SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant
Check the appropriate box:
/ / Preliminary Proxy Statement / /Confidential, For
Use of Commission Only
(as permitted by Rule 14a-
6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
T. ROWE PRICE RENAISSANCE FUND, Ltd.,
A Sales-Commission-Free Real Estate Investment
(Name of Registrant as Specified in Its Charter)
(Names of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/x/ Fee computed on table below per Exchange Act Rules 14a-
6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies: common stock, par value $.001 per share (the
"Common Stock")
(2) Aggregate number of securities to which transaction applies:
1,600,062 shares of Common Stock
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
The filing fee of $5,430 has been calculated in
accordance with Rule 0-11 under the Exchange Act and is
equal to 1/50 of 1% of $27,150,000 (the aggregate amount
of the cash to be received by the Registrant).
(4) Proposed maximum aggregate value of transaction:
$27,150,000
(5) Total fee paid:
$5,430
/x/ Fee paid previously with preliminary materials:
The fee of $5,430 was paid in full upon the filing of the
Registrant's preliminary consent solicitation materials with
the Commission on June 9, 1997 (Commission File No. 0-
19180).
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, of the
form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
T. Rowe Price Renaissance Fund, Ltd.,
A Sales-Commission-Free Real Estate Investment
100 East Pratt Street, Baltimore, MD 21202
James S. Riepe
Chairman of the Board and President
July 28, 1997
Fellow Stockholder:
You are invited to attend the 1997 Annual Meeting of
Stockholders. At the Annual Meeting, you will be asked to
consider and vote on several proposals, including a proposal to
approve the sale of all of T. Rowe Price Renaissance Fund s
remaining four properties to Glenborough Realty Trust
Incorporated, and the complete liquidation of the Fund.
The enclosed materials discuss the transaction in detail, but we
would like to summarize the reasons why the Board of Directors
recommends that you vote in favor of the transaction.
The Fund expects to benefit substantially by selling
properties together instead of individually. Benefits
include lower aggregate sales costs, more modest adjustments
to the sale price, and faster liquidation of the Fund.
The Fund has held certain properties for the period
anticipated when the Fund was organized, and current market
conditions appear favorable for a sale.
The price offered by Glenborough should allow Stockholders
to liquidate their investments for an amount that exceeds
the most recent estimated share value.
The Board has obtained a "Fairness Opinion" from Legg
Mason s corporate finance division, indicating that the sale
is fair to the Fund and to its Stockholders from a financial
point of view.
The enclosed materials contain a complete discussion of the
advantages and disadvantages of the transaction under the heading
"PROPOSAL 1: APPROVAL OF THE TRANSACTION-Recommendation of the
Board of Directors; Purposes and Reasons for the Transaction."
After carefully weighing the facts and circumstances associated
with the Glenborough transaction as well as alternative courses
of action, the Board concluded that the bulk property sale to
Glenborough and subsequent liquidation of the Fund is an
outstanding opportunity to maximize value for investors.
Therefore, we recommend you vote for the proposed transaction by
voting now and returning the enclosed proxy card in the
accompanying postage-paid envelope. The affirmative vote of
two-thirds (2/3) of all the votes entitled to be cast on the
matter will be required to complete the Transaction. Therefore,
your participation is extremely important, and your early
response could save the Fund the substantial costs associated
with a follow-up mailing. If you have any questions, please feel
free to call one of our real estate representatives at
1-800-962-8300.
Sincerely,
James S. Riepe
T. ROWE PRICE RENAISSANCE FUND, Ltd.,
A Sales-Commission-Free Real Estate Investment
100 East Pratt Street, Baltimore, Maryland 21202 July 28, 1997
Notice of Annual Meeting of Stockholders
September 11, 1997
Lenora V. Hornung
Secretary
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders (the "Annual Meeting") of T. Rowe Price Renaissance
Fund, Ltd., A Sales-Commission-Free Real Estate Investment, a
Maryland corporation (the "Fund"), at 1:00 p.m., local time, on
September 11, 1997. The Annual Meeting is being held at the
offices of T. Rowe Price Associates, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202, for the following purposes:
1. To consider and vote on a proposal to approve (a)
the sale of substantially all of the assets of the Fund (the
"Sale"), which currently consists of interests in four
properties, as contemplated by the Purchase and Sale Agreement
and Joint Escrow Instructions dated as of April 11, 1997, with
Glenborough Realty Trust Incorporated and Glenborough Properties,
L.P. as the buyers, and (b) the complete liquidation and
dissolution of the Fund (the "Dissolution" and, together with the
Sale, the "Transaction") in the manner described in the
accompanying Proxy Statement. Such Dissolution will result in
the distribution to the Stockholders of all net Sale proceeds and
other net assets of the Fund after completion of the Sale, all as
more fully described in the accompanying Proxy Statement.
2. To consider and vote on a proposal to elect three
members to the Fund's Board of Directors, each to hold office
until the next Annual Meeting of Stockholders, if any, and until
his successor is duly elected and qualified.
3. To consider and vote on a proposal to ratify the
appointment of KPMG Peat Marwick LLP as the Fund's independent
auditors for the year ending December 31, 1997 or, in the event
the Fund dissolves prior to December 31, 1997, for such shorter
period ending on the date of dissolution.
4. To consider and transact such other business as
may properly be brought before the Annual Meeting or any
adjournment or postponement thereof.
The presence, in person or by proxy, of the holders of
shares of common stock of the Fund, par value $.001 per share
(the "Shares"), entitled to cast a majority of all the votes
entitled to be cast at the Annual Meeting will be necessary to
constitute a quorum. Stockholders are entitled to cast one vote
per Share on each matter that is submitted to Stockholders for
approval. The affirmative vote of two-thirds (2/3) of all the
votes entitled to be cast on the matter will be required to
approve the Transaction in accordance with Maryland law. For
purposes of electing directors at the Annual Meeting, the
nominees receiving the affirmative vote of a plurality of the
votes cast at the Annual Meeting will be elected as directors of
the Fund. The affirmative vote of a majority of all the votes
cast at the Annual Meeting will be required for (i) the
ratification of the appointment of KPMG Peat Marwick LLP as the
Fund's independent auditors, and (ii) the approval of any other
matter that may properly be submitted to a vote of the
Stockholders at the Annual Meeting.
Pursuant to the Maryland General Corporation Law (the
"MGCL"), Stockholders who do not vote in favor of the Transaction
and who comply with the requirements of Title 3, Subtitle 2 of
the MGCL will have, if the Sale is consummated, the right to seek
appraisal of their Shares. For a more complete description of
such appraisal rights, see "PROPOSAL 1: APPROVAL OF THE
TRANSACTION-Stockholders' Rights of Appraisal" in the
accompanying Proxy Statement.
The Board of Directors has fixed July 2, 1997 as the record
date for the determination of Stockholders entitled to notice of,
and to vote at, the Annual Meeting and any postponement or
adjournment thereof, and only Stockholders of record at the close
of business on that date are entitled to such notice and to vote
at the Annual Meeting.
Sincerely,
LENORA V. HORNUNG
Secretary
Baltimore, Maryland
July 28, 1997
YOUR VOTE IS IMPORTANT
It is important that holders of at least a majority of the
outstanding Shares be represented at the Annual Meeting in person
or by proxy in order to constitute a quorum. Therefore,
regardless of whether you plan to attend the Annual Meeting,
please complete, sign, date and return the enclosed proxy card
promptly in the enclosed postage-paid envelope. A Stockholder
executing a proxy may revoke such proxy, at any time before the
Shares subject to the proxy are voted, by (i) filing with the
Secretary of the Fund at the Fund's principal executive offices
(a) a written notice of revocation bearing a later date than the
proxy or (b) a duly executed proxy relating to the same Shares
bearing a later date than the original proxy, or (ii) attending
the Annual Meeting in person and voting his or her Shares in
person.
T. ROWE PRICE RENAISSANCE FUND, Ltd.,
A Sales-Commission-Free Real Estate Investment
100 East Pratt Street
Baltimore, Maryland 21202
Annual Meeting of Stockholders
September 11, 1997
PROXY STATEMENT
This Proxy Statement is being furnished to the stockholders
(the "Stockholders") of T. Rowe Price Renaissance Fund, Ltd., A
Sales-Commission-Free Real Estate Investment, a Maryland
corporation (the "Fund"), in connection with the solicitation of
proxies by the Board of Directors of the Fund (the "Board of
Directors" or the "Board") from holders of outstanding shares of
common stock of the Fund, par value $.001 per share (the
"Shares"), for use at the Annual Meeting of Stockholders to be
held on September 11, 1997, and at any adjournment or
postponement thereof (the "Annual Meeting").
At the Annual Meeting, Stockholders will be asked to
consider and vote on a proposal to approve (a) the sale of
substantially all of the assets of the Fund (the "Sale"), which
currently consists of interests in four properties, as
contemplated by the Purchase and Sale Agreement and Joint Escrow
Instructions dated as of April 11, 1997 (the "Purchase and Sale
Agreement"), with Glenborough Realty Trust Incorporated and
Glenborough Properties, L.P. as the buyers (the "Purchaser"), and
(b) the complete liquidation and dissolution of the Fund (the
"Dissolution" and, together with the Sale, the "Transaction") in
the manner described in this Proxy Statement. Such Dissolution
will result in the distribution to the Stockholders of all net
Sale proceeds and other net assets of the Fund after completion
of the Sale, all as more fully described under the caption
"PROPOSAL 1: APPROVAL OF THE TRANSACTION-The Dissolution."
At the Annual Meeting, Stockholders will also be asked to
consider and vote on (i) a proposal to elect three members to the
Fund's Board of Directors, each to hold office until the next
Annual Meeting of Stockholders, if any, and until his successor
is duly elected and qualified, (ii) a proposal to ratify the
appointment of KPMG Peat Marwick LLP as the Fund's independent
auditors for the year ending December 31, 1997 or, in the event
the Fund dissolves prior to December 31, 1997, for such shorter
period ending on the date of dissolution and (iii) such other
proposals as may properly be brought before the Annual Meeting.
As of the date of this Proxy Statement, the Board of
Directors knows of no other business which will be presented for
consideration at the Annual Meeting. Unless contrary
instructions are indicated on the enclosed proxy, all Shares
represented by valid proxies received pursuant to this
solicitation (and which have not been revoked in accordance with
the procedures set forth herein) will be voted (i) FOR the
approval of the Transaction, (ii) FOR the election of the three
nominees named herein for election to the Board of Directors and
(iii) FOR the ratification of the appointment of KPMG Peat
Marwick LLP as the Fund's independent auditors. If any other
matters are properly presented at the Annual Meeting for
consideration, votes will be cast pursuant to said proxies in
respect of any such other business in accordance with the
judgment and in the discretion of the persons acting thereunder.
In the event a Stockholder specifies a different choice by means
of the enclosed proxy card, his or her Shares will be voted in
accordance with the specification so made.
This Proxy Statement, the attached Notice of Annual Meeting
of Stockholders and the enclosed proxy card are first being
mailed to Stockholders on or about July 28, 1997.
The date of this Proxy Statement is July 28, 1997.
TABLE OF CONTENTS
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 5
General . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Matters to be Considered . . . . . . . . . . . . . . . . . . 5
Outstanding Shares and Voting Rights . . . . . . . . . . . . 5
Information Concerning Solicitation of Proxies . . . . . . . 6
Revocation of Proxies . . . . . . . . . . . . . . . . . . . 6
PROPOSAL 1: APPROVAL OF THE TRANSACTION . . . . . . . . . . . . 7
Description of the Fund . . . . . . . . . . . . . . . . . . 7
Background of the Disposition Plan . . . . . . . . . . . . . 7
Background of the Sale . . . . . . . . . . . . . . . . . . . 8
Description of the Properties to be Sold . . . . . . . . . . 8
Annual Valuation . . . . . . . . . . . . . . . . . . . . . 10
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . 10
Recommendation of the Board of Directors;
Purposes and Reasons for the Transaction . . . . . . . 14
Stockholders' Rights of Appraisal . . . . . . . . . . . . 16
Failure to Approve the Transaction . . . . . . . . . . . . 17
Terms of the Purchase and Sale Agreement . . . . . . . . . 17
The Dissolution . . . . . . . . . . . . . . . . . . . . . 20
BENEFITS OF THE TRANSACTION TO AND POSSIBLE CONFLICTS
OF THE FUND AND ITS AFFILIATES . . . . . . . . . . . . . . . 21
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE 21
Taxation of the Fund . . . . . . . . . . . . . . . . . . . 21
Taxation of Stockholders . . . . . . . . . . . . . . . . . 22
PROPOSAL 2: ELECTION OF DIRECTORS . . . . . . . . . . . . . . 23
Nominees for Election to the Board of Directors . . . . . 23
Vote Required and Recommendation . . . . . . . . . . . . . 24
Information Regarding Board Meetings and Committees . . . 24
Compensation of Directors . . . . . . . . . . . . . . . . 25
Management . . . . . . . . . . . . . . . . . . . . . . . . 25
Executive Compensation and Related Matters . . . . . . . . 25
Certain Relationships and Related Transactions . . . . . . 26
Compliance with Section 16(a)
of the Securities Exchange Act of 1934 . . . . . . . . . 26
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS
Vote Required and Recommendation . . . . . . . . . . . . . 27
MARKET FOR THE FUND'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . 28
SELECTED HISTORICAL FINANCIAL DATA . . . . . . . . . . . . . 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . 30
Results of Operations . . . . . . . . . . . . . . . . . . 30
Liquidity and Capital Resources . . . . . . . . . . . . . 31
Forward-Looking Information . . . . . . . . . . . . . . . 32
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 33
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . . . 34
LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . 34
OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING . . . 34
INFORMATION CONCERNING PROPOSALS OF STOCKHOLDERS . . . . . . 34
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . 35
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 36
APPENDICES
Appendix I -- Opinion of Legg Mason Wood Walker,
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix II -- Title 3, Subtitle 2, of the Maryland General
Corporation Law . . . . . . . . . . . . . . . . . . . . . . . B-1
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement. References are made to, and
this Summary is qualified in its entirety by, the more detailed
information contained in this Proxy Statement. Unless otherwise
defined herein, terms used in this Summary have the respective
meanings ascribed to them elsewhere in this Proxy Statement.
Stockholders are urged to read this Proxy Statement in its
entirety.
The Fund
T. Rowe Price Renaissance Fund, Ltd.,
A Sales-Commission-Free
Real Estate Investment The Fund directly owns four commercial
properties (collectively "Properties"
and individually a "Property"),
consisting of three office buildings
and one industrial park. The principal
offices of the Fund are located at 100
East Pratt Street, Baltimore, Maryland
21202, and its telephone number is 1-
800-962-8300.
The Purchaser
Glenborough Realty Trust
Incorporated and Glenborough
Properties, L.P Glenborough Realty Trust Incorporated
is a Maryland corporation whose shares
trade on the New York Stock Exchange.
Glenborough Realty Trust Incorporated
is the general partner of Glenborough
Properties, L.P., a Delaware limited
partnership. The principal offices of
the Purchaser are located at 400 South
El Camino Real, San Mateo, California
94402.
The Transaction
General The Transaction is a single proposal to
be approved by the Stockholders and
consists of (a) the Sale of all four
Properties to the Purchaser for an
aggregate purchase price of
$27,150,000, subject to certain
adjustments at or prior to closing, and
(b) the Dissolution of the Fund.
Background of the
Transaction In 1996, the Fund's Management, based
upon its belief that the real estate
markets were improving and the fact
that the Fund was approaching the end
of its expected duration, indicated its
intention to dispose of all of the
Fund's Properties in the next two to
three years. In January 1997, the
Purchaser contacted the Fund and
indicated its desire to purchase the
Fund's Properties. After a series of
negotiations, the Fund and the
Purchaser entered into an agreement for
the Fund to sell its Properties to the
Purchaser, subject to certain
contingencies. See "PROPOSAL 1:
APPROVAL OF THE TRANSACTION -
Background of the Disposition Plan" and
"-Background of the Sale."
Recommendations of the
Board of Directors The Board of Directors has carefully
considered the Transaction and has
concluded that the Transaction is in
the best interests of the Fund and the
Stockholders. Accordingly, the Board
of Directors unanimously approved the
Transaction and is recommending that
Stockholders vote FOR approval of the
Transaction. See "PROPOSAL 1:
APPROVAL OF THE TRANSACTION-
Recommendation of the Board of
Directors; Purposes and Reasons for the
Transaction."
Security Ownership
by Directors and Executive Officers
At the Record Date, no executive
officer or director of the Fund
beneficially owned 1% or more of the
outstanding Shares, except that James
S. Riepe, the Chairman of the Board and
President of the Fund, beneficially
owned 16,800 Shares, including 16,000
Shares owned of record by T. Rowe Price
Real Estate Group, Inc., with respect
to which Mr. Riepe has joint voting and
investment power, and as to which Mr.
Riepe disclaims beneficial ownership.
Such Shares constitute 1% of the
outstanding Shares of the Fund. At the
Record Date, all other officers and
directors of the fund, as a group,
beneficially owned 374 shares (less
than 1% of the outstanding shares). At
the Record Date, approximately 599,374
Shares, representing 37% of the
outstanding Shares, were registered to
the T. Rowe Price Trust Company as
Custodian for participants in the T.
Rowe Price Funds Individual Retirement
Accounts, as Custodian for participants
in various 403(b)(7) plans, and as
Custodian for various profit sharing
and money purchase plans. The T. Rowe
Price Trust Company has no beneficial
interest in such accounts and no
control over investment decisions with
respect to such accounts, nor any other
accounts for which it may serve as
trustee or custodian with respect to an
investment in the Fund. All officers
and directors of the fund intend to
vote their Shares, and Mr. Riepe
intends to vote his Shares and the
Shares owned of record by T. Rowe Price
Real Estate Group, Inc., in favor of
each of the proposals to be considered
at the Annual Meeting. See
"INTRODUCTION Outstanding Shares and
Voting Rights" and "VOTING SECURITIES
AND PRINCIPAL HOLDERS THEREOF."
Opinion of Financial
Consultant Legg Mason Wood Walker,
Incorporated ("Legg Mason") acted as a
financial consultant to the Board of
Directors of the Fund in connection
with the Transaction. The Board of
Directors has received an opinion from
Legg Mason that the Sale is fair, from
a financial point of view, to the Fund
and the Stockholders. See "PROPOSAL 1:
APPROVAL OF THE TRANSACTION-Fairness
Opinion."
Consummation of the
Sale The Sale will be consummated as
promptly as practicable after obtaining
the requisite approval of the
Stockholders to the Transaction and the
satisfaction or, where permissible,
waiver of all conditions to the Sale.
Appraisal Rights Pursuant to the Maryland General
Corporation Law (the "MGCL"),
Stockholders who do not vote in favor
of the Transaction and who comply with
the requirements of Title 3, Subtitle 2
of the MGCL will have, if the Sale is
consummated, the right to seek
appraisal of their Shares. For a more
complete description of such appraisal
rights, see "PROPOSAL 1: APPROVAL OF
THE TRANSACTION-Stockholders' Rights of
Appraisal."
Certain Federal and State
Income Tax Consequences The receipt of cash distributions in
respect of Shares pursuant to the
Dissolution will be a taxable
transaction for federal income tax
purposes and may also be a taxable
transaction under applicable state,
local, foreign and other tax laws. For
federal income tax purposes, each
taxable Stockholder will generally
recognize gain or loss equal to the
difference between the amount of cash
distributions received and such
Stockholder's tax basis for the Shares.
Such gain or loss will be capital gain
or loss (assuming the Shares are held
as a capital asset) and any such
capital gain or loss will be long term
if, as of the date of sale, the Shares
were held for more than one year or
will be short term if, as of such date,
the Shares were held for one year or
less. See "CERTAIN FEDERAL AND STATE
INCOME TAX CONSEQUENCES OF THE
TRANSACTION."
Final Distributions
and Dissolution As promptly as practicable following
the consummation of the Sale, the Board
of Directors will determine the amount
of assets that it believes will be
sufficient to pay the Fund's recorded
liabilities. The balance of the Fund's
assets will be promptly distributed to
the Stockholders. It is expected that
all or a substantial portion of such
net assets will be distributed no later
than the quarter following the closing
of the Sale. See "PROPOSAL 1: APPROVAL
OF THE TRANSACTION-The Dissolution."
Other Proposals
General At the Annual Meeting, Stockholders
will also be asked to consider and vote
on (i) a proposal to elect three
members to the Fund's Board of
Directors, each to hold office until
the next Annual Meeting of
Stockholders, if any, and until his
successor is duly elected and
qualified, (ii) a proposal to ratify
the appointment of KPMG Peat Marwick
LLP as the Fund's independent auditors
for the year ending December 31, 1997
or, in the event the Fund dissolves
prior to December 31, 1997, for such
shorter period ending on the date of
dissolution and (iii) such other
proposals as may properly be brought
before the Annual Meeting.
Recommendations of
the Board of Directors The Board of Directors has unanimously
approved (i) the nomination of each of
the individuals named herein to serve
as a director of the Fund and (ii) the
appointment of KPMG Peat Marwick LLP as
the Fund's independent auditors.
Accordingly, the Board of Directors is
recommending that Stockholders vote FOR
the election of each of the persons
nominated to serve as a director of the
Fund, and FOR the ratification of the
appointment of KPMG Peat Marwick LLP as
the Fund's independent auditors.
Outstanding Shares and Voting Rights
Record Date; Shares
Entitled to Vote Only Stockholders of record at the
close of business on July 2, 1997 are
entitled to notice of, and to vote at,
the Annual Meeting. At such date there
were outstanding 1,600,062 Shares, each
of which will entitle the record
owner thereof to one vote. See
"INTRODUCTION-Outstanding Shares and
Voting Rights."
Purposes of the Annual Meeting
Proxies are being solicited (i) to
approve the Transaction, (ii) to elect
three members to the Fund's Board of
Directors, (iii) to ratify the
appointment of KPMG Peat Marwick LLP as
the Fund's independent auditors and
(iv) to consider and transact such
other business as may properly be
brought before the Annual Meeting. See
"INTRODUCTION-Matters to be
Considered."
Vote Required
The presence, in person or by proxy, of
the holders of Shares entitled to cast
a majority of all the votes entitled to
be cast at the Annual Meeting will be
necessary to constitute a quorum.
Stockholders are entitled to cast one
vote per Share on each matter that is
submitted to Stockholders for approval.
The affirmative vote of two-thirds
(2/3) of all the votes entitled to be
cast on the matter will be required to
approve the Transaction in accordance
with Maryland law. For purposes of
electing directors at the Annual
Meeting, the nominees receiving the
affirmative vote of a plurality of the
votes cast at the Annual Meeting will
be elected as directors of the Fund.
The affirmative vote of a majority of
all the votes cast at the Annual
Meeting will be required for (i) the
ratification of the appointment of KPMG
Peat Marwick LLP as the Fund's
independent auditors, and (ii) the
approval of any other matter that may
properly be submitted to a vote of the
Stockholders at the Annual Meeting. See
"INTRODUCTION-Outstanding Shares and
Voting Rights."
INTRODUCTION
General
This Proxy Statement is being furnished to Stockholders in
connection with the solicitation of proxies by the Board of
Directors from holders of outstanding Shares for use at the
Annual Meeting and at any adjournment or postponement thereof.
This Proxy Statement, the attached Notice of Annual Meeting
of Stockholders and accompanying proxy card are first being
mailed to Stockholders on or about July 28, 1997.
Matters to be Considered
At the Annual Meeting, the Stockholders will be asked to
consider and vote on the following:
1. A proposal to approve the Transaction, which consists
of (a) the Sale of substantially all of the assets of
the Fund, as contemplated by the Purchase and Sale
Agreement, and (b) the Dissolution of the Fund. Such
Dissolution will result in the distribution to the
Stockholders of all net Sale proceeds and other net
assets of the Fund after completion of the Sale. See
"PROPOSAL 1: APPROVAL OF THE TRANSACTION-The
Dissolution."
2. A proposal to elect three members to the Fund's Board
of Directors, each to hold office until the next
Annual Meeting of Stockholders, if any, and until his
successor is duly elected and qualified.
3. A proposal to ratify the appointment of KPMG Peat
Marwick LLP as the Fund's independent auditors for the
year ending December 31, 1997 or, in the event the
Fund dissolves prior to December 31, 1997, for such
shorter period ending on the date of dissolution.
4. Such other proposals as may properly be brought before
the Annual Meeting or any adjournment or postponement
thereof.
As of the date of this Proxy Statement, the Board of
Directors knows of no other business which will be presented for
consideration at the Annual Meeting. Unless contrary
instructions are indicated on the enclosed proxy, all Shares
represented by valid proxies received pursuant to this
solicitation (and which have not been revoked in accordance with
the procedures set forth below) will be voted (i) FOR the
approval of the Transaction, (ii) FOR the election of the three
nominees named herein for election to the Board of Directors and
(iii) FOR the ratification of the appointment of KPMG Peat
Marwick LLP as the Fund's independent auditors. If any other
matters are properly presented at the Annual Meeting for
consideration, votes will be cast pursuant to said proxies in
respect of any such other business in accordance with the
judgment and in the discretion of the persons acting thereunder.
In the event a Stockholder specifies a different choice by means
of the enclosed proxy card, his or her Shares will be voted in
accordance with the specification so made.
Outstanding Shares and Voting Rights
The Board of Directors has set the close of business on July
2, 1997 as the record date (the "Record Date") for determining
Stockholders of the Fund entitled to notice of, and to vote at,
the Annual Meeting. As of the Record Date there were 1,600,062
Shares issued and outstanding, all of which are entitled to be
voted at the Annual Meeting. Holders of Shares are entitled to
one vote per Share on each matter that is submitted to
Stockholders for approval.
At the Record Date, no executive officer or director of the
Fund beneficially owned 1% or more of the outstanding Shares,
except that James S. Riepe, the Chairman of the Board and
President of the Fund, beneficially owned 16,800 Shares,
including 16,000 Shares owned of record by T. Rowe Price Real
Estate Group, Inc., with respect to which Mr. Riepe has joint
voting and investment power, and as to which Mr. Riepe disclaims
beneficial ownership. Such Shares constitute 1% of the
outstanding Shares of the Fund. At the Record Date, all other
officers and directors of the Fund, as a group, beneficially
owned 374 Shares (less than 1% of the outstanding Shares). At the
Record Date, approximately 599,374 Shares, representing 37% of
the outstanding Shares, were registered to the T. Rowe Price
Trust Company as Custodian for participants in the T. Rowe Price
Funds Individual Retirement Accounts, as Custodian for
participants in various 403(b)(7) plans, and as Custodian for
various Profit Sharing and Money Purchase plans. The T. Rowe
Price Trust Company has no beneficial interest in such accounts
and no control over investment decisions with respect to such
accounts, nor any other accounts for which it may serve as
trustee or custodian with respect to an investment in the Fund.
All officers and directors of the Fund intend to vote their
Shares, and Mr. Riepe intends to vote his Shares and the Shares
owned of record by T. Rowe Price Real Estate Group, Inc., in
favor of each of the proposals to be considered at the Annual
Meeting. See "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF."
The presence, in person or by proxy, of the holders of
Shares entitled to cast a majority of all the votes entitled to
be cast at the Annual Meeting will be necessary to constitute a
quorum. Stockholders are entitled to cast one vote per Share on
each matter that is submitted to Stockholders for approval. The
affirmative vote of two-thirds (2/3) of all the votes entitled to
be cast on the matter will be required to approve the Transaction
in accordance with Maryland law. For purposes of electing
directors at the Annual Meeting, the nominees receiving the
affirmative vote of a plurality of the votes cast at the Annual
Meeting will be elected as directors of the Fund. The
affirmative vote of a majority of all the votes cast at the
Annual Meeting will be required for (i) the ratification of the
appointment of KPMG Peat Marwick LLP as the Fund's independent
auditors, and (ii) the approval of any other matter that may
properly be submitted to a vote of the Stockholders at the Annual
Meeting. Abstentions will be considered as Shares present and
entitled to vote for purposes of determining the presence of a
quorum. For purposes of the vote on approval of the Transaction,
abstentions and broker non-votes will have the same effect as
votes against the proposal. For purposes of the election of
directors and the vote on the ratification of the appointment of
KPMG Peat Marwick LLP as the Fund's independent auditors,
abstentions will not be counted as votes cast and will have no
effect on the result of the vote.
If less than a majority of the outstanding Shares are
represented at the Annual Meeting, the holders of a majority of
the Shares so represented may adjourn the Annual Meeting from
time to time without further notice. In addition, the Board of
Directors may, solely for purposes of soliciting additional votes
in favor of one or more of the proposals to be considered at the
Annual Meeting, adjourn the Annual Meeting from time to time,
without further notice, to a date not more than 120 days after
the Record Date.
Information Concerning Solicitation of Proxies
The costs of preparing, assembling and mailing the proxy
material will be borne by the Fund. Solicitations will be made
only by use of the mail except that, if deemed desirable,
officers and regular employees of the Fund or its investment
manager, T. Rowe Price Real Estate Group, Inc. ("Investment
Manager"), or its affiliates may solicit proxies by telephone,
facsimile and/or other means of communication. Such persons will
receive no compensation therefor in addition to their regular
salaries. Arrangements will be made with banks, brokers and
other custodians, nominees and fiduciaries to forward copies of
the proxy material to the beneficial owners of the Shares held of
record by such persons and to request authority for the execution
of proxies. The Fund will reimburse such persons for their
reasonable expenses incurred in this connection. The aggregate
expenses anticipated to be incurred by the Fund relating to this
solicitation are expected to be approximately $70,000.
Revocation of Proxies
A Stockholder executing a proxy may revoke such proxy, at
any time before the Shares subject to the proxy are voted, by (i)
filing with the Secretary of the Fund at the Fund's principal
executive offices (a) a written notice of revocation bearing a
later date than the proxy or (b) a duly executed proxy relating
to the same Shares bearing a later date than the original proxy,
or (ii) attending the Annual Meeting in person and voting his or
her Shares in person (attendance at the Annual Meeting will not
in and of itself constitute revocation of a proxy). No
revocation of a previously delivered proxy shall be effective
unless it is received by the Secretary of the Fund before the
votes represented by the proxy are cast at the Annual Meeting.
PROPOSAL 1
APPROVAL OF THE TRANSACTION
Description of the Fund
The Fund was incorporated under the laws of the State of
Maryland on June 14, 1989 for the primary purpose of acquiring a
diversified portfolio of "undervalued" properties and operating
and holding such properties for investment. Undervalued
properties were considered to be those with prices that (i) had
fallen significantly below recent historical levels as a result
of over building and/or local economic downturns and which had
the potential to increase substantially in value over the life of
the Fund; or (ii) were priced below their intrinsic worth because
of opportunities to add value through active property management,
capital improvements, changes in management strategy, and/or
improved market conditions.
From inception through December 31, 1996, the Fund qualified
and elected to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"), and has declared dividends to Stockholders of at least
100% of its taxable income since inception and has not been
subject to federal income taxes on such income. The Fund was
structured to have a finite life and to be self-liquidating in
order to enable the Fund to commence an orderly liquidation of
its investments after a planned holding period, distribute to its
Stockholders the net proceeds derived from such liquidation
(other than any funds set aside to provide for the payment of all
expenses and other liabilities of the Fund) and thereafter
dissolve. It was anticipated that the Fund would commence
liquidation of its real estate investments approximately five to
eight years following investment of the net proceeds of its
November 1989 initial public offering; the exact termination date
of the Fund is within the complete discretion of the Board of
Directors and may occur earlier or later than originally
anticipated, subject to real estate market conditions over the
life of the Fund. The Properties were purchased by the Fund
between 1990 and 1995.
The Fund currently owns four commercial properties
consisting of three office buildings and one industrial park.
The Fund owned one additional commercial property, which was sold
in November 1996.
Background of the Disposition Plan
In 1996, the Fund's Management indicated its intention to
dispose of all of the Fund's Properties in the next two to three
years. This decision was based upon Management's belief that the
real estate market was improving, as well as the fact that
certain of the Properties were nearing the end of their
anticipated holding period. Over the past few years, the ability
to sell properties generally has been enhanced by further
improvements in the national real estate market. Pension funds,
REITs and other institutional buyers have increased their
purchasing activity in recent years compared to the early 1990's
when these same institutional buyers were largely out of the
market. Lower interest rates have also improved the market for
selling properties as entrepreneurial buyers who require debt
financing to purchase properties are able to borrow funds at more
advantageous rates.
More specifically, with respect to the Fund's Properties,
improvements in the real estate capital markets and in the
operating performance of certain Properties have enhanced the
prospects for selling these Properties or the prices at which
they can expect to be sold. Improvements in the Denver market
and in the northern New Jersey market have caused rents to
increase and concessions to tenants (such as free rent periods
and tenant improvements) to decrease. As a result of improved
occupancy and property cash flow and the improvement in the real
estate capital markets, the Properties located in these areas are
in an improved position for sale. See "-Description of
Properties to be Sold," below, for more details concerning these
properties.
Accordingly, Management determined that the Fund should
investigate opportunities for selling the Properties. The
Buckley Square retail Property was marketed through local area
retail brokers and was sold in November 1996. LaSalle Advisors
Limited Partnership ("LaSalle"), the real estate adviser to the
Fund, managed the sale.
Background of the Sale
In January 1997, the Fund was contacted by the agent of an
unidentified buyer (which was later disclosed to be the
Purchaser), who expressed an interest in purchasing all of the
remaining real estate assets of the Fund and of the four other
public real estate funds sponsored by T. Rowe Price Associates,
Inc., an affiliate of the Fund ("Associates"). The four entities
affiliated with the Fund are sometimes hereinafter referred to as
"Affiliated Funds" and, together with the Fund, the "Funds."
This contact was made after the Affiliated Funds had publicly
disclosed their intention to sell all of their properties by the
end of 1998. Later in January, after telephone discussions
between this agent and representatives of the Fund, the Purchaser
contacted the Fund and identified itself as the potential buyer.
Thereafter, in February 1997, the Fund entered into a
confidentiality agreement with the Purchaser and its
representative and forwarded certain business and financial
information to the Purchaser for its review.
On February 14, 1997, a third party (the "Third Party")
contacted the Fund and made an offer to purchase the Fund's
Gatehall I Property for $8.0 million. On February 20, 1997, the
Third Party contacted the Fund and offered to purchase all of the
Fund's Properties for $22,750,000, which offer was subject to a
financing contingency and a 60-day due diligence period (the
"Third Party Offer"). On February 25, 1997, the Purchaser
offered $23,643,000 for all of the Properties, which offer was
not subject to the Purchaser obtaining financing and was
initially only subject to a 15-day due diligence period. A
preliminary due diligence investigation by LaSalle included
questions as to whether the Third Party would be able to procure
the necessary capital to proceed with its offer. The Fund's
Management had a greater degree of confidence in the Purchaser's
ability to consummate the sale.
Between February 25, 1997 and March 7, 1997, the Third Party
raised its offer to $23,750,000 and then to $27,100,000. During
such time, negotiations continued between the Fund and the
Purchaser and, on March 7, 1997, the Fund countered the
Purchaser's offer at $27,150,000, based in part upon the amount
of the Third Party Offer. On March 10, 1997, the Purchaser
increased its offer to $26,335,000. Later that day, the Third
Party raised its offer to $27.5 million.
The Fund then contacted both the Purchaser and the Third
Party and asked each to make their final and best offers. The
Third Party was informed of the significantly shorter due
diligence period in the Purchaser's offer, and that the Fund's
Management favored such shorter time frame. The Third Party
withdrew its $27.5 million offer, indicating that some of its
assumptions concerning the Properties were not verified by
additional information it had received, and declined to make a
final offer. The Third Party also indicated that it could not
match the shorter due diligence period offered in connection with
the Purchaser's offer. On March 12, 1997, the Purchaser agreed
to purchase the Properties for $27,150,000.
On April 11, 1997, the Board unanimously approved the sale
of all of the Properties to the Purchaser at the price of
$27,150,000, and directed that a proposal to approve such sale be
submitted to a vote of the Stockholders of the Fund at the Annual
Meeting.
The Purchase and Sale Agreement for the Properties was
executed on April 11, 1997, and the Purchaser deposited $271,500
(the "Escrow Deposit"), representing 1% of the purchase price for
the Properties, in an escrow account.
Description of the Properties to be Sold
Valley Business Center
The Fund owns a 100% interest in the Valley Business Center,
which is located in the southwest market sector very close to the
border of the central industrial market in downtown Denver,
Colorado. It was built in 1984 and contains 202,000 square feet
of space. This Property was acquired in 1990 and consists of
five free-standing buildings, which are a hybrid of R&D and
traditional distribution warehouse space, set on 9.3 acres of
land.
At year-end 1996, the Property was 87% leased as compared to
94% at year-end 1995. Although there were three new leases
totaling 12,124 square feet, or 6% of the Property, signed during
1996, the loss of two tenants, the largest of which vacated at
the end of 1996, caused occupancy to decline. A lease for part
of the vacant space was signed after year-end, resulting in
occupancy increasing to 96% as of the beginning of 1997.
The combined southwest and central Denver submarkets contain
approximately 36.7 million square feet. Although vacancy in this
area increased from approximately 2% to 3% during 1996, the
results were due to frictional vacancy and not market
deterioration. Market rates averaged a net effective rent of
$5.00 to $6.00 per square foot for Class A buildings such as
those on this Property. This was approximately 9% higher than
the 1995 levels, which were 8-10% above 1994 levels. Leases
covering 40.2% of the space in Valley Business Center expire
between May 1997 and December 1998, and it is estimated that
capital improvements, leasing commissions and tenant improvements
over the same period would be approximately $211,000.
Post Oak Place
The Fund owns a 100% interest in this Property located in
the Galleria/West Loop section of Houston, Texas. It was built
in 1971, acquired in 1992 and contains 57,000 square feet. This
Property consists of one two-story office building set on 2.4
acres of land. During 1996, the Fund recorded a provision for
value impairment in connection with Post Oak Place of $907,000.
At year-end 1996, the Property was 81% leased compared to
75% at year-end 1995. Leasing in 1996 included four new leases
representing 7,059 square feet and five renewal or expansion
leases totaling 4,931 square feet. Five tenants totaling 6,390
square feet did not renew their leases.
According to published reports, Houston continued to
experience modest positive absorption citywide in 1996. The
Galleria/West Loop submarket has the second greatest
concentration of office space in the Houston area. It has 211
office buildings which have a total of approximately 33 million
square feet of net rentable area. Vacancy in the submarket
declined to approximately 15% in 1996 as compared to 17% in 1995
and 19% in 1994. Leases covering 39.9% of the space in Post Oak
Place expire between May 1997 and December 1998, and it is
estimated that capital improvements, leasing commissions and
tenant improvements over the same period would be approximately
$219,000.
Gatehall I
The Fund owns a 100% interest in this Property, located in
Parsippany, New Jersey, which is a major component of the Morris
County marketplace. It was built in 1983, acquired in 1994 and
contains approximately 112,000 square feet. This Property
consists of one four-story office building set on approximately
9.7 acres of land.
At year-end 1996, this Property was 82% leased compared to
71% at year-end 1995. Four new leases totaling 31,073 square
feet were signed. In addition, one renewal and five expansion
leases representing 12,406 square feet were signed during the
year. Despite two tenants that did not renew and one whose lease
was terminated for credit reasons, occupancy increased 11% during
the year.
The Parsippany submarket is comprised of approximately 10
million square feet of office space. The vacancy rate for all
classes of space was approximately 15% during 1996 compared to
16% during 1995 and 26% in 1994. The shortage of Class A space
available is expected to continue to tighten the Class B vacancy
rates in properties such as Gatehall I. Gross rental rates for
Class A space are approximately $25.15 per square foot, while the
Class B rates are up slightly to approximately $17.65 per square
foot. Leases covering 32.5% of the space in Gatehall I expire
between May 1997 and December 1998, and it is estimated that
capital improvements, leasing commissions and tenant improvements
over the same period would be approximately $465,000.
Buschwood III
The Fund owns a 100% interest in Buschwood III, located in
the suburban submarket of Carrollwood, Florida, near Tampa.
Built in 1989, this two-story office building contains
approximately 77,000 square feet and is set on approximately 7.6
acres of land. This Property has remained 100% leased since it
was purchased in 1995.
The Carrollwood Class A submarket in which Buschwood III
competes comprises approximately 692,000 square feet. The
vacancy rate for the submarket was approximately 11% at year-end
1996 compared to 14% at year-end 1995 and 13% at year-end 1994.
Gross rental rates for Class A space range between $13.25 and
$15.00 per square foot. At this time, plans have been made for
the building of a 40,000 square foot speculative development in
the submarket. In 1997 approximately two million square feet of
build-to-suit projects are scheduled to be built within the Tampa
Bay/St. Petersburg market. Leases covering 46.4% of the space in
Buschwood III expire between May 1997 and December 1998, and it
is estimated that capital improvements, leasing commissions and
tenant improvements over the same period would be approximately
$270,000.
Annual Valuation
At the end of each year, commencing in 1991, the Fund
establishes an estimated value of the Fund's portfolio of
Properties ("Property Valuation"). In order to establish the
Property Valuation, a range of values is first established for
each of the Fund's Properties. This range is primarily based on
the discounting of expected future cash flows for the Properties,
taking into account current and anticipated market rental rates
and discount rates in the market where the Property is located,
as well as conditions at the Property itself. Based on the range
of values established for each Property, the Fund establishes a
range for the estimated current value of the Properties in the
aggregate. The Fund's analysis is primarily based on data
provided by LaSalle. The Fund also retains an independent
appraiser to review the data provided by LaSalle, including
LaSalle's assumptions as to market rates and projected future
rental rates, and its application of these assumptions to the
Properties. The appraiser also reviews the reasonableness of the
aggregate market value range. Based upon the range of values
established for the Properties as a group, the Fund selects a
figure within this range which then constitutes the Property
Valuation.
Once the Property Valuation is established, the Fund uses
the Property Valuation, along with the Fund's other assets and
liabilities, to prepare an estimated Share value ("Share
Valuation") by dividing the aggregate net value by the number of
Shares outstanding at the end of the year. The Share Valuation
is then approved by the Board of Directors. The Share Valuation
is not necessarily representative of the value of the Shares when
the Fund liquidates because, among other reasons, the Share
Valuation is based on estimates of property values and does not
take into consideration the ongoing costs of operating the
Properties and the Fund until liquidation. Nor does the Share
Valuation necessarily represent the value at which a Stockholder
could sell his or her Shares currently because of the lack of
liquidity of the Shares. At December 31, 1996, the estimated
Share Valuation was $13.44 per Share. Adjusted for the February
distribution of $0.99 per Share, the last adjusted Share
Valuation is $12.45 per Share. The sales price under the
Purchase and Sale Agreement after deducting expenses of the Sale
and retiring outstanding debt of $2.6 million, is estimated to be
approximately $15.00 per Share, which amount exceeds the last
adjusted Share Valuation.
Fairness Opinion
The Board of Directors requested Legg Mason Wood Walker,
Incorporated ("Legg Mason") to render it an opinion as to whether
the consideration to be received by the Fund from the Sale is
fair to the Fund and the Stockholders, from a financial point of
view. The Board of Directors retained Legg Mason based upon its
prominence as an investment banking and financial advisory firm
with experience in the valuation of businesses, their properties
and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities,
private placements and valuations for corporate purposes,
especially with respect to REITs and other real estate companies.
On July 21, 1997, Legg Mason delivered its written opinion
to the Board of Directors (the "Fairness Opinion") that, as of
the date of such opinion, based on Legg Mason's review and
subject to the limitations described below, the consideration to
be received by the Fund from the Sale is fair to the Fund and the
Stockholders, from a financial point of view. The Fairness
Opinion does not constitute a recommendation to any Stockholder
as to whether such Stockholder should approve the Sale.
Additionally, the Fairness Opinion does not compare the relative
merits of the Sale with those of any other transactions or
business strategies available to the Fund as alternatives to the
Sale, and Legg Mason was not requested to, and did not, solicit
the interest of any other party in acquiring the Properties.
THE FULL TEXT OF THE FAIRNESS OPINION (WHICH CONTAINS A
DESCRIPTION OF THE ASSUMPTIONS AND QUALIFICATIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS IMPOSED ON THE REVIEW AND ANALYSIS) IS
SET FORTH IN APPENDIX I AND SHOULD BE READ IN ITS ENTIRETY. THE
FUND IMPOSED NO CONDITIONS OR LIMITATIONS ON THE SCOPE OF LEGG
MASON'S INVESTIGATION OR THE METHODS OR PROCEDURES TO BE FOLLOWED
IN RENDERING THE FAIRNESS OPINION.
In rendering the Fairness Opinion, Legg Mason, among other
things: (i) reviewed the Purchase and Sale Agreement; (ii)
reviewed and analyzed certain consolidated historic and projected
financial and operating data of the Fund and the Properties,
including certain audited and unaudited financial statements for
the Fund and unaudited cash-basis projections for the Properties,
as provided by the Investment Manager and LaSalle; (iii) reviewed
and analyzed certain other internal information concerning the
business and operations of the Fund and the Properties furnished
to it by the Investment Manager and LaSalle; (iv) reviewed and
analyzed certain publicly available information concerning the
Fund, the Properties and the Purchaser; (v) reviewed and analyzed
certain publicly available information concerning the terms of
selected merger and acquisition transactions that Legg Mason
deemed relevant to its inquiry; (vi) reviewed and analyzed
certain selected market purchase price data that Legg Mason
considered relevant to its inquiry; (vii) held meetings and
discussions with certain directors, officers and employees of the
Investment Manager and LaSalle concerning the operations,
financial condition and future prospects of the Properties; and
(viii) conducted such other financial studies, analyses and
investigations, including visits to certain of the Properties,
and considered such other information as it deemed appropriate.
In preparing its opinion, Legg Mason relied, without
independent verification, on the accuracy and completeness of all
information that was publicly available, supplied or otherwise
communicated to Legg Mason by the Investment Manager and LaSalle.
Legg Mason assumed that the financial projections (and the
assumptions and bases thereof) examined by it were reasonably
prepared and reflected the best currently available estimates and
good faith judgments of the Investment Manager and LaSalle as to
the future performance of the Properties. Legg Mason did not
make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Fund (including the
Properties), nor was Legg Mason furnished with any such
independent evaluations or appraisals. The Fairness Opinion is
based upon financial, economic, market and other conditions and
circumstances existing and disclosed to it as of the date of its
opinion.
The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant
quantitative methods of financial analyses and the application of
those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or
amenable to summary description. Accordingly, Legg Mason
believes that its analysis must be considered as a whole and that
considering any portion of the analysis and of the factors
considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process
underlying the Fairness Opinion. Any estimates contained in
these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be
significantly more or less favorable than as set forth therein.
In addition, analyses relating to the values of real estate
properties are not appraisals and may not reflect the prices at
which such properties may actually be sold. Accordingly, such
analyses and estimates are inherently subject to substantial
uncertainty and Legg Mason does not assume responsibility for any
future variations from such analyses or estimates. The following
paragraphs summarize the significant quantitative and qualitative
analyses performed by Legg Mason in arriving at the Fairness
Opinion.
Analyses and Conclusions
As background for its analyses, Legg Mason held extensive
discussions with the Investment Manager and LaSalle regarding the
history, current business operations, financial condition and
future prospects of the Properties.
In valuing the Properties, Legg Mason considered a variety
of valuation methodologies, including (i) a discounted cash flow
analysis; (ii) an analysis of certain transactions pursuant to
which selected REIT's have acquired a portfolio of industrial or
office properties; and (iii) an analysis of certain publicly
available market purchase price data for industrial and office
properties in the markets in which the Properties are located.
For purposes of its analysis, Legg Mason relied upon audited
financial statements for the Fund for the year ended December 31,
1996, unaudited financial statements for the Fund for the three
months ended March 31, 1997 and unaudited cash-basis projections
for the Properties for the years ending December 31, 1997 through
2007, inclusive, as provided by the Investment Manager and
LaSalle.
In connection with rendering its opinion, Legg Mason
performed a variety of financial and comparative analyses,
including those summarized below, and relied most heavily on the
discounted cash flow analysis. Legg Mason's opinion is directed
only to the fairness to the Fund and to the Stockholders, from a
financial point of view, of the consideration to be received by
the Fund from the Sale, and does not address any other aspect of
the Sale. The summary set forth below does not purport to be a
complete description of the analyses used by Legg Mason in
rendering its Fairness Opinion.
Discounted Cash Flow Analysis. Legg Mason analyzed the
financial terms of the Sale using a discounted cash flow
analysis. The discounted cash flow approach assumes, as a basic
premise, that the intrinsic value of any business or property is
the current value of the future cash flow that the business or
property will generate for its owners. To establish a current
implied value under this approach, future cash flow must be
estimated and an appropriate discount rate determined. Legg
Mason used projections and other information provided by the
Investment Manager and LaSalle to estimate the free cash flows,
defined as total projected cash revenue (including base rent and
expense recoveries net of certain free rent and vacancy
allowances) minus total projected cash property expenses
(including utility expense, repair and maintenance expense,
property management fees, insurance, real estate taxes, tenant
improvements, leasing commissions and capital improvements)
("Free Cash Flows") for the nine months ending December 31, 1997
through the year ending December 31, 2007, inclusive.
The Free Cash Flows were then discounted to the present,
using discount rates ranging from 11.2% to 14.2% (12.5% midpoint)
and growth rates applied to the average of the Free Cash Flows
for the fiscal years ending December 31, 2005 through 2007
ranging from 4.0% to 5.5%. These discount rates reflected Legg
Mason's assessment of real estate investments in general, and the
specific risks of the Properties, in particular. Legg Mason's
calculations resulted in a range of aggregate imputed values of
the Properties of $17.9 million to $28.7 million, with a mean of
$22.2 million.
Given that the consideration of $27,150,000 to be received
by the Fund from the Sale is within the aggregate values of the
Properties derived from discounted cash flow analysis, Legg Mason
believes that this analysis supports the fairness to the Fund and
the Stockholders, from a financial point of view, of the
consideration to be received from the Sale.
Selected Comparable Acquisition Analysis. Legg Mason also
analyzed selected transactions (the "Comparable Industrial
Acquisitions") in which certain office/industrial REIT's (the
"Acquiring Industrial Companies") acquired a portfolio of
industrial properties (the "Target Industrial Portfolios"). Legg
Mason compared the purchase price paid in each Comparable
Industrial Acquisition with the latest twelve months or reported
period, on an annualized basis, revenues, EBITDA and funds from
operations of the Target Industrial Portfolios and calculated the
following range of multiples: a range of purchase price to Target
Industrial Portfolio revenues of 6.0x to 8.7x, with a mean of
7.4x; a range of purchase price to Target Industrial Portfolio
EBITDA of 9.0x to 11.8x, with a mean of 10.4x; and a range of
purchase price to Target Industrial Portfolio funds from
operations of 8.3x to 11.8x, with a mean of 10.3x. Applying the
applicable range of these acquisition multiples to the industrial
Property's revenues, EBITDA and funds from operations for the
trailing twelve month period ended March 31, 1997, as adjusted to
reflect management's pro forma adjustments and certain additional
adjustments that Legg Mason deemed appropriate, yielded an
implied range of values for the industrial Property of
approximately $6.2 million to $9.5 million, with a mean of $7.9
million.
Legg Mason also analyzed selected transactions (the
"Comparable Office Acquisitions") in which certain
office/industrial REITs (the "Acquiring Office Companies")
acquired a portfolio of office properties (the "Target Office
Portfolios"). Legg Mason compared the purchase price paid in
each Comparable Office Acquisition with the latest twelve months
or reported period, on an annualized basis, revenues, EBITDA and
funds from operations of the Target Office Portfolios and
calculated the following range of multiples: a range of purchase
price to Target Office Portfolio revenues of 2.2x to 10.0x, with
a mean of 5.8x; a range of purchase price to Target Office
Portfolio EBITDA of 6.3x to 15.1x, with a mean of 10.6x; and a
range of purchase price to Target Office Portfolio funds from
operations of 0.7x to 17.3x, with a mean of 11.0x. Applying the
applicable range of these acquisition multiples to the office
Properties' revenues, EBITDA and funds from operations for the
trailing twelve month period ended March 31, 1997, as adjusted to
reflect management's pro forma adjustments and certain additional
adjustments that Legg Mason deemed appropriate, yielded an
implied aggregate range of values of the office Properties of
approximately $0.9 million to $32.4 million, with a mean of $16.8
million. Legg Mason then combined the respective ranges of
valuations of the industrial Property and the office Properties,
which yielded an implied aggregate range of values of the
Properties of approximately $7.1 million to $42.0 million, with a
mean of $24.6 million.
Given that the consideration of $27,150,000 to be received
by the Fund from the Sale is within the aggregate values for the
Properties derived from the range of acquisition multiples of the
Comparable Industrial Acquisitions and the Comparable Office
Acquisitions, Legg Mason believes that this analysis supports the
fairness to the Fund and the Stockholders, from a financial point
of view, of the consideration to be received from the Sale.
Selected Comparable Market Purchase Price Analysis. Legg
Mason also compared certain financial information relating to the
Properties to certain publicly available information on current
purchase prices of industrial and office buildings in particular
markets in which the Properties are located.
Legg Mason analyzed the prevailing purchase capitalization
rate (calculated by dividing property net operating income for
the applicable trailing twelve month period by the purchase price
paid) for the Houston, Texas; central New Jersey; and Tampa,
Florida office markets as well as for the Denver, Colorado
industrial market. Legg Mason believes that these markets
closely resemble the respective markets in which the Properties
are located and are an appropriate basis for the comparison of
values.
Applying this selected data to the applicable Properties'
net operating income for the twelve months ended March 31, 1997,
as adjusted to reflect management's pro forma adjustments and
certain additional adjustments that Legg Mason deemed
appropriate, yielded an aggregate value of the Properties of
$24.5 million.
Given that the consideration of $27,150,000 to be received
by the Fund from the Sale is greater than the aggregate value for
the Properties derived from the prevailing purchase
capitalization rates, Legg Mason believes that this analysis
supports the fairness to the Fund and the Stockholders, from a
financial point of view, of the consideration to be received from
the Sale.
Pursuant to an engagement letter dated May 12, 1997, Legg
Mason will receive $35,000 for its services in rendering the
Fairness Opinion. Legg Mason will also be reimbursed for certain
of its expenses, in an amount not to exceed $5,000 without the
prior consent of the Board of Directors. The Fund has agreed to
indemnify Legg Mason, its affiliates and each of its directors,
officers, employees, agents, consultants and attorneys, and each
person or firm, if any, controlling Legg Mason or any of the
foregoing, against certain liabilities, including liabilities
under federal securities law, that may arise out of Legg Mason's
engagement.
Legg Mason has, from time to time, provided securities
brokerage services to Associates and its affiliates, and may do
so in the future, but the compensation paid by Associates and its
affiliates to Legg Mason is not material, constituting less than
1% of Legg Mason's total 1996 commission revenue, and less than
1% of such commissions paid by Associates and its affiliates in
1996. Legg Mason has also been retained by the Affiliated Funds
for separate fees to render opinions in connection with the sale
by such Affiliated Funds of substantially all of their properties
to the Purchaser.
Recommendation of the Board of Directors; Purposes and Reasons
for the Transaction
The Board of Directors believes that the Transaction is in
the best interests of the Fund and the Stockholders, and,
therefore, recommends that the Stockholders approve the
Transaction.
In reaching its recommendation, the Board of Directors
considered the following factors with respect to the Transaction:
(i) The purchase price was achieved by arm's length
negotiations and exceeds the Property Valuation;
(ii) In a sale of all of the Properties in one transaction,
all negotiations, including those relating to price and any
adjustments to price as a result of the Purchaser's due
diligence, are conducted on a portfolio level rather than
Property by Property, which is more efficient and is anticipated
to result in fewer price adjustments;
(iii) The liquidity the Transaction will provide to
Stockholders that the retention of Shares does not provide. At
present, there is no established public trading market for Shares
and liquidity is limited to sporadic sales that occur within an
informal secondary market and the Fund's Liquidity Enhancement
Plan, which provides liquidity only at a discount from the Share
Valuation, and which has been suspended pending the vote by the
Stockholders on the Transaction;
(iv) Prior to entering into the Purchase and Sale
Agreement, Management made inquiries regarding the Purchaser and
determined that the Purchaser has a reputation for completing
purchases it contracts to make and for doing so in a timely and
expeditious manner;
(v) The Fairness Opinion of Legg Mason that the Sale is
fair to the Fund and the Stockholders, from a financial point of
view;
(vi) The terms and conditions of the Purchase and Sales
Agreement described under "Terms of the Purchase and Sale
Agreement," in particular: (a) the Purchaser's obligations are
not subject to obtaining financing; (b) the Purchaser will
forfeit its $271,500 Escrow Deposit if it fails to consummate the
Transaction other than for the due diligence reasons discussed
under "Terms of the Purchase and Sale Agreement-Condition of the
Properties; Purchaser's Review of the Properties;" (c) it is
unlikely that there will be any significant adjustment to the
purchase price because the Purchaser had early access to
information and because of the timing of the due diligence
review; and (d) the Fund can terminate the Purchase and Sale
Agreement if a more favorable unsolicited offer is received for
the Properties, although the Fund would then forfeit the Escrow
Deposit and pay an additional $700,000 to the Purchaser;
(vii) No brokerage commissions are required to be paid by
the Fund in connection with the Sale;
(viii) Selling all of the Properties at one time will
result in lower aggregate sale costs;
(ix) Selling all of the Properties at one time will
eliminate the need for the Fund to incur the ongoing
administrative and other expenses of continuing to operate the
Fund and certain Properties during an extended sales period; and
(x) The Sale and Dissolution will result in a more
accelerated return of capital to the Stockholders.
The Board considered the following additional factors with
respect to the disposition of the Properties in general:
(i) The Board's belief that current market conditions are
favorable for a sale of the Properties due to the favorable
interest rate environment, the increased availability of
investor capital and the improvement in certain of the
marketplaces in which the Fund's Properties are located as
discussed under the caption "THE TRANSACTION-Description of
Properties to be Sold;"
(ii) The fact that certain of the Properties have now been
held for their originally anticipated holding period;
(iii) The physical condition of the Properties, anticipated
lease expirations and the possible need for substantial
expenditures on capital improvements and tenant improvements if
the Fund continues to hold the Properties; and
(iv) Retaining the Properties will continue to subject the
Fund to the risks inherent in the ownership of property such as
fluctuations in occupancy rates, operating expenses and rental
rates which in turn may be affected by general and local economic
conditions, the supply and demand for properties of the type
owned by the Fund and federal and local laws and regulations
affecting the ownership and operation of real estate. More
particularly, the Fund would be subject to the risks of
prospective lease expirations over the next few years at
Buschwood III which may require substantial cash expenditures to
fund tenant improvement costs and leasing commissions in order to
attract and retain tenants.
The primary disadvantages of disposing of the Properties
pursuant to the Sale are as follows:
(i) The Fund will not benefit from possible improvements in
economic and market conditions which could produce increased cash
flow and enhance the sales price of the Properties. The concern
in continuing to hold these Properties in an improving market is
that the market conditions which led to this improvement may
encourage an increasing supply of new properties which could
eventually lead to oversupply of the properties and weakening of
prices; and
(i) The sale of all of the Properties at one time may not
result in as high an aggregate sales price as if they were sold
individually.
The Board of Directors also examined the alternative of
disposing of the Properties individually. Based on its analysis
as set forth above, the Board concluded that the Sale is a
superior alternative to this strategy.
The Board of Directors concluded, in light of these factors,
that the Transaction is in the best interests of the Fund and its
Stockholders. The affirmative vote of two-thirds (2/3) of all
the votes entitled to be cast on the matter will be required to
approve the Transaction in accordance with Maryland law. THE
BOARD OF DIRECTORS OF THE FUND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF THE FUND VOTE THEIR SHARES "FOR" APPROVAL OF THE
TRANSACTION.
Stockholders' Rights of Appraisal
Stockholders who object to the Transaction will have, if the
Sale is consummated, the right under the MGCL to demand and
receive fair value for their stock ("appraisal rights") from the
Fund. The preservation and exercise of appraisal rights are
conditioned on strict adherence to the MGCL. Each Stockholder of
the Fund desiring to exercise appraisal rights should refer to
Title 3, Subtitle 2, of the MGCL, a copy of which is attached as
Appendix II to this Proxy Statement, for a complete statement of
the rights of an objecting Stockholder and the steps which must
be followed in exercising those rights. The following summary of
the rights of objecting Stockholders does not purport to be a
complete statement of the procedures to be followed by
Stockholders of the Fund desiring to exercise their appraisal
rights.
Under the MGCL, a Stockholder of the Fund who wants to
exercise appraisal rights instead of receiving his or her per-
Share distribution pursuant to the Dissolution must (a) before or
at the Annual Meeting at which the Transaction will be
considered, file with the Secretary of the Fund a written
objection to the Transaction; (b) not vote in favor of the
Transaction; and (c) within 20 days after the articles of
transfer in connection with the Sale (the "Articles of Transfer")
have been accepted for record by the State Department of
Assessments and Taxation of Maryland (the "SDAT"), make written
demand to the Fund at 100 East Pratt Street, Baltimore, Maryland
21202 for payment for his or her Shares, stating the number and
class of Shares for which payment is demanded. Any Stockholder
who fails to comply with the requirements described above will be
bound by the terms of the Transaction.
The Fund must promptly notify each objecting Stockholder in
writing of the date of acceptance of the Articles of Transfer for
record by the SDAT. The Fund may, but is not required to, send a
written offer to each objecting Stockholder to pay for his or her
Shares at what the Fund considers to be the fair value of the
Shares. Within 50 days after the SDAT accepts the Articles of
Transfer for record, either the Fund or any objecting Stockholder
who has not received payment for his or her Shares may petition a
court of equity in Baltimore City, Maryland, for an appraisal to
determine the fair value of the Shares. The Fund does not
presently intend to file an appraisal petition and Stockholders
seeking to exercise appraisal rights should not assume that the
Fund will file such a petition or that the Fund will initiate any
negotiations concerning to the fair value of such Shares.
Accordingly, any Stockholder of the Fund desiring to have his or
her Shares appraised should initiate any petition necessary for
the perfection of appraisal rights within the time periods and in
the manner prescribed in the MGCL.
If the court finds that an objecting Stockholder is entitled
to an appraisal of his or her Shares, the court must appoint
three disinterested appraisers to determine the fair value of the
Shares on terms and conditions the court considers proper. The
appraisers must, within 60 days after appointment (unless the
court sets a longer time), determine the fair value of the Shares
and file with the court and mail to each party to the proceeding
a report stating their conclusion as to the fair value of the
Shares, including the reasons for the conclusion and a transcript
of all testimony and exhibits offered.
"Fair value" is determined as of the close of business on
the day the Stockholders vote on the Transaction and may not
include any appreciation or depreciation which directly or
indirectly results from the Transaction or from its proposal.
Within 15 days after the report is filed, any party may
object to the report and request a hearing. The court must, upon
motion of any party, enter an order confirming, modifying or
rejecting the report and, if confirmed or modified, enter
judgment for the appraised value of the Shares. If the
appraisers' report is rejected, the court may determine the fair
value of the Shares or may remit the proceeding to the same or
other appraisers. Any judgment entered pursuant to a court
proceeding shall include interest from the date of the
Stockholders' vote on the Transaction. Costs of the proceeding
shall be determined by the court and assessed against the Fund
or, under certain circumstances, the objecting Stockholder, or
both.
At any time after the filing of a petition for appraisal,
the court may require the objecting Stockholders to submit their
certificates to the clerk of the court for notation of the
pendency of the appraisal proceeding. A Stockholder exercising
appraisal rights has no right to receive any dividends or
distributions payable to Stockholders of record after the close
of business on the date of the Stockholders' vote on the
Transaction and shall cease to have any right as a Stockholder of
the Fund with respect to the Shares except the right to receive
payment of its fair value.
Failure to Approve the Transaction
If the Stockholders fail to approve the Transaction, the
Fund will continue to operate the Properties and attempt to sell
the Properties in single or multiple sales, which may include
sales to the Purchaser, in order to complete the liquidation and
dissolution of the Fund. Such sales could, under certain
circumstances, require a vote of the Stockholders. The Board of
Directors may also consider reinstating the Fund's Reinvestment
Plan for the purpose of reinstating and operating the Fund's
Liquidity Enhancement Plan, and to further pay down the Fund's
outstanding debt. It is anticipated that the Fund's debt would
be repaid in full when the Fund next sold a Property, at which
time the Reinvestment Plan and the Liquidity Enhancement Plan
would in all likelihood be terminated, if either is then in
effect. See "MARKET FOR THE FUND'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS."
Terms of the Purchase and Sale Agreement
The following is a summary of the material terms of the
Purchase and Sale Agreement and Joint Escrow Instructions, dated
as of April 11, 1997, by and between the Fund and Purchaser.
This summary does not purport to be complete and reference is
made to the Purchase and Sale Agreement, which is incorporated
herein by reference. Copies of the Purchase and Sale Agreement
will be provided to Stockholders upon written request to T. Rowe
Price Services, Inc., P.O. Box 89000, Baltimore, Maryland 21289-
0270, or by calling (800) 962-8300. Capitalized terms used but
not defined herein have the meaning ascribed to them in the
Purchase and Sale Agreement.
The Purchase and Sale Agreement provides for the Sale by the
Fund to Purchaser of the Properties. The purchase price
("Purchase Price") for the Properties is $27,150,000, payable as
follows: (i) $271,500 of the Purchase Price, the Escrow Deposit,
was deposited by Purchaser into an escrow account
contemporaneously with the execution of the Purchase and Sale
Agreement; and (ii) the balance of the Purchase Price, subject to
adjustment as described below, is payable by Purchaser at the
Closing. The Closing Date is scheduled for the first business
day that is five days after the latest to occur of: (a) the
approval of the Transaction by the Stockholders holding two-
thirds (2/3) of the outstanding Shares entitled to vote on the
matter; (b) the expiration of the last of the Due Diligence
Periods (as described below); and (c) the receipt of the Fairness
Opinion.
Condition of the Properties; Purchaser's Review of the
Properties
The Purchaser is purchasing the Properties on an "As Is,"
"Where Is" and "With All Faults Basis" without any representation
by the Fund as to the condition of the Properties or their
fitness for any purpose except as specifically described below.
The Purchase and Sale Agreement provides that, prior to
Closing, the Purchaser has three periods (collectively, the "Due
Diligence Periods") during which it has the opportunity to review
and analyze certain aspects of the Properties and certain limited
rights to cancel the Purchase and Sale Agreement. During the
period that commenced April 11, 1997 and expired May 1, 1997
("Financial Due Diligence Period"), the Purchaser had the
opportunity to review all of the Fund's Records and request other
information concerning the Properties. The Purchaser had the
right, by written notice to the Fund, to terminate the Agreement
and have the entire Escrow Deposit refunded to it. Because the
Fund did not receive such a notice from the Purchaser during the
Financial Due Diligence Period, 50% of the Escrow Deposit became
non-refundable on May 1, 1997.
Additionally, pursuant to the Purchase and Sale Agreement,
the Fund provided the Purchaser with an ASTM Phase I
Environmental Report (each an"Environmental Report" and
collectively, the "Environmental Reports") with respect to each
Property. The Purchaser had a 30-day period (the "Environmental
Due Diligence Period"), commencing on the date that it received
all such Environmental Reports, to review and analyze the
Environmental Reports and terminate the Purchase and Sale
Agreement by written notice to the Fund and have 50% of the
Escrow Deposit refunded to it. Because the Fund did not receive
written notice from Purchaser terminating the Purchase and Sale
Agreement prior to June 23, 1997, the date on which the
Environment Due Diligence Period expired, the entire Escrow
Deposit became non-refundable, subject to the provisions for
title review described below.
Finally, the Purchase and Sale Agreement provides for a time
period (the "Title Due Diligence Period") for the Purchaser to
review the state of title to the Properties. For each Property,
the Purchaser was provided with a preliminary title insurance
commitment and a current ALTA survey (collectively, the "Title
Review Material"). Upon receipt of the Title Review Material,
the Purchaser provided the Fund with written notice of the
matters revealed by the Title Review Material of which the
Purchaser disapproved (the "Disapproved Exceptions"). Except for
certain monetary liens, the Fund has no obligation to remove any
Disapproved Exceptions. Within ten days of the receipt of
Purchaser's notice of Disapproved Exceptions, the Fund provided
the Purchaser with a response specifying which Disapproved
Exceptions it would remove prior to Closing. Although the Fund
did not agree to remove all Disapproved Exceptions, the Purchaser
did not elect to terminate the Purchase and Sale Agreement.
Consequently, as of the date hereof, the Escrow Deposit is non-
refundable.
Conditions Precedent to Closing
The obligation of the Fund to close under the Purchase and
Sale Agreement is subject to (i) the approval of the Transaction
by the Stockholders holding two-thirds (2/3) of the outstanding
Shares entitled to vote on the matter, (ii) the validity of the
Fund's representations and warranties on the Closing Date, (iii)
the absence of a fire or other insured casualty for which the
Fund has elected to terminate the Purchase and Sale Agreement in
accordance with its terms, and (iv) the receipt of the Fairness
Opinion.
The obligation of the Purchaser to close under the Purchase
and Sale Agreement is subject to (i) the Purchaser having
received an estoppel certificate with respect to 90% of the Major
Tenants (defined as a tenant leasing 10,000 square feet of more
of space) from either the tenant or the Fund, (ii) the absence of
a casualty or condemnation for which the Purchaser has elected to
terminate the Purchase and Sale Agreement in accordance with its
terms, (iii) the willingness of the Title Company to issue title
insurance policies insuring Purchaser's ownership of the
Properties, and the (iii) the absence of Material Inaccuracies
(defined as an inaccuracy resulting in an aggregate loss to the
Purchaser in the excess of $271,500) in the Fund's
representations and warranties.
Casualty to or Condemnation of the Properties
If, prior to the Closing, any one Property is damaged due to
a fire or other insured casualty and the cost of repairing such
damage is in excess of $125,000, then Purchaser may elect to
terminate the Purchase and Sale Agreement with respect to such
Property and the Purchase Price shall be reduced by the market
value of such Property under the Fund's casualty insurance policy
prior to the casualty.
If, prior to Closing, any one Property is damaged due to
fire or other insured casualty and either: (i) the cost of
repairing such damage is $125,000 or less, or (ii) the cost of
repairing such damage is in excess of $125,000 and Purchaser has
not elected to terminate the Purchase and Sale Agreement with
respect to such damaged Property, the Closing shall occur as
scheduled, the Fund shall assign to the Purchaser the proceeds of
all casualty insurance with respect to such damage and the
Purchase Price shall be reduced by the amount of the deductible
under the Fund's casualty insurance.
If, prior to Closing, more than 10% of any one Property is
condemned or taken by eminent domain and, as a consequence, the
Property cannot be operated consistently with its use prior to
such taking, then the Purchaser may elect to terminate the
Purchase and Sale Agreement with respect to such Property and the
Purchase Price shall be reduced by the allocated value of the
affected Property. If, prior to Closing, a portion of any one
Property is taken by eminent domain and either the Purchaser does
not elect to terminate the Purchase and Sale Agreement with
respect to the affected Property, or the taking is not of a
character that would permit the Purchaser to make such election,
the Closing shall occur as scheduled without reduction in the
Purchase Price and the Fund shall assign to the Purchaser all
awards, if any, resulting from such condemnation.
Operation of the Properties Prior to Closing
Prior to the Closing, the Fund shall operate and maintain
the Properties in substantially the same manner as they were
operated prior to execution of the Purchase and Sale Agreement,
provided, however, that during the pendency of the Purchase and
Sale Agreement, the Fund shall not, without the prior consent of
the Purchaser, (i) enter into any material agreement affecting
the Properties or any one of them, (ii) waive a material
obligation of a tenant, (iii) materially modify any Tenant Lease
or Service Contracts, or (iv) perform any physical alterations to
the Properties costing in the aggregate in excess of $50,000.
Representations and Warranties
The Purchase and Sale Agreement contains various
representations and warranties of the Fund relating to, among
other things: (i) due organization and authority to enter into
the Purchase and Sale Agreement, (ii) the absence of conflicts
under any documents to which it is party and of violations of
agreements and instruments by which it is bound, (iii) the
absence of legal proceedings, governmental investigations and
violations of law, and (iv) the accuracy of the rent roll and
schedule of service contracts provided to the Purchaser.
The Purchase and Sale Agreement also contains various
representations and warranties of the Purchaser relating to,
among other things: (i) due organization and authority to perform
its obligations under the Purchase and Sale Agreement, (ii) the
absence of conflicts under any documents to which it is party and
of violations of agreements and instruments by which it is bound,
and (iii) the confidential nature of the transaction.
Default and Damages
The Purchase and Sale Agreement provides that the
Purchaser's sole recourse for any uncured breach (a "Default") by
the Fund of any representation or warranty, or any other matter
related to the Purchase and Sale Agreement prior to the Closing
shall be to terminate the Purchase and Sale Agreement and receive
a refund of the Escrow Deposit together with a reimbursement of
out-of-pocket expenses of up to $60,000, provided, however, the
Purchaser shall have no such right to terminate the Purchase and
Sale Agreement and receive a refund of the Escrow Deposit and
reimbursement of out-of-pocket expenses unless all such Defaults
by the Fund in the aggregate materially and adversely affect the
value of any one Property by at least $125,000 or the value of
all the Properties by at least $500,000.
In the event that a Default by the Fund is first discovered
by the Purchaser after the Closing, the Purchaser shall have no
remedy for such Default unless such Default (i) relates to a
matter expressly stated in the Purchase and Sale Agreement to
survive the Closing, and (ii) the Purchaser brings a claim with
respect to such Default prior to the earlier of (a) October 31,
1997 or (b) 90 days following the Closing. In addition, the Fund
shall have no liability to the Purchaser based upon any
inaccuracy in its representations and warranties contained in the
Purchase and Sale Agreement unless the same results in damage to
the Purchaser of more than $271,500 and the Fund's aggregate
liability to the Purchaser for all such inaccuracies is
$2,700,000.
Proration
All items of income and expense will be apportioned and
adjusted between the Fund and the Purchaser as of 12:00 midnight,
Eastern time, of the day preceding the Closing Date.
Termination
The Purchase and Sale Agreement may be terminated by the
Fund if it receives a more favorable offer for the purchase of
the Properties from a bona fide third party. In the event of a
termination of the Purchase and Sale Agreement as a result of a
more favorable offer, the Escrow Deposit would be returned to the
Purchaser and the Fund would pay Purchaser a topping fee of
$700,000 when, and if, the Fund actually closes on such more
favorable offer. The Purchase and Sale Agreement prohibits the
Fund from actively seeking a more favorable offer, but allows the
Fund to negotiate in good faith in the event that it receives an
unsolicited offer.
The Dissolution
The Dissolution of the Fund will involve the distribution to
the Stockholders of all Sale proceeds and other net assets of the
Fund (after payment of all liabilities and the retention of any
necessary reserves) after completion of the Sale. Such
distribution and the subsequent liquidation and dissolution are
expected to occur prior to the end of 1997.
However, depending on the nature of any outstanding non-cash
assets and undetermined liabilities, it may be difficult to
dissolve the Fund by the end of 1997. If this situation were to
arise, the Board of Directors may determine that it is in the
best interests of the Stockholders to expedite the dissolution of
the Fund by assigning to the Investment Manager all liabilities
of the Fund, including all contingent liabilities, and sufficient
assets to provide for the payment of all liabilities, promptly
after completion of the Sale so that the Fund may be terminated
prior to satisfaction of such liabilities. The amount to be
transferred would be based upon values set forth in a balance
sheet (the "Balance Sheet") to be prepared in accordance with
Generally Accepted Accounting Principles ("GAAP"), setting forth
the total amount of assets and liabilities of the Fund. The
Balance Sheet would be audited by the Fund's independent
auditors. Utilizing the Balance Sheet, the Fund would determine
the amount of net assets ("Net Assets") of the Fund by deducting
all of such liabilities reflected on the Balance Sheet from the
total assets of the Fund at such time. Promptly thereafter, such
Net Assets shall be distributed to the Stockholders of the Fund
by utilizing the cash proceeds derived from the Sale and any
other cash held by the Fund. If necessary, in order to avoid a
distribution in kind to the Stockholders, the Investment Manager
may acquire non-cash assets from the Fund in order to permit a
distribution of cash to the Stockholders equal to the total
amount of Net Assets.
Although unlikely, if the amount necessary to satisfy the
liabilities proves to be less than the assets transferred to the
Investment Manager for such purpose, the Investment Manager would
receive compensation in an amount equal to the difference between
such assets and liabilities. The Fund's by-laws prohibit the
Fund from engaging in transactions with certain affiliated
persons or entities, except to the extent that each such
transaction has, after disclosure of such affiliation, been
approved or ratified by the affirmative vote of a majority of the
independent directors on the Board and a majority of the
directors who are not interested in the transaction after a
determination that the transaction is fair and reasonable to the
Stockholders, and that the terms of such transaction are at least
as favorable as the terms then prevailing for a comparable
transaction made on an arm's length basis. Consequently, in the
event that the Board determines to transfer the Fund's
liabilities and certain of its assets to the Investment Manager,
such transaction shall be submitted to the independent directors
of the Board for their approval or ratification in accordance
with the Fund's by-laws. Absent such approval or ratification,
the Fund shall proceed with the satisfaction of all of its
liabilities, including any contingent liabilities, prior to
termination of the Fund.
BENEFITS OF THE TRANSACTION TO AND POSSIBLE
CONFLICTS OF THE FUND AND ITS AFFILIATES
Pursuant to a contract executed in 1991, upon disposition of
all the Properties, the Investment Manager is entitled to receive
a disposition fee from the Fund equal to a percentage of the
sales price of all of the Fund's properties. The Investment
Manger is entitled to this fee regardless of whether the Sale is
consummated. The Sale of all of the Properties at one time may,
however, accelerate the timing for the receipt of this fee by the
Investment Manager. If the Sale is consummated, this disposition
fee will be approximately $126,000.
There was a potential conflict created by the Sale because
the Purchaser simultaneously offered to purchase substantially
all of the assets of all of the Funds. Associates is the
ultimate parent company and controls the Investment Manager of
the Fund, as well as the general partner of each of the
Affiliated Funds. The apparent conflict was addressed by
insisting that the Purchaser negotiate and sign separate
contracts with each of the selling entities. In order to further
confirm the fairness of these third party contracts, the Board
and each of the general partners of the Affiliated Funds has
obtained a fairness opinion from Legg Mason that the
consideration to be received by the respective Fund from the sale
to the Purchaser of such Fund's properties or interests therein
is fair, from a financial viewpoint, to the Stockholders or
limited partners, as the case may be, and the Fund.
There is also a potential conflict for the Board of
Directors in recommending the Sale because a mutual fund
sponsored by Associates owns 1.8% of the outstanding shares of
Glenborough Realty Trust Incorporated, the value of which could
be enhanced by the consummation of the Sale. As of July 16,
1997, this holding constituted less than 1% of the net asset
value of the fund and is not considered by Associates to be
material to the fund.
The Investment Manager provides communications, cash
management, administrative and other related services to the fund
for an advisory fee of .45% per year of the fair market value, as
defined, of the Fund's assets. The Investment Manager will be
adversely affected by the Sale because the advisory fees it
presently receives will be eliminated (it received $133,000 for
these fees in 1996).
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
The following is a brief summary of the material federal
income tax consequences to the Stockholders, who are to receive
cash in full redemption of their Shares. It is not possible to
set forth in this Proxy Statement all aspects of the tax law,
either foreign, federal, state or local, which may have tax
consequences with respect to the Fund. Furthermore, the
discussion of various aspects of federal taxation contained
herein is based on the Internal Revenue Code of 1986, as amended,
existing laws, Treasury Regulations, judicial decisions and
administrative regulations, rulings and practice, all of which
are subject to change. Any such change could be retroactively
effective to existing transactions and investments.
Taxation of the Fund
Continued qualification of the Fund as a REIT depends upon
the Fund's ability to meet, through actual operating results, the
various qualification tests imposed by the Code. The Fund
intends to operate so as to continue to qualify as a REIT for
federal income tax purposes until such time as all of the Fund's
properties are sold and the Fund liquidates.
Among the qualification tests referred to above, less than
30% of the Fund's gross income each year may be derived from the
sale or other disposition of real property held for less than
four years and from certain other categories of income ("30%
income"). The Fund has held two of its Properties, Gatehall I
and Buschwood III, for less than four years. However, the Code
provides that a sale of properties held less than four years will
not generate 30% income if the sale occurs after the adoption of
a plan of liquidation and the Fund liquidates in the same tax
year. If the Transaction is approved, the Fund intends to
utilize this provision by liquidating in 1997, thus maintaining
the Fund's REIT status. For this purpose, the Fund's Board of
Directors has adopted a plan of liquidation contingent and
effective upon Stockholder approval of the Sale. If the Fund
were to fail to complete its liquidation in 1997, then gross
income, if any, from a 1997 sale of the Gatehall I and Buschwood
III Properties would be 30% income and could cause the Fund to be
disqualified as a REIT in 1997. If the Fund were disqualified as
a REIT for tax purposes, then it would be taxed as a regular C
corporation, which would have the effect of reducing the amount
of cash distributable to Stockholders. The Fund does not intend
to enter into any transaction it believes would result in its
disqualification as a REIT.
With respect to each year, the Fund must distribute to its
Stockholders an amount (excluding any capital gain dividends)
equal to (a) 95% of (i) its REIT taxable income before deduction
of dividends paid and excluding any net capital gain, and (ii)
the excess of net income from foreclosure property over the tax
on such income minus (b) any "excess non-cash income" as defined
in Code Section 857(e) (the "Distribution Requirement").
Dividends paid during the taxable year (including liquidating
distributions) and dividends declared on or before the due date
(including extensions) for the REIT's tax return for such year
and paid within the 12 month period following the close of the
taxable year, but before the next regular dividend payment, are
applied to meet the Distribution Requirement and reduce the
REIT's taxable income.
If a REIT recognizes any net capital gain during a taxable
year, the REIT is taxable on the amount of such gain unless it
elects to pay a capital gain dividend.
A REIT is subject to a 4% excise tax under the Code on the
amount, if any, by which it fails to meet certain specified
distribution requirements in any calendar year. Imposition of
the excise tax on the Fund would reduce the amount of cash
available for distribution to the Stockholders. The Fund has
made, and plans to continue to make, distributions to
Stockholders so as to avoid the imposition of any excise tax.
If the Fund were deemed to be a "dealer" in real estate
investments for federal income tax purposes, any gain from the
sale of the Fund's real properties will be treated as ordinary
income instead of capital gain, might cause the fund to fail one
or more of its qualification tests and might subject the Fund to
a 100% tax on net income derived from a prohibited transaction.
A dealer is one who holds property primarily for sale to
customers in the ordinary course of its trade or business. The
Fund was organized to acquire real estate investments for
investment and not to engage in the business of buying and
selling properties. Although counsel has not rendered an opinion
on the issue of dealer status since it is necessarily dependent
on certain factual matters, the Fund's Management has represented
that it intends to continue to conduct the activities of the Fund
in a manner so as to minimize or eliminate the risk of having the
Fund classified as a dealer for federal income tax purposes.
Taxation of Stockholders
Generally, dividend distributions are taxable to
Stockholders as ordinary income to the extent of earnings and
profits. Distributions which are designated as capital gains are
taxed as long term capital gains to Stockholders to the extent
that they do not exceed actual net capital gain for the taxable
year. The receipt of cash distributions in respect of Shares
pursuant to the Liquidation, including distributions made from
operating income or capital gains declared by the Fund after the
date of adoption of the Fund's plan of liquidation, will be a
taxable transaction for federal income tax purposes and may also
be a taxable transaction under applicable state, local, foreign
and other tax laws. For federal income tax purposes, each
Stockholder will generally recognize gain or loss equal to the
difference between the amount of liquidating distributions
received and such Stockholder's tax basis for the Shares. Such
gain or loss will be capital gain or loss (assuming the Shares
are held as a capital asset) and any such capital gain or loss
will be long term if, as of the date of sale, the Shares were
held for more than one year or will be short term if, as of such
date, the Shares were held for one year or less. The foregoing
discussion may not be applicable to certain types of
Stockholders, including tax-exempt Stockholders (such as those
who invested in the Fund through individual retirement accounts),
individuals who are not citizens or residents of the United
States and foreign corporations, or entities that are otherwise
subject to special treatment under the Code, such as insurance
companies and regulated investment companies.
PROPOSAL 2
ELECTION OF DIRECTORS
Nominees for Election to the Board of Directors
The Board of Directors has nominated the three (3) persons
listed below for election as directors, each to hold office until
the next Annual Meeting of Stockholders, if any, and until his
successor is duly elected and qualified. A Stockholder using the
enclosed proxy card can vote for all or any of the nominees of
the Board of Directors or withhold his or her vote from all or
any of such nominees. If the proxy card is properly executed but
unmarked, it will be voted for all of the nominees. The Board of
Directors has no reason to believe that any nominee will refuse
to act or be unable to accept election; however, in the event
that a nominee for a directorship is unable to accept election or
if any other unforeseen contingencies should arise, it is
intended that proxies will be voted for the remaining nominees
and for such other person as may be designated by the Board of
Directors, unless the proxy directs otherwise. No family
relationship exists among any of the nominees for election as
directors of the Fund. No arrangement or understanding exists
between any nominee for election to the Board of Directors and
any other person, pursuant to which any nominee was selected to
be a director of the Fund.
Messrs. Donahue and Plant have served as the Independent
Directors of the Fund since the Fund's inception and are standing
for re-election as Independent Directors.
Shares
Beneficially
Owned, Directly
Name, Address and Principal Occupations Or Indirectly,
Age of Nominee as of July 2, 1997 as of July 2,1997
Jeffrey H. Donahue (51)
10275 Little Patuxent 0
Parkway
Columbia, MD 21044 Mr. Donahue has served as an
independent director of the
Fund since its inception in
June 1989. Mr. Donahue also
currently serves as a
director of T. Rowe Price
Spectrum Fund and New Age
Media Fund. Since 1993, Mr.
Donahue has served as Senior
Vice President and Chief
Financial Officer of The
Rouse Company, a full-
service real estate and
development company located
in Columbia, Maryland. From
1985 to 1993, Mr. Donahue
served as Vice President and
Treasurer of The Rouse
Company.
A. MacDonough Plant (59) 0
Suite 910
Seven St. Paul Street
Baltimore, MD 21201 Mr. Plant has served as an
independent director of the Fund
since its inception in June 1989.
Mr. Plant also currently serves
as a director of T. Rowe Price
Spectrum Fund and New Age Media
Fund. Since 1991, Mr. Plant has
been a partner in the Baltimore,
Maryland law firm of Stewart,
Plant & Blumenthal.
Shares
Beneficially
Owned, Directly
Name, Address and Principal Occupations Or Indirectly,
Age of Nominee as of July 2, 1997 as of July 2,1997
James S. Riepe (54)
100 East Pratt Street 16,800(1)
Baltimore, MD 21202 Mr. Riepe has been Chairman of
the Board of the Fund since its
inception in June 1989 and was
appointed President of the Fund
on July 24, 1991. Mr. Riepe also
serves as Vice Chairman, Managing
Director and Director of
Associates and Director of its
Investment Services Division.
Mr. Riepe serves as President and
Chairman of the Investment
Manager and each of the general
partners of the Affiliated Funds.
Mr. Riepe serves as Chairman of
the following T. Rowe Price
Funds: T. Rowe Price Spectrum
Fund, T. Rowe Price Balanced
Fund, T. Rowe Price Mid-Cap
Growth Fund, and T. Rowe Price
Growth & Income Fund. Mr. Riepe
also serves as Vice President of
the T. Rowe Price International
Funds, Vice President and
Director/Trustee of 56 other T.
Rowe Price Funds/Trusts, Vice
President of T. Rowe Price Tax-
Free Insured Intermediate Bond
Fund and Director of Rhone-
Poulenc Rorer, Inc., a
pharmaceuticals company. Mr.
Riepe joined Associates in 1982.
(1)Includes 16,000 shares owned of record by the
Investment Manager, with respect to which Mr. Riepe has
joint voting and investment power, as to which Mr. Riepe
disclaims beneficial ownership.
Vote Required and Recommendation
The Board of Directors has unanimously approved
the nomination of each of the individuals named above to
serve as a director of the Fund until the next Annual
Meeting of Stockholders, if any, and until his successor
is duly elected and qualified. The nominees receiving
the affirmative vote of a plurality of the votes cast at
the Annual Meeting will be elected as directors of the
Fund.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS AN
AFFIRMATIVE VOTE "FOR" EACH OF THE PERSONS NOMINATED TO
SERVE AS A DIRECTOR OF THE FUND.
Information Regarding Board Meetings and Committees
The Board of Directors held five meetings (one of
which was held telephonically) during the fiscal year
ended December 31, 1996. Each incumbent director
attended all of the meetings of the Board of Directors
during such period.
The Board of Directors does not have standing
nominating, audit or compensation committees.
Compensation of Directors
The independent directors are paid an annual fee
of $5,000, plus $500 for each Board of Directors meeting
attended ($250 if attended by telephone). For the
fiscal year ended December 31, 1996, Mr. Donahue and Mr.
Plant each received a fee of $5,000, plus $2,250 for the
five Board meetings held and attended (including the one
telephonic meeting).
Management
The names and ages of the executive officers of
the Fund, and their positions with the Fund, are as
follows:
Name and Age Office with the Fund Other business
experience
in past five years
James S. Riepe (54) Chairman of the Board See "Nominees for
Election to and President the Board of
Directors," above.
Kenneth J.
Rutherford (33) Vice President Mr. Rutherford was
elected Vice
President of the Fund
in 1994. Mr.
Rutherford is also a
Vice President of
Associates, has
served as Marketing
Manager for
Associates since 1996
and as Vice President
of each of the
general partners of
the Affiliated Funds
since 1994. Mr.
Rutherford joined
Associates in 1992.
From 1992 to 1996,
Mr. Rutherford served
as Assistant to the
Director of
Associates'
Investment Services
Division.
Name and Age Office with the Fund Other business
experience
in past five years
Mark B. Ruhe (43) Vice President Mr. Ruhe has served
as Vice President of
the Fund since its
inception in June
1989. Mr. Ruhe also
currently serves as
Asset Manager for the
Investment Manager,
and is Vice President
of Associates, the
Investment Manager
and each of the
general partners of
the Affiliated Funds.
Mr. Ruhe joined
Associates in 1987.
Lucy B. Robins (45) Vice President Ms. Robins is Vice
President and
Associate Legal
Counsel of Associates
and Vice President of
the Investment
Manager and each of
the general partners
of the Affiliated
Funds. Ms. Robins
joined Associates in
1986.
Joseph P. Croteau (42) Vice President an
Treasurer Mr. Croteau is Vice
TreasurerPresident
and Controller of
Associates, Director,
Vice President and
Controller of each of
the general partners
of the Affiliated
Funds, and Controller
of the Investment
Manager. Mr. Croteau
joined Associates in
1987.
The executive officers of the Fund are appointed by, and
serve at the pleasure of, the Board of Directors. There is no
family relationship among any of the foregoing individuals.
Executive Compensation and Related Matters
Neither Mr. Riepe nor the other executive officers of the
Fund received any compensation from the Fund in 1996, nor will
they in 1997. Mr. Riepe and the other executive officers are
employees, officers, or directors of Associates and are
compensated by it, in part, for their services to the Fund.
Accordingly, there is no compensation information, nor are there
corporate compensation policies with regard to executive officers
required to be included in the Proxy Statement.
Certain Relationships and Related Transactions
Pursuant to contracts executed in 1991, the Fund pays
advisory fees to the Investment Manager and LaSalle. The
Investment Manager provides communications, cash management,
administrative and other related services to the Fund for an
advisory fee of .45% per year of the fair market value, as
defined, of the Fund's assets and earned $133,000 in 1996.
LaSalle provides the Fund with real estate advisory, accounting
and other related services for an advisory fee of .50% per year
of the fair market value, as defined, of the Fund's assets and
earned $147,000 in 1996. Under the contracts, payment of each of
these fees is subject to expense limitations adopted by the Fund
pursuant to guidelines promulgated by the North American
Securities Administrators Association.
Under the foregoing contracts, the Fund is obligated to
pay acquisition fees for services rendered in connection with the
purchase of properties. Such fees equal 2% of the proceeds from
sale of Shares. LaSalle received $58,000 in connection with the
acquisition of Gatehall I in 1994 and $52,500 in connection with
the Buschwood III acquisition in 1995. The Investment Manager
received $23,000 in connection with the acquisition of Gatehall I
in 1994 and $52,500 in connection with the Buschwood III
acquisition in 1995.
Associates received a fee of $3,000 from the money market
mutual funds in which the Fund made its interim cash investments
in 1996.
The Fund has also reimbursed the Investment Manager and
LaSalle for certain defined expenses incurred in operating and
administering the affairs of the Fund. The Investment Manager
received $40,000 in expense reimbursement in 1996. LaSalle
received $30,000 in expense reimbursements in 1996.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Fund s directors and
officers, and persons who own more than 10% of the Shares to file
initial reports of ownership and reports of changes in ownership
of Shares with the Securities and Exchange Commission (the
"Commission"). Such persons are required by Commission
regulations to furnish the Fund with copies of all Section 16(a)
forms they file.
No Forms 3 or 4, or amendments thereto, were furnished to
the Fund for the fiscal year ended December 31, 1996. Based
solely upon the Fund s review of the copies of Forms 5 received
by the Fund, or upon written representations received by the Fund
from certain reporting persons that no Forms 5 were required for
those persons, the Fund believes that no director, officer or
holder of more than 10% of the Shares failed to file on a timely
basis the reports required by Section 16(a) of the Exchange Act
during the fiscal year ended December 31, 1996.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG
Peat Marwick LLP as the Fund's independent auditors for the year
ending December 31, 1997 or, in the event the Fund dissolves
prior to December 31, 1997, for such shorter period ending on the
date of dissolution. The firm of KPMG Peat Marwick LLP was
initially selected by the Board as independent auditors for the
Fund effective October 25, 1991. KPMG Peat Marwick LLP has
advised the Fund that it has no direct or material indirect
financial interest in the Fund or the Investment Advisor.
The Board of Directors is submitting its appointment of
KPMG Peat Marwick LLP as the Fund's independent auditors for
ratification by Stockholders at the Annual Meeting in order to
ascertain the views of Stockholders regarding such selection. If
the appointment of KPMG Peat Marwick LLP is not ratified, the
Board of Directors will reconsider its selection and, if
practicable, retain another firm to serve as the Fund's
independent auditors. The Board of Directors reserves the right
to select new independent auditors at any time which it may deem
advisable or necessary.
Representatives of KPMG Peat Marwick LLP are not expected
to be present at the Annual Meeting.
Vote Required and Recommendation
The affirmative vote of a majority of all the votes cast
at the Annual Meeting will be required for the ratification of
the appointment of KPMG Peat Marwick LLP as the Fund's
independent auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF KPMG
PEAT MARWICK LLP AS THE FUND'S INDEPENDENT AUDITORS.
MARKET FOR THE FUND'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On July 2, 1997, there were 2,586 record holders of
Shares. Although the Fund's Shares are fully transferable, there
is no active public market for the Shares, and it is not
anticipated that a public market for the Shares will develop.
The Fund has a Reinvestment Plan through which
Stockholders have been able to elect to have their dividends
automatically reinvested in additional Shares, or fractions
thereof, instead of receiving cash payments. The Board of
Directors determines the value of the Shares to be sold pursuant
to the plan on at least an annual basis, based on its good faith
estimate of the amount Stockholders would receive if the Fund's
real estate investments were sold for their estimated values and
if such proceeds, together with the other assets of the Fund,
were distributed in a liquidation of the Fund. The Board
determined the per-Share value to be $12.45 for reinvestments in
1997 (subject to adjustment in the case of any material changes).
Historical activity in the Reinvestment Plan is discussed in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS-Liquidity and Capital Resources." At the
time the Fund accepted Purchaser's offer to purchase the
Properties, it suspended the Reinvestment Plan. The plan may be
reinstated or terminated at any time.
The Fund also has a Liquidity Enhancement Plan, which has
provided Stockholders with the opportunity to present some or all
of their Shares to the Fund for repurchase, and to have those
Shares repurchased if the Fund has sufficient proceeds from the
Reinvestment Plan available for this purpose. The Liquidity
Enhancement Plan was implemented in the second quarter of 1992.
Under the Plan, the repurchase price per Share is 90% of the fair
market value ($11.21 in 1997). Completed repurchase requests
must be received in good order by the Fund at least 30 days prior
to the end of a quarter for the Shares to qualify for repurchase
at the end of that quarter. Historical activity in the Liquidity
Enhancement Plan is discussed in "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-
Liquidity and Capital Resources." At the time the Fund accepted
Purchaser's offer to purchase the Properties, it suspended the
Liquidity Enhancement Plan. The Fund may reinstate or terminate
the plan at any time.
The Fund has generally paid dividends on a quarterly
basis, within 45 days after the end of each calendar quarter, to
Stockholders of record on the record date or dates declared for
such quarter as determined by the Board of Directors. The Fund
has paid dividends each year to Stockholders in an amount at
least equal to 100% of its taxable income in order to continue to
qualify as a REIT in accordance with the Internal Revenue Code of
1986, as amended, and to avoid the payment of federal income tax
at the corporate level. At the time the Fund accepted
Purchaser's offer to purchase the Properties, it suspended the
payment of dividends pending completion of the Sale. Quarterly
dividends declared during the past two fiscal years were: $.18
for each of the first three quarters of 1995; $.05 for fourth
quarter of 1995; $.15 for each of the first three quarters of
1996; and $.99 for the fourth quarter of 1996. Dividends
declared for the first three quarters of 1995 and 1996 were based
on estimates of cash flows and net income for tax purposes made
at the beginning of each year. Fourth quarter dividends were
declared in order to set the total dividends paid for each year
equal to 100% of taxable income. The dividend for the fourth
quarter of 1996 included a capital gain dividend of $.912.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for each
of the years in the five-year period ended December 31, 1996, has
been derived from the Fund's financial statements audited by the
Fund's independent auditors. The following selected historical
financial data for the three-month periods ended March 31, 1997
and 1996 are unaudited and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data. Financial data
for the three-month period ended March 31, 1997 are not
necessarily indicative of the results of operations to be
expected for the entire year. The selected financial data set
forth below should be read in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and the audited and unaudited financial statements
and related notes thereto appearing elsewhere herein.
(Dollar amounts in thousands, except per-share data)
Year ended December 31,
1992 1993 1994 1995 1996
Total assets $20,716 $20,696 $22,472 $28,036 $22,980
Debt $ 2,100 $ 2,100 $ 3,522 $ 8,976 $ 4,106
Revenues $ 2,761 $ 2,507 $ 3,364 $ 4,878 $ 5,320
Net income(1) $ 940 $ 490 $ 860 $ 678 $ 1,145
Net income per
Share(1) $ .65 $ .34 $ .58 $ .45 $ .75
Dividends
declared per
Share $ .68 $ .56 $ .64 $ .59 $ 1.44
3 months ended (unaudited)
March 31, 1996 March 31, 1997
Total assets $27,156 $21,913
Debt $ 8,748 $ 3,462
Revenues $ 1,330 $ 1,077
Net income(1) $ 129 $ 284
Net income per
Share (1) $ .08 $ .18
Dividends
declared per $ .15 --
share
(1) The figures for Net income and Net income per Share include a
gain on real estate sold of $1,368 ($0.89 per Share) for 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months ended March 31, 1997 compared to Three Months ended
March 31, 1996
The Fund's net income for the first quarter of 1997 was
$284,000, an increase of $155,000 from the same period in 1996.
Decreased expenses at Gatehall I amounting to $181,000, and at
Buschwood III totaling $123,000, more than offset a $141,000
decrease in income due to the absence of Buckley Square, which
was sold in November 1996. Expenses at Gatehall I declined
mainly because of lower repair, maintenance, and utilities costs,
as well as lower legal fees during the quarter. Lower bad debt
expenses and a property tax refund for 1996 also helped results
at the Property. At Buschwood III, reduced expenses were largely
attributable to lower interest expense in the quarter, as the
outstanding loan on the Property was fully paid off in February.
Year ended December 31, 1996 compared to Year ended December 31,
1995
The Fund's net income of $1,145,000 for 1996 equated to
$0.75 per Share compared with $678,000, or $0.45 per Share, in
1995. The increase was driven by the $1,368,000 gain on the sale
of Buckley Square. Excluding the gain on the sale of Buckley
Square, the Fund experienced a loss from operations of $223,000
in 1996. The difference between 1995 and 1996 was a direct
result of a valuation impairment of $907,000 at Post Oak Place.
Revenues from rental income and interest resulted in
total revenues of $5,320,000 for 1996 compared with $4,878,000 a
year earlier. Revenues and operating expenses, excluding the
Post Oak Place impairment, were up by comparable amounts $442,000
and $436,000, respectively, due primarily to the inclusion of
Buschwood III for the full year in 1996. Increases in operating
income at Buckley Square prior to the sale, and at Buschwood III
for a full year, offset operating declines at Gatehall I due to a
lower average leased status over 1996, and at Post Oak Place due
to greater depreciation and bad debt expenses.
Leases representing 16% of the portfolio's leasable
square footage are scheduled to expire in 1997. These leases
represent approximately 18% of the portfolio's rental income for
1996. This amount of potential lease turnover is normal for the
types of properties in the portfolio, which typically lease to
tenants under three to five year leases. There are no single-
tenant properties in the Fund's portfolio, and only one tenant,
Liberty Mutual at Buschwood III, accounted for more than 10% of
the Fund's revenue in 1996, providing slightly in excess of 10%.
The Fund therefore does not expect any material adverse effect on
revenue in the event of the failure of any single tenant in 1997.
The Board of Directors of the Fund declared dividends of
$1.44 per Share during 1996. The gain on the sale of Buckley
Square resulted in higher per-share dividends than 1995's $0.59
per Share. Total dividends declared in 1996 were $2,201,000,
compared to $891,000 in 1995. All of the 1995 dividends were
paid from the Fund's cash flow. Of the 1996 dividends,
$1,394,000 derived from the proceeds of the sale of Buckley
Square, and the balance from the Fund's operating cash flow.
Year ended December 31, 1995 compared to Year ended December 31,
1994
The Fund's net income of $678,000 for 1995 equated to
$.45 per share compared with $860,000, or $.58 per share, in
1994. The decrease was driven by a lower leased level at Post
Oak Place (which was partially offset by lower operating
expenses), and by increased operating expenses and higher
depreciation expenses relating to charge-offs of tenant
improvements at Valley Business Center.
Rental revenue was up $1,576,000 over the prior year,
with Gatehall I contributing $1,002,000 of the total (up $349,000
over 1994), and Buschwood III contributing $600,000. Gatehall I
was held for only four months in 1994, versus 12 months in 1995
and Buschwood III was held for only 6 months in 1995. Interest
expense on the debt incurred to purchase Gatehall I and Buschwood
III, together with operating expenses at these properties, offset
almost completely the improvements in rental revenue.
Liquidity and Capital Resources
The Fund sold 1,306,559 Shares in connection with the
public offering of Shares in 1990, for a total of $16,510,000,
including the purchase of 16,000 Shares for $200,000 by the
Investment Manager. After deduction of organizational and
offering costs of $976,000, the Fund had $15,534,000 available
for investment and capital reserves.
Additional Shares have been sold only in connection with
the Fund's Reinvestment Plan. Additional capital in the amount
of $5,258,000 was raised from dividend distributions reinvested
through July 2, 1997, and 420,290 additional Shares were issued
in connection therewith. The Fund has suspended the Reinvestment
Plan pending the vote of the Stockholders on the Transaction; if
the Transaction is approved and the Sale is consummated, the Fund
anticipates terminating the Reinvestment Plan. This capital has
been and will be used, to the extent necessary, to repurchase
Shares in connection with the Fund's Liquidity Enhancement Plan,
if such plan is reinstated; the balance has been available for
investment in or improvements to real estate, including the
repayment of debt. As of July 2, 1997, 142,787 Shares had been
repurchased under the Liquidity Enhancement Plan for a total of
$1,607,000.
As of March 31, 1997, the Fund held four Properties for
a total investment in real estate, before deduction of
accumulated depreciation and amortization, of $21,853,000,
representing initial acquisition costs and subsequent
improvements. This figure also includes an adjustment of
$907,000 for a valuation impairment at Post Oak Place in 1996.
The Fund recognized this impairment based on management's belief
that the Fund may be unable to recover the net carrying value of
this property though future operations and sale.
Initial acquisition costs were partially funded by a
$2.1 million loan secured by Valley Business Center, bearing
interest at 9.875% per annum, all due and payable in 1997, a $1.4
million loan to acquire Gatehall I, and a $5.5 million loan to
acquire Buschwood III bearing interest at 8.5% per annum. The
latter two loans are each secured by both the Gatehall I and
Buschwood III Properties. During 1996 and early 1997, the Fund
made principal repayments from the proceeds of the Reinvestment
Plan and the sale of Buckley Square, which reduced the
indebtedness secured by Gatehall I and Buschwood III to $1.4
million. In the second quarter of 1997, the Fund repaid the
outstanding balance on the loan secured by Valley Business
Center. For this purpose, it used $900,000 in cash and the
proceeds from an additional borrowing of $1,200,000 under the
existing loan secured by Gatehall I and Buschwood III, which
bears a lower interest rate than the Valley Business Center loan.
The aggregate outstanding borrowing of $2.6 million matures in
1998 and bears interest at a floating rate which, at June 30,
1997, was 7.53%
For 1996, the ratio of revenue produced by the Fund's
Properties to total debt service under these loans was
approximately 7 to 1. Based on the portion of debt utilized to
acquire the Properties, each of Valley Business Center, Gatehall
I, and Buschwood III generated sufficient revenue in 1996 to
cover debt service related to the Property and contribute to
dividends paid to the Fund's Stockholders.
The Fund expected to incur capital expenditures during
1997 totaling approximately $1.2 million for tenant improvements,
lease commissions, and other major repairs and improvements. In
the first quarter of 1997, the Fund incurred $170,000 of such
expenses. Under the terms of the Purchase and Sale Agreement,
the Fund has agreed that it will not, without the prior consent
of Purchaser, perform any physical alterations to the Properties
costing in the aggregate in excess of $50,000. Subsequent to the
execution of the Purchase and Sale Agreement, the Fund and the
Purchaser agreed that the Fund will perform approximately $19,000
of specified capital work on the Properties.
As of December 31, 1996, the Fund maintained cash and
cash equivalents aggregating $2,738,000, an increase of
$1,130,000 from the prior year end. Cash from financing
activities resulted in net outflows in 1996 as compared to net
inflows in 1995, primarily as a result of the receipt of the
proceeds of the mortgage loan utilized to purchase Buschwood III
in 1995 and the repayment of a substantial portion of the loan in
1996. Net cash provided by operating activities remained
generally unchanged from the prior year. Cash from investing
activities increased by $12,160,000 as a result of the purchase
of Buschwood III in 1995 and the sale of Buckley Square in 1996.
As of March 31, 1997, the Fund maintained cash and cash
equivalents of $1,784,000. The decline in the Fund's cash
position compared with the same 1996 period resulted from the
higher fourth quarter dividend payment made in the first quarter
of 1997. On May 2, 1997, the Fund used approximately $900,000 to
further pay down the Fund's outstanding debt, as noted above.
The Fund maintains cash balances to fund its operating
and investing activities including the costs of tenant
improvements and leasing commissions, costs which must be
disbursed prior to the collection of any resultant revenues.
Management believes that cash balances, cash generated from
operating activities in 1997, and its borrowing capacity will be
adequate to fund its current operating needs.
Forward-Looking Information
Information or statements provided by or on behalf of
the Fund from time to time may contain certain "forward-looking"
information, including information relating to anticipated growth
in revenues or net income, anticipated disposition of Properties,
anticipated expense levels, and expectations regarding real
estate market conditions, as well as statements preceded by,
followed by or that include the words "believes," "expects,"
"anticipates" or similar expressions. The cautionary statements
provided below are being made pursuant to the Private Securities
Litigation Reform Act of 1995 (the "Act") and with the intention
of obtaining the benefits of the "safe harbor" provisions of the
Act for any such forward-looking information. Many of the
following important factors discussed below as well as other
factors have also been discussed in the Fund's prior public
filings. The Fund cautions readers that any forward-looking
information provided by or on behalf of the Fund is not a
guarantee of future performance and that actual results may
differ materially from those in the forward-looking information
as a result of various factors, including but not limited to
those discussed below. Further, such forward-looking statements
speak only as of the date on which such statements are made, and
the Fund undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of
unanticipated events.
The Fund's future revenues may fluctuate due to factors
such as: changes in demand for space in the Fund's Properties
prior to the consummation of the Sale, due to either local
conditions or general economic trends; changes in the terms of
the Sale including, without limitation, a change in the purchase
price under the Purchase and Sale Agreement; or significant delay
in the expected consummation of the Sale.
The Fund's future operating results (prior to the
consummation of the Sale) are also dependent upon the level of
operating expenses which are subject to fluctuation for the
following or other reasons: expenses and capital costs, including
depreciation, amortization and other non-cash charges, incurred
by the Fund to maintain its Properties and procure tenants and
purchasers; assessed value of real estate or local tax rates; and
costs of environmental remediation.
BUSINESS
The Fund was formed on June 14, 1989, under the MGCL for
the primary purpose of investing in quality income-producing
properties that its adviser believed were priced below their
intrinsic worth. On November 1, 1989, the Fund commenced an
offering of $25,000,000 of Shares ($12.50 per share) pursuant to
a Registration Statement on Form S-11 under the Securities Act of
1933, as amended. The gross proceeds from the initial public
offering totaled $16,510,000, including $200,000 invested by the
Investment Manager in connection with the original capitalization
of the Fund. The initial public offering terminated on April 30,
1990, and additional Shares have been sold only in connection
with the Fund's Reinvestment Plan. As of July 2, 1997, 1,600,062
Shares were outstanding, and there were 2,586 Stockholders of
record.
In December 1991, LaSalle entered into a contract with
the Fund to perform day-to-day management and real estate
advisory services for the Fund under the supervision of Corporate
management and its affiliates. LaSalle's duties under the
contract include acquisition, disposition, and asset management
services, including recordkeeping, contracting with tenants and
service providers, and preparation of financial statements and
other reports for management use. Management of the Fund
continues to be responsible for overall supervision and
administration of the Fund's operations, including setting
policies and making all acquisition and disposition decisions.
The Investment Manager continues to provide administrative,
advisory, and oversight services to the Fund. Under the Fund's
contract with the Investment Manager, payment of advisory fees
and expense reimbursements is subject to expense limitations
adopted by the Fund pursuant to Guidelines promulgated by the
North American Securities Administration Association ("NASAA").
Disposition Fees of approximately $168,000 payable by
the Fund in connection with the Sale will be paid 25% to LaSalle
and 75% to the Investment Manager. Payment of the Disposition
Fees is also contractually subject to limitations adopted by the
Fund pursuant to the NASAA Guidelines.
In 1994, the Fund owned interests in four Properties:
Valley Business Center, Buckley Square, Post Oak Place, and
Gatehall I, and each of these investments accounted for 15% or
more of the Fund's revenue. In June 1995, the Fund acquired
Buschwood III, and in that year Valley Business Center, Buckley
Square and Gatehall I each accounted for 15% or more of the
Fund's revenue. In 1996, each Property except Post Oak Place
accounted for more than 15% of the Fund's revenue. In 1994 and
1995 no tenant accounted for 10% or more of the Fund's revenues.
In 1996 only one tenant, Liberty Mutual at Buschwood III,
produced more than 10% of the Fund's revenue related to real
estate activity, producing 10.1% of such revenue.
For a description of the Fund's current plan for
disposing of its operating properties, see "PROPOSAL 1: APPROVAL
OF THE TRANSACTION-Background of the Disposition Plan" and "-
Background of the Sale."
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 1,600,062 Shares issued
and outstanding, all of which are entitled to be voted at the
Annual Meeting. At the Record Date, no executive officer or
director of the Fund beneficially owned 1% or more of the
outstanding Shares, except that James S. Riepe, the Chairman of
the Board and President of the Fund, beneficially owned 16,800
Shares, including 16,000 Shares owned of record by the Investment
Manager, with respect to which Mr. Riepe has joint voting and
investment power, and as to which Mr. Riepe disclaims beneficial
ownership. Such Shares constitute 1% of the outstanding Shares of
the Fund. At the Record Date, all other officers and directors
of the Fund, as a group, beneficially owned 374 Shares (less than
1% of the outstanding Shares). At the Record Date, approximately
599,374 Shares, representing 37% of the outstanding Shares, were
registered to the T. Rowe Price Trust Company as Custodian for
participants in the T. Rowe Price Funds Individual Retirement
Accounts, as Custodian for participants in various 403(b)(7)
plans, and as Custodian for various profit sharing and money
purchase plans. The T. Rowe Price Trust Company has no
beneficial interest in such accounts and no control over
investment decisions with respect to such accounts, nor any other
accounts for which it may serve as trustee or custodian with
respect to an investment in the Fund. All officers and directors
of the Fund intend to vote their Shares, and Mr. Riepe intends to
vote the Shares owned of record by the Investment Manager, in
favor of each of the proposals to be considered at the Annual
Meeting.
LITIGATION
The Fund is not currently involved in any pending legal
proceedings, other than ordinary routine litigation incidental to
the business of the Fund, which management believes are,
individually or in the aggregate, material to the Fund's
financial condition or results of operations.
OTHER MATTERS WHICH MAY COME BEFORE THE ANNUAL MEETING
The Board of Directors knows of no other business to be
presented at the Annual Meeting, but if any other matters should
properly come before the Annual Meeting, it is intended that the
persons named in the accompanying proxy card will vote the same
in accordance with their own judgment and their discretion, and
authority to do so is included in the proxy.
INFORMATION CONCERNING PROPOSALS OF STOCKHOLDERS
If the Sale is consummated and the Dissolution completed
as described herein, no additional Annual Meetings of
Stockholders would be expected to take place in the future.
However, in the event a 1998 Annual Meeting of Stockholders is
scheduled, Stockholders will be entitled to present proposals for
consideration at that meeting. Any such proposal to be included
in the proxy statement for the meeting must be submitted in
writing to the Secretary of the Fund at the Fund's principal
executive offices on or before February 13, 1998. It is
suggested that such proposal be sent by Certified Mail, Return
Receipt Requested.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of
the Exchange Act, and, in accordance therewith, files reports,
proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected
and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available at the Commission's regional offices at 500
West Madison, 14th Floor, Chicago, Illinois 60661-2511 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies
of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Such material may also be
accessed on the World Wide Web through the Commission's Internet
address at "http://www.sec.gov".
The Commission permits the Fund to "incorporate by
reference" information into this Proxy Statement, which means
that the Fund can disclose important information to Stockholders
by referring them to another document filed separately with the
Commission. The information incorporated by reference is deemed
to be a part of this Proxy Statement, except for any information
superseded by information in this Proxy Statement.
The following documents, which have been filed with the
Securities and Exchange Commission, contain important information
about the Fund and its financial condition and are hereby
incorporated herein by reference:
(i) The Fund's Annual Report on Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-19180).
(ii) All other reports filed pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 1996, including the
Fund's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1997.
The Fund also hereby incorporates by reference all
additional reports filed pursuant to Section 13(a) or 15(d) of
the Exchange Act that it may file with the Commission between the
date of this Proxy Statement and the date of the Annual Meeting.
A Stockholder of the Fund may obtain any of the documents
incorporated by reference through the Fund or the Commission.
Documents incorporated by reference are available from the Fund
without charge, excluding all exhibits unless such exhibits have
been specifically incorporated by reference in this Proxy
Statement. Stockholders may obtain documents incorporated by
reference in this Proxy Statement by requesting them in writing
or by telephone from T. Rowe Price Renaissance Fund, Ltd., Post
Office Box 89000, Baltimore, Maryland 21289-0270, telephone
number 1-800-962-8300.
If you would like to request documents from the Fund,
please do so by September 3, 1997 to receive them before the
Annual Meeting.
By Order of the
Board of Directors
Lenora V. Hornung
Secretary
Baltimore, Maryland
July 28, 1997
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page No.
Independent Auditors' Report . . . . . . . . . . . . . F-1
Consolidated Balance Sheets at
December 31, 1996 and 1995 . . . . . . . . . . . F-2
Consolidated Statements of Operations
for each of the three years in the
period ended December 31, 1996 . . . . . . . . . F-3
Consolidated Statements of Stockholders'
Equity for each of the three years
in the period ended December 31, 1996 . . . . . F-4
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 31, 1996 . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . F-6
Condensed Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 (unaudited)
F-10
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 1997 and March 31, 1996 (unaudited) F-11
Condensed Consolidated Statement of Stockholders'
Equity for the three months ended
March 31, 1997 (unaudited) . . . . . . . . . . F-12
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997
and March 31, 1996 (unaudited) . . . . . . . . F-13
Notes to Condensed Consolidated Financial
Statements (unaudited) . . . . . . . . . . . F-14
INDEPENDENT AUDITORS' REPORT
To the Stockholders
T. Rowe Price Renaissance Fund, Ltd.,
A Sales-Commission-Free Real Estate Investment:
We have audited the accompanying consolidated balance sheets of
T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-Free
Real Estate Investment and its consolidated partnership, as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the
responsibility of the Fund's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free from material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of T. Rowe Price Renaissance Fund, Ltd., A
Sales-Commission-Free Real Estate Investment and its consolidated
partnership as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 24, 1997
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
December 31, December 31,
1996 1995
___________ ____________
Assets
Real Estate Property Investments
Land . . . . . . . . . . . . . . $ 5,438 $ 6,037
Buildings and Improvements . . . 16,245 15,971
________ _________
21,683 22,008
Less: Accumulated Depreciation
and Amortization (1,866) (1,387)
_______ _________
19,817 20,621
Held for Sale - 5,332
_______ ________
19,817 25,953
Cash and Cash Equivalents 2,738 1,608
Accounts Receivable
(less allowances of $10 and $11) 277 281
Other Assets 148 194
________ ________
$ 22,980 $ 28,036
________ ________
________ ________
December 31, December 31,
1996 1995
___________ ____________
Liabilities and Stockholders' Equity
Liabilities
Mortgage Loans Payable $ 4,106 $ 8,976
Security Deposits and Prepaid Rents 268 326
Accrued Real Estate Taxes 175 284
Accounts Payable and
Other Accrued Expenses 346 285
Dividends Declared 1,514 76
Minority Interest - 541
_______ ________
Total Liabilities 6,409 10,488
_______ ________
Stockholders' Equity
Common Stock, $.001 Par Value,
Authorized 5,500,000 Shares;
Issued and Outstanding 1,529,446
and 1,527,191 Shares 1 1
Additional Paid-In Capital 18,526 18,447
Dividends in Excess of Net Income (1,956) (900)
________ ________
Total Stockholders' Equity 16,571 17,548
________ ________
$ 22,980 $ 28,036
________ _________
________ _________
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per-share amounts)
Years Ended December 31,
1996 1995 1994
_________ _________ _________
Revenues
Rental Income . . . . . . . . $ 5,231 $ 4,822 $ 3,246
Interest Income . . . . . . . 89 56 118
_________ _________ _________
5,320 4,878 3,364
_________ _________ _________
Expenses
Property Operating
Expenses . . . . . . . . . 2,055 1,749 948
Real Estate Taxes . . . . . . 512 566 373
Depreciation and
Amortization . . . . . . . 816 807 466
Decline of Property
Values . . . . . . . . . . 907 - -
Investment Advisory Fees . . 280 251 157
Fund Management Expenses . . 203 169 202
Interest Expense . . . . . . 705 588 262
Amortization of
Organization Costs . . . . - 23 45
Minority Interest in
Operations . . . . . . . . 65 47 51
_________ _________ _________
5,543 4,200 2,504
. . . . . . . . . . . . . _________ _________ _________
Income (Loss) from Operations
before Gain on Real Estate Sold (223) 678 860
Gain on Real Estate Sold
(Net of minority interest
of $309) . . . . . . . . . 1,368 - -
_________ _________ _________
Net Income . . . . . . . . . $ 1,145 $ 678 $ 860
_________ _________ _________
_________ _________ _________
Years Ended December 31,
1996 1995 1994
_________ _________ _________
Activity per Share
Net Income $0.75 $0.45 $0.58
_________ _________ _________
_________ _________ _________
Dividends Declared $1.44 $0.59 $0.64
_________ _________ _________
_________ _________ _________
Weighted Average Number of
Shares Outstanding 1,529,663 1,509,428 1,487,108
_________ _________ _________
_________ _________ _________
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share data)
AdditionalDividends
Common Stock Paid-In In Excess
Of Net
Shares Amount Capital Income Total
______ _____ ______ _____ _____
Balance,
December 31, 1993 1,479,199 $1 $17,727 $(597) $17,131
Net Income - - - 860 860
Dividend
Reinvestments 45,557 0 565 - 565
Share Repurchases (38,013) 0 (404) - (404)
Dividends Declared - - - (950) (950)
________ ___ _______ ________ ______
Balance,
December 31, 1994 1,486,743 1 17,888 (687) 17,202
Net Income - - - 678 678
Dividend Reinvestments 59,602 0 787 - 787
Share Repurchases (19,154) 0 (228) - (228)
Dividends Declared - - - (891) (891)
________ ___ ______________ ______
Balance,
December 31, 1995 1,527,191 1 18,447 (900) 17,548
Net Income - - - 1,145 1,145
Dividend
Reinvestments 39,491 0 523 - 523
Share Repurchases (37,236) 0 (444) - (444)
Dividends Declared - - - (2,201) (2,201)
________ ___ _______________ ______
Balance,
December 31, 1996 1,529,446 $1 $18,526 $(1,956) $16,571
________ ___ _______________ ______
________ ___ _______________ ______
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
1996 1995 1994
_______ _______ _______
Cash Flows from Operating Activities
Net Income . . . . . . . . . . . . $ 1,145 $ 678 $ 860
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities
Depreciation and Amortization 816 807 466
Decline of Property Values . . 907 - -
Amortization of Organization
Costs . . . . . . . . . . . - 23 45
Minority Interest in
Operations . . . . . . . . 65 47 51
Gain on Real Estate Sold . . . (1,368) - -
Change in Accounts Receivable,
Net of Allowances . . . . . 4 (99) (79)
Change in Other Assets . . . . 46 (37) 53
Change in Security Deposits and
Prepaid Rents . . . . . . . (58) 32 131
Change in Accrued Real Estate
Taxes . . . . . . . . . . . (109) 2 10
Change in Accounts Payable and Other
Accrued Expenses . . . . . 61 (12) 8
_______ _______ _______
Net Cash Provided by Operating
Activities . . . . . . . . . . . 1,509 1,441 1,545
_______ _______ _______
Years Ended December 31,
1996 1995 1994
_______ _______ _______
Cash Flows from Investing Activities
Proceeds from Property
Disposition . . . . . . . . . . 7,036 - -
Investments in Real Estate . . . . (946) (6,070) (6,222)
_______ _______ _______
Net Cash Provided by (Used in)
Investing Activities . . . . . . 6,090 (6,070) (6,222)
_______ _______ _______
Cash Flows from Financing Activities
Dividends Paid . . . . . . . . . . (763) (1,141) (830)
Dividend Reinvestments . . . . . . 523 787 565
Share Repurchases . . . . . . . . . (444) (228) (404)
Minority Interest Distributions . . (915) (54) (37)
Proceeds of Mortgage Loan, Net of
Debt Issuance Costs . . . . . . - 5,459 1,400
Repayment of Mortgage Loan . . . . (4,870) (46) -
_______ _______ _______
Net Cash Provided by (Used in)
Financing Activities . . . . . . (6,469) 4,777 694
_______ _______ _______
Cash and Cash Equivalents
Net Increase (Decrease)
during Year . . . . . . . . . . 1,130 148 (3,983)
At Beginning of Year . . . . . . . 1,608 1,460 5,443
_______ _______ _______
At End of Year . . . . . . . . . . $ 2,738 $1,608 $1,460
. . . . . . . . . . . . . _______ _______ _______
. . . . . . . . . . . . . _______ _______ _______
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
T. Rowe Price Renaissance Fund, Ltd., A Sales-Commission-Free Real
Estate Investment (the "Fund"), was incorporated on June 14, 1989,
in the state of Maryland. The Fund intends to continue to qualify
and elect to be taxed as a Real Estate Investment Trust (REIT)
under the Internal Revenue Code of 1986, as amended, and
accordingly will not be subject to federal income taxes on amounts
distributed to stockholders, provided it distributes at least 95%
of its taxable income and meets certain other conditions. The Fund
believes that it has met the requirements for qualification as a
REIT from inception through December 31, 1996. The Fund has
declared dividends of at least 100% of its taxable income since
inception. There are, therefore, no provisions for federal income
taxes in the accompanying consolidated financial statements.
T. Rowe Price Real Estate Group, Inc., a wholly-owned
subsidiary of T. Rowe Price Associates, Inc. (the "Sponsor"),
provided the initial capital for the Fund through its purchase of
16,000 shares of common stock at $12.50 per share.
The Fund has a reinvestment plan whereby stockholders may
elect to have dividends automatically reinvested in additional
shares of the Fund, or fractions thereof, instead of receiving
cash payments. Through December 31, 1996, 336,806 shares had been
purchased under this plan for total reinvestment of $4,218,000.
The purchase price of shares acquired through the reinvestment
plan is established at least annually by the Fund's Board of
Directors based upon its estimate of the fair market value of the
net assets of the Fund.
The Fund also provides a Liquidity Enhancement Plan (the
"Plan") pursuant to which stockholders may request that the Fund
repurchase their shares. The Fund utilizes reinvestment proceeds
to repurchase shares of stock. Through December 31, 1994, shares
were repurchased at the lesser of 90% of the estimated fair market
value or $10.625 per share. Subsequently, the repurchase price of
a share has been 90% of the estimated fair market value of the
share, which during 1996 was $11.93 per share. As of December 31,
1996, 129,919 shares had been repurchased under the Plan for a
total cost of $1,453,000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Fund's financial statements are prepared in accordance with
generally accepted accounting principles which requires the use of
estimates and assumptions by the Fund's management.
The consolidated financial statements include the accounts of
the Fund and the accounts of Buckley Square Associates, a Colorado
general partnership, in which the Fund had a 90% controlling
general partnership interest until its disposition in late 1996.
The Fund will review its real estate property investments for
impairment whenever events or changes in circumstances indicate
that the property carrying amounts may not be recoverable. Such a
review will result in the Fund recording a provision for
impairment of the carrying value of its real estate property
investments if the estimated future cash flows from a property's
operations and projected sale are less than the property's net
carrying value. Whenever a provision for impairment is recorded,
the estimated fair value of the property will become its new cost
basis. The Fund's management believes that the estimates and
assumptions used in evaluating the carrying value of the Fund's
properties are appropriate; however, changes in market conditions
and circumstances could occur in the near term which would cause
these estimates to change.
Depreciation is calculated primarily on the straight-line
method over the estimated useful lives of buildings and
improvements, which range from five to 40 years. Lease commissions
and tenant improvements are capitalized and amortized over the
life of the lease using the straight-line method.
On January 1, 1996, the Fund adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The impact of adopting this SFAS is that
depreciation expense is not recognized on properties held for sale
after 1995.
Cash equivalents consist of all short-term, highly liquid
investments including money market mutual funds and marketable
U.S. Treasury debt securities with maturities at the time of
acquisition of three months or less. The cost of such investments
approximates fair value.
The Fund uses the allowance method of accounting for doubtful
accounts. Provisions for uncollectible tenant receivables in the
amounts of $78,000, $6,000, and $16,000 were recorded in 1996,
1995, and 1994, respectively. Bad debt expense is included in
Property Operating Expenses.
Rental income is recognized on a straight-line basis over the
term of each lease. Rental income accrued, but not yet billed, is
included in Other Assets and aggregates $86,000 and $94,000 at
December 31, 1996 and 1995, respectively.
Organization costs were amortized over a five-year period.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
Pursuant to contracts executed in 1991, the Fund pays advisory
fees to T. Rowe Price Real Estate Group, Inc. (the "Investment
Manager"), an affiliate of the Fund's Sponsor, and LaSalle
Advisors Limited Partnership (the "Investment Advisor"). The
Investment Manager provides communications, cash management,
administrative, and other related services to the Fund for an
advisory fee of .45% per year of the fair market value, as
defined, of the Fund's assets and earned $133,000, $119,000, and
$75,000 in 1996, 1995, and 1994, respectively. The Investment
Advisor provides the Fund with real estate advisory, accounting,
and other related services for an advisory fee of .50% per year of
the fair market value, as defined, of the Fund's assets and earned
$147,000, $132,000, and $82,000 in 1996, 1995, and 1994,
respectively. Recognition of these investment advisory fees is
subject to limitations adopted by the Fund pursuant to guidelines
promulgated by the North American Securities Administrators
Association.
An affiliate of the Investment Manager earned a normal and
customary fee of $3,000, $4,000, and $7,000 from the money market
mutual funds in which the Fund made its interim cash investments
during 1996, 1995, and 1994, respectively.
The Fund also reimburses the Investment Manager and Investment
Advisor for certain defined expenses incurred in operating and
administering the affairs of the Fund. Expense reimbursements for
the Investment Manager totaled $40,000, $32,000, and $26,000 for
1996, 1995, and 1994, respectively. Reimbursements for the
Investment Advisor totaled $30,000 for each of the last three
years.
In addition, the Fund is obligated to pay acquisition fees for
services rendered in connection with the purchase of properties.
Acquisition fees equal two percent of the aggregate proceeds from
the sale of common stock, issuance of debt and reinvestment of
dividends which are used by the Fund to acquire properties. In
1995, the Investment Manager and Investment Advisor each received
$52,500 in connection with the Buschwood III acquisition and in
1994 received $23,000 and $58,000, respectively, related to the
Gatehall I purchase.
One director of the Fund is also a director of the Investment
Manager and its affiliates. Certain officers of the Fund are also
officers of the Investment Manager or its affiliates.
NOTE 4 - PROPERTY DISPOSITION
In November 1996, Buckley Square was sold, and the Fund received
net proceeds of $6,189,000 for its 90% interest. The net book
value of the Fund's interest at the date of sale was $4,821,000
after deduction of accumulated depreciation and minority interest.
Accordingly, the Fund recognized a $1,368,000 gain on the sale of
this property in the fourth quarter of 1996. Proceeds from this
property sale will be distributed in January 1997 to Fund
shareholders in the amount of $1,394,000, the gain on disposition
for tax purposes. Proceeds of $4,552,000 were used to repay a
significant portion of the Fund's outstanding debt in 1996.
Subsequent to December 31, 1996, the residual proceeds of $243,000
were also used to reduce debt.
NOTE 5 - PROPERTY VALUATIONS
Based upon a review of current market conditions, estimated
holding period, and future performance expectations, the Fund's
management has determined that the net carrying value of Post Oak
Place may not be fully recoverable from future operations and
disposition and recognized an impairment charge of $907,000 in
1996.
NOTE 6 - REAL ESTATE PROPERTY INVESTMENTS AND MORTGAGE LOANS
PAYABLE
The Fund entered into a Note and Deed of Trust in conjunction with
the acquisition of Valley Business Center in 1990. The $2.1
million non-recourse loan bears interest at a rate of 9.875% per
annum and is secured by the Fund's interest in the property. The
loan requires monthly interest payments with full principal due on
September 15, 1997.
On August 19, 1994, the Fund acquired Gatehall I, an office
building located in Parsippany, New Jersey, for $5,795,000,
including the proceeds of a $1,422,000 bank borrowing. On June
29, 1995, the Fund acquired Buschwood III, an office building
located in Tampa, Florida, for $5,536,000, primarily from the
proceeds of a $5,500,000 bank borrowing which was combined with
the Gatehall I loan for an aggregate borrowing of $6,922,000. The
new mortgage loan is secured by both properties and bears interest
at the Fund's option of either LIBOR plus 1.75% for up to six
months or the prime rate plus .25%. Monthly payments include
principal in the amount of $9,200 plus accrued interest. The
remaining principal balance is due in June 1998. The debt terms
also require that a significant portion of any proceeds from the
sale of Valley Business Center be applied as a repayment of the
outstanding principal balance. At December 31, 1996, outstanding
borrowings under this loan agreement were $2,006,000.
Debt issuance costs are amortized on a straight-line basis
over the expected life of the related loan. Unamortized amounts
are included in Other Assets and aggregate $14,000 at December 31,
1996 and $63,000 at December 31, 1995.
Interest paid on mortgage loans totaled $707,000, $508,000,
and $234,000 in 1996, 1995, and 1994, respectively.
NOTE 7 - LEASES
Future minimum rentals (in thousands) to be received by the Fund
under noncancelable operating leases in effect at December 31,
1996 are:
1997 $ 3,139
1998 2,413
1999 1,520
2000 573
2001 204
Thereafter -
_______
Total $ 7,849
_______
_______
NOTE 8 - RECONCILIATION OF FINANCIAL STATEMENT TO TAXABLE INCOME
As described in Note 1, the Fund intends to continue to be taxed
as a REIT. Accordingly, the Fund has not provided for an income
tax liability; however, certain timing differences exist between
amounts reported for financial statements and federal income tax
purposes. These differences are summarized below for the last
three years:
1996 1995 1994
________ ________ ________
(in thousands)
Book net income . . . . . $ 1,145 $ 678 $ 860
Decline in property
value . . . . . . . . 907 - -
Depreciation . . . . . . 140 192 44
Other items . . . . . . . 8 21 45
________ ________ ________
Taxable income
before REIT dividend
deduction . . . . . . $ 2,200 $ 891 $ 949
________ ________ ________
________ ________ ________
NOTE 9 - DIVIDEND DECLARATION
The Fund declared a quarterly cash dividend of $.99 per share,
including $.912 related to the gain on the Buckley Square sale,
payable to stockholders of record at December 31, 1996. The
dividend will be paid in January 1997.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands except share data)
March 31, December 31,
1997 1996
___________ ___________
Assets
Real Estate Property
Investments
Land . . . . . . . . . . $ 5,438 $ 5,438
Buildings and
Improvements . . . . . 16,415 16,245
_______
21,853 21,683
Less: Accumulated
Depreciation and
Amortization . . . . . (2,064) (1,866)
_______ _______
19,789 19,817
Cash and Cash
Equivalents . . . . . . 1,784 2,738
Accounts Receivable (less
allowances of $10
and $10) . . . . . . . . 222 277
Other Assets . . . . . . . 118 148
_______ _______
$ 21,913 $ 22,980
_______ _______
_______ _______
March 31, December 31,
1997 1996
___________ ___________
Liabilities and
Stockholders' Equity
Liabilities
Mortgage Loans
Payable $ 3,462 $ 4,106
Security Deposits and
Prepaid Rents 226 268
Accrued Real Estate
Taxes 122 175
Accounts Payable and
Other Accrued
Expenses 267 346
Dividends Declared - 1,514
_______ _______
Total Liabilities 4,077 6,409
_______ _______
Stockholders' Equity
Common Stock, $.001 Par
Value, Authorized
5,500,000 Shares;
Issued and Outstanding
1,607,757 and
1,529,446 Shares 1 1
Additional Paid-In
Capital 19,507 18,526
Dividends in Excess
of Net Income (1,672) (1,956)
_______ _______
Total Stockholders' Equity 17,836 16,571
_______ _______
$ 21,913 $ 22,980
_______ _______
_______ _______
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands except per-share amounts)
Three Months Ended
March 31,
1997 1996
____ _____
Revenues
Rental
Income . . . . . . . . . $ 1,045 $ 1,304
Interest Income . . . . . . . 32 26
________ ________
1,077 1,330
________ ________
Expenses
Property Operating
Expenses . . . . . . . . 295 519
Real Estate Taxes . . . . . . 105 192
Depreciation and
Amortization . . . . . . 198 164
Investment Advisory Fees . . 57 70
Fund Management Expenses . . 51 37
Interest Expense . . . . . . 87 199
Minority Interest . . . . . . - 20
________ ________
793 1,201
________ ________
Net Income . . . . . . . . . $ 284 $ 129
________ ________
________ ________
Activity per Share
Net Income . . . . . . . . . $ 0.18 $ 0.08
________ ________
________ ________
Dividends Declared . . . . . - $ 0.15
________ ________
________ ________
Weighted Average Number
of Shares
Outstanding . . . . . . . 1,586,874 1,525,199
________ ________
________ ________
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unaudited
(In thousands except share data)
Dividends
Additionalin Excess
Common Stock Paid-In of Net
Shares Amount Capital Income Total
______ _____ ______ _______ _____
Balance,
December 31,
1996 . . . . 1,529,446 $ 1 $18,526 $ (1,956)$ 16,571
Net Income . . - - - 284 284
Dividend
Reinvest-
ments . . . 83,489 0 1,039 - 1,039
Share
Repur-
chases . . . (5,178) 0 (58) - (58)
________ ____ _______ _______ _______
Balance,
March 31,
1997 . . . . 1,607,757 $ 1 $19,507 $ (1,672)$ 17,836
________ ____ _______ _______ _______
________ ____ _______ _______ _______
See accompanying notes to condensed consolidated financial
statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
Three Months Ended
March 31,
1997 1996
________ ________
Cash Flows from Operating
Activities
Net Income . . . . . . . . . . $ 284 $ 129
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating
Activities
Depreciation and
Amortization . . . . . 198 164
Minority Interest's Share
of Net Income . . . . . - 20
Change in Accounts Receivable,
Net of Allowances . . . 55 (8)
Decrease in Other Assets . 30 14
Decrease in Security Deposits
and Prepaid Rents . . . (42) (3)
Decrease in Accrued Real
Estate Taxes . . . . . (53) (67)
Decrease in Accounts Payable
and Other Accrued
Expenses . . . . . . . (79) (9)
________ ________
Net Cash Provided by Operating
Activities . . . . . . . . . 393 240
________ ________
Cash Flows Used in Investing
Activities
Investments in Real Estate . . (170) (80)
________ ________
Cash Flows from Financing
Activities
Dividends Paid . . . . . . . . (1,514) (76)
Reinvestments in Shares . . . . 1,039 54
Repurchases of Shares . . . . . (58) (79)
Minority Interest Distribution - (21)
Repayment of Mortgage Loan . . (644) (228)
________ ________
Net Cash Used in Financing
Activities . . . . . . . . . (1,177) (350)
________ ________
Three Months Ended
March 31,
1997 1996
________ ________
Cash and Cash Equivalents
Net Decrease during Period (954) (190)
At Beginning of Year 2,738 1,608
________ ________
At End of Period$ 1,784 $1,418
________ ________
________ ________
See accompanying notes to condensed consolidated financial
statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
The unaudited interim condensed consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim
periods presented. All such adjustments are of a normal, recurring
nature.
The unaudited interim financial information contained in the
accompanying condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements
contained in the 1996 Annual Report to Stockholders.
NOTE 1 - TRANSACTIONS WITH RELATED PARTIES AND OTHER
Pursuant to contracts executed in 1991, the Fund pays advisory
fees to T. Rowe Price Real Estate Group, Inc. (the "Investment
Manager"), an affiliate of the Fund's Sponsor, and LaSalle
Advisors Limited Partnership (the "Investment Advisor"). The
Investment Manager provides communications, cash management,
administrative, and other related services to the Fund for an
advisory fee of .45% per year of the fair market value, as
defined, of the Fund's assets and earned $27,000 for the first
three months of 1997. The Investment Advisor provides the Fund
with real estate advisory, accounting, and other related services
for an advisory fee of .50% per year of the fair market value, as
defined, of the Fund's assets and earned $29,000 for the first
three months of 1997. Recognition of these investment advisory
fees is subject to limitations adopted by the Fund pursuant to
guidelines promulgated by the North American Securities
Administrators Association.
An affiliate of the General Partner earned a normal and customary
fee of $1,000 from the money market mutual funds in which the
Partnership made its interim cash investments during the first
three months of 1997.
The Fund also reimburses the Investment Manager and Investment
Advisor for certain defined expenses incurred in operating and
administering the affairs of the Fund. Expense reimbursements for
the Investment Manager and Investment Advisor totaled $6,000 and
$5,000, respectively, for the first three months of 1997.
NOTE 2 - REAL ESTATE PROPERTY INVESTMENTS
On April 11, 1997, the Fund entered into a contract with a buyer
for the sale of its four properties at a sales price of
$27,150,000 before selling expenses. The transaction is subject to
further due diligence by the buyer and approval of the
stockholders which could result in changes to or the cancellation
of the contract. If the transaction is closed, the Fund will have
sold all of its real estate property investments and will begin
liquidation.
Legg Mason Wood Walker, Incorporated
111 South Calvert Street
Baltimore, MD 21203-1476
July 21, 1997
Board of Directors
T. Rowe Price Renaissance Fund, Ltd.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Mr. James S. Riepe, Chairman
Gentlemen:
We understand that T. Rowe Price Renaissance Fund, Ltd., A
Sales-Commission-Free Real Estate Investment (the "Fund") and
Glenborough Realty Trust Incorporated and Glenborough Properties,
L.P. (collectively, the "Acquiror") have entered into an agreement
dated as of April 11, 1997 (the "Agreement"), which provides that
the Fund will sell all of its real estate assets (the
"Properties") to the Acquiror for cash consideration of
$27,150,000 (the "Sale").
In connection with the Sale, we have been requested to provide
our opinion to the Board of Directors of the Fund (the "Board")
regarding the fairness to the Fund and its shareholders, from a
financial point of view, of the consideration to be received by
the Company in the Sale.
In conducting our analysis and arriving at the opinion set
forth below, we have, among other things:
(i) reviewed the Agreement;
(ii) reviewed and analyzed the audited financial statements of
the Fund for the years ended December 31, 1995 and 1996;
(iii)reviewed and analyzed the unaudited consolidated financial
statements of the Properties for the three months ended March
31, 1997;
(iv) reviewed and analyzed certain internal information
concerning the business and operations of the Fund and the
Properties furnished to us by T. Rowe Price Real Estate Group,
Inc. (the "Investment Manager") and by LaSalle Advisors
Limited ("LaSalle"), including unaudited cash-basis
projections for the Properties for the years ending December
31, 1997 through 2007;
(v) reviewed and analyzed certain publicly available
information concerning the Fund, the Properties and the
Acquiror;
(vi) reviewed and analyzed certain publicly available
information concerning the terms of selected merger and
acquisition transactions that we deemed relevant to our
inquiry;
(vii)reviewed and analyzed certain selected market purchase
price data that we deemed relevant to our inquiry;
(viii)held meetings and discussions with certain directors,
officers and employees of the Investment Manager and LaSalle
concerning the operations, financial condition and future
prospects of the Properties; and
(ix) conducted such other financial studies, analyses and
investigations, including visits to certain of the Properties,
and considered such other information as we deemed
appropriate.
In connection with our review, we relied, without independent
verification, on the accuracy and completeness of all information
that was publicly available, supplied or otherwise communicated to
Legg Mason by the Investment Manager and LaSalle. Legg Mason
assumed that the financial projections (and the assumptions and
bases thereof) examined by it were reasonably prepared and
reflected the best currently available estimates and good faith
judgments of the Investment Manager and LaSalle as to the future
performance of the Properties. Legg Mason has not made an
independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Fund (including the Properties),
nor has Legg Mason been furnished with any such independent
evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions and circumstances
existing and disclosed to us as of the date hereof. Additionally,
our opinion does not compare the relative merits of the Sale with
those of any other transactions or business strategies available
to the Fund as alternatives to the Sale, and we were not requested
to, nor did we, solicit the interest of any other party in
acquiring the Properties.
We have acted as financial advisor to the Board and will
receive a fee for our services. It is understood that this
opinion is provided to the Board in its evaluation of the Sale and
our opinion does not constitute a recommendation to any
shareholder of the Fund as to whether such shareholder should
approve the Sale. This letter is not to be quoted or referred to,
in whole or in part, in any registration statement, prospectus, or
in any other document used in connection with the offering or sale
of securities, nor shall this letter be used for any other
purposes, without the prior written consent of Legg Mason;
provided that this opinion may be included in its entirety in any
filing made by the Fund with the Securities and Exchange
Commission with respect to the Sale and as an appendix to the
Fund s proxy statement furnished to shareholders in connection
with the Sale.
Based upon and subject to the foregoing, we are of the opinion
that, as of the date hereof, the consideration to be received by
the Fund in the Sale is fair to the Fund and its shareholders from
a financial point of view.
Very truly yours,
Legg Mason Wood Walker,Incorporated
By:/s/ Jeff M. Rogatz
Jeff M. Rogatz
Managing Director
Appendix II
Maryland General Corporation Law
Title 3, Subtitle 2. Rights of Objecting Stockholders
3-201 "SUCCESSOR" DEFINED.--(a) In this subtitle, except as
provided in subsection (b) of this section, "successor" includes a
corporation which amends its charter in a way which alters the
contract rights, as expressly set forth in the charter, of any
outstanding stock, unless the right to do so is reserved by the
charter of the corporation.
(b)When used with reference to a share exchange, "successor"
means the corporation the stock of which was acquired in the share
exchange.
3-202 RIGHT TO FAIR VALUE OF STOCK.--(a) Except as provided in
subsection (c) of this section, a stockholder of a Maryland
corporation has the right to demand and receive payment of the
fair value of the stockholder's stock from the successor if:
(1)The corporation consolidates or merges with another
corporation;
(2)The stockholder's stock is to be acquired in a share
exchange;
(3)The corporation transfers its assets in a manner requiring
corporate action under Section 3-105(d) of this title;
(4)The corporation amends its charter in a way which alters the
contract rights, as expressly set forth in the charter, of any
outstanding stock and substantially adversely affects the
stockholder's rights, unless the right to do so is reserved by the
charter of the corporation; or
(5)The transaction is governed by Section 3-602 of this title
or exempted by Section 3-603(b) of this title.
(b)(1) Fair value is determined as of the close of business:
(i)With respect to a merger under Section 3-106 of this title
of a 90 percent or more owned subsidiary into its parent, on the
day notice is given or waived under Section 3-106; or
(ii)with respect to any other transaction, on the day the
stockholders voted on the transaction objected to.
(2)Except as provided in paragraph (3) of this subSection ,
fair value may not include any appreciation or depreciation which
directly or indirectly results from the transaction objected to or
from its proposal.
(3)In any transaction governed by Section 3-602 of this title
or exempted by Section 3-603(b) of this title, fair value shall be
value determined in accordance with the requirements of Section 3-
603(b) of this title.
(c)Unless the transaction is governed by Section 3-602 of this
title or is exempted by Section 3-603(b) of this title, a
stockholder may not demand the fair value of his stock and is
bound by the terms of the transaction if:
(l)The stock is listed on a national securities exchange or is
designated as a national market system security on an interdealer
quotation system by the National Association of Securities
Dealers, Inc.:
(i)With respect to a merger under Section 3-106 of this title
of a 90 percent or more owned subsidiary into its parent, on the
date notice is given or waived under Section 3-106; or
(ii)With respect to any other transaction, on the record date
for determining stockholders entitled to vote on the transaction
objected to;
(2)The stock is that of the successor in a merger; unless:
(i)The merger alters the contract rights of the stock as
expressly set forth in the charter, and the charter does not
reserve the right to do so; or
(ii)The stock is to be changed or converted in whole or in part
in the merger into something other than either stock in the
successor or cash, scrip, or other rights or interests arising out
of provisions for the treatment of fractional shares of stock in
the successor; or
(3)The stock is that of an open-end investment company
registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and the value placed on the stock
in the transaction is its net asset value.
3-203 PROCEDURE BY STOCKHOLDER.--(a) A stockholder of a
corporation who desires to receive payment of the fair value of
his stock under this subtitle:
(1)Shall file with the corporation a written objection to the
proposed transaction:
(i)With respect to a merger under Section 3-106 of this title
of a 90 percent or more owned subsidiary into its parent, within
30 days after notice is given or waived under Section 3-106; or
(ii)With respect to any other transaction, at or before the
stockholders' meeting at which the transaction will be considered;
(2)May not vote in favor of the transaction; and
(3)Within 20 days after the Department accepts the articles for
record, shall make a written demand on the successor for payment
for payment for his stock, stating the number and class of shares
for which he demands payment.
(b)A stockholder who fails to comply with this Section is
bound by the term of the consolidation, merger, share exchange,
transfer of assets, or charter amendment.
3-204 EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS.--A
stockholder who demands payment for his stock under this subtitle:
(1)Has no right to receive any dividends or distributions
payable to holders of record of that stock on a record date after
the close of business on the day as at which fair value is to be
determined under Section 3-202 of this subtitle; and
(2)Ceases to have any rights of a stockholder with respect to
that stock, except the right to receive payment of its fair value.
3-205 WITHDRAWAL OF DEMAND.--A demand for payment may be
withdrawn only with the consent of the successor.
3-206 RESTORATION OF DIVIDEND AND OTHER RIGHTS.--(a) The rights
of a stockholder who demands payment are restored in full, if:
(1)The demand for payment is withdrawn;
(2)A petition for an appraisal is not filed within the time
required by this subtitle;
(3)A court determines that the stockholder is not entitled to
relief; or
(4)The transaction objected to is abandoned or rescinded.
(b)The restoration of a stockholder's rights entitles him to
receive the dividends, distributions, and other rights he would
have received if he had not demanded payment for his stock.
However, the restoration does not prejudice any corporate
proceedings taken before the restoration.
3-207 PROCEDURE BY SUCCESSOR.--(a)(1) The successor promptly
shall notify each objecting stockholder in writing of the date the
articles are accepted for record by the Department.
(2)The successor also may send a written offer to pay the
objecting stockholder what it considers to be the fair value of
his stock. Each offer shall be accompanied by the following
information relating to the corporation which issued the stock:
(i)A balance sheet as of a date not more than six months before
the date of the offer;
(ii)A profit and loss statement for the 12 months ending on the
date of the balance sheet; and
(iii) Any other information the successor considers pertinent.
(b)The successor shall deliver the notice and offer to each
objecting stockholder personally or mail them to him by certified
mail, return receipt requested, bearing a postmark from the United
States Postal Service at the address he gives the successor in
writing, or, if none, at his address as it appears on the records
of the corporation which issued the stock.
3-208 PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS;
JOINDER OF OBJECTORS.--(a) Within 50 days after the Department
accepts the articles for record, the successor or an objecting
stockholder who has not received payment for his stock may
petition a court of equity in the county where the principal
office of the successor is located or, if it does not have a
principal office in this State, where the resident agent of the
successor is located, for an appraisal to determine the fair value
of the stock.
(b)(1) If more than one appraisal proceeding is instituted,
the court shall direct the consolidation of all the proceedings on
terms and conditions it considers proper.
(2)Two or more objecting stockholders may join or be joined in
an appraisal proceeding.
3-209 NOTATION ON STOCK CERTIFICATE.--(a) At any time after a
petition for appraisal is filed, the court may require the
objecting stockholders parties to the proceeding to submit their
stock certificates to the clerk of the court for notation on them
that the appraisal proceeding is pending. If a stockholder fails
to comply with the order, the court may dismiss the proceeding as
to him or grant other appropriate relief.
(b) If any stock represented by a certificate which bears a
notation is subsequently transferred, the new certificate issued
for the stock shall bear a similar notation and the name of the
original objecting stockholder. The transferee of this stock does
not acquire rights of any character with respect to the stock
other than the rights of the original objecting stockholder.
3-210 APPRAISAL OF FAIR VALUE.--(a) If the court finds that
the objecting stockholder is entitled to an appraisal of his
stock, it shall appoint three disinterested appraisers to
determine the fair value of the stock on terms and conditions the
court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b)Within 60 days after their appointment, unless the court
sets a longer time, the appraisers shall determine the fair value
of the stock as of the appropriate date and file a report stating
the conclusion of the majority as to the fair value of the stock.
(c)The report shall state the reasons for the conclusion and
shall include a transcript of all testimony and exhibits offered.
(d)(1) On the same day that the report is filed, the
appraisers shall mail a copy of it to each party to the
proceedings.
(2)Within 15 days after the report is filed, any party may
object to it and request a hearing.
3-211 ACTION BY COURT ON APPRAISERS' REPORT.--(a) The court
shall consider the report and, on motion of any party to the
proceeding, enter an order which:
(1)Confirms, modifies, or rejects it; and
(2)If appropriate, sets the time for payment to the
stockholder.
(b)(1) If the appraiser's report is confirmed or modified by
the order, judgment shall be entered against the successor and in
favor of each objecting stockholder party to the proceeding for
the appraised fair value of his stock.
(2)If the appraiser's report is rejected, the court may:
(i)Determine the fair value of the stock and enter judgment for
the stockholder; or
(ii)Remit the proceedings to the same or other appraisers on
terms and conditions it considers proper.
(c)(1) Except as provided in paragraph (2) of this subSection ,
a judgment for the stockholder shall award the value of the stock
and interest from the date as to which fair value is to be
determined under Section 3-202 of this subtitle.
(2)The court may not allow interest if it finds that the
failure of the stockholder to accept an offer for the stock made
under Section 3-207 of this subtitle was arbitrary and vexatious
or not in good faith. In making this finding, the court shall
consider:
(i)The price which the successor offered for the stock;
(ii) The financial statements and other information furnished
to the stockholder; and
(iii) Any other circumstances it considers relevant.
(d)(1) The costs of the proceedings, including reasonable
compensation and expenses of the appraisers, shall be set by the
court and assessed against the successor. However, the court may
direct the costs to be apportioned and assessed against any
objecting stockholder if the court finds that the failure of the
stockholder to accept an offer for the stock made under Section 3-
207 of this subtitle was arbitrary and vexatious or not in good
faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished
to the stockholder; and
(iii) Any other circumstances it considers relevant.
(2)Costs may not include attorney's fees or expenses. The
reasonable fees and expenses of experts may be included only if:
(i)The successor did not make an offer for the stock under
Section 3-207 of this subtitle; or
(ii)The value of the stock determined in the proceeding
materially exceeds the amount offered by the successor.
(e)The judgment is final and conclusive on all parties and has
the same force and effect as other decrees in equity. The judgment
constitutes a lien on the assets of the successor with priority
over any mortgage or other lien attaching on or after the
effective date of the consolidation, merger, transfer, or charter
amendment.
3-212 SURRENDER OF STOCK.--The successor is not required to pay
for the stock of an objecting stockholder or to pay a judgment
rendered against it in a proceeding for an appraisal unless,
simultaneously with payment:
(1)The certificates representing the stock are surrendered to
it, indorsed in blank, and in proper form for transfer; or
(2)Satisfactory evidence of the loss or destruction of the
certificates and sufficient indemnity bond are furnished.
3-213 RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK.--(a) A
successor which acquires the stock of an objecting stockholder is
entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business
on the day as at which fair value is to be determined under
Section 3-202 of this subtitle.
(b)After acquiring the stock of an objecting stockholder, a
successor in a transfer of assets may exercise all the rights of
an owner of the stock.
(c)Unless the articles provide otherwise, stock in the
successor of a consolidation, merger, or share exchange otherwise
deliverable in exchange for the stock of an objecting stockholder,
has the status of authorized but unissued stock of the successor.
However, a proceeding for reduction of the capital of the
successor is not necessary to retire the stock or to reduce the
capital of the successor represented by the stock.
PROXY
T. ROWE PRICE RENAISSANCE FUND, Ltd.,
A Sales-Commission-Free Real Estate Investment
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
FUND
The undersigned, a Stockholder of T. ROWE PRICE RENAISSANCE
FUND, Ltd., A Sales-Commission-Free Real Estate Investment, (the
"Fund"), hereby appoints James S. Riepe and Jeffrey H. Donahue,
and each of them, as proxies for the undersigned, each with full
power of substitution, and hereby authorizes them to represent and
to cast, as designated below, all of the votes entitled to be cast
by the undersigned at the Annual Meeting of Stockholders of the
Fund to be held at the offices of T. Rowe Price Associates, Inc.,
100 East Pratt Street, Baltimore, Maryland 21202, on September 11,
1997, at 1 p.m., local time, and at any adjournment or
postponement thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION
IS GIVEN, SUCH SHARES WILL BE VOTED FOR ALL NOMINEES FOR DIRECTOR
IDENTIFIED BELOW AND FOR PROPOSALS 1 AND 3 SET FORTH BELOW.
The Board of Directors recommends a vote FOR all proposals.
1. To approve (a) the sale of substantially all of the assets of
the Fund, as contemplated by the Purchase and Sale Agreement and
Joint Escrow Instructions dated as of April 11, 1997, entered into
by the Fund with Glenborough Realty Trust Incorporated and
Glenborough Properties, L.P., as the buyers, and (b) the complete
liquidation and dissolution of the Fund, all as described in the
accompanying Proxy Statement.
/ / For / / Against / / Abstain
2. To elect the following nominees as directors of the Fund to
hold office until the next Annual Meeting of Stockholders, if any,
and until their successors shall be duly elected and shall
qualify.
FOR all nominees listed below / /
(except as marked to the contrary below)
WITHHOLD AUTHORITY / /
to vote for all nominees listed below
(INSTRUCTIONS: To withhold authority to vote for any individual
nominee strike a line through the nominee s name in the list
below.)
Jeffrey H. Donahue A. MacDonough Plant James S. Riepe
3. To ratify the appointment of KPMG Peat Marwick LLP as the
Fund s independent auditors for the fiscal year ending December
31, 1997 or, in the event the Fund dissolves prior to December 31,
1997, for such shorter period ending on the date of dissolution.
/ / For / / Against / / Abstain
4. Upon such other matters as may properly come before such
Annual Meeting or any adjournment or postponement thereof, in the
discretion of the proxies.
(Please date and sign on reverse side)
Please mark, sign, date and return the proxy card promptly using
the enclosed envelope to T. Rowe Price Renaissance Fund, Ltd.
PROXY Number
SHARES
Dated: , 1997
Signature
Dated: , 1997
Signature
Please sign EXACTLY as YOUR name appears HEREIN. If signing as
attorney, executor, administrator, trustee or guardian, indicate
such capacity. All joint tenants must sign. If a corporation,
please sign in full corporate name by president or other
authorized officer. If a partnership or other entity, please sign
in partnership or entity name by authorized person.
The Board of Directors requests that you fill in the date and sign
the proxy and return it in the enclosed envelope. IF THE PROXY IS
NOT DATED IN THE ABOVE SPACE, IT IS DEEMED TO BE DATED ON THE DAY
ON WHICH IT WAS MAILED BY THE FUND.
