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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ________________ to _______________
Commission File No. 001-12056
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THE TOWN AND COUNTRY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 52-6613091
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(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
100 S. Charles Street
Baltimore, Maryland 21201
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(Address of Principal Executive Office) (ZIP Code)
(410) 539-7600
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
- ------------------- ------------------------------------
Common Shares of
Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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[Cover Continued on Following Page]
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[Cover Continued From Previous Page]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of the Registrant
as of February 28, 1997: $206,942,188.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practical date:
15,677,690 Common Shares of Beneficial Interest, $.01 Par
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Value, at February 28, 1997.
----------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Document In Which Incorporated
- -------- ---------------------
Portions of the Registrant's I and III
Notice of Annual Meeting
and Proxy Statement
Dated March 19, 1997
Portions of the Registrant's II and IV
1996 Annual Report to Shareholders
Neither the Report of the Board of Trustees on Executive Compensation nor the
Performance Graph contained in the Registrant's Notice of Annual Meeting and
Proxy Statement dated March 19, 1997 shall be deemed incorporated by reference
herein.
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PART I
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ITEM 1. BUSINESS
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GENERAL
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The Registrant is a self-administered and self-managed real estate
investment trust that was formed to continue and expand the Registrant's
predecessor's business of owning, managing and acquiring multifamily properties.
The Registrant was organized in Maryland on May 19, 1993 and commenced
operations on August 23, 1993 upon completion of its initial public offering of
15,511,765 common shares of beneficial interest.
The Registrant currently owns and operates 35 multifamily properties (the
"Properties") comprising 13,631 apartment units located in Maryland,
Pennsylvania, Virginia, and Delaware. Of the Properties, twenty-six (the
"Original Properties") had been owned and managed as a single business since
1979 by the Registrant's predecessor, The TC Companies, which was comprised of
twenty-six general partnerships (the "Original Property Partnerships") and The
Town and Country Management Corporation ("Town and Country"). Each of the
Original Property Partnerships was established to acquire a specific Original
Property and was owned 50% by a limited partnership beneficially owned by Alfred
Lerner and 50% by a limited partnership of which Harvey Schulweis is a general
partner. The Original Properties had been managed since 1979 by Town and
Country, a company exclusively engaged in the management of those Properties,
under the direction of the Registrant's executive officers. In connection with
the Registrant's initial public offering, Town and Country became a division of
The TC Operating Limited Partnership ("Operating Partnership"). Concurrently
with the closing of the Registrant's initial public offering, the Registrant
acquired six multifamily properties, comprising 1,817 apartment units, for an
aggregate consideration of $120.1 million (the "Purchased Properties"). In
fiscal 1994, the Registrant acquired three additional multifamily properties,
comprising 896 apartment units (the "Acquisition Properties"), for an aggregate
consideration of $52.759 million, which was paid with funds drawn on the
Registrant's line of credit.
The Registrant and a wholly-owned subsidiary are the sole general partners
of and together own an 86.0% general partnership interest in the Operating
Partnership, which was formed in connection with the Registrant's initial public
offering. The remaining 14.0% limited partnership interest in the Operating
Partnership was retained by certain of the predecessor owners of The TC
Companies, including Messrs. Lerner and Schulweis, as consideration for their
contribution to the Operating Partnership of the majority interests in The TC
Companies. As a general
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partner of the Operating Partnership, the Registrant has full and complete
control over the management of the Operating Partnership and, through
wholly-owned subsidiaries, over each of the Properties. The Registrant and the
Operating Partnership together indirectly own 100% of each Property.
INDEBTEDNESS
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The Registrant and the Operating Partnership in August, 1995 entered
into a financing agreement with The First National Bank of Maryland (the
"Bank"). Pursuant to this financing agreement, the Registrant is permitted to
borrow up to $27 million. Concurrently, each of the partnerships which own the
Acquisition Properties entered into a financing agreement with the Bank,
pursuant to which such partnerships borrowed $35 million. Repayment of the $35
million loan facility is guaranteed by the Registrant and the Operating
Partnership. The aggregate outstanding principal balances under these financing
agreements (which was $58.409 million at December 31, 1996) bear interest at
variable rates (averaging 7.1% at December 31, 1996) and mature on August 17,
1998. These financing agreements are secured by first and second priority
mortgages on the Acquisition Properties. A portion of the funds provided under
these financing agreements was used to retire in full the Registrant's
outstanding indebtedness of $52.510 million under its prior revolving credit
facility.
Concurrent with the Registrant's initial public offering, the Original
Property Partnerships borrowed $232 million from a special-purpose corporation,
The Town and Country Funding Corporation ("Funding"), which is owned by Messrs.
Lerner and Schulweis and the Registrant's Secretary, Daniel G. Berick. Funding
has no net income, pays no salaries and makes no distributions to its
shareholders. Funding issued $185.6 million of fixed-rate secured notes and
$46.4 million of floating-rate secured notes in an underwritten public offering
concurrent with the Registrant's initial public offering. The indebtedness of
the Original Property Partnerships to Funding is evidenced by mortgage notes
having comparable terms to the secured notes issued by Funding. Each of the
Original Property Partnerships is the maker of a separate mortgage note in a
principal amount equal to an allocable portion of the indebtedness evidenced by
such secured notes. The mortgage notes are secured by cross-collateralized
first mortgages on the Properties and related assignments of rents of the
Original Property Partnerships and by non-recourse guarantees of the
partnerships which own the Purchased Properties. As a result of these
arrangements, all of the Properties are encumbered by cross-collateralized first
mortgages, except the Acquisition Properties, which are encumbered by
cross-collateralized first and second mortgages in favor of the Bank. This
indebtedness matures on August 17, 1998, which maturity may be extended to
August 15, 2000 at the option
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of Funding. The fixed-rate indebtedness accrues interest at 5.85%, payable
semi-annually, and the floating-rate indebtedness accrues interest at the
three-month London Interbank Offered Rate plus .60% (6.5% at December 31, 1996),
payable quarterly. In connection with the issuance of the floating-rate secured
notes, the Registrant obtained an interest rate protection agreement effective
through the maturity of the floating-rate secured notes which limits the maximum
floating interest rate thereon to 8.60%.
In January 1996, the Registrant entered into interest rate swap
agreements which have a total notional amount of $103.1 million and which mature
on August 17, 1998. These agreements have the effect of fixing the interest rate
on the Registrant's floating-rate indebtedness to the Bank and Funding's
indebtedness in respect of the floating-rate secured notes at a blended rate of
6.5%.
COMPETITION
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All of the Properties are located in developed areas. There are numerous
other apartment properties within the market area of each Property. The number
of competitive apartment properties in such area could have a material effect on
the rental market for the apartments at a Property and the rents which may be
charged for such apartments. The Registrant competes for tenants and
acquisitions with others who may have greater financial resources than the
Registrant.
ENVIRONMENTAL MATTERS
- ---------------------
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for costs of
removal or remediation of certain hazardous or toxic substances on, under or in
such property. Such enactments often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure properly to
remediate such substances, may affect adversely the owner's ability to sell or
rent such property or to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for release
of asbestos-containing materials ("ACMs") into the air and third parties may
seek recovery from owners or operators of real property for personal injury
associated with ACMs. In connection with its ownership and operation of the
Properties, the Registrant, the Operating Partnership, or any of their
respective direct or indirect subsidiaries, as the case may be, potentially may
be liable for such costs. A number of the
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Properties formerly contained underground fuel oil storage tanks. The Registrant
has removed all of these tanks.
EMPLOYEES
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As of December 31, 1996, the Registrant had 422 employees.
ITEM 2. PROPERTIES.
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The Properties consist of 35 multifamily properties comprising 13,631
apartment units located in suburban Baltimore, suburban Washington, D.C.,
southeastern Pennsylvania and Delaware.
Each of the Original Properties and Purchased Properties is owned by a
separate Property Partnership in which The TC Property Company (a special
purpose general partnership owned 99% by the Operating Partnership and 1% by The
Town and Country Holding Corporation) owns a 99% general partnership interest
and in which The Town and Country Holding Corporation (a wholly-owned subsidiary
of the Registrant) owns a 1% general partnership interest. Each of the
Acquisition Properties is owned by a separate property partnership in which The
TC Property Company II (a special purpose general partnership owned 99% by the
Operating Partnership and 1% by The Town and Country Holding Corporation II)
owns a 99% general partnership interest and in which The Town and Country
Holding Corporation II (a wholly-owned subsidiary of the Registrant) owns a 1%
general partnership interest.
The average occupancy rate for all Properties for fiscal 1996 and fiscal 1995
was 94.0%. Tenant leases are generally for one-year terms, with automatic
two-month renewals after the completion of the first year, and often require
security deposits. Approximately 96% of the apartments in the Properties are
one-bedroom and two-bedroom apartments. The balance are three-bedroom
apartments. The Properties typically consist of two- and three-story buildings
in a landscaped setting, many with amenities such as swimming pools, tennis
courts, playgrounds and community buildings. All apartments offer air
conditioning. The majority of such buildings are of brick construction and all
of the Original Properties are located in mature, fully-developed neighborhoods.
As part of a comprehensive on-going maintenance program, The TC Companies
invested, on average, approximately $2.8 million per year in capital
improvements to the Original Properties from 1980 through the acquisition of the
Original Properties by the Operating Partnership, which capital improvements
included items such as roofing, carpeting, appliances, paving, boilers and air
conditioning.
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<TABLE>
<CAPTION>
The following table presents certain additional information concerning the
Properties:
1996
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
- ------------- ----------- -------- -------------
SUBURBAN BALTIMORE
<S> <C> <C> <C>
T & C Bowleys Quarters 348,005 462 92.6%
Baltimore, Maryland
T & C Charlesmont 411,349 565 93.8%
Dundalk, Maryland
T & C Cockeysville 502,878 540 93.9%
Cockeysville, Maryland
T & C Foxhaven 404,628 460 83.0%
Baltimore, Maryland
T & C Gardenwood 427,760 492 91.0%
Baltimore, Maryland
T & C Hallfield 63,276 75 95.5%
Perry Hall, Maryland
T & C Harford 297,077 336 95.5%
Carney, Maryland
T & C Hollows 291,091 336 94.6%
Glen Burnie, Maryland
T & C Ridgeview 217,849 257 89.7%
Rossville, Maryland
T & C Rolling Road 324,401 384 93.6%
Baltimore, Maryland
T & C Rossville 532,264 692 93.6%
Rossville, Maryland
T & C West/Greensview 1,199,359 1,350 96.1%
West Commercial
Elliott City, Maryland
T & C Woodhill 281,860 334 90.7%
Glen Burnie, Maryland
T & C Woodmoor 341,188 424 81.9%
Baltimore, Maryland
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1996
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
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<S> <C> <C> <C>
Versailles-North Charles 252,669 210 96.0%
Towson, Maryland
SUBURBAN WASHINGTON, D.C.
T & C Montgomery Knolls 198,330 210 93.4%
Gaithersburg, Maryland
T & C Tall Oaks 368,224 352 88.2%
Laurel, Maryland
T & C Willow Lake 380,748 456 90.8%
Laurel, Maryland
SOUTHEASTERN PENNSYLVANIA
T & C Hidden Village 223,006 264 94.7%
Allentown, Pennsylvania
T & C Colonial Crest 275,379 329 95.4%
Emmaus, Pennsylvania
T & C Hanover 186,366 215 95.1%
Hanover, Pennsylvania
T & C Colonial Park 507,224 626 96.3%
Harrisburg, Pennsylvania
T & C Union Deposit 378,374 468 93.8%
Harrisburg, Pennsylvania
T & C Lancaster 343,350 413 93.4%
Lancaster, Pennsylvania
T & C Oakview 228,294 272 94.4%
Lancaster, Pennsylvania
T & C York 313,940 396 90.5%
York, Pennsylvania
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1996
SQUARE NUMBER AVERAGE
PROPERTY NAME FOOTAGE (1) OF UNITS OCCUPANCY (2)
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<S> <C> <C> <C>
PURCHASED PROPERTIES
Barton's Crossing 436,876 532 94.1%
Alexandria, Virginia
University Heights 400,122 466 95.2%
Ashburn, Virginia
The Glen at Leesburg 123,950 134 97.7%
Leesburg, Virginia
Rolling Hills 145,100 184 98.3%
York, Pennsylvania
Fox Run 210,891 218 94.9%
Germantown, Maryland
The Village at 220,748 283 97.4%
McNair Farms
Herndon, Virginia
ACQUISITION PROPERTIES
Stonegate 282,072 260 96.8%
Elkton, Maryland
Christina Mill 182,604 228 97.7%
Newark, Delaware
Carlyle Station 386,545 408 95.4%
Manassas, Virginia
Total 11,687,797 13,631
========== ======
<FN>
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(1) Represents total square footage of apartment units at each Property.
(2) Average occupancy is defined as gross potential rent less vacancy allowance
divided by gross potential rent for the period, expressed as a percentage.
</TABLE>
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MANAGEMENT OF THE PROPERTIES
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Each of the Properties is managed on a day-to-day basis by Town and Country,
which has managed the Original Properties since 1979. Town and Country became a
division of the Operating Partnership in connection with the Registrant's
initial public offering.
Prior to the Registrant's initial public offering, Mr. Lerner, Michael H.
Rosen and Jennifer C. Munch had served as President, Executive Vice President,
responsible for all day-to-day operations, and Controller, responsible for all
financial operations, respectively, of Town and Country since 1979. Mr.
Schulweis had been a Vice President of Town and Country since 1979. Prior to
1979, Mr. Rosen and Mrs. Munch had served in similar capacities for the
predecessor owners of the Original Properties since 1975 and 1968, respectively.
Town and Country emphasizes involved, hands-on management in the operation
of the Properties. Town and Country's two Senior Vice President/Regional
Managers generally visit each Property in their respective regions at least once
a week, while Mr. Rosen generally visits every Property at least monthly. The
Regional Managers supervise the Property Managers at each Property in their
region, who in turn supervise the Assistant Property Managers, leasing
representatives and office, maintenance, custodial and grounds personnel at each
Property. The performance of each Property is evaluated regularly by senior
management.
Since 1979, Town and Country has operated its own internal credit and
collection bureau, headquartered in suburban Baltimore with an additional office
in Pennsylvania. This unit investigates the credit and verifies the references
of all tenant applications to the Properties through various means, including
access to major national credit bureaus. The credit and collection bureau also
actively seeks to recover any delinquent rental payments from former tenants of
the Properties.
The Registrant's management manages all of the Properties and makes all
strategic decisions concerning, and retains final authority over, all operating
matters at the Properties. The Registrant's management continues to supervise
Town and Country, which performs day-to-day property management functions at the
Properties and will manage any additional properties purchased by the Registrant
in the future. These functions include rental management, data processing,
maintenance, accounting, marketing, promotion and security. A program of regular
preventive maintenance has been and will continue to be used by Town and
Country, together with renovations and refurbishing, to preserve and enhance the
value of the Registrant's portfolio.
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ITEM 3. LEGAL PROCEEDINGS
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There were no legal proceedings pending at December 31, 1996 or as of the
date of this report to which the Registrant, the Operating Partnership or any of
the Property Partnerships is a party or to which the Properties are subject that
are likely to have a material adverse impact on the Registrant's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The age (as of February 28, 1997), business experience during the past five
years and offices presently held by Messrs. Lerner and Schulweis are set forth
under the caption "Election of Trustees" in the Registrant's Proxy Statement
dated March 19, 1997, previously filed with the Commission (Exhibit 99), which
information is incorporated herein by reference. Such information in respect of
each of the Registrant's Executive Officers who are not Trustees is reported
below. The Registrant's Bylaws provide that officers shall hold office until
their successors are elected and qualified.
Michael H. Rosen: Age 53. Mr. Rosen has served as Executive Vice President
of the Registrant since the Registrant's initial public offering. Prior to such
time, he had served as Executive Vice President of Town and Country, responsible
for all day-to-day operations, since 1979.
Jennifer C. Munch: Age 49. Mrs. Munch has served as Vice
President--Treasurer of the Registrant and of Funding since the Registrant's and
Funding's initial public offerings. Prior to such time, she had served as
Controller of Town and Country, responsible for all financial operations, since
1979, Vice President--Controller since 1983, and Senior Vice President--
Controller since December 1991. Mrs. Munch is a Certified Public Accountant.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES OF BENEFICIAL INTEREST AND RELATED
- --------------------------------------------------------------------------------
SHAREHOLDER MATTERS
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Information in response to this Item is set forth on page 24 of the
Registrant's 1996 Annual Report to Shareholders (Exhibit 13), which information
is incorporated herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA
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Information in response to this item is set forth on page 20 of the
Registrant's 1996 Annual Report to Shareholders (Exhibit 13), which information
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Information in response to this Item is set forth on pages 21 through 23 of
the Registrant's 1996 Annual Report to Shareholders (Exhibit 13), which
information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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(A) FINANCIAL STATEMENTS
--------------------
The financial statements, together with the report thereon of Ernst & Young
LLP dated January 23, 1997, appearing on page 19 of the Registrant's 1996 Annual
Report to Shareholders (Exhibit 13), are incorporated herein by reference.
(B) SUPPLEMENTARY DATA
------------------
Information in response to this Item is set forth in the financial statement
schedules set forth on pages F-1 through F-3 of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------------------------------------------------------------
None.
PART III
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ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
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The information required in response to this Item in respect of Trustees is
set forth under the caption "Election of Trustees" in the Registrant's Proxy
Statement dated March 19, 1997, previously filed with the Commission (Exhibit
99), which information is incorporated herein by reference. The information
required by this Item in respect of the Registrant's Executive Officers who are
not Trustees is set forth on page 11 of this Form 10-K and is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
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Information in response to this Item is set forth under the caption
"Compensation of Executive Officers" in the Registrant's Proxy Statement dated
March 19, 1997, previously filed with the Commission (Exhibit 99), which
information is incorporated by
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reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Information in response to this Item is set forth under the caption
"Ownership of Common Shares of Beneficial Interest" in the Registrant's Proxy
Statement dated March 19, 1997, previously filed with the Commission (Exhibit
99), which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Information in response to this Item is set forth under the caption
"Election of Trustees--Certain Related Transactions; Compensation Committee
Interlocks and Insider Participation" in the Registrant's Proxy Statement dated
March 19, 1997, previously filed with the Commission (Exhibit 99), which
information is incorporated herein by reference.
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
PAGE
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<S> <C>
(1) Financial Statements:
--------------------
Report of Independent Auditors 19*
Consolidated Balance Sheets of
the Registrant at December 31, 1996
and at December 31, 1995 9*
Consolidated Statements of Operations of the Registrant for
the years ended December 31, 1996, December 31, 1995 and
December 31, 1994 10*
Consolidated Statements of Shareholders' Equity of the
Registrant for the years ended December 31, 1996, December 31,
1995 and December 31, 1994 11*
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Consolidated Statement of Cash
Flows of the Registrant for the
years ended December 31, 1996,
December 31, 1995 and
December 31, 1994 12*
Notes to Consolidated
Financial Statements of the
Registrant 13*
<FN>
*Incorporated by reference from the indicated page of the Registrant's
1996 Annual Report to Shareholders. With the exception of this information and
the information incorporated in Items 5, 6, 7 and 8, the 1996 Annual Report to
Shareholders is not deemed filed as part of this report.
</TABLE>
<TABLE>
<CAPTION>
(2) Financial Statement Schedules:
-----------------------------
<S> <C>
Schedule III--Real Estate and
Accumulated Depreciation F-1
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits
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Exhibit
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Number
- ------
3.1 First Amended and Restated Declaration of Trust
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-11 (No.
33-63150)).
3.2 By-Laws (incorporated by reference to Exhibit 3.2
to the Registrant's Registration Statement on Form
S-ll (No. 33-63150)).
10.1(a) Form of Limited Partnership Agreement of The TC
Operating Limited Partnership (incorporated by reference
to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-11 (No. 33-63150)).
10.1(b) Amended and Restated Agreement of Limited Partnership of The
TC Operating Limited Partnership dated as of January 26, 1995
(incorporated by reference to Exhibit 10.1(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).
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10.2 Purchase Agreement relating to University Heights
(incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-11 (No. 33-63150)).
10.3 Purchase Agreement relating to Barton's Crossing (incorporated
by reference to Exhibit 10.3 to the Registrant's Registration
Statement on Form S-11 (No. 33-63150)).
10.4 Purchase Agreement relating to McNair Farms (incorporated by
reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-11 (No. 33-63150)).
10.5 Purchase Agreement relating to Fox Run (incorporated by
reference to Exhibit 10.5 to the Registrant's Registration
Statement on Form S-11 (No. 33-63150)).
10.6 Purchase Agreement relating to Rolling Hills (incorporated by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-11 (No. 33-63150)).
10.7 Purchase Agreement relating to Stonegate Apartments
(incorporated by reference to Exhibit 10.7 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993).
10.8 Purchase Agreement related to Christina Mill Apartments
(incorporated by reference to Exhibit 10.8 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994).
10.9 Purchase Agreement related to Carlyle Station Apartments
(incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994).
10.10 Form of Purchase Agreement entered into between the Registrant
and Messrs. Lerner and Schulweis (incorporated by reference to
Exhibit 10.7 to the Registrant's Registration Statement on
Form S-11 (No. 33-63150)).
10.11* Registrant's Amended and Restated 1993 Long Term Incentive
Plan (incorporated by reference to Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993).
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10.12 Form of Indenture relating to the Secured Debt (incorporated
by reference to Exhibit 4.1 to Registration Statement on Form
S-11 (No. 33-63550) of The Town and Country Funding
Corporation).
10.13 Form of Mortgage entered into between each Property
Partnership and The Town and Country Funding Corporation
(incorporated by reference to Exhibit 10.3 to Registration
Statement on Form S-11 (No. 33-63550) of The Town and Country
Funding Corporation).
10.14 Form of Formation Agreement (incorporated by reference to
Exhibit 10.13 to the Registrant's Registration Statement on
Form S-11 (No. 33-63150)).
10.15 Form of Assignment and Assumption Agreements relating to the
Operating Partnership (incorporated by reference to Exhibit
10.15 to the Registrant's Registration Statement on Form S-11
(No. 33-63150)).
10.16(a) Financing Agreement between The Town and Country Trust, The TC
Operating Limited Partnership, The TC Property Company and The
First National Bank of Maryland dated August 16, 1995
(incorporated by reference to Exhibit 10.16(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.16(b) Form of Indemnity Deed of Trust, Assignment and Security
Agreement entered into by the Acquisition Property
Partnerships and The First National Bank of Maryland
(incorporated by reference to Exhibit 10.16(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
10.17(a) Financing Agreement between The TC-Stonegate Company, The
TC-Carlyle Station Company and The TC-Christina Mill Company
and The First National Bank of Maryland dated August 16, 1995
(incorporated by reference to Exhibit 10.17(a) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
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10.17(b) Form of Deed of Trust, Assignment and Security Agreement
entered into by the Acquisition Property Partnerships
and The First National Bank of Maryland (incorporated by
reference to Exhibit 10.17(b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995).
13 The Registrant's 1996 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
24 Powers of Attorney
27 Financial Data Schedule(1)
99 Notice of Annual Meeting and Proxy Statement dated March 19,
1997
*Compensation plan or arrangement required to be filed as an
exhibit hereto.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
Registrant's fiscal year ended December 31, 1996.
- ------------
(1) Filed only in electronic format pursuant to Item 601(b)(27) of
Regulation S-K.
-17-
<PAGE> 18
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE TOWN AND COUNTRY TRUST
By:/s/ Alfred Lerner
------------------------
Alfred Lerner,
Chairman of the Board
Dated: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Alfred Lerner Principal Executive March 26, 1997
- ---------------------- Officer and Trustee
Alfred Lerner
/s/ Harvey Schulweis Principal Financial March 26, 1997
- ---------------------- Officer and Trustee
Harvey Schulweis
/s/ Jennifer C. Munch Principal Accounting March 26, 1997
- ---------------------- Officer
Jennifer C. Munch
James H. Berick* Trustee
H. Grant Hathaway* Trustee
Milton A. Wolf* Trustee
*By: /s/ Alfred Lerner
-----------------------
Alfred Lerner,
Attorney-in-Fact
March 26, 1997
<FN>
*Powers of attorney authorizing Alfred Lerner to sign this annual report on Form
10-K on behalf of certain Trustees of the Registrant are being filed with the
Securities and Exchange Commission herewith (Exhibit 24).
</TABLE>
-18-
<PAGE> 19
Schedule III--Real Estate and Accumulated Depreciation
The Town and Country Trust
December 31, 1996
<TABLE>
<CAPTION>
SUBSEQUENT TO GROSS AMOUNT AT WHICH
INITIAL COST(c) ACQUISITION(d) CARRIED AT CLOSE OF PERIOD
------------------ ------------- -------------------------------
NON-RECOURSE BUILDINGS, BUILDINGS, BUILDINGS, ACCUMULATED
PROPERTY MORTGAGE EQUIPMENT & EQUIPMENT & EQUIPMENT & TOTAL DEPRECIATION DATE USEFUL
DESCRIPTION(a) DEBT (b) LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS (e) (f) (g) ACQUIRED LIFE
- ------------------ ------------ ---- ------------ ------------ ------- ------------ -------- ------------ -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MARYLAND
Foxhaven $ 8,397 $ 1,849 $ 11,929 $ 819 $ 1,849 $ 12,748 $ 14,597 $ 7,020 1993 (i) (h)
Gardenwood 11,080 - 17,182 848 - 18,030 18,030 9,436 1993 (i) (h)
West/Greensview/
West Commercial 32,688 8,824 37,783 2,005 8,824 39,788 48,612 20,069 1993 (i) (h)
Montgomery 5,058 1,505 6,889 342 1,505 7,231 8,736 3,532 1993 (i) (h)
Hollows 7,230 1,424 10,401 428 1,424 10,829 12,253 5,814 1993 (i) (h)
Rolling Road 8,491 - 13,376 761 - 14,137 14,137 7,319 1993 (i) (h)
South 6,602 1,317 10,097 523 1,317 10,620 11,937 5,823 1993 (i) (h)
Woodmoor 7,081 1,690 11,110 794 1,690 11,904 13,594 6,520 1993 (i) (h)
Hallfield Manor 1,535 320 2,240 124 320 2,364 2,684 1,326 1993 (i) (h)
Ridgeview 5,382 1,138 7,513 318 1,138 7,831 8,969 4,264 1993 (i) (h)
Charlesmont 10,292 2,049 13,972 759 2,049 14,731 16,780 7,680 1993 (i) (h)
East 8,692 1,795 10,549 716 1,795 11,265 13,060 5,442 1993 (i) (h)
Harford 7,398 1,474 10,511 491 1,474 11,002 12,476 6,274 1993 (i) (h)
Laurel 8,718 1,397 9,845 563 1,397 10,408 11,805 5,119 1993 (i) (h)
Montpelier 10,233 1,781 14,088 1,365 1,781 15,453 17,234 7,425 1993 (i) (h)
North 12,429 2,749 18,151 951 2,749 19,102 21,851 10,044 1993 (i) (h)
Northeast 14,456 3,136 19,944 835 3,136 20,779 23,915 10,876 1993 (i) (h)
Versailles 7,010 1,599 10,921 1,818 1,599 12,739 14,338 5,776 1993 (i) (h)
Fox Run - 2,498 11,412 191 2,498 11,603 14,101 1,876 1993 (h)
Stonegate - 2,887 13,261 135 2,887 13,396 16,283 1,240 1994 (h)
PENNYSLVANIA
Allentown 5,416 1,229 7,447 428 1,229 7,875 9,104 4,261 1993 (i) (h)
Harrisburg East 7,748 2,181 12,531 821 2,181 13,352 15,533 7,262 1993 (i) (h)
Emmaus 8,077 1,394 9,577 735 1,394 10,312 11,706 4,926 1993 (i) (h)
Hanover 3,837 590 4,946 628 590 5,574 6,164 3,007 1993 (i) (h)
Harrisburg 12,349 3,033 16,905 1,168 3,033 18,073 21,106 9,992 1993 (i) (h)
Lancaster East 5,432 812 8,249 650 812 8,899 9,711 4,484 1993 (i) (h)
Lancaster West 8,322 1,285 12,794 934 1,285 13,728 15,013 6,877 1993 (i) (h)
York 8,047 1,951 10,622 727 1,951 11,349 13,300 6,265 1993 (i) (h)
Rolling Hills - 1,282 5,842 171 1,282 6,013 7,295 1,020 1993 (h)
VIRGINIA
Barton's Crossing - 7,320 33,845 963 7,320 34,808 42,128 5,864 1993 (h)
The Glen - 1,157 5,269 160 1,157 5,429 6,586 922 1993 (h)
McNair Farms - 3,564 16,237 232 3,564 16,469 20,033 2,813 1993 (h)
University Heights - 5,789 26,371 179 5,789 26,550 32,339 4,545 1993 (h)
Carlyle Station - 4,259 19,610 272 4,259 19,882 24,141 1,740 1994 (h)
DELAWARE
Christina Mill - 2,288 10,454 81 2,288 10,535 12,823 952 1994 (h)
MISCELLANEOUS INVESTMENTS
- - 814 1,255 - 2,069 2,069 884 1993 (h)
--------- ------- -------- ------- ------- -------- ---------- --------
Total $ 232,000 $77,566 $462,687 $24,190 $77,566 $486,877 $ 564,443 $198,689
========= ======= ======== ======= ======= ======== ========== ========
</TABLE>
F-1
<PAGE> 20
Notes to Schedule III
The Town and Country Trust
(In thousands)
(a) All properties are garden apartment communities with the exception of one
commercial building included in the West/Greensview/West Commercial
Partnership.
(b) See description of mortgages payable in Note 5 of Notes to Consolidated
Financial Statements of the Company and Combined Financial Statements of
the Predecessor.
(c) Initial cost for properties originally acquired from the Predecessor (see
note (i) below) represents the historical cost as of August 23, 1993 plus
the acquisition of non-controlled interests in the Predecessor on August
23, 1993. The initial cost of all other property acquisitions represents
the cost to purchase the property at the date of acquisition.
(d) No carrying costs were incurred by any of the properties subsequent to
acquisition by The Town and Country Trust.
(e) The aggregate cost of land, buildings and equipment on a Federal Income Tax
basis is $443,435,027 at December 31, 1996.
<TABLE>
<CAPTION>
(f) Reconciliation of Real Estate Properties
-------------------------------------------------------
<S> <C>
Balance at January 1, 1994 $ 491,489
Acquisitions of new partnerships 53,259
Other additions, net of dispositions during 1994 6,595
-------------
Balance at December 31, 1994 551,343
Other additions, net of dispositions during 1995 6,757
-------------
Balance at December 31, 1995 558,100
Other additions, net of dispositions during 1996 6,343
=============
Balance at December 31, 1996 $ 564,443
=============
(g) Reconciliation of Accumulated Depreciation
--------------------------------------------------------
Balance at January 1, 1994 $ 127,124
1994 depreciation expense, net of retirements 23,380
-------------
Balance at December 31, 1994 150,504
1995 depreciation expense, net of retirements 24,047
-------------
Balance at December 31, 1995 174,551
1996 Depreciation expense, net of retirements 24,138
=============
Balance at December 31, 1996 $ 198,689
=============
</TABLE>
F-2
<PAGE> 21
Notes to Schedule III (continued)
The Town and Country Trust
(In thousands)
(h) Depreciation is computed based upon the following estimated lives:
<TABLE>
<CAPTION>
Assets acquired Assets acquired
prior to subsequent to
January 1, 1994 December 31, 1993
------------------------------------------------
<S> <C> <C>
Buildings 27.5 years 40 years
Building improvements 15 to 19 years 20 years
Furniture, fixtures and equipment 3 to 7 years 5 to 12 years
</TABLE>
(i) Denotes property originally purchased in 1979 by the Predecessor.
F-3
<PAGE> 1
Exhibit 13
T C
T [LOGO] 96
THE REGISTRANT'S 1996 ANNUAL REPORT TO SHAREHOLDERS
THE TOWN AND COUNTRY TRUST A REAL ESTATE INVESTMENT TRUST
ANNUAL 1996 REPORT
[OUTSIDE FRONT COVER]
<PAGE> 2
[Photo 1: Black and white photograph of stairway at The Village of McNair Farms
in Herndon, Virginia]
[INSIDE FRONT COVER]
<PAGE> 3
The Town and Country Trust is a leading owner-manager of multifamily residential
properties in the mid-Atlantic region, with a portfolio of 13,631 apartment
units in 35 communities in Maryland, Virginia, Pennsylvania And Delaware. A real
estate investment trust, The Town and Country Trust's shares are listed on the
New York Stock Exchange under the symbol TCT. [WATERMARK TEXT:96]
<PAGE> 4
<TABLE>
<CAPTION>
HIGHLIGHTS OF FINANCIAL RESULTS [WATERMARK TEXT:96]
1995 1996
<S> <C> <C> <C>
Funds from Operations (FFO)* $29,227,000 $30,547,000 (baseline $27,000,000)
FFO per share $ 1.63 $1.70 (baseline $1.50)
Earnings before interest $50,195,000 $50,739,000 (baseline $50,000,000)
Revenues $89,455,000 $91,163,000 (baseline $85,000,000)
* Starting January 1, 1996, the National Association of Real Estate Investment
Trusts (NAREIT) modified its definition of Funds from Operations, so that two
non-cash items--amortization of deferred financing costs and depreciation of
non-real estate assets--are no longer added back to net income in calculating
FFO. The Trust's annual amortization of deferred financing costs is
approximately $2,300,000 or $0.13 per share and these costs will be fully
amortized in August, 1998. FFO for 1995, originally reported as $1.77 per share,
has been restated.
</TABLE>
<PAGE> 5
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
In 1996, the Trust had another year of steady, modest growth in our financial
results, as shown in the highlights on the facing page. Here are some indicators
of the underlying strength of our business: Occupancy in our communities
remained at a healthy average of 94%, about the same as 1994 and 1995, as we
continue to enjoy one of the lowest resident turnover rates in the country. We
project that the revenue-enhancing upgrading and modernization program we
launched two years ago will continue to produce a return of about 25% on the
total expenditures incurred. In addition, interest expense for 1996 was reduced
by $677,000, in part as a result of the interest rate swap we executed in
January, 1996. We have kept the annual dividend rate at $1.60 by declaring a
dividend of $0.40 for the fourth quarter.
[photo 2: black and white photograph of entryway at Versailles-North
Charles in Towson, Maryland]
<PAGE> 6
- --------------------------------------------------------------------------------
The Trust's key strengths continue to be our properties themselves, our
management team and the markets in which we operate. The fundamentals to our
long-term success are keeping our residents happy, occupancy high, turnover low
and rents increasing. In 1996, we spent more than $6,300,000 on maintenance and
repairs and almost $4,000,000 for exterior painting, redecorating common areas
and the replacement of roofs, parking lots and appliances, and similar capital
expenditures. We also invested an additional $2,300,000 to upgrade and modernize
kitchens, bathrooms and amenities in approximately 1,000 units. To date, we have
spent almost $4,500,000 upgrading over 2,500 units in this program which is
directly resulting in rental increases. This kind of relentless attention to
detail and quality has built our reputation for consistently satisfying our
residents. It is the direct result of the talents and commitment of our senior
management, which has worked together as a team for nearly twenty years and has
infused our whole organization with a passion for service to our residents. The
attractions of the mid-Atlantic market that first brought us here are as solid
as ever, or better: economic stability, low unemployment, minimal new
multi-family residential development and resistance to the effects of corporate
downsizing. We are dedicated to managing our properties and finances so that
long-term values will be maximized for our fellow shareholders. We appreciate
your continued support.
/s/ Alfred Lerner /s/ Harvey Schulweis
- ------------------------------ -------------------------------
ALFRED LERNER HARVEY SCHULWEIS
Chairman and President
Chief Executive Officer
properties
[Photo 3: Circular black and white photograph of entryway at Versailles-North
Charles in Towson, Maryland.]
management
[Photo 4: Circular black and white photograph of three unidentified individuals
conversing.]
markets
[Photo 5: Circular graphic outline rendering of the Trust's geographic market
region.]
<PAGE> 7
Name Location Number of Units
- --------------------------------------------------------------------------------
MARYLAND
- --------
1 Fox Run Germantown 218
2 Stonegate Elkton 260
3 Town & Country Bowley's Quarters Baltimore 462
4 Town & Country Charlesmont Dundalk 565
5 Town & Country Cockeysville Cockeysville 540
6 Town & Country Foxhaven Baltimore 460
7 Town & Country Gardenwood Baltimore 492
8 Town & Country Hallfield Perry Hall 75
9 Town & Country Harford Carney 336
10 Town & Country Hollows Glen Burnie 336
11 Town & Country Montgomery Knolls Gaithersburg 210
12 Town & Country Ridgeview Rossville 257
13 Town & Country Rolling Road Baltimore 384
14 Town & Country Rossville Rossville 692
15 Town & Country Tall Oaks Laurel 352
16 Town & Country West/Greensview Ellicott City 1,350
17 Town & Country Willow Lake Laurel 456
18 Town & Country Woodhill Glen Burnie 334
19 Town & Country Woodmoor Baltimore 424
20 Versailles - North Charles Towson 210
[MAP DEPICTING THE TRUST'S GEOGRAPHIC MARKET REGION
AND THE LOCATION OF EACH OF ITS PROPERTIES.]
[Portfolio]
Name Location Number of Units
- --------------------------------------------------------------------------------
PENNSYLVANIA
- ------------
21 Colonial Crest Emmaus Emmaus 329
22 Hidden Village Allentown 264
23 Rolling Hills York 184
24 Town & Country Colonial Park Harrisburg 626
25 Town & Country Hanover Hanover 215
26 Town & Country Lancaster West Lancaster 413
27 Town & Country Lancaster East Lancaster 272
28 Town & Country Union Deposit Harrisburg 468
29 Town & Country York York 396
VIRGINIA
- --------
30 Barton's Crossing Alexandria 532
31 Carlyle Station Manassas 408
32 The Glen at Leesburg Leesburg 134
33 University Heights Ashburn 466
34 The Village at McNair Farms Herndon 283
DELAWARE
- --------
1 Christina Mill Newark 228
------
TOTAL UNITS .......................................... 13,631
<PAGE> 8
[photo 6: black and white photograph of entryway at
Versailles-North Charles in Towson, Maryland]
<PAGE> 9
[photo 7 (upper left quadrant): black and white photograph of
entryway at Fox Run in Germantown, Maryland]
[photo 8 (upper right quadrant): black and white photograph of swimming pool
and glass-enclosed patio at Barton's Crossing in Alexandria, Virginia]
[photo 9 (lower right quadrant): black and white photograph of swimming pool at
Barton's Crossing in Alexandria, Virginia]
[photo 10 (lower left quadrant): black and white photograph of apartment
building at University Heights in Ashburn, Virginia]
<PAGE> 10
[photo 11: black and white photograph of tree and
side of building at T & C Cockeysville, Maryland]
FINANCIAL REPORT
<PAGE> 11
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
December 31,
-----------------------
(in thousands) 1996 1995
- --------------------------------------------------------------------------------
ASSETS
- ------
Real estate assets:
<S> <C> <C>
Land $ 77,566 $ 77,566
Buildings and improvements 483,119 477,083
Other 3,758 3,451
--------- ---------
564,443 558,100
Less accumulated depreciation (198,689) (174,551)
--------- ---------
365,754 383,549
Cash and cash equivalents 1,725 1,313
Funds deposited with mortgagee 6,030 5,723
Restricted cash 1,005 1,035
Receivables 1,413 880
Prepaid expenses and other assets 3,857 4,188
Deferred financing costs, net of
allowance for amortization
(1996-$6,267; 1995-$4,101) 3,612 5,717
--------- ---------
Total assets $ 383,396 $ 402,405
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------
Mortgages payable $ 232,000 $ 232,000
Secured notes payable 58,409 56,809
Accrued interest 4,817 4,853
Accounts payable and other liabilities 4,552 2,881
Security deposits 1,630 1,667
Minority interest 11,243 14,294
--------- ---------
Total liabilities 312,651 312,504
Shareholders' equity:
Common shares of beneficial interest
($.01 par value), 500,000,000 shares
authorized 157 157
Additional paid-in capital 317,791 317,584
Accumulated deficit (245,391) (225,964)
Unearned compensation-restricted stock (1,812) (1,876)
--------- ---------
70,745 89,901
--------- ---------
Total liabilities and shareholders' equity $ 383,396 $ 402,405
========= =========
See accompanying notes to financial statements.
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
Year ended December 31,
-------------------------
(in thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------- ------- -------
<S> <C> <C> <C>
Revenues:
Rental $89,624 $88,000 $84,733
Other 1,539 1,455 1,344
------- ------- -------
91,163 89,455 86,077
Expenses:
Operating 19,407 18,342 17,788
Real estate taxes 6,969 7,181 6,985
Depreciation 24,282 24,147 23,399
Marketing and advertising 3,321 3,076 3,247
Repairs and maintenance 6,320 6,173 6,117
General and administrative 4,408 4,488 4,531
------- ------- -------
64,707 63,407 62,067
Interest expense 17,750 18,427 16,000
Interest expense related to
the amortization of deferred
financing costs 2,166 2,244 1,986
Retirement of unamortized deferred
financing costs -- 312 --
------- ------- -------
84,623 84,390 80,053
------- ------- -------
Income before minority interest 6,540 5,065 6,024
Income allocated to minority interest 895 695 826
------- ------- -------
Net income $ 5,645 $ 4,370 $ 5,198
======= ======= =======
Weighted average common shares outstanding 15,554 15,522 15,512
======= ======= =======
Net income per share outstanding $ .36 $ .28 $ .34
======= ======= =======
Dividends declared and paid per share outstanding $ 1.60 $ 1.60 $ 1.60
======= ======= =======
Tax treatment of dividends (unaudited):
Ordinary income $ 1.23 $ 1.06 $ 1.18
======= ======= =======
Return of capital $ .37 $ .54 $ .42
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
Common
Shares of Beneficial
Interest Additional
------------------- Paid-in Accumulated Unearned
(in thousands) Shares Amount Capital Deficit Compensation
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 15,512 $ 155 $ 315,712 $(185,714)
Net income 5,198
Additional costs of equity offering (189)
Dividends declared and paid ($1.60 per share) (24,819)
------ --------- --------- ---------
Balance at December 31, 1994 15,512 155 315,523 (205,335)
Net income 4,370
Common shares of beneficial interest
issued under Long Term Incentive Plan 150 2 2,061 $ (2,063)
Dividends declared and paid ($1.60 per share) (24,999)
Earned compensation under Long Term
Incentive Plan 187
------ --------- --------- --------- ---------
Balance at December 31, 1995 15,662 157 317,584 (225,964) (1,876)
Net income 5,645
Common shares of beneficial interest
issued under Long Term Incentive Plan 15 203 (203)
Dividends declared and paid ($1.60 per share) (25,072)
Earned compensation under Long Term
Incentive Plan 267
Share options exercised 1 4
------ --------- --------- --------- ---------
Balance at December 31, 1996 15,678 $ 157 $ 317,791 $(245,391) $ (1,812)
====== ========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------
(in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------ -------------- ----------------------
OPERATING ACTIVITIES
- --------------------
<S> <C> <C> <C>
Income before minority interest $ 6,540 $ 5,065 $ 6,024
Adjustments to reconcile income before minority interest to
net cash provided by operating activities:
Depreciation 24,282 24,147 23,399
Interest expense related to the amortization of
deferred financing costs 2,166 2,244 1,986
Retirement of unamortized deferred financing costs -- 312 --
Amortization of unearned compensation 267 187 --
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 30 15 (175)
(Increase) decrease in funds deposited with mortgagee (307) 531 2,541
(Increase) decrease in receivables, prepaid
expenses and other assets (292) 133 668
Increase (decrease) in accounts payable, other
liabilities, accrued interest and security deposits 1,598 (406) 1,243
-------- -------- --------
Net cash provided by operating activities 34,284 32,228 35,686
INVESTING ACTIVITIES
- --------------------
Additions of real estate assets, net of disposals (4,120) (4,127) (59,854)
Additions pursuant to value-added capital
improvements program (2,277) (2,654) --
-------- -------- --------
Net cash used in investing activities (6,397) (6,781) (59,854)
FINANCING ACTIVITIES
- --------------------
Proceeds from exercise of share options 4 -- --
Borrowings on notes payable 1,600 56,809 52,510
Payments on notes payable -- (52,510) --
Increase in deferred financing costs (61) (1,447) (747)
Additional costs of equity offering -- -- (220)
Dividends and distributions (29,018) (28,945) (28,765)
-------- -------- --------
Net cash (used in) provided by financing activities (27,475) (26,093) 22,778
-------- -------- --------
Increase (decrease) in cash and cash equivalents 412 (646) (1,390)
Cash and cash equivalents at beginning of year 1,313 1,959 3,349
-------- -------- --------
Cash and cash equivalents at end of year $ 1,725 $ 1,313 $ 1,959
======== ======== ========
Cash interest paid $ 17,982 $ 18,342 $ 15,530
======== ======== ========
See accompanying notes to financial statements.
</TABLE>
12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
ORGANIZATION The Town and Country Trust (the "Trust"), in conjunction with its
subsidiaries (collectively the "Company"), is a self-administered and
self-managed Real Estate Investment Trust organized to own, manage and acquire
multifamily residential properties. The Company was organized in Maryland on May
19, 1993 and commenced operations on August 23, 1993 upon completion of its
initial public offering of 15,511,765 common shares of beneficial interest.
Concurrent with the equity offering, The Town and Country Funding Corporation,
an affiliated special purpose corporation, acting as an agent for The TC
Property Partnerships, made a public offering of $232,000,000 of secured notes.
In conjunction with the consummation of the equity and debt offerings, a
series of transactions occurred: the Company acquired an 86% general partnership
interest in The TC Operating Limited Partnership (the "Operating Partnership");
the remaining 14% limited partnership interest in the Operating Partnership was
retained by the minority interest owners as consideration for their contribution
to the Operating Partnership of controlled interests in The Town and Country
Management Corporation and 26 property partnerships (the "TC Companies").
Certain previously non-controlled interests in the TC Companies were acquired by
the Company for a cash payment and the assumption of liabilities totaling
$161,156,000 and six previously non-controlled property partnerships were
acquired by the Operating Partnership for $120,094,000. The TC Companies, along
with the property partnerships acquired subsequent to the public offering,
combine to produce 35 property partnerships located in Maryland, Pennsylvania,
Virginia and Delaware, which are collectively referred to as The TC Property
Partnerships. All operating expenses of the Trust will be borne pro rata by the
general and limited partners of the Operating Partnership in proportion to their
interests in the properties.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company
include the accounts of the Trust and its subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
INCOME TAXES The Company has made an election to be taxed as a Real Estate
Investment Trust ("REIT") under Sections 856 through 860 of the Internal Revenue
Code. As a REIT, the Company generally will not be subject to Federal income tax
to the extent that it distributes at least 95% of its REIT taxable income to its
shareholders. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to Federal income tax (including any applicable
Alternative Minimum Tax) at regular corporate rates on its taxable income. Even
if the Company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property and to Federal income
and excise taxes on its undistributed income.
The Company makes a number of special allocations for tax purposes only. In
general, 100% of the interest deductions related to the $232,000,000 of secured
notes will be allocated to the Company and 85% of depreciation deductions
related to the properties securing the notes will be allocated to the minority
interest ownership.
INCOME RECOGNITION Revenues from rental property are recognized when due from
tenants. Leases are generally for one year or less.
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
REAL ESTATE AND DEPRECIATION Real estate assets are stated at the lower of net
realizable value or cost, net of accumulated depreciation. All costs related to
the improvement or replacement of fixed assets are capitalized. Maintenance and
repairs are charged to expense as incurred. Provision for depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, as follows:
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Buildings 40 years
Major Improvements 20 years
Furniture, Fixtures and Equipment 5 to 12 years
</TABLE>
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, which requires impairment losses to be
recorded on long-lived assets
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The Company adopted this new standard during the
quarter ended December 31, 1995. The adoption had no impact on the financial
statements.
DEFERRED FINANCING COSTS Deferred financing costs consist of certain fees
incurred in the financing of indebtedness which are being amortized to interest
expense using the straight-line method over the term of the related debt.
INTEREST RATE RISK MANAGEMENT The Company uses an interest rate protection
agreement and interest rate swap agreements to reduce the potential impact of
increases in interest rates relating to the floating rate portion of the
mortgages payable. Unamortized premiums paid for these agreements of $326,000
and $459,000 as of December 31, 1996 and 1995, respectively, are included in
deferred financing costs in the Company's balance sheet. Amounts received under
these agreements are credited as a reduction of interest expense. Any amounts
paid under the interest rate swap agreement would be recorded as an increase to
interest expense. In the event of a termination of the interest rate agreements,
any gain or loss would be deferred in other liabilities and amortized over the
remaining term of the original agreements as a component of interest expense.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions, such as depreciable lives of assets, that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
2. RESTRICTED CASH
- ------------------
Pursuant to Maryland and Delaware state law, certificates of deposit are
maintained to cover the aggregate amount of tenant security deposits retained by
the properties in those states. At December 31, 1996, and 1995, the amount of
the certificates of deposit, with a maturity of three months or less, was
$1,005,000 and $1,035,000, respectively.
3. FUNDS DEPOSITED WITH MORTGAGEE
- ---------------------------------
The Company is required to maintain a payment account and a reserve account with
the properties' mortgage holder. The payment account is required to fund
interest payments as they become due and the reserve account is required to fund
a minimum level of property repairs and maintenance.
4. LONG-TERM BORROWINGS
- -----------------------
Concurrent with the offering of common shares of beneficial interest, The TC
Property Partnerships borrowed $185,600,000 of fixed rate notes and $46,400,000
of floating rate notes from a special-purpose corporation, The Town and Country
Funding Corporation. The notes are secured by cross-collateralized first
mortgages on the rental properties of and assignments of related rents of The TC
Property Partnerships owned as of August 23, 1993. The notes mature on August
17, 1998, and require interest only payments until maturity. The maturity date
may be extended to August 15, 2000, at the option of The Town and Country
Funding Corporation. The fixed rate notes accrue interest at 5.85%, payable
semi-annually, and the floating rate notes accrue interest at the three month
London Interbank Offered Rate (LIBOR) plus .60% (6.10% and 6.48% at December 31,
1996 and 1995, respectively), payable quarterly.
In 1993, the Company purchased an interest rate protection contract
effective through the maturity of the notes which limits the maximum floating
interest rate to 8.60%. The protection agreement entitles the Company to receive
from the counterparty, on a quarterly basis, the amounts, if any, by which the
Company's interest payments on its $46,400,000 floating rate notes exceed 8.60%.
During the year ended December 31, 1995, the Company entered into a secured
financing agreement pursuant to which it is permitted to borrow a maximum of
$62,000,000. Amounts outstanding under this loan facility consist of two
separate components bearing interest at 1.45% and 2.13% over LIBOR averaging
7.10% at December 31, 1996. As of December 31, 1996 the Company has drawn
$58,409,000 on this loan facility. The balance of the proceeds will be
available, in part, to fund the
14
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Company's ongoing program of value-added capital improvements. The loan, which
matures on August 17, 1998, is secured by liens on three of the Company's
properties.
Deferred financing costs of $1,311,000 were incurred in connection with
obtaining the secured financing arrangement. Additionally, $136,000 of deferred
financing costs related to the revolving bank loan were incurred during the year
ended December 31, 1995.
In order to reduce its exposure to interest rate fluctuations, on January
2, 1996, the Company entered into a series of interest rate swap agreements with
a bank with a total notional amount of $103,100,000. The swap agreements
effectively fix the interest rate on its floating rate indebtedness to a blended
rate of 6.5%. The net interest differential between the fixed rate and the
floating rate (paid by the counterparty) is reported as a component of interest
expense. The swap agreements expire concurrently with the floating rate debt
maturities on August 17, 1998.
The Company is exposed to additional interest costs in the event of
nonperformance by the counterparties to its interest rate protection agreement
and swap agreements only to the extent of the stated interest payments under the
variable rate long-term borrowing arrangements. The Company anticipates,
however, that the counterparties will be able to fully satisfy their obligations
under the contracts. The Company does not obtain collateral or other security to
support the financial instruments subject to credit risk but monitors the credit
standing of the counterparties.
5. MINORITY INTEREST
- --------------------
In conjunction with the formation of the Company and its majority-owned
Operating Partnership, persons contributing interests in properties to the
Operating Partnership have received limited partnership interests in the
Operating Partnership. The aggregate outstanding limited partnership interests
are convertible into common shares of the Company, and the interests have the
same economic characteristics as 2,466,535 common shares inasmuch as they share
proportionally in the net income or loss and any distributions of the Operating
Partnership.
Minority interest in the accompanying consolidated financial statements
relates to such limited partnership interests.
6. EMPLOYEE BENEFIT PLANS
- -------------------------
SHARE OPTION PLAN The Company has established a long-term incentive plan for the
purpose of attracting and retaining executive officers, other key employees and
non-employee trustees. The plan provides for the granting of Incentive Share
Options and Non-qualified Share Options to purchase up to 750,000 shares of the
Company's common shares at a price not less than the fair market value at the
date the options are granted. The Company has elected to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25") and related Interpretations in accounting for its employee stock options as
permitted under FASB Statement No. 123, Accounting for Stock-Based Compensation,
("Statement 123"). Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
A majority of the $22.00 options initially granted at the formation of the
Company were cancelled and reissued at an exercise price of $14.75 during the
year ended December 31, 1994. Options generally become exercisable in equal
installments over a three-year period, commencing with the first anniversary of
the date of grant. All options expire ten years from the date of grant. During
the year ended December 31, 1996, 6,000 options were granted at an exercise
price of $13.50.
An additional 277,000 and 278,500 common shares have been authorized for
issuance in future grants of options under the plan as of December 31, 1996 and
1995, respectively. The option price of future grants may not be less than the
fair market value of the shares on the date of grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
interest rates of 5.4% and 7.7%; dividend yields of 11.0% and 11.8%; volatility
factor of the expected market price of the Company's common stock of .18; and a
weighted-average expected life of the options of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------- --------------
<S> <C> <C>
Pro forma net income $ 5,598 $4,324
Pro forma net income per share $ .36 $ .28
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
Details of share options are as follows:
<TABLE>
<CAPTION>
Number of shares
--------------------------- Weighted
Incentive Non-qualified Option Average
Options Options Price Exercise Price
- ---------------------------------------------------------- ------ --------- ------------ --------------
<S> <C> <C> <C> <C>
Shares under option at January 1, 1994 192,580 136,920 $22.00 $ 22.00
Granted 190,580 136,920 $14.75-20.00 $14.875
Exercised -- -- -- --
Forfeited and cancelled (192,580) (130,920) $22.00 $ 22.00
--------- --------
Shares under option at December 31, 1994 190,580 142,920 $14.75-22.00 $ 15.00
Granted 108,189 39,811 $14.00-14.125 $ 14.00
Exercised -- -- -- --
Forfeited (10,000) -- $14.00-14.75 $ 14.50
--------- --------
Shares under option at December 31, 1995 288,769 182,731 $14.00-22.00 $ 14.75
--------- --------
Granted -- 6,000 $13.50 $ 13.50
Exercised (300) -- $14.00 $ 14.00
Forfeited (4,500) -- $14.00-14.75 $ 14.25
--------- --------
Shares under option at December 31, 1996 283,969 188,731 $13.50-22.00 $ 14.75
======= =======
Shares exercisable at December 31, 1994 -- 12,000 $20.00-22.00 $ 21.00
======= =======
Shares exercisable at December 31, 1995 61,360 61,640 $14.75-22.00 $ 15.25
======= =======
Shares exercisable at December 31, 1996 155,450 122,550 $13.50-22.00 $14.875
======= =======
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1996 and 1995 was $.34 and $.66, respectively. The weighted average
remaining contractual life of options granted is 7.9 years.
PENSION PLAN The Company maintains a non-contributory, defined contribution plan
for the benefit of employees. The plan covers all employees who are twenty and
one-half years old with six months or more service. Employees qualify for
benefits upon reaching the age of sixty-five and early retirees qualify provided
they have reached the age of fifty-five and have completed ten years of service.
After three years of service, employees become 20% vested in employer
contributions which are based on current compensation levels. From the fourth
through the seventh year, vesting increases until full vesting occurs. The
Company expensed $195,000, $239,000, and $227,000 in contributions to the plan
for the years ended December 31, 1996, 1995, and 1994, respectively.
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESTRICTED STOCK On April 10, 1995, the Company granted an aggregate of 150,000
restricted Common Shares to certain officers pursuant to its Amended and
Restated 1993 Long-Term Incentive Plan. On July 25, 1996, the Company granted an
additional 15,625 shares to an officer. The officers become fully vested in the
shares upon retirement from the Company. Should such officers leave the Company
prior to retirement, the shares revert back to the Company. The market value of
the shares awarded, $2,266,000, has been recorded as unearned
compensation-restricted stock and is shown as a separate component of
shareholders' equity. Unearned compensation is being amortized into expense over
the vesting period. For the years ended December 31, 1996 and 1995, the
amortization amounted to $267,000 and $187,000 respectively.
SUPPLEMENTAL EMPLOYEES RETIREMENT PLAN The Company has established a
split-dollar life insurance plan for certain officers pursuant to its Amended
and Restated 1993 Long-Term Incentive Plan. The Company advances the premiums on
life insurance policies for these officers. The policies are assigned to the
Company. In the event of retirement or death, the Company will be repaid the
aggregate amount of premiums paid from the cash surrender value at the time the
benefits are paid. The remaining cash surrender value is paid to the employee or
beneficiary. During the years ended December 31, 1996 and 1995, the cost to the
Company, representing the excess of premiums paid over the increase in cash
surrender values, was $79,000 and $203,000 respectively. The cash surrender
values of the policies are recognized as an asset to the Company.
7. LEASES
- ---------
The Company leases certain office facilities and equipment under noncancellable
operating leases. Future minimum rental commitments under noncancellable leases
with remaining terms in excess of one year are as follows at December 31, 1996:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------
<S> <C>
1997 $ 366
1998 385
1999 391
2000 410
After 2000 1,566
------
Total lease commitments $3,118
======
</TABLE>
Total rent expense for the years ended December 31, 1996, 1995, and 1994, was
approximately $366,000, $364,000, and $250,000, respectively.
8. RELATED PARTY TRANSACTIONS
- -----------------------------
At December 31, 1996 and 1995, the Company had an unsecured loan to an officer,
the balance of which was $340,000. $300,000 of the loan balance bears an
interest rate comparable to the rate earned on the Company's invested funds. The
remaining portion of the loan is non-interest bearing.
A Trustee of the Company is chairman of a law firm which is general counsel
to the Company. A partnership which was owned by the owners of the TC Companies,
including the Company's chairman and its president, provided cable television
service to residents in certain of the Company's communities, at no monetary
benefit to the Company, until August 1995.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------
The following table presents the carrying amounts and estimated fair values of
the Company's financial instruments as of December 31, 1996 and 1995. FASB
Statement No. 107, Disclosures about Fair Value of Financial Instruments,
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
December 31, 1996 December 31, 1995
-------------------------- ---------------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets
Deferred financing costs
(interest rate protection and swap agreements) $ 326 $ 1,168 $ 459 $ 207
Financial liabilities
Mortgages payable
Fixed rate notes $185,600 $181,220 $185,600 $184,116
Floating rate notes 46,400 46,400 46,400 46,400
Notes payable 58,409 58,409 56,809 56,809
</TABLE>
The carrying amounts shown in the table are included in the balance sheet under
the indicated captions. The following methods and assumptions were used to
estimate the fair values of each class of financial instruments:
Deferred financing costs: The amounts reported relate to the interest
protection agreement and the interest rate swap agreements. The carrying amount
is comprised of the unamortized premiums paid for these agreements. The fair
value represents what the Company would pay for similar agreements at December
31, 1996 based upon quotes from the agreements' counterparties.
Mortgages Payable: The fair value of the fixed rate portion of the
Company's mortgages payable is estimated by discounting expected cash flows
based on the Company's incremental borrowing rate for similar types of borrowing
arrangements. The floating rate portion of the Company's mortgages payable
approximates market.
Notes Payable: The notes payable are floating rate indebtedness and
therefore approximate fair value.
10. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
- ---------------------------------------------
The following is a summary of quarterly results of operations for the years
ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------------------------
(in thousands, except per share data) March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------------------------------
1996
- ----
<S> <C> <C> <C> <C>
Net revenues $22,381 $ 22,816 $23,053 $22,913
Income from property operations 5,906 6,497 6,657 7,396
Net income 796 1,326 1,448 2,075
Net income per share .05 .09 .09 .13
1995
- ----
Net revenues $22,040 $22,333 $22,619 $22,463
Income from property operations 6,065 6,507 6,487 6,989
Net income 750 1,089 896 1,635
Net income per share .05 .07 .06 .10
</TABLE>
11. SUBSEQUENT EVENT
- --------------------
On January 23, 1997, the Company's Board of Trustees declared a dividend for the
quarter ended December 31, 1996 of $.40 per share, aggregating $6,271,076.
Concurrent with the payment of the dividend, a $986,614 limited partnership
ownership distribution will be made to the minority interest holders. The
dividend and distribution will be paid on March 10, 1997 to holders of record on
February 14, 1997.
18
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
To The Board of Trustees and Shareholders
The Town and Country Trust
We have audited the accompanying consolidated balance sheets of The Town and
Country Trust and subsidiaries(the "Company") as of December 31, 1996, and 1995,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Town and
Country Trust and subsidiaries at December 31, 1996, and 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 23, 1997
19
<PAGE> 22
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Town and Country Trust The TC Companies
-------------------------------------------------------------------------
August 23, January 1,
1993 to 1993 to Year ended
Year Ended December 31, December 31, August 22, December 31,
(in thousands, except per share data) 1996 1995 1994 1993 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
- --------------
Revenue $ 91,163 $ 89,455 $ 86,077 $ 28,239 $ 39,507 $ 62,813
Other operating-related expenses 36,017 34,772 34,137 10,834 16,818 24,467
Depreciation 24,282 24,147 23,399 7,675 6,741 9,801
General and administrative expenses 4,408 4,488 4,531 1,268 1,338 2,005
Management expense -- -- -- -- 638 958
-------- -------- -------- -------- -------- --------
Income from operations 26,456 26,048 24,010 8,462 13,972 25,582
Interest expense 17,750 18,427 16,000 4,616 17,672 28,762
Interest expense related to the
amortization of deferred financing costs 2,166 2,556 1,986 558 742 1,109
-------- -------- -------- -------- -------- --------
Income (loss) before minority interest 6,540 5,065 6,024 3,288 (4,442) (4,289)
Income allocated to minority interest 895 695 826 451 -- --
-------- -------- -------- -------- -------- --------
Net income (loss) $ 5,645 $ 4,370 $ 5,198 $ 2,837 $ (4,442) $ (4,289)
======== ======== ======== ======== ======== ========
Net income per share $ .36 $ .28 $ .34 $ .18
======== ======== ======== ========
Dividends declared per share $ 1.60 $ 1.60 $ 1.60 $ .17
======== ======== ======== ========
Funds from operations before
minority interest $ 30,547 $ 29,277 $ 29,271 $ 10,920
Funds from operations applicable
to the Trust's shareholders $ 26,366 $ 25,263 $ 25,255 $ 9,422
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
The Town and Country Trust The TC Companies
---------------------------------------------- ----------------
(in thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA AT YEAR-END
- ------------------------------
<S> <C> <C> <C> <C> <C>
Real estate assets, before
accumulated depreciation $564,443 $558,100 $551,343 $491,489 $206,362
Net real estate assets 365,754 383,549 400,839 364,365 90,510
Total assets 383,396 402,405 422,205 391,413 101,176
Total mortgages payable 232,000 232,000 232,000 232,000 375,000
Total notes payable 58,409 56,809 52,510 - -
Shareholders' equity (owners' deficit) 70,745 89,901 110,343 130,153 (279,631)
Minority interest 11,243 14,294 17,545 20,696 -
</TABLE>
Note: Financial data has been presented for both The TC Companies, which
consisted principally of the original 26 property partnerships, and The Town and
Country Trust. All funds from operations information has been presented under
the 1995 modified NAREIT definition.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OVERVIEW
- --------
The following discussion is based primarily on the consolidated financial
statements of The Town and Country Trust and its subsidiaries (the "Company") as
of December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995
and 1994. This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto.
On August 23, 1993, the Company completed its initial public offering of
15,511,765 common shares of beneficial interest. The Town and Country Funding
Corporation, a special purpose corporation affiliated with the Company,
concurrently offered $232,000,000 of secured notes to the public. Upon
consummation of these offerings, the Company acquired a majority ownership
interest in The TC Operating Limited Partnership, the twenty-six original
property partnerships and six additional property partnerships.
The Company believes that funds from operations provides an indicator of
its financial performance. Historically, funds from operations has been defined
as net income (loss) excluding adjustments for unconsolidated partnerships and
joint ventures as well as gains (losses) from debt restructuring and sales of
property, plus depreciation and amortization. During 1995, the National
Association of Real Estate Investment Trusts (NAREIT) recommended a modification
to the definition of funds from operations. The modified definition continues to
recommend that depreciation of real property be added back to net income but
excludes certain items, including amortization of deferred financing costs and
depreciation of company office improvements. The Company has adopted the new
definition in the presentation of 1996 operating results and has modified prior
years' funds from operations calculations to conform with the new definition.
Funds from operations is affected by the financial performance of the properties
and the capital structure of the Company. Funds from operations does not
represent cash flow from operations as defined by generally accepted accounting
principles and is not necessarily indicative of cash available to fund all cash
flow needs. Funds from operations should not be considered as an alternative to
net income as an indicator of operating performance or as an alternative to cash
flow as a measure of liquidity.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Revenues
for the year ended December 31, 1996 were $91,163,000, compared to $89,455,000
for the year ended December 31, 1995. This increase of $1,708,000, or 1.9%, was
due to increased rental rates and the impact of revenue-enhancing capital
improvements. Additionally, during the year ended December 31, 1996, management
has renegotiated its laundry contract at more favorable terms which will be
beneficial to total revenues over the life of the contract. Occupancy for the
year ended December 31, 1996 remained strong at 94%, consistent with the year
ended December 31, 1995. Funds from operations, using the modified NAREIT
definition, increased to $30,547,000 for the year ended December 31, 1996 from
$29,277,000 for the year ended December 31, 1995.
Total expenses, excluding depreciation and interest, were $40,425,000 for
the year ended December 31, 1996, compared to $39,260,000 for the year ended
December 31, 1995, an increase of $1,165,000. Operating expenses increased by
$1,065,000, of which approximately $500,000 is attributable to the unusually
severe winter weather conditions in the Company's operating region during the
first quarter of 1996. The costs associated with the severe winter weather
conditions were in part controlled by management's successful negotiations for
fixed rate prices for utilities such as heating fuel. All other expenses, except
depreciation, increased by only $100,000, in the aggregate, as a result of
management's successful efforts to control costs.
Interest expense for the year ended December 31, 1996 decreased by $677,000
from the expense for the same period in 1995 due to decreases in the interest
rate on the Company's floating rate debt. On January 2, 1996, the Company
entered
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
into an interest rate swap agreement which has the effect of fixing the interest
rate on its floating rate indebtedness at a blended rate of 6.5% until maturity
on August 17, 1998, contributing to the interest expense savings.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenues
for the year ended December 31, 1995 were $89,455,000, compared to $86,077,000
for the year ended December 31, 1994. This increase of $3,378,000, or 3.9%, was
due to increased rental rates, the inclusion of a full year's revenue for
properties acquired during the first half of 1994 and the impact of revenue
enhancing improvements. Occupancy for the year ended December 31, 1995 remained
strong at 94%, which is the same level as the year ended December 31, 1994.
Funds from operations using the modified NAREIT definition increased to
$29,277,000 for the year ended December 31, 1995 from $29,271,000 for the year
ended December 31, 1994.
Management continued to exercise cost control during the year ended
December 31, 1995. As a result, total expenses, excluding depreciation and
interest, as a percentage of net revenue decreased to 43.9% for the year ended
December 31, 1995 from 44.9% for the year ended December 31, 1994. Operating
expenses, marketing and advertising, and repairs and maintenance increased by
only $439,000, or 1.6%, to $27,591,000 for the year ended December 31, 1995
compared to $27,152,000 for 1994, despite the acquisition of the new properties.
Real estate taxes increased by $196,000, or 2.8% to $7,181,000 for the year
ended December 31, 1995 compared to $6,985,000 for the year ended December 31,
1994 due primarily to the acquisition of the new properties. Depreciation
increased by $748,000 for the year ended December 31, 1995 over the year ended
December 31, 1994 due primarily to the acquisition of new properties.
Interest expense for the year ended December 31, 1995 increased by
$2,427,000 over the expense for the same period in 1994 due principally to
significant increases in the base rate (LIBOR) upon which interest on the
Company's floating rate debt is determined over the rates in effect during the
same periods of the prior year and to the increased level of debt related to the
acquisition of additional properties.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Operating activities provided unrestricted cash for the year ended December 31,
1996, of $34,284,000, of which $29,018,000 was paid out in dividends and
distributions.
During the year ended December 31, 1995, the Company entered into a secured
financing agreement ("SFA") pursuant to which it is permitted to borrow a
maximum of $62,000,000. As of December 31, 1996 the Company had drawn
$58,409,000 under the SFA. The balance of the proceeds will be available, in
part, to fund the Company's ongoing program of value-added capital improvements.
The SFA matures on August 17, 1998 and is secured by liens on three of the
Company's properties.
In 1995, the Company commenced a multi-year program that provides for
approximately $6,000,000 in revenue-enhancing capital improvements to certain
properties. The improvements include the modernization of kitchens and bathrooms
as well as the initial installation of washers, dryers and carpeting within
certain apartment units. $4,472,000 in costs have been incurred related to this
program from its inception through December 31, 1996. Funding for these
revenue-enhancing improvements is provided through internally-generated funds
and the SFA.
As a result of the public offering by The Town and Country Funding
Corporation of $232,000,000 of secured notes, the Company has mortgage
indebtedness outstanding of $185,600,000 at a fixed rate of 5.85% and
$46,400,000 of floating rate mortgage indebtedness, all secured by the
twenty-six original properties and the six properties acquired coincident with
the Company's initial public offering. All such mortgage indebtedness matures in
August 1998, subject to a two
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
year extension at the option of The Town and Country Funding Corporation. The
Company currently intends to refinance such mortgage indebtedness, at its
original maturity, with not less than $232,000,000 of indebtedness.
On January 2, 1996, the Company entered into an interest rate swap
agreement which has the effect of fixing the interest rate on its floating rate
indebtedness (including both the $46,400,000 of floating rate mortgage
indebtedness and $56,700,000 of the floating notes payable) at a blended rate of
6.5%. The effect of the swap for the year ended December 31, 1996 was a
reduction of interest expense of $156,000.
Rental income from the properties is received on a monthly basis. All cash
accumulated for the payment of quarterly dividends is invested in short-term
instruments. The Company expects that adequate cash will be available to fund
its operating and administrative expenses, capital expenditures, debt service
obligations and payments of dividends in the foreseeable future.
INFLATION
- ---------
Substantially all of the leases of the properties are for a term of one year or
less, which enables the Company to seek increased rents upon renewal or
reletting of apartment units. Such short-term leases minimize the risk of the
adverse effects of inflation; however, as a general rule, such leases permit
tenants to leave at the end of the lease term without penalty.
SAFE HARBOR STATEMENT
- ---------------------
With the exception of historical information, the matters discussed in this
Annual Report to Shareholders are forward-looking statements that involve risks
and uncertainties and actual results could differ materially from those
discussed. Certain statements herein and in future filings by the Trust with the
Securities and Exchange Commission and in written and oral statements made by or
with the approval of any authorized executive officer of the Trust constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Trust
intends that such forward-looking statements be subject to the safe harbors
created by such Acts. The words and phrases "looking ahead," "we are confident,"
"should be," "will be," "predicted," "believe," "expect," "anticipate" and
similar expressions identify forward-looking statements. These forward-looking
statements reflect the Trust's current views in respect of future events and
financial performance, but are subject to many uncertainties and factors
relating to the Trust's operations and business environment which may cause the
actual results of the Trust to differ materially from any future results
expressed or implied by such forward-looking statements. Examples of such
uncertainties include, but are not limited to, the Trust's ability to refinance
its indebtedness or the terms and conditions on which the Trust is able to
refinance its indebtedness; interest rate fluctuations; competition for tenants
and acquisitions from others, many of whom may have greater financial resources
than the Trust; changes in rental rates which may be charged by the Trust in
response to market rental rate changes or otherwise; changes in federal income
tax laws and regulations; any changes in the Trust's capacity to acquire
additional apartment properties and any changes in the Trust's financial
condition or operating results due to an acquisition of additional apartment
properties; unanticipated increases in operating expenses due to factors such as
casualties to the Trust's apartment properties or adverse weather conditions in
the geographic locations of the Trust's apartment properties; and local economic
and business conditions, including, without limitation, conditions which may
affect public securities markets generally, the real estate investment trust
industry, or the markets in which the Trust's apartment properties are located.
The Trust undertakes no obligation to update publicly or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
23
<PAGE> 26
INVESTOR INFORMATION THE TOWN AND COUNTRY TRUST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
- -----------------
Alfred Lerner
Chairman and
Chief Executive Officer
Harvey Schulweis
President
James H. Berick, Esq.
Chairman,
Berick, Pearlman & Mills Co., LPA
H. Grant Hathaway
Retired Vice Chairman,
MNC Financial Inc.
and Maryland National Bank
Dr. Milton A. Wolf
United States Ambassador, Retired;
Chairman, Milton A. Wolf Investors;
Chairman, Zehman Wolf Management
EXECUTIVE OFFICERS
- ------------------
Alfred Lerner
Chairman and
Chief Executive Officer
Harvey Schulweis
President
Michael H. Rosen
Executive Vice President
Jennifer C. Munch
Vice President and Treasurer
CORPORATE HEADQUARTERS
- ----------------------
The Town and Country Trust
100 South Charles Street
Baltimore, Maryland 21201
Telephone: 410.539.7600
WEBSITE ADDRESS
- ---------------
www.tctrust.com
GENERAL COUNSEL
- ---------------
Berick, Pearlman & Mills Co., LPA
Cleveland, Ohio 44114
INDEPENDENT AUDITORS
- --------------------
Ernst & Young LLP
Baltimore, Maryland 21201
TRANSFER AGENT
- --------------
National City Bank
Cleveland, Ohio 44114
ANNUAL MEETING
- --------------
The annual meeting will be held at the Trust's offices, 100 South Charles
Street, Baltimore, Maryland, on May 1, 1997 at 11:00 a.m.
STOCK EXCHANGE LISTING
- ----------------------
New York Stock Exchange
Symbol: TCT
COMMON STOCK MARKET PRICES AND DIVIDENDS
- ----------------------------------------
<TABLE>
<CAPTION>
Sales Price Cash
----------- Dividends
Quarter Ended High Low Declared
------------- ---- --- ---------
<S> <C> <C> <C> <C> <C>
March 31, 1995 $14-5/8 $13-1/4 $.40
June 30, 1995 $15-1/8 $13-3/8 $.40
September 30, 1995 $15-1/8 $12-1/2 $.40
December 31, 1995 $13-5/8 $12-1/8 $.40
March 31, 1996 $15-1/8 $13 $.40
June 30, 1996 $14-3/8 $12-3/4 $.40
September 30, 1996 $14-7/8 $12-7/8 $.40
December 31, 1996 $14-7/8 $14 $.40
</TABLE>
On January 23, 1997, a cash dividend of $.40 per share was declared, payable
March 10, 1997, to shareholders of record as of February 14, 1997.
At December 31, 1996, the approximate number of record holders of the Trust's
shares was 492. This does not include beneficial owners for whom Cede & Co. or
others act as nominee.
FORM 10-K
- ---------
The Trust will be pleased to provide, without charge, a copy of its 1996 Annual
Report on Form 10-K, filed with the Securities and Exchange Commission, to any
shareholder upon written request to Harvey Schulweis, President, The Town and
Country Trust, 100 South Charles Street, Baltimore, MD 21201.
24
<PAGE> 27
[photo 12: black and white photograph of apartment buildings at Stonegate
in Elkton, Maryland]
[INSIDE BACK COVER]
<PAGE> 1
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION
NAME OF INCORPORATION
- ---- ----------------
The Town and Country Holding Corporation Delaware
The Town and Country Oriole Corporation Delaware
The Town and Country Holding Corporation II Delaware
PARTNERSHIPS OF WHICH THE REGISTRANT, DIRECTLY OR
INDIRECTLY, IS A GENERAL PARTNER
JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------
The TC Operating Limited Partnership Maryland
The TC Property Company Maryland
The TC Property Company II Maryland
The TC-Hallfield Company Maryland
The TC-Ridgeview Company Maryland
The TC-East Company Maryland
The TC-Harford Company Maryland
The TC-North Company Maryland
The TC-Northeast Company Maryland
The TC-Versailles Company Maryland
The TC-Charlesmont Company Maryland
The TC-Hollows Company Maryland
The TC-Laurel Company Maryland
The TC-Montgomery Company Maryland
The TC-Montpelier Company Maryland
The TC-South Company Maryland
The TC-Foxhaven Company Maryland
The TC-Gardenwood Company Maryland
The TC-West/Greensview Company Maryland
The TC-Rolling Road Company Maryland
The TC-Woodmoor Company Maryland
The TC-Allentown Company Maryland
The TC-Harrisburg East Company Maryland
The TC-Emmaus Company Maryland
The TC-Hanover Company Maryland
The TC-Harrisburg Company Maryland
The TC-Lancaster East Company Maryland
The TC-Lancaster West Company Maryland
The TC-York Company Maryland
The TC-University Heights Company Maryland
The TC-Barton's Crossing Company Maryland
The TC-Glen Company Maryland
<PAGE> 2
JURISDICTION
NAME OF ORGANIZATION
- ---- ---------------
The TC-Fox Run Company Maryland
The TC-McNair Farms Company Maryland
The TC-Rolling Hills Company Maryland
The TC-Stonegate Company Maryland
The TC-Christina Mill Company Maryland
The TC-Carlyle Station Company Maryland
-2-
<PAGE> 1
EXHBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Town and Country Trust of our report dated January 23, 1997, included in
the 1996 Annual Report to Shareholders of The Town and Country Trust.
Our audits also include the financial statement schedule of The Town and
Country Trust listed in the Index at item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-82932) pertaining to the Town and Country Trust Amended and
Restated 1993 Long-Term Incentive Plan of our report dated January 23, 1997,
with respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
The Town and Country Trust.
/s/ ERNST & YOUNG LLP
Baltimore, Maryland
March 26, 1997
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
-----------------
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1996, hereby constitutes and
appoints ALFRED LERNER and HARVEY SCHULWEIS, and each of them, with full power
of substitution and resubstitution, as attorneys or attorney to sign for the
undersigned and in my name, place and stead, as Trustee of said Trust, said
Annual Report and any and all amendments and exhibits thereto, and any and all
applications and documents to be filed with the Securities and Exchange
Commission pertaining to such Annual Report, with full power and authority to do
and perform any and all acts and things whatsoever requisite, necessary or
advisable to be done in the premises, as fully and for all intents and purposes
as the undersigned could do if personally present, hereby approving the acts of
said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January, 1997.
/s/ James H. Berick
---------------------------
James H. Berick
<PAGE> 2
POWER OF ATTORNEY
-----------------
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1996, hereby constitutes and
appoints ALFRED LERNER, HARVEY SCHULWEIS and JAMES H. BERICK, and each of them,
with full power of substitution and resubstitution, as attorneys or attorney to
sign for the undersigned and in my name, place and stead, as Trustee of said
Trust, said Annual Report and any and all amendments and exhibits thereto, and
any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January, 1997.
/s/ H. Grant Hathaway
---------------------------
H. Grant Hathaway
<PAGE> 3
POWER OF ATTORNEY
-----------------
The undersigned Trustee of The Town and Country Trust (the "Trust"), a
Maryland real estate investment trust, which anticipates filing with the
Securities and Exchange Commission, Washington, D.C., under the provisions of
the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K
for the Trust's fiscal year ended December 31, 1996, hereby constitutes and
appoints ALFRED LERNER, HARVEY SCHULWEIS and JAMES H. BERICK, and each of them,
with full power of substitution and resubstitution, as attorneys or attorney to
sign for the undersigned and in my name, place and stead, as Trustee of said
Trust, said Annual Report and any and all amendments and exhibits thereto, and
any and all applications and documents to be filed with the Securities and
Exchange Commission pertaining to such Annual Report, with full power and
authority to do and perform any and all acts and things whatsoever requisite,
necessary or advisable to be done in the premises, as fully and for all intents
and purposes as the undersigned could do if personally present, hereby approving
the acts of said attorney, and any such substitute.
IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of
January, 1997.
/s/ Milton A. Wolf
---------------------------
Milton A. Wolf
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,760
<SECURITIES> 0
<RECEIVABLES> 1,413
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,030
<PP&E> 564,443
<DEPRECIATION> 193,689
<TOTAL-ASSETS> 383,396
<CURRENT-LIABILITIES> 10,999
<BONDS> 290,409
<COMMON> 157
0
0
<OTHER-SE> 70,588
<TOTAL-LIABILITY-AND-EQUITY> 383,396
<SALES> 0
<TOTAL-REVENUES> 91,163
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 64,707
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,916
<INCOME-PRETAX> 6,540
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,645
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
<PAGE> 1
Exhibit 99
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT DATED MARCH 19, 1997
THE TOWN AND COUNTRY TRUST
------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------------------------------------------------
Notice is hereby given that the Annual Meeting of Shareholders of The Town
and Country Trust will be held at 100 South Charles Street, 17th Floor
Conference Room, Baltimore, Maryland on Thursday, May 1, 1997 at 11:00 A.M.,
local time, for the purpose of considering and acting upon:
1. The election of five (5) Trustees, each to hold office until the
next Annual Meeting of Shareholders and until his successor shall be
elected and qualified; and
2. The transaction of any other business which properly may come
before the meeting and any adjournments thereof.
Shareholders of The Town and Country Trust of record at the close of
business on February 28, 1997 are entitled to vote at the Annual Meeting and any
adjournments thereof.
By order of the Board of Trustees
Daniel G. Berick
Secretary
Baltimore, Maryland
March 19, 1997
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY
IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE> 2
March 19, 1997
THE TOWN AND COUNTRY TRUST
100 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
---------------------------
PROXY STATEMENT
---------------------------
The accompanying proxy is solicited by the Trustees of The Town and Country
Trust (the "Trust") for use at the Annual Meeting of Shareholders to be held on
May 1, 1997 and any adjournments thereof.
Shareholders of record at the close of business on February 28, 1997 (the
record date) will be entitled to vote at the Annual Meeting and any adjournments
thereof. At that date the Trust had issued and outstanding 15,677,690 Common
Shares of Beneficial Interest (the "Common Shares"), par value $.01 per Common
Share. Each such Common Share is entitled to one vote on all matters properly
coming before the Annual Meeting. At least 7,838,846 Common Shares must be
represented at the Annual Meeting in person or by proxy in order to constitute a
quorum for the transaction of business.
This Proxy Statement and the accompanying form of proxy were first mailed
to Shareholders on March 19, 1997.
ELECTION OF TRUSTEES
At this Annual Meeting, five Trustees are to be elected for a term expiring
at the 1998 Annual Meeting of Shareholders and until their respective successors
are duly elected and qualified. Unless a Shareholder requests that voting of the
proxy be withheld for any one or more of the nominees for Trustee in accordance
with the instructions set forth on the proxy, it presently is intended that
Common Shares represented by proxies solicited hereby will be voted for the
election as Trustees of the five nominees named in the table below. All nominees
have consented to being named in this Proxy Statement and to serve if elected.
Should any nominees subsequently decline or be unable to accept such nomination
or to serve as a Trustee, an event which the Trustees do not now expect, the
persons voting the Common Shares represented by proxies solicited hereby may
either vote such Shares for a slate of five persons which includes a substitute
nominee or for a reduced number of nominees, as they may deem advisable. For
election as a Trustee, a nominee must receive the affirmative vote of a
plurality of the Common Shares voted at the Annual Meeting in person or by
proxy. Neither abstentions nor broker non-votes will be counted as votes cast
and neither will have any effect on the result of the vote, although both will
count toward the determination of the presence of a quorum.
The information concerning the nominees set forth in the following table is
based in part on information received from the respective nominees and in part
on the Trust's records. Each of the nominees first became a Trustee in
connection with the formation of the Trust in 1993.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ --- --------------------------------------------------
<S> <C> <C>
Alfred Lerner 63 Chairman of the Board and Chief Executive Officer
of the Trust
Harvey Schulweis 56 President of the Trust
James H. Berick 63 Chairman of Berick, Pearlman & Mills Co., L.P.A.,
attorneys
H. Grant Hathaway 69 Retired, formerly Vice Chairman, MNC Financial,
Inc., bank holding company
Milton A. Wolf 72 President of Milton A. Wolf Investors,
investments, and Chairman of Zehman-Wolf
Management, Inc., real estate management and
development
</TABLE>
1
<PAGE> 3
Mr. Lerner has been the Chairman of the Board and Chief Executive Officer
of the Trust since its formation in May 1993. In addition, Mr. Lerner has served
as the Chairman of the Board and Chief Executive Officer of MBNA Corporation, a
bank holding company, since its inception as a public company in 1991. From 1979
until 1993, Mr. Lerner was the President of The Town and Country Management
Corporation. He was the Chairman of the Board and Chief Executive Officer of MNC
Financial, Inc. from September 1990 until July 1991, and was its Chairman of the
Board from July 1991 until October 1993. Mr. Lerner was the Chairman of the
Board of The Progressive Corporation, an insurance holding company, from 1988
until April 1993. He is a member of the Boards of Trustees of Columbia
University, the Cleveland Clinic Foundation and Case Western Reserve University.
He also is the President of the Cleveland Clinic Foundation.
Mr. Schulweis has been the President of the Trust since its formation in
May 1993. In addition, Mr. Schulweis has been the President of Schulweis Realty,
Inc., real estate ownership and management, since 1991. He is a Certified Public
Accountant and a member of the Executive Committee of the National Realty
Committee and is a past member of the Board of Governors of the Real Estate
Board of New York.
Mr. Berick has been a Trustee of the Trust since its formation in May 1993.
He has been the Chairman of Berick, Pearlman & Mills Co., L.P.A., since July
1986 and has been the President and Treasurer of Realty ReFund Trust, a real
estate investment trust, since 1990. Mr. Berick is a Director or Trustee of MBNA
Corporation, Realty ReFund Trust, The Tranzonic Companies and A. Schulman, Inc.
Mr. Hathaway, now retired, has been a Trustee of the Trust since its
formation in May 1993. In addition, he served as the Vice Chairman of MNC
Financial, Inc. from 1990 until 1993. He also served as Vice Chairman of
Maryland National Bank from 1990 until 1993 and was its President and Chief
Executive Officer in 1991. Mr. Hathaway was the President and Chief Executive
Officer of American Security Bank, N.A. in 1991 and the Chairman and Chief
Executive Officer of Equitable Bank, N.A. from 1979 until 1990. Mr. Hathaway
also served as the President of Equitable Bancorporation from 1975 until 1990
and as its Chief Executive Officer from 1981 until 1990. Mr. Hathaway is the
Chairman of The Kennedy Krieger Institute Development and Resource Board.
Dr. Wolf has served as a Trustee of the Trust since its formation in May
1993. In addition, he has served as the President of Milton A. Wolf Investors
and as the Chairman of Zehman-Wolf Management, Inc. since 1980. Dr. Wolf was the
United States Ambassador to Austria from 1977 until 1980. From 1981 until 1987,
Ambassador Wolf served as a Distinguished Professorial Lecturer in Economics at
Case Western Reserve University. Ambassador Wolf also is a Director of American
Greetings Corp. Ambassador Wolf holds a Ph.D in Economics from Case Western
Reserve University and holds honorary doctoral degrees from Cleveland State
University and Case Western Reserve University. He is Chairman of the American
Austrian Foundation, Vice Chairman of the Council of American Ambassadors and is
a member of the Council on Foreign Relations, the Academy of Political Science
and the American Economic Association. Ambassador Wolf serves on the Boards of
Trustees of Case Western Reserve University and the Cleveland Clinic Foundation.
The Board of Trustees has established an Audit Committee and a Compensation
Committee. James H. Berick, H. Grant Hathaway and Milton A. Wolf comprise the
Audit Committee and Compensation Committee. The Trust does not have a nominating
committee. The functions of such committee are performed by the Board of
Trustees.
The Audit Committee has been established to (i) make recommendations to the
Trustees concerning the engagement of the Trust's independent public
accountants, (ii) review with the independent public accountants the plans and
results of the audit engagement, (iii) approve professional services provided by
the independent public accountants, (iv) review the independence of the
independent public accountants, (v) consider the range of audit and non-audit
fees, and (vi) review the adequacy of the Trust's internal accounting controls.
The Audit Committee met twice during the fiscal year.
2
<PAGE> 4
The Compensation Committee is responsible for administering the Trust's
Amended and Restated 1993 Long Term Incentive Plan and for reviewing benefits
and executive compensation, including incentive compensation. The Compensation
Committee met once during the fiscal year.
The Board of Trustees held four meetings during the year ended December 31,
1996. All Trustees attended each meeting of the Trustees and of the Committees
thereof.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH NOMINEE FOR TRUSTEE.
CERTAIN RELATED TRANSACTIONS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Michael H. Rosen, the Executive Vice President of the Trust, is indebted to
the Trust in connection with the consolidation of certain personal indebtedness,
in the amount of $340,000, as of February 28, 1997. $300,000 of this
indebtedness bears interest at a rate comparable to the rate earned on the
Trust's invested funds. As of February 28, 1997, such rate was 4.92%. The
balance of the indebtedness does not bear interest; however, the Trust has
deferred compensation otherwise due Mr. Rosen in the amount of such balance.
James H. Berick, a Trustee, is Chairman of the law firm Berick, Pearlman &
Mills Co., L.P.A., general counsel to the Trust, which received legal fees from
the Trust during the year ended December 31, 1996 in the amount of $185,237.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Schulweis has been both an owner and an investor in a significant
number of real estate projects. Of such projects in which Mr. Schulweis or an
affiliate is a general partner, two were sold through foreclosure proceedings,
one in 1994 and one in 1996.
COMPENSATION OF TRUSTEES
The Trust pays an annual fee of $25,000, plus a fee of $2,500 for each
meeting attended, to its Trustees who are not employees of the Trust or any of
its subsidiaries. Trustees who are employees of the Trust are not paid any
Trustees' fees. The Trust reimburses the Trustees for travel expenses incurred
in connection with their activities on behalf of the Trust.
Pursuant to the Amended and Restated 1993 Long Term Incentive Plan (the
"1993 Plan") adopted by the Trust, each Trustee who is not otherwise an employee
of the Trust or its subsidiaries or affiliates automatically receives, on each
January 2, an annual grant of options to purchase 2,000 Common Shares having an
exercise price equal to 100% of the fair market value of the Common Shares at
the date of grant of such option. In addition, each of the Trust's current
non-employee Trustees, upon joining the Board, received an initial grant of
options to purchase 2,000 Common Shares at an exercise price equal to the
initial public offering price of $22.00. Should any additional Trustees be
elected in the future, each such Trustee would receive an initial grant of
options to purchase 2,000 Common Shares having an exercise price equal to 100%
of the fair market value of the Common Shares as of such date.
3
<PAGE> 5
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report describes the Trust's executive compensation programs and the
basis on which fiscal 1996 compensation determinations were made by the
Compensation Committee in respect of the executive officers of the Trust,
including Mr. Lerner, the Trust's Chief Executive Officer.
The Trust's compensation program provides annual cash compensation to
executive officers that recognizes short-term individual and Trust performance
and long-term compensation that encourages executive officers to focus on the
future. The program is designed to reward current performance in proper context
with the long-term health of the Trust and to provide for continuity of
management of the Trust's properties, which the Board of Trustees considers to
be of critical importance. Annual cash compensation consists of salary and
bonus. Long-term incentive programs include grants of share options and
restricted and unrestricted share awards.
The Compensation Committee approved annual salaries and bonuses for the
Trust's executive officers in respect of fiscal 1996. For purposes of
comparison, the Compensation Committee considered salaries and bonuses paid to
the Trust's executive officers by the Trust's predecessor entity, as well as
salaries and bonuses paid to executive officers of other publicly-held real
estate investment trusts. Salaries are based on responsibilities with the Trust,
experience, and individual and Trust performance. Bonuses for executive officers
are based on Trust and individual performance. Bonuses for 1996 for executive
officers were approved by the Compensation Committee based primarily on the
Trust's performance in 1996 relative to plans, goals and objectives, including
financial goals such as growth in funds from operations, management of costs and
acquisitions of new properties, and nonfinancial goals such as tenant
satisfaction, employee turnover and management of internal systems and growth.
Mr. Lerner's salary was fixed and, at his request, he received no bonus or
other incentive compensation.
To provide long-term incentives, the Compensation Committee may grant share
options and restricted and unrestricted share awards to officers and key
employees under the 1993 Plan. No share options were granted in 1996 to the
executive officers of the Trust. Restricted Common Shares were awarded in 1996.
Restrictions on such Common Shares lapse on termination of the officer's
employment due to death, disability, retirement or a change in control of the
Trust. Upon termination of employment for any other reason, all restricted
Common Shares as to which the restrictions have not lapsed are forfeited to the
Trust. Holders of restricted Common Shares have all of the rights of holders of
Common Shares, including the right to receive dividends and to vote. Mr. Lerner,
at his request, was not granted any share options or awarded any restricted
Common Shares in 1996.
The Compensation Committee
James H. Berick
H. Grant Hathaway
Milton A. Wolf
4
<PAGE> 6
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid or to be paid by the
Trust or its subsidiaries in respect of services rendered during the Trust's
fiscal year ended December 31, 1996 to the Trust's Chief Executive Officer and
each of the Trust's other executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------
------------------------ RESTRICTED STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS AWARDS(1) (SHARES) COMPENSATION
- ------------------------------ ------------ ------------- -------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Alfred Lerner, 1996 $ 200,000 $ 0 $ 0 0 $ 0
Chairman of the Board, 1995 $ 200,000 $ 0 $ 0 0 $ 0
Chief Executive Officer 1994 $ 200,000 $ 0 $ 0 0 $ 0
Harvey Schulweis, 1996 $ 200,000 $ 0 $ 203,125 0 $ 0
President 1995 $ 200,000 $ 0 $ 472,656 25,000 $ 0
1994 $ 200,000 $ 0 $ 0 75,000 $ 0
Michael H. Rosen, 1996 $ 175,000 $ 75,000 $ 0 0 $ 95,731(2)
Executive Vice President 1995 $ 193,750 $ 93,750 $1,289,063 20,000 $ 95,776
1994 $ 250,000 $200,000 $ 0 50,000 $ 22,670
Jennifer C. Munch, 1996 $ 110,000 $ 40,000 $ 0 0 $ 33,542(2)
Vice President--Treasurer 1995 $ 116,250 $ 42,500 $ 300,781 10,000 $ 33,587
1994 $ 135,000 $100,000 $ 0 30,000 $ 7,704
- ---------
(1) The total number of restricted shares and the aggregate market value at
December 31, 1996 are as follows: Mr. Lerner held no restricted shares; Mr.
Schulweis held 50,000 restricted shares having an aggregate market value of
$731,250; Mr. Rosen held 93,750 restricted shares having an aggregate market
value of $1,371,094; and Mrs. Munch held 21,875 restricted shares having an
aggregate market value of $319,922. Dividends accrue and are paid on the
restricted shares. The aggregate market value is based on the fair market
value at December 31, 1996 of $14.625 per share.
(2) Amounts shown include the following: Trust or subsidiary contributions to
defined-contribution plan--$7,119 for each of Mr. Rosen and Mrs. Munch;
Trust or subsidiary payments of term life insurance premiums--$864 for Mr.
Rosen and $522 for Mrs. Munch; and Trust or subsidiary payments of
split-dollar life insurance premiums--$87,748 for Mr. Rosen and $25,901 for
Mrs. Munch.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR END FISCAL YEAR END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------- ----------- -------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Alfred Lerner 0 $0 0/0 $0/$0
Harvey Schulweis 0 $0 58,333/41,667 $5,208/$10,417
Michael H. Rosen 0 $0 40,000/30,000 $4,167/$8,333
Jennifer C. Munch 0 $0 23,333/16,667 $2,083/$4,167
</TABLE>
5
<PAGE> 7
PERFORMANCE GRAPH
The following graph compares total Shareholder returns from August 23, 1993
through December 31, 1996 to the Standard & Poor's 500 Stock Index ("S&P 500")
and to the National Association of Real Estate Investment Trusts, Inc.'s Equity
REIT Total Return Index ("NAREIT"). The graph assumes that the value of the
investment in the Trust's Common Shares and each index was $100 at August 31,
1993 and that all dividends were reinvested. The Shareholder return shown on the
following graph is not necessarily indicative of future performance.
The following graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent the Trust specifically incorporates this information
by reference and otherwise shall not be deemed filed under such Acts.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Trust S&P 500 NAREIT
<S> <C> <C> <C>
August 31, 1993 100 100 100
December 31, 1993 93.39 101.56 97.14
December 31, 1994 71.79 102.88 100.22
December 31, 1995 73.62 141.39 115.52
December 31, 1996 92.71 173.90 156.26
</TABLE>
RETIREMENT PLAN
An affiliate of the Trust, The TC Operating Limited Partnership, maintains
a non-contributory, defined-contribution plan established by its predecessor for
the benefit of employees. The plan covers all employees who are twenty and
one-half years old with six months or more of service. Participants qualify for
benefits upon reaching the age of sixty-five and early retirees qualify provided
they have completed ten years of service. After three years of service,
participants become 20% vested in employer contributions which are based on
current compensation levels. From the fourth through the seventh years, vesting
increases by 20% each year until full vesting occurs. For the fiscal year ended
December 31, 1996, $7,119 was contributed to the plan accounts of each of Mr.
Rosen and Mrs. Munch. Messrs. Lerner and Schulweis are not participants in such
plan.
6
<PAGE> 8
OWNERSHIP OF COMMON SHARES OF BENEFICIAL INTEREST
The following table sets forth information as of February 28, 1997 in
respect of beneficial ownership of Common Shares by each person known to the
Trust to own 5% or more of its Common Shares, by each Trustee, by each named
executive officer and by all Trustees and executive officers as a group.
<TABLE>
<CAPTION>
SHARES % OF OWNERSHIP TOTAL SHARES
BENEFICIALLY OUTSTANDING OF SHARE AND SHARE
NAME OWNED(1)(2) SHARES EQUIVALENTS(3) EQUIVALENTS/%(4)
- --------------------------------- ---------- ----------- -------------- ----------------
MANAGEMENT
<S> <C> <C> <C> <C>
Alfred Lerner
25875 Science Park Drive
Beachwood, Ohio 44122.......... 1,000,000 6.4% 2,152,299 3,152,299/17.4%
Harvey Schulweis................. 226,666 1.4% 215,230 441,896/ 2.4%
James H. Berick.................. 15,900(5) * -- --
H. Grant Hathaway................ 60,000 * -- --
Milton A. Wolf................... 76,800(6) * -- --
Michael H. Rosen................. 143,616(7) * -- --
Jennifer C. Munch................ 52,831(8) * -- --
All Trustees and Executive
Officers as a Group (7
persons)....................... 1,575,813 10.0%
<CAPTION>
INSTITUTIONAL INVESTORS(9)
<S> <C> <C>
Corbyn Investment Management,
Inc., et al.
Suite 108
2330 W. Joppa Rd.
Lutherville, Maryland 21093.... 969,307(10) 6.2%
State Farm Mutual Automobile
Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710.... 1,000,000(11) 6.4%
- ---------------
* Less than 1% of the Common Shares outstanding
(1) Includes the following number of Common Shares which are not owned but can
be purchased within 60 days upon the exercise of options granted under the
1993 Plan: 10,000 by each of James H. Berick, H. Grant Hathaway and Milton
A. Wolf; 66,666 by Mr. Schulweis; 46,666 by Mr. Rosen; and 26,666 by Mrs.
Munch.
(2) Includes the following number of restricted Common Shares awarded under the
1993 Plan: 50,000 for Mr. Schulweis, 93,750 for Mr. Rosen and 21,875 for
Mrs. Munch.
(3) In consideration of the contributions of their interests in the Trust's
original properties as part of the formation of the Trust, Messrs. Lerner
and Schulweis retained beneficial ownership of their limited partnership
interests in the Operating Partnership, in which the Trust is an 86.00%
general partner. As of February 28, 1997, Messrs. Lerner and Schulweis
owned 12.10% and 1.21% limited partnership interests, respectively, in the
Operating Partnership. The limited partners of the Operating Partnership
share proportionately with the Trust, as general partner, in the net income
or loss and any distributions of the Operating Partnership; therefore, Mr.
Lerner's 12.10% limited partnership interest in the Operating Partnership
is the economic equivalent of 2,152,299 Common Shares of the Trust and Mr.
Schulweis' 1.21% limited partnership interest in the Operating Partnership
is the economic equivalent of 215,230 Common Shares of the Trust. Pursuant
to the partnership agreement of the Operating Partnership, Messrs. Lerner
and Schulweis each may convert his limited partnership interest into such
number of Common Shares.
7
<PAGE> 9
(4) Percentage shown calculated based on conversion of all share equivalents
into Common Shares.
(5) Includes 1,200 shares held solely by Mr. Berick's wife, beneficial
ownership of which Mr. Berick disclaims.
(6) Includes 4,500 shares held solely by Dr. Wolf's wife and 800 shares held
solely by Dr. Wolf's wife as guardian for their adult child, beneficial
ownership of which Dr. Wolf disclaims.
(7) Includes 200 shares held solely by Mr. Rosen's minor child, beneficial
ownership of which Mr. Rosen disclaims.
(8) Includes 445 shares held solely by Mrs. Munch's husband, beneficial
ownership of which Mrs. Munch disclaims.
(9) The two beneficial owners in this category have filed Schedules 13G with
the Trust in which they certified that they acquired the Trust's Common
Shares in the ordinary course of business and not for the purpose of
changing or influencing the control of the Trust. The percentage ownership
shown in the table has been calculated by reference to the Trust's records.
(10) According to its report on Schedule 13G, as of December 31, 1996, a group
consisting of Corbyn Investment Management Inc., a registered investment
adviser ("Corbyn"), and Greenspring Fund, Inc., a registered investment
company ("Greenspring"), directly or indirectly beneficially owned, in the
aggregate, 969,307 of the Trust's Common Shares. According to this group's
Schedule 13G, Corbyn and Greenspring owned and held sole voting and
dispositive power over 692,262 Common Shares and 277,045 Common Shares,
respectively.
(11) According to its report on Schedule 13G, as of December 31, 1996, State
Farm Mutual Automobile Insurance Company, an insurance company ("State
Farm"), beneficially owned 1,000,000 of the Trust's Common Shares. State
Farm states in its Schedule 13G that it possesses sole authority to vote
and to dispose or direct the disposition of all of such shares. State Farm
states in its Schedule 13G that certain of its direct and indirect
subsidiaries may be deemed to share beneficial ownership in respect of such
shares as a result of certain internal investment procedures.
</TABLE>
SELECTION OF ACCOUNTANTS
The Trustees have selected Ernst & Young LLP as independent accountants for
the Trust for the fiscal year ending December 31, 1997. Ernst & Young LLP were
the independent accountants for the Trust for the fiscal year ended December 31,
1996 and are considered by the Trustees to be well qualified.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so
and to be available to respond to appropriate questions.
OTHER MATTERS
The Trustees know of no matters to be presented for action at the Annual
Meeting other than those described in this Proxy Statement. Should other matters
come before the meeting, the Common Shares of the Trust represented by proxies
solicited hereby will be voted in respect thereof in accordance with the best
judgment of the proxy holders.
SHAREHOLDER PROPOSALS
If a Shareholder intends to present a proposal at the Annual Meeting of
Shareholders presently scheduled for April 1998 such proposal must be received
by the Trust on or before November 19,
8
<PAGE> 10
1997 in order to be considered for inclusion in the Trust's Proxy Statement and
form of proxy relating to that meeting.
REVOCATION OF PROXIES
A proxy may be revoked at any time before a vote is taken or the authority
granted otherwise is exercised. Revocation may be accomplished by the execution
of a later proxy in respect of the same shares or by giving notice in writing or
in open meeting.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Trust. The Trust does
not expect to pay for the solicitation of proxies, but may pay brokers,
nominees, fiduciaries and custodians their reasonable expenses for sending proxy
materials to principals and obtaining their instructions. In addition to
solicitation by mail, proxies may be solicited in person, by telephone or
telegraph or by officers, Trustees and regular employees of the Trust.
By order of the Board of Trustees
Daniel G. Berick
Secretary
March 19, 1997
9
