Item 1. Business - ----------------
Vanguard Real Estate Fund I, A Sales-Commission-Free Income Properties Fund (the "Fund"), was organized on September 10, 1986 as a Massachusetts business trust and intends to continue to qualify as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has a finite life and intends to commence the liquidation of its remaining real estate investments over the next five years, market conditions permitting. In addition, the Fund is precluded from making any additional real estate investments. The Fund has no employees.
Pursuant to a Services Agreement dated December 23, 1986 (the "Services Agreement") between the Fund and The Vanguard Group, Inc. (the "Sponsor"), the Sponsor has been retained to provide administrative services for the Fund, including the maintenance of financial records, oversight of the performance of outside service providers and the preparation and distribution of communications to shareholders, etc., and to supervise its day-to-day business affairs. Pursuant to an Advisory Agreement dated December 23, 1986 (the "Advisory Agreement") between the Fund and Aldrich, Eastman & Waltch, Inc. (the "Adviser"), the Adviser has been retained to advise the Fund in connection with the evaluation, selection, management and disposition of its real estate investments. For additional information concerning the Sponsor, the Adviser, the Services Agreement and the Advisory Agreement, see Item 8, Financial Statements and Supplementary Data - Notes to Financial Statements, and Item 13, Certain Relationships and Related Transactions.
The Fund's business consists of holding investments primarily in income- producing real properties and mortgage loans that offer the potential to achieve the following investment objectives:
(i) to preserve and protect shareholders' capital; (ii) to provide shareholders with current income in the form of quarterly cash distributions and to provide growth of income over the remaining life of the Fund; and (iii) to provide long-term growth through appreciation in the value of the Fund's real estate investments.
In order to achieve these objectives, the Fund has invested, through direct ownership or shared-appreciation mortgages, in five existing income- producing properties or portfolios of properties, including one portfolio of three office buildings, two shopping centers, a portfolio of warehouses and industrial properties, and one apartment complex. The Adviser believes that the Fund's investments are diversified by both type of investment and geographic location.
As of February 28, 1994, the Fund had invested approximately $75 million in real estate assets, of which $44 million (59%) consisted of real estate owned directly, $29 million (39%) consisted of mortgage loan investments - including $17 million (23%) considered to be in-substance foreclosed assets and $2 million (2%) consisted of marketable securities.
The Fund has elected to be treated as a REIT under the Code. The Fund intends to invest and operate in a manner that will continue to maintain its qualification as a REIT.
The Fund's real estate investments are subject to competition from existing commercial, industrial, and residential properties and will be subject to competition from properties that are developed in the future. The REIT provisions of the Code impose certain financial, investment and operational restrictions that are not applicable to competing entities that are not REITs.
For additional information regarding the Fund's investments, operations, and other significant events, see Item 2, Properties, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data.
The following table sets forth the names and positions with the Fund of the executive officers of the Fund:
NAME AGE POSITIONS ------------------ --- --------------------------------- John C. Bogle 65 Trustee and Chairman of the Board John J. Brennan 39 President Ralph K. Packard 49 Vice President and Controller Richard F. Hyland 57 Treasurer Raymond J. Klapinsky 55 Secretary
All executive officers of the Fund also serve as executive officers of Vanguard Real Estate Fund II, A Sales-Commission-Free Income Properties Fund ("VREFII"). All executive officers of the Fund, with the exceptions of Mr. Packard, who was elected as an officer of the Fund in May 1988, and Mr. Klapinsky, who was elected as an officer of the Fund in May 1989, have served since the Fund's inception. Under the Fund's Declaration of Trust, the officers of the Fund serve at the pleasure of the Trustees. There are no family relationships between any Trustee or executive officer.
Mr. Bogle is Chairman and Chief Executive Officer of the Fund, The Vanguard Group, Inc. (the Sponsor of the Fund) and each of the investment companies in The Vanguard Group. Mr. Bogle has served in such capacities during each of the past eight years. Mr. Bogle also serves as a Director of The Mead Corporation and General Accident Insurance Companies.
Mr. Brennan is President of The Vanguard Group, Inc. and has served in such capacity since May 1989. Mr. Brennan also serves as a Director (Trustee) of The Vanguard Group, Inc., and each of the investment companies in The Vanguard Group. Mr. Brennan served as Executive Vice President and Chief Financial Officer of The Vanguard Group, Inc. from July 1986 to May 1989. Mr. Brennan served as Senior Vice President and Chief Financial Officer of The Vanguard Group, Inc. from July 1985 to July 1986, and as Assistant to the Chairman of the Board of The Vanguard Group, Inc. from July 1982 to July 1985.
Mr. Packard is Senior Vice President and Chief Financial Officer of The Vanguard Group, Inc. and has served in such capacity since June 1989. Mr. Packard served as Vice President and Controller of The Vanguard Group, Inc. from February 1986 to June 1989. Prior to joining The Vanguard Group, Inc., Mr. Packard served as Senior Vice President, Controller, and Deputy Director of Finance for the Society for Savings Bank, Hartford, Connecticut.
Mr. Hyland is, and has served for each of the past eight years as, Treasurer of The Vanguard Group, Inc. and each of the investment companies in The Vanguard Group.
Mr. Klapinsky is, and has served for each of the past eight years as, Senior Vice President and Secretary of The Vanguard Group, Inc. and each of the investment companies in The Vanguard Group.
Item 2.


Item 2. Properties - ------------------
As of December 31, 1993, the Fund held the following real estate investments:
Set forth below is a summary of the general competitive conditions for those properties whose book value is ten percent or more of the Fund's total assets as of December 31, 1993, or whose gross revenues are ten percent or more of the aggregate gross revenues of the Fund for the year ended December 31, 1993.
Plaza del Amo - -------------
There are approximately 85,000 households (average household income of $70,000) and 210,000 people within a three-mile radius of the shopping center. Southern California's economy and, in particular, the South Bay market, have been seriously undermined by the recent recession prompted, in part, by difficulties in the defense and aerospace industries. As a result, the retail property market has suffered for several years from weak demand growth. Current market vacancy has remained relatively unchanged at approximately 10-12% and estimated effective rent at comparable properties is $15-$18 per square foot for shop space and $5.25-$8.10 for anchor space.
Oakcreek Village - ----------------
There are approximately 14,500 households (average household income of $57,000) and 32,000 people within a three-mile radius of the center. Employment in the Raleigh-Durham metropolitan area grew 2.6% over the 12 month period ended December 1993. Estimated market rents for comparable properties are approximately $10-$12 per square foot. Tightening market conditions, however, have resulted in several significant proposed projects in Oakcreek Village's trade area. If built, these proposed competitive projects may reduce rent growth and increase the vacancy rate in the area.
Seattle Industrial Park - -----------------------
Boeing Company is the region's driving economic force (and the Seattle Industrial Park's lead tenant). The combination of weak worldwide demand and the severe oversupply of commercial aircraft has resulted in a significant contraction at Boeing. Over the past three years the Seattle economy has had to cope with a transition from a high-growth economy to a little or no-growth environment. Currently, the market is weak with vacancy rates averaging approximately 7%. The estimated triple net market rent for comparable properties is $2.75 per square foot for Valley Industrials and $4-$5 per square foot for Sea-Tac.
Sheffield Forest Apartments - ---------------------------
Washington DC's superior growth over the past decade has slowed appreciably to a rate more in line with the national average. With little near-term stimulus from the region's traditional growth sectors, government and construction, total employment growth is expected to be moderate over the next several years. Estimated market rents for comparable properties stand at $0.70 to $1.10 per square foot and the estimated vacancy rate for comparable properties is 5-6%.
Minnesota Portfolio - -------------------
The Twin Cities economy is characterized by a broad economic base. As a result, employment growth has remained relatively stable over the past decade, and the region has avoided significant job losses during the latest recession. Currently, employment is increasing at an annual rate of 2.1%. Vacancy rates and net market rents for comparable properties are as follows: Shoreview - rent of $7.50 to $9.00 per square foot and vacancy rate of 11%; Arden Hills - rent of $6.00 to $12.50 per square foot and vacancy rate of 5%; and Fairview - rent of $3.25 to $5.00 per square foot and vacancy rate of 13%.
Set forth below is certain operating data for those properties held by the Fund whose book value is ten percent or more of the Fund's total assets as of December 31, 1993 or whose gross revenues are ten percent or more of the aggregate gross revenues of the Fund for the year ended December 31, 1993.
Occupancy Rates: - ----------------
Plaza Del Oakcreek Seattle Ind. Minnesota Sheffield Amo Village Park Portfolio Forest Apt. --- ------- ---- --------- -----------
1993 98% 96% 99% 99% 93% 1992 94% 95% 99% 99% 93% 1991 92% 94% 98% 99% 93% 1990 100% 97% 98% 75% 96% 1989 98% 91% 99% 97% 95%
Avg. Effective Rental/Sq.Ft/Yr.: - -----------------
Plaza Del Oakcreek Seattle Ind. Minnesota Sheffield Amo Village Park Portfolio Forest Apt.* --- ------- ---- --------- -----------
1993 $13.23 $9.07 $3.00 $8.06 $8,796 1992 $13.06 $9.11 $2.47 $7.95 $8,976 1991 $13.72 $9.47 $1.95 $8.71 $9,240 1990 $13.11 $8.82 $1.96 $7.40 $9,180 1989 $13.15 $9.61 $1.92 $7.74 $8,952
* Annual rent/unit.
Real Estate Tax/Fiscal Year: - ---------------------------- Effective Rate Per $1000 of Assessed Value $11.63 $15.34 $14.30 $61.14 $32.92
Annual Taxes $85,723 $96,141 $239,927 $308,888 $220,639
Tenants Occupying 10% or more of rentable square footage: - ---------------------------------------------------------
Lease Expirations during the next ten years: - --------------------------------------------
A mortgage loan payable, secured by the Plaza del Amo property, is outstanding at December 31, 1993. Information concerning its principal, interest rate, amortization and maturity provisions is included in Note H to the Fund's financial statements, incorporated by reference in Item 8, Financial Statements and Supplementary Data, and in Schedule XII to Item 14.
Information concerning the interest rates, shared-appreciation features, and other terms of the Fund's mortgage investments is included in Note F to the Fund's Financial Statements, included in Item 8, Financial Statements and Supplementary Data, and in Schedule XII to Item 14.
Excluding the Fund's Sheffield investment, the Fund believes that its direct ownership properties, and the properties underlying its mortgage investments, are well maintained, in good repair, suitable for their intended uses and are adequately covered by insurance. For additional information regarding the Fund's real estate investments see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 8, Financial Statements and Supplementary Data, and Schedules XI and XII to Item 14.
With respect to the Sheffield investment, cash flow from the property has been insufficient to cover debt service obligations owing to the Fund. As a result, the partnership which owns the property deferred certain maintenance on the property and subsequently defaulted on the mortgage loan in January 1994. The Fund is currently negotiating with the partnership, whose sole asset is the Sheffield property, to obtain title to the property via a transfer of all of its partnership interests to the Fund in full satisfaction of the mortgage loan outstanding. Upon gaining ownership of the property, which the Fund believes to be imminent, the Fund intends to remedy the deferred maintenance on the property. The cost of such renovations, expected to be $150,000 - $250,000, will be financed from the Fund's current operating cash flow. The Fund believes that the Sheffield property is suitable for its intended use and is adequately covered by insurance.
Except for Sheffield as discussed above, the Fund has no other significant renovation, improvement or development plans for its other properties.
Information concerning the Federal tax basis and depreciation method and lives of the Fund's properties and components thereof and on which deprecation is taken is included in Notes A and E to the Fund's Financial Statements, included in Item 8, Financial Statements and Supplementary Data, and in Schedule XI to Item 14. All real estate owned is depreciated over 40 years for both financial and tax reporting purposes on a straight-line basis except for leasehold improvements which are depreciated over the term of the respective lease for financial reporting purposes.
Item 3.
Item 3. Legal Proceedings - -------------------------
None
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - -----------------------------------------------------------
None
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters - ---------------------------------------------------------------------
The Fund's shares of beneficial interest ("Shares") are traded on the American Stock Exchange (AMEX) under the symbol "VRO". The Shares have been traded on the AMEX since August 20, 1991. From July 24, 1989 to August 19, 1991, the Fund's shares were traded on the over the counter market and were quoted by the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). Prior to July 24, 1989, there was no trading market for the Shares. As of February 28, 1994, there were approximately 15,554 holders of record of the Fund's Shares.
Set forth below is certain information regarding the Fund's Shares for each of the eight fiscal quarters in the period ended December 31, 1993:
Year Ended December 31, ------------------------------------------- 1993 1992 Share Prices Share Prices ------------------ ------------------ High Low High Low -------- -------- -------- -------- For the Quarter Ended: March 31 $8-1/4 $6-5/8 $7-5/8 $6-5/8 June 30 8 7-1/4 7-3/4 6-5/8 September 30 8-1/4 7-3/8 8 6-5/8 December 31 8-3/4 7-3/8 7-1/4 6-1/4
The tables below indicate the amount of cash dividends per share declared during the years ended December 31, 1993 and 1992.
Record Distribution Date Per Share ----------------- -------------- 03-31-93 $ .15 06-30-93 .15 09-30-93 .15 12-22-93 1.24 ---- Total Distributions - 1993 $1.69
Record Distribution Date Per Share ----------------- -------------- 04-01-92 $ .15 06-30-92 .15 09-30-92 .15 12-22-92 .24 ---- Total Distributions - 1992 $ .69
Status of Distributions 1993 1992 ----------------------- ---- ----
Ordinary Income $ - $ .57 Return of Capital 1.69 .12 ---- ---- Total $1.69 $ .69
Except during its offering period, the Fund has historically paid dividends on a quarterly basis, and there are currently no contractual restrictions on the Fund's present or future ability to pay such dividends.
Item 6.
Item 6. Selected Financial Data - -------------------------------
The information required by this Item is included on page 18 of the Fund's 1993 Annual Report to Shareholders and is incorporated herein by reference thereto.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - -----------------------------------------------------------------------
The information required by this Item is included on pages 20 through 23 of the Fund's 1993 Annual Report to Shareholders and is incorporated herein by reference thereto.
Item 8.

Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------
The Fund's financial statements at December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993 are included on pages 6-17 of the Fund's 1993 Annual Report to Shareholders and are incorporated herein by reference thereto.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - -----------------------------------------------------------------------
None
PART III
Item 10.


Item 10. Directors and Executive Officers of the Registrant - -----------------------------------------------------------
The information required by this Item with respect to Trustees is included in the Fund's definitive proxy statement filed with the Securities and Exchange Commission on March 15, 1994 for its Annual Meeting of Shareholders to be held on April 22, 1994, which is incorporated herein by reference thereto. (Information with respect to executive officers of the Fund is included in Item 1.)
Item 11.
Item 11. Executive Compensation - -------------------------------
The information required by this Item is included in the Fund's definitive Proxy Statement filed with the Securities and Exchange Commission on March 15, 1994 for its Annual Meeting of Shareholders to be held on April 22, 1994, which is incorporated herein by reference thereto.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - -----------------------------------------------------------------------
The information required by this Item is included in the Fund's definitive Proxy Statement filed with the Securities and Exchange Commission on March 15, 1994 for its Annual Meeting of Shareholders to be held on April 22, 1994, which is incorporated herein by reference thereto.
Item 13.
Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------
The information required by this Item is included in the Fund's definitive Proxy Statement filed with the Securities and Exchange Commission on March 15, 1994 for its Annual Meeting of Shareholders to be held on April 22, 1994, which is incorporated herein by reference thereto.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------------------------------------------------------------------------
(a) 1. Financial Statements: ---------------------
The following financial statements as of, and for the years ended, December 31, 1993, 1992 and 1991 are incorporated in Item 8 herein by reference from the following pages of the Fund's 1993 Annual Report to Shareholders, which is filed as an Exhibit hereto.
ANNUAL REPORT PAGE NO.
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Statements of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 7 Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . 8-9 Statements of Changes in Shareholders' Equity . . . . . . . . . . . . . .10 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 11-17 Report of Independent Accountants . . . . . . . . . . . . . . . . . . . .17
The following financial statements of Lincoln Park Place II, a Maryland Limited Partnership, as of and for the year ended October 31, 1993 are filed as part of this Report on Form 10-K. Such partnership owns and operates the property underlying the Fund's Sheffield investment. FORM 10-K PAGE NO. Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . .25 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Statement of Operations . . . . . . . . . . . . . . . . . . . . . . . . .27 Statement of Changes in Partners' Deficit . . . . . . . . . . . . . . . .28 Statement of Cash Flows 29 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 30-32
2. Financial Statement Schedules: ------------------------------
The financial statement schedules included in Part IV of this report should be read in conjunction with the Fund's financial statements incorporated by reference in Item 8 of this report. FORM 10-K SCHEDULE PAGE NO.
I Marketable Securities - Other Investments . . . . . . . . . . .18 X Supplementary Income Statement Information. . . . . . . . . . .19 XI Real Estate and Accumulated Depreciation. . . . . . . . . . 20-21 XII Mortgage Loans on Real Estate . . . . . . . . . . . . . . . 22-23 Report of Independent Accountants . . . . . . . . . . . . . . .33
All other schedules have been omitted since the required information is presented in the financial statements, the related notes, or is not applicable.
3. Exhibits: ---------
Exhibit No. Description ----------- -----------
3.1 Amended and Restated Declaration of Trust, dated December 9, 1986, filed as exhibit 3 to the Fund's Registration Statement on Form S-11, SEC Registration #33-8649, and incorporated herein by reference.
3.2 Amendment #1 to Amended and Restated Declaration of Trust, dated January 10, 1987, filed as exhibit 3(b) to the Fund's Registration Statement on Form S-11, SEC Registration #33-15040, and incorporated herein by reference.
3.3 Amendment #2 to Amended and Restated Declaration of Trust, dated May 31, 1988, filed as exhibit 3 to the Fund's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988, and incorporated herein by reference.
3.4 By-laws, filed as exhibit 3 to the Fund's Registration Statement on Form S-11, SEC Registration #33-8649, and incorporated herein by reference.
10.1 Advisory Agreement between the Fund and Aldrich, Eastman & Waltch, Inc. dated December 23, 1986, filed as exhibit 10.1 to the Fund's Annual Report on Form 10- K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.2 Services Agreement between the Fund and The Vanguard Group, Inc. dated December 23, 1986, filed as exhibit 10.2 to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.3(a) Loan Agreement by and between Plaza Del Amo and Lawrence W. Doyle, J. Grant Monahon and Richard F. Burns, Trustees of AEW #82 Trust, established by Declaration of Trust dated August 14, 1987, dated September 16, 1987, filed as exhibit 10.3(a) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.3(b) Declaration of Trust, AEW #82 Trust and Schedule of Beneficial Interest dated August 14, 1987, filed as exhibit 10.3(b) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.3(c) All-Inclusive Promissory Note from Plaza Del Amo in favor of Lawrence W. Doyle, J. Grant Monahon and Richard F. Burns, Trustees of AEW #82, established by Declaration of Trust dated August 14, 1987, dated September 16, 1987, filed as exhibit 10.3(c) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference.
10.4(a) Purchase and Sale Agreement of Oakcreek Village Shopping Center, between Pacific Guaranty Retail Development Corporation and Michael O. Craig, Richard F. Burns and J. Grant Monahon as Trustees of AEW #96 Trust, under Declaration of Trust dated November 6, 1987, dated October 31, 1987, filed as exhibit 10.4(a) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.4(b) Declaration of Trust, AEW #96 Trust and Schedule of Beneficial Interest, dated November 6, 1987, filed as exhibit 10.4(b) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.4(c) First Amendment to Purchase and Sale Agreement of Oakcreek Village Shopping Center between Pacific Guaranty Retail Development Corporation and Michael O. Craig, Richard F. Burns and J. Grant Monahon as Trustees of AEW #96 Trust, under Declaration of Trust dated November 6, 1987, dated November 24, 1987, filed as exhibit 10.4(c) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.5(a) Purchase and Sale Agreement of Valley Industrial Park and Sea-Tac Industrial Park between Prudential Insurance Company of America and Joseph F. Azrack, Richard F. Burns and J. Grant Monahon as Trustees of AEW #105 Trust, under Declaration of Trust dated December 23, 1987, dated January 8, 1988, filed as exhibit 10.5(a) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.5(b) Declaration of Trust, AEW #105 Trust and Schedule of Beneficial Interest, dated December 23, 1987, filed as exhibit 10.5(b) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.6(a) Purchase and Sale Agreement of Vita-Fresh Vitamin Facility, dated January 10, 1988, between Vita- Fresh Vitamin Company, Inc. and Lawrence W. Doyle, Richard F. Burns and J. Grant Monahon as Trustees of AEW #113 Trust, under Declaration of Trust dated January 10, 1988, filed as exhibit 10.6(a) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.6(b) Declaration of Trust, AEW #113 Trust and Schedule of Beneficial Interest, dated January 19, 1988, filed as exhibit 10.6(b) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.7(a) Purchase and Sale Agreement of Everest I, Everest II, Fairview Industrial Building and Shoreview Professional Building between Everest Development ltd. and Michael O. Craig, Richard F. Burns and J. Grant Monahon as Trustees of AEW #106 Trust, under Declaration of Trust dated December 17, 1987, dated February 8, 1988, filed as exhibit 10.7(a) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.7(b) Declaration of Trust, AEW #106 Trust and Schedule of Beneficial Interest, dated December 17, 1987, filed as exhibit 10.7(b) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1987, and incorporated herein by reference.
10.8 All-Inclusive Promissory Note (Wraparound note) dated May 11, 1988, Escrow Agreement dated May 27, 1988 and Option Agreement dated May 11, 1988, all relating to the Fund's mortgage investment in the Carmel Executive Park, filed as exhibit 10 to the Fund's Quarterly Report on Form 10-Q Report for the quarter ended June 30, 1988, and incorporated herein by reference.
10.9(a) Purchase and Sale Agreement of Citadel II office building, between Crow Vista #1 and Aldrich, Eastman & Waltch, Inc., a Massachusetts Corporation acting as agent for the Fund, filed as exhibit 10(a) to the Fund's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, and incorporated herein by reference.
10.9(b) Citadel II Escrow Agreement, filed as exhibit 10(b) to the Fund's Quarterly Report on Form 10-Q for the quarter ended September 30, 1988, and incorporated herein by reference.
10.10(a) Loan Agreement for Sheffield Forest Apartments by and between Lincoln Park Place II Limited Partnership and J. Grant Monahon, Richard F. Burns and Marvin M. Franklin, Trustees of AEW #145 Trust, established by Declaration of Trust dated October 14, 1988, dated December 7, 1988, filed as exhibit 10.10(a) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference.
10.10(b) Second Amended and Restated Promissory Note for Sheffield Forest Apartments from Lincoln Park Place II Limited Partnership in favor of J. Grant Monahon, Richard F. Burns and Marvin M. Franklin, Trustees of AEW #145 Trust, established by Declaration of Trust dated October 14, 1988, dated December 7, 1988, filed as exhibit 10.10(b) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference.
10.10(c) Amended and Restated Deed of Trust for Sheffield Forest Apartments by and between Lincoln Park Place II Limited Partnership and J. Grant Monahon, Richard F. Burns and Marvin M. Franklin, Trustees of AEW #145 Trust, established by Declaration of Trust dated October 14, 1988, dated December 7, 1988, filed as exhibit 10.10(c) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference.
10.10(d) Declaration of Trust, AEW #145 Trust and Schedule of Beneficial Interest dated October 14, 1988, filed as exhibit 10.10(d) to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference.
10.11(a) Promissory note of Citadel II by and between the Variable Annuity Life Insurance Company and J. Grant Monahon, Richard F. Burns, and Lee H. Sandwen, Trustees of AEW #131 Trust, established by Declaration of Trust dated June 7, 1988, dated October 9, 1990, filed as exhibit 10.1(a) to the Fund's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, and incorporated herein by reference.
10.11(b) Mortgage and Security Agreement of Citadel II by and between the Variable Annuity Life Insurance Company and J. Grant Monahon, Richard F. Burns, and Lee H. Sandwen, Trustees of AEW #131 Trust, established by Declaration of Trust dated June 7, 1988, dated October 9, 1990, filed as exhibit 10.1(b) to the Fund's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, and incorporated herein by reference.
10.11(c) Assignment of Lessor's Interest in Leases of Citadel II by and between the Variable Annuity Life Insurance Company and J. Grant Monahon, Richard F. Burns, and Lee H. Sandwen, Trustees of AEW #131 Trust, established by Declaration of Trust dated June 7, 1988, dated October 9, 1990, filed as exhibit 10.1(c) to the Fund's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990, and incorporated herein by reference.
10.12 Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate by and between the Fujita Corporation USA, a California Corporation, and Richard F. Burns, J. Grant Monahon, Lawrence W. Doyle, Trustees of AEW #113 Trust, established by Declaration of Trust dated January 19, 1988, filed as exhibit 10.12 to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference.
10.13 Purchase and Sale Agreement of the Everest I ("Zycad") Building by and between Richard F Burns, J. Grant Monahon, and Bruce H. Freedman as Trustees of AEW #106, under Declaration of Trust dated December 17, 1987 and JLS and L.P., dated April 23, 1991, filed as exhibit 10.13 to the Fund's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991 and incorporated herein by reference.
10.14 Settlement Agreement and Mutual Release from mortgage by and among J. Grant Monahon, Richard F Burns and Lee. H. Sandwen, Trustees of AEW #155 Trust under Declaration of Trust dated January 11, 1989, Mark C. Dickinson, Dickinson Development Corp. and Citadel III Partners, Ltd., a Florida limited partnership, dated December 30, 1991, filed as exhibit 10.14 to the Fund's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.
10.15 First Amendment to Second Amended and Restated Promissory Note by and between Lincoln Park Place II Limited Partnership, a Maryland limited partnership and J. Grant Monahon, Richard F. Burns and Devin McCall, Trustees of AEW #145 Trust under Declaration of Trust dated October 14, 1988 dated April 30, 1992, filed as exhibit 10.15 to the Fund's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and incorporated herein by reference.
10.16 Amendment No.1 to Loan Agreement by and between Lincoln Park Place II Limited Partnership, a Maryland limited partnership and J. Grant Monahon, Richard F. Burns and Kevin McCall, Trustees of AEW #145 Trust under Declaration of Trust dated October 14, 1988, dated April 30. 1992, filed as exhibit 10.16 to the Fund's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and incorporated herein by reference.
10.17 Amendment No.1 to All-Inclusive Promissory Note by and between Piazzagalli Development Company, a Vermont General Partnership and J. Grant Monahon, Richard F. Burns and Lee H. Andwen, Trustees of AEW #127 Trust, under Declaration of Trust dated May 3, 1988, dated December 23, 1991 for purposes of reference, filed as exhibit 10.17 to the Fund's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and incorporated herein by reference.
10.18 Amendment No.1 to Loan Agreement by and between Piazzagalli Development Company, a Vermont General Partnerhip and J. Grant Monahon, Richard F. Burns and Lee H. Sandwen, Trustees of AEW #127 Trust, under Declaration of Trust dated May 3, 1988, dated December 23, 199 for purposes of reference, filed as exhibit 10.18 to the Fund's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and incorporated herein by reference.
13 1993 Annual Report to Shareholders. (With the exception of the information and data incorporated by reference in Items 6, 7, and 8 of this Annual Report on Form 10-K, no other information or data appearing in the 1993 Annual Report to Shareholders is to be deemed filed as part of this report.)
(b) Reports on Form 8-K
The Fund has filed no reports on Form 8-K during the fourth quarter ended December 31, 1993.
SCHEDULE I
VANGUARD REAL ESTATE FUND I, A SALES-COMMISSION-FREE INCOME PROPERTIES FUND MARKETABLE SECURITIES - OTHER INVESTMENTS December 31, 1993
Number of Shares or Units -- Cost and Name of Issuer and Principal Amount of Market Value Title of Issue Bonds and Notes (000) - ------------------ ------------------------- ------------
Vanguard Money Market Reserves: Prime Portfolio $2,482,738 $2,483 ------
TOTAL $2,483 ======
Temporary Cash Investments: Certificates of Deposit
Commerz Bank $2,000,007 $2,000 3.35% 1/4/94
Canadian Imperial Bank 2,000,000 2,000 of Commerce 3.25% 1/5/94
Westdeutsch Landes Bank 2,000,000 2,000 3.18% 1/6/94 ------
TOTAL $6,000 ======
SCHEDULE X
VANGUARD REAL ESTATE FUND I A SALES-COMMISSION-FREE INCOME PROPERTIES FUND SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended December 31, -------------------------------------------------
1993 1992 1991 (000) (000) (000) ----- ----- ----- 1. Maintenance and repairs $ 275 $ 374 $ 448
2. Depreciation and amortization 1,503 1,610 1,519
3. Real estate taxes 823 887 897
Schedule XI
VANGUARD REAL ESTATE FUND I, A SALES-COMMISSION-FREE INCOME PROPERTIES FUND REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1993 (000)
Property Description -------------------- Seattle Oakcreek Industrial Minnesota Village, Parks, Two Portfolio, Shopping Industrial Three Office Center, Parks, Buildings, Durham, NC Seattle, WA Roseville, MN TOTALS ------------ ------------ ------------- -------
Encumbrances None None None
Initial Cost to Fund
Land $ 3,100 $ 8,250 $ 1,725 $13,075
Building and Improvements $ 7,492 $14,066 $10,043 $31,601
Total $10,592 $22,316 $11,768(d) $44,676
Cost capitalized subsequent to acquisition
Improvements $ 606 $ 778 $ 341 $ 1,725
Gross amount at which carried at close of period (a)
Land $ 3,100 $ 8,250 $ 1,440 $12,790
Building and Improvements $ 8,098 $14,844 $ 8,490 $31,432
Total (b) $11,198 $23,094 $ 9,930 $44,222
Accumulated Depreciation (c) $ 1,304 $ 2,232 $ 1,253 $ 4,789
Date of 1967 and 1978 and Construction 1986 1979 1986
Date Acquired 11/87 1/88 2/88
Depreciable Life 40 years 40 years 40 years
PAGE
SCHEDULE XI (Continued)
(d) Zycad Building sold in 1991 with a land and building cost of $1,894,000.
Schedule XII
VANGUARD REAL ESTATE FUND I, A SALES-COMMISSION-FREE INCOME PROPERTIES FUND MORTGAGE LOANS ON REAL ESTATE (e) DECEMBER 31, 1993
Wraparound Mortgages Senior Mortgage -------------------- ---------------
Plaza del Amo Sheffield Forest Shopping Center, Apartments, Torrance, CA (a) Silver Spring, MD (b) -------------------- --------------------- Effective Rate 10.3% 9.3%
Pay Rate 9.7%-10.8% 8.5%-9%
Maturity Date 1997 1998
Call Date 1994 1995
Periodic Interest only, Interest only, Payment principal due principal due Terms upon maturity upon maturity or call date. or call date.
Prior Liens (a) None
Face Amount of Totals Mortgages ------- (000) $10,646 $17,992 $28,638
Carrying Amount of Mortgages (000) (c)(d) $10,646 $17,192 $27,838
Principal Amount of Loans Subject to Delinquent Principal or Interest None None
(a) The Fund advanced $7,750,000 to enter into a shared-appreciation, wraparound, mortgage loan secured by the Plaza del Amo Shopping Center ("Plaza"). In addition, Plaza secures two existing senior mortgage loans, which at the time of investment had an aggregate outstanding balance of $2,896,000. The funds advanced plus these two existing senior mortgages resulted in a total wraparound loan of $10,646,000. Upon repayment of the loan, the Fund is entitled to a share of Plaza's appreciation, if any, equal to 50% of Plaza's fair market value in excess of the original balance of the wraparound loan.
Schedule XII (Continued)
Deloitte & Touche - ----------
- -------------------------------------------------------------------------
LINCOLN PARK PLACE II, A MARYLAND LIMITED PARTNERSHIP ------------------------------
Financial Statements for the Year Eanded October 31, 1993, and Independent Auditors' Report
- -------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
General Partners of Lincoln Park Place II, A Maryland Limited Partnership
We have audited the accompanying balance sheet of Lincoln Park Place II, A Maryland Limited Partnership (the Partnership) as of October 31, 1993, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of October 31, 1993, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, conditions exist which raise substantial doubt about the ability of the Partnership to continue as a going concern. Management's plans in regard to these matters are also described in Note 5. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Deloitte & Touche Dallas, Texas 75201-6778 November 20, 1993
LINCOLN PARK PLACE II, A MARYLAND LIMITED PARTNERSHIP
BALANCE SHEET OCTOBER 31, 1993
ASSETS
INVESTMENT IN REAL ESTATE, AT COST: Land $ 2,600,376 Buildings and improvements 10,796,809 Less accumulated depreciation (2,782,304) -------------
10,614,881
DUE FROM AFFILIATE 1,788,684
DEFERRED FINANCING COSTS, NET OF ACCUMULATED AMORTIZATION OF $97,299 142,345
CASH 97,439
ESCROW DEPOSITS 26,436
OTHER ASSETS 167,035 -----------
TOTAL $ 12,836,820 =============
LIABILITIES AND PARTNERS' DEFICIT
MORTGAGE PAYABLE $ 18,620,029
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 303,079
TENANT SECURITY DEPOSITS 75,629
Total liabilities 18,998,737
PARTNERS' DEFICIT (6,161,917) -------------
TOTAL $ 12,836,820 =============
See notes to financial statements.
LINCOLN PARK PLACE II, A MARYLAND LIMITED PARTNERSHIP - -----------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 1993 - ---------------------------------------------------------------------------
REVENUES: Rental $ 1,982,340 Other 33,795 ---------
2,016,135
EXPENSES: Interest 1,668,949 Depreciation and amortization 447,027 Operating 589,773 Real estate taxes 225,065 --------- 2,930,814 ---------
NET LOSS $ (914,679) =========
See notes to financial statements.
LINCOLN PARK PLACE II, A MARYLAND LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' DEFICIT YEAR ENDED OCTOBER 31, 1993
Managing General Partner,Limited Partner, Lincoln PropertyAmerican Financial Company No. 1288 Realty, Inc. Total
PARTNERS' DEFICIT, NOVEMBER 1, 1992 $(5,247,738) $500 $(5,247,238)
Net loss (914,679) (914,679) ----------- ----- -----------
PARTNERS' DEFICIT, OCTOBER 31, 1993 $(6,162,417) $500 $(6,161,917) =========== ==== ===========
See notes to financial statements.
LINCOLN PARK PLACE II, A MARYLAND LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS YEAR ENDED OCTOBER 31, 1993
CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(914,679) Depreciation and amortization 447,027 Changes in assets and liabilities: Decrease in deposits 1,898 Decrease in other assets 7,721 Increase in accounts payable 117,064 Increase in tenant security deposits 11,938 --------
Net cash used in operating activities (329,031)
CASH FLOWS FROM INVESTING ACTIVITIES: Additions to buildings and improvements (24,129)
CASH FLOWS FROM FINANCING ACTIVITIES: Decrease in due from affiliate 227,614 Increase in mortgage payable 141,450 Decrease in deferred financing costs 384 ---------
Net cash provided by financing activities 369,448 ---------
NET INCREASE IN CASH 16,288
CASH, BEGINNING OF YEAR 81,151 ---------
CASH, END OF YEAR $ 97,439 =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $1,530,388 ==========
See notes to financial statements.
LINCOLN PARK PLACE II, A MARYLAND LIMITED PARTNERSHIP - -----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS YEAR ENDED OCTOBER 31, 1993 - ---------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Lincoln Park Place II, A Maryland Limited Partnership (the Partnership) was formed December 1, 1985, for the purpose of owning, developing and operating a 256-unit garden apartment project in Montgomery County, Maryland. Lincoln Property Company No. 1288, A Maryland Limited Partnership is the managing general partner, and American Financial Realty, Inc. (AFR) is the limited partner. The project was started in November 1986 and completed in December 1987 and had an occupancy rate of 97% at October 31, 1993.
Basis of Accounting - The accounts of the Partnership are maintained on the basis of accounting used for federal income tax reporting purposes. Memorandum entries have been made to present the accompanying financial statements in accordance with generally accepted accounting principles.
Depreciation and Amortization - Buildings and improvements are stated at cost and are depreciated or amortized using the straight-line method over useful lives ranging from 5 to 30 years.
Deferred Financing Costs - Financing costs incurred in connection with obtaining and closing the mortgage payable have been capitalized and are being amortized over the term of the note.
Other Assets - Other assets consist primarily of prepaid real estate taxes and insurance and deferred expenses.
Federal Income Taxes - The financial statements include only those assets, liabilities and results of operations which relate to the business of the Partnership. The financial statements do not include any assets, liabilities, revenues or expenses attributable to the partners' individual activities. No federal or state income taxes are payable by the Partnership, and none have been provided in the accompanying financial statements. The partners are to include their respective share of partnership profits or losses in their individual tax returns.
Net income or loss determined under generally accepted accounting principles is allocated among the partners based upon provisions in the partnership agreement even though actual partnership allocations are made on an income tax basis. Consequently, the amounts so allocated will not agree to the allocations on the income tax returns.
2. TRANSACTIONS WITH AFFILIATES
Certain of the Partnership's expenses and other disbursements are paid from a central operating account of a general partnership affiliated with the managing general partner in the normal course of business. The Partnership reimburses the affiliate on a regular basis for disbursements made on its behalf. All disbursements are identified by partnership, and the disbursements and reimbursements are accounted for by the Partnership as due to or from the affiliate.
The Partnership has entered into an agreement with Lincoln Property Company N.C., Inc., an affiliate of the managing general partner, which provides for management of the property. For its services, Lincoln Property Company N.C., Inc. is entitled to receive a fee of 5% of monthly rents, as defined, amounting to $101,804 for the fiscal year.
3. MORTGAGE PAYABLE
The permanent financing was obtained from Aldrich, Eastman & Waltch #145 Trust in the amount of $18,000,000, evidenced by the second amended and restated promissory note. The note accrues interest at the base rate of 9.0% and requires monthly payments in arrears at the current pay rate of 8.5%. The pay rate increases 0.5% on December 7, 1993, and remains at the rate of 9.0% thereafter. Accrued but unpaid interest is added to the outstanding principal balance monthly and bears interest at the base rate of 9.0%. Participation interest based on adjusted gross revenue, as defined, may become due and payable quarterly (no participation interest was paid during the fiscal year ended October 31, 1993). Upon the occurrence of certain events, appreciation interest, as defined, becomes due. The note matures December 7, 1998, at which time all principal and deferred interest become due. The note may be prepaid after December 7, 1995, and the lender has the right to call the note, making it fully due and payable any time following December 7, 1994, provided six months' notice of such intention is given. The land, building and improvements serve as collateral for the note which is nonrecourse to the partners of the Partnership. However, certain partners of the managing general partner have guaranteed the payment of this indebtedness under certain conditions in an amount not to exceed $2,000,000. The note payable has an outstanding balance of $18,000,000 and deferred interest of $620,029 at October 31, 1993.
4. PARTNERS' DEFICIT
Capital Contributions - In accordance with the partnership agreement, no additional contributions are required from partners to provide funds for the Partnership.
Allocation of Profits and Losses - The net profits, net gains and net losses from operations of the Partnership and capital transactions shall be allocated 100% to the managing general partner, and the limited partner shall have no interest in such net profits, gains or losses.
5. CASH DEFICITS
During the year ended October 31, 1993, the Partnership incurred cash deficits from operations. Management anticipates that the Partnership will continue to incur cash deficits from operations. There can be no assurance that the Partnership will be able to obtain loans to fund such deficits. Management intends to continue operating the Partnership in its present form while investigating options to improve operations of the Partnership. However, there is no assurance management will be successful in its efforts. This uncertainty raises substantial doubt about the Partnership's ability to continue as a going concern.
* * * * * *
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Trustees of Vanguard Real Estate Fund I, A Sales-Commission-Free Income Properties Fund
Our audits of the financial statements referred to in our report dated January 27, 1994 appearing on page 17 of the 1993 Annual Report to Shareholders of Vanguard Real Estate Fund I, A Sales-Commission-Free Income Properties Fund, (which report and financial statements are incorporated by reference in this Annual Report on Form 10-K) also included audits of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
PRICE WATERHOUSE Philadelphia, Pennsylvania January 27, 1994
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.
VANGUARD REAL ESTATE FUND I, A Sales-Commission-Free Income Properties Fund
3/30/94 /s/ John J. Brennan _________________ _________________________________ DATE John J. Brennan President
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 on the dates indicated.
3/30/94 /s/ J. Mahlon Buck, Jr. _________________ _________________________________ DATE J. Mahlon Buck, Jr. Trustee
3/30/94 /s/ William S. Cashel, Jr. _________________ _________________________________ DATE William S. Cashel, Jr. Trustee
3/30/94 /s/ David C. Melnicoff _________________ _________________________________ DATE David C. Melnicoff Trustee
3/30/94 /s/ J. Lawrence Wilson _________________ _________________________________ DATE J. Lawrence Wilson Trustee
3/30/94 /s/ Ralph K. Packard _________________ _________________________________ DATE Ralph K. Packard Vice President & Controller
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
13 1993 Annual Report to Shareholders . . . . . . . . . . . .36