SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: October 31, 1997
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-23954 54-1589139
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 8-K
Index
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Independent Auditors' Report
(Barrington Parc Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Barrington Parc Apartments) *
Note to Historical Statement of
Income and Direct Operating
Expenses (Barrington Parc Apartments)*
b. Independent Auditors' Report
(St. Regis (formerly Sterling Arbor) Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(St. Regis (formerly Sterling Arbor) Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (St. Regis (formerly Sterling Arbor) Apartments)*
c. Independent Auditors' Report
(Remington Place (formerly Sterling Place) Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Remington Place (formerly Sterling Place) Apartments)*
- ----------
* To be filed by amendment.
2
Note to Historical Statement of Income and Direct Operating
Expenses (Remington Place (formerly Sterling Place)
Apartments)*
d. Pro Forma Statement of Operations for the Nine Months ended
September 30, 1997 (unaudited)*
Pro Forma Balance Sheet as of
September 30, 1997 (unaudited)*
Pro Forma Statement of Operations
for the Year ended December 31, 1996
(unaudited)*
e. Exhibits
10.1 Purchase Contract for Barrington Parc Apartments
10.2 Purchase Contract for St. Regis (formerly Sterling
Arbor) Apartments
10.3 Purchase Contract for Remington Place (formerly
Sterling Place) Apartments
23.1 Consent of Independent Auditors*
23.2 Consent of Independent Auditors*
23.3 Consent of Independent Auditors*
- ----------
* To be filed by amendment.
3
Item 2. Acquisition or Disposition of Assets
BARRINGTON PARC APARTMENTS
Norcross, Georgia
On October 31, 1997, Cornerstone Realty Income Trust, Inc. (the "Company")
purchased the Barrington Parc Apartments, a 188-unit apartment complex located
at 1405 Beaver Ruin Road, Norcross, Georgia (the "Property"). Norcross is just
outside Atlanta.
The Company purchased the Property from an affiliate of Winthrop Financial
Associates, which is unaffiliated with the Company. The purchase price was
$7,850,000, all of which was borrowed by the Company under the Company's
unsecured line of credit. Title to the Property was conveyed to the Company by
limited warranty deed.
Location. The Property is located off of Buford Highway in Norcross,
Georgia, within Gwinnett County, just outside Atlanta, Georgia. The following
information concerning the metropolitan Atlanta area is based in part upon
information provided by the greater Atlanta Chamber of Commerce.
The economy of the greater Atlanta area is diverse, and includes as
significant sectors manufacturing, transportation, distribution, retailing,
wholesaling, finance, government, research, education and medicine. More than
80% of the Fortune 500 industrial companies and over 1,800 local manufacturing
firms have operations in the area. Atlanta is the national headquarters of
Coca-Cola, Cable News Network, Delta Air Lines, United Parcel Service, Home
Depot and Holiday Inn Worldwide. The city is also headquarters for the Sixth
District Federal Reserve Bank.
The convention and visitor trade is also one of Atlanta's primary
industries and has an important impact on the overall economy of the city.
Atlanta's hosting of the 1996 Centennial Olympic Games furthered its visibility
as an important city internationally.
Atlanta sits at the junction of three major Interstate Highways (I-20, I-75
and I-85), and I-285 (Perimeter Highway) encircles the city. There are several
airports in the area, but the principal airport is Hartsfield-Atlanta
International Airport, which had over 60,000 flights and over 4.5 million
passengers in 1994. Atlanta also has a rapid rail transit system (known as the
Metropolitan Atlanta Rapid Transit Authority, or "MARTA").
Gwinnett County had the highest population growth rate of any large county
in the United States during the 1980's. From 1980 to 1990, Gwinnett County added
almost 190,000 new residents, and the forecasted population growth for Gwinnett
County from 1990 to 2000 is 142,000.
4
The immediate area surrounding the Property consists of other multi-family
and single-family housing and commercial and retail development. The Property is
proximate to businesses, major shopping, entertainment, schools and churches.
The Property is approximately one mile east of Interstate 85 and six miles from
Interstate 285.
Description of the Property. The Property consists of 188 garden and
townhouse style apartment units in 21 two- and three-story buildings on
approximately 18 acres of land. The Property was built in 1986.
The Company believes that the Property is generally in good condition and
has been well maintained. The Company has budgeted $131,000 for certain
renovations to the Property, including clubhouse renovations, wood and trim
replacement, exterior painting and resealing, and restriping of parking areas.
The Property offers several types of units. The unit mix and rents
currently being charged new tenants are as follows:
APPROXIMATE
INTERIOR SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- -------- ---- ------- ------
28 One bedroom/one bathroom 700 $600
6 One bedroom/one bathroom 800 620
28 One bedroom/one bathroom 800 635
12 One bedroom/one bathroom townhouse 900 660
(middle)
12 One bedroom/one bathroom townhouse 900 690
(end)
30 Two bedrooms/two bathrooms (split) 1,000 710
30 Two bedrooms/two bathrooms (split) 1,100 760
14 Two bedrooms/two bathrooms 1,000 715
14 Two bedrooms/two bathrooms 1,100 735
14 Two bedrooms/two bathrooms 1,100 755
The apartments provide a combined total of approximately 176,000 square
feet of net rentable area.
5
Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
two-bedroom, two-bath apartment unit (1,100 square feet) rented for $545 in
1992, $560 in 1993, $595 in 1994, $650 in 1995, and $680 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995 and 1996 was $6.56, $6.75, $7.17, $7.83, and $8.19, respectively.
The buildings are wood-frame construction on concrete slabs. Exteriors are
cedar siding. The buildings have pitched roofs covered with asphalt shingles.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
apartment unit includes full-sized washer/dryer connections, a pantry, a
wood-burning fireplace, a breakfast bar, overhead directional lighting,
mini-blinds and walk-in closets. Each kitchen is equipped with a
refrigerator/freezer with icemaker, electric range and oven, dishwasher and
garbage disposal. The owner of the property supplies cold water, sewer service
and trash removal. The tenants pay for their electricity service, which includes
heating, air-conditioning, cooking, hot water and lights.
The Property has an outdoor swimming pool and jacuzzi, a lighted tennis
court, a sand volleyball court, a laundry facility, a fitness center with
showers, and a car wash area. The Property also has a clubhouse that includes a
fireplace, kitchen, entertainment area and leasing office. There is ample paved
parking for tenants.
There are at least seven apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
lower when compared with those of the Property. Based on a recent telephone
survey, the Company estimates that occupancy in nearby competing properties now
averages approximately 90 %.
According to information provided by the Seller, physical occupancy at the
Property averaged approximately 94% in 1992, 95% in 1993, 95% in 1994, 95% in
1995, 91% in 1996, and 91% during the first six months of 1997. On October 14,
1997, the Property was 86% occupied.
The tenants are a mix of white-collar and blue-collar workers, students and
retired persons.
For 1996, Gwinnett County specified an assessed value for the Property
equal to $6,800,000. The taxable value is equal to 40% of the assessed value, or
$2,720,000. The tax rate was $0.034450, and the total real estate taxes were
calculated as $93,704.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about 5,440,000) will be depreciated over 27.5
years on a straight-line basis. The
6
basis of the personal property portion will be depreciated in accordance with
the modified accelerated cost recovery system of the Code. Amounts to be spent
by the Property on repairs and improvements will be treated for tax purposes as
permitted by the Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following.
1. The Company believes that the greater Atlanta, Georgia metropolitan area
will continue to enjoy steady population increase and steady economic
development and that such increase and development will support stable occupancy
rates and reasonable increases in rents at the Property. In particular, the
Company believes that the Property is located in a particularly desirable part
of the Atlanta metropolitan area.
2. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition. The Company also believes
that the Property will benefit from additional renovations to be undertaken by
the Company.
3. The Property has an advantageous location in Gwinnett County, one of the
nation's largest and fastest growing commercial areas.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
7
ST. REGIS (formerly Sterling Arbor) APARTMENTS
Raleigh, North Carolina
On October 31, 1997, the Company purchased the Sterling Arbor Apartments, a
180- unit apartment complex located at 6210 St. Regis Circle, Raleigh (Wake
County), North Carolina (the "Property"). The Company has changed the name of
the Property to the "St. Regis Apartments."
The Company purchased the Property from Mrs. Robert L. Grubb, who is not
affiliated with the Company. The purchase price was $9,800,000. The entire
purchase price was borrowed under the Company's unsecured line of credit and
title to the Property was conveyed to the Company by limited warranty deed.
Location. The Property is located off of Western Boulevard and Farmgate
Road in Raleigh, North Carolina. The following information is based in part on
information provided by the Raleigh Chamber of Commerce.
The Raleigh/Durham Metropolitan Statistical Area is also known as the
Research Triangle, and contains the cities of Raleigh, Durham and Chapel Hill.
It is the second largest metropolitan area in North Carolina, after the
Charlotte metropolitan area.
Raleigh is the capital of North Carolina and is the fastest growing major
city in North Carolina. The population of the city was approximately 150,000 in
1980 and estimated to be approximately 208,000 in 1993.
Research Triangle Park, which is located an approximately 10-minute drive
from the Property, is the largest planned research and development industrial
park in the United States. It was founded in 1958 as a cooperative effort among
Duke University, the University of North Carolina and North Carolina State
University. The Park comprises approximately 6,800 acres and contains over 14
million square feet of industrial space. Among the Park's approximately 60
research-oriented firms are IBM, Glaxo and Northern Telecom.
Raleigh's economy generally is a blend of industry, education and
government. The city's employment stability, strategic location, favorable labor
climate, pro-business attitude and pool of educated workers have helped the area
attract many major businesses and industries. Major industries in the area
include electronics, electrical equipment and machinery, metal working and food
processing.
The Research Triangle is home to Duke University, the University of North
Carolina at Chapel Hill and North Carolina State University.
The immediate area surrounding the Property consists of other multi-family
and single-family housing, and commercial and retail development. The Property
is located just off
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Interstate 40 in the northeast portion of Cary, North Carolina. The Property is
proximate to major employment areas of Raleigh, including the Research Triangle,
Cary Towne Center and the downtown central business district. The Property is
also close to shopping, dining, entertainment, schools and churches. The
Property is an approximately 15-minute drive from the Raleigh/Durham
International Airport.
Description of the Property. The Property consists of 180 garden-style
apartment units in eight three-story buildings on approximately 10.4 acres of
land. The Property was built in 1986.
The Company believes that the Property is in good condition and has been
well maintained. The Company has budgeted approximately $135,000 for certain
renovations to the Property, including redecoration of the clubhouse,
replacement of wood siding and trim, and painting.
The Property offers five unit types. The unit mix and rents currently being
charged new tenants are as follows.
APPROXIMATE
INTERIOR SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- -------- ---- ------- ------
28 One bedroom/one bathroom 641 $610
32 One bedroom/one bathroom 672 620
32 Two bedrooms/one bathroom 864 695
28 Two bedrooms/one bathroom 880 705
60 Two bedrooms/two bathrooms 991 785
The apartments provide a combined total of approximately 151,000 square
feet of net rentable area.
Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
two-bedroom, two-bath apartment unit (991 square feet) rented for $590 in 1992,
$620 in 1993, $655 in 1994, $685 in 1995, and $710 in 1996, The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995, and 1996 was $7.51, $7.89, $8.34, $8.72, and $9.04, respectively.
The buildings are wood-frame construction on concrete slabs. The exteriors
are masonite siding and roofs are pitched and covered with asphalt shingles.
9
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath, as well as a cable television hook-up and
individually controlled heating and air-conditioning unit. Each unit includes a
wood-burning fireplace, full-sized washer/dryer connections, vaulted ceilings,
Palladian windows, walk-in closets, a patio or balcony, and an outside storage
closet. Some units also have skylights. Each kitchen is equipped with a
refrigerator/freezer, electric range and oven, dishwasher and garbage disposal.
The owner of the Property supplies cold water, sewer service and trash removal.
The tenants pay for their electricity service, which includes heat,
air-conditioning, cooking, hot water and lights.
The Property has an outdoor swimming pool with patio area, a lighted tennis
court, a brick barbecue terrace, a fitness center and a laundry room. The
Property also includes a clubhouse with a kitchen, entertainment area and a
leasing office. There is ample paved parking for tenants.
There are at least three apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 93%.
According to information provided by the seller, physical occupancy at the
Property averaged approximately 98% in 1992, 98% in 1993, 99% in 1994, 98% in
1995, 99% in 1996, and 96% during the first six months of 1997. On October 23,
1997, the Property was 92% occupied.
Most of the tenants at the Property currently are professionals. There also
are some blue-collar workers, students and retired persons.
The following table sets forth the 1996 real estate tax information on the
Property.
ASSESSED
JURISDICTION VALUE TAX RATE TAX
------------ ----------- -------- ----------
Wake County $5,668,093 0.6300 $35,708.99
City of Raleigh 5,668,093 0.5375 30,466.00
Plus residential waste
reduction fee of $16.50 per
unit: 2,970.00
TOTAL: $69,144.99
10
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,408,138) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Raleigh, North Carolina area will enjoy
continued economic development and steady population increase, and that such
development and increase will support stable occupancy rates and reasonable
increases in rents at the Property. In particular, the Company believes that the
presence of Research Triangle Park and three major universities in the area, and
associated businesses and activities, will have a positive impact on the area
for the indefinite future.
2. The Company already owns several other apartment complexes in Raleigh
and believes that it is knowledgeable and experienced regarding the Raleigh
apartment rental market.
3. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition.
4. The Property is conveniently proximate to major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
11
REMINGTON PLACE (formerly Sterling Place) APARTMENTS
Raleigh, North Carolina
On October 31, 1997, the Company purchased the Sterling Place Apartments, a
136- unit apartment complex located at 1909 Eyrie Court in Raleigh (Wake
County), North Carolina (the "Property"). The Company has changed the name of
the Property to the "Remington Place Apartments."
The Company purchased the Property from Sterling Apartments LLC, which is
not affiliated with the Company. The purchase price for the Property was
$7,900,000. The entire purchase price of the Property was borrowed under the
Company's unsecured line of credit and title to the Property was conveyed to the
Company by a limited warranty deed.
Location. The Property is located just off of Interstate 40 on Lake Dam
Road in southwest Raleigh, North Carolina, less than a mile from Clarion
Crossing Apartments, a property purchased by the Company in September, 1997. For
information on the Raleigh, North Carolina metropolitan area, see "Sterling
Arbor Apartments," above.
The immediate area surrounding the Property consists of other multi-family
and single-family housing, and commercial and retail development. The Property
is adjacent to Lake Johnson and the city park. The Property is in close
proximity to major employment centers in the area, including the Research
Triangle, Cary Towne Center and the downtown central business district. The
Property is also close to North Carolina State University. There are shopping,
dining, entertainment, schools and churches located near the Property. The
Property is an approximately 15-minute drive from the Raleigh/Durham
International Airport.
Description of the Property. The Property consists of 136 garden-style
apartments in 12 two-and three-story buildings on approximately 13.7 acres of
land. The Property was built in 1985.
The Company believes the Property is in good condition and has been well
maintained. The Company has budgeted approximately $272,000 for renovations to
the Property, including redecoration of the clubhouse, wood replacement and
repainting, and repair of asphalt parking areas.
The Property offers four unit types. The unit mix and rents currently being
charged new tenants are as follows.
12
APPROXIMATE
INTERIOR SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- -------- ---- ------- --------
42 One bedroom/one bathroom 870 $665-685
30 One bedroom/one bathroom 1,005 700-720
40 Two bedrooms/two bathrooms 1,255 820-840
24 Two bedrooms/two bathrooms 1,354 890-900
The apartments provide a combined total of approximately 149,000 square
feet of net rentable area.
Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
one-bedroom, one-bath apartment unit (870 square feet) rented for $495 in 1992,
$495 in 1993, $545 in 1994, $565 in 1995, and $603 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995, and 1996 was $6.18, $6.18, $6.81, $7.05, and $7.53, respectively.
The buildings are wood-frame construction on concrete slabs. The exteriors
have T- 111 siding and the roofs are pitched and covered with asphalt shingles.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath, as well as a cable television hook-up and
an individually controlled heating and air-conditioning unit. Each apartment
unit has an Italian tile fireplace, full-sized washer/dryer connections,
built-in bookcases, oversized closets, a sun room, track lighting, beveled
mirrors, a patio or balcony, and a parquet wood foyer. Each kitchen is equipped
with a refrigerator/freezer, gas range and oven, dishwasher and garbage
disposal. The owner of the Property supplies cold water, sewer service and trash
removal. The tenants pay for their electricity service, which includes
air-conditioning and lights, and for their gas services, which includes cooking,
heating and hot water.
The Property has an outdoor swimming pool, a lighted tennis court, a
fitness center, a business center, a playground, and barbecue areas. The
Property has a clubhouse with a kitchen, entertainment area and a management
office. There is ample paved parking for tenants.
There are at least eight apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 96%.
13
According to information provided by the seller, physical occupancy at the
Property averaged approximately 91% in 1992, 91% in 1993, 91% in 1994, 91% in
1995, 91% in 1996, and 93% during the first six months of 1997. On October 23,
1997, the Property was 97% occupied.
Most of the current tenants at the Property are professionals. There are
also some blue-collar workers and retired persons.
The following table sets forth the 1996 real estate tax information on the
Property.
ASSESSED
JURISDICTION VALUE TAX RATE TAX
------------ ---------- -------- ----------
Wake County $5,337,353 0.6300 $33,625.32
City of Raleigh 5,337,353 0.5375 28,688.27
Plus residential waste reduction
fee of $16.50 per unit: 2,244.00
TOTAL: $64,557.59
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,385,853) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following:
1. The Company believes that the Raleigh, North Carolina area will enjoy
continued economic development and steady population increase, and that such
development and increase will support stable occupancy rates and reasonable
increases in rents at the Property. In particular, the Company believes that the
presence of Research Triangle Park and three major universities in the area and
associated businesses and activities will have a positive impact on the area for
the indefinite future.
14
2. The Company already owns several other apartment complexes in Raleigh
and believes that it is knowledgeable and experienced regarding the Raleigh
apartment rental market.
3. Based upon an engineering report and its own inspections, the Company
believes that the Property is in very good condition.
4. The Property is conveniently proximate to major employers and shopping.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
15
ITEM 7.a.
- --------
* To be filed by amendment. It is impracticable to include herein the required
financial statements for the Property. The required financial statements will be
filed as an amendment to this report as soon as possible, but in no event more
than 60 days after the date of filing of this report.
16
ITEM 7.b.*
- --------
* To be filed by amendment. It is impracticable to include herein the required
financial statements for the Property. The required financial statements will be
filed as an amendment to this report as soon as possible, but in no event more
than 60 days after the date of filing of this report.
17
ITEM 7.c.*
- --------
* To be filed by amendment. It is impracticable to include herein the required
financial statements for the Property. The required financial statements will be
filed as an amendment to this report as soon as possible, but in no event more
than 60 days after the date of filing of this report.
18
ITEM 7.d.*
- --------
* To be filed by amendment. It is impracticable to include herein the required
pro forma financial information. The required pro forma financial information
will be filed as an amendment to this report as soon as possible, but in no
event more than 60 days after the date of filing of this report.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cornerstone Realty Income Trust, Inc.
Date: November 17, 1997 By:/s/ Stanley J. Olander, Jr.
---------------------------
Stanley J. Olander, Jr.,
Chief Financial Officer
of Cornerstone Realty
Income Trust, Inc.
20
EXHIBIT INDEX
Cornerstone Realty Income Trust
Form 8-K dated October 31, 1997
Exhibit Number Exhibit Page Number
- -------------- ------- -----------
10.1 Purchase Contract for Barrington Parc
Apartments
10.2 Purchase Contract for St. Regis
(formerly Sterling Arbor) Apartments
10.3 Purchase Contract for Remington Place
(formerly Sterling Place) Apartments
23.1 Consent of Independent Auditors*
23.2 Consent of Independent Auditors*
23.3 Consent of Independent Auditors*
- --------
* To be filed by amendment.
21