UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ________.
Commission File Number 0-7771
URBAN IMPROVEMENT FUND LIMITED 1973-II
(Exact name of registrant as specified in its charter)
California 95-6398192
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1201 Third Avenue, Suite 5400, Seattle, Washington 98101 3076
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code: (206) 622-9900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes XX No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of December 31, 1996: No established
market value.
PART I
Item 1. Business
(a) General Development of Business Urban Improvement Fund
Limited 1973-II, a California limited partnership (the "Registrant"), was
formed in 1973 for the purpose of investing, through Local Limited
Partnerships (LLP's), in federally and state-assisted low and moderate
income housing projects. Units of Limited Partnership Interest were sold
in a public offering to investors who required tax shelter for income from
other sources. The Registrant acquired equity interests as a limited
partner in eleven (11) such Local Limited Partnerships. One of these
projects was sold in 1978 through a trustee's sale (foreclosure). Two of
these properties, Mott Haven Apartment VII and Mott Haven Apartments
VIII are either in default on their mortgage or technical default due to
physical condition of property.
Despite the efforts of the General Partner, the owners and managers of
Mott Haven Apartments VII and Mott Haven Apartments VIII to
preserve the developments and provide decent and affordable housing, the
financial stability of the developments is threatened by the imminent
expiration of the Section 8 loan management set-aside contracts and the
likelihood that they will not be renewed on this property for federal
budget and policy reasons. HUD, the owners and the General Partner of
Mott Haven Apartments VII and Mott Haven Apartments VIII believe
that it is in the best interests of the developments and their tenants that the
projects be renovated and reconfigured, and that such result can best be
accomplished through replacement of the existing management and
ownership structure with community-based owners and managers. The
General Partner has taken steps to transfer these properties to HUD. The
remaining eight (8) partnerships are described in Item 2 hereof.
(b) Financial Information about Industry Segment The Registrant is
engaged in only one line of business.
(c) Narrative Description of Business The real estate business is
highly competitive. The Registrant competes with numerous established
apartment owners and real estate developers of low income housing
having greater financial resources. There are additional risks of new
construction of low income housing occurring in an area where the
Registrant has invested in existing government-assisted housing projects.
Moreover, the outlook for subsidized housing is not determinable, given
existing and proposed federal legislation.
(d) Financial information about foreign and domestic operations and
export sales The Registrant's income is entirely dependent upon revenues
received from the limited partnerships in which it is a limited partner.
Investment in federal, state and local government-assisted housing is
subject to significant regulation. These regulations limit, among other
things, the amount of return allowed on the initial equity investment, the
manner in which such properties may be sold and persons to whom such
properties may be sold. In 1987, fearing the loss of affordable housing
units, Congress passed emergency legislation which prohibited
prepayment of all FHA insured Section 236 or Section 221(d)(3)
mortgages. Congress passed additional legislation in 1990 known as
LIHPRHA (the Low Income Housing Preservation and Resident
Homeownership Act). However, by 1995, Congress had determined the
program was too expensive to continue. In March 1996, Congress
changed the compensation program, severely limited funding, and restored
the property owners' right to prepay the FHA mortgages and change the
use of the properties under legislation known as the Housing Opportunity
Program Extension Act of 1996. The General Partner of the Partnership
has initiated steps to ensure that the Local Limited Partnerships comply
with the provisions of LIHPRHA and subsequent legislation. See financial
information in Item 6, Selected Financial Data, in this report.
Item 2. Properties.
The Registrant owns equity interests as a Limited Partner in the
following real estate projects as of December 31, 1996:
<TABLE>
<S> <C> <C> <C>
1996
No. of Percent of
Project Name Type Units Occupancy
Community Circle
Cleveland, Ohio 236 New 160 99%
Crowninshield Apartments
Peabody, MA MHFA Rehab.* 284 99%
Holly Street
Lawrence, MA MHFA Rehab.* 71 93%
King Drive
Chicago, IL 236 New 315 99%
808 Memorial Drive
Boston, MA MHFA New* 301 94%
Met-Paca Section 1
New York, NY 236 Rehab. 37 98%
Morrisania II
New York, NY 236 Rehab. 161 94%
Southern Boulevard
Phase One
New York, NY 236 Rehab. 72 100%
</TABLE>
*Developed under auspices of Massachusetts Housing Finance Agency.
Mortgage indebtedness associated with each project is shown in
Schedule XI of this report.
The following properties were assigned to HUD at December 31, 1996:
<TABLE>
<S> <C> <C> <C>
Mott Haven 7
New York, NY 236 Rehab. 165 100%
Mott Haven 8
New York, NY 236 Rehab. 171 98%
</TABLE>
The following is a description of each of the above listed properties:
COMMUNITY CIRCLE is a 160-unit project located in Cleveland,
Ohio, consisting of seven frame and brick two-story buildings and one
masonry and pre-cast concrete ten-story building. The project was
constructed under Section 236 of the National Housing Act.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
1 Bedroom 78
2 Bedroom 50
3 Bedroom 20
4 Bedroom 12
</TABLE>
CROWNINSHIELD APARTMENTS consists of 284 rental units
rehabilitated under the auspices of the Massachusetts Housing Finance
Agency. The project is located in Peabody, Massachusetts.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
Studio 19
1 Bedroom 233
2 Bedroom 31
3 Bedroom 1
</TABLE>
HOLLY STREET is a 71-unit project located in the cities of Methuen
and Lawrence, Massachusetts, consisting of eleven two-, three- and
four-story buildings of frame and brick construction. The project was
rehabilitated pursuant to authority granted by the Massachusetts
Housing Finance Agency, with subsidy under Section 236 of the National
Housing Act.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
Studio 6
1 Bedroom 20
2 Bedroom 28
3 Bedroom 11
4 Bedroom 5
5 Bedroom 1
</TABLE>
KING DRIVE APARTMENTS is a 315-unit project located in
Chicago, Illinois. It is a 22-story building of concrete construction. The
building contains space for two commercial shops. The project was
constructed under Section 236 of the National Housing Act.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
Studio 21
1 Bedroom 168
2 Bedroom 126
</TABLE>
808 MEMORIAL DRIVE ASSOCIATES is a 301-unit project located
in Cambridge, Massachusetts, consisting of two buildings of steel and
brick construction and a five-level parking structure. The buildings are
eleven and twenty stories and they are centrally air-conditioned. The
project has two small landscaped plazas. There is approximately 57,000
square feet of commercial space and 2,000 square feet of retail spaces.
The project was constructed under the auspices of the Massachusetts
Housing Finance Agency.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
1 Bedroom 128
2 Bedroom 139
3 Bedroom 30
4 Bedroom 4
</TABLE>
MET-PACA I consists of 37 units in four buildings rehabilitated under
Section 236 of the National Housing Act. This project is located in New
York City, New York.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
1 Bedroom 4
2 Bedroom 18
3 Bedroom 15
</TABLE>
MORRISANIA II ASSOCIATES is a 161-unit project located at
1104-1148 Clay Avenue, Bronx, New York, consisting of twelve
five-story buildings of brick construction. The development was
rehabilitated under Section 236 of the National Housing Act.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
1 Bedroom 68
2 Bedroom 24
3 Bedroom 36
4 Bedroom 33
</TABLE>
SOUTHERN BOULEVARD REHAB PHASE I is a 72-unit project
located in the Bronx, New York, consisting of two six-story, wood joist
and brick exterior buildings. The project is located in the same area as
Mott Haven 7. The project was rehabilitated under Section 236 of the
National Housing Act.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
1 Bedroom 27
2 Bedroom 22
3 Bedroom 13
4 Bedroom 10
</TABLE>
The following properties were assigned to HUD at December 31, 1996:
MOTT HAVEN 7 is a 165-unit project located in the Bronx, New
York, and consists of four-, five- and six-story buildings of brick and
masonry construction. The project was rehabilitated under Section 236 of
the National Housing Act.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
1 Bedroom 41
2 Bedroom 65
3 Bedroom 47
4 Bedroom 12
</TABLE>
MOTT HAVEN 8 is a 171-unit project located in the Bronx, New
York, consisting of four-, five- and six-story buildings of brick and
masonry construction. The project is located in the same area as Mott
Haven 7. The project was rehabilitated under Section 236 of the National
Housing Act.
<TABLE>
<S> <C> <C>
Type of Unit No. of Units
1 Bedroom 41
2 Bedroom 74
3 Bedroom 42
4 Bedroom 14
</TABLE>
Item 3. Legal Proceedings.
There are no material pending legal proceedings at this time, other than
ordinary routine litigation incidental to the Partnership's business,
including the Local Limited Partnerships in which the Partnership is a
Limited Partner.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders through the solicitation
of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Securities and Related Security
Holder Matters.
(a) There is not a ready market for the transfer of limited partnership
interests. Limited partnership interests may be transferred between
individuals with the consent of the General Partner.
(b) Holders
<TABLE>
<S> <C> <C> <C>
Title of Name & Address of Amount and Nature of % of
Class Beneficial Owner Beneficial Ownership Class
General Interfinancial Real 100 Units 100%
Partner Estate Management Co ($95,000)
Interest 1201 Third Avenue, Suite 5400
Seattle, Washington 98101 3076
Limited 629 Limited Partners 11,335 Units 100%
Partner ($11,335,000)
Interest
</TABLE>
The Registrant has no officers or directors. Interfinancial Real Estate
Management Company, the General Partner of the Registrant, is a
corporation.
(c) There have been no distributions to partners during the five year
period ending December 31, 1996.
Item 6. Selected Financial Data
These statements do not include all disclosures required under generally
accepted accounting principles; however, when read in conjunction with
the related financial statements and notes thereto included under Item 8,
the statements include all generally accepted accounting principles
disclosures for the latest three years.
<TABLE>
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1996 1995 1994 1993 1992
Operating Income:
Interest income $ 796 $ 765 $ 836 $ 315 $ 579
Other income 6,250 8,125 8,750 5,000 7,500
7,046 8,890 9,586 5,315 8,079
Expenses:
Professional fees 16,623 18,409 15,546 13,325 14,102
Management fee 70,000 70,000 70,000 70,000 70,000
Incentive
management fee -0- 23,501 12,030 701 5,700
Other expenses 250 313 645 6,309 1,296
86,873 112,223 98,221 90,335 91,098
Loss before equity in
income (loss) of Local
Limited Partnerships (79,827) (103,333) (88,635) (85,020) (83,019)
Equity in income
(loss) of Local
Limited Partnership (2,500) 48,765 16,212 (7,827) 16,747
Net loss $(82,327) $(54,568) $(72,423) $(92,847) $(66,272)
Allocation of net loss:
Net loss allocated
to General Partner $ (4,116) $ (2,728) $ (3,621) $ (4,642) $(3,314)
Net loss allocated
to Limited Partners (78,211) (51,840) (68,802) (88,205) (62,958)
$(82,327) $(54,568) $(72,423) $(92,847) $(66,272)
Net financial reporting loss
per unit:
General Partnership units
(100 units outstanding
allocated to General
Partner) $ (41) $ (27) $ (36) $ (46) $ (33)
Limited Partnership units
(11,335 units outstanding
allocated to Limited
Partners) $ (7) $ (5) $ (6) $ (8) $ (6)
Total assets $ 4,876 $ 34,577 $ 36,645 $ 12,025 $ 20,172
Long term obligations -0- -0- -0- -0- -0-
Cash dividends -0- -0- -0- -0- -0-
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership has followed the practice of investing available
funds, not used in the purchase of properties or in operations, in
short-term investments. Interest income resulted from such short-
term investments. The Partnership is dependent upon interest earned and
the distributions and repayment of advances from Local Limited
Partnerships for cash flow. As shown in the table below,
the Partnership has received distributions in recent years. This trend is
expected to continue. The Partnership has advanced funds to and
received repayments of such advances from selected Local
Limited Partnerships. The General Partner believes these net advances
will not significantly affect the operations of the Partnership.
<TABLE>
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
Urban's share of
distribution $ -0- $ 68,247 $ 50,087 $ 14,673 $ 32,271
Advances (made to)
repaid by
Local Limited
Partnerships $ (2,500) $(19,482) $(33,875) $(22,500) $(15,524)
</TABLE>
Under the terms of the Limited Partnership Agreement, the Partnership
is required to pay the General Partner an annual management fee equal to
one-quarter of one percent of invested assets or $136,548. (The fee will
not be more than fifty percent of the Partnership's annual net cash flow, as
defined, subject to an annual minimum of $70,000.) The Partnership
recorded management fee expense of $70,000 per year from 1991 through
1996. The Partnership will also pay the General Partner a liquidation fee
for the sale of projects. The liquidation fee is the lesser of (i) ten percent
of the net proceeds to the Partnership from the sale of a project(s) or (ii)
one percent of the sales price plus three percent of the net proceeds after
deducting an amount sufficient to pay long-term capital
gains taxes. No part of such fee shall accrue or be paid unless: (i) the
Limited Partners' share of the proceeds has been distributed to them, (ii)
the Limited Partners shall have first received an amount
equal to their invested capital attributable to the project(s) sold, and (iii)
the Limited Partners have received an amount sufficient to pay long-term
capital gains taxes from the sale of the project(s), if any, calculated at the
maximum rate then in effect.
During the period 1992 to 1995, the Partnership paid incentive
management fees to the General Partner of a Local Limited Partnership.
These fees were paid from distributions received from this
Local Limited Partnership.
At December 31, 1996, the Partnership had investments in eight active
real estate limited partnerships as a Limited Partner. The Partnership
carries such investments on the equity method of accounting. The
Partnership discontinues recording losses for financial reporting purposes
when its investment in a particular Local Limited Partnership is reduced to
zero, unless the Partnership intends to commit additional funds to the
Local Limited Partnership. At year-end, all of the investments were
reduced to zero. The equity in income in Local Limited Partnerships
resulted from either Local Limited Partnerships, whose investments have
not been reduced to zero, reporting income from operations and Local
Limited Partnerships, whose investments have been reduced to zero, who
paid distributions or repaid an advance. Additional advances to Local
Limited Partnerships, after an investment is reduced to zero, are recorded
as losses.
The components of the Partnership's equity in net income (loss) of the
Local Limited Partnerships for 1996, 1995 and 1994 is summarized as
follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Repayment of advances from (advances to)
Partnerships with zero investments:
808 Memorial Drive $ (2,500) $ (19,482) $ (33,875)
Distributions received from Partnerships
with zero investments:
Southern Boulevard I -0- 34,105 -0-
Crowninshield -0- 34,142 50,087
$ (2,500) $ 48,765 $ 16,212
</TABLE>
The actual combined losses of Local Limited Partnerships will
generally decrease as depreciation and interest decreases and the projects
achieve stable operations. The distributions to the Partnership
from Local Limited Partnerships are the result of positive cash flow from
the operations of these projects.
Liquidity
The Partnership is dependent upon distributions from its investments
in Local Limited Partnerships for cash flow. The Partnership may not be
able to generate sufficient cash flow from operations or from distributions
from its interests in Local Limited Partnerships to pay future
obligations as they become due without additional financing or advances
from the General Partner. The General Partner is under no obligation to
advance additional funds to the Partnership. The General Partner is
monitoring the operations of the Local Limited Partnerships to ensure that
sufficient cash will be received from the Local Limited Partnerships to
sustain operations. The General Partner anticipates it will receive
adequate distributions from the Local Limited Partnerships to maintain
operations.
Capital Resources
The General Partner believes that situations may arise where it
would be advantageous to the Partners to exchange properties in a
tax-free transaction. The Partnership's basis in its properties has
been reduced through depreciation deductions and other losses to levels
substantially below the amount of debt secured by the properties.
Additionally, the rental properties owned and operated by the Local
Limited Partnerships have typically computed depreciation for financial
reporting purposes using the straight-line method over the estimated
economic useful life of the property. For income tax reporting
purposes, depreciation generally has been computed over the same or
shorter periods using accelerated methods. As a result, the carrying
values of the Partnership's investments in Local Limited
Partnerships are substantially greater for financial reporting purposes than
for income tax reporting purposes. Upon sale or other disposition of a
property by the Local Limited Partnership, the gain recognized by the
Partnership for income tax reporting purposes may be substantially greater
than the gain recorded for financial reporting purposes. Accordingly, if
the properties are sold, the Partnership, in all likelihood, would recognize
taxable gain in excess of the cash available for distribution. If sale
proceeds are reinvested in a manner which permits the original sale to be
treated as a like-kind exchange, the Partnership can defer this gain until
the new property is sold. Additionally, the Partnership will receive the
benefit of any cash flow or appreciation in value of the new property. If
reinvestments were made, it is likely that the acquired properties would be
conventional, multi-family residential projects. The Partnership has had
inquiries about the sale or exchange of properties in its portfolio, but no
offers have been made.
The Partnership has made no material commitments for capital
expenditures.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in a separate section of this
report.
Item 9. Change in and Disagreements With Accountants on Accounting
and Financial Disclosure
There have been no disagreements on any matters of accounting
principles or practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) The General Partner of the Registrant is Interfinancial Real Estate
Management Company. The Registrant does not have directors as such.
The following is a listing of the Directors of the General Partner of the
Registrant. These Directors are elected to serve one-year terms and until
their successors are duly elected and qualified as directors.
<TABLE>
S> <C> <C> <C>
Name Age Office
Paul H. Pfleger 61 Director/President
John M. Orehek 42 Director/Senior Vice President
</TABLE>
(b) The General Partner of the Registrant is Interfinancial Real Estate
Management Company. The Registrant does not have executive officers
as such. The following is a listing of the executive officers
of the General Partner of the Registrant. These executive officers are
elected to serve one-year terms and will continue to serve until their
successors are duly elected and qualified as executive officers.
<TABLE>
<S> <C> <C> <C>
Name Age Office
Paul H. Pfleger 61 Chairman of the Board
John M. Orehek 42 Senior Vice President
Michael Fulbright 42 Secretary
</TABLE>
(c) The Registrant has no employees.
(d) There are no family relationships between any directors or
executive officers.
(e) The principal occupation and employment of each of the executive
officers and directors of the General Partner are as follows:
Paul H. Pfleger, President/Director. Mr. Pfleger organized and was
Chairman of the Board of Security Properties Inc. (formerly Security
Pacific, Inc.) from 1969 to the present, except for a period
between 1984 and 1986. Farmers Savings acquired Security Properties
Inc. as a wholly-owned subsidiary during 1984 and sold the company back
to the original owners during 1987. The major line of business of Security
Properties Inc. is the administration of previously syndicated, subsidized
multifamily residential real estate. Mr. Pfleger was first elected an officer
and director of the General Partner, Interfinancial Real Estate
Management Company, in July 1981 and has maintained his dual
status since that time.
Mr. Pfleger is the General Partner in over 280 properties with
approximately 38,000 housing units throughout the United States.
John M. Orehek, Senior Vice President. Mr. Orehek is the Chief
Executive Officer and President of Security Properties Investment Inc.
From 1982 to 1987, he was employed by Security Properties Inc.
(SPI) as President of First Columbia Corporation, its affiliated
broker/dealer, and Senior Vice President of SPI. From 1987 to 1991,
when he rejoined SPI, he was President of Hallmark Capital
Partners, Ltd., a Seattle real estate development corporation. From 1979
to 1982 he was a member of the tax department in the Cleveland, Ohio
and Seattle, Washington offices of Arthur Andersen & Co., Certified
Public Accountants. He received a B.S. degree in Economics from
Allegheny College, Meadville, Pennsylvania and a law degree from Case
Western Reserve University School of Law. Mr. Orehek was first elected
a director of the General Partner, Interfinancial Real Estate Management
Company, during 1992.
Michael Fulbright, Secretary. Mr. Fulbright is General Counsel for
Security Properties Inc. (SPI). He joined the Company in 1989 as Special
Counsel responsible for new development activities and
sales and financing transactions in the syndication portfolio. Prior to
joining SPI, he was a partner at Tousley Brain, a Seattle law firm that
specializes in commercial real estate matters. His practice there
included representation of lenders, institutional investors and commercial
developers. He received a Masters of Business Administration degree
from Texas A&M and a law degree from the University
of Washington. He is a member of the Washington State Bar Association.
Mr. Fulbright was first elected an officer of the General Partner,
Interfinancial Real Estate Management Company, during 1994.
(f) Section 20 of the Amended Certificate and Agreement of Limited
Partnership of the Registrant provides for the indemnification of the
General Partner and its designees and nominees against liability
resulting from errors in judgment or any acts or omissions, whether or not
disclosed, unless caused by a breach of fiduciary duty of such parties to
the Registrant or its Limited Partners. None of the officers or directors of
the General Partner of the Registrant have filed a petition under the
federal bankruptcy laws or any state insolvency act, nor have they been
engaged in any acts over the past five years that would impair their ability
or integrity as directors or executive officers of the General Partner of the
Registrant.
Item II. Executive Compensation
(a) The Registrant will not pay directly any salary or other
remuneration to the officers of the General Partner of the Registrant.
(b) The Registrant has no plan or arrangement to pay directly any
salary or other remuneration to the officers in the future.
(c) There are no such options, warrants, rights or any other
remuneration available to the General Partner of the Registrant.
(d) The Registrant will not pay directly any salary or other
remuneration to the directors of the General Partner of the Registrant.
(e) There are no such retirement benefit plans or other remuneration
that would result from the resignation, retirement, termination or any
other change in control of any officer or director of the General Partner of
the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) Security Ownership of Certain Beneficial Owners
(b) Holders
<TABLE>
<S> <C> <C> <C> <C>
Title of Name & Address of Amount and Nature of % of
Class Beneficial Owner Beneficial Ownership Class
General Partner Interfinancial Real 100 Units 100%
Interest Estate Management Co. ($95,000)
1201 Third Avenue, Suite 5400
Seattle, Washington 98101 3076
</TABLE>
(b) No officers or directors of the General Partner of the Registrant
own a Partnership interest.
(c) No change in control of the Registrant is anticipated.
Item 13. Certain Relationships and Related Transactions
(a) There are no transactions in which the directors or officers of the
General Partner or security holder of the Registrant have a material
interest.
(b) There are no transactions in which the directors of the General
Partner have a material interest.
(c) There is no indebtedness of the management of the General Partner
of the Registrant to the Registrant.
PART IV
Item 14. Exhibits, Financial Statements, Schedules, Exhibits and Reports
on Form 8-K.
(a) 1. Financial Statements:
Report of independent certified public accountants.
Balance Sheets at December 31, 1996 and 1995.
Statements of Income (Loss) for the years ended December 31,
1996, 1995 and 1994.
Statements of Changes in Partners' Capital for the years ended
December 31, 1996, 1995 and 1994.
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.
Notes to Financial Statements.
(a) 2. Financial Statement Schedules:
IV Indebtedness of and to Related Parties
XI Real Estate and Accumulated Depreciation and
Amortization of Local Limited Partnerships.
All other schedules are omitted because they are not applicable or the
required information is included in the Financial Statements or the notes
thereto.
FINANCIAL STATEMENTS OF UNCONSOLIDATED SUBSIDIARIES
FIFTY PERCENT OWNED PERSONS OR OTHER
UNCONSOLIDATED PERSONS
ACCOUNTED FOR ON THE EQUITY METHOD
Separate financial statements of the ten limited partnerships accounted for
on the equity method have been omitted because combined financial
statements are included in Note 4 to the financial statements.
(a) 3. Exhibits:
1.A. Form of proposed Selling Brokers' Agreement, incorporated
by reference from Registration Statement on Form S-11 filed
August, 1973.
3.A. Amended Certificate and Agreement of Limited Partnership,
incorporated by reference from Registration Statement on
Form S-11 filed August, 1973.
3.B. Amendment to Certificate of Limited Partnership,
incorporated by reference from Registration Statement on
Form S-11 filed August, 1973.
3.C. Amendment to certificate of Limited Partnership. Incorporated
by reference from proxy statement filed September 18, 1991.
4.A. Subscription agreement incorporated by reference from
Registration Statement on Form S-11 filed August, 1973.
5.A. Opinion and Consent of Counsel, incorporated by reference
from Pre-Effective Amendment No. 1 to Registration
Statement on Form S-11 filed October, 1973.
8.A. Opinion and Consent of Tax Counsel, incorporated by
reference from Pre-Effective Amendment No. 1 to
Registration Statement on Form S-11 filed October, 1973.
8.B. Tax Ruling request, incorporated by reference from
Pre-Effective Amendment No. 1 to Registration
Statement on Form S-11 filed October, 1973.
10.A. Copy of Agreement between Registrant, the General Partner
and Income-Equities Corporation with respect to
certain commitments made on behalf of the Registrant,
incorporated by reference from Pre-Effective
Amendment No. 1 to Registration Statement on Form S-11
filed October, 1973.
10.B. Copy of the Management Agreement between the
Registrant and Income-Equities Corporation, incorporated by
reference from Registration Statement on Form S-11 filed
August, 1973.
10.C. Correspondence between the Management Company on
behalf of the General Partner, with various developers,
constituting agreements to invest in Local Limited
Partnerships, incorporated by reference from Pre-Effective
Amendment No. 1 to Registration Statement on Form S-11
filed October, 1973.
10.D. Copy of form of Limited Partnership Agreement between the
Registrant and Local Limited Partnerships in which it becomes a
limited partner, incorporated by reference from Registration
Statement on Form S-11 filed August, 1973.
28.A. Letters dated August 2, 1974 and August 15, 1974 to
investors from the General Partner and Management Company
regarding tax information matters, incorporated by reference
from Form 8-K filed August, 1974.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of
1995.
(c) Exhibits:
Form 12b-25
(d) Financial Statement Schedules:
IV Indebtedness of and to Related Parties
XI Real Estate and Accumulated Depreciation and Amortization of
Local Limited Partnerships.
All other schedules are omitted because they are not applicable or the
required information is included in the financial statements or the notes
thereto.
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.
(REGISTRANT) URBAN IMPROVEMENT FUND LIMITED 1973-II
BY: INTERFINANCIAL REAL ESTATE
MANAGEMENT COMPANY
Date: 08-22-97
By: Paul H. Pfleger
President
Interfinancial Real Estate Management Company
Date: 08-22-97
By: John M. Orehek
Senior Vice President
Interfinancial Real Estate Management Company
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: 08-22-97
By: Paul H. Pfleger, Director
Interfinancial Real Estate Management Company
Date: 08-22-97
By: John M. Orehek, Director
Interfinancial Real Estate Management Company.
URBAN IMPROVEMENT FUND LIMITED 1973-II
SEATTLE, WASHINGTON
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
YEAR ENDED December 31, 1996
Form 10-K Items 14(a)(1) and (2)
Form 10-K Item 14(d)
Urban Improvement Fund Limited 1973-II
(A Limited Partnership)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
The following financial statements of Urban Improvement
Fund Limited 1973-II are included in Item 8 and Item 14(a)(1)
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-3
Balance sheets at December 31, 1996 and 1995 . . . . . . . . . . F-4
Statements of income (loss) for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . F-5
Statements of changes in partners' capital (deficit)
for the years ended December 31, 1996, 1995 and 1994. . .. .F-5
Statements of cash flows for the years ended
December 31, 1996, 1995 and 1994. . . . . . . . . . . . . . F-6
Notes to financial statements. . . . . . . . . . . . . . . . . . F-7
The following financial statement schedules of Urban Improvement Fund
Limited 1973-II are included in Item 14(a)(2) and 14(d):
IV. Indebtedness of and to Related Parties. . . . . . . . . . .F-21
XI. Real Estate and Accumulated Depreciation
of Local Limited Partnerships. . . . . . . . . . . . .F-22
All other schedules are omitted because they are not applicable. Required
information is shown in the financial statements or notes thereto.
FINANCIAL STATEMENTS OF UNCONSOLIDATED
SUBSIDIARIES FIFTY PERCENT OWNED PERSONS OR OTHER
UNCONSOLIDATED PERSONS ACCOUNTED FOR ON THE EQUITY METHOD
Separate financial statements of the eight limited partnerships accounted
for on the equity method have been omitted because combined financial
statements are included in Note 4 to the financial statements.
INDEPENDENT AUDITORS' REPORT
To the Partners
Urban Improvement Fund Limited 1973-II
We have audited the accompanying balance sheets of Urban Improvement
Fund Limited 1973-II (a Limited Partnership) as of December 31, 1996
and 1995, and the related statements of income (loss), changes in
partners' capital (deficit) and cash flows for the years ended December 31,
1996, 1995 and 1994, and the related schedules listed in Item 14(a)(2) of
the annual report on Form 10-K of Urban Improvement Fund Limited
1973-II for the years ended December 31, 1996, 1995 and 1994.
These financial statements and financial statement schedules are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits. We did not audit four in 1996 and six in
1995 of the financial statements of Urban Improvement Fund Limited
1973-II's Local Limited Partnership investments whose combined financial
statements are shown in Note 4. These statements were audited by other
auditors whose reports have been furnished to us, and our opinion,
to the extent it relates to the amounts included for these Local Limited
Partnership investments, is based solely on the reports of the other
auditors. Urban Investment Fund Limited 1973-II's investment in these
partnerships has been reduced to zero.
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, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Urban Improvement Fund Limited
1973-II as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996,
1995 and 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, based upon our audits and the
reports of other auditors, the financial statement schedules
referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required therein.
Atlanta, Georgia
June 4, 1997
URBAN IMPROVEMENT FUND LIMITED 1973-II
(A Limited Partnership)
BALANCE SHEETS
<TABLE>
<S> <C> <C>
ASSETS
December 31,
1996 1995
Cash and cash equivalents $ 4,876 $ 34,577
Investments in and advances to Local
Limited Partnerships accounted for on
the equity method Note 4
(Schedule IV and XI) -0- -0-
$ 4,876 $ 34,577
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<S> <C> <C>
Management fee payable
Note 3 (Schedule IV) $ 1,033,167 $ 980,667
Accounts payable 126 -0-
Advance from general partner 24,243 24,243
1,057,536 1,004,910
Partners' capital (deficit) Note 2
General Partner 100 Partnership units
authorized, issued
and outstanding (529,132) (525,016)
Limited partners 11,335 Partnership
units authorized, issued
and outstanding (523,528) (445,317)
(1,052,660) (970,333)
Commitments and
contingencies Note 3 $ 4,876 $ 34,577
</TABLE>
The Notes to Financial Statements are an integral part of these
Statements.
URBAN IMPROVEMENT FUND LIMITED 1973-II
(A Limited Partnership)
STATEMENTS OF INCOME (LOSS)
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1996 1995 1994
Interest income $ 796 $ 765 $ 836
Other income 6,250 8,125 8,750
7,046 8,890 9,586
Expenses:
Professional Fees 16,623 18,409 15,546
Management fees Note 3 70,000 70,000 70,000
Incentive management fee -0- 23,501 12,030
Other expenses 250 313 645
86,873 112,223 98,221
Loss before equity in income (loss)
of Local Limited Partnerships (79,827) (103,333) (88,635)
Equity in income (loss) of Local
Limited Partnerships Note 4 (2,500) 48,765 16,212
Net loss $ (82,327) $ (54,568) $ (72,423)
Allocation of net loss:
Net loss allocated to
General Partner (4,116) (2,728) (3,621)
Net loss allocated to
Limited Partners (78,211) (51,840) (68,802)
$ (82,327) $ (54,568) $ (72,423)
Net financial reporting loss per unit:
General partnership units
(100 units outstanding allocated
to General Partner) $ (41) $ (27) $ (36)
Limited partnership units
(11,335 units outstanding
allocated to Limited Partner) $ (7) $ (5) $ (6)
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<S> <C> <C> <C>
General Limited
Partner Partners Total
Partners' capital (deficit) at
January 1, 1994 $ (518,667) $ (324,675) $ (843,342)
Net loss 1994 (3,621) (68,802) (72,423)
Partners' capital (deficit) at
December 31, 1994 (522,288) (393,477) (915,765)
Net loss 1995 (2,728) (51,840) (54,568)
Partners' capital (deficit) at
December 31, 1995 (525,016) (445,317) (970,333)
Net loss 1996 (4,116) (78,211) (82,327)
Partners' capital (deficit) at
December 31, 1996 $ (529,132) $ (523,528) $(1,052,660)
</TABLE>
The Notes to Financial Statements are an integral part of these
Statements.
URBAN IMPROVEMENT FUND LIMITED 1973-II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Year Ended December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (82,327) $ (54,568) $ (72,423)
Adjustments to reconcile net loss to net
cash used by operating activities:
Equity in net loss (income) of Local
Limited Partnerships 2,500 (48,765) (16,212)
Increase in accounts payable 126 -0- -0-
Increase in accrued management fees 52,500 70,000 70,000
Total adjustments 55,126 21,235 53,788
Net cash used by operating
activities (27,201) (33,333) (18,635)
CASH FLOWS FROM INVESTING ACTIVITIES:
Current year distributions -0- 68,247 50,087
Net advances to Local
Limited Partnerships (2,500) (19,482) (33,875)
Net cash provided (used) by
investing activities (2,500) 48,765 16,212
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from (repayments to)
general partner -0- (17,500) 27,043
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (29,701) (2,068) 24,620
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 34,577 36,645 12,025
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 4,876 $ 34,577 $ 36,645
</TABLE>
The Notes to Financial Statements are an integral part of these
Statements.
URBAN IMPROVEMENT FUND LIMITED 1973-II
(A Limited Partnership)
Notes to Financial Statements
Note 1 Organization and Accounting Policies
Organization
Urban Improvement Fund Limited 1973-II (the Partnership) was formed
under the California Uniform Limited Partnership Act on July 1, 1973, for
the principal purpose of investing in other limited partnerships (Local
Limited Partnerships), which own federal and state-assisted housing
projects. The Partnership issued 11,335 units of limited partnership
interests pursuant to a public offering of such units which terminated on
December 31, 1973. The Partnership also issued 100 units
of general partnership interests to Interfinancial Real Estate Management
Company (the General Partner).
The Urban Improvement Fund Limited 1973-II prospectus, dated
October 24, 1973, specified that the General Partner has a five percent
interest in profits, losses and special allocations, and the limited
partners will share the remaining 95 percent interest in profits, losses and
special allocations in proportion to their respective units of limited
partnership interests.
Investment in Local Limited Partnerships
As of December 31, 1996, the Partnership has investments in eight active
real estate limited partnerships (Local Limited Partnerships), which are
accounted for on the equity method (Note 4). The investment account
represents the sum of the capital investment and unamortized cost of
acquisition less the Partnership's share in losses since the date of
acquisition. The Partnership discontinues recognizing losses and
amortizing cost of acquisition under the equity method when the
investment in a particular Local Limited Partnership is reduced to zero,
unless the Partnership intends to commit additional funds to the Local
Limited Partnership. Repayment of advances and cash
distributions by the Local Limited Partnerships, after the Partnership
investment has been reduced to zero, are recognized as income by the
Partnership in the year received. Additional advances to a Local
Limited Partnership, after an investment is reduced to zero, are recognized
as losses.
Initial rent-up fees paid by the Partnership to the General Partner,
deducted when paid for income tax reporting purposes (Note 2), are
capitalized as costs of acquisition of the Local Limited Partnerships
for financial reporting purposes. These costs and other costs of
acquisition are amortized using the straight-line method over the lives
(fifteen to forty years) of the Local Limited Partnerships' properties.
Amortization is discontinued when the investment is reduced to zero.
The Partnerships' equity in net income (loss) of the Local Limited
Partnerships is summarized as follows:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Repayment of advances from (advances to)
Partnerships with zero investments:
808 Memorial Drive $ (2,500) $ (19,482) $ (33,875)
Distributions received from Partnerships
with zero investments:
Southern Boulevard I -0- 34,105 -0-
Crowninshield -0- 34,142 50,087
$ (2,500) $ 48,765 $ 16,212
</TABLE>
Significant accounting policies followed by the Local Limited Partnerships
are summarized in Note 4.
Taxes on Income
No provision for taxes on income has been recorded in the financial
statements, since all taxable income or loss of the Partnership is allocated
to the partners for inclusion in their respective tax returns.
Fair Value of Financial Instruments and Use of Estimates
The Partnership estimates that the aggregate fair value of all financial
instruments at December 31, 1996 does not differ materially from the
aggregate carrying values of its financial instruments recorded
in the balance sheet. These estimates are not necessarily indicative of the
amounts that the Partnership could realize in a current market exchange.
The preparation of financial statements requires the use of estimates and
assumptions. Actual results could differ from those estimates.
Cash Equivalents
Marketable securities that are highly liquid and have maturities of three
months or less at the date of purchase are classified as cash equivalents.
Note 2 Reconciliation Between Net Loss and Partners' Capital (Deficit)
of the Partnership For Financial Reporting Purposes and Income
Tax Reporting Purposes
A reconciliation of the Partnership's loss for financial reporting purposes
and the Partnership's loss for income tax reporting purposes follows:
<TABLE>
<S> <C> <C> <C>
For the Year Ended
December 31,
1996 1995 1994
Net loss for financial
reporting purposes $ (82,327) $ (54,568) $ (72,423)
Equity in income (losses)
reported by Local Limited
Partnerships for income tax
reporting purposes in excess
of income (losses) for
financial reporting purposes 299,304 727,712 632,165
Accrual and other adjustments
for financial reporting
purposes 126,168 196,423 78,703
Net income as reported on
the federal income tax return $ 343,145 $ 869,567 $ 638,445
</TABLE>
A reconciliation of partners' capital (deficit) for financial reporting
purposes and partners' capital (deficit) for income tax reporting purposes
follows:
<TABLE>
<S> <C> <C> <C>
For the Year Ended
December 31,
1996 1995 1994
Partners' capital (deficit) for
financial reporting purposes $(1,052,660) $ (970,333) $ (915,765)
Unamortized portion of initial
and rent-up fees and other
costs of acquisition capitalized
for financial reporting purposes
and previously deducted for
income tax reporting purposes (1,087,861) (1,087,861) (1,087,861)
Commissions and offering expenses
capitalized for income tax
reporting purposes and charged
to capital for financial
reporting purposes 1,237,673 1,237,673 1,237,673
</TABLE>
<TABLE>
<S> <C> <C> <C>
For the Year Ended
December 31,
1996 1995 1994
Equity in cumulative losses of Local
Limited Partnerships for income tax
reporting purposes in excess of losses
for financial reporting purposes (26,327,942) (26,713,868) (27,581,291)
Accrual and other adjustments for
financial reporting purposes 1,033,167 980,667 910,667
Partners' capital (deficit) as
reported on the federal
income tax return $(26,197,623) $(26,553,722) $(27,436,577)
</TABLE>
The Partnership has received a ruling from the Internal Revenue Service
that the basis of the limited partners' interests in the Partnership will
include the Partnership's allocable share of basis resulting
from mortgage debt of the Local Limited Partnerships under Section 752
of the Internal Revenue Code.
Note 3 Management of Urban Improvement Fund Limited 1973-II
Under the terms of the Limited Partnership Agreement, the Partnership is
required to pay the General Partner an annual management fee equal to
one-quarter of one percent of invested assets or $136,548.
(The fee will not be more than fifty percent of the Partnership's annual net
cash flow, as defined, subject to an annual minimum of $70,000.) This fee
was not payable during the first six years unless annual tax deductions plus
cash distributions aggregated $550 per unit. The required level of tax
deductions was not achieved in these years and, accordingly, the fee was
not paid for those years. However, fees of $350,000 have been recorded
as a liability to the General Partner. Management fees payable to the
General Partner for subsequent years have been accrued if cash flow was
not sufficient to pay the fee in the year incurred. At December 31, 1996,
additional management fees of $683,167 have been recorded as a liability
to the General Partner. Upon liquidation, unpaid management fees
will have first priority to the proceeds. The Partnership will also pay the
General Partner a liquidation fee for the sale of projects. The liquidation
fee is the lesser of (i) ten percent of the net proceeds to the Partnership
from the sale of a project(s) or (ii) one percent of the sales
price plus three percent of the net proceeds after deducting an amount
sufficient to pay long-term capital gains taxes. No part of such fee shall
accrue or be paid unless: (i) the Limited Partners' share of the proceeds
has been distributed to them, (ii) the Limited Partners shall have first
received an amount equal to their invested capital attributable to the
project(s) sold, and (iii) the Limited Partners have received an amount
sufficient to pay long-term capital gains taxes from the sale of the
project(s), if any, calculated at the maximum rate then in effect.
The General Partner of the Partnership is a corporation in which Paul H.
Pfleger owns a majority interest. Partnership Services, Inc. (PSI), another
corporation in which Paul H. Pfleger is a majority shareholder, has
contracted with the General Partner and the Partnership to provide certain
management and other services to any projects in which the Partnership
has an interest. No fees were paid to PSI during 1996, 1995 or 1994. In
addition, PSI has become the General Partner in two of
the Local Limited Partnerships in which the Partnership has investments:
Community Circle, Limited and 808 Memorial Drive Associates.
Note 4 Investments in Local Limited Partnerships Accounted for on the
Equity Method
The Partnership has ninety-five percent to ninety-nine percent interests in
profits and losses of the Local Limited Partnerships. Investments in these
Local Limited Partnerships were made in installments based typically on
the stage of completion and/or occupancy.
Investment in and advances to the Local Limited Partnerships accounted
for on the equity method are as follows:
<TABLE>
<S> <C> <C> <C>
Equity In
Capital Income
Contributions (Losses) Subtotal
December 31, 1996:
Community Cir.,Ltd $ 386,626 $ (1,063,386) $ (676,760)
Crowninshield Apts 802,897 (4,134,648) (3,331,751)
Holly Street 261,000 (1,359,847) (1,098,847)
King Drive Apts 300,640 (2,949,217) (2,648,577)
808 Memorial Drive 1,430,708 (10,283,403) (8,852,695)
Met Paca I Assoc 159,341 (732,775) (573,434)
Morrisania II 882,740 (3,225,636) (2,342,896)
Southern Blvd. I 203,971 (775,380) (571,409)
$4,427,923 $(24,524,292) $(20,096,369)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Losses Not Costs of
Recorded Acquisition
(Note 1) Advances (Note 1) Total
Community Cir.,Ltd $ 499,729 $ 91,949 $ 85,082 $ -0-
Crowninshield Apts 3,175,319 -0- 156,432 -0-
Holly Street 1,058,177 -0- 40,670 -0-
King Drive Apts 2,480,783 -0- 167,794 -0-
808 Memorial Drive 7,716,828 882,927 252,940 -0-
Met Paca I Assoc 550,139 -0- 23,295 -0-
Morrisania II 2,244,309 -0- 98,587 -0-
Southern Blvd. I 526,560 -0- 44,849 -0-
$18,251,844 $974,876 $ 869,649 $ -0-
</TABLE>
<TABLE>
<S> <C> <C> <C>
Equity In
Capital Income
Contributions (Losses) Subtotal
December 31, 1995:
Community Cir.,Ltd $ 386,626 $ (1,158,113) $ (771,487)
Crowninshield Apts 802,897 (4,393,097) (3,590,200)
Holly Street 261,000 (1,367,183) (1,106,183)
King Drive Apts 300,640 (2,821,251) (2,520,611)
808 Memorial Drive 1,430,708 (10,149,020) (8,718,312)
Met Paca I Assoc 159,341 (745,340) (585,999)
Morrisania II 882,740 (3,156,535) (2,273,795)
Mott Haven VII 839,162 (2,868,578) (2,029,416)
Mott Haven VIII 881,380 (3,292,111) (2,410,731)
Southern Blvd. I 203,971 (820,000) (616,029)
$6,148,465 $(30,771,228) $(24,622,763)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Losses Not Costs of
Recorded Acquisition
(Note 1) Advances (Note 1) Total
December 31, 1995:
Community Cir.,Ltd $ 594,456 $ 91,949 $ 85,082 $ -0-
Crowninshield Apts 3,433,768 -0- 156,432 -0-
Holly Street 1,065,513 -0- 40,670 -0-
King Drive Apts 2,352,817 -0- 167,794 -0-
808 Memorial Drive 7,584,946 880,426 252,940 -0-
Met Paca I Assoc 562,704 -0- 23,295 -0-
Morrisania II 2,175,208 -0- 98,587 -0-
Mott Haven VII 1,922,850 -0- 106,566 -0-
Mott Haven VIII 2,299,085 -0- 111,646 -0-
Southern Blvd. I 571,180 -0- 44,849 -0-
$22,562,527 $972,375 $ 1,087,861 $ -0-
</TABLE>
Note 4 Investments in Local Limited Partnerships Accounted for
on the Equity Method
A reconciliation to combined statement of partners' deficits follows:
<TABLE>
<S> <C> <C>
1996 1995
Urban Improvement Fund Limited 1973-II
capital contributions less equity in
losses $(20,096,369) $(24,622,763)
Flexible subsidy contributed by HUD
during 1981 and 1982 allocated to
partners' capital 123,135 123,135
Urban Improvement Fund Limited 1973-II's
share of combined equity of Local
Limited Partnerships per the
accompanying statement $(19,973,234) $(24,499,628)
</TABLE>
The combined balance sheets of the Local Limited Partnerships,
accounted for on the equity method at December 31, 1996 and 1995, and
the related combined statements of operations, changes in partners' capital
(deficit), cash flows and selected footnote disclosures from the audited
financial statements of the Local Limited Partnerships for the years ended
December 31, 1996, 1995 and 1994 are summarized as follows:
COMBINED BALANCE SHEETS OF LOCAL LIMITED
PARTNERSHIPS
Assets
<TABLE>
<S> <C> <C>
December 31,
1996 1995
Cash $ 380,480 $ 677,527
Cash in escrow and other
restricted funds 3,062,658 3,504,902
Accounts receivable 297,447 325,757
Prepaid expenses 378,966 765,681
Other assets, net of
accumulated amortization 405,399 300,333
4,524,950 5,574,200
Property on the basis of cost:
Land 2,401,004 2,639,104
Buildings, improvements
and equipment 44,248,232 54,487,824
46,649,236 57,126,928
Less accumulated depreciation (34,726,868) (42,949,965)
11,922,368 14,176,963
$ 16,447,318 $ 19,751,163
</TABLE>
Liabilities and Partners' Capital (Deficit)
<TABLE>
<S> <C> <C>
December 31,
1996 1995
Mortgage notes payable $31,995,371 $ 38,277,103
Accounts payable and
accrued expenses 3,391,174 4,319,072
Notes payable 286,085 1,414,918
Advances from Urban Improvement
Fund Ltd. 1973-II 974,876 972,375
Advances from and payables
to affiliates 256,506 -0-
Payable to current and former
general partners 190,715 190,715
Tenants' security and
other deposits 419,613 497,546
37,514,340 45,671,729
Partners' capital (deficit)
per accompanying
statements (21,067,022) (25,920,566)
$ 16,447,318 $ 19,751,163
</TABLE>
COMBINED STATEMENTS OF OPERATIONS OF LOCAL
LIMITED PARTNERSHIPS
<TABLE>
<S> <C> <C> <C>
For the Year Ended
December 31,
1996 1995 1994
Revenue:
Net rental income $13,117,131 $13,138,527 $12,827,680
Financial 116,499 108,001 75,367
Other 193,561 315,548 96,419
13,427,191 13,562,076 12,999,466
Expenses:
Administrative 2,097,899 2,274,001 2,263,793
Utilities 2,550,027 2,385,529 2,293,666
Operating 3,651,763 3,471,937 3,394,741
Taxes and insurance 2,500,249 2,353,150 1,867,755
Total Operating Expenses 10,799,938 10,484,617 9,819,955
Net Operating Income 2,627,253 3,077,459 3,179,511
Financial expenses 1,319,599 1,348,522 1,447,091
Income before depreciation,
amortization and other expenses
and gain on transfer of assets
to HUD 1,307,654 1,728,937 1,732,420
Depreciation and amortization
expense 1,651,137 1,786,714 2,077,296
Other expenses 26,727 62,532 26,079
1,677,864 1,849,246 2,103,375
Net loss before gain on transfer
of assets to HUD (370,210) (120,309) (370,955)
Gain on transfer of assets to HUD 5,223,754 -0- -0-
Net income (loss) $ 4,853,544 $ (120,309) $ (370,955)
</TABLE>
Amortization of capitalized interest amounted to $32,716 in 1996, 1995
and 1994.
COMBINED STATEMENTS OF CHANGES IN PARTNERS'
CAPITAL (DEFICIT) OF LOCAL LIMITED PARTNERSHIPS
<TABLE>
<S> <C> <C> <C> <C>
Urban
Improvement Other
Fund Limited Limited General
1973-II Partners Partners Total
Partners' capital (deficit)
at January 1, 1994 $(23,911,040) $(510,325) $(883,375) $(25,304,740)
Net loss 1994 (355,250) 1,330 (17,035) (370,955)
Distributions (50,087) -0- (2,636) (52,723)
Partners' capital (deficit)
at December 31, 1994 (24,316,377) (508,995) (903,046) (25,728,418)
Net loss 1995 (115,004) 2,730 (8,035) (120,309)
Distributions (68,247) -0- (3,592) (71,839)
Partners' capital (deficit)
at December 31, 1995 (24,499,628) (506,265) (914,673) (25,920,566)
Net income (loss) 1996 4,526,394 1,025 326,125 4,853,544
Partners' capital (deficit)
at December 31, 1996 $(19,973,234) $(505,240) $(588,548) $(21,067,022)
</TABLE>
COMBINED STATEMENTS OF CASH FLOWS OF LOCAL
LIMITED PARTNERSHIPS
<TABLE>
<S> <C> <C> <C>
December 31,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ 4,853,544 $ (120,309) $ (370,955)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Gain on transfer of assets to HUD (5,223,754) -0- -0-
Depreciation and amortization 1,601,013 1,786,714 2,064,876
Increase in receivables, escrows,
restricted deposits, prepaid
expenses and other assets (453,315) (266,968) (427,091)
Increase (decrease) in accounts payable,
accrued expenses and tenant security
deposit liability (355,544) 685,961 204,450
Total adjustments (4,431,600) 2,205,707 1,842,235
Net cash provided by operating
activities 421,944 2,085,398 1,471,280
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,384,098) (902,216) (896,158)
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage principal payments 356,099 (860,647) (764,500)
Distributions paid -0- (71,839) (52,723)
Net advances from (to) affiliates 309,008 (282,731) 48,863
Net cash provided (used) by
financing activities 665,107 (1,215,217) (768,360)
INCREASE (DECREASE) IN CASH (297,047) (32,035) (193,238)
CASH BALANCE AT
BEGINNING OF YEAR 677,527 709,562 902,800
CASH BALANCE AT
END OF YEAR $ 380,480 $ 677,527 $ 709,562
</TABLE>
SUPPLEMENTAL INFORMATION REGARDING
INTEREST PAYMENTS IS AS FOLLOWS:
Interest paid $ 740,682 $ 805,812 $ 841,961
A reconciliation between combined net loss for financial reporting
purposes and the combined net income for income tax reporting purposes
follows:
<TABLE>
<S> <C> <C> <C>
December 31,
1996 1995 1994
Combined net income (loss) for financial
reporting purposes $ 4,853,544 $ (120,309) $ (370,955)
Gain on transfer of assets to HUD (5,223,754) -0- -0-
Excess depreciation for financial
reporting purposes over depreciation
for income tax reporting purposes 896,803 848,302 1,530,120
Accrual adjustments for financial
reporting purposes (151,529) 201,567 (408,088)
Combined net income as reported on the
federal income tax returns $ 375,064 $ 929,560 $ 751,077
</TABLE>
A reconciliation of combined partners' capital (deficit) for financial
reporting purposes and combined partners' capital (deficit) for income tax
reporting purposes follows:
<TABLE>
<S> <C> <C> <C>
December 31,
1996 1995 1994
Combined partners' capital (deficit)
for financial reporting purposes $(21,067,022) $(25,920,566) $(25,728,418)
Carrying costs during construction
capitalized for financial reporting
purposes, excess of depreciation
for income tax reporting purposes
and accrual adjustments for
financial reporting purposes (8,936,845) (3,639,549) (4,599,176)
Combined partners' capital (deficit)
as reported on the federal income
tax returns $(30,003,867) $(29,560,115) $(30,327,594)
</TABLE>
Cost of Buildings
For financial statement purposes, the Local Limited Partnerships generally
capitalize all project costs, including payments to the general partners,
interest, taxes, carrying costs and operating expenses offset
by incidental rental income, up to the cutoff date for cost certification
purposes. For income tax reporting purposes, certain of these amounts
were deducted when paid.
Depreciation and Amortization
For financial statement purposes, depreciation is computed using the
straight-line and various accelerated methods over useful lives of fifteen to
forty years from the date of completion of the building or rehabilitation,
and three to twelve years for equipment and land improvements. For
income tax reporting purposes, provisions for depreciation are generally
computed over the same or shorter periods using accelerated methods and
certain rehabilitation costs are amortized using the straight-line
method over sixty months under the provisions of Section 167(k) of the
Internal Revenue Code.
Certain expenses related to obtaining permanent financing for the projects
have been deferred and are being amortized for financial reporting
purposes using the straight-line method over periods of five
to forty years.
Mortgage Notes Payable
The Local Limited Partnerships have mortgages which are payable to or
are insured by the Department of Housing and Urban Development
(HUD) and the Massachusetts Housing Financing Agency
(MHFA) totaling $31,995,371 at December 31, 1996 ($12,384,030 by
HUD and $19,611,341 by MHFA) and $38,277,103 at December 31,
1995 ($20,584,297 by HUD and $17,692,806 by MHFA).
The mortgage notes payable are secured by deeds of trust on rental
property and bear interest at the rate of seven percent to thirteen and one
half percent per annum. The mortgages will be repaid in
monthly installments of principal and interest aggregating approximately
$217,000 over periods of forty years. HUD will make interest assistance
payments to eight Local Limited Partnerships whose mortgages are
insured under Section 236 in amounts which will reduce the
mortgage payments to those required for mortgages carrying a one
percent interest rate.
The scheduled principal reductions for the next five years are as follows:
<TABLE>
<S> <C> <C>
Year Ended
December 31, Amount
1997 $ 615,160
1998 661,232
1999 711,803
2000 765,720
2001 823,757
Beyond 28,417,699
$31,995,371
</TABLE>
Notes Payable
Notes payable include a residual receipts note of $250,000 that is payable
to a former General Partner of a Local Limited Partnership. The residual
receipts note is non-interest bearing and subordinated to the insured
mortgages. A Local Limited Partnership has a low interest rate flexible
subsidy note payable in the amount of $36,085. The note is payable from
surplus cash.
National Approved Housing Act Subsidies and Restrictions
Under terms of the regulatory agreements with HUD and MHFA, the
Local Limited Partnerships cannot make cash distributions to partners of
the Local Limited Partnerships in excess of six percent
per annum of stated equity in the respective partnerships. Such
distributions are cumulative but can only be paid from "surplus cash," as
defined in the agreements. The Local Limited Partnerships must
deposit all cash in excess of the distributable amounts into residual
receipts funds which are under the control of the mortgagees, and from
which disbursements must be approved by the respective agencies.
As of December 31, 1996, approximately $407,576 could be paid to
partners of the Local Limited Partnerships as surplus cash becomes
available.
Under terms of the regulatory agreements, the Local Limited Partnerships
are required to make monthly deposits into replacement funds which are
under the control of the mortgagees. Such deposits commence with the
initial principal payments on the mortgage loans. Expenditures from the
replacement funds must be approved by the respective agencies.
All of the Local Limited Partnerships have entered into rent supplement
and/or Section 8 contracts with HUD or state agencies to provide
financial assistance to qualified tenants of the apartment units. Under
terms of these contracts, HUD will pay a portion of the rent on behalf of
qualified tenants. The maximum dollar amount of these payments is
limited by HUD. A substantial portion of rental income is collected
through these contracts. During 1996, 1995 and 1994, the
Local Limited Partnerships received approximately $4,991,121,
$4,618,000 and $4,438,878, respectively, in Section 8 and rent
supplement funds.
Management
The Local Limited Partnerships have entered into property management
contracts with various agents under which the agents are paid property
management fees of approximately five percent to ten and
one-half percent of the gross revenues of the respective projects. The
management agents are affiliated with or are the general partners of the
Local Limited Partnerships.
Note 5 Investment in Mott Haven VII and Mott Haven VIII
Mott Haven VII and Mott Haven VIII have experienced cash flow deficits
from operations. Mott Haven VIII has incurred financial default and Mott
Haven VII may be in non-monetary default due to
the physical condition of the project. Despite the efforts of the General
Partner, the owners and managers to preserve the developments and
provide decent and affordable housing, the financial stability of the
developments is threatened by the imminent expiration of
the Section 8 loan management set-aside contracts and the likelihood that
they will not be renewed on this property for federal budget and policy
reasons. HUD, the owners and the General Partner believe that it is in the
best interests of the development and its tenants that the projects be
renovated and reconfigured, and that such result can best be accomplished
through replacement of the existing management and ownership structure
with community-based owners and managers. The General Partner has
taken steps to transfer the property to HUD.
For financial reporting purposes, the Partnership has recorded the
disposition of its investment in Mott Haven VII and Mott Haven VIII
during November 1996. The components of the gain on the transfer
of property to HUD is summarized as follows:
Assets transferred:
<TABLE>
<S> <C>
Cash $ 106,472
Cash in escrow and other restricted funds 998,644
Accounts receivable 44,798
Prepaid expenses 158,181
Other assets 3,893
Property on the basis of cost 11,861,790
Accumulated depreciation (9,824,110)
3,349,668
Liabilities transferred:
Mortgage note payable 7,749,161
Accounts payable and accrued expenses 695,039
Advance from general partner 50,001
Tenant security and other deposits 79,221
8,573,422
Gain on transfer of property to HUD $ 5,223,754
</TABLE>
The General Partner believes that if the Partnership did not consent to the
Workout Agreement (transfer of properties to HUD), it is more likely than
not that HUD would take the necessary steps to sell the properties at
foreclosure sales during 1997. Such foreclosure sales will most probably
not result in the return of any cash to the Limited Partners but would
result in the recognition of a significant taxable gain by each limited
partner. The taxable gain for the limited partners or Urban
Improvement Fund Limited '73-II in the aggregate is estimated to be
$5,167,883 or approximately $429.55 for each unit. This gain would be
passive in nature and could be offset by any suspended
passive loss carryforwards. It is estimated that the maximum tax due on
this gain would total approximately $1,990,927 for all limited partners or
$165.48 per unit.
URBAN IMPROVEMENT FUND LIMITED 1973-II
(A Limited Partnership)
SCHEDULE IV
INDEBTEDNESS OF RELATED PARTIES
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31,
1996 1995
1996 Change 1995 Change 1994
Advances to local limited
partnerships: (A)
Community Circle, Ltd. $ 91,949 $ -0- $ 91,949 $ -0- $ 91,949
808 Memorial Drive
Associates 882,927 2,501 880,426 19,482 860,944
$974,876 $2,501 $972,375 $19,482 $952,893
</TABLE>
(A) All advances are included in the balance sheet caption "Investments in
and advances to Local Limited Partnerships accounted for on the equity
method." See Note 4 to the financial statements. The advances have been
reduced to zero on the books of the Partnership because the investment in
these partnerships have been reduced to zero under the equity method of
accounting.
<TABLE>
<S> <C> <C> <C> <C> <C>
December 31,
1996 1995
1996 Change 1995 Change 1994
Indebtedness to General Partner:
Management fee payable
to General Partner $1,033,167 $ 52,500 $980,667 $ 70,000 $910,667
Advance from General
Partner $ 24,243 $ -0- $ 24,243 $(17,500) $ 41,743
</TABLE>
URBAN IMPROVEMENT FUND LIMITED 1973-II
(A Limited Partnership)
Schedule XI
REAL ESTATE AND ACCUMULATED DEPRECIATION OF LOCAL
LIMITED PARTNERSHIPS COMBINED WORKPAPERS
December 31, 1996
<TABLE>
<S> <C> <C>
Outstanding
Description Mortgage
Partnership/Location No. of Units Balance
Community Circle, Ltd.
Cleveland, OH 160 apartments $ 2,343,195
Crowninshield Apartments
Associates, Peabody, MA 284 apartments 4,806,817
Holly Street Associates
Lawrence and Matheun, MA 71 apartments 1,242,937
King Drive Apartments
Assoc., Chicago, IL 315 apartments 4,625,381
808 Memorial Drive
Assoc., Cambridge, MA 301 apartments 13,561,587
Met-Paca I Associates
New York, New York 37 apartments 719,452
Morrisania II Associates
New York, New York 161 apartments 3,383,180
Southern Boulevard
Partners, Bronx, NY 72 apartments 1,312,822
$31,995,371
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Buildings
and Accumulated
Partnership Land Improvement Total Depreciation
Community Circle, Ltd. $240,000 $4,048,796 $4,288,796 $ (2,622,418)
Crowninshield Apartments 128,109 6,490,595 6,618,704 (5,994,101)
Holly Street Associates 28,353 2,050,781 2,079,134 (1,676,874)
King Drive Apartments Assoc. 340,494 6,730,850 7,071,344 (5,451,881)
808 Memorial Drive Assoc 1,469,231 15,720,089 17,189,320 (11,021,150)
Met-Paca I Associates 83,642 1,118,978 1,202,620 (977,955)
Morrisania II Associates 91,956 5,413,712 5,505,668 (4,715,621)
Southern Boulevard Partners 19,219 2,674,431 2,693,650 (2,266,868)
$2,401,004 $44,248,232 $46,649,236 $(34,726,868)
</TABLE>
<TABLE>
<S> <C> <C> <C>
Life in Which
Depreciation
in Latest
Date of Income
Completion of Date Statement
Partnership Construction Acquired is Computed
Community Circle, Ltd. 1974 1973 3-40 years
Crowninshield Apartments Assoc. 1975 1973 10-20 years
Holly Street Associates 1975 1973 22-40 years
King Drive Apartments 1974 1973 12-20 years
808 Memorial Drive 1975 1973 5-30 years
Met-Paca I Associates 1974 1973 5-20 years
Morrisania II Associates 1975 1973 10 25 years
Southern Boulevard 1974 1973 20-25 years
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Buildings
and Accumulated
Land Improvement Total Depreciation
Balance at January 1, 1995 2,639,104 53,585,608 56,224,712 41,185,048
Additions during year -0- 902,216 902,216 -0-
Disposals during year -0- -0- -0- -0-
Depreciation expense -0- -0- -0- 1,764,917
Balance at
December 31, 1995 2,639,104 54,487,824 57,126,928 42,949,965
Additions during year -0- 1,384,098 1,384,098 -0-
Assignment of mortgages
to HUD Mott Haven VII
and VIII (238,100) (11,623,690) (11,861,790) (9,824,110)
Depreciation expense -0- -0- -0- 1,601,013
Balance at
December 31, 1996 $2,401,004 $44,248,232 $46,649,236 $34,726,868
</TABLE>
NOTE: Capital improvements since original construction or rehabilitation
are not material to the combined financial statements and, as such, are
not disclosed separately. The financial statement category of buildings
and improvements is composed substantially of cost plus the initial
renovation upon acquisition. Total cost of land and building for
federal income tax purposes amounts to approximately $38,172,000.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,876
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,876
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,876
<CURRENT-LIABILITIES> 126
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,052,660)
<TOTAL-LIABILITY-AND-EQUITY> 4,876
<SALES> 0
<TOTAL-REVENUES> 7,046
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 86,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (82,327)
<INCOME-TAX> (82,327)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (82,327)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
