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, 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.
(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 (Zip Code)
offices)
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 March 24, 1999: 6,321,641
<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. In early 1999, the Independent Directors
approved the extension of the Advisory Agreement to December 31, 1999.
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"). In June
1996, the Board of Directors voted unanimously to terminate the DRP and
Liquidity Option Program 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. At the Fund's June 17, 1998 Annual Meeting, Shareholders approved
the Fund's Plan of Liquidation and Dissolution.
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 Circle K, 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 then
negotiated the specific terms of an indemnification agreement with Circle K and
the property was subsequently sold on December 24, 1998.
Investment in the Fund has been 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.
2
<PAGE>
Item 2. Properties.
A description of the properties formerly owned by the Fund is as follows:
<TABLE>
<CAPTION>
Date of Date of
Name and Location Purchase Sale Type Size
- ----------------- -------- ---- ---- ----
<S> <C> <C> <C> <C>
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 (4) 11/89 12/98 Retail 3,100
Mission Road sq. ft.
Rubidoux, California
Stop N Go Store #1332 11/89 12/97 Retail 3,100
N. Little School Road sq. ft.
Arlington (Kennedale), Texas
Stop N Go Store #1386 11/89 12/97 Retail 3,100
Babcock Road sq. ft.
San Antonio, Texas
Stop N Go Store #2065 (4) 11/89 12/97 Retail 3,100
Baseline Road sq. ft.
Fontana, California
Stop N Go Store #2374 (4) 11/89 12/97 Retail 3,100
E. Orangethorpe Road sq. ft.
Placentia, California
Stop N Go Store #2406 (4) 11/89 12/97 Retail 3,100
Windy Hill sq. ft.
Marietta, Georgia
Stop N Go Store #285 11/89 12/97 Retail 3,100
Altamesa Blvd. sq. ft.
Fort Worth, Texas
Stop N Go Store #308 11/89 12/97 Retail 3,100
West Tarrant Blvd. sq. ft.
Grand Prairie, Texas
Stop N Go #328 11/89 12/97 Retail 3,600
Fredericksburg Blvd. sq. ft.
San Antonio, Texas
Stop N Go Store #2378 11/89 7/97 Retail 3,100
Green Oaks Blvd. sq. ft.
Arlington, Texas
Stop N Go #3592 11/89 3/97 Retail 2,400
25th/Loop 197 sq. ft.
Texas City, Texas
3
<PAGE>
Item 2. Properties (continued).
Date of Date of
Name and Location Purchase Sale Type Size
- ----------------- -------- ---- ---- ----
Stop N Go Store #655 11/89 3/97 Retail 3,100
Northwest Highway sq. ft.
Dallas, Texas
Stop N Go #3571 11/89 3/97 Retail 2,400
N. Circle sq. ft.
Sealy, Texas
Stop N Go #3583 11/89 2/97 Retail 2,400
Hwy 288 sq. ft.
Clute, Texas
Stop N Go Store #674 (4) 11/89 11/96 Retail 3,100
Archibald sq. ft.
Rancho Cucamonga, California
Stop N Go Store #3755 (5) 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
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 12/90 3/95 Retail 56,400
Franklin Township, Ohio sq. ft.
<FN>
(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.
(2) Formerly Wholesale Club. The Fund's store was vacated in April 1992
and 100% of the building was subleased in 1994 and 1995.
(3) Formerly Eyelab Superstores.
(4) 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.
(5) In August 1994, a portion of the land was sold through condemnation.
</FN>
</TABLE>
All of the Registrant's properties were owned in fee, and all were sold to
unaffiliated buyers.
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:
<TABLE>
OCCUPANCY SUMMARY
<CAPTION>
Occupancy rate (%) at December 31
---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
COMMERCIAL BUILDINGS:
Pearle Express Stores (1)............................. N/A 100% 100%
National Convenience Stores........................... N/A 100(2) 100(2)
Wickes Furniture Store................................ N/A N/A 100
Sam's Club (4)........................................ N/A N/A N/A
Former Phar-Mor Store (3)............................. N/A N/A N/A
Haverty's Furniture Store............................. N/A N/A 100
<FN>
(1) In July 1996, the Orland Park, Illinois store was sold, and in March
1998 the Pearle Express store in Morrow, Georgia was sold.
(2) Represents occupancy at the remaining stores 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, eight in December 1997, and the final
remaining store in December 1998. See Note 8 to the consolidated
financial statements.
(3) In August 1992 Phar-Mor filed for protection under Chapter 11 of the
federal Bankruptcy Code (see Item 8, Note 6 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) 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.
</FN>
</TABLE>
Item 3. Legal Proceedings.
The Fund has been a creditor in bankruptcy proceedings filed by Phar-Mor (See
Item 8, Note 6 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.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the last quarter of
1998.
5
<PAGE>
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.
In view of the adoption of the Plan of Liquidation and Dissolution and the
cessation of regular quarterly reports to Shareholders, the Fund's Advisor no
longer provides an estimated net asset value per Share.
As of December 31, 1998 the approximate number of Shareholders was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock ........................ 4,479
Item 6. Selected Financial Data.
The following table presents selected consolidated financial data for the Fund
for the years ended December 31, 1998, 1997, 1996, 1995 and 1994. 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
-------------------------------------------------------
1998(1) 1997 1996 1995 1994
------- ---- ---- ---- ----
(amounts in thousands except per unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 326 $ 3,954 $ 4,886 $ 5,156 $ 4,670
Gain (Loss) on Sale of Properties $ (55) $ (469) $ 760 $ 126 $ (32)
Net Income (Loss) $ (68) $ 2,459 $ 4,552 $ 3,930 $ 2,888
Net Income (Loss) per Share $ (.01) $ 0.39 $ 0.72 $ 0.62 $ 0.46
Total Assets $ 3,877 $ 21,625 $ 35,939 $ 42,211 $ 45,603
Dividends per Share $ 0.14 $ 4.79 $ 2.08 $ 1.26 $ 0.85
<FN>
(1) See discussion in Item 7 regarding future results of operations.
</FN>
</TABLE>
6
<PAGE>
Lease Income
The following table presents lease income for the properties by lessee included
in the Fund's consolidated financial statements:
For the Year Ended December 31
-------------------------------------
1998(1) 1997 1996 1995 1994
------- ---- ---- ---- ----
(amounts in thousands)
National Convenience Stores (1) (2) $ 104 $1,238 $1,825 $1,852 $1,552
Pearle Express Stores (5) 18 119 217 283 282
Wickes Furniture Store (7) 1,365 1,372 1,202 1,135
Sam's Club (6) -- 284 524 511
Former Phar-Mor Store (3) -- -- 28 6
Haverty's Furniture Store (4) 330 411 411 11
------ ------ ------ ------ ------
Total $ 122 $3,052 $4,109 $4,300 $3,497
====== ====== ====== ====== ======
(1) 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 stores
were sold, followed by another in February 1997 and three in March 1997,
one in July 1997, eight in December 1997, and one in December 1998, all to
unaffiliated buyers (see Note 8 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 (see Note 8 to the consolidated financial statements).
(5) The Orland Park, Illinois store was sold in July 1996, and the Morrow,
Georgia store was sold in March 1998 (see Note 8 to the consolidated
financial statements).
(6) The property was sold in June 1996 (see Note 8 to the consolidated
financial statements).
(7) Includes $79,000 and $162,000 deferred lease income in 1997 and 1996,
respectively. The property was sold in December 1997 to an unaffiliated
buyer.
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 all of
its real property assets as of December 31, 1998. Accordingly, historical
financial information will not be representative of future results. Future
results of operations will be limited to the orderly liquidation of the Fund's
assets and liabilities.
Results of Operations
1998 Compared to 1997
Income (loss) before net gain (loss) on sale of properties decreased $2,941,000
in 1998 compared to 1997. The decrease was due to the sale of most of the Fund's
assets in 1997.
Lease income decreased $2,930,000 in 1998 compared to 1997 due to the sale of
fifteen of the Fund's properties in 1997 as well as the sale of the Pearle
Express Store in March 1998.
Interest on the Fund's mortgage-backed securities declined $281,000 in 1998
compared to 1997 due to the sale of the Fund's entire portfolio at the end of
the third quarter of 1997 which resulted in a $226,000 gain on sale. A much
smaller portfolio was purchased in 1998.
Interest and other income decreased $191,000 in 1998 compared to 1997 as sales
proceeds invested in money market accounts decreased. Also, other income in 1997
included $76,000 received towards settlement of the Fund's claim filed in
conjunction with the bankruptcy and subsequent reorganization of NCS.
7
<PAGE>
Depreciation expense decreased by $128,000 in 1998 compared to 1997 because no
depreciation was recorded in 1998 due to the reclassification at December 31,
1997 of all the Fund's remaining properties to Real Estate Held for Sale.
General and administrative expense decreased $517,000 in 1998 compared to 1997
due primarily to a decrease in compensation to the Advisor and affiliates in
1998 compared to 1997 and to the accrual in 1997 for the purchase of a directors
and officers' liability insurance policy at a cost of $274,000.
An impairment provision was recorded in 1997 for the Pearle Express store
located in Morrow, Georgia in order to reduce the carrying value of the property
to its estimated fair market value less cost to sell. The property was
subsequently sold in 1998. (See Note 8 to the consolidated financial statements)
As discussed in Note 8 to the consolidated financial statements, the Fund sold
two properties, the Pearle Express store and the convenience store located in
Rubidoux, California, and paid additional expenses of sale for properties sold
in 1997, resulting in a net loss of $55,000.
1997 Compared to 1996
Income before net gain (loss) on sale of properties decreased $864,000 in 1997
compared to 1996. The 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
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 8 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 get 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 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 4 to the
consolidated financial statements) and the sale of the sale of the Orland Park
Pearle Express Store in July 1996 (see Note 8 to the consolidated financial
statements).
Depreciation expenses decreased $269,000 in 1997 compared to 1996 due primarily
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 4 to the
consolidated financial statements).
General and administrative expenses 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
1996 and 1997 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 4 to the
consolidated financial statements).
As discussed in Note 8 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.
Year 2000 Readiness Disclosure
With the change to a new millenium, computer programs or hardware utilizing two
digits rather than four to define the applicable year may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to conduct normal business activities.
8
<PAGE>
In anticipation of the year 2000, in late 1996 the Advisor conducted a thorough
inventory of all software programs it had in use and identified programs that
would require modification to correct date handling methodology. Furthermore,
the Advisor initiated a policy requiring that all future software purchases be
year-2000 compliant. With the exception of the Advisor's financial accounting
system, the majority of the hardware and software in use was determined to be
year-2000 compliant or it was determined that compliance could be achieved with
minor modifications. These modifications were 100% completed by year-end 1998.
With respect to the financial accounting system, the Advisor is in the process
of implementing a Year 2000-compliant software product to replace its existing
system, and anticipates the new system to be fully operational and tested by
July 31, 1999. All necessary changes have been and will continue to be
undertaken at no cost to the Fund.
In addition to internal systems, the Advisor surveyed third parties that provide
essential business services to determine their state of year-2000 readiness. The
Fund's Servicing and Transfer Agent, Gemisys, utilizes a platform programmed to
correctly interpret the change to the new century. State Street Bank and Trust
Company, which provides custodial services with respect to the Fund's portfolio
of mortgage-backed securities, also utilizes systems that are year-2000
compliant.
In light of the foregoing, and given that the Fund intends to be fully
liquidated by year-end 1999, the Advisor anticipates there to be no material
exposure to year-2000 issues. However, should the Fund still be in existence and
should the Advisor's new financial accounting system not be in place by December
31, 1999, the Advisor's contingency plan would be to process necessary
transactions utilizing non-date sensitive software.
Fund Liquidity and Capital Resources
The Fund intends to meet its cash needs from cash flow generated by its
remaining securities and from the sale of such 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 cash dividends to Shareholders in 1998 was sustained by
cash provided from net operating activities, from principal repayments on the
mortgage-backed 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 Dividend Reinvestment Plan ("DRP") of $2,800,000.
In June 1996, the Board of Directors voted unanimously to terminate the Dividend
Reinvestment Plan and Liquidity Option Program effective as to dividends paid
after August 15, 1996, as the Fund had begun its disposition phase. Through the
second quarter of 1998 the Fund's Advisor continued to provide a quarterly
estimated net asset value per Share utilizing the same methods previously
utilized to calculate the DRP per Share purchase price. However, in light of the
adoption of the Plan of Liquidation and Dissolution and the cessation of regular
quarterly reports subsequent to the second quarter of 1998, the Advisor no
longer provides an estimated net asset value per Share.
As presented in the Consolidated Statement of Cash Flows, cash was used by
operating activities. In addition, cash was provided by investing activities and
from proceeds from sales of properties and principal payments received on
mortgage-backed securities. Cash was used by investing activities for expenses
incurred in the sale of real property and the purchase of mortgage-backed
securities. Cash was used by financing activities for dividends paid to
Shareholders.
9
<PAGE>
Item 8. Financial Statements and Financial Statement Schedules.
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Report of Independent Auditors.........................................................................................11
Consolidated Financial Statements:
Balance Sheets at December 31, 1998 and 1997..................................................................12
Statements of Operations for the Years Ended December 31, 1998, 1997, and 1996................................13
Statements of Shareholders' Equity for the Years Ended December 31, 1998, 1997, and 1996......................14
Statements of Cash Flows for the Years Ended December 31, 1998, 1997, and 1996................................15
Statements of Comprehensive Income or Loss for the Years Ended December 31, 1998, 1997, and 1996..............16
Notes to Consolidated Financial Statements....................................................................17
</TABLE>
10
<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,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity, cash flows, and comprehensive income or loss for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements 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, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Ernst & Young LLP
San Francisco, California
February 12, 1999
11
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
A California corporation
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash $ 1,291,000 $ 19,762,000
Accounts and Interest Receivable 14,000 65,000
Investment in Mortgage-Backed Securities - Net 2,550,000 --
Real Estate Held for Sale -- 1,744,000
Prepaid and Other Assets 22,000 54,000
------------ ------------
Total Assets $ 3,877,000 $ 21,625,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Dividends Payable $ 868,000 $ 17,385,000
Payable to Sponsor and Affiliates 4,000 50,000
Other Accounts Payable and Accrued Liabilities 36,000 326,000
------------ ------------
Total Liabilities 908,000 17,761,000
------------ ------------
Commitments and Contingencies
Shareholders' 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 (52,278,000) (51,342,000)
Unrealized Holding Gain on Investment
in Mortgage-Backed Securities 41,000 --
------------ ------------
Total Shareholders' Equity 2,969,000 3,864,000
------------ ------------
Total Liabilities and Shareholders' Equity $ 3,877,000 $ 21,625,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
12
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Lease income $ 122,000 $ 3,052,000 $ 4,109,000
Interest on mortgage-backed securities 120,000 401,000 611,000
Interest and other income 84,000 275,000 166,000
Gain on sale of mortgage-backed securities - net -- 226,000 --
----------- ----------- -----------
Total Revenues 326,000 3,954,000 4,886,000
----------- ----------- -----------
Expenses (including $168,000, $389,000 and $467,000 paid
or payable to advisor and affiliates in 1998, 1997
and 1996):
Depreciation -- 128,000 397,000
General and administrative 339,000 856,000 697,000
Impairment provision for real estate held for sale -- 42,000 --
----------- ----------- -----------
Total Expenses 339,000 1,026,000 1,094,000
----------- ----------- -----------
Income (Loss) before Gain (Loss) on Sale of Properties (13,000) 2,928,000 3,792,000
Gain (Loss) on Sale of Properties - Net (55,000) (469,000) 760,000
----------- ----------- -----------
Net Income (Loss) $ (68,000) $ 2,459,000 $ 4,552,000
=========== =========== ===========
Net Income (Loss) per Share
Income before gain (loss) on sale of properties $ -- $ 0.46 $ 0.60
Gain (loss) on sale of properties - net (0.01) (0.07) 0.12
----------- ----------- -----------
Net Income (Loss) per Share $ (0.01) $ 0.39 $ 0.72
=========== =========== ===========
Dividends per Share $ 0.14 $ 4.79 $ 2.08
=========== =========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
13
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
A California corporation
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
Unrealized
Holding
Gain/(Loss)
Additional Accumulated on Investment in
Common Stock Paid-in Dividends in Excess Mortgage-Backed
Shares Amount Capital of Net Income Securities-Net Total
------ ------ ------- ------------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 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 Investment in Mortgage-Backed
Securities - Net (170,000) (170,000)
Income Before 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
Unrealized Holding Gain
on Investment in Mortgage-Backed
Securities - Net 41,000 41,000
Loss Before Loss on
Sale of Properties (13,000) (13,000)
Loss on Sale of Properties (55,000) (55,000)
Dividends Declared (868,000) (868,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 6,321,641 $ 6,000 $ 55,200,000 $(52,278,000) $ 41,000 $ 2,969,000
============ ============ ============ ============ ============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
14
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ (68,000) $ 2,459,000 $ 4,552,000
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities
Depreciation and amortization (1,000) 122,000 389,000
Gain on sale of mortgage-backed securities - net -- (226,000) --
Impairment provision for real estate held for sale -- 42,000
(Gain) loss on sale of properties - net 55,000 469,000 (760,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts and interest receivable (8,000) (178,000) (332,000)
(Increase) decrease in prepaid and other assets 19,000 1,000 (106,000)
Increase (decrease) in payable to sponsor and affiliates (46,000) 41,000 (13,000)
Increase (decrease) in other accounts payable and accrued
liabilities (290,000) 139,000 (121,000)
------------ ------------ ------------
Net cash provided (used) by operating activities (339,000) 2,869,000 3,609,000
------------ ------------ ------------
Investing Activities
Purchase of mortgage-backed securities (2,702,000) -- --
Proceeds from sale of mortgage-backed securities -- 6,698,000 --
Principal payments received on mortgage-backed securities 194,000 615,000 1,144,000
Proceeds from sales of properties 1,975,000 23,812,000 9,039,000
Cash used for selling costs of properties (214,000) (1,229,000) (485,000)
------------ ------------ ------------
Net cash provided (used) by investing activities (747,000) 29,896,000 9,698,000
------------ ------------ ------------
Financing Activities
Dividends paid to Shareholders (17,385,000) (16,784,000) (10,502,000)
------------ ------------ ------------
Cash used by financing activities (17,385,000) (16,784,000) (10,502,000)
------------ ------------ ------------
Increase (Decrease) in Cash (18,471,000) 15,981,000 2,805,000
Cash at beginning of year 19,762,000 3,781,000 976,000
------------ ------------ ------------
Cash at End of Year $ 1,291,000 $ 19,762,000 $ 3,781,000
============ ============ ============
<FN>
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 8
See notes to consolidated financial statements
</FN>
</TABLE>
15
<PAGE>
<TABLE>
METRIC INCOME TRUST SERIES, INC.,
a California corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS
For the Years Ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $(68,000) $ 2,459,000 $ 4,552,000
Unrealized holding gain (loss) on investment in mortgage-backed
securities - net 41,000 -- (188,000)
Realization of unrealized holding gain on investment in
mortgage-backed securities - net -- (170,000) --
-------- ----------- -----------
Comprehensive Income (Loss) $(27,000) $ 2,289,000 $ 4,364,000
======== =========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
16
<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 has sold its real estate assets
and is 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
consolidated balance sheets. In accordance with FASB Statement 115, the
Fund's investments in mortgage-backed securities are reported at fair
value.
Accounting Pronouncements - 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 4).
In 1998, the Fund adopted Statement 130, "Reporting Comprehensive Income"
("SFAS 130"). This statement requires the reporting of comprehensive
income in addition to net income (loss) 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 (loss). Therefore, unrealized
holding gains and losses on mortgage-backed securities are included in the
Consolidated Statements of Comprehensive Income or Loss.
The Financial Accounting Standards Board (the "FASB") issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("FAS 131"), which is effective for
financial statements for periods beginning after December 15, 1997. FAS
131 establishes standards for the way that public business enterprises
report financial statements and interim reporting to shareholders. The
Fund adopted FAS 131 in 1998, and has determined that it has one operating
and reportable segment, therefore, such adoption has no effect on the
accompanying financial statements.
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.
17
<PAGE>
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.
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 held at December
31, 1998, consist of certificates originated under or in connection with
Federal housing programs of the Government National Mortgage Association
("GNMA") and are guaranteed as to payment of principal and interest. The
Fund holds these securities as available-for-sale investments. Discounts
are amortized over the terms of the related securities using the interest
method. In accordance with SFAS Statement No. 115, mortgage-backed
securities are carried at fair value.
Concentrations of Credit Risk - Financial instruments that subject the
Company to concentrations of credit risk consist primarily of cash and
investment in mortgage-backed securities. Although mortgage-backed
securities are guaranteed as to principal and interest payments, they are
interest rate sensitive financial instruments and their value will
generally decrease if market interest rates increase. The Fund places cash
in investment grade companies or financial institutions. Management
believes the likelihood of incurring material losses is remote.
Net Income (Loss) and Dividends Per Share - Net income (loss) and
dividends per Share are based upon 6,321,641 Shares outstanding for each
of the years ended December 31, 1998, 1997 and 1996. Dividends per Share
were composed of $.14 return of capital in 1998, $.37 ordinary income,
$.02 capital gains and $4.40 return of capital in 1997, and $.52 ordinary
income, $.10 capital gains and $1.46 return of capital in 1996.
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 1998, 1997, and 1996, 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, 1998
from the amounts presented in the consolidated balance sheet as follows:
Financial statement basis of Shareholders' equity $2,969,000
Tax basis of Shareholders' equity 2,928,000
-----------
Difference $ 41,000
==========
The difference consists of the unrealized holding gain on investment in
mortgage-backed securities.
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,
1998, 1997 and 1996 were as follows:
1998 1997 1996
---- ---- ----
Reimbursement of administrative expenses $ 82,000 $200,000 $200,000
Securities management fee 11,000 25,000 38,000
Advisory fee 75,000 164,000 229,000
-------- -------- --------
$168,000 $389,000 $467,000
======== ======== ========
18
<PAGE>
The securities management fee was earned by State Street Research &
Management Company, an affiliate of Metropolitan Life Insurance Company.
The quarterly advisory fees payable to the Advisor under the Advisory
Agreement commencing April 1, 1994 were calculated at a rate of .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.
3. Mortgage-Backed Securities
In 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 accordance with SFAS 115 and Management's
intentions, the Fund's investment in mortgage-backed securities is
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 1998, the Fund had a $41,000
unrealized holding gain on investment in mortgage-backed securities. Fair
values of mortgage-backed securities at December 31, 1998 were as follows.
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
GNMA............................. $2,509,000 $41,000 $0 $2,550,000
</TABLE>
The coupon rate of the securities is 6.5% per annum and the repayment
period terminates in 2024.
In 1997, sales proceeds from mortgage-backed securities were $6,698,000
resulting in gross realized gains of $244,000 and gross realized losses of
$18,000. In 1996, the fund incurred a $188,000 unrealized holding loss.
4. Real Estate Held for Sale
At December 31, 1997, the two remaining properties owned by the Fund
(Rubidoux National Convenience Store and the Pearle Express Store) were
classified as real estate held for sale. Rubidoux National Convenience
Store was classified as real estate held for sale in 1996 when 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 1996 and thirteen were sold in 1997.
Rubidoux National Convenience Store was sold in 1998 (see Note 8).
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 of 1997. The
Pearle Express Store was sold in 1998 (see Note 8).
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.
5. 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
consolidated 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 had been
liquidated as of December 31, 1997, the entire premium was expensed in
1997.
19
<PAGE>
6. 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 was estimated that the total cost to cure the
contamination would 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 Fund
subsequently negotiated the specific terms of indemnification with Circle
K, and is in receipt of an Indemnity Letter executed by Circle K. The
property was sold in December 1998. (See Note 8).
The Fund received $76,000 in lieu of 2,638 shares of common stock plus
accrued interest in 1997 in connection with settlement of its claim filed
in conjunction with the bankruptcy and subsequent reorganization of NCS.
Total compensation received 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 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.
7. 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 1998 and 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.
8. Sale of Rental Properties
In December 1998 the Fund sold the Circle K store (originally Stop N Go
Store #2092) located in Rubidoux, California for $970,000. After payment
of expenses of sale of $113,000 (including real estate commission of
$58,000 paid to outside brokers), the proceeds to the Fund were $857,000.
The carrying value at the time of sale was $887,000 (including $59,000
deferred lease income receivable), resulting in a loss of $30,000.
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 loss of $14,000.
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 recognized in 1997. An
additional loss of $5,000 was recognized in 1998 after the payment of
additional expenses of sale.
20
<PAGE>
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
recognized in 1997. A reduction of the gain in the amount of $2,000 was
recognized in 1998 after the payment of additional expenses of sale.
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
recognized in 1997. An additional loss of $2,000 was recognized in 1998
after the payment of additional expenses of sale.
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
recognized in 1997. An additional loss of $2,000 was recognized in 1998
after the payment of additional expenses of sale.
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.
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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 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
was to pay for the work to the extent required under the lease, and the
remainder was to be paid for from the escrowed funds. Any remaining funds
from the escrow account were to 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 1998, $92,000 was paid from
escrow for the completed work. In 1998, the Fund received $15,000 for the
work from the tenant and expects to receive another $5,000 from the tenant
in 1999. The Fund also expects to receive the remaining funds from the
escrow in 1999, which are expected to approximate $20,000.
9. Subsequent Events
In January 1999, a pool of mortgage-backed securities was sold for
$669,000 resulting in a realized gain of $8,000.
On January 21, 1999, the fund paid a dividend of $868,000 to Shareholders
of record at December 31, 1998.
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PART III
Item 10. Directors and Executive Officers.
Directors
The following indicates each Director's age and his principal experience during
the past five or more years (an "Independent Director" is not an officer of the
Fund nor a Director or officer of the Advisor or of its affiliates):
Thomas P. Lydon, Jr. Chairman, President and Chief Executive Officer, age 50.
Mr. Lydon has been President and Chief Executive Officer of the Advisor since
February 1995 and became Chairman of the Fund in March 1997. Prior to joining
the Advisor, Mr. Lydon was from April 1992, an Executive Vice President of MBL
Life Assurance Corporation ("MBL") (formerly Mutual Benefit Life Insurance
Company) chosen by the New Jersey Department of Insurance to oversee, rebuild
and organize the real estate investment division of MBL. Mr. Lydon's experience
before joining MBL included serving as Executive Vice President and principal of
Manhattan Capital Realty Corporation, an investment banking firm, from 1990 to
1992, and as Senior Vice President of Unicorp American Corporation, a real
estate and banking firm, from 1985 to 1990. Mr. Lydon graduated from Syracuse
University with a Bachelor's Degree in Business Administration in 1970.
William A. Finelli. Director, Vice President, Chief Financial Officer and
Treasurer, age 41. Mr. Finelli has been Managing Director, and a Vice President,
Chief Financial Officer and Treasurer of the Advisor since August 1995 and
became a Director of the Fund in March 1997 and its Vice President, Chief
Financial Officer and Treasurer in April 1997. He is responsible for overseeing
the day-to-day activity of the accounting, finance, legal, technology and
valuation areas of the Advisor. Before he joined the Advisor, Mr. Finelli served
from November 1983 as a financial executive of MBL. His last position with MBL
was Vice President - Real Estate Accounting. Prior to his years at MBL, Mr.
Finelli was with Ernst & Young, a public accounting firm. Mr. Finelli graduated
from Rutgers University with a Bachelor's Degree in Accounting in 1979 and is a
certified public accountant.
William F. Garlock. Independent Director, age 49. Mr. Garlock has been an
Independent Director of the Fund since its formation. He is President and a
director of Garlock & Company, a real estate merchant bank he formed in 1987. He
resigned in June 1993 as President and a member of the Board of Directors of
Lincoln N.C. Realty Fund Incorporated, a publicly held real estate investment
trust, positions he held for more than five years. Prior to 1987, Mr. Garlock
spent five years with Blackman, Garlock, Flynn & Co., a real estate merchant
banking firm he started in San Francisco. From 1977 through 1981, he served as
Senior Vice President in charge of Finance for Daon Corporation, a real estate
developer based in Canada. Mr. Garlock currently serves as a member of the Board
of Directors of Brennan Garlock, Inc., a private banking firm. He received a
Bachelor of Arts Degree from the University of California at Santa Barbara and a
Master's Degree in Business Administration from Stanford University.
William G. Moeckel, Jr. Independent Director, age 52. Mr. Moeckel has been an
Independent Director of the Fund since its formation. He is President of Moeckel
& Co. and a partner of Thayer Hotel Investors II, L.P., a private investment
partnership investing in U.S. hotel assets. He was instrumental in the formation
in 1996 of this partnership and serves as its Chief Acquisitions Officer. Mr.
Moeckel has over 20 years of diversified real estate development experience.
From 1989 through January of 1993, he was managing partner of Moeckel, Murphy &
Co. From 1986 to May of 1989, he was President of Cumberland Peale, Ltd. From
1984 through 1986, he was Senior Vice President and Director of Hotel
Development of The Landmarks Group, a commercial real estate development company
based in Atlanta. From 1978 to 1984, he was a partner in the Atlanta office of
Laventhol and Horwath, Certified Public Accountants. Mr. Moeckel has also
previously served as Senior Vice President and Chief Development Officer of
Embassy Suites, Inc. Mr. Moeckel holds a real estate broker's license in Georgia
and is a member of the Atlanta Board of Realtors. He graduated from Cornell
University with a Bachelor of Science Degree in 1972.
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Robert M. Rouse. Independent Director, age 52. Mr. Rouse has been an Independent
Director of the Fund since its formation. He is the President of Woodmont Real
Estate Services, a real estate management and consulting firm located in
Belmont, California, which merged with Rouse Real Estate Associates, a real
estate management and consulting firm. Since January 1994 he has also been a
Director of a private real estate investment trust for institutional investors
which has invested in apartment properties and for which the Advisory Company is
the Advisor. Mr. Rouse was president of Rouse Real Estate Associates from
1986-1990. In 1985, Mr. Rouse was President of Brichard Management Corp., a San
Francisco-based real estate investment company, where he had responsibility for
property acquisition and management throughout California and Arizona. From 1973
to 1985, he was employed by the Fox Group, where he served in a number of
capacities, including Senior Vice President, National Sales and Executive Vice
President and Chief Operating Officer of Fox & Carskadon Management Corporation.
Mr. Rouse graduated from Golden Gate University in 1969 with a Bachelor of
Science Degree in Accounting and Management and in 1977 with a Master's Degree
in Business Administration-Finance. Mr. Rouse has been designated a Certified
Property Manager by the Institute of Real Estate Management.
Officers
Set forth below is information regarding the Fund's sole executive officer
(other than Thomas P. Lydon, Jr. and William A. Finelli whose biographical
information is set forth under the Section entitled "Directors").
Herman H. Howerton. Vice President, General Counsel and Secretary. Age 55. Since
August 1988, Mr. Howerton has been a Vice President and General Counsel of the
Advisor and was Senior Vice President, Corporate Counsel from March to August
1988. In April, 1997, he also became Managing Director of the Advisor. He has
been a Vice President and General Counsel and Secretary of the Fund since its
formation. Mr. Howerton received a Bachelor of Arts Degree from California State
University at Fresno in 1965 and a Juris Doctor Degree from Harvard Law School
in 1968. He is a member of the State Bar of California and a licensed California
real estate broker.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") requires
the officers and directors of a public company and persons who beneficially own
more than ten percent of a registered class of its equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission ("SEC") on Forms 3, 4 and 5 and to submit copies of these Forms to
the company. Under Section 16 of the Exchange Act, the Fund is required to
identify in this Annual Report the name of each person who failed to file a
required Form on a timely basis and to set forth the number of late Forms, the
number of transactions that were not reported on a timely basis and any known
failure to file a required Form.
Based solely on its review of the copies of any Forms 3, 4 and 5 received by it,
and written representations from certain reporting persons that no Forms 5 were
required for those persons, the Fund believes that during the most recent fiscal
year, all filing requirements under Section 16(a) of the Exchange Act applicable
to those persons who were, at any time during the last fiscal year of the Fund,
officers, Directors or greater than ten percent Shareholders of the Fund were
complied with.
Item 11. Compensation.
Directors and officers of the Fund who are employed by the Advisor or its
affiliates received no compensation from the Fund during 1998. Because all of
the officers of the Fund are employed by the Advisor, none of the officers
received any compensation from the Fund. The aggregate remuneration paid for
services during 1998 to all Independent Directors (as defined below) as a group
was $28,566, including reimbursement of expenses incurred in attending meetings
and conducting the business of the Fund. No Director received from the Fund
aggregate remuneration for services during 1998 in excess of $60,000, including
reimbursement for expenses incurred in attending meetings and conducting the
business of the Fund. Those Directors who are not officers of the Fund nor
Directors or officers of the Advisor or its affiliates (the "Independent
Directors") received a quarterly fee of $2,250 through June 30, 1998 and $1,250
thereafter plus $500 for each meeting of the Board attended in person and $100
for each meeting attended by telephone conference call. All Directors are
entitled to reimbursement of expenses incurred in attending meetings and
carrying on the business of the Fund. For 1998, Mr. Moeckel received
reimbursement of expenses of $2,120, Mr. Garlock received reimbursement of
expenses of $2,052, and Mr. Rouse received reimbursement of expenses of $894.
The Advisor is compensated for its services as advisor pursuant to an Advisory
Agreement originally between the Fund and Metric Realty. On March 27, 1997, the
Advisory Agreement was assigned by Metric Realty to, and the obligations
thereunder were assumed by, SSR Realty Advisors, Inc., an affiliate of Metric
Realty. This Assignment and Assumption was unanimously approved by the
Independent Directors on March 27, 1997.
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The Advisory Agreement provides for, among other things, a regular quarterly
advisory fee, certain transactional fees and reimbursement of certain expenses
(see Item 13. for the amount of such reimbursements for 1998). Pursuant to
Section 4.9 of the Fund's Bylaws, the Independent Directors are required at
least annually to reach a determination that the Advisor's compensation is
reasonable in relation to the nature and quality of services performed. Such
determination must be based on the following criteria and reflected in the
records of the Directors' determination: (i) the size of the advisory fee in
relationship to the size, composition and profitability of the invested assets;
(ii) the investment opportunities generated by the Advisor; (iii) advisory fees
paid to other advisors by other real estate investment trusts; (iv) additional
revenues realized by the Advisor and its affiliates through their relationship
with the Fund, (v) the quality and extent of services and advice furnished by
the Advisor; (vi) the quality of the portfolio of the Fund in relationship to
the investments generated by the Advisor for its own account; and (vii) all
other factors the Independent Directors may deem relevant. On February 22, 1999,
following due consideration of each of the foregoing criteria, the Independent
Directors unanimously approved the extension of the Advisory Agreement through
the period ending December 31, 1999.
The quarterly advisory fees paid to the Advisor under the Advisory Agreement
through March 31, 1998, 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, i.e., the original invested capital
paid by all Shareholders for the shares reduced by the total dividends from the
sale or disposition of any property or the sale or principal repayment of
securities. To the extent that dividends paid for a calendar quarter were less
than 8.5 percent on an annualized basis, the advisory fee payable to the Advisor
for that quarter was to be proportionately reduced. In connection with the
extension of the Advisory Agreement to cover the period April 1, 1998 to
December 31, 1998, in view of the Fund's property sales and the uncertainty
regarding the amount of dividends expected to be paid for the remainder of 1998
and the need for services by the Advisor to wind down the affairs of the Fund,
the advisory fees to be paid to the Advisor were modified to flat fees of
$25,000 per quarter, not related to dividends paid. Based on similar
considerations, the advisory fees to be paid to the Advisor during 1999 are to
be flat fees of $25,000 per quarter.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 15, 1999, the percentage of the outstanding Shares of common stock
of the Fund beneficially owned by any Shareholder was less than five percent. As
of such date, the only Director or officer of the Fund who beneficially owned
any Shares of the Fund was William F. Garlock, an Independent Director, who
owned 3,127.7642 Shares (which amount is less than one percent of the
outstanding Shares of the Fund). An affiliate of the Advisor owns 21,506 Shares
of the Fund, which amount is less than one percent of the outstanding Shares of
the Fund. The members of the Board of Directors of the Advisor are Thomas P.
Lydon, Jr., Gerard P. Maus and Ralph F. Verni. The last two named individuals
are also officers of State Street Research & Management Company ("State Street
Research"), a subsidiary of Metropolitan Life Insurance Company ("Metropolitan
Life").
Item 13. Certain Relationships and Related Transactions.
The Fund is a party to the Advisory Agreement with the Advisor. Thomas P. Lydon,
Jr., the Chairman, President and Chief Executive Officer of the Fund, is
President and Chief Executive Officer and a Director of the Advisor. William A.
Finelli, a Director and Vice President, Chief Financial Officer of the Fund, is
Vice President, Chief Financial Officer, Treasurer and Managing Director of the
Advisor.
The term of the Advisory Agreement has been extended by the action of the
Independent Directors to December 31, 1999. Services provided to the Fund by the
Advisor include real estate disposition assistance, financial services and asset
management services.
The Fund's Advisory Agreement with the Advisor provides, among other things, for
payment of regular quarterly advisory compensation, together with reimbursement
of certain expenses. (See "Item 11. Compensation" above for information
regarding this advisory compensation.) Under the Advisory Agreement, the Advisor
and its affiliates are entitled to reimbursement for all costs incurred in
providing services to the Fund. These reimbursable costs fall into two
categories: direct costs and allocated common overhead costs. Such reimbursable
costs include, but are not limited to, the cost of rent, goods or material
furnished or incurred by the Advisor in connection with services rendered to or
for the benefit of the Fund based upon the compensation of the individuals
involved and an appropriate share of overhead. Such reimbursable costs also
include costs of legal, accounting, and other contracted services, and related
general and administrative costs. As amended, the Advisory Agreement also
provides for payment to the Advisor of a flat fee of $25,000 per quarter. (See
"Item 11. Compensation" above).
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During 1998, SSR Realty Advisors, Inc. ("SSR") earned advisory fees of $75,000,
and received or had the right to receive as of December 31, 1998, $82,500 in
reimbursement of expenses, pursuant to the Advisory Agreement. SSR did not earn
acquisition or other fees from the Fund in 1998. Additionally, the Fund has
entered into an agreement with State Street Research pursuant to which State
Street Research manages the Fund's mortgage-backed securities portfolio. State
Street Research is a subsidiary of Metropolitan Life and an affiliate of the
Advisor. During 1998, State Street Research earned $10,596 in fees from the
Fund.
The above-described arrangements were not made pursuant to arm's length
negotiations. In the opinion of the Independent Directors of the Fund, however,
the terms are as beneficial to the Fund as terms which could be obtained from an
independent third party or parties for similar services and the compensation of
the Advisor and State Street Research is reasonable in relation to the nature
and quality of services performed by the Advisor and State Street Research,
respectively.
Due to the reduction in the lease and interest income resulting from the sale of
the Fund's assets, the Fund's actual expenses for 1998 and projected expenses
for 1999, respectively, exceed the limitations set forth in the original
offering Prospectus, dated June 30, 1989 (the " Prospectus"), and in the Amended
and Restated Bylaws of the Corporation, dated August 3, 1989 (the "Bylaws"). The
terms of both the Prospectus and the Bylaws require that, if in any year the
total operating expenses of the Fund exceed the greater of (a) 2 percent of the
average invested assets for that year or (b) 25% of the net income for that
year, the Independent Directors must conclude that the level of expenses is
justified if the Advisor is to be fully reimbursed. The Bylaws also require that
a written disclosure be made to Shareholders that these limitations have been
exceeded and as to the factors considered by the Independent Directors in
reaching their conclusion.
In Written Consents executed in the first quarter of 1999, the Independent
Directors unanimously found that the actual level of expenses for 1998 and the
projected level of expenses for 1999, respectively, was and is justified. This
finding was based upon the fact that the Fund's expenses have not declined
proportionately with the reduction in the Fund's asset base and income resulting
from the winding up of the Fund. The Independent Directors authorized the
Advisor to be fully reimbursed for the 1998 expenses and, provided no category
of expense incurred in 1999 is more than 10% in excess of the projections
reviewed by such Directors, for the 1999 expenses.
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) No reports on Form 8-K were required to be filed during the last
quarter covered by this Report. On January 6, 1999, subsequent to the
close of the quarter, a Report was filed on Form 8-K reporting the
disposition of the Circle K store in Rubidoux, California.
(c) Copies of these filings may be obtained by contacting the Securities
and Exchange Commission or via a written request to the Shareholder
Representative at SSR Realty Advisors, Inc., One California Street,
Suite 1400, San Francisco, California 94111.
(d) 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.
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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.
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 for1993 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 for1993 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.
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10.18 First Amendment, dated March 31, 1997, to lease between the
Registrant and Pearle, Inc., dated May 4, 1988. Incorporated
by reference to the Registrant's Report on Form 10-Q filed
with the Commission on May 14, 1997.
10.19 Eighth Amendment to Advisory Agreement dated as of April 1,
1997, between Registrant and SSR Realty Advisors, Inc.
Incorporated by reference to the Registrant's Report on Form
10-Q filed with the Commission on May 14, 1997.
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 April 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, 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.
10.26 Ninth Amendment to the Advisory Agreement dated as of April 1,
1998, between the Registrant and SSR Realty Advisors, Inc.,
incorporated by reference to the Registrant's Report on Form
10-K filed with the Commission on March 31, 1998.
10.27 Agreement for Purchase and Sale of Wickes Furniture Store
located in Torrance, California dated November 19, 1997,
incorporated by reference to the Registrant's Report on Form
8-K, filed with the Commission on January 9, 1998, as amended
on Form 8-K/A, filed with the Commission on June 23, 1998.
10.28 Agreement for Purchase and Sale of Pearle Express Store
located in Morrow, Georgia dated February 18, 1998
incorporated by reference to the Registrant's Report on Form
8-K, filed with the Commission on March 13, 1998, as amended
on Form 8-K/A, filed with the Commission on April 22, 1998.
10.29 Tenth Amendment to the Advisory Agreement dated as of January
1, 1999, between the Registrant and SSR Realty Advisors, Inc.
16.1 Letter from Deloitte and Touche, LLP dated September 27, 194
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.
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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. Incorporated
by reference to the Registrant's Report on Form 10-K filed
with the Commission on March 31, 1998.
29
<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, Jr.
--------------------------
Thomas P. Lydon, Jr.
President, Chairman of the Board,
and Chief Executive Officer
(Principal Executive Officer)
Date: March 24, 1999
--------------------------
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 By: /s/ William F. Garlock
----------------------- -----------------------
William G. Moeckel William F. Garlock
Director Director
Date: March 24, 1999
-----------------------
30
Exhibit 10.29
TENTH AMENDMENT
TO
ADVISORY AGREEMENT
BETWEEN
METRIC INCOME TRUST SERIES, INC. AND SSR REALTY ADVISORS, INC.
THIS TENTH AMENDMENT TO ADVISORY AGREMENT is dated as of January 1,
1999, between Metric Income Trust Series, Inc., a California corporation (the
"Fund"), and SSR Realty Advisors, Inc., a Delaware corporation, as assignee of
Metric Realty, an Illinois general partnership (the "Advisor").
WHEREAS, the Fund entered into an Advisory Agreement with the Advisor
dated as of June 29, 1989 and Amendments to such Agreement dated as of January
1, 1991 and April 1 of 1993, 1994, 1995, 1996, 1997, and 1998 (collectively, the
Agreement").
WHEREAS, Metric Realty, as the Advisor, assigned its interests in the
Agreement to SSR Realty Advisors, Inc., which accepted such assignment, pursuant
to an Assignment and Assumption Agreement dated as of March 27, 1997, to which
the Fund consented.
WHEREAS, the term of the Agreement expired on December 31, 1998 and the
Fund and the Advisor desire to renew the term of the Agreement.
WHEREAS, pursuant to Section 4.9 and 6.2 of the Bylaws of the Fund, the
independent Directors of the Fund have (i) evaluated the performance of the
Advisor and (ii) determined that the Advisor's compensation is reasonable in
relation to the nature and quality of services performed.
WHEREAS, the Fund is desirous of renewing the Agreement and the Advisor
is willing to continue to perform services under the Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants in this Amendment, the parties agree as follows:
1. Paragraph 18 of the Agreement is hereby amended to read in full as
follows:
"Term: Termination of Agreement. This Agreement shall continue
in force until December 31, 1999, and thereafter it may be renewed,
subject to the approval of the Independent Directors. Notwithstanding
any other provision to the contrary, this Agreement may be terminated
without cause upon 60 days' written notice by the Fund to the Advisor
or 60 days' written notice by the Advisor to the Fund."
<PAGE>
2. Except as set forth herein, the Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written:
FUND: METRIC INCOME TRUST SERIES, INC.,
a California corporation
By: /s/ William A. Finelli
----------------------------------
William A. Finelli
Vice President, Chief Financial Officer
ADVISOR: SSR REALTY ADVISORS, INC.,
a Delaware corporation
By: /s/ Herman H. Howerton
----------------------------------
Herman H. Howerton
Managing Director, General Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,291,000
<SECURITIES> 2,550,000
<RECEIVABLES> 14,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,877,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 2,963,000
<TOTAL-LIABILITY-AND-EQUITY> 3,877,000
<SALES> 0
<TOTAL-REVENUES> 326,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 339,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,000)
<DISCONTINUED> (55,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,000)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
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