UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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.,
a California corporation
(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
- --------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 678-2000
(800) 347-6707 in all states
Indicate by check mark whether the registrant (1) has filed all the 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
--- ---
Shares of common stock outstanding as of June 30, 1998: 6,321,641.
- --------------------------------------------------------------------------------
Page 1 of 13
<PAGE>
PART 1
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
METRIC INCOME TRUST SERIES, INC.,
A California corporation
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, December 31,
1998 1997
---- ----
ASSETS
Cash and Cash Equivalents $ 232,000 $ 19,762,000
Accounts and Interest Receivable 74,000 65,000
Investment in Mortgage-Backed Securities 2,691,000 --
Real Estate Held for Sale 828,000 1,744,000
Prepaid and Other Assets 63,000 54,000
------------ ------------
Total Assets $ 3,888,000 $ 21,625,000
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Dividends Payable $ -- $ 17,385,000
Payable to Sponsor and Affiliates 3,000 50,000
Other Accounts Payable and Accrued Liabilities 38,000 326,000
------------ ------------
Total Liabilities 41,000 17,761,000
------------ ------------
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 (51,379,000) (51,342,000)
Unrealized Holding Gain on Investment in
Mortgage-Backed Securities 20,000 --
------------ ------------
Total Shareholder's Equity 3,847,000 3,864,000
------------ ------------
Total Liabilities and Shareholder's Equity $ 3,888,000 $ 21,625,000
============ ============
See notes to consolidated financial statements (unaudited).
Page 2 of 13
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF INCOME OR LOSS (UNAUDITED)
For the Six Months Ended
June 30,
--------------------------
1998 1997
---- ----
Revenues:
Lease income $ 71,000 $ 1,647,000
Interest on mortgage-backed securities 35,000 271,000
Interest and other income 73,000 55,000
----------- -----------
Total Revenues 179,000 1,973,000
----------- -----------
Expenses:
Depreciation -- 128,000
General and administrative 191,000 325,000
Impairment provision for real estate held for sale -- 2,342,000
----------- -----------
Total Expenses 191,000 2,795,000
----------- -----------
Loss Before Net Gain (Loss) on Sale of Properties (12,000) (822,000)
Gain (Loss) on Sale of Properties - Net (25,000) 212,000
----------- -----------
Net Loss $ (37,000) $ (610,000)
=========== ===========
Net Loss per Share:
Loss before net gain (loss) on sale of properties -- $ (0.13)
Gain (loss) on sale of properties - net -- 0.03
----------- -----------
Net Loss per Share -- $ (0.10)
=========== ===========
Dividends per Share $ -- $ 0.63
=========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS (UNAUDITED)
For the Six Months Ended
June 30,
--------------------------
1998 1997
---- ----
Net loss $ (37,000) $ (610,000)
Unrealized holding gain (loss) on investment in
mortgage-backed securities 20,000 (4,000)
----------- -----------
Comprehensive loss (17,000) (614,000)
=========== ===========
See notes to consolidated financial statements (unaudited).
Page 3 of 13
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF INCOME OR LOSS (UNAUDITED)
For the Three Months Ended
June 30,
--------------------------
1998 1997
---- ----
Revenues:
Lease income $ 26,000 $ 794,000
Interest on mortgage-backed securities 35,000 133,000
Interest and other income 12,000 36,000
----------- -----------
Total Revenues 73,000 963,000
----------- -----------
Expenses:
Depreciation -- 64,000
General and administrative 105,000 174,000
Impairment provision for real estate held for sale -- 2,342,000
----------- -----------
Total Expenses 105,000 2,580,000
----------- -----------
Loss Before Net Gain (Loss) on Sale of Properties (32,000) (1,617,000)
Loss on Sale of Properties (1,000) --
----------- -----------
Net Loss $ (33,000) $(1,617,000)
=========== ===========
Net Loss per Share:
Loss before net gain (loss) on sale of properties -- $ (0.26)
Loss on sale of properties - net -- --
----------- -----------
Net Loss per Share -- $ (0.26)
=========== ===========
Dividends per Share $ -- $ 0.17
=========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS (UNAUDITED)
For the Three Months Ended
June 30,
--------------------------
1998 1997
---- ----
Net loss $ (33,000) $(1,617,000)
Unrealized holding gain on investment in mortgage-
backed securities 20,000 118,000
----------- -----------
Comprehensive loss (13,000) (1,499,000)
=========== ===========
See notes to consolidated financial statements (unaudited).
Page 4 of 13
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
A California corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (UNAUDITED)
For the Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Unrealized
Holding
Accumulated Gain/(Loss)on
Common Stock Additional Dividends in Investment in
------------ Paid-in Excess of Mortgage-Backed
Shares Amount Capital Net Income Securities - Net Total
------ ------ ------- ---------- ---------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 6,321,641 $ 6,000 $ 55,200,000 $(51,342,000) $ -- $ 3,864,000
Unrealized Holding Gain
on Investment in Mortgage-Backed
Securities 20,000 $ 20,000
Loss Before Loss on
Sale of Properties (12,000) (12,000)
Loss on Sale of Properties (25,000) (25,000)
------------ ------------ ------------ ------------ ----------- ------------
Balance, June 30, 1998 6,321,641 $ 6,000 $ 55,200,000 $(51,379,000) $ 20,000 $ 3,847,000
============ ============ ============ ============ =========== ============
Balance, January 1, 1997 6,321,641 $ 6,000 $ 55,200,000 $(23,521,000) $ 170,000 $ 31,855,000
Unrealized Holding Loss
on Investment in Mortgage-Backed
Securities - Net (4,000) (4,000)
Loss Before Net Gain on
Sale of Properties (822,000) (822,000)
Gain on Sale of Properties - Net 212,000 212,000
Dividends Declared (3,967,000) (3,967,000)
------------ ------------ ------------ ------------ ----------- ------------
Balance, June 30, 1997 6,321,641 $ 6,000 $ 55,200,000 $(28,098,000) $ 166,000 $ 27,274,000
============ ============ ============ ============ =========== ============
<FN>
See notes to consolidated financial statements (unaudited).
</FN>
</TABLE>
Page 5 of 13
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended
June 30,
--------------------------
1998 1997
---- ----
Operating Activities
Net Loss $ (37,000) $ (610,000)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization -- 125,000
Impairment provision for real estate held
for sale -- 2,342,000
(Gain) loss on sale of properties - net 25,000 (212,000)
Changes in operating assets and liabilities:
Increase in accounts and interest receivable (9,000) (118,000)
Decrease in prepaid and other assets 3,000 2,000
Decrease in payable to sponsor and affiliates (47,000) 43,000
Decrease in other accounts payable and
accrued liabilities (288,000) (14,000)
------------ -----------
Net cash provided (used) by operating activities (353,000) 1,558,000
------------ -----------
Investing Activities
Purchase of mortgage-backed securities (2,702,000)
Principal payments received on mortgage-backed
securities 31,000 480,000
Proceeds from sale of properties 1,005,000 2,056,000
Cash used for selling costs of properties (126,000) (218,000)
------------ ------------
Net cash provided (used) by investing activities (1,792,000) 2,318,000
------------ ------------
Financing Activities
Dividends paid to Shareholders (17,385,000) (6,788,000)
------------ ------------
Cash used by financing activities (17,385,000) (6,788,000)
------------ ------------
Decrease in Cash (19,530,000) (2,912,000)
Cash at beginning of period 19,762,000 3,781,000
------------ ------------
Cash at End of Period $ 232,000 $ 869,000
============ ============
SUPPLEMETAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized holding gain on investment in mortgage-backed securities - see Note 8
Sale of rental properties - see Note 6
See notes to consolidated financial statements (unaudited).
Page 6 of 13
<PAGE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Reference to 1997 Audited Consolidated Financial Statements
These unaudited consolidated financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included in
the 1997 audited consolidated financial statements.
The financial information contained herein reflects all normal and
recurring adjustments that are, in the opinion of management, necessary for
a fair presentation.
2. Adoption of FASB Statement no. 130
In 1998, the Fund adopted FASB Statement no. 130, Reporting Comprehensive
Income. Statement no. 130 requires the reporting of comprehensive income in
addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of
certain financial information that historically has not been recognized in
the calculation of net income. Therefore, unrealized holding gains and
losses on mortgage-backed securities are now included on the Consolidated
Statements of Comprehensive Income or Loss.
3. 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 six months ended June 30, 1998
and 1997 were as follows:
1998 1997
-------- --------
Reimbursement of administrative expenses $ 59,000 $100,000
Securities management fee 3,000 17,000
Advisory fee 25,000 89,000
-------- --------
Total $ 87,000 $206,000
======== ========
The securities management fee was earned by State Street Research &
Management Company, an affiliate of the Advisor.
The quarterly advisory fees payable to the Advisor under the Advisory
Agreement commencing April 1, 1994 were calculated at a rate of 0.75
percent per annum of the appraised value of the properties. Such fees were
payable in full only if the Fund made annualized dividend payments equaling
at least 8.5 percent of the Shareholders' adjusted capital contribution. To
the extent that the dividend paid for a calendar quarter was less than 8.5
percent on an annualized basis, the advisory fee payable to the Advisor was
proportionately reduced. No dividends were paid for the first quarter of
1998; therefore no advisory fee was earned. In February 1998, the
Independent Directors approved the renewal of the term of the Advisory
Agreement to December 31, 1998 with flat fees of $25,000 per quarter to be
paid to the Advisor with the quarter commencing April 1, 1998.
4. Net Income per Share
Net income per Share is based upon 6,321,641 Shares outstanding.
Page 7 of 13
<PAGE>
5. 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, Circle
K was required to notify the Fund at the time of discovery and to promptly
mitigate the problem but no such action was taken. The Fund subsequently
negotiated the specific terms of an indemnification with Circle K, and is
in receipt of an Indemnity Letter executed by Circle K. With this
indemnification, the Advisor believes that the contamination as it is now
defined, will not materially adversely affect the ultimate sale price.
Marketing efforts for the property continue.
6. Sale of Rental Properties
In the first half of 1998, additional expenses of sale were paid and a loss
on sale totaling $11,000 was recognized for the following properties which
were sold in December of 1997: the National Convenience Stores located in
Placentia, California, Marietta Georgia, and Fort Worth and San Antonio,
Texas and the Wickes Furniture Store located in Torrance, California.
In March 1998, the Fund sold the Pearle Express Store located in Morrow,
Georgia for $1,005,000. After payment of 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 a net loss on sale of $14,000.
In March 1997 the Fund's subsidiary, Metric Real Estate, L.P., sold
National Convenience Store Stop N Go #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
National Convenience Store Stop N Go #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
National Convenience Store Stop N Go #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
National Convenience Store Stop N Go #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.
7. 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 and all the National Convenience Stores were
classified as Real Estate Held for Sale at that time. As a result of the
Board of Directors' decision to proceed with an orderly liquidation of the
Fund, the remaining Rental Properties owned by the Fund were classified as
Page 8 of 13
<PAGE>
Real Estate Held for Sale as of June 30, 1997. The Fund's remaining one
property (at June 30, 1998) and two properties (at December 31, 1997) are
classified as Real Estate Held for Sale.
Pursuant to FAS 121, real estate held for sale is presented at the lower of
carrying value or fair market less estimated cost to dispose. No further
depreciation is provided after properties are classified as Real Estate
Held for Sale. In the second quarter of 1997, an impairment provision of
$2,342,000 was recorded to reduce the carrying values of Wickes Furniture
Store and the Pearle Express Morrow, Georgia location to their estimated
fair value less cost to sell. Wickes Furniture was sold in December 1997
and the Pearle Express Store in March 1998.
8. Mortgage-Backed Securities
During the first half of 1998, the Fund purchased mortgage-backed
securities of the Government National Mortgage Association ("GNMA"). The
securities had a par value of $2,717,000 and were purchased at a $15,000
discount for a net purchase price of $2,702,000. In the first half of 1998,
the Fund had a $20,000 unrealized gain on investments in mortgage-backed
securities, resulting in a cumulative unrealized holding gain of $20,000 at
June 30, 1998. Fair values of mortgage-backed securities at June 30, 1998
were as follows:
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Holding Holding Market
Cost Gains Losses Value
---------- ----------- ---------- ----------
GNMA............ $2,671,000 $20,000 $0 $2,691,000
========== ======= == ==========
The coupon rate of the securities is 6.5% per annum and the repayment
period terminates in 2024.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This item should be read in conjunction with Consolidated Financial Statements
and other Items contained elsewhere in this Report.
Properties
A description of the properties in which the Fund or its subsidiary has held an
ownership interest follows:
METRIC INCOME TRUST SERIES, INC.,
a California Corporation
PROPERTY AND OCCUPANCY SUMMARY
Occupancy Rate %
at June 30,
Date of ------------------
Size Purchase 1998 1997
------------ ------- ------- -------
Pearle Express Store
Morrow, Georgia................. (1) 11/89 -- 100
National Convenience Stores (2)..... (1) 11/89 100 100
Wickes Furniture Store
Torrance, California............ 51,000 sq.ft. 01/90 -- 100
Haverty's Furniture Store
Plano, Texas.................... 55,000 sq.ft. 12/94 -- 100
- ----------------
(1) For details of individual properties, see Part I, Items 2 of the Form
10-K Report filed for 1997.
(2) To date the Fund has sold all but one of its original portfolio of
nineteen convenience stores.
Page 9 of 13
<PAGE>
Results of Operations
Income before net gain (loss) on sale of properties and before the impairment
provision for real estate held for sale recorded in the second quarter of 1997,
decreased $1,532,000 and $757,000, respectively, in the first half and second
quarter of 1998 compared to the same periods in 1997 primarily due to the sale
of fifteen of the Fund's properties and the mortgage-backed securities portfolio
in 1997. As a result of the sale of fifteen of the Fund's properties in 1997 and
the Pearle Express Store located in Morrow, Georgia on March 3, 1998, lease
income decreased by $1,576,000 and $768,000, respectively, in the first half and
second quarter of 1998 compared to the same periods in 1997. Interest on
mortgage-backed securities decreased by $236,000 and $98,000, respectively, in
the first half and second quarter of 1998 compared to the same periods in 1997
due to the sale of the Fund's entire mortgage-backed securities portfolio in the
third quarter of 1997 and the Fund's purchase of a much smaller portfolio which
did not earn interest until the second quarter of 1998.
There was no depreciation expense in the first half of 1998 compared to $128,000
for the same period in 1997 due to the sale or reclassification to Real Estate
Held for Sale of all assets which were depreciated in the first quarter of 1997.
(See Note 7 to the consolidated financial statements).
General and Administrative expenses decreased by $134,000 and $69,000,
respectively, in the first half and second quarter of 1998 compared to the same
periods in 1997, primarily due to the fact that no advisory or securities
management fees were paid for the first quarter of 1998 (see Note 3 to the
consolidated financial statements) and that advisory fees, securities management
fees and reimbursement of administrative expenses have all been lowered due to
the Fund's reduced assets.
As discussed in Note 6 to the consolidated financial statements, the Fund sold
the Pearle Express Store in Morrow, Georgia in March 1998 resulting in a loss on
sale of $14,000 and paid additional expenses of sale for properties sold in
December 1997, resulting in a loss on sale recognized in the first half of 1998
of $11,000.
The Fund's operations have been primarily dependent upon the overall financial
condition and creditworthiness of the lessees of its real estate properties. The
Fund's single remaining property, operated as a Circle K store, experiences
competition from other similar establishments in its market.
Circle K currently makes lease payments for the Fund's remaining store which it
operates as the result of an exchange transaction in the second quarter of 1994;
however, NCS remains financial liable for the lease. Diamond Shamrock, Inc.
("DSI") purchased the outstanding stock of NCS in December 1995 and NCS became a
wholly-owned subsidiary of DSI. In late 1996 DSI merged with Ultramar
Corporation to form Ultramar Diamond Shamrock Corporation ("UDS").
At the recommendation of the Advisor, in the third quarter of 1995 the Board of
Directors approved the marketing for the sale of the Fund's Sam's Club in
Menomonee Falls, Wisconsin; the Wickes Furniture Store in Torrance, California,
and the Pearle Express Stores located in Orland Park, Illinois and Morrow,
Georgia. The Sam's Club was sold in June 1996 and the Pearle Express Store in
Orland Park, Illinois was sold in July 1996. The Wickes Furniture Store and
Pearle Express Store in Morrow, Georgia were offered for sale but subsequently
withdrawn from the market due to weak market conditions and lease terms that
were unattractive to potential buyers.
In August 1996 the Board of Directors approved a sales strategy for the Fund's
remaining convenience stores and in November 1996 the Fund sold the Circle K
store in Rancho Cucamonga, California, followed by the Stop N Go Store in
Houston, Texas in December. In February 1997 the Stop N Go Store in Clute, Texas
was sold, followed by the Stop N Go Stores in Sealy, Dallas, and Texas City,
Texas in March 1997, and the Stop N Go Store located in Arlington (Green Oaks
Blvd.), Texas in July 1997 (see note 5 to the consolidated financial
statements). In December 1997 the Fund sold the stores located in Marietta,
Georgia; Placentia and Fontana, California; Fort Worth, Grand Prairie, Arlington
(Kennedale), and San Antonio (Babcock Road and Fredericksburg Blvd. locations),
Texas. The Fund remains the owner of one convenience store property operated as
Circle K. In connection with the marketing of its properties, MITS 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 MITS at the time of discovery and to promptly remediate the property
but no such action was taken. The Fund subsequently negotiated the specific
terms of an indemnification with Circle K, and is in receipt of an Indemnity
Letter executed by Circle K. The Fund continues marketing efforts.
Page 10 of 13
<PAGE>
In the second quarter of 1997 the Board of Directors approved a sales strategy
for the Fund's Haverty's Furniture Store in Plano, Texas and the remaining
Pearle Express Store in Morrow, Georgia, and in the third quarter approved
remarketing the Wickes Furniture Store in Torrance, California. Haverty's was
sold in October 1997 and Wickes was sold in December 1997. The Pearle Express -
Morrow, Georgia location was sold in March 1998.
As previously reported, in September 1997, the Advisor was instructed by the
Board of Directors to liquidate the Fund's holdings in mortgage-backed
securities. These securities were sold in the third quarter of 1997. The Fund
invested cash reserved from sales in the fourth quarter of 1997 and the bulk of
the proceeds from the sale of the Pearle Express - Morrow, Georgia location in
mortgage-backed securities.
Fund Liquidity and Capital Resources
The Fund intends to meet its cash needs from cash flow generated by its
remaining property and securities that it acquires and holds. 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 cash distributions to Shareholders through
1998 will be sustained by cash provided from net operating activities, from the
principal repayments on the mortgage-backed securities, from capital gains from
the sale of securities, and from property sale proceeds.
In July 1996, Shareholders were informed that in June 1996 the Board of
Directors unanimously voted to proceed with the orderly liquidation of the
Fund's assets over the next several years and to terminate the Dividend
Reinvestment Plan ("DRP") and Liquidity Option Program ("LOP") for dividends
payable after August 15, 1996. The Board of Directors believed that with the
implementation of a formal disposition strategy, the Plan was no longer a viable
investment purchase/liquidation vehicle. The Fund's regular quarterly dividend
for the second quarter of 1996 was the final dividend for which the DRP/LOP was
effective.
The Fund's Advisor has continued to provide, on a quarterly basis, an estimated
net asset value per Share for the Shares of MITS, utilizing the methodology
previously employed to determine the DRP Share purchase price. The estimated net
asset value per Share as of June 30, 1998 has been determined to be $0.599. The
property value utilized in the calculation was based on the estimated net
proceeds assuming the remaining property is sold at its asking price. The value
utilized for this property does not necessarily reflect the proceeds that the
Fund would ultimately receive upon the sale of the asset. The estimated net
asset value per Share has not materially changed from that determined as of
December 31, 1997 and as of March 31, 1998 as the Fund's asset base has not
materially changed since that time. In view of the adoption by the Shareholders
at the Fund's 1998 Annual Meeting of a Plan of Liquidation and Dissolution for
the Fund and the cessation of regular quarterly reports to Shareholders, the
estimated net asset value per Share will no longer be provided by the Fund.
First Half of 1998
The Fund, after taking into account lease income, other interest income and
general and administrative expenses, and realized loss on sale, experienced
negative results from operations for the period.
As presented in the consolidated Statement of Cash Flows, cash was provided by
investing activities and from proceeds from sale of a property, and used for
expenses incurred in the sales of properties. Cash was used by financing
activities for dividends paid to Shareholders.
As approved by the Board of Directors in the third quarter of 1995, the Fund
marketed for sale the Pearle Express location in Morrow, Georgia through the
second quarter of 1996; however, due to the short term of the existing lease, no
viable offers were received and the property was removed from the market.
Subsequently, the Advisor successfully negotiated an extension to the lease, and
in March 1997 Pearle, Inc. signed an amendment providing for an extension of
eight years in exchange for a blending of the remaining lease obligations with
current market rates. Pursuant to a decision by the Board of Directors, the
Advisor again marketed the property for sale in the third quarter of 1997. On
March 3, 1998 the property was sold for $1,005,000. After the payment of the
expenses of sale of $103,000 (including real estate commissions of $80,000 paid
to outside brokers) the proceeds to 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 a net loss on sale of $14,000.
The Advisor anticipates that the Fund will have sufficient resources to meet its
capital and operating requirements into the foreseeable future.
Page 11 of 13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which the Fund (or any of its
subsidiaries) is a party or of which any of their property is the subject.
Item 4. Submissions of Matters to a Vote of Security Holders.
a) On May 6, 1998, notices of the Fund's Annual Meeting and Proxy
Statements were sent to all Shareholders of record as of April 23,
1998. The Fund held its Annual Shareholders Meeting on June 17, 1998.
Shareholders holding 4,162,291.59 Shares, or 65.84 percent of the
issued and outstanding Shares, were present or represented at the
meeting.
c) 1. Shareholders voted to elect Directors to hold office for a term
of one year and until the election of their successors. For incumbent
nominee Thomas P. Lydon, Jr., of the issued and outstanding Shares of
the Corporation, 4,031,042.53 Shares, or 63.76 percent were voted for,
and 131,249.05 Shares, or 2.07 percent, withheld authority. For
incumbent nominee William A. Finelli, 4,029,081.46 Shares, or 63.73
percent, were voted for, and 133,210.12 Shares, or 2.10 percent,
withheld authority. For incumbent nominee William F. Garlock,
4,026,179.29 Shares, or 63.68 percent, were voted for, and 136,112.29
Shares, or 2.15 percent, withheld authority. For incumbent nominee
William G. Moeckel, Jr., 4,026,066.68 Shares, or 63.68 percent, were
voted for, and 136,224.90 Shares, or 2.15 percent, withheld authority.
For incumbent nominee Robert M. Rouse, 4,027,512.09 Shares, or 63.70
percent, were voted for, and 134,779.49 Shares, or 2.13 percent,
withheld authority. Messrs. Thomas P. Lydon, Jr., William A. Finelli,
William F. Garlock, William G. Moeckel, Jr., and Robert M. Rouse were
reelected as Directors. There are no other Directors of the Fund.
2. Shareholders were also asked to adopt the Fund's proposed Plan of
Liquidation and Dissolution (the "Plan"), a copy of which was included
with the Proxy Statement as Exhibit B. The Plan provides for the
dissolution and complete liquidation of the Fund, by providing for (a)
the sale or other disposition of all of the remaining assets of the
Fund, (b) distribution to its Shareholders of the net cash proceeds or
other assets (after payment of liabilities and expenses) to be
realized from the sales or other dispositions of its assets in
complete cancellation of each Shareholder's stock, and (c) the
dissolution of the Fund in accordance with the California General
Corporation Law. Of the issued and outstanding Shares of the
Corporation, 3,933,002.62 Shares, or 62.21 percent, were voted in
favor of adoption of the Plan; 58,675.77 Shares, or 0.92 percent, were
voted against adoption of the Plan; and 170,613.18 Shares, or 2.69
percent, abstained or withheld authority to vote. The Plan was
adopted.
3. Additionally,Shareholders were asked to approve amendments to the
Fund's Bylaws eliminating Sections 9.6 and 9.7 thereof. Section 9.6 of
the Fund's Bylaws required that the Fund provide, with its Annual
Report to Shareholders, an audited balance sheet and statements of
income and expense. Section 9.7 of the Fund's Bylaws required that the
Fund provide to its Shareholders unaudited financials for the first
three calendar quarters of the year. Of the issued and outstanding
Shares of the Corporation, 3,616,713.41 Shares, or 57.21 percent, were
voted in favor of the amendments to the Fund's Bylaws; 150,321.63
Shares, or 2.37 percent, were voted against the amendments to the
Fund's Bylaws; and 395,256.54 Shares, or 6.25 percent, abstained or
withheld authority to vote. The amendments to the Fund's Bylaws
eliminating Sections 9.6 and 9.7 were adopted.
Item 6. Exhibits and Reports on Form 8-K.
a) No reports on Form 8-K were required to be filed during the last
quarter of the period covered by this Report other than the amendment
filed on April 22, 1998 to the Form 8-K Report filed on March 13, 1998
including additional information regarding the disposition of the
Pearle Express Store in Morrow, Georgia.
Page 12 of 13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METRIC INCOME TRUST SERIES, INC.,
a California corporation
By: /s/ William A. Finelli
-------------------------
William A. Finelli
Director, Vice President,
Chief Financial Officer,
and Treasurer
Date: August 14, 1998
-------------------------
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 232,000
<SECURITIES> 2,691,000
<RECEIVABLES> 74,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 828,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,888,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 3,841,000
<TOTAL-LIABILITY-AND-EQUITY> 3,888,000
<SALES> 0
<TOTAL-REVENUES> 179,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 191,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,000)
<DISCONTINUED> (25,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,000)
<EPS-PRIMARY> 0
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</TABLE>
