
Maturities of the individual securities ranged from 2009 to 2024 and
the coupon rates ranged from 7 to 10 percent per annum.
4. Rental Properties
Rental properties at cost at December 31, 1996 are summarized as
follows:
Land................................... $ 7,145,000
Buildings and improvements............. 7,653,000
Accumulated depreciation............... (1,286,000)
--------------
Total.................................. $ 13,512,000
=============
In June 1997, the Fund reclassified all the remaining Rental Properties
as Real Estate Held for Sale (see Note 5).
5. Real Estate Held for Sale
In the third quarter of 1996, the Fund's Board of Directors approved a
plan to market for sale the sixteen National Convenience Stores located
in California, Georgia and Texas. Two of the stores were subsequently
sold in the fourth quarter of 1996 and thirteen were sold in 1997 (see
Note 9). The remaining one store (Rubidoux National Convenience Store)
and fourteen stores were classified as Real Estate Held for Sale at
December 31, 1997 and 1996 respectively. The lease income from the
fourteen stores for 1997, 1996 and 1995 was $1,238,000 (including
deferred lease income recognized of $151,000), $1,536,000 (including
deferred lease income recognized of $212,000) and $1,536,000 (including
deferred lease income recognized of $238,000), respectively.
19
<PAGE>
Depreciation was $106,000 for the six months ended June 30, 1996, and
$212,000 for 1995. No depreciation was provided for 1997 or for the six
months ended December 31, 1996. The Fund expects to sell the Rubidoux
National Convenience Store in 1998.
As a result of the Board of Directors' decision to proceed with an
orderly liquidation of the Fund, as of June 30, 1997, the remaining
Rental Properties owned by the Fund (Haverty's Furniture Store, Wickes
Furniture Store and the Pearle Express Store) were classified as Real
Estate Held for Sale in accordance with SFAS 121. Haverty's Furniture
Store and Wickes Furniture Store were subsequently sold in the fourth
quarter (see Note 9). The Pearle Express Store is classified as Real
Estate Held for Sale at December 31, 1997. The lease income from these
properties in 1997, 1996 and 1995 was $1,814,000 (including deferred
lease income recognized of $79,000), $1,931,000 (including deferred
lease income recognized of $162,000), and $1,760,000 respectively.
Depreciation was $128,000 for the six months ended June 30, 1997 and
$255,000 for 1996 and 1995. No depreciation was provided for the six
months ended December 31, 1997.
In accordance with SFAS 121, an impairment provision of $42,000 was
recorded in 1997 to reduce the carrying value of the Pearle Express
Store to its estimated fair market value less cost to sell. Lease
income for this property totaled $119,000 and expenses were immaterial
for 1997.
6. Other Accounts Payable and Accrued Liabilities
In the fourth quarter of 1997, the Fund's Board of Directors approved
the purchase of a directors and officers' liability insurance policy at
a cost of $274,000. This amount was recorded as an accrual in the 1997
financial statements and was subsequently paid in January, 1998. The
insurance covers the period from inception of the Fund's operations to
six years after sale of the Fund's last property. As the premium is
non-refundable and most of the Fund's assets have been liquidated as of
December 31, 1997, the entire premium was expensed in 1997.
7. Contingencies and Major Tenant Developments
In 1997, in connection with the marketing of the convenience stores,
the Fund commissioned Phase I Environmental Site Assessments which
revealed that Circle K, the tenant of the Rubidoux National Convenience
Store property, had reported hydrocarbon contaminants to regulatory
authorities in April 1994. It is estimated that the total cost to cure
the contamination will not exceed $120,000. Per the terms of the lease,
the lessee was required to notify the Fund at the time of discovery and
to promptly remediate the problem but no such action was taken. The
Advisor has been assured by Circle K that it will indemnify both the
Fund and any purchaser of the property. The Fund is currently in
negotiations with the tenant for adequate indemnification and security,
as required under the terms of the lease. With this indemnification,
the Fund believes that the contamination, as it is now defined, will
not materially adversely affect an ultimate sales price. Marketing
efforts for the property continue.
National Convenience Stores ("NCS") was the seller and lessee of 19
properties operated as Stop N Go convenience stores acquired by the
Fund. In December 1991, NCS filed a petition with the U.S. Bankruptcy
Court in Houston, Texas for reorganization under Chapter 11 of the
federal Bankruptcy Code. Its reorganization plan was confirmed by the
Court and became effective in March 1993. The Fund filed a claim with
the Bankruptcy Court and reached a settlement with NCS. As payment for
the claim, the Fund has received cash as well as shares of NCS common
stock which were subsequently sold. In August, 1997, the Fund received
$76,000 in lieu of 2,638 shares of NCS common stock plus accrued
interest. Total compensation received to date by the Fund in connection
with the settlement approximates $338,000.
Phar-Mor, a former lessee of one property, filed for protection under
Chapter 11 of the Federal Bankruptcy Code in August 1992 and rejected
the Fund's lease effective May 15, 1993. The Fund filed claims in the
bankruptcy proceeding totaling $794,000. In December 1994, Phar-Mor
filed in the proceedings a preference recovery action against several
hundred vendors and landlords, including the Fund. The amount of the
preferential payments alleged to have been made to the Fund was
$90,250, consisting of rent paid to the Fund within 90 days of the
filing of the Phar-Mor bankruptcy petitions. This preference action was
dismissed in connection with the confirmation of the reorganization
plan of Phar-Mor. In August 1995, the Court confirmed Phar-Mor's
proposed reorganization plan which called for unsecured creditors to
receive a portion of a pool of the company's new stock, as well as
warrants to purchase additional stock at a fixed price. In October
1996, the Fund received approximately $19,000 from Phar-Mor to satisfy
its administrative claim and agreed to settle its remaining outstanding
lease rejection claim for approximately $629,000. The settlement was
20
<PAGE>
approved by the Bankruptcy Court in January 1997. To satisfy the claim,
in March 1997, the Fund received 1,058 shares of stock and 881 warrants
which were sold in June 1997 for $7,000.
8. General and Administrative
According to Section 6.3 of the Fund's Bylaws, Operating Expenses (as
defined) may not exceed the greater of (a) 2 percent of the Average of
Invested Assets for that year or (b) 25 percent of the Net Income of
the Fund (as defined) for that year, unless a majority of the
Independent Directors find this excess justified. In 1997, Operating
Expenses did exceed 2 percent of the Fund's Average of Invested Assets
and 25 percent of the Fund's Net Income. It was determined unanimously
by the Independent Directors that the excess was justified based on the
reduction in the amount of the Fund's Invested Assets and Net Income as
a result of the ongoing liquidation of the Fund's properties while the
Fund's expenses had not declined proportionately.
9. Sale of Rental Properties
In December 1997 the Fund sold Wickes Furniture Store located in
Torrance, California for $7,550,000. After payment of expenses of sale
of $255,000 (including real estate commissions of $227,000 paid to
outside brokers), the proceeds to the Fund were $7,295,000. The
carrying value at the time of sale was $8,846,000 (including $241,000
deferred lease income receivable), resulting in a loss of $1,551,000.
In December 1997 the Fund sold the Circle K store (originally Stop N Go
Store #2406) located in Marietta, Georgia for $1,228,000. After payment
of expenses of sale of $68,000 (including real estate commissions of
$49,000 paid to outside brokers), the proceeds to the Fund were
$1,160,000. The carrying value at the time of sale was $1,169,000
(including $73,000 deferred lease income receivable), resulting in a
loss of $9,000.
In December 1997 the Fund sold the Circle K store (originally Stop N Go
Store #2374) located in Placentia, California for $1,417,0000. After
payment of expenses of sale of $76,000 (including real estate
commissions of $57,000 paid to outside brokers), the proceeds to the
Fund were $1,341,000. The carrying value at the time of sale was
$917,000 (including $56,000 deferred lease income receivable),
resulting in a gain of $424,000.
In December 1997 the Fund sold the Circle K store (originally Stop N Go
Store #2065) located in Fontana, California for $1,417,0000. After
payment of expenses of sale of $75,000 (including real estate
commissions of $57,000 paid to outside brokers), the proceeds to the
Fund were $1,342,000. The carrying value at the time of sale was
$890,000 (including $56,000 deferred lease income receivable),
resulting in a gain of $452,000.
In December 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #285 located in Fort Worth, Texas for $636,000. After
payment of expenses of sale of $42,000 (including real estate
commissions of $25,000 paid to outside brokers), the proceeds to the
Fund were $594,000. The carrying value at the time of sale was $790,000
(including $38,000 deferred lease income receivable), resulting in a
loss of $196,000.
In December 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #308 located in Grand Prairie, Texas for $1,004,000.
After payment of expenses of sale of $59,000 (including real estate
commissions of $40,000 paid to outside brokers), the proceeds to the
Fund were $945,000. The carrying value at the time of sale was $764,000
(including $40,000 deferred lease income receivable), resulting in a
gain of $181,000.
In December 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #1322 located in Kennedale, Texas for $991,000. After
payment of expenses of sale of $57,000 (including real estate
commissions of $40,000 paid to outside brokers), the proceeds to the
Fund were $934,000. The carrying value at the time of sale was $899,000
(including $39,000 deferred lease income receivable), resulting in a
gain of $35,000.
In December 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #1386 located in San Antonio, Texas for $841,000. After
payment of expenses of sale of $49,000 (including real estate
commissions of $34,000 paid to outside brokers), the proceeds to the
Fund were $792,000. The carrying value at the time of sale was $922,000
(including $50,000 deferred lease income receivable), resulting in a
loss of $130,000.
21
<PAGE>
In December 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #328 located in San Antonio, Texas for $834,000. After
payment of expenses of sale of $49,000 (including real estate
commissions of $33,000 paid to outside brokers), the proceeds to the
Fund were $785,000. The carrying value at the time of sale was $902,000
(including $49,000 deferred lease income receivable), resulting in a
loss of $117,000.
In October 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Haverty's Furniture Store located in Plano, Texas for $4,425,000. After
payment of expenses of sale of $194,000 (including a real estate
commission of $154,000 paid to an outside broker), the proceeds to the
Fund were $4,231,000. The carrying value at the time of sale was
$3,822,000 resulting in a gain of $409,000.
In July 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold Stop
N Go Store #2378 located in Arlington, Texas for $1,413,000. After
payment of expenses of sale of $110,000 (including a real estate
commission of $81,000 paid to an outside broker), the proceeds to the
Fund were $1,303,000. The carrying value at the time of sale was
$1,408,000 (including $73,000 deferred lease income receivable),
resulting in a loss of $105,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #3571 located in Sealy, Texas for $265,000. After
payment of expenses of sale of $28,000 (including real estate
commissions of $16,000 paid to outside brokers), the proceeds to the
Fund were $237,000. The carrying value at the time of sale was $303,000
(including $9,000 deferred lease income receivable), resulting in a
loss of $66,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #655 located in Dallas Texas for $1,392,000. After
payment of expenses of sale of $103,000 (including a real estate
commission of $80,000 paid to an outside broker), the proceeds to the
Fund were $1,289,000. The carrying value at the time of sale was
$715,000 (including $43,000 deferred lease income receivable),
resulting in a gain of $574,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #3592 located in Texas City, Texas for $135,000. After
payment of expenses of sale of $23,000 (including real estate
commissions of $8,000 paid to outside brokers), the proceeds to the
Fund were $112,000. The carrying value at the time of sale was $272,000
(including $7,000 deferred lease income receivable), resulting in a
loss of $160,000.
In February 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #3583 located in Clute, Texas for $264,000. After
payment of expenses of sale of $29,000 (including real estate
commissions of $16,000 paid to outside brokers), the proceeds to the
Fund were $235,000. The carrying value at the time of sale was $373,000
(including $9,000 deferred lease income receivable), resulting in a
loss of $138,000.
In December 1996 the Fund's subsidiary, Metric Real Estate, L.P., sold
Stop N Go Store #3755 located in Houston, Texas for $1,410,000. After
payment of expenses of sale of $100,000 (including real estate
commissions of $81,000 paid to outside brokers) the proceeds received
by the Fund were $1,310,000. The carrying value at the time of sale was
$1,587,000 (including $38,000 deferred lease income receivable),
resulting in a loss of $277,000.
In November 1996 the Fund sold the Circle K store (originally Stop N Go
Store #674) located in Rancho Cucamonga, California for $1,650,000.
After payment of the expenses of sale of $103,000 (including real
estate commissions of $93,000 paid to outside brokers) the proceeds
received by the Fund were $1,547,000. The carrying value at the time of
sale was $1,038,000 (including $37,000 deferred lease income
receivable) resulting in a gain of $509,000.
In July 1996 the Fund sold the Pearle Express Store located in Orland
Park, Illinois for $1,069,000. After payment of the expenses of sale of
$81,000 (including real estate commissions of $64,000 paid to outside
brokers) the proceeds received by the Fund were $988,000. The carrying
value at the time of sale was $1,034,000 resulting in a loss of
$46,000.
In June 1996 the Fund sold the Sam's Club property located in Menomonee
Falls, Wisconsin for $4,910,000 (after credit to seller for a
construction holdback of $28,000). After payment of the expenses of
sale of $201,000 (including real estate commission of $168,000 paid to
an outside broker), the proceeds received by the Fund were $4,709,000.
The carrying value at the time of sale was $4,135,000 resulting in a
gain of $574,000. Of the proceeds received by the Fund, $108,000 was
deposited into an escrow account to secure payment for construction
22
<PAGE>
work to be completed by the tenant at the property. The tenant
subsequently claimed that the work specified was beyond the
requirements under the original lease. The tenant will complete the
work to the extent required under the lease, and the remainder will be
completed and paid for from the escrowed funds. Once the work is
complete, any remaining funds from the escrow account will be released
to the Fund. As of December 31 1997, it was estimated that $72,000 of
the construction work would be paid from the escrowed funds. This
amount was recognized in 1997 as a reduction of the previously
recognized gain on sale.
In March 1995 the Fund sold the former Phar-Mor building located in
Franklin Township, Ohio for $3,050,000. After payment of the estimated
expenses of sale of $126,000 (including real estate commissions of
$91,000 paid to outside brokers) the proceeds received by the Fund were
$2,924,000. The carrying value at the time of sale was $2,798,000 (net
of the $780,000 provision for impairment of value recognized in 1993),
resulting in a net gain on sale of $126,000.
10. Subsequent Events
On March 3, 1998, the Fund sold the Pearle Express Store located in
Morrow, Georgia for $1,005,000. After payment of the estimated expenses
of sale of $103,000 (including real estate commissions of $80,000 paid
to outside brokers) the proceeds received by the Fund were $902,000.
The carrying value at the time of sale was $916,000 (net of the $42,000
provision for impairment of value recognized in 1997), resulting in an
estimated net loss on sale of $14,000.
On January 12, 1998, the Fund paid a dividend of $17,385,000 to
Shareholders of record at December 31, 1997.
23
<PAGE>
<TABLE>
SCHEDULE III
METRIC INCOME TRUST SERIES, INC.,
a California corporation
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<CAPTION>
All amounts in thousands
COLUMNS
A B C D E F G
- ------------------------------------------------------------------------------------------------------------------------------
Initial Cost capitalized sub- Gross amount at which
Cost to Fund sequent to acquisition carried at close of period(1)
Buildings
Buildings and Date
and Improve- Carrying Improve- Accumulated of con- Date ac-
Description Land Improvements ments Costs Land ments Total depreciation(2) struction quired
----------- ---- ------------ ----- ----- ---- ----- ----- -------------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pearle Express
Store
Morrow, GA $ 333 $ 838 $-- $ -- $ 333 $ 838 $ 1,171 $ 200 1977 11/89
Wickes
Furniture Store
Torrance, CA
5,801 3,740 -- -- 5,801 3,740 9,541 873 1988 01/90
Haverty's
Furniture Store
Plano, TX
1,011 3,072 3 -- 1,011 3,075 4,086 213 1988 12/94
------ ------ --- ------ ------ ------ ------- ------ ------- ------
Total $7,145 $7,650 $ 3 $ -- $ 7,145 $7,653 $14,798 $1,286
====== ====== === ====== ====== ====== ======= ======
<FN>
(1) The aggregate cost for Federal income tax purposes is $14,798,000.
(2) Depreciation is computed on life of thirty years.
</FN>
</TABLE>
24
<PAGE>
SCHEDULE III
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
Land, Buildings, and Improvements
Balance, January 1, 1995 $ 39,527,000
Property Acquisitions (initial cost to Fund) 28,000
Improvements capitalized subsequent to acquisition 31,000
Cost of property and improvements sold (3,832,000)
Property reclassified to real estate held for sale (4,865,000)
------------
Balance, December 31, 1995 30,889,000
Cost of property and improvements sold (1,255,000)
Property reclassified to real estate held for sale (14,836,000)
------------
Balance, December 31, 1996 14,798,000
Cost of property and improvements sold (13,627,000)
Property reclassified to real estate held for sale (1,171,000)
------------
Balance, December 31, 1997 $ --
============
Accumulated Depreciation
Balance, January 1, 1995 $ 3,988,000
Additions charged to expense 652,000
Accumulated depreciation on improvements sold (346,000)
Provision on property sold (780,000)
Accumulated depreciation on property reclassified
to real estate held for sale (730,000)
------------
Balance, December 31, 1995 2,784,000
Additions charged to expense 397,000
Accumulated depreciation on improvements sold (221,000)
Accumulated depreciation on property reclassified
to real estate held for sale (1,674,000)
------------
Balance, December 31, 1996 1,286,000
Additions charged to expense 128,000
Accumulated depreciation on improvements sold (1,200,000)
Accumulated depreciation on property reclassified
to real estate held for sale (214,000)
------------
Balance, December 31, 1997 $ --
============
25
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Information with respect to directors and executive officers of the Registrant
in Item 10 and the information required by Items 11 - 13 is incorporated by
reference to the proxy material of the Registrant in connection with its Annual
Meeting of Shareholders scheduled for June 1998.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K.
(a) 1. and 2. See Item 8 of this Form 10-K for consolidated financial
statements for the Fund, Notes thereto, and financial statement
schedules. (A table of contents to consolidated financial statements and
financial statement schedules is included in Item 8 and incorporated
herein by reference.)
(b) The following reports on Form 8-K were required to be filed during the
last quarter covered by this Report:
On October 10, 1997, a Report was filed on Form 8-K reporting on the
sale of the Fund's portfolio of mortgage-backed securities. On November
3, 1997, a Report was filed on Form 8-K reporting the disposition of
Haverty's Furniture store in Plano, Texas. On November 11, 1997 a Report
was filed on Form 8-K including additional information concerning the
disposition of the Fund's Arlington (Green Oaks Blvd.) convenience store
property, originally reported in the Form 10-Q filed November 12, 1997.
On January 5, 1998, subsequent to the close of the `quarter, a Report
was filed on Form 8-K reporting the disposition of eight of the Fund's
convenience store properties (five stores in Texas, one in Georgia, and
two in California). On January 9, 1998, subsequent to the close of the
quarter, a Report was filed on Form 8-K reporting the disposition of the
Fund's Wickes Furniture store in Torrance, California. On January 12,
1998 a Report was filed on Form 8-K including a letter from the
Registrant to its shareholders. On February 27, 1998, subsequent to the
close of the quarter, the Form filed on January 5, 1998 was amended to
include additional information concerning the disposition of the
properties. On March 10, 1998, the Form filed on November 3, 1997 was
amended to include additional information concerning the disposition of
the property.
(c) List of Exhibits (numbered in accordance with Item 601 of Regulation S-K):
3.1 Restated Articles of Incorporation of the Registrant.
Incorporated by reference to Post-Effective Amendment No. 1 to
the Registrant's Form S-11 Registration Statement filed with the
Commission on September 29, 1989.
3.2 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Post-Effective Amendment No. 1 to the Registrant's
Form S-11 Registration Statement filed with the Commission on
September 29, 1989.
10.1 Advisory Agreement dated June 29, 1989, between the Registrant
and Metric Realty. Incorporated by reference to Post-Effective
Amendment No. 1 to the Registrant's Form S-11 Registration
Statement filed with the Commission on September 29, 1989.
10.2 First Amendment to Advisory Agreement dated January 1, 1991.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for 1990 filed with the Commission on March 25, 1991.
10.3 Second Amendment to Advisory Agreement dated April 1, 1991.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for 1990 filed with the Commission on March 25, 1991.
10.4 Third Amendment to Advisory Agreement dated April 1, 1992.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for 1993 filed with the Commission on February 25,
1994.
26
<PAGE>
10.5 Fourth Amendment to Advisory Agreement dated April 1, 1993.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for 1993 filed with the Commission on February 25,
1994.
10.6 Securities Management Agreement dated June 29, 1989, between the
Registrant and Federal Street Financial Advisors, Inc.
Incorporated by reference to Post-Effective Amendment No. 1 to
the Registrant's Form S-11 Registration Statement filed with the
Commission on September 29, 1989.
10.7 Custodial Services Agreement dated July 17, 1989 between
Citibank, N.A. Incorporated by reference to Post-Effective
Amendment No. 2 to the Registrant's Form S-11 Registration
Statement filed with the Commission on February 28, 1990.
10.8 Indemnification Agreements dated May 7, 1991, between Registrant
and the following: William G. Moeckel, Jr., Donald K. Devine,
William F. Garlock, W. Patrick McDowell and Robert M. Rouse.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for 1993 filed with the Commission on February 25,
1994.
10.9 Indemnification Agreements dated February 11, 1994, between
Registrant and the following: Carroll Archibald, Robert A.
Fiddaman, Margot M. Giusti, Herman H. Howerton and Joyce Jaber.
Incorporated by reference to the Registrant's Annual Report on
Form 10-K for 1993 filed with the Commission on February 25,
1994.
10.10 Fifth Amendment to Advisory Agreement dated as of April 1, 1994.
Incorporated by reference to the Registrant's Report on Form 8-K
filed with the Commission on February 15, 1995.
10.11 Sixth Amendment to Advisory Agreement dated as of April 1, 1995.
Incorporated by reference to the Registrant's Report on Form 10-Q
filed with the Commission on May 11, 1995.
10.12 Seventh Amendment to Advisory Agreement dated as of April 1,
1996. Incorporated by reference to the Registrant's Report on
Form 10-Q filed with the Commission on May 14, 1996.
10.13 Assignment and Assumption Agreement dated as of March 27, 1997
between Metric Realty and SSR Realty Advisors, Inc., relating to
the Advisory Agreement.
10.14 Agreement for Purchase and Sale of Sam's Club, dated May 15,
1996, incorporated by reference to the Registrant's Report on
Form 8-K filed with the Commission on July 9, 1996, as amended on
Form 8-K/A, filed with the Commission on August 23, 1996.
10.15 Agreement for Purchase and Sale of Pearle Express Store, located
in Orland Park, Illinois, dated May 16, 1996, incorporated by
reference to the Registrant's Report on Form 8-K filed with the
Commission on July 25, 1996, as amended on Form 8-K/A, filed with
the Commission on October 10, 1996.
10.16 Agreement for Purchase and Sale of Circle K Store, located in
Rancho Cucamonga, California, dated November 12, 1996,
incorporated by reference to the Registrant's Report on Form 8-K
filed with the Commission on November 22, 1996, as amended on
Form 8-K/A, filed with the Commission on January 8, 1997.
10.17 Earnest Money Contract for Stop N Go Store, located in Harris
County (Houston), Texas, dated December 3, 1996, incorporated by
reference to the Registrant's Report on Form 8-K filed with the
Commission on December 23, 1996, as amended on Form 8-K/A, filed
with the Commission on January 29, 1997.
10.18 First Amendment, dated March 31, 1997, to lease between the
Registrant and Pearle, Inc. dated May 4, 1988.
10.19 Eighth Amendment to Advisory Agreement dated as of April 1, 1997,
between the Fund and SSR Realty Advisors, Inc.
27
<PAGE>
10.20 Earnest Money Contracts for Stop N Go Stores located in Clute,
Sealy, and Dallas, Texas, dated February 10, 1997, February 18,
1997, and February 7, 1997, respectively, incorporated by
reference to the Registrant's Report on Form 8-K filed with the
Commission on March 14, 1997, as amended on Form 8-K/A, filed
with the Commission on April 18, 1997.
10.21 Earnest Money Contract for Stop N Go Store located in Texas City,
Texas, dated March 13, 1997, incorporated by reference to the
Registrant's Report on Form 8-K filed with the Commission on
March 11, 1997, as amended on Form 8-K/A, filed with the
Commission on April 18, 1997.
10.22 Earnest Money Contract for Stop N Go Store located in Arlington,
Texas, dated June 5, 1997, incorporated by reference to the
Registrant's Report on Form 8-K filed with the Commission on
November 10, 1997.
10.23 Earnest Money Contract for Stop N Go Stores located in San
Antonio (Fredericksburg Blvd. and Babcock Road), Arlington
(Kennedale - No. Little School Road), Grand Prairie, and Fort
Worth, Texas, dated October 31, 1997, incorporated by reference
to the Registrant's Report on Form 8-K filed with the Commission
on January 5, 1998, as amended on Form 8-K/A, filed with the
Commission on February 27, 1998.
10.24 Earnest Money Contract for Stop N Go Stores located in Marietta,
Georgia; Placentia and Fontana, California, dated October 31,
1997, incorporated by reference to the Registrant's Report on
Form 8-K filed with the Commission on January 5, 1998, as amended
on Form 8-K/A, filed with the Commission on February 27, 1998.
10.25 Earnest Money Contract for Haverty's Furniture Store located in
Plano, Texas, dated September 2, 1997, 1997, incorporated by
reference to the Registrant's Report on Form 8-K filed with the
Commission on November 3, 1997, as amended on Form 8-K/A, filed
with the Commission on March 10, 1998.
16.1 Letter from Deloitte & Touche, LLP dated September 27, 1994 to
the Securities and Exchange Commission. Incorporated by reference
to the Registrant's Report on Form 8-K filed with the Commission
on September 28, 1994.
20.1 Letter dated February 15, 1995 from Registrant to its
Shareholders. Incorporated by reference to the Registrant's
Report on Form 8-K filed with the Commission on February 15,
1995.
20.2 Letter dated February 15, 1996 from Registrant to its
Shareholders. Incorporated by reference to the Registrant's
Report on Form 8-K filed with the Commission on February 15,
1996.
20.3 Letter dated September 26, 1997 from Registrant to its
Shareholders. Incorporated by reference to the Registrant's
Report on Form 8-K filed with the Commission on September 26,
1997.
20.4 Letter dated January 12, 1998 from Registrant to its
Shareholders. Incorporated by reference to the Registrant's
Report on Form 8-K filed with the Commission on January 12, 1998.
20.5 Letter dated February 27, 1998 from Registrant to its
Shareholders regarding reimbursement of expenses.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
REGISTRANT
METRIC INCOME TRUST SERIES, INC.,
a California corporation
By: /s/ Thomas P. Lydon
-------------------------------
Thomas P. Lydon
President, Chairman of the Board,
and Chief Executive Officer
(Principal Executive Officer)
Date: March 31, 1998
--------------------------
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 date indicated.
By: /s/William A. Finelli By: /s/ Robert M. Rouse
-------------------------- -------------------------
William A. Finelli Robert M. Rouse
Director Director
By: /s/ William G. Moeckel, Jr. By: /s/ William F. Garlock
--------------------------- -------------------------
William G. Moeckel, Jr. William F. Garlock
Director Director
Date: March 31, 1998
--------------------------
29
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 19,762,000
<SECURITIES> 0
<RECEIVABLES> 65,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,744,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,625,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 3,858,000
<TOTAL-LIABILITY-AND-EQUITY> 21,625,000
<SALES> 0
<TOTAL-REVENUES> 3,954,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 856,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,928,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,928,000
<DISCONTINUED> (469,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,459,000
<EPS-PRIMARY> .39
<EPS-DILUTED> 0.00
</TABLE>
