<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ending December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 333-27429
THE AERC 401(K) SAVINGS PLAN AND TRUST
(Exact name of Plan)
001
Plan Number
ASSOCIATED ESTATES REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-1747603
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
5025 Swetland Court, Cleveland, Ohio 44143-1467
(Address of principal executive offices) (Zip Code)
(216) 261-5000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>2
THE AERC 401(K) SAVINGS PLAN AND TRUST
December 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 3
Financial Statements:
Statements of Assets Available for
Plan Benefits 4
Statement of Changes in Net Assets
Available for Plan Benefits 5
Notes to the Financial Statements 6-11
SUPPLEMENTAL INFORMATION: 12
Schedule of Assets Held for Investment 13
Schedule of Reportable Transactions 14
Signatures 15
</TABLE>
<PAGE>3
Independent Auditors' Report
To the Trustees
The AERC 401(K) Savings Plan and Trust
We have audited the financial statements of the AERC 401(K)
Savings Plan and Trust (the "Plan") as of December 31, 1998 and
1997 and for the year ended December 31, 1998 and the
supplemental schedules as of and for the year ended December 31,
1998, as listed in the accompanying contents. These financial
statements are the responsibility of the Plan'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 net assets
available for plan benefits of the AERC 401(K) Savings Plan and
Trust as of December 31, 1998 and 1997, and the changes in net
assets available for plan benefits for the year ended December
31, 1998 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The
supplemental schedules of assets held for investment and
reportable transactions as of and for the year ended December 31,
1998, are presented for the purpose of additional analysis and
are not a required part of the basic financial statements, but
are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The
supplemental schedules have been subjected to the auditing
procedures applied in the audits of the basic financial
statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
/s/ Reznick, Fedder & Silverman
Bethesda, Maryland
May 27, 1999
<PAGE>4
The AERC 401(K) Savings Plan and Trust
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
Investments, at fair value
Stable Value fund $ 561,781 $ 606,406
Income fund 286,528 242,837
Balanced portfolio 120,734 58,846
Stock Index fund 1,052,988 691,851
Growth and Income fund 856,578 700,037
Associated Estates Realty
Corporation (AERC) Stock fund 78,204 39,612
Participant Notes Receivable 162,355 122,999
----------- ----------
Total investments 3,119,168 2,462,588
Receivables
Employer's contributions - 1,771
Participants' contributions - 13,842
----------- ----------
Total receivables - 15,613
----------- ----------
Total assets $ 3,119,168 $ 2,478,201
----------- -----------
LIABILITIES
Benefits payable - 18,075
----------- -----------
Net assets available for plan benefits $ 3,119,168 $ 2,460,126
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>5
The AERC 401(K) Savings Plan and Trust
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
Additions to net assets attributed to:
Investment income
Net appreciation in fair value of
investments $ 109,049
Realized gain 18,612
Interest and dividends 161,814
Contributions
Employer $ 99,697
Participants 724,242 823,939
----------- -----------
Total additions 1,113,414
-----------
Deductions from net assets
attributed to:
Benefits paid to participants 453,246
Expenses paid 1,126
-----------
Total deductions 454,372
-----------
NET INCREASE 659,042
-----------
Net assets available for plan benefits
Beginning of year 2,460,126
-----------
End of year $ 3,119,168
===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>6
The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the AERC 401(K) Savings Plan and
Trust have been prepared in conformity with generally accepted
accounting principles as applied to profit-sharing trusts and in
accordance with the terms of the Trust Agreement. A summary of
the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Shares of
registered investment companies are valued at quoted market
prices, which represents the net asset value of shares held by
the Plan at year-end.
2. Federal Income Taxes
The Plan has received a favorable determination letter from
the Internal Revenue Service ("IRS") which classified the Plan as
a qualified employee benefit plan, exempt from income taxes,
under the Employee Retirement Income Security Act of 1994
(ERISA).
3. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE B - DESCRIPTION OF PLAN
The following description of the AERC 401(K) Savings Plan
and Trust provides only general information. Participants should
refer to the Plan agreement for a more complete description of
the Plan's provisions.
The Plan is a plan of a controlled group of corporations
which became effective April 1, 1990 by execution of the
counterparts to the National City Bank Master Savings Plan and
<PAGE>7
The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE B - DESCRIPTION OF THE PLAN (Continued)
Trust Adoption Agreement. On July 1, 1997, a new adoption
agreement was executed whereby Scudder, Stevens & Clark
("Scudder") replaced National City Bank as Trustee of the Plan.
Employees are eligible after one year of service, provided
that they have reached an age of 21 and work more than 1,000
hours per year. Participants are immediately vested in their
investment account which includes participant contributions to
the Plan, employer matching contributions and account earnings.
Participants may elect to contribute up to twelve percent of
their gross wages and have the option of investing their accounts
between six different investment funds. The Plan provides for an
employer matching contribution equal to 25 percent of the
participant's contribution up to a maximum participant
contribution of 4 percent of their gross wages.
On termination of service, a participant may elect to
receive either a lump sum amount equal to the value of his or her
account, monthly payments over a period equal to the shorter of
120 months or the life expectancy of the participant and/or his
or her beneficiary, installment payments of a fixed amount to be
made until the balance of the participants's account is
exhausted, distribution in kind (securities issued by Associated
Estates Realty Corporation only), or any reasonable combination
of the foregoing or any reasonable time or manner of distribution
within the above stated limitations.
NOTE C - INVESTMENTS
The Plan's investments are held by Scudder. The following
table presents the fair value of the investments. Investments
that represent 5 percent or more of the Plan's net assets are
separately identified.
<PAGE>8
The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998
<TABLE>
<CAPTION>
Market Value of Investments
----------------------------------------------------------------
December 31 December 31
1998 1997
Fair Value Fair Value
----------- -----------
<S> <C> <C>
Investment at fair value as determined
by Scudder
Stable Value fund $ 561,781 $ 606,406
Income fund 286,528 242,837
Balanced portfolio 120,734 58,846
Stock Index fund 1,052,988 691,851
Growth and Income fund 856,578 700,037
Associated Estates Realty
Corporation Stock fund 78,204 39,612
----------- -----------
$ 2,956,813 $ 2,339,589
=========== ===========
</TABLE>
During the year ended December 31, 1998, the Plan's
investments (including investments bought, sold and held during
the year) appreciated in value by $109,049.
<PAGE>9
THE ASSOCIATED ESTATES REALTY CORPORATION 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE D - ACTIVITY BY FUND
The following table presents the changes in investments for the year
ended December 31, 1998 by investment fund based on options available to
participants.
<TABLE>
<CAPTION>
Stable Stock
Value Income Balanced Index
Fund Fund Portfolio Fund
---- ---- --------- -----
<S> <C> <C> <C> <C>
Net assets available
for plan benefits as
of January 1, 1998 $606,406 $242,837 $ 58,846 $ 691,851
Investment income
Net appreciation
(depreciation) in fair
value of investments - (5,323) (594) 197,185
Realized gain (loss) - 367 (319) 18,905
Interest and dividends 35,839 20,204 6,564 -
Contributions
Employer 7,090 9,000 11,512 36,136
Benefits paid to
participants 49,138 68,140 71,017 278,714
Benefits paid to
participants and fund
transfers (135,866) (48,572) (26,217) (169,703)
Expenses paid (826) (125) (75) (100)
-------- ------- ------- -------
Net assets available for
plan benefits as of
December 31, 1998 $561,781 $286,528 $120,734 $ 1,052,988
======== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Growth & AERC Participant
Income Stock Notes
Fund Fund Receivable Other Total
-------- ----- ----------- ----- -----
<S> <C> <C> <C> <C> <C>
Net assets available for
plan benefits as of
January 1, 1998 $ 700,037 $ 39,612 $ 122,999 $(2,462) $ 2,460,126
Investment income
Net appreciation
(depreciation) in fair
value of investments (38,351) (43,868) - - 109,049
Realized gain (loss) 2,624 (2,965) - - 18,612
Interest and dividends 78,915 6,209 14,083 - 161,814
Contributions
Employer 27,841 9,889 - (1,771) 99,697
Benefits paid to
participants 203,754 67,321 - (13,842) 724,242
Benefits paid to
participants and fund
transfers (118,242) 2,006 25,273 18,075 (453,246)
Expenses paid - - - - (1,126)
------- ------ ------ ------ -------
Net assets available for
plan benefits as of
December 31, 1998 $856,578 $ 78,204 $ 162,355 $ - $ 3,119,168
======== ======== =========== ======= ===========
</TABLE>
<PAGE>10
THE AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998
NOTE E - PARTICIPANT NOTES RECEIVABLE
During 1998, the Plan made loans to various employees from
their respective interests in the Plan. These loans and loans
made in prior years bear interest at rates varying from 8.75% to
9.5%, and are being amortized over the terms of the loans with
bi-weekly payments of principal and interest. The notes have
maturity dates equal to or less than five years from the date of
the notes, face value equal or greater than $1,000, and do not
exceed 50 percent of the present value of the borrowers' interest
in the Plan.
NOTE F - PLAN TERMINATION
Although it has not expressed any intent to do so, the
companies participating in the Plan have the right to discontinue
their matching contributions at any time and to terminate the
Plan subject to the provisions of ERISA.
NOTE G - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available
for plan benefits per the financial statements to the IRS Form
5500:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Net assets available for Plan benefits
per the financial statements $ 3,119,168
Amounts allocated to withdrawing
participants at December 31, 1998 (64,643)
------------
Net assets available for Plan benefits
per the IRS Form 5500 $ 3,054,525
============
</TABLE>
<PAGE>11
The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1998
The following is a reconciliation of benefits paid to
participants per the financial statements to the IRS Form 5500:
<TABLE>
<CAPTION>
Year ended
December 31,
1998
------------
<S> <C>
Benefits paid to participants per the
financial statements $ 453,246
Add: Amounts allocated to withdrawing
participants at December 31, 1998 64,643
-------------
Benefits paid to participants per the
IRS Form 5500 $ 517,889
=============
</TABLE>
Amounts allocated to withdrawing participants are recorded
on the IRS Form 5500 for benefit claims that have been processed
and approved for payment prior to December 31 but not yet paid as
of that date.
NOTE H - SUBSEQUENT EVENTS
Effective January 1, 1999, a new adoption agreement was
executed which provides for participant contributions of up to
fifteen percent of gross wages and employer matching
contributions equal to twenty-five percent of the participant's
contribution up to a maximum of six percent of gross wages.
Effective January 1, 1999, the MIG Realty Advisors, Inc.
401(K) and Profit Sharing Plan merged with the Plan.
Accordingly, on January 4, 1999, $2,016,306 was transferred into
the Plan from the MIG Realty Advisors, Inc. 401(K) and Profit
Sharing Plan.
<PAGE>12
SUPPLEMENTAL INFORMATION
<PAGE>13
THE ASSOCIATED ESTATES REALTY CORPORATION 401(K) SAVINGS PLAN AND TRUST
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Identity of Interest Fair
Party Involved Description Maturity Rate Cost Value
-------------- ----------- -------- -------- ---- -----
<S> <C> <C> <C> <C> <C>
Scudder Stable Value Fund N/A N/A $ 561,781 $ 561,781
Scudder Income Fund N/A N/A 291,852 286,528
Scudder Pathway Balanced Portfolio N/A N/A 121,328 120,734
Scudder Growth and Income Fund N/A N/A 894,928 856,578
Scudder Stock Index Fund N/A N/A 855,803 1,052,988
AERC Stock Fund N/A N/A 122,072 78,204
Participant loans Participant loans Various 8.75%-9.5% 0 162,355
</TABLE>
<PAGE> 14
THE ASSOCIATED ESTATES REALTY CORPORATION 401(K) SAVINGS PLAN AND TRUST
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1998
5% Reportable Transactions
Series With Same Party
<TABLE>
<CAPTION>
Fair Value
of Security
at
Identity of Party Involved Purchase Selling Cost of Transaction Net Gain
Description of Security Price Price Security Date (Loss)
-------------------------- -------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Scudder Stable Value Fund 183,441 - - 183,441 -
Scudder Stable Value Fund - 228,855 228,855 228,855 -
Scudder Income Fund 108,994 - - 108,994 -
Scudder Income Fund - 61,273 60,536 61,273 737
Scudder Growth and Income Fund 329,659 - - 329,659 -
Scudder Growth and Income Fund - 141,911 140,257 141,911 1,654
Scudder Pathway Series-Balanced 98,679 - - 98,679 -
Scudder Pathway Series-Balanced - 37,121 38,063 37,121 (942)
Scudder Stock Index Fund 355,111 - - 355,111 -
Scudder Stock Index Fund - 217,637 188,617 217,637 29,020
AERC Stock Fund 97,746 - - 97,746 -
AERC Stock Fund - 12,852 15,733 12,852 (2,881)
</TABLE>
<PAGE>15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the trustees (or other persons who administer the
employee benefit plan) have duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
THE AERC 401(K) SAVINGS
PLAN AND TRUST
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William T. Hughes Trustee June 28, 1999
---------------------
William T. Hughes
/s/ Lita Weiss Trustee June 28, 1999
---------------------
Lita Weiss
/s/ Nan Zieleniec Trustee June 28, 1999
---------------------
Nan Zieleniec
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we consent to the
incorporation by reference in the registration statement of
Associated Estates Realty Corporation on Form S-8 (File No. 333-
27429) of our report dated May 27, 1999 on our audit of the
financial statements and schedules of The AERC 401(K) Savings
Plan and Trust for the year ended December 31, 1998, which report
is included in the Annual Report on Form 11-K which is filed with
the Securities and Exchange Commission.
/s/ Reznick, Fedder & Silverman
-------------------------------
Reznick, Fedder & Silverman
Bethesda, Maryland
June 25, 1999
