<PAGE>
As filed with the Securities and Exchange Commission on June 2, 1999
REGISTRATION NO. 333-35063
U.S. Securities and Exchange Commission
WASHINGTON, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BARON CAPITAL TRUST.
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(Name of Small Business Issuer in its Charter)
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DELAWARE 6798 31-1574856
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State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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BARON CAPITAL PROPERTIES, L.P
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(Name of Small Business Issuer in its Charter)
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<CAPTION>
DELAWARE 6798 31-1584691
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<S> <C> <C>
State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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<S> <C>
Gregory K. McGrath
7826 Cooper Road 7826 Cooper Road
Cincinnati, Ohio 45242 Cincinnati, Ohio 45242
(513) 984-5001 (513) 984-5001
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(Address and Telephone Number of (Name, Address, and Telephone
Principal Executive Offices) Number of Agent for Service)
</TABLE>
Copies to:
Edward L. Lublin, Esq.
Michael W. Zarlenga, Esq.
Manatt, Phelps & Phillips, LLP
1501 M Street, N.W. , Suite 700
Washington, D.C. 20005
(202) 463-4300
Approximate date of commencement of proposed sale of the
securities to the public:
AS SOON AS PRACTICABLE AFTER THE
REGISTRATION STATEMENT BECOMES EFFECTIVE.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
BARON CAPITAL TRUST
2,500,000 COMMON SHARES OF BENEFICIAL INTEREST (MAXIMUM)
50,000 COMMON SHARES OF BENEFICIAL INTEREST (MINIMUM)
$10.00 PER SHARE
Baron Capital Trust We intend, through Baron Capital Properties,
7826 Cooper Road L.P., to acquire, own, operate, manage and
Cincinnati, Ohio 45242 improve residential apartment properties for
(513) 984-5001 (Telephone) long-term ownership. We intend to conduct our
(513) 984-4550 (Fax) operations as a real estate investment trust
(commonly known as a "REIT") for federal income
tax purposes
This offering involves a high degree of risk. You should purchase
shares only if you can afford a complete loss of your investment. See "Risk
Factors" beginning on page 6.
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TERMS OF THE OFFERING
Total Sold as of Total Remaining Total
Per Share May 15, 1999 to be Sold Offering
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<S> <C> <C> <C> <C>
Public offering price $ 10.00 $ 6,141,100 $18,858,900 $25,000,000
Underwriting discounts and commissions
and other expenses 1.00 614,110 1,885,890 2,500,000
Proceeds to Baron Trust 9.00 5,526,990 16,973,010 22,500,000
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</TABLE>
This is an initial public offering. The offering began on May 15, 1998.
There is currently no public market for our common shares, but we intend to
apply for listing on a national securities exchange. This offering will
terminate on November 30, 1999 regardless of the number of common shares sold.
The minimum number of common shares required to be sold in this offering was
50,000. We have already sold the minimum number required.
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We have engaged Sigma Financial Corporation to be the dealer manager of
our offering. Sigma is not required to sell any specific number or dollar amount
of stock but will use their best efforts to sell the common shares offered. We
have granted Sigma a five-year warrant exercisable beginning on May 15, 1999,
the first anniversary of the commencement of the offering and ending on the
fifth anniversary. The warrant permits Sigma to acquire a number of common
shares in an amount equal to 8.5% of the number of common shares sold by it in
the offering at an exercise price of $13.00 per common share.
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES COMMISSIONS
HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
The date of this prospectus is _____________________, 1999
1
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, common shares only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of when you are delivered a copy of this prospectus
or when any sale is made of the common shares.
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TABLE OF CONTENTS
Page
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Prospectus Summary............................................................. 3
Risk Factors................................................................... 6
Who May Invest................................................................ 21
Tax Status of Trust........................................................... 22
Use of Proceeds............................................................... 23
Compensation of the Managing Persons and Affiliates........................... 24
Conflicts of Interest......................................................... 29
Fiduciary Responsibility...................................................... 32
Special Note Regarding Forward-Looking Statements............................. 33
Prior Performance of Affiliates of Baron Advisors............................. 34
Management.................................................................... 47
Business of Baron Trust....................................................... 53
Investment Objectives and Policies............................................ 61
Initial Real Estate Investments............................................... 66
Federal Income Tax Considerations............................................. 84
Summary of Declaration of Trust............................................... 92
Reports to Shareholders...................................................... 102
Capital Stock of Baron Trust................................................. 103
Capitalization............................................................... 106
Terms of the Offering........................................................ 106
Other Information............................................................ 108
Litigation................................................................... 110
Experts...................................................................... 110
Legal Matters................................................................ 110
Additional Information....................................................... 111
Glossary..................................................................... 112
EXHIBITS
A............Prior Performance of Affiliates of Baron Advisors
B............Summary of Exchange Property and Exchange Partnership Information
C............Financial Statements of Baron Trust and Baron Advisors
D............Financial Statements of the Exchange Properties
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</TABLE>
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
INVESTORS MAY NOT HAVE AN OPPORTUNITY TO EVALUATE BARON TRUST'S PROPERTY
INVESTMENTS BECAUSE BARON TRUST HAS NOT IDENTIFIED SPECIFIC PROPERTIES IN THIS
PROSPECTUS AS PROPERTIES BARON TRUST INTENDS TO ACQUIRE WITH THE NET PROCEEDS OF
THIS OFFERING AND HAS A VERY LIMITED OPERATING HISTORY.
BARON TRUST MAY NOT SELL COMMON SHARES IN THE OFFERING TO, OR ACCEPT AS A
SHAREHOLDER, ANY INVESTOR IN ARIZONA, ARKANSAS, OHIO, PENNSYLVANIA, OR TEXAS IF
THIS INVESTMENT WOULD EXCEED 10% OF THE INVESTOR'S NET WORTH (EXCLUSIVE OF HOME,
HOME FURNISHINGS, AND AUTOMOBILES).
2
<PAGE>
PROSPECTUS SUMMARY
BARON TRUST AND BARON PROPERTIES
Together with Baron Properties, we have been organized to acquire
equity interests in existing residential apartment properties located in the
United States. In addition, we intend to provide or acquire loans and other
forms of debt secured by mortgages on these types of properties. Baron
Properties is a limited partnership organized to act as an operating
partnership. We are the general partner of Baron Properties. We intend to
acquire, own, operate, manage, and improve residential apartment properties for
long-term ownership, and thereby to seek to maximize current and long-term
income and the value of our assets.
We intend to operate as a real estate investment trust (commonly known
as a "REIT") for federal income tax purposes. We made an election to be treated
as a REIT for the taxable year ended December 31, 1998. Under certain
circumstances, we may terminate our REIT election pursuant to applicable federal
tax law.
Baron Properties will conduct all of our real estate operations. As the
general partner of Baron Properties, we will control the activities of Baron
Properties. Our real estate operations will be conducted through Baron
Properties (and any other subsidiaries we may have in the future) in order to,
among other things:
1. Enhance our ability to qualify as a REIT under the Code; and
2. Enable us to indirectly acquire interests in residential apartment
properties or in mortgages on the properties in exchange transactions that
involve the issuance of units of limited partnership interest in Baron
Properties in exchange for such property interests and mortgages
Baron Properties is conducting an exchange offering concurrently with
this offering. Baron Properties is proposing to issue approximately 2,500,000 of
units in Baron Properties with an initial assigned value of $25,000,000 in
exchange for residential apartment properties or interests in other partnerships
or companies substantially all of whose assets consist of residential apartment
property interests. In connection with the proposed $25,000,000 exchange
offering, Baron Properties will register 2,500,000 units with the Securities and
Exchange Commission. Baron Properties filed a registration statement in
connection with the exchange offering with the Securities and Exchange
Commission.
Sellers of property interests who accept the exchange offer will
receive units of Baron Properties. These holders will be entitled to exchange
all or a portion of their units for an equivalent number of common shares at any
time and from time to time, so long as the exchange would not cause the seller
to own in excess of 5.0% of the then outstanding common shares. Instead of the
exchange, we have the right to cash out any holder of units who requests an
exchange. To facilitate these exchanges, we have registered 2,500,000 additional
common shares (in addition to the 2,500,000 common shares being offered in this
offering) for issuance to holders of units who in the future request us to issue
common shares in exchange for units.
Baron Trust and Baron Properties intend to investigate making an
additional public or private offering of common shares or units following the
commencement of the exchange offering if we determine that suitable property
acquisition opportunities which fulfill our investment criteria are available.
The issuance by us or Baron Properties of additional common shares or units, as
applicable, after the
3
<PAGE>
completion of this offering and the exchange offering could have a dilutive
effect on shareholders who acquire common shares in this offering.
BARON ADVISORS
Baron Advisors, Inc. is our managing shareholder. As the managing
shareholder, Baron Advisors, Inc. has full, exclusive, and complete discretion
in the management and control of Baron Trust. Because we are the general partner
of Baron Properties and thereby control Baron Properties, Baron Advisors also
has full, exclusive, and complete discretion in the management and control of
Baron Properties. Gregory K. McGrath, our Chief Executive Officer, the Chief
Executive Officer of Baron Properties, and the President, sole shareholder, and
sole director of Baron Advisors, and Robert S. Geiger, our Chief Operating
Officer and the Chief Operating Officer of Baron Properties and Baron Advisors,
and James H. Bownas and Peter M. Dickson, our initial independent trustees, will
make our investment decisions.
DISTRIBUTIONS BY BARON TRUST
We presently intend to make quarterly pro rata distributions of
available funds to our shareholders. For the year ended December 31, 1998, we
made $74,182 of distributions to shareholders. For the three months ended March
31, 1999, we made $72,159 of distributions to shareholders.
SUMMARY OF USE OF PROCEEDS
As of March 31, 1999, we have sold 583,840 common shares pursuant to
this offering resulting in net proceeds of $5,015,380. These net proceeds have
been contributed to operating partnership in exchange for 583,840 units of Baron
Properties. Net proceeds from the sale of the remainder of the common shares
offered by this prospectus will also be contributed to Baron Properties in
exchange for units of Baron Properties. As of May 15, 1999, Baron Properties has
used approximately $3,300,556 to purchase interests in four apartment
communities in two states. See "USE OF PROCEEDS."
SUMMARY OF FEES AND REIMBURSABLE EXPENSES
Set forth below is a summary of fees and reimbursable expenses payable
in connection with this offering, the exchange offering, and our operations and
the operations of Baron Properties:
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Recipient Type and Amount of Fees and Reimbursable Expenses
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Broker-Dealers Selling commission in an amount equal to 8%
Participating in this offering of the subscription price of all common
shares sold in the offering ($2,000,000
maximum). As additional compensation, Sigma
and the participating broker-dealers will be
entitled to receive a five-year warrant to
acquire a number of common shares in an
amount equal to 8.5% of the number of common
shares sold in the offering by Sigma or
participating broker-dealers, at a purchase
price equal to $13.00 per common share. See
"TERMS OF THE OFFERING."
Baron Advisors Reimbursement for distribution, due
diligence, and organizational expenses
incurred in connection with the formation of
Baron Trust and Baron Properties and with
the offering, in an amount not to exceed 1%
of gross offering proceeds ($250,000
maximum).
Baron Advisors Reimbursement for legal, accounting, and
consulting fees and printing, filing,
recording, postage and other miscellaneous
expenses incurred in connection
</TABLE>
4
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<CAPTION>
Recipient Type and Amount of Fees and Reimbursable Expenses
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with the offering, in an amount not to
exceed 1% of gross offering proceeds
($250,000 maximum).
Baron Advisors Reimbursement for expenses incurred prior to
and during the offering for investigating,
evaluating and consummating investments of
Baron Trust and Baron Properties to be
acquired from unaffiliated parties with net
proceeds of the offering, in an amount not
to exceed 4% of gross offering proceeds;
payable from available net proceeds of the
offering or as cash flow permits as
determined by our Board of Trustees.
Gregory K. McGrath, Initial year's compensation payable in the
original investor, Chief form of common shares or operating
Executive Officer of Baron partnership units in an amount not to exceed
Trust, Baron Properties and 25,000 common shares or 25,000 units to be
Baron Advisors determined by the Executive Compensation
Committee of our Board of Trustees, plus
health benefits. Thereafter, his
compensation and benefits will be determined
by the committee. In exchange for an initial
cash capital of $50,000 contribution to
Baron Properties, Mr. McGrath subscribed for
units which are exchangeable (subject to
certain escrow restrictions) into 9.5% of
the common shares outstanding as of the
earlier to occur of completion of this
offering and the exchange offering or
November 30, 1999, calculated on a fully
diluted basis assuming that all then
outstanding units (other than those owned by
us) have been exchanged into an equivalent
number of common shares. See "BUSINESS OF
THE TRUST - Formation Transactions."
Robert S. Geiger, original Initial annual compensation of $100,000,
investor, Chief Operating plus health benefits and eligibility to
Officer of Baron Trust, participate in any option plan and bonus
Baron Properties and Baron incentive plan which may be implemented by
Advisors the Executive Compensation Committee of our
Board of Trustees. In exchange for an
initial cash capital contribution of $50,000
to Baron Properties, Mr. Geiger subscribed
for units which are exchangeable (subject to
certain escrow restrictions) into 9.5% of
the common shares outstanding as of the
earlier to occur of the completion of this
offering and the exchange offering or
November 30, 1999, calculated on a fully
diluted basis assuming that all then
outstanding units (other than those owned by
us) have been exchanged into an equivalent
number of common shares. See "BUSINESS OF
THE TRUST - Formation Transactions."
Robert L. Astorino, Initial annual salary of $150,000, plus
President - Division of health benefits, automobile allowance, and
Property of Baron Properties eligibility to participate in any option
plan and bonus incentive plan which may be
implemented by the Executive Compensation
Committee of our Board of Trustees.
Mark L. Wilson, Chief Initial annual salary of $110,000, plus
Financial Officer of Baron health benefits, automobile allowance, and
Trust and Baron Properties eligibility to participate in any option
plan and bonus incentive plan which may be
implemented by the Executive Compensation
Committee of our Board of Trustees.
Independent Trustees Annual fee of $6,000, plus incidental
expenses.
Baron Advisors Annual payment under the Trust Management
Agreement, in an amount equal to up to 1% of
gross proceeds from the offering plus 1% of
initial assigned value of units issued in
exchange offering, to reimburse Baron
Advisors for its operating expenses relating
to the business of Baron Trust and Baron
Properties.
</TABLE>
5
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Recipient Type and Amount of Fees and Reimbursable Expenses
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Broker-Dealers Commission payable to broker-dealers who
Participating in Exchange assist in the exchange offering, consisting
Offering of a number of unregistered common shares
equal to 5% of units exchanged in the
exchange offering as a result of their
efforts.
</TABLE>
RISK FACTORS
An investment in our common shares involves a high degree of risk. In
addition to the other information in this prospectus, you should carefully
consider the following risk factors before purchasing our common shares.
BARON TRUST
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, INVESTORS CANNOT ANALYZE POSSIBLE
FUTURE PERFORMANCE BASED ON PRIOR PERFORMANCE
Baron Trust was formed on July 31, 1997 to conduct this offering and to
invest the net proceeds in units of Baron Properties. Therefore, our results of
operations are completely dependent on the results of operations of Baron
Properties. Baron Properties was formed on May 15, 1998 to conduct our real
estate operations. As a result, Baron Trust and Baron Properties have very
limited operating histories. We cannot be certain that we will be profitable in
the future or that Baron Properties will be profitable. An inability to become
profitable or to sustain profitability in the future will limit the amount of
distributions we can make and the market price for the common shares. In
addition, Baron Properties' assets consist primarily of direct or indirect
equity or debt investments it may make in respect of particular residential
apartment properties. Thus, the results of operations of Baron Properties will
be largely dependent upon the successful operation of these properties.
THE FACT THAT WE HAVE NEVER SOLD COMMON SHARE TO THE PUBLIC AND THAT THERE IS NO
PUBLIC MARKET FOR THE COMMON SHARES MAY MAKE IT DIFFICULT FOR YOU TO SELL YOUR
SHARES
Prior to this offering, there has not been a public market for common
shares. As of May 15, 1999, we have sold 614,110 common shares. The common
shares issued in connection with this offering have been registered under the
Securities Act of 1933. Therefore, the common shares are freely transferable.
However, we are only issuing a maximum of 2,500,000 shares in this offering and
approximately 2,500,000 units of the operating partnership in the exchange
offering. This number of common shares, even assuming that all the holders of
units of the operating partnership exchange their units for share, may not be
sufficient to create an active trading market. You may not be able to sell your
shares at or above the offering price, if at all.
ALTHOUGH WE INTEND TO APPLY FOR LISTING OF THE COMMON SHARES ON A NATIONAL
SECURITIES EXCHANGE, WE MAY NOT QUALIFY FOR LISTING
We intend to apply to list for trading the common shares to be issued
in connection with the offering and the proposed exchange offering on a national
securities exchange, which will require that we register our common shares under
the Exchange Act. However, we cannot be certain that whether we will qualify for
listing on any stock exchange and, if so, of the timing of the effectiveness of
any listing. If we are not listed on a national securities exchange, you may
have difficulty selling your shares. Even if we are listed on a national
exchange, it is possible that no public trading market for the common shares
will ever develop or be maintained. You may not be able to sell your shares at
or above the offering price, if at all.
6
<PAGE>
YOU MAY BE PREVENTED FROM SELLING YOUR SHARES BECAUSE OF OUR INTENTION TO
QUALIFY AS A REIT
In order to maintain our continued compliance with federal tax laws and
regulations governing REIT's, Baron Trust's Trust Declaration contains
significant restrictions relating to the ownership and transfer of shares. These
restrictions may make it more difficult for you to sell your common shares and
may reduce the possibility that an active trading market will develop. You may
not be able to sell your shares at or above the offering price, if at all.
THE AVAILABILITY OF COMMON SHARES AND UNITS FOR FUTURE ISSUANCES MAY LIMIT THE
PRICE OF COMMON SHARES
Our Trust Declaration permits us to issue 25,000,000 shares upon
whatever terms and conditions as our Board of Trustees may determine. In
connection with our formation, this offering, and the exchange offering, we are
issuing, or reserving for issuance, up to approximately 6,327,170 common shares.
In addition, the Executive Compensation Committee of our Board of Trustees may
vote to reserve additional common shares for issuance in connection with option
plans that may be adopted by the committee. Future sales or issuances of a
substantial number of our shares and units exchangeable for shares following the
completion of this offering or the proposed exchange offering, or the perception
that sales or issuances could occur, could limit the market prices for common
shares.
AN INCREASE IN INTEREST RATES MAY CAUSE THE PREVAILING MARKET PRICE OF THE
COMMON SHARES TO DECREASE
One of the factors that may influence the price of our common shares
will be the annual yield from dividend distributions made by us to shareholders.
Following the completion of this offering, an increase in market interest rates
may lead future purchasers of common shares to demand a higher annual yield. To
obtain the higher yield, the prospective purchaser would only purchase the
shares at a lower price, which may be lower than the then current asking price.
This would cause the prevailing market price of the common shares to decrease.
You may not be able to sell your shares at or above the offering price, if at
all.
BECAUSE THE OFFERING PRICE BEARS NO RELATIONSHIP TO ITS VALUE, YOU MAY BE PAYING
TOO MUCH FOR YOUR SHARES
We established the offering price of $10.00 per common share
arbitrarily. The offering price is not based on any established criteria for
determining value or an indication of a price at which the common shares could
be resold, if at all. You may not be able to sell your shares at or above the
offering price.
BECAUSE BARON ADVISORS IS DESIGNATED IN THE TRUST DECLARATION AS THE MANAGING
SHAREHOLDER OF BARON TRUST, AND BECAUSE BARON TRUST IS THE GENERAL PARTNER OF
BARON PROPERTIES, INVESTORS WILL HAVE LIMITED INFLUENCE ON DECISIONS
Baron Advisors manages Baron Trust. Because Baron Trust is the general
partner of Baron Properties, Baron Advisors also indirectly manages of Baron
Properties. Our Board of Trustees is responsible for the general supervision of
Baron Advisors. Other than in a very limited number of circumstances,
shareholders generally do not have the right to participate in the decisions of
Baron Advisors. Although the members of our Board of Trustees owe fiduciary
duties to Baron Trust, their failure to enforce the material terms of any of the
Trust Management Agreement or the Trust Declaration, particularly the
indemnification provisions and remedy provisions for breaches of representations
and warranties, could result in a substantial monetary loss to Baron Trust. This
would decrease the value of the common shares.
7
<PAGE>
MANY FACTORS MAY REDUCE THE AMOUNT OF DISTRIBUTIONS MADE TO SHAREHOLDERS
Distributions to our shareholders will be based principally on cash
available for distributions from Baron Properties based on properties in which
Baron Properties invests. Increases in rental rates of properties acquired by
Baron Properties will increase Baron Properties cash available for distribution
to us and, consequently, to our shareholders. In contrast, the amount available
to make distributions may decrease if rental rates are lowered or if properties
acquired yield lower than expected returns.
The distribution requirements for REITs may limit our ability to
finance future acquisitions and capital improvements of properties without
additional borrowings or offerings of shares. If we borrow in the future,
additional funds will be required to service the loans. As a result, amounts
available to make distributions may decrease. Distributions by us may also be
dependent on a number of other factors, including our financial condition, any
decision to reinvest funds rather than make a distribution, capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code, and whatever other factors as we deem relevant. In addition, Baron
Trust and Baron Properties may issue from time to time additional common shares,
preferred shares, units, or debt securities in connection with the acquisition
of properties or in certain other circumstances. These issuances, if any, may
have a dilutive effect on cash available for distribution on a per share basis
to shareholders.
We intend to make distributions to our shareholders to comply with the
distribution requirements of the Code and to reduce exposure to federal income
taxes and the non-deductible excise tax. Differences in the timing between the
receipt of income and the payment of expenses in arriving at taxable income and
the effect of required debt amortization payments, could require us to borrow
funds on a short-term basis to meet the distribution requirements that are
necessary to achieve the tax benefits associated with qualifying as a REIT. This
may decrease the amount available to shareholders for distributions.
DISTRIBUTIONS TO SHAREHOLDERS AND UNITHOLDERS ARE DEPENDENT UPON THE
PROFITABILITY OF BARON PROPERTIES
The net proceeds from the issuance of our common shares in connection
with this offering and the net proceeds of any subsequent issuance of common
shares will be contributed by us to Baron Properties in exchange for an
equivalent number of operating partnership units. Our ownership of units in
Baron Properties will entitle us to share in cash distributions from, and in the
profits and losses of, Baron Properties in proportion to our percentage
ownership of units. In turn, we will distribute cash distributions received from
Baron Properties to our shareholders
The availability of funds for distributions to the unitholders of Baron
Properties will be dependent upon the operating profits generated by Baron
Properties. Initially upon the completion of the offerings, we expect to receive
approximately 40.9% of any distributions made by Baron Properties. The actual
percentage allocation of any cash distributions between us and the other
unitholders of Baron Properties will be dependent upon the number of common
shares and units outstanding as of the date of the particular cash distribution.
This will be dependent upon (i) the actual mix of the number of common shares
which are issued in this offering and the number of units which are issued in
the proposed exchange offering and (ii) the number of issued units which have
been exchanged by their holders into our common shares as of the date of the
particular cash distribution. If no distributions are received from Baron
Properties, no distributions will be made to our shareholders.
8
<PAGE>
BARON TRUST'S TRUST DECLARATION PROHIBITS HOLDING MANAGING PERSONS LIABLE FOR
ERRORS IN JUDGMENT AND PROVIDES FOR INDEMNIFICATION WHICH MAY REDUCE
DISTRIBUTIONS TO SHAREHOLDERS
The members of the Board of Trustees are accountable to Baron Trust as
fiduciaries. Consequently, the members of the Board of Trustees are required to
exercise good faith and integrity in handling Baron Trust's assets and affairs.
Baron Trust's Trust Declaration, however, provides that the persons or entities
that serve as Trustees and their respective officers, directors, shareholders,
partners, agents and employees, if any, will not be liable to us or to any
shareholders for errors in judgment or for actions or omissions taken without
negligence or bad faith, provided they acted within the scope of the Trust
Declaration. Moreover, the Trust Declaration provides that we will indemnify
Baron Advisors, Baron Trustees, and certain other persons and entities against
all liabilities, costs, and expenses (including legal fees and expenses)
incurred by Baron Advisors or any of these other persons arising out of or
incidental to this offering or the business of Baron Trust on certain
conditions. As a result, shareholders will have more limited rights against
Baron Advisors and these other persons than they would have absent the
limitations in the Trust Declaration. If we are required to indemnify one of
these persons, distributions to shareholders may be decreased.
SHAREHOLDERS MAY BE PERSONALLY LIABLE FOR OUR DEBTS AND OBLIGATIONS UNDER
LIMITED CIRCUMSTANCES
We has been organized as a Delaware business trust. Delaware law and
the Trust Declaration provide that our shareholders will have no liability for
our debts or obligations. Many states have enacted legislation recognizing the
limited liability provisions of a Delaware business trust. Other states have not
enacted similar legislation. We believe that most of the states that have not
enacted legislation will also recognize the limited liability of the
shareholders. Accordingly, there is a risk that shareholders will not have
limited liability for our activities in any other state in which we may conduct
activities which does not recognize the limited liability of beneficiaries of a
Delaware business trust.
THERE ARE CERTAIN LIMITS ON OWNERSHIP AND TRANSFERS OF SHARES THAT MAY LIMIT
YOUR ABILITY TO SELL YOUR SHARES
In order for us to maintain our qualification as a REIT, not more than
50% in value of our outstanding shares may be owned, actually or constructively,
by five or fewer individuals during the last half of a taxable year.
Furthermore, after the first taxable year for which a REIT election is made, our
shares must be held by a minimum of 100 persons for at least 335 days of a
12-month taxable year. In addition, if we, or an owner of 10% or more of our
shares, actually or constructively, owns 10% or more of a tenant of ours, the
rent received by Baron Properties from the tenant will not be qualifying income
for purposes of the REIT gross income tests of the Code. In order to protect
against the risk of losing our REIT status due to a concentration of ownership
among our shareholders, the Trust Declaration limits actual or constructive
ownership of our outstanding shares by any single shareholder (other than the
original investors) to 5.0% of the then outstanding shares. This may limit the
number of people who can purchase your common shares. This may also limit your
ability to sell your shares at or above the offering price, if at all.
ANTI-TAKEOVER PROVISIONS IN OUR GOVERNING DOCUMENTS MAY DISCOURAGE TAKEOVER
ATTEMPTS THAT MAY HAVE RESULTED IN YOU RECEIVING A PREMIUM FOR YOUR SHARES
Provisions in the Trust Declaration may discourage potential takeover
attempts, particularly those which have not been negotiated with our Board of
Trustees. For example, the ownership limitations set forth in the Trust
Declaration described above could have the effect of delaying, deferring or
preventing a takeover or other transaction. The transaction may be a type of
transaction in which holders of some, or a
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majority, of the common shares might have received a premium for their common
shares over the then prevailing market price or which shareholders might believe
to be otherwise in their best interest. These restrictions on ownership and
transfer may decrease the value of the common shares or make them more difficult
to sell.
THE LOSS OF MR. MCGRATH, MR. GEIGER, OR OTHER KEY EMPLOYEES WOULD DAMAGE OUR
REPUTATION AND BUSINESS
We are dependent upon the efforts of management and Baron Advisors. Our
management team is primarily composed of Gregory K. McGrath and Robert S.
Geiger, but also includes our independent trustees and other key management
personnel. While we believe that we could find replacements for these
individuals, the loss of their services would harm our business, financial
condition, operating results, and future prospects. In addition, we cannot be
certain that we could find or hire successors for these persons on similar
terms, if at all.
BECAUSE THE ORIGINAL INVESTORS WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OF
THE AFFAIRS OF BARON TRUST, NEW INVESTORS WILL NOT HAVE AS MUCH INFLUENCE ON
DECISIONS AS THEY WOULD IF CONTROL WERE LESS CONCENTRATED
Mr. McGrath and Mr. Geiger, the original investors, will each own an
amount of units in Baron Properties which are exchangeable into 9.5% of the
common shares outstanding after the completion of this offering and the proposed
exchange offering, on a fully diluted basis assuming that all then outstanding
units (other than those owned by us) have been exchanged into an equivalent
number of common shares. Under the Trust Declaration, no other shareholder may
hold more than 5.0% of our shares. In addition, Mr. McGrath serves as our Chief
Executive Officer, the Chief Executive Officer of Baron Properties, and the
President, sole stockholder, and sole director of Baron Advisors. Furthermore,
Mr. Geiger serves as our Chief Operating Officer and the Chief Operating Officer
of Baron Properties and Baron Advisors. Although there is no agreement,
understanding, or arrangement for these individuals to act together in any
manner, they are in a position to exercise significant influence over our
affairs if they were to act together in the future. As a result, Mr. McGrath and
Mr. Geiger may have interests that conflict with the interests of other
shareholders, and the actions they take or approve may be contrary to those
desired by the other shareholders.
IF OUR POLICIES RELATED TO CONFLICTS OF INTEREST ARE NOT SUCCESSFUL, DECISIONS
MADE BY MANAGING PERSONS MAY NOT BENEFIT SHAREHOLDERS
Because of the inter-relationships of Baron Properties, Baron Advisors,
affiliates of Baron Advisors, Mr. McGrath and Mr. Geiger, shareholders, and
sellers of property interests who receive units in exchange for these property
interests, there are inherent conflicts of interest. For example, certain
affiliates of Baron Advisors have sponsored and/or managed, or may in the future
sponsor, real estate investment programs which may seek to acquire interests in
properties similar to those which we may seek to invest. In addition, we may
attempt to acquire interests in properties from certain partnerships managed by
affiliates of Baron Advisors that directly or indirectly own interests in
properties or from investors in these partnerships.
We have adopted certain policies designed to eliminate or minimize
potential conflicts of interest. However, we cannot be certain that these
policies will always be successful in eliminating the influence of these
potential conflicts. If these policies are not successful, decisions could be
made that might fail to reflect fully the interests of all shareholders and may
benefit others to the detriment of shareholders. This may cause our common
shares to decrease in value and may harm our business and future prospects.
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WE CANNOT BE CERTAIN THAT THIS OFFERING OR THE EXCHANGE OFFERING WILL BE
SUCCESSFUL
In this offering, we are offering 2,500,000 common shares for sale at
$10 per share. This offering began in May 1998. As of May 15, 1999, we have sold
614,110 common shares. Baron Properties is in the process of registering with
the Commission 2,500,000 units of limited partnership interest in Baron
Properties to be issued in connection with the proposed exchange offering.
Holders of the units may request to exchange their units for an equal number of
common shares at any time, subject to certain conditions. Therefore, we are also
registering an additional 2,500,000 common shares to be issued upon the
conversion of units of Baron Properties to common shares. We cannot be certain
as to the number of common shares we will sell in this offering. In addition, we
cannot be certain that the Commission will declare the registration statement of
Baron Properties effective or that any person will accept the proposed exchange
offering. It is unlikely that the net proceeds from this offering received
through May 15, 1999 will be sufficient to meet our investment objectives.
In addition, while we our conducting this offering, affiliates of Baron
Advisors may be conducting ongoing unregistered private offerings for real
estate limited partnerships sponsored by affiliates of Baron Advisors.
Therefore, despite the different nature and scope of proposed activities of
Baron Trust and these other limited partnerships, we will be competing with
these unregistered offerings to sell investment securities to prospective
investors with the possible affect that we will sell fewer common shares in this
offering than otherwise might be the case absent other unregistered offerings.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE DILUTION IN THEIR BOOK VALUE PER SHARE,
WHICH MAY DECREASE THE VALUE OF THE COMMON SHARES
In connection with our formation and the formation of Baron Properties,
each of Mr. McGrath and Mr. Geiger, has received an amount of units in Baron
Properties which are exchangeable into 9.5% of the common shares outstanding
after the completion of this offering and the exchange offering, on a fully
diluted basis. The original investors received the units in exchange for their
initial capitalization of Baron Properties. Purchasers of common shares in this
offering will pay a higher price per common share than Mr. McGrath and Mr.
Geiger paid for their units. As a result of the issuance of the units to Mr.
McGrath and Mr. Geiger and the use of a portion of the gross proceeds of this
offering to cover expenses of this offering and the proposed exchange offering
and the reimbursable expenses payable to Baron Advisors, purchasers of common
shares in this offering will experience immediate dilution in their investment
in Baron Trust. To the extent that Baron Trust and Baron Properties issue
additional securities in the future, there may be further dilution. Dilution may
decrease the value of your shares.
BECAUSE THE INITIAL ASSIGNED PROPERTY VALUES IN EXCHANGE OFFERING EXCEED CURRENT
BOOK VALUES, OUR RETURN ON INVESTMENT IN THE PROPERTIES MAY BE LOWER THEN
HISTORICAL LEVELS
The aggregate book value of the properties proposed to be acquired by Baron
Properties in the exchange offering is less than the sum of the initial assigned
value of Baron Properties units proposed to be paid for those properties, plus
any mortgage indebtedness to which the properties are subject. This is primarily
due to depreciation taken against the original price of the properties paid by
the owners of the properties and the appreciation of the properties since the
date of purchase. Because the aggregate book value of these properties is less
than the assigned value of Baron Properties units proposed to be paid for the
properties, plus any mortgage indebtedness to which the properties are subject,
the return on investment of those properties based on the assigned value of the
properties will be less than the return on investment of the properties based on
the owners' book value.
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PROPERTY INVESTMENTS
THERE ARE MANY RISKS ASSOCIATED WITH AN INVESTMENT IN INCOME PRODUCING
RESIDENTIAL REAL ESTATE WHICH MAY RESULT IN LOSSES TO BARON PROPERTIES
Our results of operations will depend upon, among other things, the
ability of Baron Properties to locate quality investment opportunities. The
performance of your investment will depend on many factors over which we may
have no control, including without limitation, whether:
a. certain advantageous provisions of federal tax laws continue;
b. adverse changes in national and local economic conditions
occur;
c. increases in operating costs occur;
d. there exists any adverse local conditions, such as decreases
in employment or changes in real estate zoning laws and other characteristics of
the geographical location of the investments, which may reduce the desirability
of real estate in the area;
e. excessive building of other residential real estate properties
occur in the same location;
f. changes in interest rates occur;
g. long-term mortgage funds are available at favorable rates;
h. changes in federal, state or local government laws,
regulations, or policies occur;
i. changes in tax laws occur;
j. tenants are able to pay rents;
k. rental units are occupied or whether they are occupied on
terms unfavorable to Baron Properties;
l. capital improvements are needed;
m. certain properties may have experienced recurring losses for
financial reporting purposes (including the effects of depreciation and
interest);
n. various uninsurable risks, liabilities in tort (which may
exceed insurance coverage), acts of God and other catastrophes occur;
o. hazardous substances and other environmental problems are
found on the properties; and
p. financing for operating or capital needs are available on
favorable terms.
If Baron Properties owns real property directly, it may be PARI PASSU
(I.E., on an equal basis) with other investors in the same property. In the
event of a default on the investment, Baron Properties' remedies may be limited
by the size of the investment relative to that of other participants.
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THERE ARE ADDITIONAL RISKS ASSOCIATED WITH MORTGAGE LENDING THAT MAY CAUSE BARON
PROPERTIES TO INCUR LOSSES
Baron Properties may invest in mortgages, either by acquiring mortgages
or providing loans secured by mortgages. The above factors may also limit the
ability of a borrower from Baron Properties to meet its repayment obligations to
Baron Properties in connection with mortgage loans that may be provided or
acquired by Baron Properties. In the event of a default by a mortgagor, Baron
Properties may experience substantial delays in enforcing its rights as
mortgagee. Baron Properties may also incur substantial costs associated with
protecting its investment. Baron Properties may be required to acquire title to
a property. Thereafter, Baron Properties may be required to make substantial
improvements or repairs in order to maximize the property's investment
potential. In these circumstances, Baron Trust or Baron Properties may be
required to attempt to borrow or raise additional funds and may not be able
ultimately to recover Baron Properties' investment.
Baron Properties expects that mortgage loans it provides or acquires
which are secured by residential apartment properties would generally be made on
a non-recourse basis. In other words, under the loan, the borrowers in respect
of the property would not be responsible for the debt and Baron Properties would
be able to look only to the unencumbered assets of the property for repayment.
In many cases, Baron Properties is expected to be secured by a second or
subordinate mortgage that is subordinated to a first or senior mortgage. In the
event of a default on a senior mortgage, Baron Properties may find it necessary
to make payments to prevent foreclosure on the senior mortgage. These payment
would not necessarily improve Baron Properties' position with respect to the
underlying real property. Failure of Baron Properties to make payments could
result in foreclosure on the senior mortgage and the extinguishment of Baron
Properties' subordinated mortgage. Under these circumstances, the entire
investment in the property could be lost. In addition, nonpayment of any
subordinated mortgage loan that may be made or acquired by Baron Properties may
constitute an event of default to a borrower under a senior mortgage loan. In
this case, the senior mortgage loan may have to be repaid by the borrower before
Baron Properties will receive any return on its investment. Furthermore,
mortgage loans will not be insured or guaranteed by governmental agencies or
otherwise.
Mortgage investments are subject to the additional risk that the value
of the mortgaged property may be less than the amounts owed and the risk that
interest rates payable to Baron Properties on the loans may be lower than Baron
Properties' cost of funds. If Baron Properties invested in mortgages and if any
of the above occurred, Baron Properties' ability to make distributions to us
could be limited. In turn, our ability to make distributions to you could be
limited.
IF BARON PROPERTIES MAKES SUBORDINATED MORTGAGE LOANS, ITS MORTGAGE INTEREST MAY
NOT BE PERFECTED AND MAY RESULT IN LOSSES
Any subordinated mortgage loan Baron Properties may make or acquire
using net proceeds of this offering contributed to it by Baron Trust may or may
not be recorded. If the mortgage is not recorded, Baron Properties' security
interest in the mortgage would not be perfected and Baron Properties would then
be on an equal basis with all other unsecured creditors of the borrower. If a
borrower in connection with an unrecorded mortgage loan defaults or files for
bankruptcy, there may not be enough assets of the borrower to repay all of the
borrower's debts. There can be no guaranty that the collateral for a
subordinated mortgage loan will be sufficient to pay all unsecured creditors. As
a general unsecured creditor of the borrower, Baron Properties may have to share
the remaining assets with other creditors after the payment of any senior
mortgage. Baron Properties could also suffer a complete loss of its investment.
These losses would decrease the value of the common shares and may limit
distributions to shareholders.
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BARON PROPERTIES MAY NOT BE ABLE TO SELL PROPERTIES AND IS LIMITED IN ITS
ABILITY TO HOLD PROPERTIES FOR SALE
Real estate investments are relatively illiquid. Baron Properties will
have limited ability to vary its portfolio quickly in response to changes in
economic or other conditions. In addition, their are certain prohibitions that
prevent a REIT from holding property for sale. This may affect the ability of
Baron Properties to sell properties without limiting distributions to Baron
Trust's shareholders.
UNEXPECTED CAPITAL IMPROVEMENTS WILL HARM OUR FINANCIAL PERFORMANCE AND MAY
REDUCE THE AMOUNT OF DISTRIBUTIONS TO SHAREHOLDERS
Properties in which Baron Properties may invest will vary in age and
require capital improvements regularly. The cost of these capital improvements
may be funded out of the net proceeds of this offering contributed by us to
Baron Properties, available cash flow of Baron Properties, borrowed funds, or
additional offerings of shares or units. If the cost of improvements, whether
required to attract and maintain tenants or to comply with governmental
requirements, substantially increases, cash available for distribution to
shareholders could be reduced.
INACCURATE ESTIMATES, APPRAISALS, OR FAIRNESS OPINIONS MAY REDUCE AMOUNTS
AVAILABLE FOR DISTRIBUTION
Baron Properties, using the net proceeds of this offering contributed
to it by us as well as units of Baron Properties, intends to actively seek to
acquire interests in residential apartment properties or subordinated mortgage
loans on similar properties. The ability to acquire interests in real property
is limited to the extent they can be acquired on advantageous terms and meet
Baron Properties' investment criteria. Acquisitions in respect of residential
real estate properties entail risks that investments will fail to perform in
accordance with expectations. Estimates of the costs of improvements to bring
acquired property up to standards established for the market position intended
for that property may prove inaccurate. If the costs to Baron Properties exceed
expectations, distributions to shareholders may be limited.
Baron Properties will obtain appraisals with respect to the market
value of any property interest that it will seek to acquire for cash. To the
extent that operating partnership units are used in the acquisition, Baron
Properties will obtain an appraisal or an opinion as to the fairness of the
allocation of units in Baron Properties to sellers of property interests.
Appraisals and fairness opinions are only estimates of value and should not be
relied upon as precise measures of true worth or realizable value. We cannot be
certain that the value of the aggregate percentage interests in Baron Properties
paid to persons contributing assets to Baron Properties in exchange for units is
equivalent to the value Baron Properties will realize from those contributions
or that the offering price for common shares in this offering reflects the fair
market value of the interests of the purchasers of common shares in this
offering.
OUR INABILITY TO MANAGE THE ARE SUBSTANTIAL RISKS IN FINANCING THE ACQUISITION
OF REAL ESTATE MAY HARM OUR FINANCIAL PERFORMANCE
Baron Properties will be subject to the risks normally associated with
borrowing money. These risks include:
a) the risk that the cash flow will be insufficient to meet
required payments of principal and interest;
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b) the risk that the interest rates on any adjustable interest
rate loans will increase; and
c) the risk that loans on properties will not be refinanced at
maturity or that the terms of the refinancing will not be as favorable as the
terms of the original loan.
If Baron Properties is unable to refinance loans on acceptable terms, Baron
Properties might be forced to dispose of one or more of its properties upon
disadvantageous terms, which might result in losses to Baron Properties. This
may limit the cash available for distribution to shareholders.
If prevailing interest rates or other factors at the time of the
refinancing result in higher interest rates on refinancings, Baron Properties'
interest expense would increase, which would limit Baron Properties' cash flow
and its ability to make distributions to unitholders. Consequently,
distributions to shareholders would decrease.
Further, if a property is mortgaged to secure payment of a loan, and
Baron Properties is not able to meet mortgage payments, or is otherwise in
default, the property could be transferred to the mortgagee, the mortgagee could
foreclose upon the property, appoint a receiver and receive an assignment of
rents and leases, or pursue other remedies. All of these events would result in
a loss of income and asset value to Baron Properties. Foreclosures could also
create taxable income without accompanying cash proceeds. In this situation,
Baron Properties may be unable to make a cash distribution to us, which may
hinder are ability to meet the REIT distribution requirements.
In connection with Baron Properties' acquisition of an equity interest
in a given property, Baron Properties may assume a seller's obligations under
any underlying mortgage loan or obtain new mortgage financing. Such a loan would
be secured by the property acquired and may require a "balloon" payment upon the
maturity of its term. The ability of Baron Properties to repay the loan may be
dependent on its ability to obtain adequate long-term refinancing or equity
financing or to sell the property at or prior to the maturity date. We cannot be
certain that either replacement debt or equity financing or a sale could be
obtained. Baron Properties could suffer a complete loss of its investment if
neither a sale nor replacement financing can be obtained. The ability to obtain
refinancing will be dependent upon general economic conditions, the value of the
property and the financial strength of Baron Properties. Failure to obtain the
refinancing necessary to make the foregoing payment when due, or to make any
scheduled payments due with respect to any loan secured in whole or in part by
the property, could result in a foreclosure and loss of the property. Baron
Properties could suffer a complete loss of its investment in the property.
Under the Trust Declaration, we can, together with Baron Properties,
incur aggregate borrowings in an amount up to 300% of the amount of our
aggregate net assets, except where we determine that a higher level of borrowing
is appropriate. Therefore, we could, on an individual or aggregate basis, become
highly leveraged. We cannot be certain that the ratio of debt to any measure of
our asset value will maximize the level of distributions to shareholders.
THERE IS NO GUARANTY THAT WE CAN OPERATE ACQUIRED PROPERTIES PROFITABLY AND YOU
MAY LOSE YOUR ENTIRE INVESTMENT
At December 31, 1998, Baron Properties owned interests in four
properties. For the year ended December 31, 1998, we recorded a net loss related
to these properties of approximately $211,911. We cannot be certain that Baron
Properties will be able to avoid operating losses in the future in respect of
properties in which it acquires an interest. In order for Baron Properties to
make cash distributions on acquired residential apartment properties, certain
occupancy percentages and rental rates will need to be
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achieved and expense levels maintained. We cannot be certain that these
percentages, rates or expenses can be achieved or maintained. If the properties
do not achieve and maintain these minimum occupancy percentages at minimum
rates, the ability of Baron Properties to make distributions to us could be
limited. In turn, our ability to make cash distributions to shareholders may be
eliminated. We cannot be certain that rental increases can be instituted while
maintaining acceptable occupancy levels. If Baron Properties fails to generate
sufficient gross income, it may find it necessary to attempt to borrow funds for
operating capital or other purposes. The availability of additional financing to
Baron Trust or Baron Properties is partially dependent upon general economic
conditions, the value of the property and the financial strength of Baron
Properties.
OTHERS INVOLVED IN THE SAME PROPERTY MAY HAVE INTERESTS ADVERSE TO BARON TRUST
AND OUR SHAREHOLDERS
We anticipate that Baron Properties will provide or acquire financing
on existing residential apartment properties. Generally, Baron Properties will
jointly participate with one or more other entities, including for example,
developers, property owners, and senior mortgage lenders. If any of these other
participants fail to fulfill their obligations or have divergent interests or
are in a position to take action contrary to the policies or objectives of Baron
Properties, Baron Properties' interest in the project may be harmed. Although
Baron Properties will remain closely involved in all aspects of the operations
of properties in which Baron Properties has an investment, Baron Properties may
initially rely upon others as to the operation of any property in which it
participates. It will monitor or take part in those activities to the extent it
deems appropriate. The successful operation of each property in which Baron
Properties participates will, to a large extent, be determined by the quality
and performance of its managers. Actions taken contrary to Baron Properties by
other participants in a property may decrease the value of Baron Properties'
investment and eventual return on that investment.
IF WE CANNOT COMPETE EFFECTIVELY, OUR FINANCIAL PERFORMANCE WILL BE HARMED AND
THE VALUE OF THE COMMON SHARES MAY DECREASE
We will be competing for suitable investments with other financial
institutions such as banks, insurance companies, savings and loan associations,
mortgage bankers, pension funds, real estate investment trusts, and other real
estate developers, managers, owners, and investment vehicles, which may have
investment objectives similar to our own. Many of these competitors will have
greater resources than us and some may have, or may have access to, more
extensive real estate and financial experience than does Baron Advisors.
We expect that all properties in which we invest will be located in
developed areas that include other residential apartment properties. Some of
these apartment properties we will be competing with may be owned by limited
partnerships managed by affiliates of Baron Advisors. The number of competitive
apartment properties in a particular area could have a material effect on our
ability to lease apartment units to tenants and on the rents we charge. We may
be competing for tenants with others that have greater resources or whose
officers and directors have more experience than our officers and members of our
Board of Trustees and Baron Advisors. In addition, we will also be competing
with other forms of multifamily residential properties that provide housing
alternatives to potential tenants of our residential apartment properties. To
the extent that we are not able to compete effectively, the value of your common
shares may decrease.
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IF WE INCUR A LOSS THAT CANNOT BE INSURED AGAINST, OUR FINANCIAL PERFORMANCE
WILL BE HARMED AND THE VALUE OF THE COMMON SHARES MAY DECREASE
The properties in which Baron Properties will invest will be covered by
comprehensive liability and all-risk insurance. This insurance will be provided
by reputable companies and with commercially reasonable deductibles, limits and
policy specifications customarily carried for similar properties. We believe
that this type of insurance is adequate for the potential risks involved.
However, certain types of losses may be either uninsurable or not economically
insurable, such as losses due to earthquakes, floods, riots, or acts of war, or
may be insured subject to certain limitations including large deductibles or
co-payments. Should an uninsured loss or a loss in excess of insured limits
occur, Baron Properties could lose its investment in and anticipated profit and
cash flow from a property. Even if we lost a property, we would continue to be
obligated on any mortgage loans or other obligations related to the property.
This type of loss would limit our ability to make distributions.
CHANGES IN THE LAWS AND REGULATIONS THAT INCREASE COMPLIANCE COSTS AND TAXES
WOULD HARM OUR FINANCIAL PERFORMANCE
GENERAL. Baron Properties is subject to extensive regulation by
federal, state, and local governments covering many aspects of its operations
including accessibility to properties and discrimination in housing. From time
to time, new laws, regulations, and ordinances are introduced which can
materially increase the costs of operating residential apartment properties. The
exact timing and nature of the new laws, regulations, and ordinances is unknown.
To the extent that changes in these laws, regulations, or ordinances increase
the cost of operations, distributions to the shareholders may be decreased or
eliminated.
COMPLIANCE WITH ENVIRONMENTAL LAWS. An owner or operator of real
property may become liable for the costs of removal or remediation of certain
hazardous substances released on or in its property. Liability is often imposed
without regard to whether the owner or operator of the property knew of, or was
responsible for, the release of the hazardous substances. The presence of
hazardous substances, or the failure to properly remediate hazardous substances
when released, on property acquired or operated by Baron Properties may limit
the ability of Baron Properties to sell the property or to borrow using the
property as collateral.
We cannot guaranty that any prior owner of a property did not create
any material environmental conditions not known to us or that a material
environmental condition does not otherwise exist as to any particular property
in which Baron Properties acquires an interest. If it is ever determined that
hazardous substances are present on properties acquired by Baron Properties,
Baron Properties could be required to pay all costs of any necessary clean-up
work, although under certain circumstances claims against other responsible
parties could be made.
INCREASED TAXES AND EXPENSES. There generally is a delay from the time
an increase in costs, real estate taxes, or other expenses related to government
requirements are incurred and the time that those costs can be passed directly
through tenants, if at all. This is typically a result of the use of leases
which generally do not contain provisions that allow rent increases during the
term of the lease. In addition, there may be other circumstances that inhibit
Baron Properties' ability to recover these increased costs. An attempt to pass
through any substantial increases in costs by increasing rental rates may affect
tenants' ability to pay rent, causing increased delinquency and vacancy.
Similarly, increases in income or transfer taxes generally are not passed
through to tenants and may limit Baron Properties' ability to make distributions
to shareholders. Changes in laws increasing potential liability for
environmental conditions or
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increasing the restrictions on discharges or other conditions may result in
significant unanticipated expenditures, which would limit our ability to make
distributions to shareholders.
WE HAVE NOT IDENTIFIED ALL OF THE POTENTIAL PROPERTIES THAT BARON PROPERTIES MAY
ACQUIRE UTILIZING NET PROCEEDS OF THIS OFFERING RECEIVED BY IT FROM BARON TRUST
OR UTILIZING UNITS
Baron Properties owned interests in four properties at March 31, 1999.
In addition, Baron Properties was admitted as the limited partner in 13 real
estate limited partnerships in exchange for capital contributions. These
interests were acquired with proceeds from this offering contributed by us to
Baron Properties. Baron Properties expects to use additional net proceeds
received from us to acquire additional equity interests in and/or provide or
acquire debt financing secured by mortgages on several existing residential
apartment properties. With the exception of a contract to purchase two
additional properties to be completed in 2000 and 2001, the remainder of the net
proceeds of this offering have not yet been committed to any specific
properties. Although Baron Advisors has several opportunities for the investment
under review, none of these potential opportunities has developed beyond the
negotiating stage. Baron Properties may direct a substantial portion of the net
proceeds from this offering received by it to properties that have not been
designated in this prospectus. In addition Baron Properties may be unable to or
may decline to participate in any specific investments that may be described in
this prospectus. Therefore, prospective investors may not be able to evaluate
any properties in which Baron Properties may apply the net proceeds of the
offering before they purchase common shares. In addition, prospective investors
will not have any vote in the selection of property investments after they
purchase common shares. Consequently, investors will be relying upon the
judgment of the management of Baron Advisors and the independent trustees for
these decisions.
Concurrently with this offering, Baron Properties proposes to make an
exchange offering using units in Baron Properties to be registered with the
Commission to acquire equity and debt interests in residential apartment
properties. As its initial acquisition candidates in connection with the
proposed exchange offering, Baron Properties anticipates that it will offer to
acquire property interests owned by partners in 23 real estate limited
partnerships. Baron Properties intends to investigate other investment
opportunities for the exchange offering, including property interests held by
unaffiliated owners and certain other limited partnerships managed by affiliates
of Baron Advisors and of Sigma. To the extent that Baron Properties is not able
to identify and acquire quality investments, the value of the common shares will
decrease.
IF WE DISPOSE OF PROPERTIES AT AN INOPPORTUNE TIME, WE MAY INCUR LOSSES
Baron Trust will periodically review the portfolio of assets which
Baron Properties may acquire. It has no current intention to dispose of any
interest in properties it may acquire, although it reserves the right to do so.
We cannot be certain as to the timing of any sales of property or that if Baron
Trust determines to attempt to sell a particular property it will be able to do
so on favorable terms, if at all. A successful sale of any property will depend
upon, among other things, the operating history of the property and prospects
for the property, the number of potential purchasers, the economics of any bids
made by potential purchasers and the state of the market for residential
properties of the type sought to be sold. The management of Baron Trust will
have full discretion to determine whether the properties should be sold and the
timing, price and other terms of any sales. In addition, the prohibitions in the
Code and related regulations on a REIT holding property for sale may affect
Baron Trust's ability to sell properties without limiting distributions to Baron
Trust's shareholders.
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RELIANCE ON UNAUDITED FINANCIAL STATEMENTS FOR ACQUIRED PROPERTIES MAY RESULT IN
UNANTICIPATED EXPENSES OR LIABILITIES THAT COULD HARM OUR FINANCIAL PERFORMANCE
In making an investment decision in respect of any given property,
Baron Properties may rely on financial statements covering the operations of the
property which may have been prepared by the current owner or property manager
of the property. These financial statements may not have been compiled,
reviewed, or audited by independent public accountants or reviewed by counsel to
Baron Advisors or Baron Properties. As a result, there will not have been any
independent assessment of any of the financial statements. Accordingly, Baron
Properties would be subject to the risk that the financial statements do not
properly reflect the prior operation of the property. When Baron Properties
acquires a property, it may become liable for debts and other liabilities of the
property that were not reflected in the financial statements. Any unanticipated
expenses or liabilities, or a misstatement of revenues from a particular
property, may limit amounts that may be distributed to shareholders.
INCOME TAX CONSIDERATIONS
We have structured Baron Trust and Baron Properties with the intent of
taking advantage of certain federal and state tax provisions. Some of these tax
provisions are highly technical in nature. There are many tax issues involved in
our operations and the operations of Baron Properties. Unfavorable resolution of
any of a number of tax issues could be disadvantageous to shareholders. We have
not obtained and do not expect to request a letter ruling from the IRS related
to our classification and treatment for federal tax purposes, or on any other
tax matter. We have obtained an opinion of our special tax counsel that, based
on our organization and proposed operation and based on certain other
assumptions and representations, we will qualify as a REIT and that Baron
Capital Properties, L.P. will be classified as a partnership for federal income
tax purposes. The opinion is not binding on the IRS or any court. You should
consult with and rely upon your own legal, tax and investment advisor regarding
how an investment in Baron Trust will affect you.
THERE MAY BE SIGNIFICANT ADVERSE CONSEQUENCES TO US AND OUR SHAREHOLDERS IF WE
FAIL TO QUALIFY AS A REIT
We intend to operate so as to qualify as a REIT under the Code. We made
a REIT election for our taxable year ended December 31, 1998. Although we
believe that we are organized and operated in such a manner, we cannot be
certain that we will be able to continue to operate in a manner so as to
maintain our qualification. Qualification as a REIT involves the satisfaction of
numerous requirements (some on an annual and others on a quarterly basis)
established under highly technical and complex Code provisions. For some of
these provisions, there are only limited judicial and administrative
interpretations, and most involve the determination of various factual matters
and circumstances not entirely within our control. For example, in order to
qualify as a REIT, at least 95% of our gross income in any year must be derived
from qualifying sources and we must pay distributions to shareholders
aggregating annually at least 95% of our REIT taxable income. The complexity of
these provisions and the applicable Treasury Regulations that have been
promulgated under the Code is greater in the case of a REIT that holds its
assets in partnership form (as we intend to do). We cannot be certain that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as REIT
or the federal income tax consequences of our qualification.
If we fail to qualify for taxation as a REIT in any taxable year and no
relief provisions apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to shareholders in any year that we fail to qualify as a REIT will
not be deductible by us. In these circumstances, to the extent of current or
accumulated earnings and profits, all
19
<PAGE>
distributions to shareholders will be taxed as ordinary income. Moreover, unless
we are entitled to relief under certain statutory provisions, we also would be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. This treatment would reduce our net
earnings available for investment or distributions to shareholders because of
the additional tax liability for the years involved. In addition, distributions
to shareholders would no longer be required to be made if we do not qualify as a
REIT and we may determine to eliminate distributions to shareholders.
YOU WILL BE LIABLE FOR STATE AND LOCAL INCOME TAXES AND MAY BE REQUIRED TO FILE
TAX RETURNS IN MULTIPLE STATES
You will be liable for state and local income taxes payable in the
state or locality in which you are a resident or doing business. In addition, we
may be subject to income taxes in a state or locality in which we conduct or are
deemed to conduct business. Depending upon the state in question, if you pay
taxes in a foreign state, you may be entitled to receive a credit for all or a
portion of the amount paid against any income taxes payable in your state of
residence. Thus, you will likely be required to file multiple state income tax
returns as a result of your investment in the common shares. You are urged and
expected to consult with your personal tax advisor with respect to the tax
consequences connected with an investment in the common shares. You should
consider these additional costs when determining whether this is a suitable
investment. These additional costs may decrease the yield you receive on your
investment.
YEAR 2000
IF OUR COMPUTER SYSTEMS DO NOT WORK PROPERLY WITH YEAR 2000 DATA, OUR BUSINESS
OPERATIONS MAY BE SIGNIFICANTLY DISRUPTED
We could experience a significant disruption to our business operations
and, as a result, a significant adverse impact on our ability to make
distributions to shareholders, if our computer systems are not able to properly
handle problems created by the year 2000. We are actively working to make sure
as best we can that this does not happen, or at least, that the effects are
lessened as much as possible. We intend to examine properties we acquire for
year 2000 problems. There can be no guaranty that we have identified all
problems related to the year 2000 or that our efforts to correct existing year
2000 problems will be successful.
WHO MAY INVEST
Because an investment in the common shares being offered by this
prospectus involves a high degree of risk, you may lose all or a portion of your
investment. For this reason, an investment in the common shares is suitable only
for persons of substantial financial means who have no need for liquidity in
their investments. We have adopted as a general investor suitability standard
the requirement that each subscriber for the common shares represent in writing
in the subscription documents, among other things, that:
(a) You have received a copy of this prospectus;
(b) You are acquiring the common shares for your own account and
for investment purposes only;
(c) You can bear the economic risk of losing the entire
investment;
(d) You meet the following minimum income/net worth standards:
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<PAGE>
(i) Minimum annual gross income of $45,000 and a minimum net
worth (determined exclusive of home, home furnishings, and automobiles)
of $45,000; or
(ii) Minimum net worth of $150,000 (determined exclusive of
home, home furnishings, and automobiles);
(e) Your overall commitment to investments which are not readily
marketable is not disproportionate to your net worth and your investment in the
common shares will not cause your overall commitment to become excessive;
(f) You have adequate means of providing for your current needs
and personal contingencies and you have no need for liquidity in your investment
in the common shares; and
(g) Our objectives are compatible with your investment goals.
In addition, we may not sell common shares in the offering to, or
accept as a shareholder, any Ohio investor whose investment would exceed 10% of
the investor's liquid net worth.
In the case of sales to fiduciary accounts, the foregoing investor
suitability standards must be satisfied by the beneficiary, by the fiduciary
account, or by the donor or grantor who directly or indirectly provides the
funds to purchase the common shares (if the donor or grantor is the fiduciary).
In the event you are purchasing in a fiduciary capacity for another person or
entity, the foregoing suitability standards must be satisfied by the other
person or entity on whose behalf you are acting.
The suitability standards referred to above represent minimum
suitability requirements for prospective investors. Even though you may satisfy
the requirements, the common shares may not be a suitable investment for you.
We will review the representations made by you in the subscription
documents to determine the suitability of the investment for you. We have the
right to refuse your subscription for common shares for any reason, in our sole
discretion, including if we believe you do not meet the applicable suitability
requirements or the common shares are otherwise an unsuitable investment for
you. Our acceptance of a subscription for common does not, however, constitute a
determination by us that the investment is suitable for you.
We will make every reasonable effort to furnish each qualified
prospective investor with the additional information he or she desires which is
not set forth herein and to provide an opportunity for inquiry concerning the
terms and conditions of this offering. Copies of all documents described or
referred to herein are available at our offices at 7826 Cooper Road, Cincinnati,
Ohio 45242. Our telephone number is (513) 984-5001 and our facsimile number is
(513) 984-4550.
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<PAGE>
TAX STATUS OF THE TRUST
For the tax year ended December 31, 1998, we elected to be taxed as a
REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended (the "Code"). To maintain REIT status, we must meet a number of
organizational and operational requirements, including a requirement that we
currently distribute to our shareholders at least 95% of our REIT taxable income
(determined without regard to the dividends paid deduction and by excluding net
capital gains). As a REIT, we generally will not be subject to federal income
tax on net income we distribute currently to our shareholders. If we fail to
qualify as a REIT in any taxable year, we will be subject to federal income tax
at regular corporate rates and may not be able to qualify as a REIT for the four
subsequent taxable years. Even if we qualify for taxation as a REIT, we may be
subject to certain federal, state, and local taxes on our income and property.
See "FEDERAL INCOME TAX CONSIDERATIONS."
From time to time, a variety of legislative proposals are advanced in
Congress concerning the tax rules applicable to REITs. It is not possible to
predict in advance what legislative proposals might arise or be passed in the
future. One or more of these proposals may limit our ability to qualify as a
REIT or the tax consequences to us or our shareholders of our continued
qualification.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the offering will total
$22,500,000. As of March 31, 1999, we have sold 583,840 common shares pursuant
to this offering resulting in net proceeds of $5,015,380. These net proceeds
have been contributed to operating partnership in exchange for 583,840 units of
Baron Properties. Net proceeds from the sale of the remainder of the common
shares offered by this prospectus will also be contributed to Baron Properties
in exchange for units of Baron Properties. As of May 15, 1999, Baron Properties
has used approximately $3,300,556 to purchase interests in four apartment
communities in two states. Any proceeds from this offering which are not
invested or committed for investment by May 15, 2000 (less any amounts retained
as necessary operating capital) will be distributed pro rata to the shareholders
as a return of capital. Set forth below is the estimated application of proceeds
of this offering.
<TABLE>
<CAPTION>
Offering
Amount Percent
----------- -------
<S> <C> <C>
Gross Offering Proceeds: $25,000,000 100%
Offering Expenses:
Underwriting Commissions (1): 2,000,000 8%
Distribution, Due Diligence and
Organizational Expenses (2): 250,000 1%
Legal and Consulting Expenses (3): 250,000 1%
----------- ---
Amount Available for Investment and
Trust Operations: $22,500,000 90%
----------- ---
----------- ---
Investment Expenses (4): 1,000,000 4%
Proceeds to be Used to Acquire
Units in Baron Properties (5): 21,500,000 86%
Offering Expenses: 2,500,000 10%
----------- ---
Total Application of Proceeds: $25,000,000 100%
----------- ---
----------- ---
</TABLE>
- ------------
(1) We will pay Sigma selling commissions in an amount equal to 8% of the
gross proceeds received from its sales of common shares in this
offering. From this 8%, Sigma will pay broker-dealers that we or Sigma
selects to participate in this offering. All or a portion of the
commissions payable may be reallocated to participating broker-dealers.
The selling commissions will be due and payable promptly after the
latest to occur of (i) acceptance by Baron Advisors of an investor's
subscription, or (ii) the receipt and collection by us of the gross
purchase price of the common shares acquired by such investor. We
reserve the right to waive the payment of all or a part of a commission
by one or more investors, in which case the cost of the common shares
acquired by the investors will be less than the cost of equivalent
common shares to an investor paying a commission. We have also granted
Sigma a five-year warrant, exercisable beginning on May 15, 1999 and
ending on May 15, 2003, to acquire a number of common shares in an
amount equal to 8.5% of the number of common shares sold by it in the
offering at an exercise price of $13.00 per common share. As of March
31, 1999, we have paid $448,999 in commission to Sigma. In addition, as
of March 31, 1999, Sigma has acquired rights to purchase 33,107 common
shares pursuant to warrants.
(2) We will reimburse Baron Advisors in an amount equal to 1% of the gross
proceeds from sales of common shares in this offering (up to $250,000)
to cover the distribution, due diligence, and organizational expenses
associated with the formation of Baron Trust and Baron Properties and
with the offering. As of March 31, 1999, we have paid Baron Advisors
$57,899 for these services.
(2) We will also reimburse Baron Advisors in an amount equal to 1% of gross
proceeds from sales of common shares in this offering (up to $250,000)
to cover legal, accounting, and consulting fees and printing, filing,
recording, postage and other miscellaneous expenses associated with
this offering. The reimbursements described in footnote 2 and this
footnote 3 will be payable at the same time that selling commissions
are payable. To the extent which the distribution, due diligence and
organizational expenses or the legal, accounting and consulting fees
and printing, filing, recording, postage,
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<PAGE>
and other miscellaneous expenses associated with this offering exceed
1% of the gross proceeds from the offering, those expenses will not be
reimbursed to Baron Advisors. As of March 31, 1999, we have paid Baron
Advisors $57,899 to cover these reimbursable expenses.
(3) We will pay Baron Advisors in an amount equal to 4% of the gross
proceeds from sales of common shares in this offering (up to
$1,000,000) for reimbursement of Baron Advisors' expenses in
investigating and evaluating investment opportunities for Baron
Properties and for assisting Baron Properties in consummating its
investments prior to and during this offering. The amounts are payable
only from available net proceeds of this offering or as cash flow
permits as determined by our Board of Trustees.
(5) For more information on the intended uses of proceeds by Baron
Properties, see "BUSINESS OF THE TRUST," "INVESTMENT OBJECTIVES AND
POLICIES" and "INITIAL REAL ESTATE INVESTMENTS."
COMPENSATION OF THE MANAGING PERSONS
AND AFFILIATES
Baron Trust is not entitled to receive any compensation for services
performed in its capacity as general partner of Baron Properties. Baron Trust,
however, is entitled to be reimbursed on a monthly basis for expenses incurred
on behalf of Baron Properties, subject to certain limitations described below.
No special fees or commissions were or will be paid to Baron Advisors or any
affiliates, in connection with the proposed exchange offering. Broker-dealers
who assist Baron Properties in consummating the exchange offering with
individual offerees who accept the exchange offering will be paid as a
commission a number of unregistered common shares of Baron Trust equal to 5% of
the units exchanged in the particular transactions as a result of their efforts.
The independent trustees must determine that organizational and
offering expenses payable by Baron Trust and Baron Properties in connection with
the formation of Baron Trust and Baron Properties and any offerings of common
shares or units is reasonable and in no event exceeds an amount equal to 15% of
the gross proceeds of the particular offering.
The independent trustees must determine that the total amount of
acquisition fees and expenses payable by Baron Trust or Baron Properties in
connection with acquiring Baron Properties' investments is reasonable and in no
event exceeds an amount equal to 6% of the purchase price of the subject
property, or in the case of a mortgage loan made or acquired by Baron Trust or
Baron Properties, 6% of the funds advanced. This limit may be exceeded if a
majority of the disinterested members of the Board of Trustees and a majority of
the independent trustees approve the payment of an acquisition fee in excess of
6% based upon their determination that the fee is commercially competitive, fair
and reasonable to Baron Trust and Baron Properties.
The total operating expenses (less certain items, including capital
raising expenses, interest payments, taxes, non-cash expenditures such as
depreciation, and acquisition fees and expenses) of each of Baron Trust and
Baron Properties in any fiscal year may not exceed the greater of (i) 2% of the
aggregate book value of their respective investments, or (ii) 25% of their
respective net income for such year unless the independent trustees make a
finding that, based on such unusual and non-recurring factors which they deem
sufficient, a higher level of such operating expenses is justified for such
year. The independent trustees have reviewed the total operating expenses for
the year ended December 31, 1998, which exceeded the 2% and 25% limits. The
independent trustees have discussed these expenses with Baron Advisors and have
concluded that these expenses were reasonable and necessary in light of the
current stage of Baron Trust's plan of operation.
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<PAGE>
The payment by Baron Trust and Baron Properties of an interest in the
gain from the sale of their respective assets, for which full consideration is
not paid in cash or property of equivalent value, is allowed provided the amount
or percentage of such interest is reasonable. Such an interest is considered
reasonable if it does not exceed 15% of the balance of the net proceeds
remaining after payment to shareholders or unitholders (as applicable), in the
aggregate, of an amount equal to 100% of the original issue price of their
shares or units, plus an amount equal to 6% of the original issue price of their
shares or units, per annum cumulative. For purposes of this calculation, the
original issue price of shares and units may be reduced by prior cash
distributions to shareholders and unitholders, as applicable.
Additional fees that are not described in this Prospectus which may
become payable to affiliated parties for goods and services that may be provided
to Baron Trust or Baron Properties in the future will require the approval of a
majority of the independent trustees.
The following table describes all the material fees, compensation, and
other payments that may be received by Baron Advisors and affiliates in exchange
for their respective services and expenses in connection with the preparation of
this prospectus and this offering, the operation of Baron Trust and the
acquisition and disposition of Baron Trust's Property. The determination of the
type and amount of such compensation was not the result of arms'-length
negotiation. See "CONFLICTS OF INTEREST."
<TABLE>
<CAPTION>
OFFERING AND ORGANIZATIONAL STAGE
RECIPIENT TYPE OF COMPENSATION MAXIMUM AMOUNT
- --------- -------------------- --------------
<S> <C> <C>
Baron Advisors Reimbursement for distribution, due Not to exceed $250,000
diligence and organizational expenses
incurred in connection with the formation of
Baron Trust and Baron Properties and with
the offering in an amount not to exceed 1%
of gross proceeds from the offering.
Baron Advisors Reimbursement for legal, accounting and Not to exceed $250,000
consulting fees and filing, recording,
printing, postage and other miscellaneous
expenses incurred in connection with this
offering in an amount not to exceed 1% of
gross proceeds from this offering.
Baron Capital Properties, No compensation will be payable to the Reimbursable expenses are expected
Inc. (the Corporate Trustee Corporate Trustee for performing services on to be limited to the expense of
of Baron Trust) behalf of Baron Trust at the direction of operating an office in Delaware
Baron Advisors; however, reimbursement will (approximately $1,500 per year
be made for reasonable expenses incurred on initially) as required by the
behalf of Baron Trust which are Delaware Act - see
approved in advance by Baron Advisors. "MANAGEMENT - Corporate
</TABLE>
25
<PAGE>
OFFERING AND ORGANIZATIONAL STAGE (CONT.)
<TABLE>
<CAPTION>
RECIPIENT TYPE OF COMPENSATION MAXIMUM AMOUNT
- --------- -------------------- --------------
<S> <C> <C>
BaronAdvisors and Baron Advisors and certain affiliates are Amount of reimbursable expenses
Affiliates entitled to be reimbursed by Baron Trust incurred on behalf of Baron Trust
and Baron Properties for all reasonable and Baron Properties.
direct expenses incurred on behalf of Baron
Trust and Baron Properties, as the case may
be, including but not limited to legal,
accounting and consulting fees and other
expenses, to the extent those expenses were
incurred by them in carrying out
responsibilities assigned to them under the
Trust Declaration and Trust Management
Agreement and do not constitute payment
for activities for which they already receive
a fee, compensation and reimbursement as
described herein.
ACQUISITION AND OPERATING STAGE
--------------------------------
Baron Advisors Reimbursement for expenses incurred prior to Not to exceed $1,000,000;
and during this offering for investigating (reimbursable expenses paid in
and evaluating investment opportunities for connection with investment
Baron Trust and Baron Properties (other than activities plus other acquisition
the Exchange Properties) and for assisting fees and expenses may not exceed 6%
them in consummating their investments, in of the contract purchase price for
an amount not to exceed 4% of gross proceeds acquisitions unless the independent
from this offering; payable from available trustees determine that the
net proceeds of this offering or as cash transaction is commercially
flow permits as determined by the Board of reasonable).
Baron Trust.
Baron Advisors Annual payment under the Trust Management Not to exceed $500,000 per year;
Agreement to reimburse it for its operating payable on a monthly basis during
expenses relating to the business of Baron the term of the agreement beginning
Trust and Baron Properties, in an amount not June 1, 1998; at its option Baron
to exceed 1% of gross proceeds of this Advisors may elect to be paid in
offering plus 1% of the initial assigned common shares with an equivalent
value of units issued in connection with the value.
exchange offering.
</TABLE>
26
<PAGE>
ACQUISITION AND OPERATING STAGE (CONT'D)
<TABLE>
<CAPTION>
RECIPIENT TYPE OF COMPENSATION MAXIMUM AMOUNT
- --------- -------------------- --------------
<S> <C> <C>
Gregory K. McGrath, a Initial year's compensation Payable in the form of common shares
founder of Baron Trust of Baron Trust or units of Baron
and Baron Properties and Properties in an amount not to
Chief Executive Officer exceed 25,000 shares of Baron Trust
of Baron Trust, Baron or 25,000 units of Baron Properties
Properties and Baron in the initial year of operations to
Advisors be determined by the Executive Compensation
Committee of the Board of Trustees of Baron
Trust, plus health benefits; thereafter, his
compensation and benefits will be determined
by the committee. In exchange for an initial
capital contribution of $50,000 to Baron
Properties, Mr. McGrath subscribed for
units which are exchangeable (subject to
certain escrow restrictions) into 9.5%
of the common shares outstanding as of
the earlier to occur of the completion
of this offering and the exchange offering
or November 30, 1999, calculated on a fully
diluted basis assuming that all then outstanding
units (other than those owned by Baron Trust)
have been exchanged into an equivalent
number of common shares. "BUSINESS OF THE
TRUST - Formation Transactions."
</TABLE>
27
<PAGE>
ACQUISITION AND OPERATING STAGE (CONT'D)
<TABLE>
<CAPTION>
RECIPIENT TYPE OF COMPENSATION MAXIMUM AMOUNT
- --------- -------------------- --------------
<S> <C> <C>
Robert S. Geiger, a Initial annual compensation $100,000, plus health benefits and
founder of Baron Trust eligibility to participate in any
and the Baron Properties option plan and bonus incentive plan
and Chief Operating which may be implemented by the
Officer of the Baron Executive Compensation Committee of
Trust, the Baron the Board of Trustees of Baron
Properties and the Baron Trust. In exchange for an initial
Advisors capital contribution of $50,000 to
Baron Properties, Mr. Geiger has
been issued units which are exchangeable
(subject to certain escrow restrictions)
into 9.5% of the common shares outstanding
as of the earlier to occur of the completion
of this offering and the exchange offering
or November 30, 1999, calculated on a fully
diluted basis assuming that all then outstanding
units (other than those owned by Baron Trust)
have been exchanged into an equivalent number
of common shares. See "BUSINESS OF BARON
TRUST - Formation Transactions."
Robert L. Astorino, Initial annual salary $150,000, plus health benefits, an
President - Properties automobile allowance, and
Division of Baron eligibility to participate in any
Properties option plan and bonus incentive
plan which may be implemented by
the Executive Compensation
Committee of the Board of Trustees
of Baron Trust.
Mark L. Wilson, Chief Initial annual salary $110,000, plus health benefits, an
Financial Officer and automobile allowance, and
Secretary of Baron Trust eligibility to participate in any
and Baron Properties option plan and bonus incentive
plan which may be implemented by
the Executive Compensation Committee
of the Board of Trustees
of Baron Trust.
Independent Trustees Annual fee $6,000
</TABLE>
28
<PAGE>
ACQUISITION AND OPERATING STAGE (CONT'D)
<TABLE>
<CAPTION>
RECIPIENT TYPE OF COMPENSATION MAXIMUM AMOUNT
- --------- -------------------- --------------
<S> <C> <C>
Baron Capital Properties, No compensation will be paid for performing Reimbursable expenses are expected
Inc. (the Corporate services on behalf of Baron Trust at the to be limited to the expense of
Trustee of Baron Trust) direction of the managing shareholder; operating an office in Delaware
however, reimbursement will be made for (approximately $1,500 per year
reasonable expenses incurred on behalf of initially) as required by the
Baron Trust which are approved in advance by Delaware Act - see "MANAGEMENT -
the managing shareholder. Corporate Trustee."
Baron Advisors and Affiliates Subject to operational limitations on REITs The compensation, price or fee
for federal income tax purposes, Baron Trust payable must be comparable to and
is authorized to contract with the managing competitive with that charged by a
shareholder and affiliates to provide goods third party rendering comparable
and services other than those specified goods and services which could
herein, but no such contract is contemplated reasonably be made available to
at this time. Any such contract would Baron Trust.
require, among other things, that such
persons be previously engaged in the
business of providing such goods or services
as an ongoing business and that the
compensation, price or fee does not exceed
that specified in the third column.
Baron Advisors and Affiliates Baron Advisors and certain affiliates are Amount of reimbursable expenses
entitled to be reimbursed by Baron Trust and incurred on behalf of Baron Trust Baron
expenses incurred on behalf of Baron Trust or Properties for all reasonable direct and
Baron Properties, as the case may be, including the Baron Properties.
but not limited to legal, accounting and
consulting fees and other expenses, to the
extent those expenses were incurred by them
in carrying out responsibilities assigned to
them under theTrust Declaration and the Operating
Partnership Agreement and do not constitute
payment for activities for which they already
receive a fee, compensation or reimbursement as
described herein.
</TABLE>
CONFLICTS OF INTEREST
Baron Advisors will use its best efforts to conduct Trust affairs for
the benefit of the shareholders. However, Baron Trust is subject to various
conflicts of interest arising out of its relationship with Baron Advisors,
affiliates of Baron Advisors, the original investors and the shareholders,
including but not limited to those described below.
29
<PAGE>
Baron Advisors was formed for the sole purpose of serving as Baron
Advisors of Baron Trust. Certain affiliates of Baron Advisors, however, have
formed, manage or participate in other partnerships or entities which engage in
real estate activities and may acquire and/or develop real estate for their own
accounts. Affiliates of Baron Advisors are corporate general partners of 51
other Delaware or Florida real estate limited partnerships, including the 23
Exchange Partnerships, that were previously organized to invest in separate
residential apartment properties and single-family housing and retail projects
located in southeastern and mid-western portions of the United States. Of these
partnerships, 19 have invested in record title to residential apartment
properties or in limited partnership or other equity interests in limited
partnerships or other entities which own a direct or indirect equity interest in
such type of property, 19 have provided or acquired mortgage loans secured by
such type of property, five have invested in second mortgage loans to developers
of single-family homes, five have invested in second mortgage loans to
developers of condominium projects, two have invested in second mortgage loans
to shopping center developers and one has invested in a second mortgage for land
for development. Generally, each such program has a separate general partner and
involves separate projects or phases of projects which have been separately
financed and operated on a "stand-alone" basis. See "MANAGEMENT" and "PRIOR
PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER." It is expected that
affiliates of Baron Advisors will organize similar programs in the future.
Certain affiliates of Baron Advisors have sponsored or may sponsor real
estate investment limited partnerships which may seek to acquire interests in
properties similar to those which Baron Properties may seek to acquire. In
addition, Baron Properties may attempt to acquire interests in properties from
certain partnerships or other entities, including the Exchange Partnerships,
managed by affiliates of Baron Advisors that directly or indirectly own
interests in properties or from investors in such partnerships.
Furthermore, the original investors, Mr. McGrath and Mr. Geiger, serve
as executive officers of Baron Trust, Baron Properties and Baron Advisors and
are principal unitholders in Baron Properties. Mr. McGrath is also the sole
principal of Baron Advisors and of the corporate general partners of the real
estate investment limited partnerships described above (including the Exchange
Partnerships), certain of which own interests in residential apartment
properties in which Baron Trust and Baron Properties may acquire an interest. In
addition, affiliates of Mr. McGrath are also the corporate general partners of
limited partnerships which are debtors under second mortgage loans and other
debt interests owned by some of the Exchange Partnerships, and in such capacity,
Mr. McGrath holds an indirect minority economic interest in such partnerships
which is subordinate to the preferred returns of their limited partners.
Therefore, individually and collectively the original investors have significant
influence over the affairs of Baron Trust, Baron Properties and the Exchange
Partnerships which may result in decisions that do not fully represent the
interests of all shareholders, unitholders and Exchange Limited Partners. The
original investors also have other business interests, including other real
estate investments, and will not devote all of their business time to the
operations of Baron Trust and Baron Properties.
In order to eliminate or minimize conflicts of interest among Baron
Trust and such affiliates which may arise in these situations, Baron Trust has
adopted provisions in the Trust Declaration which require that at least a
majority of the members of the Board of Trustees be independent trustees and
that a majority of the Board of Trustees, and, in certain cases, a majority of
the independent trustees, approve transactions between Baron Trust or Baron
Properties and Baron Advisors, a trustee, or any of their respective affiliates.
See "SUMMARY OF DECLARATION OF TRUST - Control of Operations."
In addition, the Board of Trustees of Baron Trust has adopted a policy
designed to eliminate or minimize potential conflicts of interest which may
arise in respect of investment opportunities which may be presented to Baron
Advisors, an independent trustee, an original investor or any of their
respective
30
<PAGE>
affiliates. Under the policy, such parties may pursue for their own account a
residential apartment property investment opportunity which may be suitable for
Baron Trust and Baron Properties, in accordance with the purposes for which they
were organized, only upon fulfillment of the following conditions. First, the
requesting party or parties must deliver to the Board of Trustees of Baron
Trust, at least 60 days prior to the consummation of any such transaction, a
written investment proposal identifying the parties to be involved in such
transaction, specifying in reasonable detail the proposed terms and conditions
of the particular investment opportunity intended to be pursued and granting
Baron Trust and Baron Properties a right of first refusal, exercisable within 30
days following the delivery of such proposal, to participate in the proposed
transaction in the place of the requesting party or parties, on the terms and
conditions specified in the written proposal. In addition, the requesting party
or parties either (i) must receive written notice from a majority of the
disinterested members of the Board (I.E., those persons who have no other
interest in any such transaction beyond their role on the Board), or an
authorized representative acting on their behalf, which specifies that Baron
Trust and Baron Properties have determined not to participate in the proposed
transaction or (y) must have not received from the disinterested members of the
Board, or an authorized representative acting on their behalf, written notice,
within 30 days following the receipt of such written proposal, which notifies
the requesting party or parties that Baron Trust and Baron Properties elect to
exercise their right of first refusal to participate in the proposed transaction
on the terms and conditions specified in the written proposal.
The Board of Trustees of Baron Trust and the independent trustees are
responsible for overseeing the policy under the circumstances described above to
insure that it is applied fairly to Baron Trust. However, we cannot be certain
that the policies of Baron Trust and Baron Properties will always be successful
in eliminating or minimizing the influence of such conflicts, and, if they are
not successful, decisions could be made that might fail to reflect fully the
interests of all shareholders and unitholders.
In certain cases, the management of Baron Advisors and its affiliates
is identical. For example, the Chief Executive Officer, sole stockholder and
sole director of Baron Advisors is Gregory K. McGrath, who is also the
President, sole director and sole shareholder of each of the corporate general
partners of the investment programs referred to in the this section. See
"MANAGEMENT." As a result, the activities of other investment programs organized
by affiliates of Baron Advisors may also result in conflicting demands upon the
time and effort of the management of Baron Advisors in the performance of its
duties to Baron Trust and Baron Properties. However, Baron Advisors will devote
as much attention to the activities of Baron Trust and Baron Properties as is
reasonably necessary to manage them.
In the event that any dispute arises in which the interests of Baron
Trust or Baron Properties and any other programs sponsored by the affiliates of
Baron Advisors diverge, Baron Trust, if necessary, intends to retain separate
counsel for each party with an adverse interest.
Baron Advisors, the original investors and certain affiliates are
entitled under the Trust Declaration and other agreements to receive
compensation, payments, and reimbursements discussed in this prospectus. Such
compensation generally was not determined through a process of arm's-length
bargaining. The amounts payable and terms of such transactions may not
necessarily be determined by reference to costs to Baron Advisors, the original
investors or such affiliates, independent appraisals or comparable third party
transactions. As a result, the compensation or terms may not reflect the fair
market value of the services rendered or to be rendered to Baron Trust or Baron
Properties by Baron Advisors, the original investors or affiliates or the value
of the property acquired or disposed of.
In addition, the level of reimbursable expenses payable to Baron
Advisors or its affiliates in connection with the organization and operation of
Baron Trust may be greater or less than compensation or
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reimbursable expenses payable in connection with the organization and operation
of the other investment programs sponsored by such affiliates.
The interests of the shareholders and unitholders may be inconsistent
in some respects with the interests of Baron Advisors. Baron Advisors and
certain of its affiliates, by reasons of their interests in Baron Trust and
their receipt of compensation and reimbursable expenses from Baron Trust, have
and will have potential conflicts of interest in connection with their
performance of certain activities. For example, a transaction such as a sale of
the property of Baron Trust or the operating partnership may produce an economic
benefit for Baron Advisors and/or an affiliate but adverse tax consequences for
the shareholders and unitholders. Also, circumstances may arise where
termination of business by Baron Trust or Baron Properties may be advantageous
to Baron Advisors and/or affiliates, while continuation of Baron Trust and/or
Baron Properties might be advantageous to the shareholders and the unitholders.
The Trust Declaration and the Trust Management Agreement provide that
Baron Trust and Baron Properties will indemnify Baron Advisors, the members of
the Board of Trustees of Baron Trust, and each of their respective affiliates
and their respective officers, directors, shareholders, partners, agents and
employees against certain liabilities, and the availability of such
indemnification could affect the actions of such indemnified parties.
See "SUMMARY OF DECLARATION OF TRUST - Liability and Indemnification."
Baron Advisors intends to utilize the services of certain suppliers of
goods and services for Baron Trust and Baron Properties that have previously
provided goods or services to prior investment programs organized by affiliates
of Baron Advisors. While such providers of goods and services are unaffiliated
with Baron Advisors, the existence of previous business relationships may affect
the ability of Baron Advisors to independently represent the interests of Baron
Trust and Baron Properties with respect to such providers of goods and services
in light of such other business relationships. While Baron Advisors believes
that it has represented and will continue to represent the interests of Baron
Trust and Baron Properties and believes that there are benefits to utilizing the
services of parties with whom Baron Advisors has previous experience,
Prospective investors who are concerned about such potential conflicts are
advised to request further information from Baron Advisors and to independently
evaluate such relationships.
While potential conflicts of interest, including those described
herein, may not be entirely eliminated, Baron Trust believes that any actual
conflicts that may arise will not materially affect the obligation of Baron
Advisors and the members of the Board of Trustees to act in the best interests
of Baron Trust and Baron Properties and their shareholders and unitholders.
FIDUCIARY RESPONSIBILITY
Baron Advisors and Baron Trustees are deemed to be in a fiduciary
relationship to Baron Trust and the shareholders, and consequently must exercise
good faith and integrity in handling Trust affairs. Baron Trustees also have a
fiduciary duty to the shareholders to supervise the relationship of Baron Trust
with Baron Advisors. Where the question has arisen, courts have held that
limited partners may institute legal action on behalf of themselves and all
other similarly situated limited partners (I.E., class action) to recover
damages for a breach by a general partner of its fiduciary duty, or on behalf of
the partnership (I.E., partnership derivative action) to recover damages from
third parties. Certain recent cases decided by the federal courts may also be
construed to support the right of a limited partner to bring such actions under
Rule 10b-5 issued under the Exchange Act for the recovery of damages (including
losses incurred in connection with the purchase or sale of a partnership
interest) resulting from a breach by a managing entity of its fiduciary duty.
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The foregoing summary is based on statutes, rules, and decisions as of
the date of this prospectus and involves a rapidly developing and changing area
of the law. Investors who believe that a breach of fiduciary duty by Baron
Advisors or any member of the Board of Trustees has occurred or who have
questions concerning the duties of such persons should consult with their own
counsel.
The Trust Declaration provides that Baron Trust will indemnify Baron
Advisors, the independent trustees, other members of the Board and their
respective affiliates and their respective officers, directors, shareholders,
partners, agents and employees against liability arising out of the management
of Baron Trust within the scope of the Trust Declaration, unless negligence or
misconduct is involved. As a result of these indemnification arrangements,
purchasers of common shares have more limited rights of action than they would
have absent the limitations in the Trust Declaration. The exculpatory provisions
do not include indemnification for liabilities arising under the Securities Act,
unless (i) there has been a successful adjudication on the merits of each claim
involving alleged securities law violations as to the particular indemnitee,
(ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (iii) a court of
competent jurisdiction approves a settlement of the claims against the
particular indemnitee and finds that indemnification of the settlement and the
related costs should be made. In addition, the exculpatory provisions do not
include indemnification for liabilities arising from or out of intentional or
criminal wrongdoing. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to Baron Advisors, the independent trustees,
other members of the Board of Trustees and their respective affiliates and their
respective officers, directors, shareholders, partners, agents and employees
pursuant to the foregoing provisions, or otherwise, Baron Trust has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. See "SUMMARY OF DECLARATION OF TRUST - Liability
and Indemnification."
Baron Advisors is not permitted to commingle any funds of Baron Trust
with its own funds or the funds of any other person. Baron Trust is expressly
prohibited from making any loans to Baron Advisors. Baron Trust may borrow money
from Baron Advisors, but only on terms which are competitive with those offered
by unrelated lending institutions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements, including
statements regarding, among other items: (i) Baron Trust's and Baron Properties'
anticipated business strategies and (ii) Baron Trust's and Baron Properties'
intention to acquire property interests in exchange for cash proceeds it may
receive from this offering, loan proceeds from any debt financings it may
effect, any available net operating revenue, units of Baron Properties, and
other securities of Baron Trust and Baron Properties. Actual results could
differ materially from those projected in the forward-looking statements as a
result of any number of factors discussed elsewhere in this prospectus,
including, without limitation, under the captions "PROSPECTUS SUMMARY," "RISK
FACTORS," "TAX STATUS OF THE TRUST," "CONFLICTS OF INTEREST," "MANAGEMENT,"
"BUSINESS OF THE TRUST," "INVESTMENT OBJECTIVES AND POLICIES," "INITIAL REAL
ESTATE INVESTMENTS," "FEDERAL INCOME TAX CONSIDERATIONS," "SUMMARY OF
DECLARATION OF TRUST," and "TERMS OF THE OFFERING." When used in this prospectus
the words "anticipate," "expect," "estimate," "intend," "believe," "project,"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, expected, estimated, intended, believed or projected. Among
the key
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factors that may have a direct bearing on Baron Trust's business, financial
condition and results of operations are the effects of risks associated with (i)
changes in the competitive marketplace for acquisitions of interests in
residential apartment properties, (ii) changes in the performance of the
operations of properties in which Baron Trust acquires an interest, and (iii)
the volatility of the trading market for the common shares and general economic
conditions. Baron Trust assumes no obligation to update its forward-looking
statements or to advise of changes in the assumptions and factors on which they
are based. Given these uncertainties, prospective purchasers are cautioned not
to place undue reliance on such forward-looking statements.
PRIOR PERFORMANCE OF
AFFILIATES OF BARON ADVISORS
This section provides certain historical information regarding 51
private real estate limited partnerships sponsored and/or managed by affiliates
of Baron Trust's managing shareholder (wholly owned and controlled, along with
the corporate general partner of each partnership to be involved the proposed
exchange offering, by Mr. McGrath). Prospective investors should be aware that:
(i) the inclusion of the following information and information set forth in the
tables which comprise Exhibit A hereto does not imply that Baron Trust or Baron
Properties will experience results similar to those reflected below and in the
tables or that a prospective investor who acquires common shares of Baron Trust
in this offering will receive returns, if any, comparable to those experienced
by investors in such limited partnerships; (ii) except as otherwise described in
this prospectus, prospective investor who acquire common shares of Baron Trust
in this offering will not acquire any direct or indirect ownership interest in
any of the prior limited partnerships; and (iii) the following information and
information set forth in the tables is given solely to enable prospective
investors to evaluate the experience of Baron Advisors and its affiliates and,
in certain cases, to evaluate certain properties in which Baron Properties may
acquire an interest in connection with the exchange offering.
Exhibit A sets forth certain historical information relating to the
offerings of 41 of such prior limited partnerships, compensation paid to the
general partners of such partnerships and their affiliates in connection
therewith, operating results of such partnerships, sales of properties and
results of completed programs. Exhibit A is comprised of the following tables:
<TABLE>
<CAPTION>
<S> <C>
Table I Baron Advisors and Affiliates Experience in Raising and Investing Funds
Table II Compensation to Baron Advisors Affiliates from Prior Funds
Table III Operating Results of Prior Programs
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
</TABLE>
Gregory K. McGrath, the sole director and sole stockholder of Baron
Advisors and the Chief Executive Officer of Baron Trust, Baron Properties and
Baron Advisors has substantial experience in the real estate industry. See
"MANAGEMENT." Since 1994, affiliates of Baron Advisors and of Mr. McGrath have
sponsored and/or managed 51 prior real estate investment limited partnership
offerings, certain of them with investment objectives similar to those of Baron
Trust. The limited partner interests in these prior partnerships were offered
without registration under the Securities Act of 1933, as amended, in reliance
upon the non-public offering exemption from registration. The first such
offering sponsored by an affiliate of Baron Advisors commenced in September
1994. As of April 30, 1999, the prior partnerships had raised aggregate capital
contributions of approximately $34,897,000 from approximately 1,140 investors
(including investors who have invested in two or more programs). The annual rate
of return on investment for the twelve months ended December 31, 1998 generated
by the prior partnerships ranged
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between 10% and 12%. Distributions were not made during these periods by certain
of the partnerships because (i) certain apartment units were withdrawn from the
rental market, and net available cash flow was applied, to prepare them for sale
as individual condominium units (which plan was later abandoned) or to convert
them from long-term rentals to short-term corporate rentals or (ii) net
available cash flow was applied to pay certain expenses in connection with the
exchange offering and this offering.
As of the date of this prospectus, the prior partnerships have acquired
interests in 54 properties, 29 of which are located in Florida (Bartow, Brandon,
Clearwater, Cocoa, Cocoa Beach, Crystal River, Daytona Beach, Deland,
Jacksonville, Kissimmee, Lakeland, Melbourne, Orlando, Port Orange, St.
Petersburg, Seminole, Tampa and Titusville); one of which is located in Georgia
(Statesboro); one in Indiana (Anderson); 17 in Kentucky (Alexandria, Burlington,
Independence and Louisville); and six in Ohio (Bellefontaine, Cincinnati and
Mansfield). The aggregate dollar amount of property interests acquired and
initial cash reserves held was approximately $34,230,164 at March 31, 1999. The
property interests acquired have consisted of the following: (i) direct or
indirect equity interests in 21 residential apartment properties comprised of
1,311 units; (ii) mortgage financing interests in 17 residential apartment
properties comprised of 2,052 units; (iii) mortgage financing interests in four
residential condominium properties comprised of 578 units; (iv) mortgage
financing interests in six single-family housing developments relating to
approximately 981 homes; (v) a mortgage financing interest in 8.2 acres of land
for development into a 195-unit condominium property; (vi) a mortgage financing
interest in 4.0 acres of land for development into a shopping center; (vii) a
mortgage financing interest in land zoned for 147 residential units; (viii) a
mortgage financing interest in land zoned for 360 residential units; and a
mortgage financing interest in respect of the conversion of a 144-unit
residential apartment property into an extended-stay hotel. Each of the
properties is subject to senior mortgage financing. One property interest has
been sold as of March 31, 1999. See the balance of this section and Exhibit A
hereto for more detailed information relating to the individual property
interests owned by certain of the prior partnerships. Exhibit B hereto sets
forth certain information concerning the Exchange Properties and the Exchange
Partnerships which will be involved in the initial transactions of the exchange
offering.
In the initial transactions of the exchange offering, Baron Properties
will offer to acquire limited partnership interests held by individual limited
partners in 23 of the prior partnerships. Baron Properties intends to
investigate other investment opportunities to exchange the balance of the units
for property interests in other exchange offering transactions, including
property interests held by unaffiliated limited partnerships and interests held
by other limited partnerships managed by affiliates of Baron Advisors, which may
include certain of the partnerships described below.
In August 1994, Baron Capital of Florida, Inc. (formerly named Sigma
Financial Capital VI, Inc.), at that time an affiliate of Sigma Financial
Corporation, the dealer manager of the this offering, sponsored an offering of
up to 2,100 units of limited partner interest in Central Florida Income
Appreciation Fund, Ltd., a Florida limited partnership, at a purchase price of
$500 per unit (maximum gross proceeds of $1,050,000). The offering was fully
subscribed and closed in October 1995. The partnership invested the net proceeds
of its offering to acquire all of the limited partnership interest in a limited
partnership which owns fee simple title to a 56-unit residential apartment
community located in Deland, Florida known as Laurel Oaks (formerly Grove
Hamlet) Apartments. In August 1998, Gregory K. McGrath acquired all of the
equity of the general partner of the partnership. As one of its initial
acquisition candidates in connection with the exchange offering, Baron
Properties will offer to acquire partnership interests in this partnership owned
by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the exchange offering is included at
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this prospectus.
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In September 1994, Baron Capital I, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,050 units of limited partner interest
in Tampa Capital Income Fund, Ltd., a Florida limited partnership, at a purchase
price of $1,000 per unit (maximum gross proceeds of $1,050,000). The offering
was fully subscribed and closed in August 1995. The partnership invested the net
proceeds of its offering to acquire title to an 83-unit residential apartment
community located in Brandon, Florida. The partnership sold the property in
February 1997 in exchange for cash and a purchase money mortgage taken back by
the partnership.
In November 1994, Baron Capital II, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,614 units of limited partner interest
in Florida Capital Income Fund, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $807,000). The
offering was fully subscribed and closed in April 1995. The partnership invested
the net proceeds of its offering to acquire title to a 77-unit residential
apartment community located in Port Orange, Florida known as Eagle Lake
Apartments. As one of its initial acquisition candidates in connection with the
exchange offering, Baron Properties will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this partnership and to the exchange
offering is included at "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this prospectus.
In January 1995, Baron Capital IV, Inc., an affiliate of Baron
Advisors, became general partner of Florida Income Appreciation Fund I, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 205 units of
limited partnership interest in the partnership at a purchase price of $1,000
per unit (gross proceeds of $205,000) and invested the net proceeds of its
offering to acquire a beneficial interest in a land trust owning title to an
eight-unit residential apartment community located in Daytona Beach, Florida
known as Forest Glen Apartments-Phase IV. As one of its initial acquisition
candidates in connection with the exchange offering, Baron Properties will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In January 1995, Baron Capital IV, Inc., an affiliate of Baron
Advisors, became general partner of Florida Income Advantage Fund I, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 940 units of
limited partnership interest in the partnership at a purchase price of $1,000
per unit (gross proceeds of $940,000) and invested the net proceeds of its
offering to acquire a beneficial interest in a land trust owning title to a
26-unit residential apartment community located in Daytona Beach, Florida known
as Forest Glen Apartments-Phase III. As one of its initial acquisition
candidates in connection with the exchange offering, Baron Properties will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In January 1995, Baron Capital IV, Inc., an affiliate of Baron
Advisors, became general partner of Realty Opportunity Income Fund VIII, Ltd., a
Florida limited partnership, which in the first half of 1994 sold 944 units of
limited partnership interest in the partnership at a purchase price of $1,000
per unit (gross proceeds of $944,000) and invested the net proceeds of its
offering to acquire a beneficial interest in a land trust owning title to a
30-unit residential apartment community located in Daytona Beach, Florida known
as Forest Glen Apartments-Phase II. As one of its initial acquisition candidates
in connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and
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to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In May 1995, Baron Capital IV, Inc., an affiliate of Baron Advisors,
became general partner of Florida Capital Income Fund II, Ltd., a Florida
limited partnership, which in May 1994 sold 1,840 units of limited partnership
interest in the partnership at a purchase price of $500 per unit (gross proceeds
of $920,000) and invested the net proceeds of its offering to acquire a
beneficial interest in a land trust owning title to a 52-unit residential
apartment community located in Daytona Beach, Florida known as Forest Glen
Apartments-Phase I. The partnership also issued 160 units (valued at $80,000) to
four investors in exchange for property interests acquired by them in an earlier
program which was terminated. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In May 1995, Baron Capital VI, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 626 units of limited partner interest in Florida
Tax Credit Fund, Ltd., a Florida limited partnership, at a purchase price of
$1,000 per unit (maximum gross proceeds of $626,000). The offering was fully
subscribed and closed in May 1996. The partnership invested the net proceeds of
its offering to acquire an equity interest in a limited partnership that owns
title to a 78-unit residential apartment community located in Tampa, Florida.
In August 1995, Baron Capital III, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 800 units of limited partner interest
in Florida Opportunity Income Partners, Ltd., a Florida limited partnership, at
a purchase price of $1,000 per unit (maximum gross proceeds of $800,000). The
offering was fully subscribed and closed in November 1995. The partnership
invested the net proceeds of its offering to acquire title to a 60-unit
residential apartment community located in Daytona Beach, Florida known as
Camellia Court Apartments. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In June 1995, Baron Capital VII, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 1,600 units of limited partner interest in
Florida Capital Income Fund III, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $800,000). The
offering was fully subscribed and closed in November 1995. The partnership
invested the net proceeds of its offering to acquire title to a 48-unit
residential apartment community located in Jacksonville, Florida known as
Bridgepoint Apartments. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In December 1995, Baron Capital VIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,000 units of limited partner interest
in Baron First Time Homebuyer Mortgage Fund, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in May 1996. The
partnership invested the net proceeds of its
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offering to make a subordinated mortgage loan to the developer of approximately
200 single-family home sites located in Louisville, Kentucky.
In January 1995, Baron Capital V, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 3,640 units of limited partner interest in
Florida Capital Income Fund IV, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,820,000). The
offering was fully subscribed and closed in June 1996. The partnership invested
the net proceeds of its offering to acquire title to a 144-unit residential
apartment community located in St. Petersburg, Florida known as Glen Lake
Apartments. As one of its initial acquisition candidates in connection with the
exchange offering, Baron Properties will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this partnership and to the exchange
offering is included at "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this prospectus.
In May 1995, Baron Capital X, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 2,000 units of limited partner interest in GSU
Stadium Student Apartments, Ltd., a Florida limited partnership, at a purchase
price of $500 per unit (maximum gross proceeds of $1,000,000). The offering was
fully subscribed and closed in February 1996. The partnership invested the net
proceeds of its offering to acquire title to a 60-unit student residential
apartment community located in Statesboro, Georgia known as Stadium Club
Apartments. As one of its initial acquisition candidates in connection with the
exchange offering, Baron Properties will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this partnership and to the exchange
offering is included at "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this prospectus.
In January 1995, Baron Capital XI, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,300 units of limited partner interest
in Florida Income Growth Fund V, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,150,000). The
offering was fully subscribed and closed in February 1997. The partnership
invested the net proceeds of its offering to acquire title to a 70-unit
residential apartment community located in Orlando, Florida known as Blossom
Corners Apartments-Phase I. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In January 1996, Baron Capital XII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 575 units of limited partner interest
in Brevard Mortgage Program, Ltd., a Florida limited partnership, at a purchase
price of $1,000 per unit (maximum gross proceeds of $575,000). The offering was
fully subscribed and closed in April 1996. The partnership invested the net
proceeds of its offering to provide or acquire two subordinated mortgage loans
secured by a 64-unit residential apartment community located in Melbourne,
Florida known as Meadowdale Apartments. As one of its initial acquisition
candidates in connection with the exchange offering, Baron Properties will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In January 1996, Baron Capital XV, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,000 units of limited partner interest
in Baron First Time Home Buyer Mortgage Fund II, Ltd., a
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Florida limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $500,000). The offering was fully subscribed and closed in July
1996. The partnership invested the net proceeds of its offering to make a
subordinated mortgage loan to the developer of 39 single-family home sites
located in Louisville, Kentucky.
In February 1996, Baron Capital XVI, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,500 units of limited partner interest
in Clearwater First Time Home Buyer Program, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$750,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to provide subordinated
mortgage financing to a developer for the acquisition of 8.2 acres of land
located in Clearwater, Florida for a 195-unit residential condominium
development.
In April 1996, Baron Capital IX, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 700 units of limited partner interest in
Lamplight Court of Bellefontaine Apartments, Ltd., a Florida limited
partnership, at a purchase price of $1,000 per unit (maximum gross proceeds of
$700,000). The offering was fully subscribed and closed in November 1996. The
partnership invested the net proceeds of its offering (i) to acquire a 31.7%
limited partnership interest in a limited partnership that owns title to an
80-unit residential apartment community located in Bellefontaine, Ohio known as
Lamplight Apartments and (ii) to provide or acquire two unrecorded subordinated
mortgage loans secured by such property. As one of its initial acquisition
candidates in connection with the exchange offering, Baron Properties will offer
to acquire partnership interests in this partnership owned by the partners
thereof. Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In May 1996, Baron Capital XXVI, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 1,800 units of limited partner interest in Baron
Strategic Vulture Fund I, Ltd., a Florida limited partnership, at a purchase
price of $500 per unit (maximum gross proceeds of $900,000). The offering was
fully subscribed and closed in October 1996. The partnership invested the net
proceeds of its offering to provide or acquire an undivided 73.7% interest in
four unrecorded subordinated mortgage loans secured by an 81-unit residential
apartment community located in Tampa, Florida known as Curiosity Creek
Apartments. As one of its initial acquisition candidates in connection with the
exchange offering, Baron Properties will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this partnership and to the exchange
offering is included at "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this prospectus.
In April 1996, Baron Capital XXVII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,000 units of limited partner interest
in Baron First Time Home Buyer Mortgage Fund III, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in September 1996. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of approximately 100 condominium units located in
Independence, Kentucky.
In June 1996, Baron Capital XXVIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,000 units of limited partner interest
in Baron First Time Home Buyer Mortgage Fund IV, Ltd., a Florida limited
partnership, at a purchase price of $500 per unit (maximum gross proceeds of
$500,000). The offering was fully subscribed and closed in November 1996. The
partnership invested the net proceeds of its offering to make a subordinated
mortgage loan to the developer of approximately 82 single-family homes in
Louisville, Kentucky.
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In May 1996, Baron Capital XXIX, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 1,000 units of limited partner interest in Baron
First Time Home Buyer Mortgage Fund V, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $500,000). The
offering was fully subscribed and closed in September 1996. The partnership
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of the second phase of an 84-unit residential condominium
development in Independence, Kentucky.
In July 1996, Baron Capital XXXI, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 1,600 units of limited partner interest in Baron
Strategic Investment Fund II, Ltd., a Florida limited partnership, at a purchase
price of $500 per unit (maximum gross proceeds of $800,000). The offering was
fully subscribed and closed in October 1996. The partnership invested the net
proceeds of its offering to acquire an equity interest in a 72-unit residential
apartment community located in Anderson, Indiana known as Steeplechase
Apartments. As one of its initial acquisition candidates in connection with the
exchange offering, Baron Properties will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this partnership and to the exchange
offering is included at "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this prospectus.
In June 1996, Baron Capital XXXII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,400 units of limited partner interest
in Baron Strategic Investment Fund, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,200,000). The
offering was fully subscribed and closed in December 1996. The partnership
invested the net proceeds of its offering to provide or acquire (i) three
unrecorded subordinated mortgage loans secured by a 68-unit residential
apartment community located in Orlando, Florida known as Blossom Corners
Apartments - Phase II and (ii) an unrecorded subordinated mortgage loan secured
by a 164 townhouse community under development in Cincinnati, Ohio known as
Villas at Lake Sycamore. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In August 1996, Baron Capital XXIX, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,500 units of limited partner interest
in Baron Income Property Mortgage Fund VI, Ltd., a Florida limited partnership,
at a purchase price of $500 per unit (maximum gross proceeds of $750,000). The
offering was fully subscribed and closed in July 1997. The partnership invested
the net proceeds of its offering to make a subordinated mortgage loan to the
developer of a 150-unit apartment community located in Independence, Kentucky.
In April 1996, Baron Capital of Ohio III, Inc. (formerly named Sigma
Financial Capital VI, Inc.), at that time an affiliate of Sigma Financial
Corporation, the dealer manager of this offering, sponsored an offering of up to
600 units of limited partner interest in Midwest Income Growth Fund VI, Ltd., a
Florida limited partnership, at a purchase price of $500 per unit (maximum gross
proceeds of $300,000). The offering was fully subscribed and closed in October
1996. The partnership invested the net proceeds of its offering to acquire all
of the limited partnership interest in a limited partnership which owns fee
simple title to a 66-unit residential apartment community located in Mansfield,
Ohio known as Brookwood Way Apartments. In August 1998, Gregory K. McGrath
acquired all of the equity of the general partner of the partnership. As one of
its initial acquisition candidates in connection with the exchange offering,
Baron Properties will offer to acquire partnership interests in this partnership
owned by the partners thereof.
40
<PAGE>
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In September 1996, Baron Capital XXXIV, an affiliate of Baron Advisors,
sponsored an offering of up to 620 units of limited partner interest in Florida
Tax Credit Fund II, Ltd., a Florida limited partnership, at a purchase price of
$500 per unit (maximum gross proceeds of $310,000). The offering was fully
subscribed and closed in May 1998. The partnership has invested the net proceeds
of its offering to acquire title to a 47-unit residential apartment community
located in Bartow, Florida.
In November 1996, Baron Capital XVII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,000 units of limited partner interest
in Baron Strategic Investment Fund IV, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in April 1997. The partnership has
invested the net proceeds of its offering to provide or acquire two unrecorded
subordinated mortgage loans secured by a 73-unit residential apartment community
located in Tampa, Florida known as Country Square Apartments-Phase I. As one of
its initial acquisition candidates in connection with the exchange offering,
Baron Properties will offer to acquire partnership interests in this partnership
owned by the partners thereof. Additional information relating to the property
interests owned by this partnership and to the exchange offering is included at
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this prospectus.
In November 1996, Baron Capital XXXVII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,400 units of limited partner interest
in Baron Mortgage Development Fund VII, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $700,000). The
offering was fully subscribed and closed in July 1997. The partnership invested
the net proceeds of its offering to make a subordinated mortgage loan to the
developer of an 84-unit residential apartment community in Alexandria, Kentucky.
In October 1996, Baron Capital XXXVIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,300 units of limited partner interest
in Baron Mortgage Development Fund VIII, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $650,000). The
offering was fully subscribed and closed in August 1998. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of a 114-unit residential apartment community located in
Louisville, Kentucky.
In November 1996, Baron Capital XL, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,400 units of limited partner interest
in Baron Strategic Investment Fund V, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,200,000). The
offering was fully subscribed and closed in June 1997. The partnership invested
the net proceeds of its offering to provide or acquire (i) an unrecorded
subordinated mortgage loan secured by a 33-unit residential apartment property
located in Tampa, Florida known as Candlewood Apartments-Phase II, (ii) an
undivided 26.3% interest in four unrecorded subordinated mortgage loans secured
by an 81-unit residential apartment community located in Tampa, Florida known as
Curiosity Creek Apartments and (iii) four unrecorded subordinated mortgage loans
secured by a 60-unit residential apartment property located in Titusville,
Florida known as Sunrise Apartments-Phase I and an unsecured loan associated
with such property. As one of its initial acquisition candidates in connection
with the exchange offering, Baron Properties will offer to acquire partnership
interests in this partnership owned by the partners thereof. Additional
information relating to the property interests owned by this partnership and to
the exchange
41
<PAGE>
offering is included at "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this prospectus.
In November 1996, Baron Capital XXXI, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,400 units of limited partner interest
in Baron Strategic Investment Fund VI, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,200,000). The
offering was fully subscribed and closed in April 1997. The partnership has
invested the net proceeds of its offering (i) to acquire a 52.44% limited
partnership interest in a limited partnership which owns record title to a
91-unit residential apartment community in Orlando, Florida known as Pineview
Apartments, (ii) to provide or acquire an unrecorded subordinated mortgage loan
secured by a 33-unit residential apartment property located in Tampa, Florida
known as Candlewood Apartments-Phase II, (iii) to provide or acquire an
undivided 20% interest in a subordinated mortgage loan secured by a 91-unit
residential property located in Tampa, Florida known as Garden Terrace
Apartments-Phase III and (iv) to make a secured loan to an affiliated
partnership, Baron Strategic Investment Fund IV, Ltd., which in turn used such
loan proceeds to make a subordinated mortgage loan secured by a 73-unit
residential apartment community located in Tampa, Florida known as Country
Square Apartments-Phase I. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In January 1997, Baron Capital XLI, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 3,800 units of limited partner interest
in Baron Strategic Investment Fund VII, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $1,900,000). The
offering was fully subscribed and closed in December 1997. The partnership has
invested the net proceeds of its offering to purchase receivables associated
with three properties comprising 145 residential apartment units located in
Cocoa Beach, Lakeland and Titusville, Florida.
In November 1996, Baron Capital XLIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,600 units of limited partner interest
in Baron Mortgage Development Fund X, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $800,000). The
offering was fully subscribed and closed in December 1997. The partnership
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of 226 condominium units in Cincinnati, Ohio.
In January 1997, Baron Capital XLII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,600 units of limited partner interest
in Baron Development Fund IX, Ltd., a Florida limited partnership, at a purchase
price of $500 per unit (maximum gross proceeds of $800,000). The offering was
fully subscribed and closed in September 1997. The partnership has invested the
net proceeds of its offering to make a subordinated mortgage loan to the
developer of a 320 single-family home site located in Louisville, Kentucky.
In March 1997, Baron Capital XXXIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,600 units of limited partner interest
in Baron Mortgage Development Fund XI, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $800,000). The
offering was fully subscribed and closed in August 1997. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of 168 residential condominium units in Cincinnati, Ohio.
42
<PAGE>
In April 1997, Baron Capital XLIV, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,400 units of limited partner interest
in Baron Strategic Investment Fund VIII, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $1,200,000). The
offering was fully subscribed and closed in February 1998. The partnership has
invested the net proceeds of its offering to provide or acquire (i) an undivided
58% interest in an unrecorded subordinated mortgage loan secured by a 41-unit
residential apartment community located in Kissimmee, Florida known as
Heatherwood Apartments-Phase II and three unsecured loans associated with such
property, (ii) three unrecorded subordinated mortgage loans secured by a 59-unit
residential apartment property located in Cocoa, Florida known as Longwood
Apartments-Phase I, and (iii) an unrecorded subordinated mortgage loan secured
by a 164-townhome community under development in Cincinnati, Ohio known as
Villas at Lake Sycamore. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In May 1997, Baron Capital XLVII, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 2,000 units of limited partner interest in Baron
Mortgage Development Fund XIV, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in March 1998. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of a 396-unit luxury residential apartment community in
Cincinnati, Ohio.
In April 1997, Baron Capital XLVI, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,000 units of limited partner interest
in Baron Mortgage Development Fund XII, Ltd., a Florida limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in August 1998. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of a 111,000 square-foot shopping center located in Burlington,
Kentucky.
In June 1997, Baron Capital XLVIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 1,400 units of limited partner interest
in Baron Mortgage Development Fund XV, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in February 1998. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of an 88-unit residential apartment community located in
Alexandria, Kentucky.
In May 1997, Baron Capital LX, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 2,000 units of limited partner interest in Baron
First Mortgage Development Fund XVI, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in June 1998. The partnership has
invested the net proceeds of its offering to make a senior mortgage loan to the
developer of approximately 200 entry-level single-family homes in Cincinnati,
Ohio.
In May 1997, Baron Capital LXI, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 2,000 units of limited partner interest in Baron
First Mortgage Development Fund XVII, Ltd., a Florida limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering has raised $906,500 as of May 4, 1999 and continues in progress. The
partnership has invested
43
<PAGE>
the net proceeds of its offering to make a senior mortgage loan to the developer
of approximately 140 entry-level single-family homes in Crystal River, Florida.
In June 1997, Baron Capital LXII, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 2,400 units of limited partner interest in Baron
Strategic Investment Fund IX, Ltd., a Florida limited partnership, at a purchase
price of $500 per unit (maximum gross proceeds of $1,200,000). The offering was
fully subscribed and closed in May 1998. The partnership has invested the net
proceeds of its offering (i) to acquire a 41.1% limited partnership interest in
a limited partnership which owns record title to a 72-unit residential apartment
property in Lakeland, Florida known as Crystal Court Apartments, (ii) to provide
or acquire an unrecorded subordinated mortgage loan secured by a 33-unit
residential apartment property located in Tampa, Florida known as Candlewood
Apartments-Phase II, (iii) to provide or acquire an undivided 25% interest in a
subordinated mortgage loan secured by a 91-unit residential apartment property
located in Tampa, Florida known as Garden Terrace Apartments-Phase III, and (iv)
to provide or acquire an unrecorded subordinated mortgage loan secured by a
164-townhome community located in Cincinnati, Ohio known as Villas at Lake
Sycamore. As one of its initial acquisition candidates in connection with the
exchange offering, Baron Properties will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this partnership and to the exchange
offering is included at "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and
B to this prospectus.
In July 1997, Baron Capital LXIV, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 2,400 units of limited partner interest in Baron
Strategic Investment Fund X, Ltd., a Florida limited partnership, at a purchase
price of $500 per unit (maximum gross proceeds of $1,200,000). The offering was
fully subscribed and closed in March 1998. The partnership has invested the net
proceeds of its offering (i) to acquire a 43.5% limited partnership interest in
a limited partnership which owns record title to a 72-unit residential apartment
property located in Lakeland, Florida known as Crystal Court Apartments, (ii) to
acquire a 39.56% limited partnership interest in a limited partnership which
owns record title to a 91-unit residential apartment property located in
Orlando, Florida known as Pineview Apartments, (iii) to provide or acquire an
unrecorded subordinated mortgage loan secured by a 41-unit residential apartment
property located in Kissimmee, Florida known as Heatherwood Apartments-Phase II
and three unsecured loans associated with such property, and (iv) to provide or
acquire an undivided 55% interest in a subordinated mortgage loan secured by a
91-unit residential apartment property located in Tampa, Florida known as Garden
Terrace Apartments-Phase III. As one of its initial acquisition candidates in
connection with the exchange offering, Baron Properties will offer to acquire
partnership interests in this partnership owned by the partners thereof.
Additional information relating to the property interests owned by this
partnership and to the exchange offering is included at "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this prospectus.
In July 1997, Baron Capital LXV, Inc., an affiliate of Baron Advisors,
sponsored an offering of up to 1,600 units of limited partner interest in Baron
Mortgage Development Fund XVIII, L.P., a Delaware limited partnership, at a
purchase price of $500 per unit (maximum gross proceeds of $800,000). The
offering was fully subscribed and closed in November 1997. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of a 150-unit residential apartment community in Independence,
Kentucky.
In September 1997, Baron Capital LXVI, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,000 units of limited partner interest
in Baron Mortgage Development Fund XIX, L.P., a Delaware limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in November 1998. The partnership has
44
<PAGE>
invested the net proceeds of its offering to make a subordinated mortgage loan
to the developer of four approximately one-acre out parcels of land adjacent to
a shopping center development to be constructed in Burlington, Kentucky.
In September 1997, Baron Capital LXVII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,000 units of limited partner interest
in Baron Mortgage Development Fund XX, L.P., a Delaware limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in July 1998. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to finance the conversion of a 144-unit residential apartment community located
in St. Petersburg, Florida into an extended-stay hotel.
In November 1997, Baron Capital LXVIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 2,000 units of limited partner interest
in Baron Mortgage Development Fund XXI, L.P., a Delaware limited partnership, at
a purchase price of $500 per unit (maximum gross proceeds of $1,000,000). The
offering was fully subscribed and closed in July 1998. The partnership has
invested the net proceeds of its offering to make a subordinated mortgage loan
to a developer to finance land acquisition, development and construction in
respect of two phases of a 396-unit luxury residential apartment community to be
constructed in four phases in Burlington, Kentucky, a suburb of Cincinnati,
Ohio.
In January 1999, Baron Capital LXXXVII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 120 units of limited partner interest
in Baron Mezzanine Fund XXXVI, Ltd., a Florida limited partnership, at a price
of $10,000 per unit, 2 units minimum purchase (maximum gross proceeds
$1,200,000). The partnership has raised $935,000 as of May 6, 1999 and continues
in progress. The partnership has been organized to provide or acquire loans to
one or more companies in the principal business of building, rehabilitating and
developing multi-family residential and commercial properties that might include
high technology features such as local and long distance communications,
internet access, cable and satellite television, and utility sub-metering. This
fund has been initially allocated to a 147 unit apartment community to be
developed in Crystal River, Florida.
In January 1999, Baron Capital LXXXVIII, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 120 units of limited partner interest
in Baron Mezzanine Fund XXXVII, Ltd., a Florida limited partnership, at a price
of $10,000 per unit, 2 units minimum purchase (maximum gross proceeds
$1,200,000). The partnership has raised $495,467 as of May 6, 1999 and continues
in progress. The partnership has been organized to provide or acquire loans to
one or more companies in the principal business of building, rehabilitating and
developing multi-family residential and commercial properties that might include
high technology features such as local and long distance communications,
internet access, cable and satellite television, and utility sub-metering. This
fund has been initially allocated to a 164 unit town home property in
Independence, Kentucky.
In April 1999, Baron Capital LXXXIX, Inc., an affiliate of Baron
Advisors, sponsored an offering of up to 120 units of limited partner interest
in Baron Mezzanine Fund XXXVIII, Ltd., a Florida limited partnership, at a price
of $10,000 per unit, 2 units minimum purchase (maximum gross proceeds
$1,200,000). The offering has raised $11,000 as of May 6, 1999 and continues in
progress. The partnership has been organized to provide or acquire loans to one
or more companies in the principal business of building, rehabilitating and
developing multi-family residential and commercial properties that might include
high technology features such as local and long distance communications,
Internet access, cable and satellite television, and utility sub-metering. This
fund has been initially allocated to a 168-unit apartment community being
developed in greater Cincinnati.
45
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Prospective investors should note that certain of the prior limited
partnerships described above and in the tables comprising Exhibit A hereto were
only recently organized, that certain partnerships have only recently commenced
operations, and that others are still in the development stage. Accordingly, it
would be premature to draw conclusions based upon the current stages of
operations or development of certain of the prior limited partnerships.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with Baron
Trust's Consolidated Financial Statements and Notes thereto.
GENERAL
Baron Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution. Baron Trust plans to continue raising
equity pursuant to this offering, which will terminate on November 30, 1999.
Through May 15, 1999, Baron Trust has raised gross proceeds of $6,141,100. The
net proceeds from the issuance of common shares in connection with this offering
have been, and the net cash proceeds of any subsequent issuance of common shares
will be, contributed by Baron Trust to Baron Properties in exchange for an
equivalent number of units in Baron Properties. Baron Properties will use the
net proceeds received from Baron Trust, unissued units of limited partnership
interest in Baron Properties, or a combination of net proceeds and unissued
units to acquire interests in residential apartment properties or debt or other
interests in other partnerships or companies substantially all of whose assets
consist of residential apartment property interests. In addition, proceeds from
this offering will be used for the payment of fees and expenses in connection
with this offering as well as for working capital purposes. Baron Advisors
believes that that Baron Trust has the ability to satisfy its cash requirements
for the foreseeable future. However, it will be necessary to raise additional
capital to make acquisitions and to meet management's revenue and cash flow
goals.
Baron Properties intends to conduct an exchange offering under which it
will offer approximately 2,500,000 units of Baron Properties with an initial
assigned value of approximately $25,000,000, in exchange for limited partnership
interests in real estate limited partnerships which directly or indirectly own
interests in residential apartment properties. Baron Trust and Baron Properties
intend to investigate making an additional public or private offering of common
shares and/or units.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
Through the use of the net proceeds contributed to Baron Properties,
Baron Properties has started acquiring interests in properties including, 100%
of the limited partnership interests in Heatherwood I Apartments in June 1998;
Crystal Court II Apartments in July 1998; and Riverwalk Apartments in September,
1998. In July 1998, Baron Properties acquired a limited partnership interest in
13 real estate limited partnerships managed by affiliates of Gregory K. McGrath
and proposed to be involved in the exchange offering. In October, 1998, Baron
Properties acquired a 12.3 percent interest in Alexandria Apartments. Subsequent
to December 31, 1998, Baron Properties acquired additional interests in the
Alexandria Apartments, and as of May 15, 1999, Baron Properties owns 37.2% of
the limited partnership interests in this limited partnership.
46
<PAGE>
The table below summarizes the results of operations for the year ended
December 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------
<S> <C>
Property Revenues $ 394,104
Property Income (Loss) $ (211,911)
Administrative Expenses (net of Interest Income) $ 1,238,939
Net Loss $(1,450,850)
Total Assets $ 7,731,515
Shareholders' Equity $ 2,834,092
</TABLE>
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing computer application software programs and operating
systems can accommodate this date value. Many existing application software
products are designed to accommodate only two digits for the date. If not
corrected, many computer applications and systems could fail or create erroneous
results by or at the year 2000 by interpreting the year 2000 as the year 1900.
Although the computer systems of Baron Trust and Baron Properties have been
tested for year 2000 problems and management believes that such systems are year
2000 compatible, it is possible that certain computer systems or software
products of suppliers may experience year 2000 problems and that such problems
could adversely affect their operations. Baron Trust is in the process of
inquiring as to the progress of the principal suppliers of Baron Trust and Baron
Properties in identifying and addressing problems that their computer systems
will face in correctly processing date information as the year 2000 approaches.
As part of the contingency plan, Baron Advisors intends to engage alternative
suppliers or other vendors if its current significant suppliers or vendors fail
to meet year 2000 operating requirements. However, we cannot be certain that
such plan or the performances by any of Baron Trust's suppliers and vendors will
be effective to remedy all potential problems.
The activities of Baron Trust and Baron Properties are concentrated
almost exclusively in residential apartment properties. Due to the small
individual and aggregate amounts owing from individuals renting in such
apartment properties, to the properties themselves, Baron Trust has determined
that year 2000 readiness issues related to renters should have an insignificant
impact on Baron Trust. However, if the computer systems of properties into which
Baron Trust invests are not year 2000 compliant, this may adversely affect Baron
Trust's ability to track revenues and maintain adequate cash flows. A reasonable
worst case scenario in such a situation would be that each property would be
required to manually track and report the payments of rent.
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
Baron Trust is required to have at least two independent trustees, and
the independent trustees must constitute a majority of the Board of Trustees. To
qualify as an independent trustee, a person may not be associated or have been
associated with Baron Advisors of Baron Trust. Pursuant to the terms of the
Trust Declaration, Trustees are chosen for a term of one year provided that the
term of office terminates in the event of resignation, death, or other
incapacity to serve or removal.
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The Board of Trustees of Baron Trust and the independent trustees will
act only where their consent and participation is required under the Trust
Declaration. See "SUMMARY OF DECLARATION OF TRUST - Control of Operations." The
members of the Board and the independent trustees are under a fiduciary duty
similar to that of corporation directors to act in Baron Trust's best interests
and may compel action by Baron Advisors to carry out that duty if necessary, but
ordinarily they have no duty to manage or direct the management of Baron Trust
outside their enumerated duties.
The following table sets forth certain information concerning Baron
Trustee and executive officers of Baron Trust.
<TABLE>
<CAPTION>
Shares of Baron
Current Trust Percent of
Position with Trustee Term Beneficially Owned Shares
Name Age (1) Baron Trust Since Expires at May 15, 1999 Outstanding
- ------------------ ------- ------------ ----- ------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
James H. Bownas 51 Independent Trustee 1998 1999 -0- 0.00%
Peter M. Dickson 48 Independent Trustee 1998 1999 -0- 0.00%
Baron Advisors, Inc. Trustee 1998 1999 10 *
Gregory K. McGrath 38 Chief Executive n/a n/a --(2) 9.50%
Officer
Robert S. Geiger 49 Chief Operating n/a n/a --(2) 9.50%
Officer
Robert L. Astorino 52 President - n/a n/a -0- 0.00
Properties Division
of Baron Properties
All Trustees and Executive 10 (2) 19.00%
Officers
as a Group (6 persons)
</TABLE>
- -------------
* Less than 0.01%
(1) As of March 31, 1999.
(2) Mr. McGrath and Mr. Geiger, the original investors in Baron Properties,
each own an amount of units of Baron Properties which are exchangeable
into 9.5% of the common shares of Baron Trust outstanding as of the
earlier to occur of the completion of this offering and the proposed
exchange offering, or November 30, 1999 (up to 601,080 common shares
out of total maximum outstanding of 6,327,170 common shares),
calculated on a fully diluted basis assuming that all the then
outstanding units (other than those owned by Baron Trust) have been
exchanged into an equivalent number of common shares.
The Trust Declaration provides that Baron Advisors will appoint
officers of Baron Trust who may act on behalf of Baron Trust and sign documents
on behalf of Baron Trust as authorized by Baron Advisors and who will have the
duties and powers usually applicable to similar officers of a Delaware
corporation in carrying out Trust business. Officers act under the supervision
and control of Baron Advisors, which can remove any officer at any time for any
or no reason. Unless otherwise specified by Baron Advisors, the Chief Executive
Officer of Baron Trust will have full power to act on behalf of Baron Trust.
Baron Trust is currently interviewing suitable candidates to serve as President
and Chief Financial Officer of Baron Trust.
The business experience of each independent trustee and executive
officer of Baron Trust is set forth below. Unless otherwise stated the
independent trustees and the executive officers have held their present
positions for a minimum of five years.
48
<PAGE>
JAMES H. BOWNAS is a principal in Gamble Hartshorn Johnson Co. LPA, a
Columbus, Ohio law firm with a general practice. Mr. Bownas' practice is
concentrated in securities, real estate, taxation, corporate and estate
planning. Between 1989 and January 1996, Mr. Bownas served as General Counsel,
Vice President and Secretary of Cardinal Realty Services, Inc. (now known as
Leeford, Inc.), a publicly traded company headquartered in Reynoldsburg, Ohio
which has sponsored numerous real estate investment limited partnerships.
PETER M. DICKSON has been the managing director of the Guardian
Management Company Limited, a global financial services corporation based in
Bermuda since 1991. In addition, since 1994 Mr. Dickson has served as a director
to Grosvenor Trust Company Limited, another Bermuda-based financial services
corporation. Between 1985 and 1990, Mr. Dickson served as the Executive Vice
President of Finance for The Wraxall Group, Bermuda.
GREGORY K. MCGRATH is the Chief Executive Officer of Baron Trust and
the Chief Executive Officer, sole director and sole shareholder of Baron
Advisors. Mr. McGrath has over 10 years experience in all aspects of the real
estate industry, including site selection and acquisition, arrangement and
closing of mortgage financing, and property acquisition and management. Between
January 1993 and June 1994, Mr. McGrath served as Senior Vice President of
Realty Capital, Inc., a Florida corporation which sponsored real estate limited
partnerships. Mr. McGrath is also the President, sole director and sole
shareholder of Baron Real Estate Services, Inc., an Ohio corporation
headquartered in Cincinnati, Ohio, which he co-founded in 1989. Mr. McGrath is
also the President, sole director and sole shareholder of Brentwood Management,
LLP, an Ohio limited liability company which provides property management
services. Mr. McGrath is also a principal of The Baron Organization, Inc., a
Delaware corporation which manages a real estate portfolio worth approximately
$100 million.
ROBERT S. GEIGER serves as the Chief Operating Officer of Baron Trust
and Baron Advisors. Mr. Geiger is also a practicing attorney. From 1994 to
August 1998, he was managing director of the law firm of Geiger Kasdin Heller
Kuperstein Chames & Weil, P.A., a Miami, Florida law firm with a general
practice. From 1986 to 1994, he was managing director of Levine & Geiger, a
Miami, Florida law firm. Mr. Geiger's practice is concentrated in complex
commercial and real property transactions and business reorganizations. He
serves as general counsel for national, regional and local corporations engaged
in a wide range of business activities, including regulated industry matters.
ROBERT L. ASTORINO has served as President of the Properties Division
of Baron Properties since May 25, 1998. From February 1998 through May 25, 1998,
he served as President - Property of Strategic Management Inc., a real estate
management company affiliated with Mr. McGrath. From 1992 through January 1998,
he served as President of The Housing Partnership, Inc., a Louisville,
Kentucky-based real estate investment and consulting company. Between 1991 and
1992, Mr. Astorino served as Assistant Vice President, Real Estate Operations at
Great Western Bank in Beverly Hills, California, where his responsibilities
included the operation and sale of residential and commercial real estate
obtained in foreclosure.
49
<PAGE>
BARON ADVISORS
Baron Advisors was incorporated in July 1997 as a Delaware corporation.
Pursuant to the Trust Management Agreement, Baron Advisors will have direct and
exclusive discretion in management and control of the affairs of Baron Trust.
Because Baron Trust serves as the general partner of Baron Properties, Baron
Advisors will also have direct and exclusive discretion in management and
control of the affairs of Baron Properties. The control exercised by Baron
Advisors over the affairs of Baron Trust is subject to general supervision and
review by the independent trustees, the Board of Trustees of Baron Trust, and to
prior approval authority of a majority of the Board and a majority of the
independent trustees in respect of certain specified actions.
Baron Advisors will be reimbursed for certain expenses under the Trust
Management Agreement. Officers and employees of Baron Advisors who perform
services on behalf of Baron Trust will not be paid any additional compensation
by Baron Trust. Such officers and employees generally will serve in the same
capacity for Baron Trust and will be compensated by Baron Trust in amounts
determined by Baron Advisors, in the case of employees, and by the Executive
Compensation Committee described below, in the case of officers. See "- Trust
Management Agreement."
Although Baron Advisors will be in control of Baron Trust (subject to
the powers and obligations of the Board and the independent trustees), it will
have no liability to Baron Trust or the investors for losses or liabilities
except in cases of its negligence, misconduct or breach of the Trust
Declaration. See "FIDUCIARY RESPONSIBILITY."
The holders of at least 10% of the common shares may propose the
removal of Baron Advisors, either by calling a meeting or soliciting consents in
accordance with the terms of the Trust Declaration. Removal of Baron Advisors
requires either the affirmative vote of a majority of the common shares
(excluding common shares held by Baron Advisors which is the subject of the vote
or by its affiliates) or the affirmative vote of a majority of the independent
trustees. The shareholders entitled to vote thereon may replace a removed
managing shareholder or fill a vacancy by vote of a majority in interest of such
shareholders. See "SUMMARY OF DECLARATION OF TRUST - Removal and Resignation of
the Baron Advisors."
TRUST MANAGEMENT AGREEMENT
Baron Trust has entered into a Trust Management Agreement with Baron
Advisors under which Baron Advisors will be obligated to provide management,
administrative and investment advisory services to Baron Trust from the
commencement of the offering. The services to be rendered include, among other
things, communicating with and reporting to investors, administering accounts,
providing to Baron Trust of office space, equipment and facilities and other
services necessary for Baron Trust's operation, and representing Baron Trust in
its relations with custodians, depositories, accountants, attorneys, brokers and
dealers, corporate fiduciaries, insurers, banks and others, as required. Baron
Advisors will also be responsible for determining which real estate investments
and non-real estate investments (including the temporary investment of Baron
Trust's available funds prior to their commitment to particular real estate
investments) Baron Trust will make and for making divestment decisions, subject
to the provisions of the Trust Declaration.
Baron Trust will reimburse Baron Advisors on a monthly basis during the
term of the Trust Management Agreement for its operating expenses relating to
the business of Baron Trust and Baron Properties, in an amount up to 1% of the
gross proceeds of the offering plus 1% of the initial assigned
50
<PAGE>
value of units issued in connection with the proposed exchange offering (annual
maximum $500,000). Baron Advisors in its sole discretion may elect to receive
payment for its services in the form of common shares with an equivalent value.
For the year ended December 31, 1998 and the three months ended March 31, 1999,
Baron Trust reimbursed Baron Advisors for expenses pursuant to the Trust
Management Agreement in the amounts of $92,392 and $23,388, respectively.
The Trust Management Agreement has an initial term of one year and may
be extended on a year-to-year basis on approval of (i) the Board or a majority
of the shareholders entitled to vote on such matter or (ii) a majority of the
independent trustees. The current term of the Trust Management Agreement expires
on May 14, 2000. By executing and delivering to Baron Trust the subscription
agreement, each investor will be deemed to have consented to the terms and
conditions of the Trust Management Agreement described herein. The independent
trustees have responsibility for determining that amounts payable to Baron
Advisors under the Trust Management Agreement are reasonable. The agreement may
be terminated without cause or penalty at any time on 60 days prior notice by a
majority of the independent trustees, by a majority of the shareholders entitled
to vote on such matter or by Baron Advisors. Amendment of the agreement requires
the approval of (i) a majority of Baron Trustees or a majority of the
shareholders entitled to vote on such matter and (ii) a majority of the
independent trustees. Shareholders entitled to vote on such matters will be
entitled to vote whether or not to amend or terminate the agreement or to extend
it for an additional one-year period only if such item is called for a
shareholder vote at the annual meeting of shareholders or a special meeting of
shareholders by either Baron Advisors, a majority of the independent trustees,
any officer of Baron Trust or shareholders who hold 10% or more of the common
shares then outstanding.
TRUSTEE AND EXECUTIVE OFFICER COMPENSATION
COMPENSATION OF TRUSTEES. Each independent trustee is paid an annual
fee of $6,000 and reimbursed for expenses incidental to the performance of the
trustees duties. For the year ended December 31, 1998, the two independent
trustees received a total of $12,220 for annual fees and reimbursements of
expenses.
COMPENSATION OF EXECUTIVE OFFICER. The following table sets forth the
cash and non-cash compensation awarded to or earned by the Chief Executive
Officer of Baron Trust and each executive officer of Baron Trust or person
performing a similar policy making function with respect to Baron Trust that
earned a salary and bonus in excess of $100,000 during the fiscal year ended
December 31, 1998. No other executive officer or person performing a similar
policy making function with respect to Baron Trust had a salary and bonus in
excess of $100,000 during this same period for services rendered in all
capacities to Baron Trust.
<TABLE>
<CAPTION>
Annual Compensation(1)
-------------------
Name and Principal Other Annual Long Term All Other
Position Year Salary Bonus Compensation Compensation Compensation
-------- ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Gregory K. McGrath 1998 --(2) -- -- -- --
Chief Executive Officer
Robert L. Astorino 1998 $125,000 -- -- -- $8,500 (3)
President-Division of
Properties of Baron
Properties
</TABLE>
FOOTNOTES ON NEXT PAGE
51
<PAGE>
- -----------------
(1) For the year ended December 31, 1998, there were no (a) perquisites
over the lesser of $50,000 or 10% of any of the above named executive
officers' total salary and bonus; (b) payments of above-market
preferential earnings on deferred compensation; (c) tax payment
reimbursements; or (d) preferential discounts on common shares or
units.
(2) Mr. McGrath's compensation for 1998 is payable in the form of common
shares of Baron Trust or units of Baron Properties in an amount not to
exceed 25,000 shares of Baron Trust or 25,000 units of Baron Properties
to be determined by the Compensation Committee of the Board of Trustees
of Baron Trust, plus health benefits. The Compensation Committee has
not yet met to determine Mr. McGrath's compensation.
(3) Represents amounts paid to Mr. Astorino as a car allowance.
MEETINGS AND COMMITTEES OF THE BOARD OF TRUSTEES OF BARON TRUST
The Board of Trustees meets at least annually, and, except to the
extent conflicting with the Delaware Act or the Trust Declaration, the law of
Delaware governing meetings of directors of corporations shall govern such
meetings, voting and consents by the members of the Board. The Board of Trustees
did not meet during the fiscal year ended December 31, 1998. The Board may take
action without a meeting in accordance with the Trust Declaration and the
Delaware Act.
The Board of Trustees may establish such committees as it deems
appropriate, provided, the majority of the members of any such committee are
independent trustees. The Board of Trustees has not established any committees
of the Board, however, the independent trustees act as a Nominating Committee,
Audit Committee, and Executive Compensation Committee.
CORPORATE TRUSTEE
The corporate trustee of Baron Trust is Baron Capital Properties, Inc.,
a Delaware corporation formed in July 1997 and an affiliate of Baron Advisors.
The primary duty of the corporate trustee will be to operate an office in the
State of Delaware as the Delaware Act requires that at least one of the trustees
of a Delaware business trust (such as Baron Trust) have an office in Delaware.
Legal title to Trust property will be in the name of Baron Trust if possible or
Baron Capital Properties, Inc. as trustee. Baron Capital Properties, Inc. as
corporate trustee of Baron Trust, will act only at the direction of Baron
Advisors, and will not take independent discretionary action on behalf of Baron
Trust. The corporate trustee will not be compensated for its services, but will
be reimbursed only for its reasonable out-of-pocket expenses in serving in such
capacity which are approved in advance by Baron Advisors. Such expenses are
expected to be limited to those incurred in connection with the operation of its
Delaware office. Baron Capital Properties, Inc. may be a trustee of other
similar entities that may organized by Baron Advisors, Baron Capital, Inc., and
any of their affiliates. The President, sole director and sole stockholder of
Baron Capital Properties, Inc. is Gregory K. McGrath. See " - Baron Advisors."
The corporate trustee is not obligated to persons other than shareholders for
the obligations of Baron Trust. See "SUMMARY OF THE TRUST DECLARATION."
52
<PAGE>
BUSINESS OF BARON TRUST
GENERAL
Baron Trust and Baron Properties have been organized to directly and
indirectly acquire equity interests in existing residential apartment properties
located in the United States and to provide or acquire debt financing secured by
mortgages on such types of property. With the net proceeds from the offering
contributed to Baron Properties by Baron Trust and with units of Baron
Properties, Baron Properties intends to acquire, own, operate, manage, and
improve residential apartment properties for long-term ownership or interests
therein, and thereby to seek to maximize current and long-term income and the
value of its assets. See "INVESTMENT OBJECTIVES AND POLICIES" below.
Baron Trust intends to operate as a real estate investment trust (REIT)
for federal income tax purposes. However, if Baron Advisors determines, with the
affirmative vote of a majority of shareholders entitled to vote on such matter
approving Baron Advisors' determination, that it is no longer in the best
interests of Baron Trust to continue to qualify as a REIT, Baron Advisors may
revoke or otherwise terminate Baron Trust's REIT election pursuant to applicable
federal tax law.
BARON PROPERTIES
The operations of Baron Trust will be carried on through Baron
Properties (and any subsidiaries Baron Trust may have in the future), in order
to, among other reasons, (i) enhance the ability of Baron Trust to qualify as a
REIT under the Code, and (ii) enable Baron Trust to indirectly acquire interests
in residential apartment properties in exchange transactions that involve the
exchange of units of limited partnership interest in Baron Properties and
thereby permit the deferral until a later date of any tax liabilities that
sellers of partnership interests otherwise would incur if they received cash or
common shares in connection therewith. Substantially all of Baron Trust's assets
(including the property interests acquired) will be held by, and its operations
conducted through, Baron Properties. As the sole general partner of Baron
Properties, Baron Trust will control Baron Properties as well as hold units
representing an economic interest in Baron Properties. Baron Properties will be
responsible for, and pay when due, its share of all administrative and operating
expenses of property interests it acquires.
Baron Trust's ownership of units in Baron Properties will entitle it to
share in cash distributions from, and in the profits and losses of, Baron
Properties in proportion to its percentage ownership of units. Baron Trust in
turn will distribute such cash distributions to the shareholders of Baron Trust.
The other unitholders (I.E., other Limited Partners) of Baron Properties,
including the original investors and recipients of units in exchange and other
transactions, including the proposed exchange offering, will own the remaining
economic interest in Baron Properties. Subject to certain percentage limitations
on ownership, units may be transferred by Limited Partners without restriction
(other than original investors who are subject to escrow restrictions described
below). As described below at "BUSINESS OF THE TRUST - Formation Transactions,"
the original investors have entered into a security escrow agreement with Baron
Trust under which they have agreed to deposit into an escrow account with an
institutional escrow agent for a period of six to nine years (subject to their
earlier release if Baron Trust meets certain specified operating criteria) all
units issued to them in connection with the formation of Baron Trust and Baron
Properties. The effect of the escrow arrangement is that, as long as their units
are held in the escrow account, the original investors will not be able to sell
their units or exchange their units for common shares. As unitholders exchange
their units for common shares, Baron Trust's percentage interest in Baron
Properties will increase.
53
<PAGE>
Baron Trust will hold one unit in Baron Properties for (i) each common
share that it issues in this offering, (ii) each common share that it issues in
exchange for a unit at the request of a unitholder, and (iii) each unit it
elects to cash out in lieu of an exchange described in item (ii) above. The net
proceeds from the issuance of common shares of Baron Trust in connection with
this offering and of any other issuance of common shares will be contributed to
Baron Properties in exchange for an equivalent number of units.
As the general partner of Baron Properties, Baron Trust will have the
exclusive power under the Trust Management Agreement to manage and conduct the
business of Baron Properties. Baron Advisors, Inc., Baron Advisors of Baron
Trust, has full exclusive and complete discretion in the management and control
of Baron Trust and Baron Properties (subject to the general supervision and
review by the independent trustees and Baron Advisors acting together as the
Board of Trustees of Baron Trust and subject to prior approval of the Board and
the independent trustees in respect of certain activities of Baron Trust and
Baron Properties). Gregory K. McGrath, the Chief Executive Officer of Baron
Trust and the President of Baron Advisors, and Robert S. Geiger, the Chief
Operating Officer of Baron Trust and of Baron Advisors, and James H. Bownas and
Peter M. Dickson, the initial independent trustees of Baron Trust, will make
investment decisions for Baron Trust. The independent trustees and Baron
Advisors comprise all the initial members of the Board of Trustees of Baron
Trust. Baron Properties will terminate on December 31, 2098 unless terminated
earlier in connection with a merger or a sale of all or substantially all of the
assets of Baron Properties or upon a vote of the Partners. Baron Properties will
be responsible for, and pay when due, its share of all administrative and
operating expenses of property interests it acquires.
FORMATION TRANSACTIONS
Set forth below is a description of transactions relating to the
formation of Baron Trust and Baron Properties. Gregory K. McGrath and Robert S.
Geiger are the founders of Baron Trust and Baron Properties and the original
investors. Mr. McGrath serves as the Chief Executive Officer of Baron Trust and
Baron Properties and is the Chief Executive Officer, sole shareholder and sole
director of Baron Advisors, Inc., Baron Trust's managing shareholder, which will
manage the day to day operations of Baron Trust. McGrath is also the President,
sole shareholder and sole director of the corporate general partners of 51 real
estate investment limited partnerships, including the Exchange Partnerships,
which since 1994 have acquired interests in residential and commercial
properties. See "MANAGEMENT" and "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING
SHAREHOLDER." As described below at "INITIAL REAL ESTATE INVESTMENTS," certain
of the prior partnerships, including the Exchange Partnerships, own interests in
properties which Baron Trust may acquire in connection with the proposed
exchange offering. Mr. Geiger serves Baron Trust, Baron Properties and Baron
Advisors as their Chief Operating Officer.
In connection with the formation of Baron Trust and Baron Properties,
Mr. McGrath and Mr. Geiger, the original investors, each subscribed for 601,080
units. In consideration for the units subscribed for by them, each of the
original investors made a $50,000 capital contribution to Baron Properties. If
this offering and the exchange offering are fully subscribed, the units owned by
each original investor would represent 9.5% of the total common shares
outstanding after completion of the offering by Baron Trust and the exchange
offering by Baron Properties of 2,500,000 of its units for units of limited
partnership interest in real estate limited partnerships (including any exchange
completed pursuant to the exchange offering), calculated on a fully diluted
basis assuming all then outstanding units (other than those acquired by Baron
Trust) have been exchanged into an equivalent number of common shares. If,
however, as of November 30, 1999, this offering and/or the exchange offering has
been completed and the number of units subscribed for by each original investor
represents a percentage greater than 9.5% of the then outstanding common
54
<PAGE>
shares, calculated on a fully diluted basis assuming that all then outstanding
units (other than those acquired by Baron Trust) have been exchanged into an
equivalent number of common shares, each original investor has agreed to return
any excess units to Baron Properties for cancellation. As described further
below, Mr. McGrath and Mr. Geiger have deposited units subscribed for by them
into a security escrow account for six to nine years, subject to earlier release
under certain conditions.
Under the subscription agreement, the original investors agreed to
waive future administrative fees for managing Participating Exchange
Partnerships (I.E., Exchange Partnerships whose limited partners holding at
least 90% of the limited partnership interests therein elect to accept the
proposed exchange offering); agreed to assign to Baron Properties the right to
receive all residual economic rights attributable to the general partner
interests in Participating Exchange Partnerships; and, in order to permit
management of the Exchange Properties by Baron Properties, caused the Exchange
Partnerships to cancel the partnerships' prior property management agreements
and agreed to forego the right to have a property management firm controlled by
the original investors assume the property management role in respect of
properties in which Baron Trust or Baron Properties invest.
As noted above, under a security escrow agreement with American Stock
Transfer & Trust Company ("ASTTC") (the transfer agent and registrar for the
common shares being offered in this offering and the units to be offered in the
proposed exchange offering), the original investors have deposited into an
escrow account with ASTTC the units issued to them in connection with the
formation of Baron Trust and Baron Properties. Under the agreement, 25% of the
escrowed units may be released from the escrow account on the sixth, seventh,
eighth and ninth anniversary dates of the commencement of this offering (which
began May 15, 1998), provided that the escrowed units may be released in their
entirety earlier if either (i) Baron Trust achieves annual net earnings per
common share of at least $0.50 (I.E., 5% of the public offering price per
share), after taxes and excluding extraordinary items, for any consecutive
two-year period following the commencement of this offering, or (ii) Baron Trust
achieves average annual net earnings per share of at least $0.50 (after taxes
and excluding extraordinary items) for any consecutive five-year period
following the commencement of this offering, or (iii) the common shares have
traded on a national stock market at a price per share of at least $17.50 (I.E.,
175% of the public offering price per share) for at least 90 consecutive trading
days following the first anniversary of the commencement of this offering. In
addition, the original investors' units will be subject to the trading
restrictions under Rule 144 issued under the Securities Act.
The effect of the escrow arrangement described above is that as long as
their units are held in the escrow account, the original investors will not be
able to cash out their investment in Baron Properties by exchanging their units
into common shares and then selling the common shares. The original investors
will retain any voting rights to which the escrowed units (and/or common shares
into which escrowed units have been exchanged) are entitled, as long as the
units (and/or such common shares) are escrowed, provided that, until November
30, 1999, each original investor may vote units (and/or common shares) owned by
him and held in escrow which represent 9.5% of the then outstanding common
shares, calculated on a fully diluted basis assuming all then outstanding units
(other than those acquired by Baron Trust) have been exchanged into an
equivalent number of common shares. While units (and/or common shares) owned by
them are held in escrow, the original investors are entitled to receive
dividends and distributions based on the amount of such securities they may vote
at the time of such payments. Any dividends paid on the escrowed securities will
be held in the escrow account (less amounts required to pay the tax obligations
of the original investors in respect of the escrowed securities) and available
for distribution of the assets of Baron Properties (such as its dissolution,
liquidation, merger or sale of substantially all of its assets) to the extent
that original purchasers of common shares in this offering and recipients of
units in the proposed exchange offering otherwise would not receive in
connection with such transaction, distributions in an amount equal to at least
55
<PAGE>
the initial public offering price of the common shares.
Assuming the proposed exchange offering and this offering are completed
in full by November 30, 1999 under the terms currently contemplated and no other
transactions have taken place (including, without limitation, any additional
issuances of common shares or units, any exchange of units into common shares or
any exercise of common share purchase warrants to be issued to Sigma and
participating broker-dealers in connection with this offering), immediately upon
the completion of the offerings, Mr. McGrath and Mr. Geiger would each own
601,080 units of Baron Properties, representing beneficial ownership of 9.5% of
the common shares. If this offering is closed and all or a portion of the
2,500,000 common shares being offering therein are sold prior to that closing,
and the exchange offering is also closed, but less than 2,500,000 units are
issued prior thereto, the original investors would own a varying number of units
depending upon the actual number of common shares sold in this offering and the
number of units issued in the exchange offering, but their collective common
share beneficial ownership percentage would remain at 19%. See below at
"- Ownership of Baron Trust and Baron Properties."
OWNERSHIP OF BARON TRUST AND BARON PROPERTIES
Set forth below is a description of the ownership of Baron Trust and
Baron Properties on a pro forma basis, assuming that the offering and the
proposed exchange offering are completed in their entirety as contemplated
herein and that Sigma or other participating broker-dealer has not exercised any
common share warrants granted to it in connection with this offering. Assuming
the sale of 2,500,000 common shares and the issuance of 2,500,000 units of Baron
Properties in the exchange offering, immediately after the completion of this
offering and the proposed exchange offering, there would be 2,625,000 common
shares and 6,264,808 units outstanding. The purchasers of common shares in this
offering would own 2,500,000 common shares, representing a 95.2% ownership
interest in Baron Trust as of the closing of this offering and the exchange
offering. Broker-dealers who earn commissions for their services in the exchange
offering (a number of common shares equal to 5% of the units issued to offerees
as a result of their efforts) would own the remaining 125,000, or 4.8%, of the
outstanding common shares. On a fully diluted basis assuming that all then
outstanding units (other than those owned by Baron Trust) have been exchanged
into an equivalent number of common shares, the purchasers of common shares in
this offering, recipients of units in the proposed exchange offering, the
original investors and broker-dealers who provide services in the exchange
offering would have a 39.5%, 39.5%, 19.0%, and 2.0% beneficial ownership
interest (I.E., have the right to vote or dispose of such common shares or to
acquire ownership of common shares in exchange for units) in Baron Trust,
respectively.
Baron Trust will contribute the net proceeds of this offering to Baron
Properties in exchange for up to 2,500,000 unregistered units and in its
capacity as general partner of Baron Properties will also receive a 1%
partnership interest in Baron Properties. Units held by Baron Trust will not be
exchangeable into common shares.
The two tables below reflect the pro forma allocation of common shares
and units among the participants in this offering and the proposed exchange
offering. The first table assumes the consummation of this offering by itself
without taking into account the exchange offering. The second table assumes the
consummation of this offering and the exchange offering.
56
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------------------------
OWNERSHIP:
Baron Advisors(1) 0.0%
BARON CAPITAL TRUST
("TRUST") Purchasers of Common
Shares in this Offering 100.0%
-----------------------------------------------------
GENERAL PARTNER
Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. LIMITED PARTNERS
("OPERATING PARTNERSHIP") Baron Capital Trust 80.2%
Original Investors 18.8%
-------
Total 100.0%
</TABLE>
-----------------------------------------------------
- -----------------------------
(1) Baron Advisors owns 10 shares.
If Baron Trust sells all 2,500,000 common shares being offered in this
offering (gross proceeds of $25,000,000) and assuming that Sigma and
participating broker-dealers have not exercised any common share warrants
granted to them in connection with this offering and that no transactions have
been effected pursuant to the proposed exchange offering, the following would
result:
- Baron Trust would use the net proceeds of this offering
($22,500,000) less $100,000 of reimbursable investment expenses to
acquire 2,500,000 units in Baron Properties (80.2% of the then
outstanding amount). The original investors would own 18.8% of the
then outstanding units (586,420 units) and Baron Trust, in its
capacity as general partner of Baron Properties, would own the
remaining 1% (31,176 units).
- With the exception of the 10 shares owned by Baron Advisors, the
purchasers of common shares in this offering would own 100% of the
equity interest in Baron Trust, which, in turn, would own an 80.2%
limited partnership interest in Baron Properties.
- The respective ownership percentage interests in Baron Trust and
Baron Properties would remain proportionately the same in the
event Baron Trust sells less than all common shares being offered
in this offering, even though there would be fewer outstanding
common shares and units.
- Baron Properties would use the cash proceeds received from Baron
Trust to acquire property interests and for working capital and
other general business purposes.
57
<PAGE>
THE OFFERING AND PROPOSED EXCHANGE OFFERING
<TABLE>
<CAPTION>
<S> <C>
----------------------------------------------------
OWNERSHIP:
Baron Advisors(1) 0.0%
BARON CAPITAL TRUST Purchasers of Common
("TRUST") Shares in this Offering 95.2%
Broker-dealers participating
in the Exchange Offering 4.8%
------
Total 100.0%
----------------------------------------------------
----------------------------------------------------
GENERAL PARTNER
Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. LIMITED PARTNERS
("OPERATING PARTNERSHIP") Baron Capital Trust 39.9%
Sellers of Property in
Exchange Offering 39.9%
Original Investors 19.2%
------
Total 100.0%
----------------------------------------------------
</TABLE>
- -----------------------------
(1) Baron Advisors owns 10 shares.
If Baron Trust sells all 2,500,000 common shares being offered in this
offering, and Baron Properties issues all 2,500,000 registered units to complete
the proposed exchange, the following would result:
- Baron Trust would use the net proceeds of the offering
($22,500,000) less $100,000 of reimbursable investment expenses to
acquire 2,500,000 units in Baron Properties.
- Baron Properties would issue all 2,500,000 registered units to
sellers of property interests in exchange for such interests and
acquire additional property interests with the cash proceeds
received from Baron Trust.
- Each broker-dealer who assists Baron Properties in consummating
the exchange offering with individual offerees who accept the
offering will be paid as a commission a number of unregistered
common shares of Baron Trust equal to 5% of the number of units of
Baron Properties exchanged in the respective transactions.
- Assuming no unitholders have exercised their right to exchange
their units for an equivalent number of common shares, the
purchasers of common shares in this offering and broker-dealers
providing services in the exchange offering would own 95.2% and
4.8%, respectively,
58
<PAGE>
of the equity interest in Baron Trust, and the units of Baron
Properties would be owned as follows:
<TABLE>
<CAPTION>
PERCENTAGE
LIMITED PARTNERS UNITS INTEREST
---------------- ----- --------
<S> <C> <C>
Baron Capital Trust (as limited partner) 2,500,000 39.9%
Recipients of Units
in Exchange Offering 2,500,000 39.9%
Original Investors 1,202,160 19.2%
Baron Capital Trust (as general partner) 62,648 1.0%
--------- -----
Total: 6,264,808 100.0%
</TABLE>
Beneficial ownership of the common shares of Baron Trust would be held
as follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENTAGE
BENEFICIAL OWNERS SHARES BENEFICIALLY OWNED INTEREST
----------------- ------------------------- --------
<S> <C> <C>
Baron Advisors 10 0.0%
Purchasers of Common Shares in this
Offering 2,500,000 39.5%
Recipients of Units in Exchange Offering 2,500,000 39.5%
Original Investors 1,202,160 19.0%
Broker-dealers earning commissions in
Exchange Offering 125,000 2.0%
--------- -----
Total: 6,327,170 100.0%
</TABLE>
If this offering is closed and all or a portion of the 2,500,000 common
shares being offered hereby are sold prior to that closing, and the proposed
exchange offering is also closed, but less than 2,500,000 units are issued prior
thereto, the purchasers of common shares in this offering and broker-dealers
providing services in the exchange offering would still together hold 100% of
the then outstanding common shares of Baron Trust (but in varying percentages
between them, depending upon the number of units issued), and Baron Trust and
recipients of units in the exchange offering would own varying numbers of units
and percentages of the then outstanding units, depending upon how many common
shares and units were issued in connection with the respective offerings. The
original investors would own a varying number of units, but their collective
common share beneficial ownership percentage would remain at 19%. In addition,
over time as unitholders exercise their rights to exchange units for an
equivalent number of common shares: (i) the number of outstanding common shares
would increase, resulting in changing percentages of ownership among
shareholders, and (ii) the number of outstanding units would decrease, resulting
in changing percentages of ownership among unitholders. However, such exchanges
would not affect the ownership percentage interests of any shareholder or
unitholder.
REGULATIONS
GENERAL. Residential apartment communities are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas.
Baron Trust will use its best efforts to provide that each property in which it
acquires an interest has the necessary permits and approvals to operate its
business.
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FAIR HOUSING AMENDMENTS OF 1988 ("FHA"). The FHA requires residential
apartment communities first occupied after March 13, 1990 to be accessible to
the handicapped. Noncompliance with the FHA could result in the imposition of
fines or an award of damages to private litigants. Baron Trust will use its best
efforts to provide that properties subject to the FHA in which it acquires an
interest are in compliance with such law.
AMERICANS WITH DISABILITIES ACT ("ADA"). Properties in which Baron
Properties acquires an interest must comply with Title III of the ADA to the
extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requirements could
require removal of structural barriers to handicapped access in certain public
areas of properties where such removal is readily achievable. The ADA does not,
however, consider residential properties, such as apartment communities, to be
public accommodations, except to the extent portions of such facilities, such as
a leasing office, are open to the public. Baron Properties will use its best
efforts to provide that properties in which it acquires an interest comply with
all present requirements under the ADA and applicable state laws. Noncompliance
could result in imposition of injunctive relief, fines or an award of damages.
If required changes involve a greater expenditure than Baron Trust might
anticipate, or if changes must be made on a more accelerated basis than it might
anticipate, Baron Trust's ability to make expected distributions to shareholders
could be adversely affected. Baron Trust believes that its competitors would
face similar costs to comply with the requirements of the ADA.
ENVIRONMENTAL REGULATIONS. Baron Trust and Baron Properties are subject
to federal, state, and local environmental regulations that apply to the
development of real property, including construction activities, the ownership
of real property, and the operation of multifamily apartment communities.
The Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 9601, ET SEQ. ("CERCLA"), and applicable state Superfund laws
subject the owner of real property to claims or liability for the costs of
removal or remediation of hazardous substances that are disposed of on real
property in amounts that require removal or remediation. Liability under CERCLA
and applicable state Superfund laws can be imposed on the owner of real property
or the operator of a facility without regard to fault or even knowledge of the
disposal of hazardous substances on the property or at the facility. The
presence of hazardous substances in amounts requiring response action or the
failure to undertake remediation where it is necessary may adversely affect an
owner's ability to sell real estate or borrow money using such real estate as
collateral. In addition to claims for cleanup costs, the presence of hazardous
substances on a property could result in a claim by a private party for personal
injury or a claim by an adjacent property owner for property damage.
Baron Properties, where required, intends to retain a qualified
environmental consultant to conduct an environmental investigation of each
property that it considers for investment. If there is any indication of
contamination, sampling of the property will be performed by the environmental
consultant. The environmental investigation report will be reviewed by Baron
Trust and counsel prior to purchase of an interest in any property.
RENT CONTROL LEGISLATION. Although not currently applicable to any of
the properties in which Baron Properties has invested or is contemplating an
investment, state and local rent control laws in certain jurisdictions limit a
property owner's ability to increase rents and to cover increases in operating
expenses and the costs of capital improvements. Enactment of such laws has been
considered from time to time in other jurisdictions. Baron Trust does not
presently intend to acquire interests in residential apartment properties in
markets that are either subject to rent control or in which rent limiting
legislation exists.
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EMPLOYEES
At December 31, 1998, Baron Trust had no employees other than executive
officers. At December 31, 1998, Baron Properties had 17 full-time and no
part-time employees. Baron Trust and Baron Properties expect no significant
change in the number of employees over the next 12 months. None of the employees
are represented by a collective bargaining agreement.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
Baron Trust and Baron Properties have been organized to acquire equity
interests in residential apartment properties located in the United States
and/or to provide or acquire mortgage loans secured by such types of property.
All of these activities are expected to be conducted by Baron Properties, in
which Baron Trust serves as the general partner and holds a limited partnership
interest. Such investments are expected to consist primarily of: (i) the direct
and indirect acquisition, ownership, operation, management, improvement and
disposition of equity interests in such types of properties and/or (ii) mortgage
loans which Baron Properties provides or acquires which are secured by mortgages
on such types of properties. Baron Advisors (wholly owned and controlled, along
with the corporate general partner of each Exchange Partnership, by Mr. McGrath)
expects that the proposed investments will (1) generate current cash flow for
distribution to unitholders (including Baron Trust) from rental payments from
the rental of residential apartment units which Baron Properties may acquire
and/or principal and interest payments in respect of mortgage loans which Baron
Properties may provide or acquire and (2), where applicable, provide the
opportunity for capital appreciation of residential apartment properties. Baron
Trust and Baron Properties intend to pay regular quarterly distributions to the
shareholders and the unitholders. Properties in which Baron Properties acquire
an interest are expected to use the straight-line method of depreciation over 30
years.
Baron Properties intends to acquire, own, operate, manage, and improve
residential apartment property interests for long-term ownership, and thereby to
seek to maximize current and long-term income and the value of its assets. The
strategy of Baron Trust and Baron Properties is to pursue acquisitions of
interests in properties that (i) are available at prices below estimated
replacement cost; (ii) may provide attractive returns with significant potential
growth in cash flow from property operations; (iii) are strategically located,
of high quality and competitive in their respective markets; (iv) have been
under-managed or are otherwise capable of improved performance through intensive
management and leasing that will result in increased occupancy and rental
revenues, and (v) provide anticipated total returns that will increase
distributions by Baron Trust and Baron Properties and their overall market
value.
The primary business objective of Baron Trust and Baron Properties is
to increase distributions to shareholders and unitholders and to increase the
value of Baron Properties' portfolio of properties in which it acquires an
interest. Baron Trust and Baron Properties intend to achieve these objectives
by:
(i) Acquiring interests in residential apartment properties located in
the United States that are available at prices below estimated replacement cost
and capable of enhanced performance, both in terms of cash flow and investment
value, through application of Baron Properties' management ability and strategic
capital improvements;
(ii) Acquiring mortgage loans, including subordinated mortgage loans
secured by mortgages on existing residential apartment properties located in the
United States;
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(iii) Increasing cash flow of Baron Trust's property interests through
active leasing, rent increases, improvement in tenant retention, expense
controls, effective property management, and regular maintenance and periodic
renovations, including additions to amenities;
(iv) Managing operating expenses through the use of affiliated leasing,
marketing, financing, accounting, legal, and data processing functions; and
(v) Emphasizing capital improvements to enhance Baron Properties
competitive advantages in its markets.
Baron Properties intends to provide or acquire subordinated mortgage
loans which provide for the payment of a fixed or adjustable rate of interest
plus, in certain cases, participation interest that is payable out of available
cash flow remaining after the payment of operating expenses and debt service
requirements and/or out of net proceeds from the sale or refinancing of such
property remaining after the payment of transaction expenses and indebtedness
secured by such property. The repayment of such loans would be secured by a
subordinated mortgage on the underlying property. Baron Properties will not
provide or acquire mortgage loans in respect of any property where the amount
invested by Baron Trust or Baron Properties plus the amount of any existing
indebtedness in respect of such property exceeds 80% of the property's estimated
replacement cost new unless substantial justification exists.
The Exchange Partnerships which are the initial targets of the proposed
exchange offering collectively manage the properties in which they have an
interest and share property management expenses. Other properties in which Baron
Properties acquires an interest will be similarly managed.
After Baron Properties has invested net proceeds of this offering
received by it from Baron Trust and completed the exchange offering, Baron Trust
and Baron Properties intend to utilize one or more sources of capital for future
acquisitions and capital improvements, which may include undistributed cash
flow, borrowings, issuance of debt or equity securities and other bank and/or
institutional borrowings. Baron Trust and Baron Properties intend to investigate
making an additional public or private offering of common shares and/or units
following the commencement of the exchange offering if the Board of Baron Trust
determines that suitable property acquisition opportunities which meet its
investment criteria are available to Baron Properties at attractive prices and
such an offering would fulfill its cost of funds requirements. However, we
cannot be certain that Baron Trust or Baron Properties will be able to obtain
capital for any such acquisitions or improvements on terms favorable to Baron
Trust.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of Baron Trust's and Baron Properties'
policies with respect to investments, dispositions, financings, and conflicts of
interest. These policies have been determined by Baron Advisors (wholly owned
and controlled, along with the corporate general partner of each Exchange
Partnership, by Mr. McGrath) and under the Trust Declaration may be amended or
revised from time to time at the discretion of the Board of Trustees with
approval of a majority in interest of the shareholders entitled to vote on such
matters. The Trust Declaration contains certain additional limitations on Baron
Trust's activities. See "SUMMARY OF THE DECLARATION OF TRUST - Control of
Operations" and Section 1.9 of the Declaration.
At all times, Baron Properties intends to make investments and conduct
its operations in such a manner as to be consistent with the requirements of the
Code for Baron Trust to qualify as a REIT unless,
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because of changing circumstances or changes in the Code (or in Treasury
Regulations), Baron Advisors, with the consent of a majority of the shareholders
entitled to vote on such matter approving Baron Advisors' determination,
determines that it is no longer in the best interests of Baron Trust to qualify
as a REIT. We cannot be certain that Baron Trust's objectives will be attained.
INVESTMENT POLICIES
Baron Trust's and Baron Properties' investment objective is to provide
quarterly cash distributions and achieve long-term appreciation through
increases in cash flows and the value of Baron Properties' property interests.
Baron Properties intends to pursue these objectives by directly or indirectly
acquiring equity interests in residential apartment properties located in the
United States and/or providing or acquiring mortgage loans and other real estate
interests related to such types of properties consistent with Baron Trust's
qualification as a REIT. Baron Properties may invest in senior mortgage loans or
subordinated mortgage loans and participating or convertible mortgages if it
concludes that it may benefit from the cash flow or any appreciation in the
value of the subject property. Such mortgages are similar to equity
participation. Baron Properties may also retain a purchase money mortgage for a
portion of the sale price in connection with the disposition of properties from
time to time.
Subject to the percentage of ownership limitations and gross income
tests necessary for Baron Trust to qualify as a REIT, Baron Properties also may
invest in securities of entities engaged in real estate activities or securities
of other issuers, including for the purpose of exercising control over such
entities. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of Baron Trust."
Baron Trust or Baron Properties may acquire all or substantially all of the
securities or assets of other REITs or similar entities where such investments
would be consistent with the investment policies.
Baron Properties will not make an equity investment in respect of any
property where the amount invested by it plus the amount of any existing
indebtedness or refinancing indebtedness in respect of such property exceeds the
appraised value of the property. In addition, Baron Properties will not provide
or acquire debt financing in respect of any property where the amount invested
by Baron Properties plus the amount of any existing indebtedness in respect of
such property exceeds 80% of the property's estimated replacement cost new as
determined by Baron Advisors unless substantial justification exists. Repayment
of any mortgage loans provided or acquired by Baron Properties would typically
be secured by a mortgage on the land, apartment units, and other improvements
financed by Baron Trust and be non-recourse to the borrower beyond the
underlying property and/or other assets of the borrower. It is expected that in
most cases where it will provide or acquire a loan, Baron Properties will
provide or acquire a subordinated mortgage loan that is subordinate to a
large-scale senior mortgage loan provided by a lending institution. In certain
cases, mortgage loans provided or acquired by Baron Properties may be in the
form of first mortgage loans.
Subordinated mortgages securing subordinated mortgage loans to be
provided or acquired by Baron Properties may or may not be recorded. If any
subordinated mortgage in favor of Baron Trust is not recorded, Baron Properties
security interest in the mortgage would be unperfected and, until the
subordinated mortgage is recorded, Baron Properties would be PARI PASSU (I.E.,
on an equal basis) with all other unsecured creditors of the borrower, provided,
however, the security instruments that will be entered into in connection with
mortgage loans to be provided or acquired by Baron Properties will typically
restrict the borrower's ability to enter into a subsequent loan arrangement with
third parties which would be senior to or PARI PASSU with (I.E., equal to) the
mortgage held by Baron Properties. Nonpayment of any subordinated mortgage loan
that may be provided or acquired by Baron Properties may constitute an event of
default by the borrower under the underlying senior mortgage loan, and such
senior mortgage loan may
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have to be repaid by the borrower before unitholders of Baron Properties
(including Baron Trust) and shareholders in Baron Trust will receive any return
on their investment.
The Board of Trustees of Baron Trust has adopted a conflicts of
interest policy designed to eliminate or minimize potential conflicts of
interest which may arise in respect of any residential apartment property
investment opportunity which any member of the Board, an original investor, or
any of their respective affiliates may wish to pursue for his own account and
which might be suitable for Baron Trust and Baron Properties. Such an
opportunity may be pursued only if the Board is first given a right of first
refusal to participate in the investment in place of the requesting party on the
same terms and conditions as originally proposed and, in addition, either a
majority of the disinterested members of the Board determine that Baron Trust
and Baron Properties will not exercise the right or they fail to respond to the
requesting party's proposal within a specified period.
Baron Properties will obtain and maintain insurance coverage on
property in which it acquires an equity interest (and, prior to providing or
acquiring any mortgage loan in respect of a property, will be listed as an
additional insured or loss payee in respect of such property), protecting
against casualty loss up to replacement cost (excluding a deductible per loss),
and against public liability in an amount that is reasonable taking into account
the market value of the property at the time insurance is obtained. However, we
cannot be certain that Baron Properties' property interest would not sustain
losses in excess of its applicable insurance coverage, and it could sustain
losses as a result of risks which are uninsurable. There are certain types of
losses (generally of a catastrophic nature, such as earthquakes, floods and
wars) which may be either uninsurable or not economically insurable. Should such
a loss occur, Baron Properties could lose its invested capital in the property
interest. In that case, the shareholders and unitholders could suffer a complete
loss of their investment in Baron Trust and Baron Properties.
Pending the commitment of Baron Trust and Baron Properties funds for
the purposes described in this prospectus, for distributions to shareholders and
unitholders or for application of reserve funds to their purposes, Baron
Advisors has full authority and discretion to make short-term investments in:
(i) obligations of banks or savings and loan associations that either have
assets in excess of $5 billion or are insured in their entirety by the United
States government or its agencies and (ii) obligations of or guaranteed by the
United States government or its agencies. Such short-term investments would be
expected to earn rates of return which are lower than those earned in respect of
properties in which Baron Properties may invest.
Baron Trust and Baron Properties intends to make investments in such a
manner that it will not be treated as an investment company under the Investment
Company Act of 1940, as amended.
DISPOSITION POLICIES
Baron Advisors will periodically review the portfolio of assets which
Baron Properties acquires. Baron Properties has no current intention to dispose
of any property interests it may acquire, although it reserves the right to do
so. Disposition decisions relating to a particular property will be made based
on (but not limited to) the following factors: (i) potential to continue to
increase cash flow and value; (ii) the sale price; (iii) strategic fit of the
property with the rest of Baron Properties portfolio; (iv) potential for, or the
existence of, any environmental or regulatory problems; (v) alternative uses of
capital; and (vi) maintaining qualification as a REIT. Any decision to dispose
of a property will be made by Baron Advisors. The prohibitions in the Code and
related regulations on a REIT holding property for sale may affect Baron
Properties' ability to sell properties without adversely affecting distributions
to shareholders and unitholders. See "FEDERAL INCOME TAX CONSIDERATIONS -
Taxation of Baron Trust."
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FINANCING POLICIES
Baron Properties will have the right to borrow funds, and use available
assets as security for any such loan, if Baron Properties' cash requirements
exceed its available cash. Under the Trust Declaration, the aggregate borrowings
of Baron Trust or Baron Properties in relation to their aggregate net assets may
not exceed 300%, except where Baron Trust determines that a higher level of
borrowing is appropriate. It is expected that each property in which Baron
Properties invests will secure a senior mortgage loan. The principal balance of
any such first mortgage loan typically would represent a substantial percentage
of Baron Properties' basis in any property in which Baron Properties owns an
equity interest.
To the extent that Baron Advisors desires that Baron Trust or Baron
Properties obtain additional capital, Baron Trust or Baron Properties may raise
such capital through additional public and private equity offerings, debt
financing, retention of cash flow (subject to satisfying Baron Trust's
distribution requirements under the REIT rules) or a combination of these
methods. Baron Trust may determine to issue securities senior to the common
shares, including preferred shares and debt securities (either of which may be
convertible into common shares or be accompanied by warrants to purchase common
shares). Baron Trust and Baron Properties may also finance acquisitions of
properties or interests in properties through the exchange of properties, the
issuance of shares, or the issuance of units of limited partnership interest in
Baron Properties and any other partnerships Baron Trust or Baron Properties may
form or acquire an equity interest in to conduct all or a portion of its real
estate operations.
The proceeds from any borrowings by Baron Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
Baron Properties, to refinance existing indebtedness or to finance acquisitions
or capital improvements of new properties.
CONFLICT OF INTEREST POLICIES
Baron Trust has adopted certain policies designed to eliminate or
minimize potential conflicts of interest, as described below. However, we cannot
be certain that these policies always will be successful in eliminating the
influences of such conflicts, and if they are not successful, decisions could be
made that might fail to reflect the interests of all shareholders and
unitholders.
Baron Advisors (wholly owned and controlled, along with the corporate
general partner of each Exchange Partnership, by Mr. McGrath) will have
discretion in day to day management and control of the affairs of Baron Trust,
subject to (i) general supervision and review by the independent trustees and
Baron Advisors acting together as the Board of Baron Trust and (ii) prior
approval authority of a majority of the Board and/or of a majority of the
independent trustees in respect of certain actions of Baron Trust and Baron
Properties. Because Baron Trust is the general partner of Baron Properties,
Baron Advisors will also control the day to day management of Baron Properties.
The Trust Declaration requires that a majority of the Board of Baron Trust be
comprised of independent trustees not affiliated with Baron Advisors or its
affiliates.
Actions of Baron Trust and Baron Properties requiring approval of the
Board and/or the independent trustees include, without limitation, the payment
of compensation to Baron Advisors, a Trustee, or any of their respective
affiliates in amounts in excess of certain specified limits for services
performed for Baron Trust, and the acquisition of properties from, or the sale
of properties to, any such parties. For example, Baron Properties may not
purchase property from Baron Advisors, a Trustee, or any of their respective
affiliates unless a majority of the members of the Board and, in addition, a
majority of
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the independent trustees who have no other interest in the particular proposed
transaction (beyond their role on the Board or as independent trustees) review
the proposed transaction and determine that it is fair and reasonable to Baron
Properties and that the purchase price to Baron Properties for such property is
no greater than the cost of the property to such proposed seller, or if the
purchase price to Baron Properties is in excess of such cost, that substantial
justification for such excess exists and such excess is reasonable, provided,
however, in no event may the purchase price for the property exceed its then
current appraised value. As of the date of this Prospectus, other than as
described herein, Baron Properties does not contemplate using any substantial
portion of the net proceeds of this offering received by it from Baron Trust to
acquire property interests from Baron Advisors, any Trustee, or any of their
respective affiliates.
The Board of Baron Trust has adopted a policy designed to eliminate or
minimize potential conflicts of interests which may arise in respect of
investment opportunities suitable for Baron Trust and Baron Properties which may
be presented to Baron Advisors, an independent trustee, an original investor, or
any of their respective affiliates. Under the policy, such parties may pursue
for their own account a residential apartment property investment opportunity
which may be suitable for Baron Trust and Baron Properties (I.E., in accordance
with the purposes for which they were organized) only upon fulfillment of the
following conditions. First, the requesting party or parties must deliver to the
Board of Baron Trust, at least 60 days prior to the consummation of any such
transaction, a written investment proposal identifying the parties to be
involved in such transaction, specifying in reasonable detail the proposed terms
and conditions of the particular investment opportunity intended to be pursued
and granting Baron Trust and Baron Properties a right of first refusal,
exercisable within 30 days following the delivery of such proposal, to
participate in the proposed transaction in the place of the requesting party or
parties, on the terms and conditions specified in the written proposal.
In addition, the requesting party or parties either (i) must receive
written notice from a majority of the disinterested members of the Board (I.E.,
those persons who have no other interest in any such transaction beyond their
role on the Board), or an authorized representative acting on their behalf,
which specifies that Baron Trust and Baron Properties have determined not to
participate in the proposed transaction or (y) must have not received from the
disinterested members of the Board, or an authorized representative acting on
their behalf, written notice, within 30 days following the receipt of such
written proposal, which notifies the requesting party or parties that Baron
Trust or Baron Properties elect to exercise their right of first refusal to
participate in the proposed transaction on the terms and conditions specified in
the written proposal. The Board of Baron Trust and the independent trustees are
responsible for overseeing the conflicts policy under the circumstances
described above to insure that it is applied fairly to Baron Trust. However, we
cannot be certain that the policies of Baron Trust and Baron Properties will
always be successful in eliminating or minimizing the influence of such
conflicts, and, if they are not successful, decisions could be made that might
fail to reflect fully the interests of all shareholders and unitholders.
For a more detailed description of Baron Trust and Baron Properties
actions requiring approval of the Board and/or the independent trustees, see
"SUMMARY OF DECLARATION OF TRUST - Control of Operations."
INITIAL REAL ESTATE INVESTMENTS
GENERAL
Net proceeds of this offering will be contributed to Baron Properties.
A portion of the net proceeds contributed to date have been used by Baron
Properties to make acquisitions as described below. Although
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Baron Advisors has several additional investment opportunities under review for
the application of the proceeds, none of such potential opportunities has
developed beyond the negotiating stage. Baron Trust may direct a substantial
portion of the proceeds to investment opportunities that have not been
designated in this prospectus, as it may be amended or supplemented from time to
time, and Baron Trust may be unable to or may decline to apply the proceeds to
any specific investments that may be described in this prospectus or any
amendments or supplements thereto. Therefore, prospective investors may not be
able to evaluate any properties in which Baron Trust may apply the net cash
proceeds of the offering before they purchase common shares. In addition,
prospective investors will not have any vote in the selection of property
investments after they purchase common shares. Consequently, investors will be
relying upon the judgment of Baron Advisors and the independent trustees for
such decisions.
Concurrently with this offering, Baron Properties proposes to make an
exchange offering using units of Baron Properties to acquire interests in
residential apartment properties and/or subordinated mortgage loans on similar
properties. In the exchange offering, Baron Properties will offer to issue units
to sellers of interests in residential apartment properties or subordinated
mortgage loans in exchange for such property interests or mortgages. As its
initial acquisition candidates of the exchange offering, Baron Properties
anticipates that it will offer to acquire equity and/or subordinated mortgage or
other debt interests in 26 residential apartment properties, directly or
indirectly owned by 23 real estate limited partnerships managed by affiliates of
Baron Advisors (such limited partnerships are collectively referred to herein as
"Exchange Partnerships," and individually as an "Exchange Partnership"). Baron
Properties intends to acquire interests in a particular property by exchanging
units of Baron Properties for limited partnership interests in the Exchange
Partnerships owned by its limited partners ("Exchange Limited Partners").
EXCHANGE OFFERING BY BARON PROPERTIES
In the initial transactions of the exchange offering, Baron Properties
will offer to issue units of Baron Properties to each Exchange Limited Partner
in exchange for the individual's respective limited partnership interest in the
Exchange Partnership. The number of units of Baron Properties to be offered to
each Exchange Limited Partner for his interest in a given Exchange Partnership
have been assigned an initial value in the range of 103% to 169% of the amount
of an Exchange Limited Partner's original investment in the partnership. For
such purpose, each unit of Baron Properties will be initially valued at $10, the
same offering price of each common share offered in this offering. As described
below, holders of units of Baron Properties may exchange their units into an
equivalent number of common shares at any time, subject to certain conditions.
Any Exchange Limited Partner that does not desire to participate in the exchange
offering would be entitled to retain the limited partnership interest in the
partnership on generally the same terms as currently exist. As part of the
transaction, Baron Trust would assume the corporate general partner's interest
or be granted a management proxy in each of the Exchange Partnerships involved
and manage the partnerships on an ongoing basis. The Exchange Offering is
conditioned upon the acceptance of at least $6,000,000 of units of Baron
Properties by Exchange Limited Partners. In addition, at least 90% of the
limited partnership interests of an Exchange Partnership must elect to accept
the exchange offering or none of the limited partners will be permitted to
participate.
Each Exchange Property in which Baron Properties intends to acquire an
interest has been appraised by a qualified and licensed independent appraisal
firm and each additional property in which it intends to acquire an interest
will be appraised in advance. The appraisal reports to be relied upon by Baron
Properties are based on the three traditional property valuation methods: the
cost approach, the direct sales comparison approach, and the income approach.
The "cost approach" is based on the principle that an informed purchaser would
pay no more than the cost of building a comparable property. This
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approach involves the estimation of the current market value of the land and the
replacement cost of improvements. Accrued depreciation of the improvements is
then calculated and deducted from such estimation to indicate the value of the
property. Generally, the land value is determined using the direct sales
comparison approach described below. The replacement cost of improvements is
estimated based on current prices for building materials, less depreciation,
after analyzing the disadvantages or deficiencies of the existing building
compared to a new building.
The "income approach" is based on the principle that value is created
by the expectation of economic benefits to be derived in the future. This
approach to valuation takes into account the amount of income a property is
expected to earn in the future and its present value. Under this approach, net
income before payment of debt service obligations is first estimated. That
amount is then converted into present value through a process called
capitalization, which involves dividing the net income by a capitalization rate.
Factors such as risk, time, interest on the capital investment and the recapture
of the depreciating assets are taken into account to determine the
capitalization rate. The selection of an appropriate capitalization rate is one
of the most important factors to be analyzed under the income approach of
valuation. One important method to determine the capitalization rate is to
extract the rate based on comparable residential apartment properties.
The "direct sales comparison" approach is based on the principle that
an informed purchaser will pay no more for a property than the cost of acquiring
an existing property with the same characteristics. The appraiser first gathers
data relating to sales of comparable properties and then analyzes the nature and
condition of each comparable sale, making adjustments for dissimilar
characteristics. To determine land value, the price per acre or price per unit
is the common denominator. For improvements, the common denominator may be price
per square foot, price per unit or room, or a gross rent multiplier (I.E., a
comprehensive unit of comparison based on the relationship between gross
potential rental income and value).
The final step in the appraisal process is the reconciliation of the
values estimated under the three approaches, taking into account the relative
applicability of each approach, the range between the estimated values and the
approach that appears to produce the most reliable estimate. According to the
appraisers retained by Baron Properties to appraise the Exchange Properties, the
income and direct sales comparison approaches are considered by most purchasers
and sellers to be the most relevant when valuing income-producing properties
such as the Exchange Properties. The appraisers give the least consideration to
the cost approach because purchasers and sellers are more responsive to
acquiring income-producing properties based on attractive overall capitalization
rates.
Subject to certain exceptions, Baron Trust and Baron Properties are
authorized to provide or acquire mortgage loans as long as, among other things,
the aggregate amount of all mortgage loans outstanding on any particular
underlying property, including the loan of Baron Trust or Baron Properties, as
applicable, would not exceed an amount equal to 80% of the appraised replacement
cost new of the property. Replacement cost new refers to the estimated cost new
of the improvements on a property (estimated on the basis of current prices for
the component parts of a building) without taking into account the deficiencies
of the existing building compared to a new building, plus the estimated current
market value of the underlying land (generally determined using the direct sales
comparison approach).
To facilitate the proposed exchange offering, Baron Properties will
register with the Commission 2,500,000 units. Sellers of property interests who
receive units as consideration in connection with the proposed exchange offering
will be entitled to exchange all or a portion of the units held by them for an
equivalent number of common shares at any time and from time to time, so long as
the exchange would not
68
<PAGE>
cause the seller to own (taking into account certain ownership attribution
rules) in excess of 5.0% of the then outstanding shares, subject to Baron
Trust's right to cash out any holder of units who requests an exchange.
Therefore, in conjunction with the registration of the common shares being
offered hereby, Baron Trust registered 2,500,000 common shares (in addition to
the 2,500,000 common shares being offered in this offering) for issuance to
holders of units who request Baron Trust to exchange units for common shares. A
registration statement relating to the proposed exchange offering was filed with
the Commission in June 1998 but has not yet been declared effective. A
pre-effective amendment to the registration statement is expected to be filed in
June 1999.
Baron Trust intends to investigate making an additional public or
private offering of common shares or units following the commencement of this
offering if Baron Advisors determines that suitable property acquisition
opportunities are available to Baron Trust at attractive prices and that such an
offering would fulfill its cost of funds requirements. The issuance by Baron
Trust and Baron Properties of additional common shares and units subsequent to
the completion of this offering and the proposed exchange offering could have a
dilutive effect on investors which acquire common shares in the offering.
Each Exchange Partnership directly or indirectly owns all or a portion
of the equity interest in a residential apartment property, the entire or an
undivided subordinated mortgage interest in one or more properties (and in one
case, unsecured debt interests), or a combination of the foregoing. Baron
Properties would acquire interests in a particular property by acquiring from
Exchange Limited Partners their limited partnership interests in the respective
partnership (the "Exchange Partnership Units"). In connection with the exchange
offering, the corporate general partners of each of the Exchange Partnerships
have agreed to waive all but a one percent economic interest (retained for
federal income tax purposes), including back end interests and administrative
fees, attributable to such corporate general partners.
THE EXCHANGE PROPERTIES
As its initial investment targets in the exchange offering, Baron
Properties is offering to acquire limited partnership interests from Exchange
Limited Partners in 23 Exchange Partnerships which directly or indirectly own
equity and/or subordinated mortgage interests in 26 residential apartment
properties (collectively, the "Exchange Properties" and individually an
"Exchange Property"). Baron Properties will acquire a beneficial ownership
interest in all or a portion of the Exchange Properties by acquiring from
Exchange Limited Partners of participating Exchange Partnerships their limited
partnership interests ("Exchange Partnership Units") in the respective
partnership. The Exchange Partnerships are managed by corporate general partners
affiliated with Baron Advisors (wholly owned and controlled, along with the
corporate general partner of each Exchange Partnership, by Mr. McGrath).
Certain of the Exchange Partnerships own direct or indirect equity
interests in 16 Exchange Properties which consist of an aggregate of 1,012
residential units (comprised of studio and one, two, and three bedroom units).
Certain of the Exchange Partnerships own direct or indirect mortgage interests
in 10 Exchange Properties, which consist of an aggregate of 813 existing
residential units (studio and one and two bedroom) and 164 units (two and three
bedroom) under development. Of the Exchange Properties, 21 properties are
located in Florida, three properties in Ohio, and one property each in Georgia
and Indiana.
The sole asset of each of 13 of the Exchange Partnerships
(individually, an "Exchange Equity Partnership" and collectively, the "Exchange
Equity Partnerships") is record title to a residential apartment property or the
entire limited partnership or other equity interest in a limited partnership or
other entity which owns record title to a property. The sole assets of each of
six of the Exchange Partnerships (individually, an "Exchange Mortgage
Partnership" and collectively, the "Exchange Mortgage
69
<PAGE>
Partnerships") are the entire or an undivided subordinated mortgage interest in
one or more properties (and in one case, unsecured debt interests). Each of the
remaining four Exchange Partnerships (individually, an "Exchange Hybrid
Partnership" and collectively, the "Exchange Hybrid Partnerships") own a
combination of (i) all or a portion of the direct or indirect equity interest in
one or more properties and (ii) an undivided subordinated mortgage interest in
one or more properties (and in one case, unsecured debt interests).
The aggregate appraised market value of 16 Exchange Properties in which
Exchange Equity Partnerships and Exchange Hybrid Partnerships directly or
indirectly own an equity interest (net to the partnerships' interest, less the
current principal balance of mortgage loans secured by such properties) was
approximately $16,515,480 at March 31, 1999. The aggregate balance due
(including current aggregate principal balances of subordinated mortgage loans
and other debt and accrued unpaid interest thereon) on the debt interests owned
by Exchange Mortgage Partnerships and Exchange Hybrid Partnerships in respect of
11 Exchange Properties was approximately $7,437,727 at March 31, 1999.
The book value of the 23 Exchange Partnerships was approximately
$13,518,420 at March 31, 1999. If exchanges are consummated in respect of all
Exchange Partnership Units in the exchange offering, the partnership interests
acquired will have a purchase price totaling approximately $24,980,606,
comprised of units of Baron Properties to be issued. The interests to be
acquired with the balance of Baron Properties units being offered in the
exchange offering have not yet been finally determined.
Upon the completion of the exchange offering in respect of each
Participating Exchange Partnership, (i) Gregory K. McGrath, a founder of Baron
Trust and Baron Properties, the Chief Executive Officer of Baron Trust, Baron
Properties, and Baron Advisors, and the sole stockholder, director and executive
officer of the corporate general partner of each of the Exchange Partnerships,
will either grant the Board of Trustees of Baron Trust a management proxy
coupled with an interest to vote the shares of the corporate general partner of
the Exchange Partnership or contract to assign all of the stock in the corporate
general partner to Baron Trust for $100 per partnership; (ii) the corporate
general partner will assign to Baron Properties all of its residual economic
interest in the partnership; and (iii) Mr. McGrath will cause the corporate
general partner to waive its right to receive from the partnership any ongoing
fees, effective at the time of exchange.
The number of units of Baron Properties to be offered to each Exchange
Limited Partner for his interest in a given Exchange Partnership have been
assigned an initial value in the range of 103% to 169% of the amount of an
Exchange Limited Partner's original investment in the partnership. For such
purposes, each unit of Baron Properties will be initially valued at $10, the
offering price of each common share offered in this offering. The value of Baron
Properties units and the common shares are substantially identical because
recipients of units of Baron Properties in the exchange offering may exchange
their units into an equivalent number of common shares at any time, subject to
certain conditions.
The number of units being offered by Baron Properties in the exchange
offering in respect of each Exchange Equity Partnership and each Exchange Hybrid
Partnership (to the extent of its direct or indirect equity interest in the
property) differs based upon the following factors: (a) the estimated appraised
market value of the underlying property determined by qualified and licensed
independent appraisal firms; (b) the operating history of the property; (c) the
current principal balance of first mortgage and other indebtedness to which the
property is subject; (d) the amount of distributable cash flow currently being
generated by the property; plus (e) additional factors which Baron Advisors
believes are appropriate to consider including, among others, the property's
overall current condition and prospects for the property based upon improvements
made or to be made to the property and, in certain cases, the combination of two
or more phases of the property, which are expected to be owned upon completion
of the exchange offering and the
70
<PAGE>
actual or potential benefits to be obtained by the sub-metering of utilities in
order to pass costs from the owner of the property to individual tenants.
The number of units being offered in respect of each of the Exchange
Mortgage Partnerships and each of the Exchange Hybrid Partnerships (to the
extent of their mortgage interests in properties and other debt interests)
differs based upon the following factors: (i) the current principal balance of
the amount of debt which is senior to the mortgage interest to be acquired plus
the current principal balance of first mortgage and other indebtedness to which
the property is subject; (ii) the estimated appraised market value of the
underlying property determined by qualified and licensed independent appraisal
firms; (iii) the operating history of the property; (iv) the amount of
distributable cash flow currently being generated by the property; plus (v)
additional factors which Baron Advisors believes are appropriate to consider
including, among others, the property's overall current condition and prospects
for the property based upon improvements made or to be made to the property and,
in certain cases, the combination of two or more phases of the property, which
are expected to be owned upon completion of the exchange offering and the actual
or potential benefits to be obtained by the sub-metering of utilities in order
to pass costs from the owner of the property to individual tenants. Each
Exchange Property in which Baron Properties intends to acquire an interest has
been appraised by a qualified and licensed independent appraisal firm and each
additional property in which it intends to acquire an interest will be appraised
in advance.
Assuming the exchange offering is accepted by all Exchange Limited
Partners in all Exchange Partnerships, the aggregate purchase price for the
Exchange Partnership Units would be approximately $24,980,606, comprised of
units of Baron Properties to be issued with an initial assigned value of that
amount. Baron Trust and Baron Properties will investigate other investment
opportunities for the exchange offering, including property interests held by
unaffiliated owners and by certain other limited partnerships managed by
affiliates of Baron Advisors.
71
<PAGE>
EQUITY PROPERTY INTERESTS
The table set forth below summarizes certain information relating to
each of the 16 properties in which Exchange Equity Partnerships and Exchange
Hybrid Partnerships involved in the exchange offering directly or indirectly
own an equity interest, including (i) the name of the respective partnership
and its general partner, (ii) the name and location of each property, (iii)
the year each property was completed, (iv) the number of units, acreage,
rentable area, average unit size and average rental rate per unit and per
square feet of rentable area as of April 1, 1999, and (v) physical occupancy
of each property as of April 1, 1999. In the exchange offering, Baron
Properties will offer to issue its units to limited partners in those
partnerships in exchange for their limited partnership interests in the
partnerships and thereby indirectly acquire such property interests.
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT APPROX.
PROPERTY (AND RENTABLE
TYPE YEAR APPROX. AREA
PARTNERSHIP GP OF INTEREST) LOCATION COMPLETED NO. OF UNITS ACRES (SQ. FT.)*
----------- -- ------------ -------- --------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EXCHANGE EQUITY
PARTNERSHIPS:
Baron Strategic Baron Steeplechase Anderson, 1977 Total 72 3.20 47,280
Investment Fund Capital Apartments (1) Indiana 1 BR 12
II, Ltd. XXXI, Inc. 2 BR 60
Central Florida Baron Laurel Oaks Deland, 1986 Total 56 6.21 45,216
Income Capital of Apartments (1) Florida 1 BR 11
Appreciation Fund, Ohio III, 2 BR 45
Ltd. Inc.
Florida Capital Baron Eagle Lake Port 1987 Total 77 4.68 45,504
Income Fund, Ltd. Capital II, Apartments (1) Orange, 1 BR 73
Inc. Florida 2 BR 4
Florida Capital Baron Forest Glen Daytona 1985 Total 52 6.85 62,692
Income Fund II, Capital IV, Apartments Beach, 2 BR 28
Ltd. Inc. (Phase I) (2) Florida 3 BR 24
Florida Capital Baron Bridge Point Jacksonville, 1986 Total 48 3.39 27,360
Income Fund III, Capital Apartments Florida Studio 6
Ltd. VII, Inc. (Phase II) (1) 1 BR 37
2 BR 5
Florida Capital Baron Glen Lake St. 1986 Total 144 7.16 79,200
Income Fund IV, Capital V, Apartments (1) Petersburg, 1 BR 144
Ltd. Inc. Florida
Florida Income Baron Forest Glen Daytona 1985 Total 26 6.85 29,931
Advantage Fund I, Capital IV, Apartments Beach, 2 BR 19
Ltd. Inc. (Phase III) (2) Florida 3 BR 7
Florida Income Baron Forest Glen Daytona 1985 Total 8 6.85 9,166
Appreciation Fund Capital IV, Apartments Beach, 2 BR 6
I, Ltd. Inc. (Phase IV) (2) Florida 3 BR 2
</TABLE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT 4/1/99 PHYSICAL
PROPERTY (AND AVERAGE RENTAL RATES/MONTH OCCUPANCY
TYPE AVG. UNIT SIZE -------------------------- AS OF
PARTNERSHIP GP OF INTEREST) (SQ. FT.) (PER UNIT) (PER SQ. FT.) 4/1/99
----------- -- ------------ --------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
EXCHANGE EQUITY
PARTNERSHIPS:
Baron Strategic Baron Steeplechase Avg. 657 $433 $0.66 86%
Investment Fund Capital Apartments (1) 1 BR 550
II, Ltd. XXXI, Inc. 2 BR 678
Central Florida Baron Laurel Oaks Avg. 807 $531 $$0.66 93%
Income Capital of Apartments (1) 1 BR 576
Appreciation Fund, Ohio III, 2 BR 864
Ltd. Inc.
Florida Capital Baron Eagle Lake Avg. 591 $465 $0.78 100%
Income Fund, Ltd. Capital II, Apartments (1) 1 BR 576
Inc. 2 BR 864
Florida Capital Baron Forest Glen Avg. 1,205 $673 $0.56 98%
Income Fund II, Capital IV, Apartments 2 BR 1,075
Ltd. Inc. (Phase I) (2) 3 BR 1,358
Florida Capital Baron Bridge Point Avg. 570 $455 $0.80 94%
Income Fund III, Capital Apartments Studio 288
Ltd. VII, Inc. (Phase II) (1) 1 BR 576
2 BR 864
Florida Capital Baron Glen Lake Avg. 550 $674 $1.23 76%
Income Fund IV, Capital V, Apartments (1) 1 BR 550
Ltd. Inc.
Florida Income Baron Forest Glen Avg. 1,151 $656 $0.57 92%
Advantage Fund I, Capital IV, Apartments 2 BR 1,075
Ltd. Inc. (Phase III) (2) 3 BR 1,358
Florida Income Baron Forest Glen Avg. 1,146 $655 $0.57 100%
Appreciation Fund Capital IV, Apartments 2 BR 1,075
I, Ltd. Inc. (Phase IV) (2) 3 BR 1,358
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT APPROX.
PROPERTY (AND RENTABLE
TYPE YEAR APPROX. AREA
PARTNERSHIP GP OF INTEREST) LOCATION COMPLETED NO. OF UNITS ACRES (SQ. FT.)*
----------- -- ------------ -------- --------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EXCHANGE EQUITY
PARTNERSHIPS,
CONT.:
Florida Income Baron Blossom Corners Orlando, 1980 Total 70 3.67 39,300
Growth Fund V, Ltd. Capital XI, Apartments Florida Studio 15
Inc. (Phase I) (1) 1 BR 49
2 BR 6
Florida Baron Camellia Court Daytona 1982 Total 60 5.15 34,848
Opportunity Income Capital Apartments (1) Beach, 1 BR 59
Partners, Ltd. III, Inc. Florida 2 BR 1
GSU Stadium Baron Stadium Club Statesboro, 1987 Total 60 3.50 50,736
Student Capital X, Apartments (1) Georgia Studio 2
Apartments, Ltd. Inc. 3 BR 3
4 BR 55
Midwest Income [Baron Brookwood Way Mansfield, 1974 Total 66 3.92 38,016
Growth Fund VI, Capital of Apartments (1) Ohio Studio 3
Ltd. Ohio III, 1 BR 60
Inc.] 2 BR 3
Realty Opportunity Baron Forest Glen Daytona 1985 Total 30 6.85 34,231
Income Fund VIII, Capital IV, Apartments Beach, 2 BR 23
Ltd. Inc. (Phase II) (2) Florida 3 BR 7
EXCHANGE HYBRID
PARTNERSHIPS:
Baron Strategic Baron Pineview Orlando, 1988 Total 91 4.38 46,656
Investment Fund Capital Apartments (3) Florida Studio 26
VI, Ltd. XXXI, Inc. 1 BR 59
2 BR 6
Baron Strategic Baron Crystal Court Lakeland, 1982 Total 72 4.5 43,776
Investment Fund Capital Phase I (4) Florida 1 BR 64
IX, Ltd. XLII, Inc. 2 BR 8
Baron Strategic Baron Crystal Court Lakeland, 1982 Total 72 4.5 43,776
Investment Fund X, Capital Phase I (5) Florida 1 BR 64
Ltd. XLII, Inc. 2 BR 8
Pineview Orlando, 1988 Total 91 4.38 46,656
Apartments (6) Florida Studio 26
1 BR 59
2 BR 6
</TABLE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT 4/1/99 PHYSICAL
PROPERTY (AND AVERAGE RENTAL RATES/MONTH OCCUPANCY
TYPE AVG. UNIT SIZE -------------------------- AS OF
PARTNERSHIP GP OF INTEREST) (SQ. FT.) (PER UNIT) (PER SQ. FT.) 4/1/99
----------- -- ------------ --------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
EXCHANGE EQUITY
PARTNERSHIPS,
CONT.:
Florida Income Baron Blossom Corners Avg. 561 $481 $0.86 93%
Growth Fund V, Ltd. Capital XI, Apartments Studio 300
Inc. (Phase I) (1) 1 BR 600
2 BR 900
Florida Baron Camellia Court Avg. 581 $435 $0.75 95%
Opportunity Income Capital Apartments (1) 1 BR 576
Partners, Ltd. III, Inc. 2 BR 864
GSU Stadium Baron Stadium Club Avg. 860 $963 $1.13 70%
Student Capital X, Apartments (1) Studio 288
Apartments, Ltd. Inc. 3 BR 880
4 BR 880
Midwest Income [Baron Brookwood Way Avg. 576 $376 $0.65 89%
Growth Fund VI, Capital of Apartments (1) Studio 288
Ltd. Ohio III, 1 BR 576
Inc.] 2 BR 864
Realty Opportunity Baron Forest Glen Avg. 1,141 $662 $0.58 96%
Income Fund VIII, Capital IV, Apartments 2 BR 1,075
Ltd. Inc. (Phase II) (2) 3 BR 1,358
EXCHANGE HYBRID
PARTNERSHIPS:
Baron Strategic Baron Pineview Avg. 513 $461 $0.90 98%
Investment Fund Capital Apartments (3) Studio 288
VI, Ltd. XXXI, Inc. 1 BR 576
2 BR 864
Baron Strategic Baron Crystal Court Avg. 608 $401 $0.66 94%
Investment Fund Capital Phase I (4) 1 BR 576
IX, Ltd. XLII, Inc. 2 BR 864
Baron Strategic Baron Crystal Court Avg. 608 $401 $0.66 94%
Investment Fund X, Capital Phase I (5) 1 BR 576
Ltd. XLII, Inc. 2 BR 864
Pineview Avg. 513 $461 $0.90 98%
Apartments (6) 1 BR 288
2 BR 576
864
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT APPROX.
PROPERTY (AND RENTABLE
TYPE YEAR APPROX. AREA
PARTNERSHIP GP OF INTEREST) LOCATION COMPLETED NO. OF UNITS ACRES (SQ. FT.)*
----------- -- ------------ -------- --------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Lamplight Court of Baron Lamplight Bellefontaine, 1973 Total 80 6.00 46,944
Bellefontaine Capital IX, Apartments (7) Ohio Studio 12
Apartments, Ltd. Inc. 1BR 53
2 BR 15
--------- ---------- -----------
TOTAL
PROPERTIES: 1,012** 83.16 680,856
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
NAME OF 4/1/99 PHYSICAL
RESIDENTIAL AVERAGE RENTAL RATES/MONTH OCCUPANCY
APARTMENT AVG. UNIT SIZE -------------------------- AS OF
PARTNERSHIP PROPERTY (AND (SQ. FT.) (PER UNIT) (PER SQ. FT.) 4/1/99
----------- TYPE --------- ---------- ------------- ------
<S> GP OF INTEREST) <C> <C> <C> <C>
-- ------------
Lamplight Court of <C> <C> Avg. 587 $394 $0.67 93%
Bellefontaine Baron Lamplight Studio 288
Apartments, Ltd. Capital IX, Apartments (7) 1 BR 576
Inc. 2 BR 864
------- ---------- ------------- ------
673 $531 $0.80 87%
------- ---------- ------------- ------
------- ---------- ------------- ------
</TABLE>
- --------------------
* Includes only residential apartment units and excludes common areas.
** Properties in which more than one partnership has an interest are
counted only once.
(1) Partnership owns the entire limited partnership interest in a limited
partnership which holds fee simple title to the property.
(2) Partnership owns beneficial interest in an unrecorded land trust which
holds fee simple title to the property.
(3) Partnership owns (i) a 52.44% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt
interests in other property described below in "Mortgage Information -
Mortgage Properties" table.
(4) Partnership owns (i) a 39.56% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt
interests in other property described below in "Mortgage Information
Mortgage Properties" table.
(5) Partnership owns (i) a 47.59% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt
interests in other property described below in "Mortgage Information
Mortgage Properties" table.
(6) Partnership owns (i) a 39.59% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) debt
interests in other property described below in "Mortgage Information
Mortgage Properties" table.
(7) Partnership owns (i) a 31.7% limited partnership interest in a limited
partnership which holds fee simple title to the property and (ii) a
debt interest in the property described below in "Mortgage Information
- Mortgage Properties" table.
74
<PAGE>
DEBT PROPERTY INTERESTS
The table set forth below summarizes certain information relating to
each of the 11 properties in which Exchange Mortgage Partnerships and Exchange
Hybrid Partnerships involved in the exchange offering own a mortgage interest,
including (i) the name of the respective partnership and its general partner,
(ii) the name and location of each property, (iii) the year each property was
completed, (iv) the number of units, acreage, rentable area, average unit size
and average rental rate per unit and per square feet of rentable area as of
April 1, 1999, and (v) physical occupancy of each property as of April 1, 1999.
In the exchange offering, Baron Properties will offer to issue its units to
limited partners in those partnerships in exchange for their limited partnership
interests in the partnerships and thereby indirectly acquire such property
interests.
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT APPROX.
PROPERTY (AND RENTABLE
TYPE YEAR APPROX. AREA
PARTNERSHIP GP OF INTEREST) LOCATION COMPLETED NO. OF UNITS ACRES (SQ. FT.)*
----------- -- ------------ -------- --------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EXCHANGE MORTGAGE
PARTNERSHIPS:
Baron Strategic Baron Blossom Corners Orlando, 1981 Total 68 3.51 38,100
Investment Fund, Capital Apartments Florida Studio 16
Ltd. XXXII, Inc. (Phase II) (1) 1 BR 45
2 BR 7
Villas at Lake Cincinnati, Est. 4th Total 164 20.2 217,300
Sycamore (1) Ohio quarter 2 BR
2003 3 BR
Baron Strategic Baron Country Square Tampa, 1981 Total 73 4.56 40,032
Investment Fund IV, Capital Apartments Florida Studio 14
Ltd. XVII, Inc. (Phase I) (1) 1 BR 52
2 BR 7
Baron Strategic Baron Candlewood Tampa, 1984 Total 33 2.75 17,568
Investment Fund V, Capital XL, Apartments Florida Studio 6
Ltd. Inc. (Phase II) (1) 1 BR 26
2 BR 1
Curiosity Creek Tampa, 1982 Total 81 4.51 43,776
Apartments (1) Florida Studio 16
1 BR 59
2 BR 6
Baron Strategic Baron Heatherwood Kissimmee, 1982 Total 41 2.26 22,176
Investment Fund Capital Apartments Florida Studio 10
VIII, Ltd. XLIV, Inc. (Phase II) (2) 1 BR/1B 26
2 BR/1B 4
2 BR/2B 1
</TABLE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT PHYSICAL
PROPERTY (AND 4/1/99 OCCUPANCY
TYPE AVERAGE RENTAL RATES/MONTH AS OF
PARTNERSHIP GP OF INTEREST) (PER UNIT) (PER SQ. FT.) 4/1/99
- ----------- -- ------------ ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
EXCHANGE MORTGAGE
PARTNERSHIPS:
Baron Strategic Baron Blossom Corners Avg. 557 $512 $0.92 88%
Investment Fund, Capital Apartments Studio 300
Ltd. XXXII, Inc. (Phase II) (1) 1 BR 600
2 BR 864
Villas at Lake Avg. 1,325 - - -
Sycamore (1) 2 BR
3 BR
Baron Strategic Baron Country Square Avg. 548 $439 $0.80 95%
Investment Fund IV Capital Apartments Studio 288
Ltd. XVII, Inc. (Phase I) (1) 1 BR 576
2 BR 864
Baron Strategic Baron Candlewood Avg. 532 $433 $0.81 82%
Investment Fund V, Capital XL, Apartments Studio 288
Ltd. Inc. (Phase II) (1) 1 BR 576
2 BR 864
Curiosity Creek Avg. 540 $442 $0.82 95%
Apartments (1) Studio 288
1 BR 576
2 BR 864
Baron Strategic Baron Heatherwood Avg. 541 $505 $0.94 95%
Investment Fund Capital Apartments Studio 288
VIII, Ltd. XLIV, Inc. (Phase II) (2) 1 BR/1B 576
2 BR/1B 864
2 BR/2B 864
</TABLE>
75
<PAGE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT APPROX.
PROPERTY (AND RENTABLE
TYPE YEAR APPROX. AREA
PARTNERSHIP GP OF INTEREST) LOCATION COMPLETED NO. OF UNITS ACRES (SQ. FT.)*
----------- -- ------------ -------- --------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Longwood Cocoa, 1981 Total 59 4.00 36,288
Apartments Florida 1 BR 51
(Phase I) (1) 2 BR 8
Villas at Lake Cincinnati, Est. 4th Total 164 20.2 217,300
Sycamore (1) Ohio quarter 2 BR
2003 3 BR
Baron Strategic Baron Curiosity Creek Tampa, 1982 Total 81 4.51 43,776
Vulture Fund I, Ltd. Capital Apartments (1) Florida Studio 16
XXVI, Inc. 1 BR 59
2 BR 6
Brevard Mortgage Baron Meadowdale Melbourne, 1984 Total 64 4.81 39,168
Program, Ltd. Capital Apartments (1) Florida 1 BR 56
XII, Inc. 2 BR 8
EXCHANGE HYBRID
PARTNERSHIPS
Baron Strategic Baron Candlewood Tampa, 1988 Total 33 2.75 17,568
Investment Fund VI, Capital Apartments Florida Studio 6
Ltd. XXXI, Inc. (Phase II) (3) 1 BR 26
2 BR 1
Country Square 1981 Total 73 4.56 40,032
Apartments Tampa, Studio 14
(Phase I) (3) Florida 1 BR 52
2 BR 7
Garden Terrace Tampa, 1983 Total 91 6.00 54,720
Apartments Florida Studio 8
(Phase III) (3) 1 BR 67
2 BR 16
Baron Strategic Baron Candlewood Tampa, 1984 Total 33 2.75 17,568
Investment Fund IX, Capital Apartments Florida Studio 6
Ltd. XLII, Inc. (Phase II) (3) 1 BR 26
2 BR 1
Garden Terrace Tampa, 1983 Total 91 6.00 54,720
Apartments Florida Studio 8
(Phase III) (3) 1 BR 67
2 BR 16
</TABLE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT PHYSICAL
PROPERTY (AND 4/1/99 OCCUPANCY
TYPE AVERAGE RENTAL RATES/MONTH AS OF
PARTNERSHIP GP OF INTEREST) (PER UNIT) (PER SQ. FT.) 4/1/99
- ----------- -- ------------ ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Longwood Avg. 615 $433 $0.70 100%
Apartments 1 BR 576
(Phase I) (1) 2 BR 864
Villas at Lake Avg. 1,325 - - -
Sycamore (1) 2 BR
3 BR
Baron Strategic Baron Curiosity Creek Avg. 540 $442 $0.82 95%
Vulture Fund I, Capital Apartments (1) Ltd. Studio 288
XXVI, Inc. 1 BR 576
2 BR 864
Brevard Mortgage Baron Meadowdale Avg. 612 $412 $0.67 97%
Program, Ltd. Capital Apartments (1) 1 BR 576
XII, Inc. 2 BR 864
EXCHANGE HYBRID
PARTNERSHIPS
Baron Strategic Baron Candlewood Avg. 532 $433 $0.81 82%
Investment Fund VI, Capital Apartments Studio 288
Ltd. XXXI, Inc. (Phase II) (3) 1 BR 576
2 BR 864
Country Square Avg. 548 $439 $0.80 95%
Apartments Studio 288
(Phase I) (3) 1 BR 576
2 BR 864
Garden Terrace Avg. 601 $417 $0.69 90%
Apartments Studio 288
(Phase III) (3) 1 BR 576
2 BR 864
Baron Strategic Baron Candlewood Avg. 532 $433 $0.81 82%
Investment Fund IX, Capital Apartments Studio 288
Ltd. XLII, Inc. (Phase II) (3) 1 BR 576
2 BR 864
Garden Terrace Avg. 601 $417 $0.69 90%
Apartments Studio 288
(Phase III) (3) 1 BR 576
2 BR 864
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT APPROX.
PROPERTY (AND RENTABLE
TYPE YEAR APPROX. AREA
PARTNERSHIP GP OF INTEREST) LOCATION COMPLETED NO. OF UNITS ACRES (SQ. FT.)*
----------- -- ------------ -------- --------- ------------ ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Villas at Lake Cincinnati, est. 4th Total 164 20.2 217,300
Sycamore (3) Ohio quarter
2003
Baron Strategic Baron Garden Terrace Tampa, 1983 Total 91 6.00 54,720
Investment Fund X, Capital Apartments Florida Studio 8
Ltd. XLIV, Inc. (Phase III) (3) 1 BR 67
2 BR 16
Heatherwood Kissimmee, 1982 Total 41 2.26 22,176
Apartments Florida Studio 10
(Phase II) (2) 1 BR 26
2 BR/1B 4
2 BR/2B 1
Lamplight Court of Baron Lamplight Bellefontaine, 1973 Total 80 6.00 46,944
Bellefontaine Capital IX, Apartments (4) Ohio Studio 12
Apartments, Ltd. Inc. 1 BR 53
2 BR 15
----- -------------- -----------
TOTAL
PROPERTIES(5): 650 42.48 375,060
- --------------------- ----- -------------- -----------
----- -------------- -----------
</TABLE>
<TABLE>
<CAPTION>
NAME OF
RESIDENTIAL
APARTMENT PHYSICAL
PROPERTY (AND 4/1/99 OCCUPANCY
TYPE AVERAGE RENTAL RATES/MONTH AS OF
PARTNERSHIP GP OF INTEREST) (PER UNIT) (PER SQ. FT.) 4/1/99
- ----------- -- ------------ ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Villas at Lake Avg. 1,325 - - -
Sycamore (3)
Baron Strategic Baron Garden Terrace Avg. 601 $417 $0.69 90%
Investment Fund X, Capital Apartments Studio 288
Ltd. XLIV, Inc. (Phase III) (3) 1 BR 576
2 BR 864
Heatherwood Avg. 541 $505 $0.94 95%
Apartments Studio 288
(Phase II) (2) 1 BR 576
2 BR/1B 864
2 BR/2B 864
Lamplight Court of Baron Lamplight Avg. 587 $394 $0.67 95%
Bellefontaine Capital IX, Apartments (4) Studio 288
Apartments, Ltd. Inc. 1 BR 576
2 BR 864
------- -------------- ------------ -----------
569 $434 $0.76 84%
------- -------------- ------------ -----------
</TABLE>
- --------------------------
* Includes only residential apartment units and excludes common areas.
(1) The Partnership's sole real estate assets consist of an undivided
subordinated mortgage interest in the property or properties described
in this table. The subordinated mortgage interests are described below
at "Mortgage Information-Mortgage Properties" and in the table in
Exhibit B pertaining to the Partnership.
(2) The Partnership owns an undivided subordinated mortgage interest in the
property and unsecured indebtedness associated therewith. The
indebtedness is described below at "Mortgage Information-Mortgage
Properties" and in the table in Exhibit B pertaining to the
Partnership.
(3) The Partnership owns (i) an undivided subordinated mortgage interest in
the property or properties described in this table and (ii) a direct or
indirect equity interest in one or more properties. The subordinated
mortgage interests are described below at "Mortgage
Information-Mortgage Properties" and in the table in Exhibit B
pertaining to the Partnership and the equity interest is described
above at "Property Information-Equity Property Interests" and in such
Exhibit B table.
(4) The Partnership owns (i) an undivided subordinated mortgage interest in
the property described in this table and (ii) an undivided limited
partnership interest in the limited partnership which owns fee simple
title to the property. The subordinated mortgage interest is described
below at "Mortgage Information-Mortgage Properties" and in the table in
Exhibit B pertaining to the Partnership, and the equity interest is
described above at "Property Information-Equity Property Interests" and
in such Exhibit B table.
(5) Does not include information for Lake Sycamore, which is under
development.
77
<PAGE>
EQUITY PROPERTY INTERESTS
The table below sets forth certain information relating to the senior
mortgage (and in one case, subordinated mortgage) indebtedness secured by or
associated with the 16 properties in which Exchange Equity Partnerships and
Exchange Hybrid Partnerships involved in the exchange offering directly or
indirectly own an equity interest, including (i) name of partnership and its
general partner, (ii) name and location of the properties, (iii) principal
balances as of April 1, 1999, (iv) interest rates, (v) annual debt service, (vi)
amortization term, (vii) maturity dates, (viii) balances due on maturity, (ix)
monthly payments, and (x) name of lending institution. In the exchange offering,
Baron Properties will offer to issue its units to limited partners in those
partnerships in exchange for their limited partnership interests in the
partnerships and thereby indirectly acquire such property interests.
<TABLE>
<CAPTION>
4/1/99 ANNUAL
PRINCIPAL INTEREST DEBT MONTHLY AMORTIZATION
PARTNERSHIP GP PROPERTY LOCATION BALANCE RATE PAYMENT PAYMENT TERM
- ----------- -- -------- -------- ------- ---- -------- ------- ----
EXCHANGE
EQUITY
PARTNERSHIPS
<S> <C> <C> <C> <C> <C> <C> <C>
Baron Strategic Baron Capital Steeplechase Anderson, $1,260,000 Yrs. 1-2: $97,644 $8,138 30 years
Investment Fund XXXI, Inc. Apartments Indiana
II, Ltd. 7.25%
Yrs. 3-4:
7.75%
Yrs. 5-10:
8.25%
Central Florida Baron Capital Laurel Oaks Deland, 1,592,583 6.54% 121,863 10,155 30 years
Income of Ohio III, Apartments Florida
Appreciation Inc.
Fund, Ltd.
Florida Capital Baron Capital Eagle Lake Port 1,433,616 8.56% 145,669 12,139 25 years
Income Fund, Ltd. II, Inc. Apartments Orange,
Florida
Florida Capital Baron Capital Forest Glen Daytona 1,778,043 7.01% 125,696 10,475 30 years
Income Fund II, IV, Inc. Apartments Beach,
Ltd. (Phase I) Florida
Florida Capital Baron Capital Bridge Point Jacksonville, 713,208 9.52% 77,183 6,431 25 years
Income Fund III, VII, Inc. Apartments Florida
Ltd. (Phase II)
Florida Capital Baron Capital Glen Lake St. 2,690,614 9.55% 296,046 24,670 25 years
Income Fund IV, V, Inc. Apartments Petersburg, 353,854 8.00% 34,728 2,894 25 years
Ltd. Florida (subordinated
mortgage)
Florida Income Baron Capital Forest Glen Daytona 273,545 7.01% 19,337 1,611 30 years
Appreciation IV, Inc. Apartments Beach,
Fund I, Ltd. (Phase IV) Florida
</TABLE>
<TABLE>
<CAPTION>
BALANCE
MATURITY DUE ON
PARTNERSHIP GP PROPERTY DATE MATURITY LENDER
- ----------- -- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
EXCHANGE
EQUITY
PARTNERSHIPS
Baron Strategic 10/1/06 $1,099,557 Crown Bank
Investment Fund Baron Capital Steeplechase
II, Ltd. XXXI, Inc. Apartments
Central Florida Baron Capital Laurel Oaks 01/01/07 0 Prudential
Income of Ohio III, Apartments
Appreciation Inc.
Fund, Ltd.
Florida Capital Baron Capital Eagle Lake 11/1/05 1,244,562 Column Financial, Inc.
Income Fund, Ltd. II, Inc. Apartments
Florida Capital Baron Capital Forest Glen 3/05 1,681,926 Prudential Mortgage
Income Fund II, IV, Inc. Apartments Capital
Ltd. (Phase I)
Florida Capital Baron Capital Bridge Point 7/1/06 625,327 Huntington Mortgage Co.
Income Fund III, VII, Inc. Apartments
Ltd. (Phase II)
Florida Capital Baron Capital Glen Lake 5/18/00 2,652,341 Republic Bank
Income Fund IV, V, Inc. Apartments 5/1/05 343,772 Glen Lake Arms
Ltd. Joint Venture
Florida Income Baron Capital Forest Glen 3/05 216,712 Prudential Mortgage
Appreciation IV, Inc. Apartments Capital
Fund I, Ltd. (Phase IV)
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
4/1/99 ANNUAL
PRINCIPAL INTEREST DEBT MONTHLY AMORTIZATION
PARTNERSHIP GP PROPERTY LOCATION BALANCE RATE PAYMENT PAYMENT TERM
- ----------- -- -------- -------- ------- ---- -------- ------- ----
EXCHANGE
EQUITY
PARTNERSHIPS
<S> <C> <C> <C> <C> <C> <C> <C>
Florida Income Baron Blossom Corners Orlando, 1,020,990 9.04% 106,084 8,840 25 years
Growth Fund V, Capital XI, Apartments Florida
Ltd. Inc. (Phase I)
Florida Baron Capital Camellia Court Daytona 1,069,633 9.04% 111,132 9,261 30 years
Opportunity III, Inc. Apartments Beach,
Income Partners, Florida
Ltd.
GSU Stadium Baron Capital Stadium Club Statesboro, 1,718,457 7.87% 160,346 13,362 30 years
Student X, Inc. Apartments Georgia
Apartments, Ltd.
Midwest Income Baron Capital Brookwood Way Mansfield, 1,046,599 9.04% 108,612 9,051 25 years
Growth Fund VI, of Ohio III, Apartments Ohio
Ltd. Inc.
Realty Baron Capital Forest Glen Daytona 1,025,794 7.01% 72,517 6,043 30 years
Opportunity IV, Inc. Apartments Beach,
Income Fund (Phase II) Florida
VIII, Ltd.
EXCHANGE HYBRID
PARTNERSHIPS
Baron Strategic Baron Capital Pineview Orlando, 1,599,549 7.75% 139,271 11,606 30 years
Investment Fund XXXI, Inc. Apartments Florida
VI, Ltd.
Baron Strategic Baron Capital Crystal Court Lakeland, 1,205,806 7.50% 102,533 8,544 30 years
Investment Fund XLII, Inc. Apartments Florida
IX, Ltd. (Phase I)
Baron Strategic Baron Capital Crystal Court Lakeland, 1,205,806 7.50% 102,533 8,544 30 years
Investment Fund XLIV, Inc. Apartments Florida
X, Ltd. (Phase I)
Pineview Orlando, 1,599,549 7.75% 139,271 11,606 30 years
Apartments Florida
Lamplight Court Baron Capital Lamplight Court Bellefontaine 1,363,062 9.04% 135,660 11,305 25 years
of Bellefontaine IX, Inc. Ohio
Apts., Ltd.
------------ ----------- -------------
TOTAL
PROPERTIES: $21,034,374 $1,917,169 $159,761
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
BALANCE
MATURITY DUE ON
PARTNERSHIP GP PROPERTY DATE MATURITY LENDER
- ----------- -- -------- ---- -------- ------
<S> <C> <C> <C> <C> <C>
EXCHANGE
EQUITY
PARTNERSHIPS
Florida Income Baron Blossom Corners 11/1/06 882,430 Column Financial, Inc.
Growth Fund V, Capital XI, Apartments
Ltd. Inc. (Phase I)
Florida Baron Capital Camellia Court 11/1/06 984,430 Column Financial, Inc.
Opportunity III, Inc. Apartments
Income Partners,
Ltd.
GSU Stadium Baron Capital Stadium Club 10/1/05 1,615,458 GMAC
Student X, Inc. Apartments
Apartments, Ltd.
Midwest Income Baron Capital Brookwood Way 12/1/06 890,263 Mellon Bank
Growth Fund VI, of Ohio III, Apartments
Ltd. Inc.
Realty Baron Capital Forest Glen 3/05 981,813 Prudential Mortgage
Opportunity IV, Inc. Apartments Capital
Income Fund (Phase II)
VIII, Ltd.
EXCHANGE HYBRID
PARTNERSHIPS
Baron Strategic Baron Capital Pineview 11/04 1,493,008 GMAC
Investment Fund XXXI, Inc. Apartments
VI, Ltd.
Baron Strategic Baron Capital Crystal Court 11/04 1,126,207 GMAC
Investment Fund XLII, Inc. Apartments
IX, Ltd. (Phase I)
Baron Strategic Baron Capital Crystal Court 11/04 1,126,207 GMAC
Investment Fund XLIV, Inc. Apartments
X, Ltd. (Phase I)
Pineview 11/04 1,493,008 GMAC
Apartments
Lamplight Court Baron Capital Lamplight Court 11/1/06 1,158,349 Column Financial
of Bellefontaine IX, Inc.
Apts., Ltd.
------------
$17,778,899
------------
------------
</TABLE>
79
<PAGE>
Mortgage Information
Mortgage Properties
The table below sets forth certain information relating to the second
mortgage loans (and in one case other debt interests) owned by each of the six
Exchange Mortgage Partnerships and the four Exchange Hybrid Partnerships whose
limited partnership interests the Operating Partnership will offer to acquire in
connection with the Exchange Offering, including (i) the name of the lending
Exchange Partnership, (ii) the name, location and number of units of the
underlying residential apartment property securing the first and second
mortgages, (iii) the name of the debtor, (iv) the original principal amount of
the second mortgage loan(s) held by the Exchange Partnership and the principal
balance as of March 31, 1999 and due at maturity, (v) the undivided interests of
other Exchange Partnerships in the second mortgage loans or the principal
balance as of March 31, 1999 of other second mortgage loans secured by the
property and owned by other Exchange Partnerships, (vi) the appraised
replacement cost new and the appraised value of the property determined under
the income method, (vii) the second mortgage loan interest rate, maturity date,
annual and monthly interest payable and participation features, if any, and
(viii) the principal balance of the institutional first mortgage loan secured by
the property as of April 30, 1999 and the terms thereof.
Additional information relating to the underlying residential apartment
property securing each second mortgage loan described and the first mortgage
loan with a senior position ahead of the second mortgage loan is set forth above
at "--Property Information Debt Property Interests." The debtors of
substantially all of the second mortgage loans and other loans provided or
acquired by the Exchange Mortgage Partnerships and the Exchange Hybrid
Partnerships are limited partnerships which own fee simple title to the property
which secures such mortgage loans. Affiliates of Mr. McGrath are the corporate
general partners of the debtor partnerships and in such capacity own a minority
economic interest (2%-20%) in such partnerships which is subordinate to the
preferred returns of the limited partners in such partnerships. Each second
mortgage note described is non-recourse beyond the property and/or other assets
owned by the debtors.
121
<PAGE>
EXCHANGE MORTGAGE PARTNERSHIPS
Baron Strategic Investment Fund, Ltd.
(GP: Baron Capital XXXII, Inc.)
This Exchange Partnership owns (i) three unrecorded second mortgage loans
secured by the Blossom Corners Property-Phase II and (ii) an unrecorded
second mortgage loan secured by the Lake Sycamore Property. The interest
of the Exchange Partnership in the second mortgage loans, terms of the
first mortgage loan secured by the property, and other information are
described below.
1. Blossom Corners Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Blossom Corners Apartments - Phase II
(68 units) Orlando, Florida
Debtor: Blossom Corners Apartments II, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $977,645
3/31/99 principal balance
(accrued unpaid interest): $850,966 ($43,113)
Balance due at maturity: $850,966
Appraised replacement cost new
of property: $3,390,187
Appraised value of property -
income approach: $2,322,000
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to $622,103
of principal (plus non-cumulative
participation interest at the rate of 3% on
the unpaid principal balance to the extent of
any available cash flow during the year and
additional non-cumulative participation
interest equal to 30% of any remaining
available cash flow during the year), (ii)
adjustable interest rate of 1% over the prime
rate (current adjustable rate of 8.75%) as to
$68,861 of principal, and (iii) fixed interest
rate of 12% as to $160,002 of principal. The
loans require payments of interest only until
maturity.
Maturity date: 4/02
Annual interest payable: $62,552 (plus any participation interest
payable)
Monthly interest payable: $5,213
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of
first mortgage loan secured by
property and other terms: $1,098,951; the loan matures in 3/02, has a
balance due at maturity of $1,050,024, bears
interest at a fixed annual rate of 8.24%, has
annual and monthly debt service requirements
of $106,824 and $8,902, respectively,
amortizes on a 25-year basis, and is
prepayable subject to a prepayment penalty
equal to 1% of amount prepaid prior to third
anniversary of loan.
Other matters: Prior to 12/15/98, the second mortgage loans
consisted of an unrecorded second mortgage
note with a principal balance of $622,103, an
unsecured promissory note with a principal
balance of $68,861, an unsecured demand note
with a principal balance of $130,270 and
advances of $29,732. On 12/15/98, the debtor
restated and amended the $622,103 second
mortgage note and the $68,861 unsecured
promissory note and made a new promissory note
in favor of the Exchange Partnership in the
original principal amount of $160,002 (to
consolidate the $130,270 demand note and
advances of $29,732). The debtor and the
Exchange Partnership also entered into a
mortgage modification agreement. Pursuant to
the arrangement, the Exchange Partnership
agreed to set the maturity date on the
unsecured notes at the same maturity date as
the second mortgage note, in exchange for the
debtor's agreement to secure its repayment
obligations on the unsecured notes with a
second mortgage on the property.
122
<PAGE>
Baron Strategic Investment Fund, Ltd.
(cont'd)
2. Lake Sycamore Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Villas at Lake Sycamore (164 townhomes under
development) Cincinnati, Ohio
Debtor: Sycamore Real Estate Development, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $230,000
3/31/99 principal balance of
Exchange Partnership's 100%
interest in loan (accrued
unpaid interest): $230,000 ($20,415)
Balance due at maturity: $230,000
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $341,500 ($9,887)
Appraised replacement cost new
of property (under development): $9,376,039
Appraised value of property -
"As is" value: $1,080,000
Prospective market value: $14,312,000 (assuming completion of project
as planned, full rent up and satisfactory
environmental-quality test)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
quarterly payments of interest only until
maturity.
Maturity date: 12/03
Annual interest payable: $27,600
Monthly interest payable: $2,300
Prepayment provisions: Prepayable without penalty
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,021,362; approved maximum $2,000,000; the
loan matures in 11/01, bears interest at an
annual adjustable rate equal to lender's
prime rate plus 1% (currently 8.75%), has
current annual and monthly debt service
requirements of $89,369 and $7,447,
respectively, requires payments of interest
only until maturity and is prepayable
without penalty.
Other matters: Two other Exchange Partnerships, Baron
Strategic Investment Fund VIII, Ltd. and
Baron Strategic Investment Fund IX, Ltd.,
own separate second mortgage notes secured
by the property with the same terms except
that they are in the principal amounts of
$98,000 and $243,500 (with accrued unpaid
interest in the amounts of $2,683 and
$7,204), respectively. The lending parties
have agreed to share the benefits of the
second mortgage on a pari passu basis.
123
<PAGE>
Baron Strategic Investment Fund IV, Ltd.
(GP: Baron Capital XVII, Inc.)
This Exchange Partnership owns two unrecorded second mortgage loans
secured by the Country Square Property-Phase I described below. The
Exchange Partnership's interest in the second mortgage loans, terms of the
first mortgage loan secured by the property, and other information are
described below.
Country Square Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Country Square Apartments - Phase I
(73 units) Tampa, Florida
Debtor: Country Square Apartments, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $1,372,237
3/31/99 principal balance
(accrued unpaid interest): $1,364,549 ($166,140)
Balance due at maturity: $1,364,549
Second mortgage loan interests of
another Exchange Partnership: In 3/97, the Exchange Partnership received a
loan with a current principal balance of
$259,639 (with accrued unpaid interest of
$46,934) from Baron Strategic Investment
Fund VI, Ltd. ("Baron Fund VI"). The
Exchange Partnership, in turn, lent the loan
proceeds to the debtor as part of the
Country Square Second Mortgage Loans. The
loan from Baron Fund VI bears interest at
the rate of 15%, payable monthly, matures in
9/02 and is secured by the Exchange
Partnership's interest in two second
mortgage notes and a second mortgage.
Appraised replacement cost new
of property: $3,554,776
Appraised value of property -
income approach: $2,281,000
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until maturity.
Maturity date: 4/08
Annual interest payable: $163,746
Monthly interest payable: $13,645
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,584,989; the loan matures in 3/08, has a
balance due at maturity of $1,385,953, bears
interest at a fixed annual rate of 7.41%,
has annual and monthly debt service
requirements of $133,068 and $11,089,
respectively, amortizes on a 30-year basis
and is prepayable after the fourth
anniversary of the loan, subject to yield
maintenance until the sixth month prior to
maturity, when it can be prepaid at par.
Other matters: Prior to 12/15/98, the second mortgage loans
consisted of a second mortgage note with a
principal balance of $1,192,987 and an
unsecured demand note with a principal
balance of $179,250. On 12/15/98, the debtor
restated and amended the notes and the
debtor and the Exchange Partnership entered
into a mortgage modification agreement.
Pursuant to the arrangement, the Exchange
Partnership agreed to set the maturity date
on the demand note at the same maturity date
as the second mortgage note, in exchange for
the debtor's agreement to secure its
repayment obligation on the demand note with
a second mortgage on the Country Square
Property.
124
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(GP: Baron Capital XL, Inc.)
The Exchange Partnership owns (i) an unrecorded second mortgage loan
secured by the Candlewood Property-Phase II, (ii) an undivided interest in
three unrecorded second mortgage loans and a 100% interest in an
unrecorded second mortgage loan secured by the Curiosity Creek Property
and (iii) four unrecorded second mortgage loans secured by the Sunrise
Property-Phase I. The interest of the Exchange Partnership and other
Exchange Partnerships in the second mortgage loans, terms of the first
mortgage loans secured by the properties, and other information are
described below.
1. Candlewood Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Candlewood Apartments - Phase II (33 units)
Tampa, Florida
Debtor: Baron Strategic Investment Fund III, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $21,000
3/31/99 principal balance
(accrued unpaid interest): $21,000 ($2,472)
Balance due at maturity: $21,000
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $143,500 ($16,283)
Second mortgage interests of other
Exchange Partnerships in
property: Baron Strategic Investment Fund VI, Ltd.
("Baron Fund VI") and Baron Strategic
Investment Fund IX, Ltd. ("Baron Fund IX")
own separate second mortgage loans secured
by the Candlewood Property. The original
principal balance, aggregate 3/31/99
principal balance, and balance due at
maturity in respect of Baron Fund VI's and
Baron Fund IX's second mortgage loans are
$68,000 (accrued unpaid interest of $7,926)
and $75,500 (accrued unpaid interest of
$8,357), respectively; the annual (and
monthly) payments due them are $8,160 ($680)
and $9,060 ($755), respectively. The other
terms relating to Baron Fund VI's and Baron
Fund IX's second mortgage loans are the same
as stated herein in respect of the Exchange
Partnership's loan.
Appraised replacement cost new
of property (12.8% of amount,
representing the percentage of
the current principal balance of
the Exchange Partnership's
second mortgage loan in relation
to the aggregate current
principal balance of all second
mortgage loans secured by the
property): $1,590,447 ($203,577);
Appraised value of property -
income approach (12.8% of
amount): $ 922,000 ($118,016)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until maturity.
Maturity date: 3/03
Annual interest payable: $2,520
Monthly interest payable: $210
Prepayment provisions: Prepayable without penalty.
125
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
4/30/99 principal balance of
first mortgage loan secured by
property (12.8% of amount)
and other terms: $589,671 ($75,478); the loan matures in
2/03, has a balance due at maturity of
$533,678, bears interest at a fixed
annual rate of 7.79%, payable quarterly,
has annual and monthly debt service
requirements of $56,153 and $4,679,
respectively, amortizes on a 25-year
basis and is prepayable without penalty.
Other matters: Prior to 12/15/98, the Candlewood Second
Mortgage Loan consisted of an unsecured
demand note with a principal balance of
$21,000. On 12/15/98, the debtor and the
Exchange Partnership entered into a
second mortgage agreement under which
the debtor agreed to secure its
repayment obligation on the note with a
second mortgage on the Candlewood
Property. At the same time, the debtor
agreed to secure the loans in favor of
Baron Fund VI and Baron Fund IX with
separate second mortgages on the
property. The lending parties have
agreed to share the benefits of the
second mortgages on a pari passu basis.
2. Curiosity Creek Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Curiosity Creek Apartments (81 units)
Tampa, Florida
Debtor: Curiosity Creek Apartments, Ltd.
Original principal amount of
Exchange Partnership's
undivided
26.3% interest in three loans and $474,703
a 100% interest in one loan:
3/31/99 principal balance
(accrued unpaid interest): $474,703 ($22,837)
Balance due at maturity: $474,703
3/31/99 principal balance of other
Exchange Partnership's
undivided
73.7% in three loans and a 100%
interest in one loan $1,243,847 ($108,473)
(accrued unpaid interest):
Interests of other Exchange
Partnerships in second mortgage
loans: Baron Strategic Vulture Fund I, Ltd.
("Baron Vulture Fund") owns the
remaining undivided 73.7% interest in
three second mortgage loans and a 100%
interest in one second mortgage loan
secured by the Curiosity Creek Property
("Curiosity Creek Second Mortgage
Loans"). The aggregate original
principal balance, aggregate 3/31/99
principal balance, and aggregate balance
due at maturity in respect of Baron
Vulture Fund's interest in the loans is
$1,243,847 (accrued unpaid interest of
$103,664); the aggregate annual and
monthly payments due it are $105,149 and
$8,762, respectively. The other terms
relating to Baron Vulture Fund's
interest in the loans are the same as
stated herein.
Appraised replacement cost new
of property (26.3% of amount): $3,941,164 ($1,036,526)
Appraised value of property -
income approach (26.3% of
amount): $2,552,000 ($ 671,176)
126
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$212,227 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow,
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of prime plus
1% (currently 8.75%) as to $108,899 of
principal, (iii) fixed interest rate of
12.5% as to $109,325 of principal and
(iv) fixed interest rate of 12% as to
$44,253 of principal. The loans require
payments of interest only until
maturity.
Maturity date: 4/07
Annual interest payable: $41,238 (plus any participation interest
payable)
Monthly interest payable: $3,437
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property (26.3% of amount)
and other terms: $1,288,568 ($338,893); the loan matures
in 4/08, has a balance due at maturity
of $1,122,800, bears interest at the
fixed annual rate of 7.28%, has annual
and monthly debt service requirements of
$106,737 and $8,895, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it may be prepaid at
par.
Other matters: Prior to 12/15/98, the Curiosity Creek
Second Mortgage Loans consisted of a
second mortgage note with a principal
balance of $807,560, two unsecured
demand notes with a an aggregate
principal balance of $830,360 and
advances in the amount of $66,171. On
12/15/98, the debtor, the Exchange
Partnership and Baron Vulture Fund
entered into a mortgage modification
agreement pursuant to which the Exchange
Partnership and Baron Vulture Fund
agreed to set the maturity date on the
demand notes and the advances at the
same maturity date as the second
mortgage note, in exchange for the
debtor's agreement to secure its
repayment obligations on the unsecured
notes and advances with a second
mortgage on the Curiosity Creek
Property.
3. Sunrise Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Sunrise Apartments - Phase I (60 units)
Titusville, Florida
Debtor: Sunrise Apartments I, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $1,036,450
3/31/99 principal balance
(accrued unpaid interest): $1,031,801 ($15,893)
Balance due at maturity: $1,031,801
Appraised replacement cost new
of property: $2,700,611
Appraised value of property -
income approach: $1,424,000
Mortgage interest and (i) Fixed interest rate of 6% as to
amortization provisions: $335,000 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 20% of
any remaining available cash flow), (ii)
fixed interest rate of 4% as to $621,515
of principal, and (iii) fixed interest
rate of 12% as to $16,000 of principal.
The loans require payments of interest
only until maturity.
Maturity date: 10/07
Annual interest payable: $53,995 (plus any participation interest
payable)
Monthly interest payable: $4,500
127
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of
first mortgage loan secured by $1,024,937; the loan matures in 1/05,
property and other terms: has a balance due at maturity of
$932,217, bears interest at a fixed
annual rate of 7.5%, has annual and
monthly debt service requirements of
$174,020 and $14,502, respectively,
amortizes on a 30-year basis, and is
payable after the fourth anniversary of
the loan, subject to yield maintenance
until the sixth month prior to maturity,
when it can be prepaid at par.
Other matters: Prior to 12/15/98, the second mortgage
loans secured by the Sunrise Property
(the "Sunrise Second Mortgage Loans")
consisted of a second mortgage note with
a principal balance of $335,000, two
unsecured demand notes with an aggregate
principal balance of $622,982 and
advances in the amount of $73,819. On
12/15/98, the debtor restated and
amended the second mortgage note and the
demand notes and created a new
promissory note in favor of the Exchange
Partnership in the original principal
amount of $16,000 (to cover prior
advances). The debtor and the
Partnership also entered into a mortgage
modification agreement. Pursuant to the
arrangement, the Exchange Partnership
agreed to set the maturity date on the
demand notes and the advances at the
same maturity date as the second
mortgage note, in exchange for the
debtor's agreement to secure its
repayment obligations on the unsecured
notes and advances with a second
mortgage on the Sunrise Property.
128
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
(GP: Baron Capital XLIV, Inc.)
The Exchange Partnership owns (i) an undivided interest in an unrecorded
second mortgage loan secured by the Heatherwood Property-Phase II, and
three unsecured loans associated with such property, (ii) three unrecorded
second mortgage loans secured by the Longwood Property-Phase I and (iii)
an unrecorded second mortgage loan secured by the Lake Sycamore Property
(under development). The interest of the Exchange Partnership and other
Exchange Partnerships in the second mortgage loans, terms of the first
mortgage loans secured by each property, and other information are
described below.
1. Heatherwood Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Heatherwood Apartments - Phase II (41
units) Kissimmee, Florida
Debtor: Heatherwood Apartments II, Ltd.
Original principal amount of
Exchange Partnership's
undivided $206,260
58% interest in loans:
3/31/99 principal balance
(accrued unpaid interest): $206,260 ($1,955)
Balance due at maturity: $206,260
3/31/99 principal balance of other
Exchange Partnership's
undivided
42% in loans (accrued unpaid $155,787 ($5,645)
interest):
Interests of other Exchange
Partnership in second mortgage Baron Strategic Investment Fund X, Ltd.
loans: ("Baron Fund X") owns the remaining
undivided 42% interest in the second
mortgage loans secured by the
Heatherwood Property and in the
unsecured loans associated with the
property ("Heatherwood Loans"). The
aggregate original principal balance,
aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in
respect of Baron Fund X's interest in
the Heatherwood Loans is $155,787
(accrued unpaid interest of $5,645); the
aggregate annual (and monthly) payments
due it are $9,710 ($809). The other
terms relating to Baron Fund X's
interest in the Heatherwood Loans are
the same as stated herein.
Appraised replacement cost new
of property (58% of amount): $1,862,475 ($1,080,236)
Appraised value of property -
income approach (58% of
amount): $1,259,000 ($730,220)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$188,500 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$1,010 of principal, and (iii) fixed
interest rate of 12% as to $16,749 of
principal. The loans require payments of
interest only until maturity.
Maturity date: 10/04
Annual interest payable: $13,408 (plus any participation interest
payable)
Monthly interest payable: $1,117
129
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $701,026 ($406,595); the loan matures in
property (58% of amount) and 11/04, has a balance due at maturity of
other terms: $655,856, bears interest at a fixed
annual rate of 7.75%, has annual and
monthly debt service requirements of
$61,038 and $5,087, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
2. Longwood Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Longwood Apartments - Phase I (59 units)
Cocoa, Florida
Debtor: Longwood Apartments I, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $969,268
3/31/99 principal balance
(accrued unpaid interest ): $969,268 ($43,432)
Balance due at maturity: $969,268
Appraised replacement cost new
of property: $2,666,862
Appraised value of property -
income approach: $1,788,000
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$368,558 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$526,465 of principal, and (iii) fixed
interest rate of 12% as to $74,245 of
principal. The loans require payments of
interest only until maturity.
Maturity date: 10/07
Annual interest payable: $77,088 (plus any participation interest
payable)
Monthly interest payable: $6,424
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,023,894; the loan matures in 11/04,
has a balance due at maturity of
$1,204,545, bears interest at a fixed
annual rate of 7.75%, has annual and
monthly debt service requirements of
$89,150 and $7,429, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
Other matters: Prior to 12/15/98, the Longwood Second
Mortgage Loans consisted of a second
mortgage note with a principal balance
of $368,558, an unsecured demand note
with a principal balance of $526,465,
and advances of $74,245. On 12/15/98,
the debtor restated and amended the
second mortgage note and the demand note
and created a new promissory note in the
original principal amount of $74,245 (to
cover prior advances). The debtor and
the Exchange Partnership also entered
into a mortgage modification agreement.
Pursuant to the arrangement, the
Exchange Partnership agreed to set the
maturity date on the demand note and the
advances at the same maturity date as
the second mortgage note, in exchange
for the debtor's agreement to secure its
repayment obligations on the demand note
and advances with a second mortgage on
the Longwood Property.
130
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
(cont'd)
3. Lake Sycamore Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Villas at Lake Sycamore (164 townhomes
under development) Cincinnati, Ohio
Debtor: Sycamore Real Estate Development, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $98,000
3/31/99 principal balance
(accrued unpaid interest): $98,000 ($2,683)
Balance due at maturity: $98,000
3/31/99 aggregate principal
balance of other second
mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $473,500 ($27,619)
Appraised replacement cost new
of property (under
development): $9,376,039
Appraised value of property -
"As is" value: $1,080,000
Prospective market value: $14,312,000 (assuming completion of
project as planned, full rent up and
satisfactory environmental-quality test)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
quarterly payments of interest only
until maturity.
Maturity date: 12/03
Annual interest payable: $11,760
Monthly interest payable: $980
Prepayment provisions: Prepayable without penalty
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,021,362; approved maximum $2,000,000;
the loan matures in 11/01, bears
interest at an annual adjustable rate
equal to lender's prime rate plus 1%
(currently 8.75%), has current annual
and monthly debt service requirements of
$89,369 and $7,447, respectively,
requires payments of interest only until
maturity and is prepayable without
penalty.
Other matters: Two other Exchange Partnerships, Baron
Strategic Investment Fund, Ltd. and
Baron Strategic Investment Fund IX,
Ltd., own separate second mortgage notes
secured by the property with the same
terms except that they have principal
amounts of $230,000 and $243,500 (and
accrued unpaid interest of $20,415 and
$7,204), respectively. The lending
parties have agreed to share the
benefits of the second mortgage on a
pari passu basis.
131
<PAGE>
Baron Strategic Vulture Fund I, Ltd.
(GP: Baron Capital XXVI, Inc.)
The Exchange Partnership owns an undivided interest in three unrecorded
second mortgage loans and a 100% interest in one second mortgage loan
secured by the Curiosity Creek Property described below. The interest of
the Exchange Partnership and a separate Exchange Partnership in the second
mortgage loans, terms of the first mortgage loan secured by the property,
and other information are described below.
Curiosity Creek Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Curiosity Creek Apartments (81 units)
Tampa, Florida
Debtor: Curiosity Creek Apartments, Ltd.
Original principal amount of
Exchange Partnership's
undivided 73.7% interest in
three loans and 100%
interest in one loan: $1,243,847
3/31/99 principal balance
(accrued unpaid interest): $1,243,847 ($108,473)
Balance due at maturity: $1,243,847
3/31/99 principal balance of other
Exchange Partnership's
undivided 26.3% in three
loans and 100% interest in
one loan (accrued unpaid
interest): $474,703 ($22,837)
Interests of other Exchange
Partnership in second Baron Strategic Investment Fund V, Ltd.
mortgage loans: ( "Baron Fund V") owns the remaining
undivided 26.3% interest in three second
mortgage loans and a 100% interest in
one second mortgage loan secured by the
Curiosity Creek Property ("Curiosity
Creek Second Mortgage Loans"). The
aggregate original principal balance,
aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in
respect of Baron Fund V's interest in
the Curiosity Creek Second Mortgage
Loans is $474,703 (accrued unpaid
interest of $22,837); the aggregate
annual and monthly payments due it are
$41,238 and $3,437, respectively. The
other terms relating to Baron Fund V's
interest in the Curiosity Creek Second
Mortgage Loans are the same as stated
herein.
Appraised replacement cost new
of property (73.7% of amount): $3,941,164 ($2,904,638)
Appraised value of property -
income approach (73.7% of
amount): $2,552,000 ($1,880,824)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$595,333 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of prime plus
1% (currently 8.75%) as to $305,407 of
principal, (iv) fixed interest rate of
12.5% as to $306,675 of principal, and
(iii) fixed interest rate of 12% as to
$36,431 of principal. The loans require
payments of interest only until
maturity.
Maturity date: 4/07
Annual interest payable: $105,149 (plus any participation
interest payable)
Monthly interest payable: $8,762
132
<PAGE>
Baron Strategic Vulture Fund I, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $1,288,568 ($949,675); the loan matures
property (73.7% of amount) in 4/08, has a balance due at maturity
and other terms: of $1,122,800, bears interest at the
fixed annual rate of 7.28%, has annual
and monthly debt service requirements of
$106,737 and $8,895, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it may be prepaid at
par.
Other matters: Prior to 12/15/98, the Curiosity Creek
Second Mortgage Loans consisted of a
second mortgage note with a principal
balance of $807,560, two unsecured
demand notes with an aggregate principal
balance of $830,360 and advances in the
amount of $66,171. On 12/15/98, the
debtor, the Exchange Partnership and
Baron Fund V entered into a mortgage
modification agreement pursuant to which
the Exchange Partnership and Baron Fund
V agreed to set the maturity date on the
demand notes and the advances at the
same maturity date as the second
mortgage note, in exchange for the
debtor's agreement to secure its
repayment obligations on the unsecured
notes and advances with a second
mortgage on the Curiosity Creek
Property.
133
<PAGE>
Brevard Mortgage Program, Ltd.
(GP: Baron Capital XII, Inc.)
The Exchange Partnership owns three unrecorded second mortgage loans
secured by the Meadowdale Property described below. The Exchange
Partnership's interest in the Second Mortgage Loans, terms of the first
mortgage loan secured by the property, and other information are described
below.
Meadowdale Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Meadowdale Apartments (64 units)
Melbourne, Florida
Debtor: Florida Opportunity Income Fund III,
Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $1,048,861
3/31/99 principal balance
(accrued unpaid interest): $1,048,861 ($107,151)
Balance due at maturity: $1,048,861
Appraised replacement cost new
of property: $3,084,043
Appraised value of property -
income approach: $1,629,000
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$752,747 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 20% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$271,923 of principal and (iii) fixed
rate of 12% as to $24,191 of principal.
Maturity date: 10/07
Annual interest payable: $71,861 (plus any participation interest
payable)
Monthly interest payable: $ 5,988
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $947,936; the loan matures in 7/01, has
a balance due at maturity of $905,918,
bears interest at a fixed annual rate of
8.75%, has annual and monthly debt
service requirements of $93,935 and
$7,828, respectively, amortizes on a
22-year basis, and is prepayable without
penalty.
Other matters: Prior to 12/15/98, the second mortgage
loans consisted of a second mortgage
note with a principal balance of
$752,747, an unsecured demand note with
a principal balance of $271,923 and
advances of $24,191. On 12/15/98, the
debtor restated and amended the second
mortgage note and the demand note and
created a new promissory note in favor
of the Exchange Partnership in the
original principal amount of $24,191 (to
cover the prior advances). The debtor
and the Exchange Partnership also
entered into a mortgage modification
agreement. Pursuant to the arrangement,
the Exchange Partnership agreed to set
the maturity date on the demand note and
the advances at the same maturity date
as the second mortgage note, in exchange
for the debtor's agreement to secure its
repayment obligations on the demand note
and the advances with a second mortgage
on the Meadowdale Property.
134
<PAGE>
EXCHANGE HYBRID PARTNERSHIPS
Baron Strategic Investment Fund VI, Ltd.
(GP: Baron Capital XXXI, Inc.)
The Exchange Partnership owns (1) a 52.44% limited partnership interest in
a limited partnership which holds fee simple title to the Pineview
Property, (2) an unrecorded second mortgage loan secured by the Candlewood
Property-Phase II, (3) an undivided interest in two recorded second
mortgage loans secured by the Garden Terrace Property-Phase III, and (4) a
note receivable from another Exchange Partnership which is secured by two
unrecorded second mortgage notes and a second mortgage on the Country
Square Property-Phase I. Information concerning the Pineview Property and
the first mortgage indebtedness secured by it is included above in the
tables entitled "Property Information - Equity Property Interests" and
"Mortgage Information - Equity Property Interests." The interest of the
Exchange Partnership and other Exchange Partnerships in the second
mortgage loans, the note payable to the Exchange Partnership from another
Exchange Partnership, terms of the respective first mortgage loan and the
Exchange Partnership's second mortgage loans secured by the three
properties described below, and other information are described below.
1. Candlewood Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Candlewood Apartments - Phase II (33
units) Tampa, Florida
Debtor: Baron Strategic Investment Fund III,
Ltd.
Original principal amount of
Exchange Partnership's interest
in loan: $68,000
3/31/99 principal balance
(accrued unpaid interest): $68,000 ($7,927)
Balance due at maturity: $68,000
3/31/99 principal balance of other
second mortgage loans secured by
the property and owned by other
Exchange Partnerships (accrued
unpaid interest): $96,500 ($10,829)
Second mortgage interests of other
Exchange Partnerships in the
property: Baron Strategic Investment Fund V, Ltd.
("Baron Fund V") and Baron Strategic
Investment Fund IX, Ltd. ("Baron Fund
IX") own separate second mortgage loans
secured by the Candlewood Property. The
original principal balance, aggregate
3/31/99 principal balance, and balance
due at maturity in respect of Baron Fund
V's and Baron Fund IX's loans are
$21,000 (accrued unpaid interest of
$2,472) and $75,500 (accrued unpaid
interest of $8,357), respectively; the
annual (and monthly) payments due them
are $2,520 ($210) and $9,060 ($755),
respectively. The other terms relating
to Baron Fund V's and Baron Fund IX's
loans are the same as stated herein in
respect of the Exchange Partnership's
loan.
Appraised replacement cost new
of property (41.3% of amount,
representing the percentage of the
current principal balance of the
Exchange Partnership's second
mortgage loan in relation to the
aggregate current principal
balance of all second mortgage
loans secured by the property): $1,590,447 ($656,855)
Appraised value of property -
income approach (41.3% of
amount): $ 922,000 ($380,786)
135
<PAGE>
Baron Strategic Investment Fund VI, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until
maturity.
Maturity date: 3/03
Annual interest payable: $8,160
Monthly interest payable: $680
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property (41.3% of amount) and
other terms: $589,671 ($243,534); the loan matures in
2/03, has a balance due at maturity of
$533,678, bears interest at a fixed
annual rate of 7.79%, payable quarterly,
has annual and monthly debt service
requirements of $56,153 and $4,679,
respectively, amortizes on a 25-year
basis and is prepayable without penalty.
Other matters: Prior to 12/15/98, the Candlewood Second
Mortgage Loan consisted of an unsecured
demand note with a principal balance of
$68,000. On 12/15/98, the debtor and the
Exchange Partnership entered into a
second mortgage agreement under which
the debtor agreed to secure its
repayment obligation on the note with a
second mortgage on the Candlewood
Property. At the same time, the debtor
agreed to secure the loans in favor of
Baron Fund V and Baron Fund IX with
separate mortgages on the property. The
lending parties have agreed to share the
benefits of the second mortgages on a
pari passu basis.
2. Garden Terrace Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Garden Terrace Apartments - Phase III
(91 units) Tampa, Florida
Debtor: Garden Terrace Apartments III, Ltd.
Original principal amount of
Exchange Partnership's undivided
20% interest in loan: $248,353
3/31/99 principal balance
(accrued unpaid interest): $248,353 ($5,607)
Balance due at maturity: $248,353
3/31/99 principal balance of other
Exchange Partnerships' undivided
80% in loan (accrued unpaid
interest): $993,414 ($23,378)
Interests of other Exchange
Partnerships in second mortgage
loans: Baron Strategic Investment Fund IX, Ltd.
("Baron Fund IX") and Baron Strategic
Investment Fund X, Ltd. ("Baron Fund X")
own the remaining undivided 80% interest
in the second mortgage loans secured by
the Garden Terrace Property ("Garden
Terrace Second Mortgage Loans"). The
original principal balance, 3/31/99
principal balance, and balance due at
maturity in respect of Baron Fund IX's
and Baron Fund X's interest in the
Garden Terrace Second Mortgage Loans is
$310,442 (accrued unpaid interest of
$7,246) and $682,972 (accrued unpaid
interest of $16,132), respectively; the
annual (and monthly) payments due them
are $27,940 ($2,328) and $61,467
($5,122), respectively. The other terms
relating to Baron Fund IX's and Baron
Fund X's interest in the Garden Terrace
Second Mortgage Loans are the same as
stated herein.
Appraised replacement cost new
of property (20% of amount): $4,297,897 ($859,579)
Appraised value of property -
income approach (20% of
amount): $1,782,000 ($356,400)
136
<PAGE>
Baron Strategic Investment Fund VI, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 2% as to
$147,000 of principal if cash flow
available (plus non-cumulative
participation interest at the rate of 7%
on the unpaid principal to the extent of
available cash flow, plus additional
participation interest equal to 30% of
any remaining cash flow (payable only to
holders of note referred to in (ii)
below) and (ii) fixed interest rate of
9% as to $101,353 of principal, payable
only from excess cash flow after payment
of 2% minimum interest and 7%
participation interest due on the note
referred to in (i) above. The loans
require payments of interest only until
maturity.
Maturity date: 1/07
Annual interest payable: $22,353 (plus any additional
participation interest)
Monthly interest payable: $1,863
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first $967,012 ($193,402); the loan matures in
mortgage loan secured by 5/05, has a balance due at maturity of
property (20% of amount) and $822,063, bears interest at the fixed
other terms: annual rate of 8.31%, has annual and
monthly debt service requirements of
$96,047 and $8,004, respectively,
amortizes on a 25-year basis and may be
prepaid beginning 4/99 with a 5%
prepayment fee, which decreases 1% per
year until maturity.
3. Note Payable by Baron Strategic Investment
Fund IV, Ltd. ("Baron Fund IV"):
3/31/99 principal balance owed to
Exchange Partnership
collateralized by security interest
in Baron Fund IV's second
mortgage on Country Square
Property - Phase I- see above
under table for "Baron Strategic
Investment Fund IV, Ltd.")
(accrued unpaid interest payable to
Exchange Partnership): $259,639 ($46,934)
3/31/99 principal balance of Baron
Fund IV's second mortgage loans
secured by property
(accrued unpaid interest ): $1,364,549 ($166,140)
Appraised replacement cost new
of property: $3,554,776
Appraised value of property -
income approach: $2,281,000
4/30/99 principal balance of
first mortgage loan $1,584,989; the loan matures in 3/08,
secured by property: has a balance due at maturity of
$1,385,953, bears interest at a fixed
annual rate of 7.41%, has annual and
monthly debt service requirements of
$133,068 and $11,089, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
Other matters: In 3/97, the Exchange Partnership
provided a loan with a current principal
balance of $259,639 to another Exchange
Partnership, Baron Strategic Investment
Fund IV, Ltd. ("Baron Fund IV"). Baron
Fund IV, in turn, lent the loan proceeds
to the borrower as part of the Country
Square Second Mortgage Loans. The loan
from Baron Fund VI to Baron Fund IV
bears interest at the annual rate of
15%, payable monthly, matures in 9/02
and is secured by Baron Fund IV's
interest in the second mortgage note and
second mortgage.
137
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(GP: Baron Capital LXII, Inc.)
The Partnership owns (i) a 44.96% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (ii) an undivided interest in an unrecorded second
mortgage loan secured by the Candlewood Property, (iii) an undivided
interest in two recorded second mortgage loans secured by the Garden
Terrace Property-Phase III, and (iv) an unrecorded second mortgage loan
secured by the Lake Sycamore Property (under development). Information
concerning the Crystal Court Property and the first mortgage indebtedness
secured by it is included above in the tables entitled "Property
Information - Equity Property Interests" and "Mortgage Information -
Equity Property Interests." The interest of the Exchange Partnership and
other Exchange Partnerships in the respective second mortgage loans, terms
of the respective first mortgage loan secured by the Candlewood Property,
the Garden Terrace Property and the Lake Sycamore Property, and other
information are described below.
1. Candlewood Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Candlewood Apartments - Phase II (33
units) Tampa, Florida
Debtor: Baron Strategic Investment Fund III,
Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $75,500
3/31/99 principal balance
(accrued unpaid interest): $75,500 ($8,357)
Balance due at maturity: $75,500
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
Interest): $89,000 ($10,399)
Second mortgage interests of other
Exchange Partnerships in
property: Baron Strategic Investment Fund V, Ltd.
("Baron Fund V") and Baron Strategic
Investment Fund VI, Ltd. ("Baron Fund
VI") own separate second mortgage loans
secured by the Candlewood Property. The
original principal balance, aggregate
3/31/99 principal balance, and balance
due at maturity in respect of Baron Fund
V's and Baron Fund VI's loans are
$21,000 (accrued unpaid interest of
$2,472) and $68,000 (accrued unpaid
interest of $7,927), respectively; the
annual (and monthly) payments due them
are $2,520 ($210) and $8,160 ($680),
respectively. The other terms relating
to Baron Fund V's and Baron Fund VI's
loans are the same as stated herein in
respect of the Exchange Partnership's
loan.
Appraised replacement cost new
of property (45.9% of amount,
representing the percentage of the
current principal balance of the
Exchange Partnership's second
mortgage loan in relation to the
aggregate current principal
balance of all second mortgage
loans secured by the property): $1,590,447 ($730,015)
Appraised value of property -
income approach (45.9% of
amount): $ 922,000 ($423,198)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
payments of interest only until
maturity.
Maturity date: 3/03
Annual interest payable: $9,060
138
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(cont'd)
Monthly interest payable: $755
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property (45.9% of amount)
and other items: $589,671 ($270,659); the loan matures in
2/03, has a balance due at maturity of
$533,678, bears interest at a fixed
annual rate of 7.79%, payable quarterly,
has annual and monthly debt service
requirements of $56,153 and $4,679,
respectively, amortizes on a 25-year
basis and is prepayable without penalty.
Other matters: Prior to 12/15/98, the Candlewood Second
Mortgage Loan consisted of an unsecured
demand note with a principal balance of
$75,500. On 12/15/98, the debtor and the
Exchange Partnership entered into a
second mortgage agreement under which
the debtor agreed to secure its
repayment obligation on the note with a
second mortgage on the Candlewood
Property. At the same time, the debtor
agreed to secure the loans in favor of
Baron Fund V and Baron Fund VI with
separate second mortgages on the
property. The lending parties have
agreed to share the benefits of the
second mortgages on a pari passu basis.
2. Garden Terrace Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Garden Terrace Apartments - Phase III
(91 units) Tampa, Florida
Debtor: Garden Terrace Apartments III, Ltd.
Original principal amount of
Exchange Partnership's
undivided 25% interest in $310,442
loans:
3/31/99 principal balance
(accrued unpaid interest): $310,442 ($7,246)
Balance due at maturity: $310,442
3/31/99 principal balance of other
Exchange Partnerships'
undivided 75% interest in loans
(accrued unpaid interest): $931,325 ($21,739)
Interests of other Exchange
Partnerships in second mortgage
loans: Baron Strategic Investment Fund VI, Ltd.
("Baron Fund VI") and Baron Strategic
Investment Fund X, Ltd. ("Baron Fund X")
own the remaining undivided 75% interest
in the second mortgage loans secured by
the Garden Terrace Property ("Garden
Terrace Second Mortgage Loans"). The
original principal balance, 3/31/99
principal balance, and balance due at
maturity in respect of Baron Fund VI's
and Baron Fund X's interest in the
Garden Terrace Second Mortgage Loans is
$248,353 (accrued unpaid interest of
$5,607) and $682,972 (accrued unpaid
interest of $16,132), respectively, the
annual (and monthly) payments due them
are $22,352 ($1,863) and $61,467
($5,122), respectively. The other terms
relating to Baron Fund VI's and Baron
Fund X's interest in the Garden Terrace
Second Mortgage Loan are the same as
stated herein.
Appraised replacement cost new
of property (25% of amount): $4,297,897 ($1,074,474)
Appraised value of property -
income approach (25% of
amount): $1,782,000 ($445,500)
139
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(cont'd)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 2% as to
$183,750 of principal if cash flow
available (plus non-cumulative
participation interest at the rate of 7%
on the unpaid principal to the extent of
available cash flow plus additional
participation interest equal to 30% of
any remaining cash flow (payable only to
holders of note referred to in (ii)
below) and (ii) fixed interest rate of
9% as to $126,692 of principal, payable
only from excess cash flow after payment
of 2% minimum interest and 7%
participation interest due on the note
referred to in (i) above. The loan
requires payments of interest only until
maturity.
Maturity date: 1/07
Annual interest payable: $27,940 (plus any additional
participation interest)
Monthly interest payable: $2,328
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $967,012 ($241,753); the loan matures in
property (25% of amount) and 5/05, has a balance due at maturity of
other terms: $822,063, bears interest at the fixed
annual rate of 8.31%, has annual and
monthly debt service requirements of
$96,047 and $8,004, respectively,
amortizes on a 25-year basis and may be
prepaid beginning 4/99 with a 5%
prepayment fee, which decreases 1% per
year until maturity.
3. Lake Sycamore Second Mortgage Loan:
Residential apartment property
securing mortgages (number of
units and location): Villas at Lake Sycamore (164 townhomes
under development) Cincinnati, Ohio
Debtor: Sycamore Real Estate Development, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loan: $243,500
3/31/99 principal balance
(accrued unpaid interest): $243,500 ($7,204))
Balance due at maturity: $243,500
3/31/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid $328,000 ($23,098)
interest):
Appraised replacement cost new
of property (under development): $9,376,039
Appraised value of property -
"As is" value: $1,080,000
Prospective market value: $14,312,000 (assuming completion of
project as planned, full rent up and
satisfactory environmental-quality test)
Mortgage interest and
amortization provisions: Fixed interest rate of 12%; requires
quarterly payments of interest only
until maturity.
Maturity date: 12/03
Annual interest payable: $29,220
Monthly interest payable: $2,435
Prepayment provisions: Prepayable without penalty
4/30/99 principal balance of first
mortgage loan secured by
property and other items: $1,021,362; approved maximum $2,000,000;
the loan matures in 11/01, bears
interest at the annual adjustable rate
equal to lender's prime rate plus 1%
(currently 8.75%), has current annual
and monthly debt service requirements of
$89,369 and $7,447, respectively,
requires payments of interest only until
maturity and is prepayable without
penalty.
140
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(cont'd)
Other matters: Two other Exchange Partnerships, Baron
Strategic Investment Fund, Ltd. and
Baron Strategic Investment Fund VIII,
Ltd., own separate second mortgage notes
secured by the property with the same
terms except that they have principal
amounts of $230,000 and $98,000 (accrued
unpaid interest of $20,415 and $2,683),
respectively. The lending parties have
agreed to share the benefits of the
second mortgage on a pari passu basis.
141
<PAGE>
Baron Strategic Investment Fund X, Ltd.
(GP: Baron Capital LXIV, Inc.)
The Partnership owns (i) a 47.59% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (2) a 39.56% limited partnership interest in a limited
partnership which holds fee simple title to the Pineview Property, (3) an
undivided interest in two recorded second mortgage loans secured by the
Garden Terrace Property-Phase III, and (4) an undivided interest in an
unrecorded second mortgage loan secured by the Heatherwood Property-Phase
II and in three unsecured loans associated with such property. Information
concerning the Crystal Court Property and the Pineview Property and the
first mortgage indebtedness secured respectively by them is included above
in the tables entitled "Property Information - Equity Property Interests"
and "Mortgage Information - Equity Property Interests." The interest of
the Exchange Partnership and other Exchange Partnerships in the respective
second mortgage loans, terms of the respective first mortgage loans
secured by the Garden Terrace Property and the Heatherwood Property, and
other information are described below.
1. Heatherwood Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Heatherwood Apartments - Phase II (41
units) Kissimmee, Florida
Debtor: Heatherwood Apartments II, Ltd.
Original principal amount of
Exchange Partnership's
undivided 42% interest in loans: $149,361
3/31/99 principal balance
(accrued unpaid interest): $149,361 ($5,645)
Balance due at maturity: $149,361
3/31/99 principal balance of other
Exchange Partnership's
undivided 58% in loans (accrued
unpaid interest): $206,260 ($1,955)
Interests of other Exchange
Partnership in second mortgage
loans: Baron Strategic Investment Fund VIII,
Ltd. ("Baron Fund VIII") owns the
remaining undivided 58% interest in the
second mortgage loans secured by the
Heatherwood Property and in the
unsecured loans associated with the
property ("Heatherwood Loans"). The
aggregate original principal balance,
aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in
respect of Baron Fund VIII's interest in
the Heatherwood Loans is $206,260 (no
accrued unpaid interest); the aggregate
annual (and monthly) payments due it are
$13,408 ($1,117). The other terms
relating to Baron Fund VIII's interest
in the Heatherwood Loans are the same as
stated herein.
Appraised replacement cost new
of property (42% of amount): $1,862,475 ($782,240)
Appraised value of property -
income approach (42% of
amount): $1,259,000 ($528,780)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 6% as to
$136,500 of principal (plus
non-cumulative participation interest at
the rate of 3% on the unpaid principal
to the extent of available cash flow
plus additional non-cumulative
participation interest equal to 30% of
any remaining available cash flow), (ii)
adjustable interest rate of 1% over
prime rate (currently 8.75%) as to $732
of principal, and (iii) fixed interest
rate of 12% as to $12,130 of principal.
The loans require payments of interest
only until maturity.
Maturity date: 10/04
Annual interest payable: $9,710 (plus any participation interest
payable)
Monthly interest payable: $809
Prepayment provisions: Prepayable without penalty.
142
<PAGE>
Baron Strategic Investment Fund X, Ltd.
(cont'd)
4/30/99 principal balance of first
mortgage loan secured by
property (42% of amount) and
other terms: $701,026 ($294,431); the loan matures in
11/04, has a balance due at maturity of
$655,856, bears interest at a fixed
annual rate of 7.75%, has annual and
monthly debt service requirements of
$61,038 and $5,087, respectively,
amortizes on a 30-year basis, and is
prepayable after the fourth anniversary
of the loan, subject to yield
maintenance until the sixth month prior
to maturity, when it can be prepaid at
par.
Other matters: The Heatherwood Loans consist of a
second mortgage note secured by the
Heatherwood Property with a principal
balance $325,000 and unsecured loans in
the aggregate principal amount of
$24,121.
2. Garden Terrace Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Garden Terrace Apartments - Phase III
(91 units) Orlando, Florida
Debtor: Garden Terrace Apartments III, Ltd.
Original principal amount of
Exchange Partnership's
undivided 55% interest in loan: $682,972
3/31/99 principal balance
(accrued unpaid interest): $682,972 ($16,132)
Balance due at maturity: $682,972
3/31/99 principal balance of other
Exchange Partnerships'
undivided 45% in loan (accrued
unpaid interest): $558,795 ($12,853)
Interests of other Exchange
Partnerships in second Baron Strategic Investment Fund VI, Ltd.
mortgage loans: ("Baron Fund VI") and Baron Strategic
Investment Fund IX, Ltd. ("Baron Fund
IX") own the remaining undivided 45%
interest in the second mortgage loans
secured by the Garden Terrace Property
("Garden Terrace Second Mortgage
Loans"). The original principal balance,
3/31/99 principal balance, and balance
due at maturity in respect of Baron Fund
VI's and Baron Fund IX's interest in the
Garden Terrace Second Mortgage Loans is
$248,353 (accrued unpaid interest of
$5,607) and $310,442, (accrued unpaid
interest of $7,246), respectively; the
annual (and monthly) payments due them
are $22,352 ($1,863) and $27,940
($2,328), respectively. The other terms
relating to Baron Fund VI's and Baron
Fund IX's interest in the Garden Terrace
Second Mortgage Loans are the same as
stated herein.
Appraised replacement cost new
of property (55% of amount): $4,297,897 ($2,363,843)
Appraised value of property -
income approach (55% of
amount): $1,782,000 ($980,100)
Mortgage interest and
amortization provisions: (i) Fixed interest rate of 2% as to
$404,250 of principal if cash flow
available (plus non-cumulative
participation interest at the rate of 7%
on the unpaid principal to the extent of
available cash flow, (plus additional
participation interest equal to 30% of
any remaining cash flow (payable only to
holders of note referred to in (ii)
below) and (ii) fixed interest rate of
9% as to $278,222 of principal, payable
only from excess cash flow after payment
of 2% minimum interest and 7%
participation interest due on the note
referred to in (i) above. The loans
require payments of interest only until
maturity.
Maturity date: 1/07
Annual interest payable: $61,467 (plus any additional
participation interest)
143
<PAGE>
Baron Strategic Investment Fund X, Ltd.
(cont'd)
Monthly interest payable: $5,122
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by $967,012 ($531,857); the loan matures in
property (55% of amount) 5/05, has a balance due at maturity of
and other items: $822,063, bears interest at the fixed
annual rate of 8.31%, has annual and
monthly debt service requirements of
$96,047 and $8,004, respectively,
amortizes on a 25-year basis and may be
prepaid beginning 4/99 with a 5%
prepayment fee, which decreases 1% per
year until maturity.
Other matters: The Exchange Partnership paid a note
(the "Note") with a current principal
balance of $400,000 to the seller in
connection with its acquisition of an
undivided 75% interest in the Garden
Terrace Second Mortgage Loans. The
partnership in turn sold an undivided
20% interest (and retained a 55%
interest) in the loans. The Note bears
an annual interest rate of 10%, has a
maturity date of 1/1/07 and is secured
by a collateral assignment of the
partnership's interest in the loans and
a second mortgage on the property.
144
<PAGE>
Lamplight Court of Bellefontaine Apartments, Ltd.
(GP: Baron Capital IX, Inc.)
The Exchange Partnership owns (1) a 31.7% limited partnership interest in
a limited partnership which holds fee simple title to the Lamplight
Property and (2) two unrecorded second mortgage loans secured by the
Lamplight Property. Additional information concerning the Lamplight
Property and the first mortgage indebtedness secured by it is included
above in the tables entitled "Property Information - Equity Property
Interests" and "Mortgage Information - Equity Property Interests." The
interest of the Exchange Partnership in the second mortgage loans and
other information are described below.
Lamplight Court Second Mortgage Loans:
Residential apartment property
securing mortgages (number of
units and location): Lamplight Court Apartments (80 units)
Bellefontaine, Ohio
Debtor: Independence Village, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $678,302
3/31/99 principal balance
(accrued unpaid interest): $678,302 ($125,554)
Balance due at maturity: $678,302
Appraised replacement cost new
of property: $3,727,599
Appraised value of property -
income approach: $2,214,000
Mortgage interest and
amortization provisions: (i) Adjustable interest rate of 1% over
prime rate (currently 8.75%) as to
$585,000 of principal, and (ii) fixed
interest rate of 12% as to $93,302 of
principal. The loans require payments of
interest only until maturity.
Maturity date: 12/06
Annual interest payable: $60,634
Monthly interest payable: $5,053
Prepayment provisions: Prepayable without penalty.
4/30/99 principal balance of first
mortgage loan secured by
property and other terms: $1,359,962; the loan matures in 11/06,
has a balance due at maturity of
$1,158,349, bears interest at a fixed
annual rate of 9.04%, has annual and
monthly debt service requirements of
$141,445 and $11,787, respectively,
amortizes on a 25-year basis, and is
prepayable after the fifth anniversary
of the loan, provided that in the sixth
and seventh years prepayment requires a
fee equal to the greater of 1% of the
prepaid amount or yield maintenance.
Other matters: Prior to 12/15/98, the Lamplight Court
Second Mortgage Loans consisted of a
second mortgage note with a principal
balance of $585,000 and an unsecured
demand note with a principal balance of
$93,302. On 12/15/98, the debtor and the
Exchange Partnership entered into a
mortgage modification agreement under
which the Exchange Partnership agreed to
set the maturity date on the demand note
at 12/06, the same maturity date as the
second mortgage note, in exchange for
the agreement of the debtor to secure
its repayment obligations on the demand
note with a second mortgage on the
Lamplight Court Property.
145
<PAGE>
Audited statements of revenues and certain expenses, including the
notes thereto, for such Exchange Properties are included in Exhibit D to this
prospectus. Those for the Acquired Properties are included in Exhibit C to this
prospectus. The statements of revenues and certain expenses exclude material
expenses described in the notes thereto (including partnership administrative
expenses, major maintenance, depreciation, amortization and professional fees)
that would not be comparable to those resulting from the proposed future
operations of the Exchange Properties and the Acquired Properties. The data for
the Exchange Mortgage Partnerships and the Exchange Hybrid Partnerships was
derived from their respective balance sheets, statements of operations,
statements of partners' capital and statements of cash flow, which are set forth
in Exhibit D to the prospectus. The foregoing statements should be reviewed by
the offerees prior to making a decision whether or not to accept the exchange
offering.
All expenses incurred in connection with the proposed exchange offering
to produce, file, print and distribute the prospectus will be paid out of net
proceeds of this offering contributed to Baron Properties. No special fees or
commissions were or will be paid to Baron Advisors, any corporate general
partner of an Exchange Partnership, or any of their respective affiliates, in
connection with the exchange offering. Broker-dealers who assist Baron
Properties in consummating the exchange offering with individual offerees who
accept the offering will be paid as a commission a number of unregistered common
shares of Baron Trust equal to 5% of the units issued to offerees as a result of
their efforts.
ACQUIRED PROPERTIES
Set forth below is a description of Baron Properties' acquisition
between June 1998 and May 1999 of beneficial ownership of 67-unit, 80-unit, and
50-unit residential apartment properties located in Kissimmee, Lakeland and New
Smyrna Beach, Florida, respectively; a 37.2% interest in a 168-unit residential
apartment property located in Alexandria, Kentucky; and a limited partnership
interest in 13 real estate partnerships managed by affiliates of Baron Advisors
of Baron Trust, including certain of the Exchange Partnerships. Also described
is a purchase agreement entered into by Baron Properties under which Baron
Properties, subject to certain conditions, will acquire two residential
apartment properties (totaling 652 units) under development in Burlington and
Louisville, Kentucky upon completion of construction.
HEATHERWOOD I APARTMENTS
In June 1998, Baron Properties acquired the entire limited partnership
interest in Heatherwood Kissimmee, Ltd., a Florida limited partnership (the
"Heatherwood Partnership") which owns fee simple title to a 67-unit residential
apartment property referred to as the Heatherwood Apartments - Phase I (the
"Heatherwood Property") located at 1005 Airport Road in Kissimmee, Florida
32741. Set forth below is certain information describing the property, senior
mortgage financing to which the property is subject and the acquisition by Baron
Properties of beneficial ownership of the property.
The Heatherwood Property, completed in 1981, consists of 17 studio/one
bathroom units, 45 one bedroom/one bathroom units, and five two bedroom/one
bathroom units. The property is situated on approximately 2.26 acres and has
approximately 35,136 square feet of rentable area. The average unit size of the
studio, one bedroom and two bedroom units is approximately 288, 576 and 864
square feet, respectively. The average monthly rental rate as of April 1, 1999
for each type of unit is approximately $395, $495, and $625, respectively, or
$1.37, $0.86, and $0.72 per square foot, respectively. The units were
approximately 94% occupied as of March 31, 1999. The average monthly occupancy
rates for 1994, 1995, 1996, 1997, and 1998 were approximately 91%, 88%, 93%,
97%, and 94%, respectively.
80
<PAGE>
Baron Properties acquired the entire limited partnership interest in
the Heatherwood Partnership from an unaffiliated third party, Rylex Capital,
L.L.C., a Florida limited liability company, for a purchase price of $830,000.
The purchase price was determined by the parties in an arm's-length negotiation.
The Heatherwood Property is subject to senior mortgage financing with a
principal balance of approximately $1,239,000 at March 31, 1999. The mortgage is
held by GMAC Commercial Mortgage Corp. The maturity date of the senior mortgage
loan is December 2004. Assuming no prepayments of principal, the balance that
will be due at maturity is approximately $1,083,553. The monthly debt service
payments are $8,847, or an annual amount of $106,164. The loan bears a fixed
interest rate of 7.625% and amortizes on a 30-year basis. The loan is prepayable
with a prepayment fee equal to 1% of the then outstanding principal balance.
CRYSTAL COURT II APARTMENTS
In July 1998, Baron Properties acquired the entire limited partnership
interest in Crystal Court Apartments II, Ltd., a Florida limited partnership
(the "Crystal Court Partnership") which owns fee simple title to an 80-unit
residential apartment property referred to as Crystal Court Apartments - Phase
II (the "Crystal Court Property") located in Lakeland, Florida. Set forth below
is certain information describing the property, senior mortgage financing to
which the property is subject and the acquisition by Baron Properties of
beneficial ownership of the property.
The Crystal Court Property, completed in 1986, consists of 20
studio/one bathroom units, 54 one bedroom/one bathroom units, and six two
bedroom/one bathroom units. The property is situated on approximately 6.8 acres
and has approximately 42,048 square feet of rentable area. The average unit size
of the studio, one bedroom and two bedroom units is approximately 288, 576 and
864 square feet, respectively. The average monthly rental rate as of March 31,
1999 for each type of unit is approximately $309, $389, and $504, respectively,
or $1.07, $0.68, and $0.58 per square foot, respectively. The units were
approximately 96% occupied as of March 31, 1999. The average monthly occupancy
rates for 1994, 1995, 1996, 1997, and 1998 were approximately 91%, 91%, 90%,
95%, and 91%, respectively.
Baron Properties acquired the entire limited partnership interest in
the Crystal Court Partnership from an unaffiliated third party, Rylex Capital,
L.L.C., a Florida limited liability company, for a purchase price of
approximately $704,000. The purchase price was determined by the parties in an
arm's-length negotiation. The Crystal Court Property is subject to senior
mortgage financing with a principal balance of approximately $1,494,000 at March
31, 1999. The mortgage is held by GMAC Commercial Mortgage Corp. The maturity
date of the senior mortgage loan is October 2004. Assuming no prepayments of
principal, the balance that will be due at maturity is approximately $1,366,490.
The monthly debt service payments are $10,446, or an annual amount of $125,352.
The loan bears a fixed interest rate of 7.5% and amortizes on a 30-year basis.
The loan is prepayable with a prepayment fee equal to 1% of the then outstanding
principal balance.
RIVERWALK APARTMENTS
In September 1998, Baron Properties acquired the entire limited
partnership interest in Riverwalk Enterprises, Ltd., a Florida limited
partnership ("Riverwalk"), which owns fee simple title to a 50-unit residential
apartment property located at 47 Jacaranda Cay Court, New Smyrna Beach, Florida
32169 (the "Riverwalk Property"). Simultaneously, an affiliate of Baron
Properties, Riverwalk, LC, a Florida limited liability company, acquired the
general partnership interest in Riverwalk. Riverwalk, LC was organized for the
express purpose of acquiring such general partnership interest. Gregory K.
McGrath, the Chief Executive Officer of Baron Properties and Baron Trust, is the
manager of Riverwalk, LC. Baron
81
<PAGE>
Properties owns 99% of the membership interests in Riverwalk, LC. The remaining
1% membership interest is nominally held by Baron Advisors of Baron Trust, as
agent for Baron Properties.
The Riverwalk Property, completed in 1986, consists of 50 two bedroom
units. Forty-five units have two bathrooms and five have one bathroom. The
property is located directly on the intracoastal waterway and was originally
built for condominium sale. Baron Properties will operate the property as a
rental community for the indefinite future. As of April 1999, the property was
96% occupied. The average year to date occupancy has been 98%. The average
monthly rental rate as of April 1, 1999 was approximately $565 for a one bath
unit and $605 for a two bath unit. The average monthly occupancy for 1998 was
98%. The property has 51,024 square feet of rentable space, or approximately
1,020 square feet per unit. The rent per square foot as of March 31, 1999 was
approximately $0.55. The average monthly rental rate for the year ended December
31, 1998 was approximately $565 per unit.
Baron Properties acquired the Riverwalk limited partnership interests
from 12 unaffiliated individuals. Riverwalk, LC acquired the Riverwalk general
partnership interest for a purchase price of approximately $700,000 from
Riverwalk Enterprises, Inc., whose principal was Michael Green. Mr. Green is not
affiliated with Baron Trust or Baron Properties. The sale was subject to a
senior mortgage of approximately $1,330,000, held by TMG Life Insurance Company.
The principal balance of the mortgage was approximately $1,323,000 at March 31,
1999. The mortgage matures in October 2004 and has a current interest rate of
8.75%. The holder of the senior mortgage has a right to adjust the rate in
October 1999 for the remaining five years of the loan, to a rate equal to 200
basis points above the then current rate for five-year treasury notes. Assuming
no prepayments of principal, the balance that will be due at maturity is
approximately $1,151,636. The monthly debt service payments are $11,626, or an
annual amount of $139,510. Prepayment is permitted at any time, subject however
to a yield maintenance termination fee calculated in accordance with the terms
of the loan.
The total cost of the acquisition to Baron Properties was approximately
$655,000 above the then current principal balance of the underlying first
mortgage loan, which includes costs of the transaction, including a $200,000
commission paid to Prime One Realty Inc. An affiliate of Mr. McGrath received
one-half of the commission from Prime One Realty Inc. Baron Properties borrowed
$575,000 from I. Stanley Levine, Trustee, of Miami, Florida, in order to
complete the acquisition. The Levine loan matured in December. The principal
amount of $200,000 was paid and payment of the remaining principal balance of
$375,000 was extended until June 1, 1999. This loan requires current interest
payments only at the annual rate of 18%, and is secured by a pledge of the
general and limited partnership interests acquired in the transaction. Baron
Properties funded the acquisition and will satisfy the Levine loan from the net
proceeds of this offering. The purchase price was determined by the parties in
an arms-length negotiation. Baron Properties relied upon an appraisal of the
Riverwalk Property updated as of July 17, 1998 prepared by Rex-McGill, Inc., an
independent appraisal firm, which valued the property at $2,200,000. The
transaction was unanimously approved by the Independent Trustees of Baron Trust
prior to closing of the acquisition.
ALEXANDRIA PROPERTY
In October 1998, the Operating Partnership acquired an approximately
12.3% limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Partnership"), a Delaware limited partnership which is the owner and
developer of a 168-unit residential apartment property under construction in
Alexandria, Kentucky. Ninety eight of the 168 residential units (approximately
58%) have been completed as of May 1, 1999 and are in the rent-up stage. As of
May 1, 1999, 32 units of the 98 completed (approximately 32.7%) have been rented
at an average monthly rental rate of $682. Baron Properties paid $400,000 for
the initial acquisition of its partnership interest. Subsequently, Baron
Properties acquired
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additional limited partnership units for $810,000 and as of May 15, 1999, Baron
Properties owns approximately 37.2% of the limited partnership units. Baron
Properties retains an option to acquire the remaining limited partnership
interests at the same price per percentage interest (for a total price of
approximately $2,440,000 for the entire limited partnership interest). The
option is exercisable as additional apartment buildings are completed and
rented. An affiliate of Mr. McGrath sold the partnership interest in the
Alexandria Partnership to Baron Properties and also serves as its managing
general partner. During the construction stage of the apartment property, Baron
Properties' limited partnership interest in the Alexandria Partnership is
entitled to an annual 12% preferential return which is senior to the other
limited partnership interests and the general partner's nominal 1% interest.
ACQUISITION OF LIMITED PARTNERSHIP INTERESTS
In July 1998, Baron Properties also was admitted as a limited partner
in 13 real estate limited partnerships managed by affiliates of Baron Advisors
of Baron Trust, including certain of the Exchange Partnerships. Baron Properties
acquired the interests in consideration of a capital contribution ranging from
approximately $2,900 to $83,300 in each such partnership. The aggregate
contribution made by Baron Properties was approximately $341,000. The percentage
interest acquired by Baron Properties (less than 4% in each case) was calculated
at fair market value. In each instance, Baron Properties agreed that its right
to receive distributions from cash flow or from a capital event would be
subordinate to the right of the existing limited partners to receive any
preferred return described in the partnership agreement of the respective
partnership.
CONTRACT TO PURCHASE TWO ADDITIONAL PROPERTIES
In September 1998, Baron Trust entered in an agreement with three real
estate development companies to acquire two luxury residential apartment
properties in the development stage upon the completion of construction. The
development companies (Brentwood at Southgate, Ltd., Burlington Residential,
Ltd. and The Shoppes at Burlington, Ltd.) are controlled by Gregory K. McGrath,
one of the founders of Baron Properties. The properties are scheduled to have a
total of 652 units, comprised of studios and one, two, and three bedroom/one or
two bathroom apartments. Construction of one of the properties, located in
Louisville, Kentucky, is expected to be completed by the end of 2000, and
construction of the other property, located in Burlington, Kentucky (part of the
Cincinnati metropolitan area), is expected to be completed by the end of 2001.
The aggregate purchase price for the two properties is in the range of
approximately $41,000,000 to $43,000,000. The closing of each acquisition, which
is expected to occur shortly following the completion of construction, is
conditioned on, among other things, the completion of the respective apartment
property, the availability of senior mortgage financing and Baron Trust's
raising the balance of the funds necessary for the acquisition in this offering
or otherwise having funds available to make the acquisition.
In connection with the transaction and in exchange for certain benefits
described below, Baron Trust agreed to co-guarantee (along with Mr. McGrath), up
to 35% (or approximately $12,500,000) of the development portion of long-term
construction loans with an aggregate principal amount of up to $36,000,000 to be
provided by a bank to the development companies. As of December 31, 1998,
approximately $4,600,000 of the loan had been drawn upon, resulting in
outstanding guarantees of approximately $1,600,000. Subject to the fulfillment
of certain closing and funding conditions, the construction loans will be made
to the development companies in connection with the development and construction
of the two apartment properties and of an 111,000 square foot shopping center
being developed in Burlington, Kentucky. The interest rates on the construction
loans range from 7.36% to 7.52%. Baron Trust also agreed that, if the loans are
not repaid prior to the expiration of the guarantee, it
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will either buy out the Bank's position on the entire amount of the construction
loans or arrange for a third party to do so. The construction loans are expected
to be replaced by a long-term credit facility.
Baron Trust expects to receive significant benefits from the
transaction in addition to the acquisition of two large luxury apartment
properties located in attractive communities. First, in exchange for the
guarantee of the development portion of the construction loans, Baron Trust will
receive a discount of approximately $212,500 (representing a one-half of one
percent reduction) on the purchase price of the properties. Baron Trust and the
development companies are negotiating a further price reduction which would
apply if the development portion of the loans is not repaid prior to the
expiration of the guarantee period and Baron Trust is required to buy out or
arrange for the buyout of the lender's position on the loans.
FEDERAL INCOME TAX CONSIDERATIONS
As of December 31, 1998, Baron Trust was operated in a manner that
permitted Baron Trust to satisfy the requirements for taxation as a REIT under
the applicable provisions of the Code. Baron Trust elected REIT status for the
taxable year ending December 31, 1998. However, we cannot be certain that such
requirements will be met for future tax years. The following is a summary of the
federal income tax considerations for Baron Trust and its shareholders with
respect to the treatment of Baron Trust as a REIT. Because these provisions are
highly technical and complex, each prospective purchaser of Baron Trust's common
shares is urged to consult his or her own tax advisor with respect to the
federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of common shares.
In brief, if certain detailed conditions imposed by the REIT provisions
of the Code are met, entities, such as Baron Trust, that invest primarily in
real estate and that otherwise would be treated for federal income tax purposes
as corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (I.E., at both the corporate and
shareholder levels) that generally results from the use of corporations.
If Baron Trust fails to qualify as a REIT in any year, however, it will
be subject to federal income taxation as if it were a domestic corporation, and
its shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, Baron Trust could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
The following summary is based on existing law, is not exhaustive of
all possible tax considerations and does not give a detailed discussion of any
state, local, or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a prospective
investor in light of his particular circumstances or to certain types of
shareholders (including insurance companies, tax-exempt entities, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws.
TAXATION OF BARON TRUST
GENERAL. In any year in which Baron Trust qualifies as a REIT, in
general it will not be subject to federal income tax on that portion of its REIT
taxable income or capital gain which is distributed to shareholders. Baron Trust
may, however, be subject to tax at normal corporate rates upon any taxable
income or capital gain not distributed.
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Notwithstanding its qualifications as a REIT, Baron Trust may also be
subject to taxation in certain other circumstances. If Baron Trust should fail
to satisfy either the 75% of the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% test
or 95% test, multiplied by a fraction intended to reflect Baron Trust's
profitability. Baron Trust will also be subject to a tax of 100% on net income
from any "prohibited transaction" as described below, and if Baron Trust has (i)
net income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to tax
on such income from foreclosure property at the highest corporate rate. In
addition, if Baron Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, Baron Trust would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. If Baron Trust acquires any asset from a C corporation (I.E.,
generally a corporation subject to full corporate-level tax) in a transaction in
which the basis of the asset in Baron Trust's hands is determined by reference
to the basis of the asset (or any other property) in the hands of the C
corporation, and Baron Trust subsequently recognizes gain on the disposition of
such asset during the 10-year period (the "Recognition Period") beginning on the
date on which the asset was acquired by Baron Trust (or Baron Trust first
qualified as a REIT), then pursuant to guidelines issued by the IRS, the excess
of (1) the fair market value of the asset as of the beginning of the applicable
Recognition Period, over (2) Baron Trust's adjusted tax basis in such asset as
of the beginning of such Recognition Period, will be subject to tax at the
highest regular corporate rate. Baron Trust may elect to retain rather than
distribute its net long-term capital gains. The effect of such election is that
(i) Baron Trust is required to pay the tax on such gains within 30 days after
the close of Baron Trust's taxable year, (ii) shareholders, while required to
include their proportionate share of the undistributed long-term capital gains
in income, will receive a credit or refund for their share of the tax paid by
Baron Trust, and (iii) the tax basis of a shareholder's beneficial interest in
Baron Trust would be increased by the amount of undistributed long-term capital
gains (less the amount of capital gains tax paid by Baron Trust) included in the
shareholder's long-term capital gain. To designate amounts as undistributed
capital gains, the designation must be made in a written notice to shareholders
and mailed at any time prior to the expiration of 60 days after the close of
Baron Trust's taxable year or mailed with its annual report related to the
taxable year. Baron Trust may also be subject to the corporate alternative
minimum tax, as well as tax in certain situations, not presently contemplated.
Baron Trust will use the calendar year both for federal income tax purposes, as
is required of a newly organized REIT, and for financial reporting purposes.
In order to qualify as a REIT, Baron Trust must meet, among others, the
following requirements:
STOCK OWNERSHIP TESTS. Baron Trust's shares must be held by a minimum
of 100 persons for at least 335 days in each taxable year (or a proportional
number of days in any short taxable year). In addition, at all times during the
second half of each taxable year, no more than 50% in value of the shares of
Baron Trust may be owned, directly or indirectly and by applying certain
constructive ownership rules, by five or fewer individuals, which for this
purpose includes certain tax-exempt entities. For purposes of this test, in
general, any shares held by a qualified domestic pension or other retirement
trust will be treated as held directly by its beneficiaries in proportion to
their actuarial interest in such trust rather than by such trust. These stock
ownership requirements need not be met until the second taxable year of Baron
Trust for which a REIT election is made.
In order to ensure compliance with the foregoing stock ownership tests,
Baron Trust has placed certain restrictions on the transfer of its shares to
prevent additional concentration of the share ownership. Moreover, to evidence
compliance with these requirements, under Treasury Regulations Baron Trust must
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maintain records which disclose the actual ownership of its outstanding shares.
In fulfilling its obligations to maintain records, Baron Trust must and will
demand written statements each year from the record holders of designated
percentages of its shares disclosing the actual owners of such shares (as
prescribed by Treasury Regulations). If Baron Trust complies with the Treasury
Regulations for ascertaining its actual ownership and did not know, or the
exercise of reasonable diligence would not have provided reason to know, that
more than 50% in value of its outstanding shares were held, actually or
constructively, by five or fewer individuals, then Baron Trust will be treated
as meeting such requirements. A list of those persons failing or refusing to
comply with such demand must be maintained as a part of Baron Trust's records. A
shareholder failing or refusing to comply with Baron Trust's written demand must
submit with his tax return a similar statement disclosing the actual ownership
of shares and certain other information. In addition, the Trust Declaration for
Baron Trust provides restrictions regarding the transfer of its shares that are
intended to assist Baron Trust in continuing to satisfy the stock ownership
requirements.
ASSET TESTS. At the close of each quarter of Baron Trust's taxable
year, Baron Trust must satisfy three tests relating to the nature of its assets
(determined in accordance with generally accepted accounting principles). First,
at least 75% of the value of Baron Trust's total assets must be represented by
real estate assets (which for this purpose includes (i) its allocable share of
real estate assets held by partnerships in which Baron Trust owns an interest;
(ii) stock or debt instruments purchased with the proceeds of a stock offering
and held for not more than one year from the date Baron Trust received such
proceeds, cash, cash items and government securities and (iii) stock in other
real estate investment trusts). Second, not more than 25% of Baron Trust's total
assets may be represented by securities other than those in the 75% asset class.
Third, of the investments included in the 25% asset class, securities in this
class may not exceed (i) in the case of securities of any one non-government
issuer, 5% of the value of Baron Trust's total assets or (ii) 10% of the
outstanding voting securities of any one such issuer. Baron Trust's investment
in any properties through its interest in one or more partnerships would be
intended to constitute an investment in qualified assets for purposes of the 75%
assets test.
GROSS INCOME TESTS. There are currently two separate percentage tests
relating to the sources of Baron Trust's gross income which must be satisfied
for each taxable year. For purposes of these tests, if Baron Trust invests in
one or more partnerships, Baron Trust will be treated as receiving its share of
the income and loss of such partnerships, and the gross income of the
partnerships will retain the same character in the hands of Baron Trust as it
has in the hands of the respective partnerships. The two tests are as follows:
1. THE 75% TEST. At least 75% of Baron Trust's gross income
for the taxable year must be "qualifying income." Qualifying income
generally includes (i) rents from real property (except as described
below); (ii) interest on obligations secured by mortgages on, or
interests in, real property; (iii) gains from the sale or other
disposition of interests in real property and real estate mortgages,
other than gain from property held primarily for sale to customers in
the ordinary course of Baron Trust's trade or business ("dealer
property"); (iv) dividends or other distributions on shares in other
REITs, as well as gain from the sale of such shares; (v) abatements and
refunds of real property taxes; (vi) income from the operation, and
gain from the sale, of property acquired at or in lieu of a foreclosure
of the mortgage secured by such property ("foreclosure property");
(vii) commitment fees received for agreeing to make loans secured by
mortgages on real property or to purchase or lease real property; and
(viii) qualified temporary investment income.
Rents received from a tenant will not, however, qualify as
rents from real property in satisfying the 75% test (or the 95% gross
income test described below) if Baron Trust, or an owner of 10% or more
of Baron Trust, directly or constructively owns 10% or more of such
tenant. In addition, if rent attributable to personal property leased
in connection with a lease of real property
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is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not
qualify as rents from real property. Moreover, an amount received or
accrued will not qualify as rents from real property (or as interest
income) for purposes of the 75% and 95% gross income tests if it is
based in whole or in part on the income or profits of any person,
although an amount received or accrued generally will not be excluded
from "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Finally, for
rents received to qualify as rents from real property, Baron Trust
generally must not operate or manage the property or furnish or render
services to tenants, other than through an "independent contractor"
from whom Baron Trust derives no income, except that the "independent
contractor" requirement does not apply to the extent that the services
provided by Baron Trust are "usually or customarily rendered" in
connection with the rental of space for occupancy only, or are not
otherwise considered "rendered to the occupant for his convenience." A
REIT is permitted to render a de minimis amount of impermissible
services to tenants, or in connection with the management of property,
and still treat amounts received with respect to that property as rents
from real estate.
The amount received or accrued by Baron Trust during the
taxable year for the impermissible services with respect to a property
may not exceed 1% of all amounts received or accrued by Baron Trust
directly or indirectly from the property. The amount received for any
service (or management operation) for this purpose shall be deemed to
be not less than 150% of the direct cost of Baron Trust in furnishing
or rendering the service (or providing the management or operation).
2. THE 95% TEST. In addition to deriving 75% of its gross
income from the sources listed above, at least 95% of Baron Trust's
gross income for the taxable year must be derived from the
above-described qualifying income, and from dividends, interests, or
gains from the sale or other disposition of shares or other securities
that are not dealer property. Dividends and interest on any obligations
not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test.
For purposes of determining whether Baron Trust complies with
the 75% and 95% gross income test, gross income does not include income
from prohibited transactions. A "prohibited transaction" is a sale of
dealer property (excluding foreclosure property); however, it does not
include a sale of property if such property is held by Baron Trust for
at least four years and certain other requirements (relating to the
number of properties sold in a year, their tax bases, and the cost of
improvements made thereto) are satisfied. Baron Trust and Baron
Advisors intend that neither Baron Trust nor Baron Properties will
enter into transactions for the sale of dealer property.
Baron Trust believes that, for purposes of both the 75% and
95% gross income test, its investment in properties directly or through
one or more partnerships will in major part give rise to qualifying
income in the form of rents, and that gains on sales of properties, or
of Baron Trust's interest in a partnership, generally will also
constitute qualifying income. Baron Trust intends to closely monitor
its non-qualifying income and anticipates that any non-qualifying
income on its investments and activities will not result in Baron Trust
failing either the 75% or 95% gross income test.
Even if Baron Trust fails to satisfy one or both of the 75% or
95% gross income tests for any taxable year, it may still qualify as a
REIT for such year if it is entitled to relief under certain provisions
of the Code. These relief provisions will generally be available if:
(i) Baron Trust's failure to comply was due to reasonable cause and not
to willful neglect; (ii) Baron Trust reports
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the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect
information on this schedule is not due to fraud with intent to evade
tax. If these relief provisions apply, however, Baron Trust will
nonetheless be subject to a 100% tax on the greater of the amount by
which it fails either the 75% or 95% gross income test, multiplied by a
fraction intended to reflect Baron Trust's profitability.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, Baron
Trust is required to distribute dividends (other than capital gain dividends) to
its shareholders each year in an amount at least equal to (A) the sum of (i) 95%
of Baron Trust's REIT taxable income (computed without regard to the dividends
paid deduction and the REIT's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non-cash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before Baron
Trust timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that Baron
Trust does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its REIT taxable income, as adjusted, it will be
subject to tax on the undistributed amount at regular capital gains or ordinary
corporate tax rates, as the case may be. Baron Trust may elect to retain rather
than distribute its net long-term capital gains. The effect of such election is
that (i) Baron Trust is required to pay the tax on such gains within 30 days
after the close of Baron Trust's taxable year, (ii) shareholders, while required
to include their proportionate share of the undistributed long-term capital
gains in income, will receive a credit or refund for their share of the tax paid
by Baron Trust, and (iii) the tax basis of a shareholder's beneficial interest
in Baron Trust would be increased by the amount of undistributed long-term
capital gains (less the amount of capital gains tax paid by Baron Trust)
included in the shareholder's long-term capital gains. To designate amounts as
undistributed capital gains, the designation must be made in a written notice to
shareholders and mailed at any time prior to the expiration of 60 days after the
close of Baron Trust's taxable year or mailed with its annual report for the
taxable year.
Baron Trust intends to make timely distributions sufficient to satisfy
the annual distribution requirements described in the preceding paragraph. In
this regard, the Trust Declaration authorizes Baron Advisors of Baron Trust to
take such steps as may be necessary to cause any partnership in which Baron
Trust may own an interest to distribute to its partners an amount sufficient to
permit Baron Trust to meet these distribution requirements. It is possible that
Baron Trust may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement, due to timing differences between the actual receipt
of income and actual payment of expenses, on the one hand, and the inclusion of
such income and deduction of such expenses in computing Baron Trust's REIT
taxable income, on the other hand, or due to a partnership's inability to
control cash distributions with respect to those properties as to which it does
not have decision making control; or for other reasons. To avoid any problem
with the 95% distribution requirement, Baron Trust will closely monitor the
relationship between its REIT taxable income and cash flow and, if necessary,
intends to borrow funds (or cause any applicable partnership or other affiliate
to borrow funds) in order to satisfy the distribution requirement. However, we
cannot be certain that such borrowing would be available at such time.
If Baron Trust fails to meet the 95% distribution requirement as a
result of an adjustment to Baron Trust's tax return by the Internal Revenue
Service, Baron Trust may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
FAILURE TO QUALIFY. If Baron Trust fails to qualify for taxation as a
REIT in any taxable year and the relief provisions do not apply, Baron Trust
will be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in any
year in which Baron Trust fails to qualify as a REIT will not be deductible by
Baron Trust, nor generally will they
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be required to be made under the Code. In such event, to the extent of current
and accumulated earnings and profits, all distribution to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Baron Trust's failure to qualify as a REIT could substantially reduce the cash
available for distribution. Unless entitled to relief under specific statutory
provisions, Baron Trust also will be disqualified from re-electing taxation as a
REIT for the four taxable years following the year during which qualification
was lost.
TAX ASPECTS OF BARON TRUST'S INVESTMENT IN BARON PROPERTIES
An increase in Baron Trust's REIT taxable income from its interest in a
partnership (whether or not a corresponding cash distribution is also received
from the partnership) will increase its distribution requirements, but will not
be subject to federal income tax in the hands of Baron Trust provided that an
amount equal to such income is distributed by Baron Trust to its shareholders.
Moreover, for purposes of the REIT asset tests, Baron Trust will include its
proportionate share of assets held by a partnership.
ENTITY CLASSIFICATION. Baron Trust's investment in one or more
partnerships raises special tax considerations, including the possibility of a
challenge by the Service of the status of such entities as a partnership (as
opposed to an association taxable as a corporation for federal income tax
purposes). Special tax counsel has issued an opinion that Baron Capital
Properties, L.P., will be classified as a partnership for federal income tax
purposes. If a partnership were to be treated as an association, it would be
taxable as a corporation and therefore subject to an entity-level tax on its
income. In such a situation, the character of Baron Trust's assets and items of
gross income would change, which would preclude Baron Trust from satisfying the
REIT asset tests and the REIT gross income tests, which in turn would prevent
Baron Trust from qualifying as a REIT.
SALE OF TRUST PROPERTIES. Baron Trust's share of any gain realized by a
partnership on the sale of any dealer property generally will be treated as
income from a prohibited transaction that is subject to a 100% penalty tax.
Under existing law, whether property is dealer property is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. Any partnership utilized by Baron Trust for its real estate
operations would be expected to hold properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, owning,
operating and developing the properties, and to make such occasional sales of
the properties as are consistent with Baron Trust's investment objectives. Based
upon Baron Trust's investment objectives, Baron Trust believes that properties
acquired by it or a partnership utilized by it should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
would not be material.
TAXATION OF SHAREHOLDERS
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS. As long as Baron Trust
qualifies as a REIT, distributions made to Baron Trust's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed Baron
Trust's actual net capital gain for the taxable year) without regard to the
period from which the shareholder has held its common shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. To the extent that Baron Trust makes distributions
in excess of current and accumulated earnings and profits, these distributions
are treated first as a tax-free return of capital to the shareholders, reducing
the tax basis of a shareholder's common shares by the amount of such excess
distribution (but not below zero), with distributions in excess of the
shareholder's tax basis being taxed as capital gains (if the common shares are
held as a capital asset). In
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addition, any dividend declared by Baron Trust in October, November or December
of any year and payable to a shareholder of record on a specific date in any
such month shall be treated as both paid by Baron Trust and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by Baron Trust during January of the following calendar year. Shareholders
may not include in their individual income tax returns any net operating losses
or capital losses of Baron Trust. Federal income tax rules may also require that
certain minimum tax adjustments and preferences be apportioned to shareholders.
Baron Trust may elect to retain and pay income tax on any net long-term
capital gain, in which case domestic shareholders of Baron Trust will include in
their income as long-term capital gain their proportionate shares of such net
long-term capital gain. A domestic shareholder will also receive a refundable
tax credit in such case for such shareholder's proportionate share of the tax
paid by Baron Trust on such retained capital gains and an increase in its basis
in the stock of Baron Trust in an amount equal to the difference between the
undistributed long-term capital gains and the amount of tax paid by Baron Trust.
In general, domestic shareholders will realize capital gain or less on
the disposition of Trust shares equal to the difference between (1) the amount
of cash and the fair market value of any property received on such disposition
and (2) the shareholder's basis for the shares. Generally, capital gain or loss
is long-term if the shares have been held for more than one year. Any loss upon
a sale or exchange of common shares by a shareholders who has held such shares
for six months or less (after applying certain holding period rules) will be
treated as a long-term capital loss, to the extent of distributions from Baron
Trust required to be treated by such shareholder as long-term capital gains.
For individuals, trusts, and estates, the maximum marginal individual
income tax rate is 39.6%. The maximum federal tax rate on net capital gains
applicable to individuals, trusts, and estates from the sale or exchange of
capital assets held for more than one year is 20%, and the maximum rate is
reduced to 18% for assets acquired after December 31, 2000 and held for more
than five years. For individuals, trusts, and estates who would be subject to a
maximum federal tax rate of 15%, the rate on net capital gains is reduced to
10%, and effective for taxable years commencing after December 31, 2000, the
rate is reduced to 8% for assets held for more than five years. The maximum rate
for net capital gains attributable to the sale of depreciable real property held
for more than one year is 25% to the extent of the deductions for depreciation
(other than certain depreciation recapture taxable as ordinary income) with
respect to such property. Accordingly, the tax rate differential between capital
gain and ordinary income for noncorporate taxpayers may be significant. In
addition, the characterization of income as capital or ordinary may affect the
deductibility of capital losses. Capital losses not offset by capital gains may
be deducted against a noncorporate taxpayer's ordinary income only up to a
maximum annual amount of $3,000. Unused capital losses may be carried forward.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate rates. A corporate taxpayer can deduct capital losses only to the
extent of capital gains, with unused losses being carried back three years and
forward five years.
BACKUP WITHHOLDING. Baron Trust will report to its domestic
shareholders and to the Service the amount of dividends paid for each calendar
year, and the amount of tax withheld, if any, with respect thereto. Under the
backup withholding rules, a shareholder may be subject to backup withholding at
the rate of 31% with respect to dividends paid unless such shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact; or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide Baron Trust with its correct taxpayer
identification number may also be subject to penalties imposed by the Service.
Any amount paid as backup withholding is available as a credit against the
shareholder's income tax liability. U.S. shareholders should consult their own
tax advisors regarding their
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qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. Baron Trust may be required to withhold a portion
of capital gain distributions made to any shareholders who fail to certify their
non-foreign status on Baron Trust. See "- Taxation of Foreign Shareholders"
below.
TAXATION OF TAX-EXEMPT SHAREHOLDERS. The Service has issued a revenue
ruling in which it held that amounts distributed by a REIT to a tax-exempt
employees' pension trust do not constitute unrelated business taxable income
("UBTI"). Subject to the discussion below regarding a "pension-held REIT," based
upon such ruling and the statutory framework of the Code, distributions by Baron
Trust to a shareholder that is a tax-exempt entity should also not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its common shares with "acquisition indebtedness" within the meaning of the
Code, and the common shares are not otherwise used in an unrelated trade or
business of the tax-exempt entity, and that Baron Trust, consistent with its
present intent, does not hold a residual interest in a "real estate mortgage
investment conduit" ("REMIC").
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
TAXATION OF FOREIGN SHAREHOLDERS. The rules governing United States
Federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state, local and foreign income tax
laws with regard to an investment in common shares, including any reporting
requirements. Baron Trust will qualify as a "domestically-controlled REIT" so
long as less than 50% in value of its shares is held by foreign persons (I.E.,
non-resident aliens, and foreign corporations, partnerships, trusts and
estates). Baron Trust currently anticipates that it will qualify as a
domestically-controlled REIT. Under these circumstances, gain from the sale of
common shares by a foreign person should not be subject to United States
taxation, unless such gain is effectively connected with such person's United
States business or, in the case of an individual foreign person, such person is
present within the United States for more than 182 days during the taxable year.
However, notwithstanding Baron Trust's current anticipation that Baron Trust
will qualify as a domestically controlled REIT, because the common shares will
be freely tradable by shareholders, we cannot be certain that Baron Trust will
continue to so qualify.
Distributions of cash generated by Baron Trust's real estate operations
(but not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign shareholder
files with Baron Trust the required form evidencing such lower rate, or (ii) the
foreign shareholder files an IRS Form 4224 with Baron Trust claiming that the
distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of
United States real property interests of Baron Trust are subject to income and
withholding taxes pursuant to the Foreign Investment in
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Real Property Tax Act of 1980 ("FIRPTA"), and may be subject to branch profits
tax in the hands of a shareholder which is a foreign corporation if it is not
entitled to treaty relief for exemption. Baron Trust is required by applicable
Treasury Regulations to withhold 35% of any distribution to a foreign person
that could be designated by Baron Trust as a capital gain dividend; this amount
is creditable against the foreign shareholder's FIRPTA tax liability.
The federal income taxation of foreign persons is a highly complex
matter that may be affected by many other considerations. Accordingly, foreign
investors in Baron Trust should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investments in
Baron Trust.
OTHER TAX CONSIDERATIONS
POSSIBLE LEGISLATIVE OR OTHER ACTIONS AFFECTING TAX CONSEQUENCES.
Prospective shareholders should recognize that the present federal income tax
treatment of investment in Baron Trust may be modified by legislative, judicial
or administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with federal
income taxation are constantly under review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. We cannot be certain as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof could
adversely affect the tax consequences of investment in Baron Trust.
STATE AND LOCAL TAXES. Baron Trust and its shareholders may be subject
to state or local taxation in various jurisdictions, including those in which it
or they transact business or reside. The state and local tax treatment of Baron
Trust and its shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in common shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
SUMMARY OF DECLARATION OF TRUST
Shareholders of Baron Trust will have the rights and obligations under
the Trust Declaration for Baron Trust. The Trust Declaration also contains
certain additional limitations on Baron Trust's activities which will affect the
operation of Baron Properties. The following briefly summarizes material
provisions of the Trust Declaration not described elsewhere in this prospectus
and is qualified in its entirety by express reference to the provisions of the
agreement. Baron Trust will deliver a copy of the Trust Declaration to each
requesting offeree without charge.
TERM
The term of Baron Trust commenced on July 31, 1997 and will end on the
earliest to occur of (a) December 31, 2098, (b) the determination of the holders
of at least a majority of the shares of Baron Trust then outstanding to dissolve
Baron Trust; (c) the sale of all or substantially all of Baron Trust's Property,
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(d) the withdrawal of this offering by Baron Advisors prior to the Termination
Date of this offering, and (e) the occurrence of any other event which, by law,
would require Baron Trust to terminate. Upon dissolution, Baron Advisors or a
liquidity receiver or trustee selected by Baron Advisors or the investors will
liquidate Baron Trust's assets. (See Recitals and Article 9 of the Trust
Declaration.)
CONTROL OF OPERATIONS
Baron Advisors (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath) will manage and
control the day to day affairs of Baron Trust and Baron Properties, subject to
general supervision and review by the independent trustees and Baron Advisors
acting together as the Board of Trustees of Baron Trust and to prior approval
authority of the Board and/or the independent trustees in respect of certain
actions. The Trust Declaration requires that a majority of the Board of Trustees
of Baron Trust be comprised of independent trustees not affiliated with Baron
Advisors or its affiliates. Baron Advisors will be obligated to devote to Baron
Trust such time as may be reasonably necessary to conduct Baron Trust's
business. The investors will have no participation in or control over the
management of Baron Trust or Baron Properties, except the right to propose and
vote on certain matters under the Trust Declaration. Baron Advisors and the
other members of the Board, including the independent trustees, are obligated to
manage Baron Trust in the best interest of its Partners. (See Article 7 of the
Trust Declaration.)
The following discussion describes certain actions of Baron Trust and
Baron Properties, as applicable, which require approval and/or supervision of
the Board and/or the independent trustees and certain other provisions,
restrictions and limitations affecting the operations of Baron Trust and Baron
Properties. (See Section 1.9 of the Trust Declaration.)
- - At, or prior to, the initial meeting of the Board of Trustees of Baron
Trust, the Trust Declaration and the Trust Management Agreement must be
reviewed and ratified by a majority vote of the Board and of the
independent trustees. (See Section 1.9(b) of the Trust Declaration.)
- - The Board must establish written policies on investments and any borrowing
to be made by Baron Trust and Baron Properties and monitor the
administrative procedures, investment operations and performance of Baron
Trust, Baron Properties and Baron Advisors to ensure that such policies are
being carried out. (See Section 1.9(c) of the Trust Declaration.)
- - The Board must evaluate the performance of Baron Advisors (and any
successor advisor of Baron Trust) prior to entering into or renewing a
management agreement relating to the administration and management of Baron
Trust (other than the initial term of the Trust Management Agreement which
is described in this prospectus (see "MANAGEMENT - Trust Management
Agreement"), which agreement is deemed to have been approved by investors
who acquire common shares in this offering, by a majority of the Board and
a majority of the independent trustees). Any such management agreement may
not have a term of more than one year and must be terminable by a majority
of the independent trustees or Baron Advisors (or any successor advisor, as
the case may be) on at least 60 days prior written notice without cause or
penalty. The Board must determine that any successor to Baron Advisors (or
any successor advisor) possesses sufficient qualifications to perform the
advisory function for Baron Trust and justify the compensation provided for
in the applicable management agreement. (See Section 1.9(d) of the Trust
Declaration.)
- - The independent trustees must determine, at least annually, that the total
fees and expenses of Baron Trust and Baron Properties are reasonable in
light of their investment performance, their net assets,
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their net income, and the fees and expenses of other comparable
unaffiliated REITs. (See Section 1.9(f) of the Trust Declaration.)
- - The independent trustees must determine that organizational and offering
expenses payable by Baron Trust and Baron Properties in connection with the
formation of Baron Trust and Baron Properties and any offerings of shares
or units is reasonable and in no event exceeds an amount equal to 15% of
the gross proceeds of the particular offering. (See Section 1.9(g) of the
Trust Declaration.)
- - The independent trustees must determine that the total amount of any
acquisition fee and expenses payable by Baron Trust or Baron Properties in
connection with acquiring its investments is reasonable and in no event
exceeds an amount equal to 6% of the purchase price of the subject property
(including the amount actually paid for or allocated to the purchase,
development, construction or improvement of a property, exclusive of
acquisition fees and acquisition expenses), or in the case of a mortgage
loan made or acquired by Baron Trust or Baron Properties, 6% of the funds
advanced, unless a majority of the disinterested members of the Board and a
majority of the disinterested independent trustees approve payment of an
acquisition fee in excess of such amounts based upon their determination
that such excess fee is commercially competitive, fair and reasonable to
Baron Trust and Baron Properties. (See Section 1.9(h) of the Trust
Declaration.)
- - The independent trustees have the fiduciary responsibility of limiting the
total operating expenses (less certain items described below) of each of
Baron Trust and Baron Properties in any fiscal year to the greater of (i)
2% of the aggregate book value of their respective investments, or (ii) 25%
of their respective net income for such year unless the independent
trustees make a finding that, based on such unusual and non-recurring
factors which they deem sufficient, a higher level of such operating
expenses is justified for such year. Within 60 days after the end of each
fiscal year in which Baron Trust or Baron Properties incurs operating
expenses in excess of such amount, Baron Trust or Baron Properties, as the
case may be, must send to the shareholders and unitholders written
disclosure of such fact, together with an explanation of the factors the
independent trustees considered in arriving at their finding that such
higher operating expenses were justified. If the independent trustees do
not determine such excess expenses are justified, Baron Advisors must
reimburse Baron Trust or Baron Properties, as applicable, at the end of
such fiscal year the amount by which the total operating expenses paid or
incurred by Baron Trust or Baron Properties exceed the limitations herein
provided. For purposes of determining "total operating expenses" the
following items are excluded: (i) the expenses of raising capital,
including without limitation organizational and offering expenses, legal,
audit, accounting, underwriting, brokerage, listing, registration and other
fees, printing and other such expenses, and tax incurred in connection with
the issuance, distribution, transfer, registration, and stock exchange
listing, if any, of Baron Trust's shares and Baron Properties' units; (ii)
interest payments; (iii) taxes; (iv) non-cash expenditures such as
depreciation, amortization and bad debt reserves; (v) incentive
compensation paid which is based on the gain from the sale of Trust or
Operating Partnership assets; and (vi) acquisition fees and expenses, real
estate commissions on resale of property and other expenses connected with
the acquisition, disposition, and ownership of real estate interests,
mortgage loans, or other property. (See Section 1.9(i) of the Trust
Declaration.)
- - A majority of the independent trustees must determine that any real estate
commission paid to Baron Advisors, a Trustee, or any of their respective
affiliates in connection with the resale of any Baron Trust or Baron
Properties asset is reasonable, customary and competitive in light of the
size, type and location of such property and in no event exceeds 3% of the
sale price, and that the amount of such commissions payable when added to
the commissions payable to unaffiliated real estate brokers does not exceed
the lesser of such competitive real estate commission or an amount equal to
6% of the sale price. (See Section 1.9(j) of the Trust Declaration.)
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- - The independent trustees must determine, at least annually, that the
compensation which Baron Trust contracts to pay to Baron Advisors (or any
successor advisor) is reasonable in relation to the nature and quality of
services performed and that such compensation is within the limits
prescribed in the fourth bullet point in this section. The independent
trustees must also supervise the performance of Baron Advisors (and any
successor advisor) and the compensation payable to it by Baron Trust to
determine that the terms and conditions of the contract are being carried
out. (See Section 1.9(k) of the Trust Declaration.)
- - Neither Baron Trust nor Baron Properties may purchase property or any
equity interest in any entity owning one or more properties from Baron
Advisors, a Trustee, or any of their respective affiliates unless a
majority of the disinterested members of the Board and a majority of the
disinterested independent trustees review the proposed transaction and
determine that it is fair and reasonable to Baron Trust and Baron
Properties and that the purchase price to Baron Trust or Baron Properties,
as applicable, for such property or equity interest is no greater than the
cost of the property or equity interest to such proposed seller, or if the
purchase price to Baron Trust or Baron Properties is in excess of such
cost, that substantial justification for such excess exists and such excess
is reasonable, provided, however, in no event may the purchase price for
the property exceed its current appraised value. (See Section 1.9(l) of the
Trust Declaration.)
- - Neither Baron Advisors, any Trustee, nor any of their respective affiliates
may acquire or lease any assets from Baron Trust or Baron Properties unless
a majority of the disinterested members of the Board and a majority of the
disinterested independent trustees determine that the proposed transaction
is fair and reasonable to Baron Trust and Baron Properties. (See Section
1.9(m) of the Trust Declaration.)
- - No loans may be made by Baron Trust or Baron Properties to Baron Advisors,
a Trustee, or any of their respective affiliates except as provided below
or to any wholly owned subsidiary of Baron Trust or Baron Properties. (See
Section 1.9(n) of the Trust Declaration.)
- - Neither Baron Trust nor Baron Properties may borrow money from or invest in
joint ventures with Baron Advisors, a Trustee, or any of their respective
affiliates unless a majority of the disinterested members of the Board and
a majority of the disinterested independent trustees determine that such
proposed transaction is fair, competitive, and commercially reasonable and
no less favorable to Baron Trust and Baron Properties than such
transactions between unaffiliated parties under the same circumstances.
(See Section 1.9(o) of the Trust Declaration.)
- - Neither Baron Trust nor Baron Properties may invest in equity securities
unless a majority of the disinterested members of the Board and a majority
of the disinterested independent trustees determine that such proposed
transaction is fair, competitive, and commercially reasonable. (See Section
1.9(q) of the Trust Declaration.)
- - The independent trustees must review the investment policies of Baron Trust
at least annually to determine that the policies being followed by Baron
Trust at any time are in the best interests of the shareholders and the
unitholders. (See "INVESTMENT OBJECTIVES AND POLICIES" above and Section
1.9(r) of the Trust Declaration.)
- - In the event that Baron Trust or Baron Properties and one or more other
investment programs sponsored by Baron Advisors or an affiliate of Baron
Advisors (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) seek to acquire
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similar types of properties, the Board (including the independent trustees)
must review the method described in "INVESTMENT OBJECTIVES AND POLICIES -
Trust Policies with Respect to Certain Activities - Investment Policies"
for allocating the acquisition of properties among Baron Trust or Baron
Properties, as applicable, and such other programs in order to determine
that such method is applied fairly to Baron Trust and Baron Properties.
(See Section 1.9(s) of the Trust Declaration.)
- - Any other transaction not described in this section between Baron Trust or
Baron Properties and Baron Advisors, a Trustee, or any of their respective
affiliates requires the determination of a majority of the disinterested
members of the Board and a majority of the disinterested independent
trustees that the proposed transaction is fair and reasonable to Baron
Trust and Baron Properties and on terms and conditions no less favorable to
Baron Trust and Baron Properties than those available from unaffiliated
parties. (See Section 1.9(t) of the Trust Declaration.)
- - The purchase price payable for property to be acquired by Baron Trust and
Baron Properties must be based on the fair market value of the property as
determined by a majority of the members of the Board, provided, however, in
cases in which a majority of the independent trustees in their sole
discretion determine, and in all cases in which Baron Trust or Baron
Properties proposes to acquire property from Baron Advisors, a Trustee, or
any of their respective affiliates, such fair market value must be
determined by a qualified independent appraiser selected by the independent
trustees. (See Section 1.9(u) of the Trust Declaration.)
- - In connection with a proposed roll-up (as defined below) involving the
assets of Baron Trust or Baron Properties, an appraisal of all such assets
must be obtained from a qualified independent appraiser and delivered to
the shareholders and unitholders in connection with the proposed
transaction. The sponsor of the transaction must offer to shareholders and
unitholders who vote against the proposal the choice of: (i) accepting the
securities of the roll-up entity (I.E., the entity surviving the roll-up)
or (ii) either (x) remaining as shareholders in Baron Trust or unitholders
in Baron Properties, as applicable, and preserving their interests therein
on the same terms and conditions as existed previously or (y) receiving
cash in an amount equal to their respective pro rata share of the appraised
value of the net assets of Baron Trust or Baron Properties, as applicable.
Baron Trust is prohibited from participating in certain types of roll-ups
specified in the Trust Declaration. Generally, a "roll-up" is a transaction
involving the acquisition, merger, conversion, or consolidation either
directly or indirectly of Baron Trust or Baron Properties and the issuance
of securities of a roll-up entity. (See Section 1.9(v) of the Trust
Declaration.)
- - The aggregate borrowings of each of Baron Trust and Baron Properties,
secured and unsecured, must be reasonable in relation to their respective
net assets and must be reviewed at least quarterly by the Board. The
maximum amount of such borrowings in relation to such net assets may not
exceed 300%, in the absence of a satisfactory showing that higher level of
borrowing is appropriate. Any borrowing in excess of such amount requires
the approval of a majority of the independent trustees and must be
disclosed to shareholders and the unitholders in the next quarterly report
of Baron Trust, along with an explanation of the justification of such
excess. (See Section 1.9(w) of the Trust Declaration.)
- - Neither Baron Trust nor Baron Properties may invest more than 10% of its
total assets in unimproved real property or mortgage loans on such type of
property. (See Section 1.9(x) of the Trust Declaration.)
- - Neither Baron Trust nor Baron Properties may invest in commodities or
commodity future contracts, excluding future contracts used solely for
hedging purposes in connection with Baron Trust's or Baron Properties'
ordinary business of investing in real estate assets and mortgages. (See
Section 1.9(y) of the Trust Declaration.)
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- - Neither Baron Trust nor Baron Properties may invest in or make mortgage
loans (other than loans insured or guaranteed by a government or government
agency) unless an appraisal of replacement cost new is obtained concerning
the underlying property. In cases in which a majority of the independent
trustees in their sole discretion determine, and in all cases in which the
proposed transaction is with Baron Advisors, a Trustee, or any of their
respective affiliates, the appraisal must be obtained from a qualified
independent appraiser. The appraisal must be maintained in Baron Trust's
records for at least five years, and must be available for inspection and
duplication by any shareholder or unitholder at the shareholder's or
unitholder's own expense. In addition to the appraisal, Baron Trust or
Baron Properties, as applicable, must also obtain a mortgagee's or owner's
title insurance policy or commitment as to the priority of the mortgage or
the condition of the title. Baron Trust and Baron Properties are prohibited
from (i) investing in real estate contracts of sale (I.E., land sale
contracts), unless such contracts are in recordable form and appropriately
recorded in the chain of title; (ii) investing in or making any mortgage
loans on any one property if the aggregate amount of all mortgage loans
outstanding on the property, including the loans of Baron Trust or Baron
Properties, as applicable, would exceed an amount equal to 80% of the
replacement cost new of the property as determined by appraisal unless
substantial justification exists; and (iii) making or investing in any
mortgage loans that are subordinate to any mortgage or equity interest of
Baron Advisors, Trustees, or any of their respective affiliates. (See
Section 1.9(z) of the Trust Declaration.)
- - Baron Trust and Baron Properties may not issue options or warrants to
purchase shares or units to Baron Advisors, Baron Trustees, or any of their
respective affiliates except on the same terms as such options or warrants
are sold to the general public. Baron Trust and Baron Properties may issue
options or warrants to persons not so connected with Baron Trust or Baron
Properties but not at exercise prices less than the fair market value of
such securities on the date of grant and for consideration (which may
include services) that in the judgment of the independent trustees has a
market value less than the value of such option on the date of grant.
Options or warrants issuable to Baron Advisors, Baron Trustees, or any of
their respective affiliates must not exceed an amount equal to 10% of the
outstanding common shares or other securities of Baron Trust or of the
units or other securities of Baron Properties on the date of grant of any
options or warrants. (See Section 1.9(cc) of the Trust Declaration.)
- - The payment by Baron Trust and Baron Properties of an interest in the gain
from the sale of their respective assets, for which full consideration is
not paid in cash or property of equivalent value, is allowed provided the
amount or percentage of such interest is reasonable. Such an interest is
considered reasonable if it does not exceed 15% of the balance of such net
proceeds remaining after payment to shareholders or unitholders (as
applicable), in the aggregate, of an amount equal to 100% of the original
issue price of their shares or units, plus an amount equal to 6% of the
original issue price of their shares or units, per annum cumulative. For
purposes of this calculation, the original issue price of shares and units
may be reduced by prior cash distributions to shareholders and unitholders,
as applicable. (See Section 1.9(ee) of the Trust Declaration.)
LIABILITY AND INDEMNIFICATION
Neither Baron Advisors , Baron Trustees, nor any of their respective
affiliates are liable to Baron Trust or to any shareholder for any loss suffered
by Baron Trust which arises out of any action or inaction of such person, if
such person, in good faith, determines that such course of conduct was in Baron
Trust's best interest and such course of conduct was within the scope of the
Trust Declaration and did not constitute negligence or misconduct in the case of
a person who is not an independent trustee, or gross
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negligence or willful misconduct, in the case of any such person who is an
independent trustee. (See Section 3.5 of the Trust Declaration.)
Baron Trust will indemnify Baron Advisors, the independent trustees,
and each of their respective affiliates, officers, directors, shareholders,
partners, agents and employees (provided such persons act within the scope of
the Trust Declaration) against any loss, liability or damage (including costs of
litigation and attorneys' fees) incurred by such person arising out of or
incidental to this offering and the management of Baron Trust's affairs within
the scope of the Trust Declaration, unless such person's negligence or
intentional or criminal wrongdoing is involved. Notwithstanding the foregoing,
the exculpatory provisions do not include indemnification for liabilities
arising under the Securities Act unless (i) there has been a successful
adjudication on the merits of each claim involving alleged securities law
violations as to the particular indemnitee, (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee, or (iii) a court of competent jurisdiction approves a
settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and the related costs should be made. In
addition, the exculpatory provisions do not include indemnification for
liabilities arising from or out of intentional or criminal wrongdoing. See
Section 3.7(b) of the Trust Declaration. It is the position of the Securities
and Exchange Commission and certain state securities administrators that any
attempt to limit the liability of a managing shareholder or persons controlling
an issuer under the federal securities laws or state securities laws is contrary
to public policy and, therefore, is unenforceable. (See Sections 3.7 and 3.8 of
the Trust Declaration.)
Assuming compliance with the Trust Declaration and applicable formative
and qualifying requirements in Delaware and any other jurisdiction in which
Baron Trust conducts its business, a shareholder will not be personally liable
under Delaware law for any obligations of Baron Trust, except for
indemnification liabilities arising from any misrepresentation made by him in
the investor subscription documents submitted to Baron Trust in connection with
the acquisition of common shares in the offering. Baron Trust will, to the
extent practicable, endeavor to limit the liability of the shareholders in each
jurisdiction in which Baron Trust operates. (See Section 3.4 of the Trust
Declaration.)
The law governing whether a jurisdiction other than Delaware will honor
the limitation of liability extended under Delaware law to the shareholders is
uncertain. Many states have enacted legislation recognizing the limited
liability provisions of the Delaware business trust. In other states, there has
been no authoritative legislative or judicial determination as to whether the
limitation of liability would be honored. Baron Trust will make all equity
investments in properties through Baron Properties, a Delaware limited
partnership, which may provide Baron Trust a limited degree of limited
liability. Therefore, regardless of the local treatment of business trusts,
Baron Trust believes that the shareholders will not be subject to personal
liability for property liabilities and that with regard to the operation of
Baron Trust itself, the limitation of shareholders' liability under Delaware law
will govern.
Under certain federal and state environmental laws of general
application, entities that own or operate properties contaminated with hazardous
substances may be liable for cleanup liabilities regardless of other limitations
of liability. Baron Trust is not aware of any case where such environmental
liabilities were imposed on non-management participants in a business trust. See
"BUSINESS OF THE TRUST - Regulations."
The Delaware Act does not contain any provision imposing liability on a
shareholder for participation in the control of Baron Trust, although no
shareholder has any rights to do so except through the rights to propose and
vote on matters described below. The Delaware Act does not require a shareholder
who receives distributions that are made when Baron Trust is or would be
rendered insolvent to return those distributions under equitable principles
enforced by courts. Under Delaware decisions, a trust
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beneficiary who receives overpayments from a trust is obligated to return those
payments, with interest, subject to equitable defenses. The application of these
cases to beneficiaries of a business trust is uncertain. the Trust Declaration
has been signed by the Corporate Trustee, and Baron Advisors was the formative
beneficial interest holder of Baron Trust.
DISTRIBUTIONS
Baron Trust presently intends to make quarterly pro rata distributions
of available funds, if any, to its shareholders. In order to maintain its
qualification as a REIT under the Code, Baron Trust must make annual
distributions to shareholders of at least 95% of its taxable income, determined
without regard to the deduction for dividends paid and by excluding any net
capital gains. Under certain circumstances, Baron Trust may be required to make
distributions in excess of cash flow available for distribution to meet such
distribution requirements. Shareholders will be entitled to receive any
distributions declared on a pro rata basis for each outstanding class of shares
taking into account the relative rights of priority of each class entitled to
distributions. (See Section 6.7 of the Trust Declaration.)
The Board of Trustees of Baron Trust is expected to adopt a
distribution reinvestment program. Upon the adoption of the plan, Baron Trust
will provide material information to shareholders regarding the plan and the
effect of reinvesting distributions from Baron Trust, including the tax
consequences thereof. Baron Trust will provide shareholders updated information
at least annually. (See Section 2.8 of the Trust Declaration.)
QUARTERLY AND ANNUAL REPORTS
Baron Trust will provide each shareholder with quarterly and annual
reports as described below at "REPORTS TO SHAREHOLDERS." (See also Section 5.3
of the Trust Declaration.)
ACCOUNTING
The accounting period of Baron Trust will end on December 31 of each
year. Baron Trust will utilize the accrual method of accounting for Baron
Trust's operations on the basis used in preparing Baron Trust's federal income
tax returns with such adjustments as may be in Baron Trust's best interest. (See
Section 5.1 of the Trust Declaration.)
BOOKS AND RECORDS; TAX INFORMATION
Baron Trust will keep appropriate records relating to its activities.
All books, records and files of Baron Trust will be kept at its principal
offices at Cincinnati, Ohio or Wilmington, Delaware. An independent certified
public accounting firm will prepare Baron Trust's federal income tax returns as
soon as practicable after the conclusion of each year. Baron Trust will use its
reasonable best efforts to obtain the information for those returns as soon as
possible and to cause the resulting accounting and tax information to be
transmitted to the shareholders as soon as possible after receipt from the
accounting firm. Shareholders have the right under the terms of the Trust
Declaration to obtain other information about Baron Trust and may, at their
expense, obtain a list of the names and addresses of the shareholders. (See
Sections 5.2, 5.3(c), and 6.4 of the Trust Declaration.)
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GOVERNING LAW
All provisions of the Trust Declaration will be construed according to
the laws of the State of Delaware except as may otherwise be required by law in
any other state. (See Section 9.2 of the Trust Declaration.)
AMENDMENTS AND VOTING RIGHTS
Baron Advisors (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath) may amend the
Trust Declaration without notice to or approval of the shareholders for the
following purposes: to maintain the federal income tax status of Baron Trust as
a REIT (unless Baron Advisors determines that it is in the best interests of the
shareholders to disqualify Baron Trust's REIT status and a majority of common
shares entitled to vote approve such determination); or to comply with law. (See
Section 9.6(a) of the Trust Declaration.)
Other amendments to the Trust Declaration may be proposed either by
Baron Advisors or holders of at least 10% of the common shares, either by
calling a meeting of the shareholders or by soliciting written consents. The
procedure for such meetings or solicitations is found at Section 6.5 of the
Trust Declaration. Such proposed amendments require the approval of a majority
in interest of the shareholders entitled to vote given at a meeting of
shareholders or by written consents. (See Section 9.6(b) of the Trust
Declaration.) Other voting rights of shareholders are described below at
"-Meeting and Voting Rights."
DISSOLUTION OF TRUST
The term of Baron Trust will end on the earliest to occur of (a)
December 31, 2098, (b) the vote of a majority in interest of the shareholders,
(c) the sale of all or substantially all of Baron Properties' property, (d) the
withdrawal of this offering by Baron Advisors prior to the Termination Date of
the offering, (e) any other event requiring dissolution by law. Baron Trust will
wind up its business after dissolution unless (i) any remaining managing
shareholder and a majority in interest of the shareholders (calculated without
regard to common shares held by Baron Advisors) or (ii) if there is no remaining
managing shareholder or its affiliates, a majority in interest of the
shareholders, elects to continue Baron Trust. Baron Advisors (or in the absence
thereof, a liquidating trustee chosen by the shareholders) will liquidate Baron
Trust's assets if it is not continued. (See Article 8 of the Trust Declaration.)
REMOVAL AND RESIGNATION OF THE BARON ADVISORS
The holders of at least 10% of the common shares may propose the
removal of Baron Advisors, either by calling a meeting or soliciting consents in
accordance with the terms of the Trust Declaration. Removal of Baron Advisors
requires either the affirmative vote of a majority of the common shares
(excluding common shares held by Baron Advisors which is the subject of the vote
or by its affiliates) or the affirmative vote of a majority of the independent
trustees. The shareholders entitled to vote thereon may replace a removed
managing shareholder or fill a vacancy by vote of a majority in interest of such
shareholders. (See Section 7.11 of the Trust Declaration.)
Baron Advisors or a majority of the independent trustees may terminate
the Trust Management Agreement and Baron Advisors may resign as managing
shareholder without cause or penalty by giving Baron Trust at least 60 days
prior written notice. Upon the termination of the Trust Management Agreement,
Baron Advisors must cooperate with Baron Trust and take all reasonable steps
requested to assist the Board in making an orderly transition of the management,
administrative and advisory function. (See Section 7.3(d) of the Trust
Declaration and Article VI of the Trust Management Agreement.)
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TRANSFERABILITY OF SHAREHOLDERS' INTERESTS
The common shares are freely transferable by the shareholders, subject
to certain restrictions on transfer which Baron Advisors deems necessary to
comply with the REIT provisions of the Code. (See Section 2.5 and Article 2A of
the Trust Declaration.) Such limitations are described at "CAPITAL STOCK OF THE
TRUST - Restrictions on Ownership and Transfer."
INDEPENDENT ACTIVITIES
Provided that they comply with any fiduciary obligation to Baron Trust
and with the conflicts of interest policies of Baron Trust and Baron Properties,
Baron Advisors and each shareholder may engage in whatever activities they
choose, whether or not such activities are competitive with Baron Trust, without
any obligation to offer any interest in such activities to Baron Trust or to any
other shareholders. (See Sections 6.2 and 7.9 of the Trust Declaration.)
POWER OF ATTORNEY
In the Trust Declaration, the shareholders acknowledge that Baron
Advisors has been granted an irrevocable power of attorney to execute and file
(i) all amendments, alterations or changes in the Trust Declaration which comply
with the terms of the Trust Declaration; (ii) all other instruments which Baron
Advisors believes to be in the best interest of Baron Trust to file; (iii) all
certificates or other instruments necessary to qualify or maintain Baron Trust
as a REIT or as a business trust in which the shareholders have limited
liability in the jurisdictions where Baron Trust may conduct business; and (iv)
all instruments necessary to effect a dissolution, termination, liquidation,
cancellation or continuation of Baron Trust when such dissolution, termination,
liquidation, cancellation or continuation is called for under the Trust
Declaration. (See Section 9.3 of the Trust Declaration.)
MEETINGS AND VOTING RIGHTS
Baron Trust will conduct an annual meeting of shareholders at which all
members of the Board (including all independent trustees) (except where Baron
Advisors and a majority in interest of the shareholders entitled to vote on such
matter approve staggered elections for such positions, in which case only the
class up for election) will be elected or reelected and any other proper
business may be conducted. Each common share entitles the holder to one vote on
all matters requiring a vote of shareholders, including the election of members
of the Board. The shareholders meeting will be held upon reasonable notice and
within 30 days after the delivery of Baron Trust's annual report to
shareholders, but in any event no later than the end of the sixth month
following the end of the prior full fiscal year. Special meetings of the
shareholders may be called at any time, either by Baron Advisors, a majority of
the independent trustees, any officer of Baron Trust, or shareholders who hold
10% or more of the common shares then outstanding, for any matter on which such
shareholders may vote. Baron Trust may not take any of the following actions
without approval of the holders of at least a majority of the shares entitled to
vote:
(1) Sell, exchange, lease, mortgage, pledge or transfer all or
substantially all of Baron Trust's assets if not in the ordinary course of
operation of Trust property or in connection with liquidation and dissolution.
(2) Merge or otherwise reorganize Baron Trust.
(3) Dissolve or liquidate Baron Trust, other than before its initial
investment in property.
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(4) Amend the Trust Declaration; provided, however, the Trust
Declaration may be amended by Baron Advisors without notice or approval of the
shareholders for the following purposes: (i) to maintain the federal income tax
status of Baron Trust (unless Baron Advisors determines (with the concurrence of
a majority of the shareholders entitled to vote on such matter) that it is in
the best interest of shareholders to change Baron Trust's tax status); and (ii)
to comply with law. (See Sections 1.9(ff), 6.5, 6.6 and 7.3(b) of the Trust
Declaration.)
In addition to any other actions of Baron Trust requiring the approval
of shareholders under the Trust Declaration, a majority of the shareholders
present in person or by proxy at an annual meeting at which a quorum is present,
may, without the necessity for concurrence by the Board, vote to amend the Trust
Declaration, terminate Baron Trust, and elect and/or remove one or more members
of the Board. (See Section 6.6(b) of the Trust Declaration.)
ADDITIONAL OFFERINGS OF SHARES
There will be no mandatory assessments of shareholders in respect of
the common shares or any additional shares Baron Trust may issue in the future.
To the extent that the Board desires to obtain additional capital, Baron Trust
may raise such capital through additional public and private equity offerings,
debt financing, retention of cash flow (subject to satisfying Baron Trust's
distribution requirements under the REIT rules) or a combination of these
methods. Baron Trust may determine to issue securities senior to the common
shares, including preferred shares, debt securities, or units of limited
partnership interest in Baron Properties (either of which may be convertible
into common shares or be accompanied by warrants to purchase common shares).
Baron Trust may also finance acquisitions of properties or interests in
properties through the exchange of properties or interests in properties or
through the issuance of shares or debt securities or the issuance of units of
limited partnership interest in Baron Properties in which it will conduct all of
its real estate operations. (See Article 2 of the Trust Declaration.)
The proceeds from any borrowings by Baron Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
Baron Properties, to refinance existing indebtedness or to finance acquisitions
or capital improvements of new properties or property interests. (See Section
1.8(a) of the Trust Declaration.)
TEMPORARY INVESTMENTS
Pending the commitment of Trust funds for the purposes described in
this prospectus, for distributions to shareholders or for application of reserve
funds to their purposes, Baron Advisors has full authority and discretion to
make short-term investments in: (i) obligations of banks or savings and loan
associations that either have assets in excess of $5 billion or are insured in
their entirety by the United States government or its agencies and (ii)
obligations of or guaranteed by the United States government or its agencies.
Such short-term investments would be expected to earn rates of return which are
lower than those earned in respect of properties in which Baron Trust may
invest. (See Sections 1.2(a) and 5.5 of the Trust Declaration.)
REPORTS TO SHAREHOLDERS
Baron Trust intends to keep each investor currently advised as to
activities of Baron Trust by reports furnished at least quarterly. Each
quarterly report will contain a condensed statement of "cash flow from
operations" for the year to date as determined by Baron Advisors in conformity
with generally
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accepted accounting principles on a basis consistent with that of the annual
financial statements and showing its derivation from net income. (See Section
5.3(a) of the Trust Declaration.)
Within 120 days after the end of each fiscal year following the
completion of this offering, the Trust Declaration requires Baron Trust to
prepare and mail to each shareholder as of a record date determined by Baron
Advisors, an annual report which includes the following:
(1) Financial statements prepared in accordance with generally accepted
accounting principles which are audited and reported on by Baron Trust's
independent certified public accountants;
(2) The ratio of the costs of raising capital during the period to the
capital raised;
(3) The aggregate amount of advisory fees and the aggregate amount of
other fees paid to Baron Advisors and any of its affiliates during the period by
Baron Trust and including fees or charges paid to them by third parties doing
business with Baron Trust;
(4) The total operating expenses (as defined in Section 1.9(i) of the
Trust Declaration), stated as a percentage of the book amount of Baron Trust's
investments and as a percentage of its net income;
(5) A report from the independent trustees that the policies being
followed by Trust are in the best interests of its shareholders and the basis
for such determination; and
(6) Full disclosure of all material terms, factors, and circumstances
surrounding any and all transactions involving Baron Trust, Baron Advisors,
Baron Trustees, and any of their respective affiliates occurring in the year for
which the annual report is made. (See Section 5.3(b) of the Trust Declaration.)
The common shares being sold in the offering have been registered under
the Securities Act. Baron Trust has not registered the common shares under the
Exchange Act or listed them on any securities exchange as of the date of this
prospectus. Baron Trust intends to apply for listing on a national securities
exchange of the common shares being offered in this offering and common shares
into which units are exchangeable. However, we cannot be certain whether Baron
Trust will qualify for such listing on a national securities exchange and, if
so, of the timing of the effectiveness of any such listing.
Although the common shares acquired by investors in the offering will
be freely tradable securities, we cannot be certain that an active trading
market will be established or maintained for the common shares. Baron Trust will
be required to file periodic reports (Form 10-KSB or Form 10-K annual reports,
Form 10-QSB or Form 10-Q quarterly reports and Form 8-K current reports) under
the Exchange Act for the fiscal year in which its Securities Act registration
statement becomes effective and for any subsequent fiscal year in which it has
more than 300 shareholders in any such year or it is otherwise required by
applicable law to do so. As of March 31, 1999, Baron Trust had at least 300
shareholders and accordingly will be required to file such reports on a
continuing basis.
CAPITAL STOCK OF THE TRUST
GENERAL
The Trust Declaration authorizes Baron Trust to issue up to 25,000,000 shares of
beneficial interest, no par value per share, consisting of common shares and of
preferred shares of such classes with such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
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qualifications, or terms or conditions of redemption as Baron Advisors may
create and authorize from time to time in accordance with Delaware law and the
Trust Declaration, provided, however, that Baron Trust may not issue redeemable
equity securities. Prior to this offering, which began in May 1998, there were
no shares of beneficial interest outstanding. Baron Trust is offering for sale
up to 2,500,000 common shares in this offering. If the exchange offering is
completed as contemplated, offerees would receive up to 2,500,000 units in Baron
Properties which would be exchangeable into 2,500,000 additional common shares.
The following description summarizes the material terms and provisions
of the common shares. The common shares when paid for and issued will be fully
paid and non-assessable. Each common share is equal in all respects to every
other common share and entitles the holder to one vote on all matters requiring
a vote of shareholders, including the election of members of the Board. Holders
of common shares do not have the right to cumulate their votes in the election
of members of the Board, which means that the holders of a majority of the
outstanding common shares can elect all of the nominees for Board positions then
standing for election. Shareholders are entitled to such distributions as may be
declared from time to time by Baron Advisors out of funds legally available
therefor. Shareholders will be entitled to receive any distributions declared by
Baron Advisors on a pro rata basis for each outstanding class of shares taking
into account the relative rights of priority of each class entitled to
distributions. Holders of common shares have no conversion, redemption,
preemptive or exchange rights to subscribe to any securities issued by Baron
Trust in the future. In the event of a liquidation, dissolution or winding up of
the affairs of Baron Trust, the shareholders are entitled to share ratably in
the assets of Baron Trust remaining after provision for payment of all
liabilities to creditors and payment of liquidation preferences and accrued
dividends, if any, on any series of preferred shares that may have been issued.
TRANSFER AGENT
American Stock Transfer & Trust Company ("ASTTC"), New York, New York,
will serve as the escrow agent for the exchange offering, and the transfer agent
and registrar for the common shares and the units. In the exchange offering,
ASTTC will act as the exchange agent, holding in escrow Baron Properties units
being offered and Exchange Partnership Units tendered by offerees who elect to
accept the offering. ASTTC will also hold in an escrow account the units
acquired by the original investors in connection with the formation of Baron
Trust and Baron Properties.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Trust Declaration contains certain restrictions on the number of
shares of Baron Trust that individual shareholders may own. For Baron Trust to
qualify as a REIT under the Code, no more than 50% in value of its shares may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a shorter taxable year. The
common shares must also be beneficially owned (other than during the first
taxable year) by 100 or more persons during at least 335 days of each taxable
year or during a proportionate part of a shorter taxable year. Because Baron
Trust expects to qualify as a REIT, the Trust Declaration contains restrictions
on the acquisition of shares intended to ensure compliance with these
requirements.
Subject to certain exceptions specified in the Trust Declaration, no
shareholder (other than the original investors) may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 5% of Baron Trust's
shares. Baron Advisors (upon receipt of a ruling from the Internal Revenue
Service or an opinion of counsel or other evidence satisfactory to Baron
Advisors and upon such other conditions as Baron Advisors may require) may in
its discretion waive the Ownership Limit depending on
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the then existing facts and circumstances surrounding the proposed transfer,
including without limitation, the identity of the party requesting such waiver,
the number and extent of Share ownership of other shareholders, the aggregate
number of outstanding shares and the extent of any contractual restrictions
(other than that contained in the Trust Declaration) on any shareholders
relating to transfer of their shares. See Section 2A.12 of the Trust
Declaration. As a condition of such exemption, the intended transferee must give
written notice to Baron Trust of the proposed transfer no later than the
fifteenth day prior to any transfer which, if consummated, would result in the
intended transferee owning shares in excess of the Ownership Limit. Baron
Advisors (wholly owned and controlled, along with the Corporate General Partner
of each Exchange Partnership, by Mr. McGrath) may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure Baron Trust's status as a REIT. Any
transfer of the shares that would (i) create a direct or indirect ownership of
the shares in excess of the Ownership Limit, (ii) result in the shares being
owned by fewer than 100 persons or (iii) result in Baron Trust being "closely
held" within the meaning of Section 856(h) of the Code, shall be null and void,
and the intended transferee will acquire no rights to the shares. The foregoing
restrictions on transferability and ownership will not apply if Baron Advisors
determines, which determination must be approved by the shareholders, that it is
no longer in the best interests of Baron Trust to attempt to qualify, or to
continue to qualify, as a REIT.
Any purported transfer of shares that would result in a person owning
shares in excess of the Ownership Limit or cause Baron Trust to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"), which will be
transferred by operation of law to Baron Trust as trustee for the exclusive
benefit of the person or persons to whom the Excess Shares are ultimately
transferred, until such time as the intended transferee re-transfers the Excess
Shares. While these Excess Shares are held in trust, they will not be entitled
to vote or to share in any dividends or other distributions. Subject to the
Ownership Limit, the Excess Shares may be transferred by the intended transferee
to any person (if the Excess Shares would not be Excess Shares in the hands of
such person) at a price not to exceed the price paid by the intended transferee
(or, if no consideration was paid, fair market value), at which point the Excess
Shares will automatically be exchanged for the shares to which the Excess Shares
are attributable. In addition, such Excess Shares held in trust are subject to
purchase by Baron Trust at a purchase price equal to the lesser of the price
paid for the shares by the intended transferee (or, if no consideration was
paid, fair market value) as reflected in the last reported sales price reported
on the New York Stock Exchange ("NYSE") on the trading day immediately preceding
the relevant date, or if not then traded on the NYSE, the last reported sales
price of such shares on the trading day immediately preceding the relevant date
as reported on any exchange or quotation system over which such shares may be
traded, or if not then traded over any exchange or quotation system, then the
market price of such shares on the relevant date as determined in good faith by
Baron Advisors of Baron Trust.
From and after the intended transfer to the intended transferee of the
Excess Shares, the intended transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to such shares
except the right to payment of the purchase price of the shares on the
retransfer of shares as provided above. Any dividend or distribution paid to a
proposed transferee on Excess Shares prior to the discovery by Baron Trust that
such shares have been transferred in violation of the provisions of Baron
Trust's Declaration shall be repaid to Baron Trust upon demand. If the foregoing
transfer restrictions are determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of Baron Trust, to have acted as an
agent on behalf of Baron Trust in acquiring such Excess Shares and to hold such
Excess Shares on behalf of Baron Trust.
All certificates representing shares will bear a legend referring to
the restrictions described above.
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All persons who own, directly or by virtue of the attribution
provisions of the Code, more than 5% (or such other percentage between 1/2 of 1%
and 5%, as provided in the rules and regulations promulgated under the Code) of
the number or value of the outstanding shares of Baron Trust must give a written
notice to Baron Trust by January 31 of each year. In addition, each shareholder
shall upon demand be required to disclose to Baron Trust in writing such
information with respect to the direct, indirect and constructive ownership of
shares as Baron Advisors deems reasonably necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
shares might receive a premium for their shares over the then prevailing market
price or which such holders might believe to be otherwise in their best
interest.
CAPITALIZATION
The following table sets forth the capitalization of Baron Trust on a
pro forma basis, assuming the completion of the sale of 2,500,000 common shares
being offered in this offering (614,110 shares have been sold as of May 15,
1999). As described above at "BUSINESS OF THE TRUST - Baron Properties," Baron
Trust will contribute net proceeds from this offering in exchange for a number
of units equivalent to the number of common shares sold by Baron Trust in this
offering. The subscription price for each common share being offered in this
offering is $10.00, and is payable in full in cash upon subscription. For
purposes of determining capitalization, such amount has been calculated after
deducting commissions and reimbursable offering expenses, estimated to be
approximately $1.00 per common share to be paid out of the proceeds of this
offering, but does not take into account the reimbursable investment expenses
currently estimated at $100,000. The capitalization of Baron Trust set forth
below does not take into account any proposed acquisitions of property interests
by Baron Properties in exchange for units registered or the subsequent exchange
by unitholders of such units issued in the exchange offering for common shares.
<TABLE>
<CAPTION>
Maximum Common Shares
Sold in this Offering (2,500,000)
<S> <C>
Shareholders' equity:
Common shares $22,500,000
------------
Total Capitalization $22,500,000
------------
------------
</TABLE>
TERMS OF THE OFFERING
Baron Trust is offering in this offering a maximum of 2,500,000 common
shares of beneficial interest in Baron Trust at $10.00 per common share
($25,000,000 in the aggregate). As of May 15, 1999, Baron Trust has sold 614,110
common shares in this offering resulting in gross proceeds of $6,141,100. All of
the common shares to be issued or sold by Baron Trust in this offering will be
tradable without restriction under the Securities Act, but will be subject to
certain restrictions designed to permit Baron Trust to qualify and maintain its
REIT status under the Code for federal income tax purposes.
After payment of commissions and reimbursable expenses related to the
offering, Baron Trust is required to contribute the remaining funds to Baron
Properties to be used to fund investments or to pay expenses other than those
associated with this offering, as determined by Baron Trust in its discretion.
The common shares will be offered and sold in this offering on a
non-exclusive best efforts basis through Sigma Financial Corporation. Sigma
Financial Corporation, which is not affiliated with Baron
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Advisors or any of its affiliates, has acted as dealer manager for certain
private offerings of limited partner interests in real estate investment limited
partnerships sponsored by affiliates of Baron Advisors and is expected to act as
dealer manager in certain future programs sponsored by affiliates of Baron
Advisors. Sigma may select other NASD member firms as co-manager or selected
broker-dealers to participate in this offering. Asset Allocation Securities
Corp., Calton & Associates, Inc., Oakbrook Investment Brokers Inc., Strategic
Assets, Inc., and Stuart Stone & Company, LLC, each a member of the NASD, have
entered into selling agreements with Sigma and will participate in the sale of
common shares in connection with this offering.
Sigma and participating broker-dealers have entered into an
Underwriting Agreement with Baron Trust. Sigma and participating broker-dealers
will receive selling commissions in an amount equal to 8% of the subscription
price for all common shares sold by them. Sigma may reallocate all or a portion
of its commission. Baron Trust reserves the right to waive the payment of all or
a part of a commission by one or more investors in the offering, in which case
the cost of the common shares acquired by such investors will be less than the
cost of equivalent common shares to an investor paying a commission, provided,
however, Baron Trust will exercise such waiver right on a case by case basis
according to the facts and circumstances involved.
In addition, Sigma and the participating broker-dealers will be
entitled to receive a warrant ("Warrant") to acquire a number of common shares
in an amount equal to 8.5% of the number of common shares sold in the offering
by Sigma or participating broker-dealers selected by it, at a purchase price
equal to $13.00 per common share. The Warrant will be exercisable for a period
of four years following the first anniversary of the grant of the Warrant. For a
period of six years following the grant of the Warrant, any registered holder of
the Warrant or common shares issued upon exercise of the Warrant may request
that Baron Trust include such securities as well as any common shares underlying
any unexercised portion of the Warrant in any registration statement that Baron
Trust determines to file under the Securities Act. Such registration would be at
Baron Trust's expense, excluding underwriter's compensation and expense
allowance relating to the requesting holder's securities to be registered and
fees and expenses of such holder's counsel.
Pursuant to the Underwriting Agreement, Sigma and participating
broker-dealers will not be obligated to purchase any common shares, but will
only be required to use their best efforts to sell common shares to suitable
offerees. The agreement may be terminated by either party in certain
circumstances. Baron Trust and Sigma have agreed to indemnify each other against
or to contribute to losses arising out of certain liabilities, including
liabilities arising under the Securities Act. Baron Trust has been advised that,
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable.
Nevertheless, the parties may seek to enforce such indemnification and rights to
contribution which are expressly provided under the agreement.
Baron Trust will reimburse Baron Advisors for distribution, due
diligence and organizational expenses incurred in connection with the formation
of Baron Trust and Baron Properties and with the offering, in an amount not to
exceed 1% of the aggregate subscription price paid for common shares in the
offering. To the extent the distribution, due diligence and organizational
expenses exceed 1% of gross proceeds of the offering, those expenses will not be
reimbursed. Baron Trust will also reimburse Baron Advisors for legal, accounting
and consulting fees and printing, filing, recording, postage and other
miscellaneous expenses incurred in connection with the offering, in an amount
not to exceed 1% of the aggregate subscription price paid for common shares in
the offering. Any such expenses of Baron Advisors in excess of 1% of the
aggregate subscription price paid for common shares in the offering will be paid
by Baron Advisors. Such reimbursements will be payable out of the gross proceeds
of the offering.
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In addition, Baron Trust will reimburse Baron Advisors for expenses
incurred prior to and during the offering for investigating and evaluating
investment opportunities for Baron Trust and Baron Properties and assisting them
in effecting their investments, in an amount not to exceed 4% of the aggregate
subscription price paid for common shares in this offering. Such reimbursements
will be payable from available net proceeds of this offering or as cash flow
permits as determined by the Board of Trustees of Baron Trust.
The termination date of this offering (the "Termination Date") is
scheduled to be November 30, 1999 or an earlier date determined by Baron
Advisors as specified below. Baron Advisors may in its sole discretion terminate
the offering at any time before the scheduled Termination Date.
Baron Advisors will have the right to withdraw the offering of common
shares at any time prior to the Termination Date, in which case Baron Trust will
be immediately dissolved at the expense of Baron Advisors and all subscription
funds will be returned promptly to the subscribers. If Baron Advisors withdraws
the offering, any person that has received fees or other payments from the
proceeds of the offering will be required to return such fees or payments to
Baron Trust upon the demand of Baron Advisors.
OTHER INFORMATION
GENERAL
Baron Trust undertakes to make available to each prospective Investor
or his representative, or both, during the course of the offering and prior to
the investor's purchase of common shares, the opportunity to ask questions of
and receive answers from Baron Trust or any person acting on its behalf relating
to the terms and conditions of the offering and the proposed exchange offering
and to obtain any additional information necessary to verify the accuracy of
information made available to such purchaser.
Prior to making an investment decision respecting the common shares, a
prospective Investor should carefully review and consider this entire prospectus
and any Exhibits hereto. Prospective investors are urged to make arrangements
with Baron Trust to inspect any books, records, contracts, or instruments
referred to in this prospectus and other data relating thereto. Baron Trust is
available to discuss with prospective investors any matter set forth in this
prospectus or any other matter relating to the common shares, so that investors
and their advisors, if any, may have available to them all information,
financial and otherwise, necessary to formulate a well-informed investment
decision.
AUTHORIZED SALES MATERIAL
Sales material may be used in connection with this offering of the
common shares only when accompanied or preceded by the delivery of this
prospectus. Only sales material that indicates that it is distributed by Baron
Trust or Sigma may be distributed to prospective investors. Currently, Baron
Trust and Sigma intend to distribute to prospective investors (i) a sales
brochure or other written or graphic communications depicting certain
information regarding Baron Advisors, Baron Trust and the residential real
estate industry, and (ii) summaries of material aspects of properties which
become probable investments for Baron Trust during the offering period. In
addition, Baron Trust or Sigma may distribute a summary of this offering
containing highlights or other summary information concerning this offering,
information regarding Baron Advisors, Baron Trust, Baron Properties or previous
real estate investment programs sponsored by affiliates of Baron Advisors, or
information regarding the residential apartment real estate industry. All such
additional sales material will be signed by or otherwise identified as
authorized by Baron Trust. Any other sales material or information has not been
authorized for use by Baron Trust or
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Sigma and must be disregarded by investors.
In certain jurisdictions, some or all of this sales material may not be
distributed pursuant to securities law requirements, and in all jurisdictions,
this offering is made only by this prospectus.
All authorized sales material will be consistent with this prospectus,
as supplemented. Nevertheless, sales material by its nature does not purport to
be a complete description of this offering and investors must review this
prospectus and supplements carefully for a complete description of this
offering. Authorized sales material should not be considered to be the basis for
this offering of common shares or an investor's decision to purchase common
shares. Sales material is not a part of this prospectus and is not incorporated
by reference into this prospectus unless expressly stated in this prospectus or
supplements hereto.
FINANCIAL STATEMENTS
Set forth in Exhibit C are (i) the consolidated audited balance sheet
of Baron Trust as of December 31, 1998, the audited balance sheet of Baron
Advisors as of December 31, 1998, and their respective statements of operations,
statements of shareholders' equity, and statements of cash flows for the
12-month period ending December 31, 1998 and (ii) the Form 10-QSB filed by Baron
Trust with the Commission for the three months ended March 31, 1999.
As described below, Exhibit D to this Prospectus sets forth certain
financial statements relating to the 23 Exchange Partnerships involved in the
Exchange Offering. Set forth in Exhibit D are audited statements of revenues and
certain expenses for each of the 13 Exchange Equity Partnerships for the 12
month periods ended December 31, 1997 and 1998, and unaudited statements of
revenues and certain expenses for the three months ended March 31, 1999. The
statements of revenues and certain expenses exclude material expenses described
in the notes thereto (including partnership administrative expenses, major
maintenance, depreciation, amortization, and professional fees) that would not
be comparable to those resulting from the proposed future operations of the
Exchange Properties.
Also set forth in Exhibit D are the audited financial statements for
each of the Exchange Mortgage Partnerships and the Exchange Hybrid Partnerships
for the 12 month period ended December 31, 1998 and the unaudited financial
statements for the three months ended March 31, 1999.
Set forth at the end of Exhibit D are the consolidated pro forma
balance sheet as of December 31, 1998 and consolidated statement of operations
for the 12 month period ended December 31, 1998 and the three months ended March
31, 19999, for each of Baron Trust and Baron Properties, giving effect to the
acquisition by Baron Properties of 100% of the Exchange Partnership Units of the
Exchange Partnerships in connection with the exchange offering and the already
completed acquisition of three acquired properties which have historical
operating results. Pro forma financial statements for the two entities have also
been included in Exhibit D which were prepared assuming only the minimum
participation of offerees (I.E., acceptance by offerees of units with an
assigned value of $6,000,000).
Set forth in Exhibit E to this prospectus is a combined statement which
sets forth the estimated taxable operating results and funds available from
operations (unaudited) for Baron Properties, for the four properties already
beneficially owned by Baron Properties, and for the Exchange Partnerships
involved in the exchange offering. The statement is based on the most recent 12
month period and assumes that Baron Properties has acquired all of the limited
partnership interests in the Exchange Partnerships owning interests in the
Exchange Properties in connection with the exchange offering. The statement also
assumes the anticipated increase or reduction of revenue, operating expenses,
and debt service requirements in
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certain cases, where appropriate. The statement does not purport to forecast
actual operating results for any period in the future.
LITIGATION
There are no pending legal proceedings to which Baron Trust, Baron
Properties or Baron Advisors is a party which are material to the operations of
Baron Trust, and Baron Advisors has no knowledge that any such legal proceedings
are contemplated or threatened by any third party.
EXPERTS
The audited consolidated financial statements of Baron Trust as of
December 31, 1998 and for the year then ended have been included herein and in
the Registration Statement in reliance upon the reports of Rachlin Cohen & Holtz
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in auditing and accounting.
The statements of revenue and certain expenses for each of the 13
Exchange Properties in which Exchange Equity Partnerships directly or indirectly
own an equity interest for the 12 month periods ended December 31, 1998 and
December 31, 1997 and the three months ended March 31, 1999 (unaudited) (set
forth in Exhibit D hereto) have been included herein and in the Registration
Statement in reliance upon the reports of Elroy D. Miedima, an independent
certified public accountant, appearing herein, and upon the authority of said
independent certified public accountant as an expert in accounting and auditing.
The balance sheets, statements of operations, statements of partners'
capital and statements of cash flow for each of the ten Exchange Hybrid
Partnerships for the year ended December 31, 1998 (set forth in Exhibit D
hereto) have been included herein and in the Registration Statement in reliance
upon the reports of Rachlin Cohen & Holtz LLP, independent certified public
accountants, appearing herein, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
The authority of Baron Trust to issue the common shares offered hereby
was passed upon for Baron Trust by Schoeman, Marsh & Updike, LLP, New York, New
York, counsel to Baron Advisors. Copies of the opinion letter of counsel as to
Baron Trust's authority to issue the common shares may be obtained by writing to
Baron Trust.
Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio, has passed on
certain tax matters as described under "FEDERAL INCOME TAX CONSIDERATIONS." The
tax opinion has been filed with the Commission as an exhibit to Baron Trust's
registration statement. Upon receipt of a written request made to Sharon Studt
at Baron Capital Trust, 7826 Cooper Road, Cincinnati, Ohio 45242, by an offeree
or his representative who has been so designated in writing, Baron Trust will
transmit promptly a copy of the tax opinion, without charge. Counsel to Baron
Trust and Baron Advisors will not represent or advise any offeree in connection
with the exchange offering. THEREFORE, EACH OFFEREE SHOULD CONSULT THE
INVESTOR'S OWN LEGAL, TAX AND INVESTMENT COUNSEL.
The representation of counsel to Baron Trust has been limited to
matters specifically addressed to it. No offeree should assume that counsel to
Baron Trust has in any manner investigated the merits of an investment in the
units or the common shares, or undertaken any role other than assisting in, and
reviewing items specifically referred to it with regard to, the preparation of
this prospectus and the issuance of the opinions referred to above. In assisting
in the preparation of this prospectus, counsel to Baron Trust has
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relied upon the representations and statements of (i) Baron Trust and Baron
Advisors as to facts regarding Baron Properties, Baron Trust and Baron Advisors
and their respective affiliates and their proposed activities and (ii) the
corporate general partners of the Exchange Partnerships as to facts regarding
the Exchange Partnerships and their respective affiliates. Counsel to Baron
Trust has not independently verified such representations and statements.
ADDITIONAL INFORMATION
Neither Baron Trust nor Baron Properties is a reporting company under
the Exchange Act. Baron Trust and Baron Properties have filed with the
Commission a Registration Statement (of which this prospectus is a part) on Form
SB-2 under the Securities Act with respect to the common shares offered hereby.
This prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules hereto. For further information regarding Baron Trust,
Baron Properties, and the common shares offered hereby, reference is hereby made
to the Registration Statement, including the exhibits and schedules thereto.
Baron Trust and Baron Properties have also filed with the Commission a
Registration Statement on Form S-4 under the Securities Act with respect to
Baron Properties units proposed to be offered in the exchange offering and the
common shares for which such units may be exchanged. For further information
regarding the proposed exchange offering and the Exchange Partnerships, and the
units of Baron Properties and common shares proposed to be issued thereby,
reference is hereby made to the Registration Statement, including the exhibits
and schedules thereto.
The Registration Statement, the exhibits and schedules forming a part
thereof filed by Baron Trust with the Commission can be inspected and copies
obtained from the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Information on the operation of the Public Reference Room may
be obtained by calling the Commission at 1-800-SEC-0330. In addition, the
Commission maintains a web site containing information filed electronically by
Baron Trust at http://www.sec.gov.
Baron Trust will furnish its shareholders with annual reports
containing financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
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GLOSSARY
Because of the complex nature of the transactions we are involved in,
the following glossary has been provided to assist you. Words or phrases used in
this prospectus have the meanings set forth below unless the context indicates
otherwise. When reading this prospectus, please note that the singular use of a
word includes the plural and the use of a word in the masculine gender shall
include the feminine, as the context requires. In addition, the term "person"
and its pronouns "he," "she," "him," "her," and "it" as used in this prospectus
shall include natural persons of the masculine and feminine gender and entities,
including, without limitation, corporations, partnerships, limited liability
companies and trusts, unless the context indicates otherwise.
"ADMISSION DATE" means the date that an investor is admitted as an
investor into Baron Trust. Unless a subscription is rejected, Baron Advisors
will admit a prospective investor into Baron Trust on the later of the date on
which Baron Advisors of the offering has received from the investor (i) payment
in cash and (ii) properly executed and dated subscription documents.
"AFFILIATE" An "affiliate" of, or person "affiliated" with, a specified
person includes any of the following:
(a) Any person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) Any person directly or indirectly owning, controlling or holding,
with power to vote 10% or more of the outstanding voting securities of such
other person.
(c) Any person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other person.
(d) Any executive officer, director, trustee or general partner of such
other person.
(e) Any legal entity for which such person acts as an executive
officer, director, trustee or general partner.
"BARON ADVISORS" means Baron Advisors, Inc., a Delaware corporation
which is the initial managing shareholder of Baron Trust.
"BARON PROPERTIES" means Baron Capital Properties, L.P., a Delaware
limited partnership which is the operating partnership of Baron Trust, with its
principal place of business located at 7826 Cooper Road, Cincinati, Ohio 45242.
"BOARD" OR "BOARD OF TRUSTEES" refers to Baron Advisors and the
independent trustees, acting together as the Board of Trustees of Baron Trust in
accordance with the terms of the Trust Declaration, and their successors.
"CERTIFICATE" means the Certificate of Trust of Baron Trust, as amended
from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and any rules and regulations promulgated thereunder.
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"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARE" means a beneficial interest in Baron Trust designated as
a common share by Baron Trust in accordance with Sections 1.6 and 2.1 of the
Trust Declaration.
"CORPORATE GENERAL PARTNER" means the respective corporation which is
the sole general partner of one of the 23 Exchange Partnerships whose limited
partners will be offered the opportunity to participate in the exchange
offering. All of the corporate general partners are controlled by Gregory K.
McGrath.
"CORPORATE TRUSTEE" means Baron Capital Properties, Inc., a Delaware
corporation which is the trustee of Baron Trust under the Trust Declaration, and
its successors. The Corporate Trustee acts as legal holder of Baron Trust
property, subject to the terms of the Trust Declaration. Its address is 1105
North Market Street, Wilmington, Delaware 19899.
"DEALER MANAGER" refers to Sigma Financial Corporation, a Michigan
corporation which is the broker-dealer selected by Baron Advisors to be the
dealer manager of the offering.
"DECLARATION" means the Amended and Restated Declaration of Trust for
Baron Trust made as of August 11, 1998 by the Corporate Trustee that establishes
Baron Trust and the rights and obligations of Baron Advisors, Baron Trustees,
other members of the Board of Trustees of Baron Trust and the shareholders.
"DELAWARE ACT" means the Delaware Business Trust Act, as amended,
currently codified as Chapter 38 of Title 12, Delaware Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" refers to the Securities Exchange Act of 1934, as
amended, and any rules and regulations promulgated thereunder.
"EXCHANGE LIMITED PARTNERS" refers to the individual limited partners
to which Baron Properties anticipates it will make the proposed exchange
offering in connection with the initial transactions thereunder, including the
limited partners in 23 real estate limited partnerships managed by affiliates of
Baron Advisors.
"EXCHANGE EQUITY PARTNERSHIP" refers to each of the 13 Exchange
Partnerships involved in the exchange offering whose sole real estate asset is
record title to a residential apartment property or the entire limited
partnership or other equity interest in a limited partnership or other entity
which owns record title to a property.
"EXCHANGE HYBRID PARTNERSHIP" refers to each of four Exchange
Partnerships involved in the exchange offering which own a combination of (i)
all or a portion of the direct or indirect equity interest in one or more
residential apartment properties and (ii) an undivided subordinated mortgage
interest in one or more properties, or an unsecured debt interest.
"EXCHANGE LIMITED PARTNERS" refers to individual limited partners to
which Baron Properties will make the exchange offering in connection with the
initial transactions of the exchange offering, including the Exchange
Partnerships.
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"EXCHANGE MORTGAGE PARTNERSHIPS" refers to each of the six Exchange
Partnerships involved in the Exchange Offering whose only real estate assets are
the entire or an undivided subordinated mortgage interest in one or more
residential apartment properties or unsecured debt.
"EXCHANGE OFFERING" refers to the proposed offering, pursuant to a
separate prospectus, of registered units by Baron Properties in exchange for
property interests. See "BUSINESS OF THE TRUST."
"EXCHANGE PARTNERSHIPS" refers to the 23 real estate limited
partnerships whose limited partners will be offered the opportunity by Baron
Properties to exchange their limited partnership interests in the limited
partnership for units of Baron Properties. Each Exchange Partnership is managed
by a corporate general partners which is an affiliates of Baron Advisors.
"EXCHANGE PROPERTIES" refers to the 26 residential apartment properties
in which the Exchange Partnerships directly or indirectly own an equity and/or
debt interest.
"FISCAL PERIOD" means a quarter ending on March 31, June 30,
September 30 or December 31 of each Fiscal Year.
"FISCAL YEAR" means a year ending on December 31. Baron Trust's first
Fiscal Year may begin after January 1 and consequently have a duration of less
than 12 months. Baron Trust's last Fiscal Year may end before December 31 and
consequently have a duration of less than 12 months.
"INDEPENDENT TRUSTEE" means a Trustee of Baron Trust who meets certain
qualifications described herein at "MANAGEMENT - Trustees and Executive
Officers" who becomes an independent trustee of Baron Trust under the terms of
the Trust Declaration. See Section 7.5 of Trust Declaration.
"INVESTORS" means purchasers of common shares in this offering or of
any other shares which Baron Trust may issue.
"IRAS" means individual retirement accounts.
"IRS" OR "SERVICE" means the Internal Revenue Service.
"LIMITED PARTNER" OR "UNITHOLDER" means an owner of units in Baron
Properties (which will include without limitation Baron Trust).
"MANAGING SHAREHOLDER" refers to Baron Advisors, Inc. or such
substitute or different managing shareholder as may subsequently be admitted to
Baron Trust pursuant to the terms of the Trust Declaration, which will have all
of the powers and obligations of Baron Advisors to operate Baron Trust as
described in this prospectus.
"MANAGING PERSON" means any of the following: (a) Baron Trust or Baron
Properties officers, agents, or affiliates; Baron Advisors; a Trustee; an
affiliates of Baron Advisors or a Trustee and (b) any directors, officers or
agents of any organizations named in (a) above when acting for Baron Advisors, a
Trustee, or any of their respective affiliates on behalf of Baron Trust.
"MORTGAGE" refers to a mortgage, deed of trust or other security
interest in real property or in rights or interests in real property.
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"MORTGAGE LOAN" refers to a note, bond or other evidence of
indebtedness or obligation which is secured or collateralized by a Mortgage.
"NASD" refers to the National Association of Securities Dealers, Inc.
"OFFERING" means the offering of common shares of beneficial interest
in Baron Trust pursuant to and as described in this prospectus.
"OPERATING PARTNERSHIP AGREEMENT" means the Agreement of Limited
Partnership of Baron Capital Properties, L.P. dated as of May 15, 1998, as
amended August 11, 1998.
"ORIGINAL INVESTORS" refers to Gregory K. McGrath and Robert S. Geiger,
the founders of Baron Trust and Baron Properties.
"PERSON" refers to any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"PLANS" means employee benefit plans and IRAs.
"PREFERRED SHARE" refers to a share of beneficial interest with such
preferences and rights (in relation to other shares authorized and issued by
Baron Trust) as Baron Advisors may designate under Section 2.1(c) of the Trust
Declaration for sale or issuance subsequent to completion of the offering.
"PROPERTY" means all real or personal property owned or acquired by
Baron Trust, which is expected to include but not be limited to (i) the land,
buildings and improvements comprising one or more existing residential apartment
properties in which Baron Trust may make an equity investment, and (ii) its
rights in connection with Mortgage Loans it may make or acquire which are
secured by Mortgages on the land, buildings and improvements comprising
residential apartment properties.
"PROSPECTUS" means this prospectus of Baron Trust dated as of the date
that appears on the cover, as the same may be amended or supplemented from time
to time.
"REGULATIONS" means the applicable Treasury Regulations promulgated or
proposed under the Code.
"REIT" means a real estate investment trust as defined in Section 856
of the Code which meets the requirements for qualification as a REIT described
in Sections 856 through 860 of the Code.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and any
rules and regulations promulgated thereunder.
"SENIOR MORTGAGE" refers to a mortgage which takes priority or
precedence over liens of subordinated mortgages on a particular property.
"SENIOR MORTGAGE LOAN" means a mortgage loan secured or collateralized
by a senior mortgage.
"SERVICE" OR "IRS" means the Internal Revenue Service.
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"SHARE" means a beneficial interest in Baron Trust which is either a
common share or a preferred share authorized for issuance and designated as such
by Baron Advisors in accordance with the Trust Declaration.
"SHAREHOLDER" means an owner of shares in Baron Trust.
"SUBORDINATED MORTGAGE" means a mortgage which (i) has the same
priority or precedence over charges or encumbrances upon real property as that
required for a senior mortgage except that it is subject to the priority of a
senior mortgage and (ii) must be satisfied before such other charges or
encumbrances (other than the senior mortgage) are entitled to participate in the
proceeds of any sale.
"SUBORDINATED MORTGAGE LOAN" means a mortgage loan secured or
collateralized by a subordinated mortgage.
"SUBSCRIPTION DOCUMENTS" means the subscription documents which each
prospective investor must fully complete, date and sign in order to subscribe
for common shares in this offering. The subscription documents include both the
investor questionnaire and the subscription agreement.
"TERMINATION DATE" means the date upon which Baron Trust terminates
this offering of common shares. The Termination Date is scheduled to be November
30, 1999 but may be an earlier date or later date (determined by Baron Advisors
in accordance with the Trust Declaration) which is no later than the date by
which all 2,500,000 common shares being offered have been sold.
"TRUSTEE" AND "TRUSTEES" "Trustee" means a person serving as a
corporate trustee or an independent trustee of Baron Trust; the term "Trustees"
refers to the corporate trustee and the independent trustees collectively.
"TRUST MANAGEMENT AGREEMENT" means the Trust Management Agreement dated
as of May 15, 1998 between Baron Trust and Baron Advisors, under which Baron
Advisors will perform certain management, administrative services and investment
advisory services for Baron Trust.
"TRUST PROPERTY" means all property owned or acquired by Baron Trust or
Baron Properties or on its behalf as part of the trust estate established under
the Trust Declaration.
"UNITHOLDER" OR "LIMITED PARTNER" means an owner of units in Baron
Properties (which will include without limitation Baron Trust).
"UNITS" refer to units of limited partnership interest in Baron
Properties.
"WARRANT" refers to the warrant to be issued to Sigma in connection
with this offering to acquire a number of common shares in an amount equal to
8.5% of the number of common shares sold in the offering by it or participating
broker-dealers selected by it, at a purchase price equal to $13.00 per common
share.
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EXHIBIT A
PRIOR PERFORMANCE OF AFFILIATES
OF
MANAGING SHAREHOLDER
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
The following table summarizes the experience of Affiliates of the
Managing Shareholder of the Trust, Baron Advisors, Inc., in organizing 41
investment programs whose offerings closed in the most recent three years.
The 41 programs have investment objectives similar to those of the Trust
and the Operating Partnership in that the programs provided financing in
respect of residential properties (and in one case, a retail shopping
center) for current income and capital appreciation (except in the case of
mortgage funds).
<TABLE>
<CAPTION>
Florida Income Advantage Realty Opportunity Income Florida Income
Fund I, Ltd. (Baron Fund VIII, Ltd. (Baron Appreciation Fund I, Ltd.
Capital IV, Inc., general Capital IV, Inc., general (Baron Capital IV, Inc.,
partner) partner) general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 940,000 $ 1,020,000 $ 840,000
Dollar amount raised: 940,000 1,020,000 205,000
(percent relative to (100%) (100%) (24%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 94,000 94,400 20,500
(10%) (9%) (10%)
0 0 0
Cash reserve accounts:
Amount raised available for
investment (percentage): 846,000 925,600 184,500
(90%) (91%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 846,000(1) 925,600(1) 184,500(1)
(90%) (91%) (90%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): 42% 46% 48%
Date offering began: 2/94 3/94 4/94
Length of offering (in months): 3 3 2
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 3 2
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net proceeds from the original private offering of the partnership were
invested to acquire a beneficial interest in an unrecorded land trust
which owns fee simple title to a residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THIS OFFERING WILL EXPERIENCE
RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE TABLES ABOVE AND BELOW. INVESTORS SHOULD NOTE THAT
THE INVESTMENT OBJECTIVES OF ALL OF THE PARTNERSHIPS DESCRIBED IN THE FOLLOWING
TABLES DIFFERED AT LEAST IN PART FROM THE INVESTMENT OBJECTIVES OF THE TRUST AND
THE OPERATING PARTNERSHIP AND THAT INVESTORS WILL NOT HAVE ANY INTEREST IN ANY
OF THE PARTNERSHIPS AS A RESULT OF THE ACQUISITION OF OPERATING PARTNERSHIP
UNITS OR TRUST COMMON SHARES, EXCEPT AS OTHERWISE INDICATED IN THE PROSPECTUS.
[010499]
I-1
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Home Buyer Clearwater First Time
Baron First Time Home Buyer Mortgage Fund IV, Ltd. (Baron Homebuyer Program, Ltd.
Fund V, Ltd. (Baron Capital Capital XXVIII, Inc., general (Baron Capital XVI, Inc.,
XXIX, Inc., general partner) partner) general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 500,000 $ 500,000 $ 750,000
Dollar amount raised: 500,000 500,000 750,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 50,000 45,000 77,500
(10%) (9%) (10%)
Cash reserve accounts: 25,000 0 0
Amount raised available for
investment (percentage): 425,000 455,000 672,500
(85%) (91%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 425,000(2) 430,000(3) 672,500(2)
(85%) (86%) (90%)
Investment fee: 0 25,000 0
(5%)
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 5/96 6/96 2/96
Length of offering (in months): 4 5 7
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 4 6
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a condominium developer.
(3) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a single-family housing developer.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-2
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Lamplight Court of Baron Strategic Vulture
Florida Income Growth Fund Bellefontaine Apartments, Fund I, Inc. (Baron
V, Ltd. (Baron Capital XI, Ltd. (Baron Capital IX, Inc., Capital XXVI, Inc.,
Inc., general partner) general partner) general partner)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,150,000 $ 700,000 $ 900,000
Dollar amount raised: 1,150,000 700,000 900,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 125,000 80,000 119,000
(11%) (11%) (13%)
Cash reserve accounts: 142,000 0 90,000
(12%)
Amount raised available for
investment (percentage): 883,000 620,000 691,000
(77%) (89%) (77%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 825,500(4) 580,000(5) 601,000(6)
(72%) (83%) (67%)
Investment fee: 57,500 40,000 90,000
(5%) (6%) (10%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 56% 71% 67%
Date offering began: 10/95 4/96 5/96
Length of offering (in months): 16 6 5
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 6 4 4
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(5) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by a residential
apartment property and a limited partnership interest in the limited
partnership which owns record title to the property.
(6) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-3
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic
Fund, Ltd. (Baron Capital Baron Strategic Investment Investment Fund VI, Inc.
XXXII, Inc., general Fund II, Ltd. (Baron Capital (Baron Capital XXXI,
partner) XXXI, Inc., general partner) Inc., general partner)
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,200,000 $ 800,000 $ 1,200,000
Dollar amount raised: 1,200,000 800,000 1,200,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 140,000 100,000 130,000
(12%) (12%) (11%)
Cash reserve accounts: 120,000 80,000 120,000
(10%) (10%) (10%)
Amount raised available for
investment (percentage): 940,000 620,000 950,000
(78%) (78%) (79%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 796,000(6) 524,000(4) 806,000(13)
(66%) (66%) (67%)
Investment fee: 144,000 96,000 144,000
(12%) (12%) (12%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 56% 71% 67%
Date offering began: 6/96 7/96 11/96
Length of offering (in months): 6 3 5
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 5 2 4
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(6) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by two residential
apartment properties.
(13) Net proceeds from the private offering of the partnership were invested to
acquire a limited partnership interest in a limited partnership which owns
a residential apartment property and to provide or acquire subordinated
mortgage loans secured by three residential apartment properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-4
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Income
Florida Capital Income Tampa Capital Income Fund, Fund II, Ltd. (Baron
Fund, Ltd. (Baron Capital Ltd. (Baron Capital I, Inc., Capital IV, Inc., general
II, Inc., general partner) general partner) partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 807,000 $ 1,050,000 $ 920,000
Dollar amount raised: 807,000 1,050,000 920,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,700 115,000 102,000
(11%) (11%) (11%)
Cash reserve accounts: 0 165,500 199,000
(16%) (22%)
Amount raised available for
investment (percentage): 716,300 769,500 619,000
(89%) (73%) (67%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 656,300(4) 589,500(7) 548,000(1)
(81%) (56%) (60%)
Investment fee: 60,000 180,000 71,000
(7%) (17%) (8%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 69% 72% 71%
Date offering began: 11/94 12/94 2/95
Length of offering (in months): 6 8 6
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 7 4
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net proceeds from the private offering of the partnership were invested to
acquire a beneficial interest in an unrecorded land trust which owns fee
simple title to a residential apartment property.
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-5
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Income
Partners, Ltd. (Baron Florida Capital Income Fund Florida Tax Credit Fund,
Capital III, Inc., general III, Ltd. (Baron Capital VII, Ltd. (Baron Capital VI,
partner) Inc., general partner) Inc., general partner)
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 800,000 $ 800,000 $ 626,000
Dollar amount raised: 800,000 800,000 626,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 90,000 90,000 80,000
(11%) (11%) (13%)
Cash reserve accounts: 143,000 121,000 0
(18%) (15%)
Amount raised available for
investment (percentage): 567,000 589,000 546,000
(71%) (74%) (87%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 543,000(7) 549,000(7) 546,000(4)
(68%) (69%) (87%)
Investment fee: 24,000 40,000 0
(3%) (5%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 62% 56% 51%
Date offering began: 8/95 6/95 5/95
Length of offering (in months): 3 5 11
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 4 9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-6
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
GSU Stadium Student
Apartments, Ltd. (Baron Florida Capital Income Fund Brevard Mortgage Program,
Capital X, Inc., general IV, Ltd. (Baron Capital V, Ltd. (Baron Capital XII,
partner) Inc., general partner) Inc., general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,000,000 $ 1,820,000 $ 575,000
Dollar amount raised: 1,000,000 1,820,000 575,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 110,000 202,000 67,500
(11%) (11%) (12%)
Cash reserve accounts: 100,000 305,200 57,500
(10%) (17%) (10%)
Amount raised available for
investment (percentage): 790,000 1,312,800 450,000
(79%) (72%) (78%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 690,000(4) 1,212,800(7) 450,000(8)
(69%) (67%) (78%)
Investment fee: 100,000 100,000 0
(10%) (5%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 67% 70% N/A
Date offering began: 11/95 1/95 1/96
Length of offering (in months): 4 16 4
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 3 10 3
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(4) Net proceeds from the private offering of the partnership were invested to
acquire all of the limited partnership interest in a limited partnership
which owns record title to residential apartment property.
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a subordinated mortgage loan secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-7
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Home Buyer Baron First Time Home Buyer Baron First Time Home
Mortgage Fund II, Ltd. Mortgage Fund III, Ltd. Buyer Mortgage Fund, Ltd.
(Baron Capital XV, Inc., (Baron Capital XXVII, Inc., (Baron Capital VIII,
general partner) general partner) Inc., general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 500,000 $ 500,000 $ 500,000
Dollar amount raised: 500,000 500,000 500,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 45,000 50,000 50,000
(9%) (10%) (10%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 455,000 450,000 450,000
(91%) (90%) (90%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 455,000(3) 450,000(2) 450,000(3)
(91%) (90%) (90%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 1/96 4/96 12/95
Length of offering (in months): 6 4 4
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 4 3 3
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a condominium developer.
(3) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a single-family housing developer.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-8
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Income Property Baron Mortgage
Baron Development Fund IX, Mortgage Fund VI, Ltd. (Baron Development Fund VII Ltd.
Ltd. (Baron Capital XLII, Capital XXIX, Inc., general (Baron Capital XXXVII,
Inc., general partner) partner) Inc., general partner)
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 800,000 $ 750,000 $ 700,000
Dollar amount raised: 800,000 750,000 700,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 122,000 105,000 115,000
(15%) (14%) (16%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 678,000 645,000 585,000
(85%) (86%) (84%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 678,000(3) 645,000(8) 585,000(8)
(85%) (86%) (84%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 1/97 8/96 11/96
Length of offering (in months): 8 16 8
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 4 9 6
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a single-family housing developer.
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a second mortgage loan secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-9
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Development Fund Baron Mortgage Development Fund XI, Baron Mortgage Development
X, Ltd. (Baron Capital XLIII, Ltd. (Baron Capital XXXIII, Inc., Fund XVIII LP (Baron Capital
Inc., general partner) general partner) LXV, Inc., general partner)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 800,000 $ 800,000 $ 800,000
Dollar amount raised: 800,000 800,000 800,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 122,000 122,000 132,000
(15%) (15%) (16%)
Cash reserve accounts: 0 0 0
Amount raised available for
investment (percentage): 678,000 678,000 668,000
(85%) (85%) (84%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 678,000(2) 678,000(2) 668,000(8)
(85%) (85%) (84%)
Investment fee: 0 0 0
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A N/A N/A
Date offering began: 11/96 3/97 7/97
Length of offering (in months): 16 5 4
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 8 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(2) Net proceeds from the private offering of the partnership were invested to
make a subordinated mortgage loan to a condominium developer.
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a second mortgage loan secured by a residential
apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-10
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Fund Baron Strategic Investment Fund Baron Mortgage Development
V, Ltd. (Baron Capital XL, VII, Ltd. (Baron Capital XLI, Inc., Fund XV, Ltd. (Baron Capital
Inc., general partner) general partner) XLVIII, Inc., general partner)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,200,000 $ 1,900,000 $ 700,000
Dollar amount raised: 1,200,000 1,900,000 700,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 142,000 229,000 125,000
(12%) (12%) (18%)
Cash reserve accounts: 120,000 190,000 0
(10%) (10%)
Amount raised available for
investment (percentage): 938,000 1,481,000 575,000
(78%) (78%) (82%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 818,000(10) 1,253,000(10) 575,000(8)
(68%) (66%) (82%)
Investment fee: 120,000 228,000 0
(10%) (12%)
Percent leverage (mortgage
financing divided by total
acquisition cost): 69% 60% N/A
Date offering began: 11/96 1/97 6/97
Length of offering (in months): 7 11 8
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 6 6 7
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a subordinated mortgage loan secured by a residential
apartment property.
(10) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by three
residential apartment properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-11
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Fund Baron Strategic Investment Fund Baron Mortgage Development
X, Ltd. (Baron Capital LXIV, VIII, Ltd. (Baron Capital XLIV, Fund XIV, Ltd. (Baron Capital
Inc., general partner) Inc., general partner) XLVII, Inc., general partner)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 1,200,000 $ 1,200,000 $ 1,000,000
Dollar amount raised: 1,200,000 1,200,000 1,000,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 140,000 152,000 160,000
(12%) (13%) (16%)
Cash reserve accounts: 0 120,000 0
(10%)
Amount raised available for
investment (percentage): 1,060,000 928,000 840,000
(88%) (77%) (84%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 916,000(11) 784,000(10) 840,000(8)
(76%) (65%) (84%)
Investment fee: 144,000 144,000 0
(12%) (12%)
Percent leverage (mortgage
financing divided by total
acquisition cost): N/A 79% N/A
Date offering began: 7/97 5/97 5/97
Length of offering (in months): 8 9 10
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 5 3 4
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire a second mortgage loan secured by a residential
apartment property.
(10) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by three
residential apartment properties.
(11) Net proceeds from the private offering of the partnership were invested to
acquire limited partnership interests in two limited partnerships which
own record title to separate residential apartment properties and to
provide or acquire subordinated mortgage financing secured by two
residential apartment properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-12
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Tax Credit Fund II, Baron Strategic Investment Fund IV, Baron Strategic Investment
Ltd. (Baron Capital XXXIV, Ltd. (Baron Capital XVII, Inc., Fund IX, Ltd. (Baron Capital
Inc., general partner) general partner) LXII, Inc., general partner)
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dollar amount offered: $ 310,000 $ 1,000,000 $ 1,200,000
Dollar amount raised: 310,000 1,000,000 1,200,000
(percent relative to (100%) (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 41,000 210,000 152,000
(13%) (21%) (13%)
Cash reserve accounts: 0 100,000 120,000
(10%) (10%)
Amount raised available for
investment (percentage): 259,000 690,000 808,000
(84%) (69%) (67%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 259,000(7) 690,000(8) 674,000(12)
(84%) (69%) (56%)
Investment fee: 10,000 0 20,000
(3%) (2%)
Percent leverage (mortgage
financing divided by
total acquisition cost): 70% N/A
Date offering began: 9/96 11/96 6/97
Length of offering (in months): 20 16 11
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 9 14 10
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property.
(8) Net proceeds from the private offering of the partnership were invested to
provide or acquire subordinated mortgage loans secured by a residential
apartment property.
(12) Net proceeds from the private offering of the partnership were invested to
acquire limited partnership interests in a limited partnership which owns
record title to a residential apartment property and to provide or acquire
subordinated mortgage loans secured by three residential apartment
properties.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-13
<PAGE>
TABLE I:
BARON ADVISORS' AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Central Florida Income Midwest Income Growth Fund
Appreciation Fund, Ltd. (Baron VI, Ltd. (Baron Capital of
Capital of Florida, Inc., Ohio III, Inc., general partner)
general partner)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dollar amount offered: $ 1,050,000 $ 300,000
Dollar amount raised: 1,050,000 300,000
(percent relative to (100%) (100%)
amount offered):
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 133,000 33,000
(13%) (11%)
Cash reserve accounts: 159,000 33,000
(15%) (11%)
Amount raised available for
investment (percentage): 725,000 219,000
(69%) (73%)
Acquisition costs (percent):
Cash payments to acquire interest
in investment property or to
redeem limited partnership
interests of existing limited
partners: 725,000(7) 219,000(7)
(69%) (73%)
Investment fee: 28,000 15,000
(3%) (5%)
Percent leverage (mortgage
financing divided by
total acquisition cost): 62% 64%
Date offering began: 8/94 4/96
Length of offering (in months): 14 6
Months required to invest 90% of
the amount available for
investment (measured from
beginning of offering): 10 4
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(7) Net proceeds from the private offering of the partnership were invested to
acquire record title to a residential apartment property.
See Prospectus at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER."
I-14
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS
The following table summarizes the payments made to Affiliates
of the Managing Shareholder of the Trust, Baron Advisors, Inc.,
by 41 real estate investment programs sponsored by Affiliates of
the Managing Shareholder from their inception through March 31,
1999. The prior programs have investment objectives similar to
those of the Trust and the Operating Partnership in that the
programs provided financing in respect of residential properties
(and in one case, a retail shopping center) for current income
and capital appreciation (except in the case of mortgage funds).
<TABLE>
<CAPTION>
Florida Income Advantage Realty Opportunity Income Florida Income
Fund I, Ltd. Fund VIII, Ltd. Appreciation Fund I, Ltd.
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 2/94 3/94 4/94
Dollar amount raised: $940,000 $944,000 $205,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 94,000 $ 94,400 $ 20,500
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $151,497 $123,179 $ 39,726
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $ 37,910 $ 44,716 $ 20,826
Reimbursements: 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancing by the programs.
II-1
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Income Tampa Capital Income Fund, Florida Capital Income
Fund, Ltd. Ltd. Fund II, Ltd.
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/94 9/94 1/95
Dollar amount raised: $ 807,000 $1,050,000 $ 920,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 90,700 $ 115,000 $ 102,000
Acquisition fees: $ 60,000 $ 136,500 $ 71,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 75,948 $ 147,631 $ 98,206
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $ 58,073 $ 47,729 $ 54,076
Reimbursements: 0 0 0
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-2
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Income Florida Capital Income Fund Florida Tax Credit Fund,
Partners, Ltd. III, Ltd. Ltd.
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 8/95 6/95 6/95
Dollar amount raised: $800,000 $800,000 $626,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 90,000 $ 90,000 $ 80,000
Acquisition fees: $ 24,000 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $116,374 $157,575 $ 16,988
Dollar amount paid Baron
Advisors Affiliates from
Operations:
Property Management
And Administrative Fees: $ 47,377 $ 29,041 $ 40,788
Reimbursements: 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-3
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Homebuyer Florida Capital Income Fund GSU Student Stadium
Mortgage Fund, Ltd. IV, Ltd. Apartments, Ltd.
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 1/96 1/95 11/95
Dollar amount raised: $ 500,000 $ 1,820,000 $ 1,000,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 50,000 $ 202,000 $ 110,000
Acquisition fees: 0 0 $ 100,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 175,727 $ (303,546) $ 94,640
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 $ 79,685 $ 56,359
Reimbursements: 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-4
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Brevard Mortgage Program, Baron First Time Homebuyer Clearwater First Time Home
Ltd. Mortgage Fund II, Ltd. Buyer Program, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 1/96 2/96 3/96
Dollar amount raised: $575,000 $500,000 $750,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 67,500 $ 45,000 $ 77,500
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $195,029 $168,527 $224,954
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-5
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Homebuyer Baron First Time Homebuyer Baron First Time Homebuyer
Mortgage Fund III, Ltd. Mortgage Fund V, Ltd. Mortgage Fund IV, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 5/96 1/96 6/96
Dollar amount raised: $500,000 $500,000 $500,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 50,500 $ 50,000 $ 45,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $158,393 $160,536 $147,879
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-6
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Income Growth Fund Lamplight Court of Baron Strategic Vulture
V, Ltd. Bellefontaine Apartments, Ltd. Fund I, Ltd.
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 10/95 4/96 5/96
Dollar amount raised: $1,150,000 $ 700,000 $ 900,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence and legal
expenses: $ 125,500 $ 80,000 $ 119,000
Acquisition fees: $ 57,500 $ 40,000 $ 90,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999 before
deducting payments to
Baron Advisors Affiliates: $ 67,906 $ 61,874 $ 130,931
Dollar amount paid Baron
Advisors Affiliates from
Operations:
Property Management
and Administrative Fees: $ 36,296 $ 27,145 0
Reimbursements: 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-7
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Baron Strategic Investment
Fund, Ltd. Fund II, Ltd. Fund VI, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 6/96 7/96 11/96
Dollar amount raised: $1,200,000 $ 800,000 $1,200,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 140,000 $ 100,000 $ 130,000
Acquisition fees: $ 144,000 $ 96,000 $ 144,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 102,639 $ (13,707) $ 129,367
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-8
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Development Fund IX, Baron Income Property Baron Mortgage Development
Ltd. Mortgage Fund VI, Ltd. Fund VII, Ltd.
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 1/97 8/96 11/96
Dollar amount raised: $800,000 $750,000 $700,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 80,000 $ 75,000 $ 70,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $154,401 $168,147 $149,389
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-9
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Development Baron Mortgage Development Baron Mortgage Development
Fund X, Ltd. Fund XI, Ltd. Fund XVIII, LP
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/96 3/97 7/97
Dollar amount raised: $800,000 $800,000 $800,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 80,000 $ 80,000 $ 80,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $163,196 $156,946 $107,459
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-10
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Baron Mortgage Development
Fund V, Ltd. Fund VII, Ltd. Fund XV, Ltd.
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/96 1/97 6/97
Dollar amount raised: $1,200,000 $1,900,000 $ 700,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 120,000 $ 190,000 $ 70,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 123,367 $ 75,914 $ 91,928
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-11
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Baron Mortgage Development
Fund X, Ltd. Fund VIII, Ltd. Fund XIV, Ltd.
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 7/97 5/97 5/97
Dollar amount raised: $1,200,000 $1,200,000 $1,000,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 120,000 $ 108,000 $ 90,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 67,041 $ 86,891 $ 147,535
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-12
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Investment Baron Strategic Investment Florida Tax Credit Fund
Fund IV, Ltd. Fund IX, Ltd. II, Ltd.
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date offering began: 11/96 7/97 9/96
Dollar amount raised: $1,000,000 $1,200,000 $ 310,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 90,000 $ 120,000 $ 31,000
Acquisition fees: 0 0 0
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ 109,932 $ 33,106 $ 41,605
Dollar amount paid Baron
Advisors Affiliates from
Operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Reimbursements: 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-13
<PAGE>
TABLE II:
COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Central Florida Income Midwest Income Growth Fund
Appreciation Fund, Ltd. VI, Ltd.
-------------------------------------------------------
<S> <C> <C>
Date offering began: 8/94 4/96
Dollar amount raised: $ 1,050,000 $ 300,000
Amount paid to Baron Advisors
Affiliates from proceeds of
Offering:
Selling commissions and
due diligence and legal
expenses: $ 133,000 $ 33,000
Acquisition fees: $ 28,000 $ 15,000
Dollar amount of cash generated
(deficiency) by program from
operations from its inception
through March 31, 1999
before deducting payments to
Baron Advisors Affiliates: $ (112,643) $ 130,837
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0
Property Management
and Administrative Fees: $ 53,853 $ 37,169
Reimbursements: 0 0
- ----------------------------------------------------------------------------------------------
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-14
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS
The following table includes operating results for the periods
indicated of 41 programs sponsored by Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., which closed in the
most recent five years. The prior programs have investment objectives
similar to those of the Trust and the Operating Partnership in that
the programs provided financing in respect of residential properties
(and in one case, a retail shopping center) for current income and
capital appreciation (except in the case of mortgage funds).
Florida Capital Income Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 94,139 $ 399,818 $ 346,154 $ 348,348
Other: 3,447 7,423 21,065 32,140
Less:
Operating Expenses: (46,617) (245,900) (182,429) (169,938)
Interest Expenses: (30,723) (127,820) (158,727) (159,163)
Depreciation and Amortization: (19,434) (77,088) (64,402) (63,327)
Other: Major Maintenance: (586) (16,233) (19,712) 0
Net Income (Loss) - Tax Basis: 226 (59,800) (58,051) (11,940)
Cash generated from operations: 16,213 9,865 (14,714) 19,247
Less: Cash distributions: 5,000 10,000 80,700 80,700
Cash generated after cash distributions: 11,213 (35) (95,414) (61,453)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1 (74) (72) (15)
Cash distributions to investors: 6 12 100 100
Annualized cash on cash
yield to investors: 2% 2% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $16,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-1
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Advantage Fund I, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 47,548 $ 177,807 $ 170,175 $ 180,549
Other: 1,197 8,548 7,031 5,721
Less:
Operating Expenses: (21,170) (119,750) (79,292) (73,049)
Interest Expenses: (15,725) (56,304) (49,070) (49,964)
Depreciation and Amortization: (13,338) (70,922) (70,922) (50,446)
Other: Major Maintenance: (965) 0 (18,353) 0
Net Income (Loss) - Tax Basis: (2,453) (60,621) (40,431) 12,811
Cash generated from operations: 9,688 1,753 23,460 57,536
Less: Cash distributions: 2,000 20,900 0 82,500
Cash generated after cash distributions: 7,688 (19,147) 23,460 (24,964)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 8 (20) (43) 14
Cash distributions to investors: 2 22 0 88
Annualized cash on cash
yield to investors: 1% 2% 0% 9%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $40,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-2
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Realty Opportunity Income Fund VIII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 49,592 204,670 $ 159,093 $ 181,587
Other: 5,466 7,233 6,252 3,616
Less:
Operating Expenses: (23,752) (130,635) (93,216) (89,343)
Interest Expenses: (18,584) (66,541) (60,222) (59,048)
Depreciation and (14,700) (56,180) (56,180) (55,941)
Amortization: (1,213) (22,613) (21,967) 0
Other: Major Maintenance:
Net Income (Loss) - Tax Basis: (3,191) (64,066) (66,240) (19,129)
Cash generated from operations: 6,043 (15,119) (16,312) 33,196
Less: Cash distributions: 1,000 16,000 0 80,800
Cash generated after cash distributions: 5,043 (31,119) (16,312) (47,604)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (3) (16) (65) (19)
Cash distributions to investors: 1 17 0 86
Annualized cash on cash
yield to investors: 1% 2% 0% 8%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $24,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-3
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Appreciation Fund I, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,282 $ 52,759 $ 56,139 $ 57,348
Other: 80 3,851 2,437 2,565
Less:
Operating Expenses: (7,855) (48,541) (26,488) (26,417)
Interest Expenses: (5,003) (17,915) (17,843) (15,898)
Depreciation and Amortization: (4,224) (16,264) (16,264) (16,172)
Other: Major Maintenance: 0 (7,895) (6,317) 0
Net Income (Loss) - Tax Basis: (1,720) (34,005) (8,336) 1,426
Cash generated from operations: 2,424 (21,592) 5,491 15,033
Less: Cash distributions: 0 8,160 0 19,375
Cash generated after cash distributions: 2,424 (29,752) 5,491 (4,342)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 8 (166) (41) 7
Cash distributions to investors: 0 40 0 95
Annualized cash on cash
yield to investors: 0% 4% 0 9%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $4,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-4
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Tampa Capital Income Fund, Ltd.
<TABLE>
<CAPTION>
1996 1995
----------------------------
<S> <C> <C>
Gross Revenues: $ 409,146 $ 404,384
Other: 0 0
Less:
Operating Expenses: (207,313) (213,327)
Interest Expenses: (131,405) (88,632)
Depreciation and Amortization: (77,185) (69,040)
Other: Major Maintenance: 0 (25,157)
Net Income (Loss) - Tax Basis: (6,757) 8,228
Cash generated from operations: 70,428 77,268
Less: Cash distributions: 105,000 58,328
Cash generated after cash distributions: (34,572) 18,940
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (6) 8
Cash distributions to investors: 100 56
Annualized cash on cash
yield to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100%
- ---------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $60,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
In January 1997, the partnership sold the asset acquired with the net proceeds
of its offering. See Tables IV and V below.
III-5
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 94,877 $ 360,482 $ 379,763 $ 319,640
Other: 1,321 13,259 7,968 16,405
Less:
Operating Expenses: (35,269) (172,182) (158,953) (154,720)
Interest Expenses: (30,966) (116,663) (149,908) (130,820)
Depreciation and Amortization: (19,094) (79,077) (79,077) (78,505)
Other: Major Maintenance: 0 (42,542) (86,899) 0
Net Income (Loss) - Tax Basis: 10,869 (36,723) (87,106) (28,000)
Cash generated from operations: 28,642 29,095 (15,997) 34,100
Less: Cash distributions: 5,000 25,369 0 92,000
Cash generated after cash distributions: 22,445 3,726 (15,997) (57,900)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 11 (40) (95) (30)
Cash distributions to investors: 5 28 0 100
Annualized cash on cash
yield to investors: 2% 3% 0 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $6,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-6
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Opportunity Income Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 72,811 $ 264,267 $ 218,018 $ 311,719
Other: 5,850 25,858 0 0
Less:
Operating Expenses: (39,156) (204,938) (153,765) (149,572)
Interest Expenses: (24,118) (98,620) (98,851) (78,273)
Depreciation and Amortization: (12,388) (48,414) (44,069) (47,371)
Other: Major Maintenance: (130) (15,068) (22,392) 0
Net Income (Loss) - Tax Basis: 2,999 (76,555) (101,059) 36,503
Cash generated from operations: 9,537 (53,999) (56,990) 83,874
Less: Cash distributions: 0 80,000 80,000 77,441
Cash generated after cash distributions: 9,537 (133,999) (136,990) 6,433
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 4 96 (126) 46
Cash distributions to investors: 0 100 100 97
Annualized cash on cash
yield to investors: 0% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $13,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-7
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund III, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 58,461 $ 237,292 $ 212,608 $ 228,451
Other: 7,274 14,340 6,605 7,884
Less:
Operating Expenses: (32,164) (151,710) (116,044) (112,640)
Interest Expenses: (17,011) (68,574) (69,345) (68,759)
Depreciation and Amortization: (9,847) (38,590) (36,890) (37,979)
Other: Major Maintenance: (1,438) (7,490) (13,630) 0
Net Income (Loss) - Tax Basis: 5,275 (14,732) (16,696) 16,957
Cash generated from operations: 7,848 9,518 13,589 47,052
Less: Cash distributions: 1,980 11,790 80,000 79,867
Cash generated after cash distributions: 6,848 (2,272) (66,411) (32,815)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 7 18 (21) 10
Cash distributions to investors: 2 15 100 100
Annualized cash on cash
yield to investors: 1% 1% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $10,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-8
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Tax Credit Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 66,053 $ 275,306 $ 282,587 $ 266,240
Other: 3,280 19,220 0 0
Less:
Operating Expenses: (46,329) (192,793) (191,445) (172,489)
Interest Expenses: (10,618) (66,429) (67,422) (69,122)
Depreciation and Amortization: (9,356) (51,408) (51,408) (47,236)
Other: Major Maintenance: (2,898) (19,681) (28,357) (20,067)
Net Income (Loss) - Tax Basis: 132 (35,786) (56,045) (42,674)
Cash generated from operations: 6,208 (3,598) (4,637) 4,562
Less: Cash distributions: 3,130 9,390 0 25,194
Cash generated after cash distributions: 3,078 (12,988) (4,637) (20,632)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1 (57) (90) (68)
Cash distributions to investors: 5 15 0 40
Annualized cash on cash 2% 2% 1% 4%
yield to investors:
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $ (4,000).
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-9
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,002 $ 60,163 $ 70,341 $ 46,970
Other: 0 0 0 0
Less:
Operating Expenses: (32) (203) (774) (674)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,470 59,960 69,567 46,296
Cash generated from operations: 14,470 59,960 69,567 46,296
Less: Cash distributions: 15,000 60,000 60,000 45,536
Cash generated after cash distributions: (530) (40) 9,567 760
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 29 119 139 93
Cash distributions to investors: 30 120 120 91
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-10
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund IV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 226,756 $ 703,101 $ 745,649 $ 695,308
Other: 0 26,874 22,536 60,265
Less:
Operating Expenses: (149,607) (744,965) (469,088) (435,005)
Interest Expenses: (53,000) (305,281) (310,603) (312,704)
Depreciation and Amortization: (32,141) (138,503) (132,061) (137,316)
Other: Major Maintenance: 0 (45,464) (36,903) 0
Net Income (Loss) - Tax Basis: (7,992) (504,238) (180,470) (129,452)
Cash generated from operations: 24,149 (392,609) (70,945) (52,401)
Less: Cash distributions: 0 96,506 180,233 149,240
Cash generated after cash distributions: 24,149 (489,115) (251,178) (201,641)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (4) (277) (99) (71)
Cash distributions to investors: 0 53 99 82
Annualized cash on cash
yield to investors: 0% 5% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $17,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-11
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
GSU Stadium Student Apartments, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 104,712 $ 420,783 $ 458,687 $ 427,919
Other: 1,756 21,097 27,710 21,809
Less:
Operating Expenses: (38,766) (312,009) (242,603) (212,984)
Interest Expenses: (33,913) (141,387) (146,120) (122,433)
Depreciation and Amortization: (22,715) (77,378) (65,135) (66,830)
Other: Major Maintenance: 0 (25,003) (35,113) (54,112)
Net Income (Loss) - Tax Basis: 11,074 (113,897) (2,574) (6,631)
Cash generated from operations: 32,033 (57,616) 34,851 38,390
Less: Cash distributions: 10,000 74,828 203,105(1) 84,961
Cash generated after cash distributions: 22,033 (132,444) (168,254) (46,571)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 11 (114) (3) (7)
Cash distributions to investors: 10 75 203 85
Annualized cash on cash
yield to investors: 4% 7% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $20,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
(1) $100,000 of such amount represents a return of capital attributable to net
proceeds in connection with a first mortgage refinancing with an initial
principal balance higher than the principal balance at the time of refinancing.
III-12
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Brevard Mortgage Program, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: 17,719 73,533 $ 64,380 $ 73,267
Other: 35 0 0
Less:
Operating Expenses: (2,236) (12,554) (2,119) (874)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 15,483 60,979 62,261 72,393
Cash generated from operations: 15,483 60,979 62,261 72,393
Less: Cash distributions: 14,375 57,500 57,500 34,572
Cash generated after cash distributions: 1,108 3,479 4,761 37,821
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 27 106 108 126
Cash distributions to investors: 25 100 100 60
Annualized cash on cash
yield to investors: 10% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-13
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,005 $ 59,631 $ 69,051 $ 41,748
Other: 0 0 45 0
Less:
Operating Expenses: (41) (363) (938) (611)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,964 59,268 68,158 41,137
Cash generated from operations: 14,964 59,268 68,113 41,137
Less: Cash distributions: 15,110 60,710 60,300 42,619
Cash generated after cash distributions: (146) (1,442) 7,813 (1,482)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 119 136 82
Cash distributions to investors: 30 121 121 85
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-14
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Clearwater First Time Homebuyer Program, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 22,500 $ 90,250 $ 88,149 $ 46,999
Other: 0 0 0 0
Less:
Operating Expenses: (26) (126) (132) (93)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,474 90,124 88,017 46,906
Cash generated from operations: 22,474 90,124 88,017 46,906
Less: Cash distributions: 22,500 90,000 90,000 43,377
Cash generated after cash distributions: (26) 124 (1,983) 3,529
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 117 62
Cash distributions to investors: 30 120 120 58
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-15
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund III, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,003 $ 60,016 $ 70,425 $ 29,006
Other: 0 0 0 0
Less:
Operating Expenses: (37) (337) (315) (408)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,966 59,679 70,110 28,598
Cash generated from operations: 14,966 59,679 70,110 28,598
Less: Cash distributions: 15,000 60,000 60,000 27,846
Cash generated after cash distributions: (34) (321) 10,110 752
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 119 140 57
Cash distributions to investors: 30 120 120 56
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-16
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund V, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,004 $ 55,000 $ 75,400 $ 26,198
Other: 0 0 0 0
Less:
Operating Expenses: (39) (204) (713) (245)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,965 54,796 74,687 25,953
Cash generated from operations: 14,965 54,796 74,687 25,953
Less: Cash distributions: 15,000 60,000 60,000 25,140
Cash generated after cash distributions: (35) (5,204) 14,687 813
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 110 149 52
Cash distributions to investors: 30 120 120 50
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-17
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund IV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,004 $ 60,061 $ 74,020 $ 14,529
Other: 0 0 0 0
Less:
Operating Expenses: (39) (194) (164) (377)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 14,965 59,867 73,856 14,152
Cash generated from operations: 14,965 59,867 73,856 14,152
Less: Cash distributions: 15,000 60,000 60,000 13,900
Cash generated after cash distributions: (35) (133) 13,856 252
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 147 28
Cash distributions to investors: 30 120 120 28
Annualized cash on cash
yield to investors: 12% 12% 12% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-18
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Growth Fund V, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 78,458 $ 333,761 $ 273,596 $ 278,590
Other: 1,440 20,828 20,987 26,698
Less:
Operating Expenses: (36,647) (178,425) (163,172) (172,943)
Interest Expenses: (22,999) (93,696) (94,358) (98,805)
Depreciation and Amortization: (17,624) (70,494) (52,504) (56,381)
Other: Major Maintenance: (1,855) (21,970) (16,416) (27,704)
Net Income (Loss) - Tax Basis: 773 (9,996) (31,867) (45,963)
Cash generated from operations: 16,957 39,670 (350) (20,862)
Less: Cash distributions: 12,000 48,608 114,988 77,039
Cash generated after cash distributions: 4,957 (8,938) (115,338) (97,901)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1 (9) (28) (40)
Cash distributions to investors: 10 43 100 67
Annualized cash on cash
yield to investors: 4% 4% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $19,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-19
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Lamplight Court of Bellefontaine Apartments, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 15,413 $ 20,500 $(12,535) $(37,785)
Other: -- 158 9,973 733
Less:
Operating Expenses: (1,525) (11,349) (1,262) (231)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 13,888 9,309 (3,824) (37,283)
Cash generated from operations: 13,888 9,309 8,711 502
Less: Cash distributions: 4,000 60,100 69,525 16,593
Cash generated after cash distributions: 9,888 (50,791) (60,814) (16,091)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 20 13 (5) (1)
Cash distributions to investors: 6 86 100 24
Annualized cash on cash
yield to investors: 3% 9% 10% 3%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-20
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Vulture Fund I, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 25,980 $ 108,204 $ 78,996 $ 3,731
Other: 0 447 0 0
Less:
Operating Expenses: (3,339) (16,445) (16,705) (464)
Interest Expenses: 0 (6,451) 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,641 85,755 62,291 3,267
Cash generated from operations: 22,641 85,308 62,291 3,267
Less: Cash distributions: 22,500 90,000 89,894 14,044
Cash generated after cash distributions: 141 (4,692) (27,603) (10,777)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 25 95 69 4
Cash distributions to investors: 25 100 100 16
Annualized cash on cash
yield to investors: 10% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-21
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 21,353 $ 105,368 $ 61,000 $ 2,479
Other: 0 365 1,906 0
Less:
Operating Expenses: (1,934) (29,981) (25,685) (403)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 19,419 75,752 37,221 2,076
Cash generated from operations: 19,419 75,752 35,315 2,076
Less: Cash distributions: 20,000 56,700 112,664 8,884
Cash generated after cash distributions: (11,171) 19,052 (77,349) (6,808)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 16 63 31 2
Cash distributions to investors: 16 47 94 7
Annualized cash on cash
yield to investors: 5% 5% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-22
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 69,727 $ 280,018 $ 261,513 $ 79,630
Other: 19,056 21,085 53,534 1,666
Less:
Operating Expenses: (36,954) (243,709) (205,243) (60,041)
Interest Expenses: (24,593) (91,982) (92,514) 0
Depreciation and Amortization: (13,546) (57,889) (38,465) (7,552)
Other: Major Maintenance: (560) (19,766) (70,103) 0
Net Income (Loss) - Tax Basis: 13,130 (112,243) (91,278) 13,703
Cash generated from operations: 7,620 (75,439) (52,813) 21,255
Less: Cash distributions: 2,000 13,600 79,601 2,942
Cash generated after cash distributions: 5,620 (89,039) (132,414) 18,313
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 16 (140) (114) 17
Cash distributions to investors: 3 17 100 4
Annualized cash on cash
yield to investors: 1% 2% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-23
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 20,075 $ 91,973 $ 67,699 $ 400
Other: 0 644 4,500 0
Less:
Operating Expenses: (3,039) (17,023) (17,974) (218)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 17,036 75,594 49,725 182
Cash generated from operations: 17,036 75,594 49,725 182
Less: Cash distributions: 8,702 95,000 85,003 0
Cash generated after cash distributions: 8,334 (19,406) (39,778) 182
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 14 63 41 0
Cash distributions to investors: 7 79 71 0
Annualized cash on cash
yield to investors: 3% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $_________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-24
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Development Fund IX, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,005 $ 96,138 $ 69,804
Other: 0 0 749
Less:
Operating Expenses: (42) (210) (11,234)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 23,963 95,928 59,319
Cash generated from operations: 23,963 95,928 58,570
Less: Cash distributions: 24,142 95,970 58,397
Cash generated after cash distributions: 821 (42) 173
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 56
Cash distributions to investors: 30 120 73
Annualized cash on cash
yield to investors: 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-25
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Income Property Mortgage Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 22,500 $ 90,100 $ 66,807 $ 5,740
Other: 5 35 389 85
Less:
Operating Expenses: (40) (204) (1,479) (260)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,465 89,931 65,717 5,565
Cash generated from operations: 22,465 89,931 65,328 5,480
Less: Cash distributions: 22,500 90,000 65,250 6,334
Cash generated after cash distributions: (35) (69) 78 (854)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 80 7
Cash distributions to investors: 30 120 87 8
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-26
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund VII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 21,000 $ 84,200 $ 66,692 $ 10,012
Other: 3 33 542 2
Less:
Operating Expenses: (46) (286) (1,703) (10,079)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 20,957 83,947 65,531 (65)
Cash generated from operations: 62,968 83,947 65,531 (67)
Less: Cash distributions: 63,000 84,000 65,075 27
Cash generated after cash distributions: (32) (53) 456 (94)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 90 120 93 (2)
Cash distributions to investors: 90 120 93 0
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-27
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund X, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 24,000 $ 86,600 $ 77,526 $ 9,998
Other: 5 31 1,789 23
Less:
Operating Expenses: (43) (222) (584) (10,033)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 23,962 86,409 78,731 (12)
Cash generated from operations: 23,962 86,409 76,942 (35)
Less: Cash distributions: 24,000 95,826 76,878 200
Cash generated after cash distributions: (38) (9,417) 64 (235)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 108 79 (13)
Cash distributions to investors: 30 120 96 0
Annualized cash on cash
yield to investors: 12% 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-28
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,050 $ 95,855 $ 61,200
Other: 3 23 0
Less:
Operating Expenses: (39) (184) 0
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 24,014 95,694 61,200
Cash generated from operations: 24,014 95,694 61,200
Less: Cash distributions: 24,000 96,000 61,109
Cash generated after cash distributions: 14 (306) 91
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 120 0
Cash distributions to investors: 30 120 76
Annualized cash on cash
yield to investors: 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-29
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XVIII, L.P.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,000 $ 81,226 $ 46,473
Other: 3 68 759
Less:
Operating Expenses: (41) (233) (20,279)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 23,962 81,061 26,953
Cash generated from operations: 23,962 81,061 26,194
Less: Cash distributions: 24,000 96,000 26,135
Cash generated after cash distributions: (38) (14,939) 59
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 101 17
Cash distributions to investors: 30 120 33
Annualized cash on cash
yield to investors: 12% 12% 12%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-30
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund V, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 25,134 $ 93,797 $ 69,423 $ 10,145
Other: 0 493 0 109
Less:
Operating Expenses: (3,041) (19,512) (5,117) (10,125)
Interest Expenses: 0 0 0 0
Depreciation and Amortization: 0 0 0 0
Other: Major Maintenance: 0 0 0 0
Net Income (Loss) - Tax Basis: 22,093 74,778 64,306 129
Cash generated from operations: 22,093 74,285 64,306 20
Less: Cash distributions: 30,000 120,000 62,868 0
Cash generated after cash distributions: (7,907) (45,715) 1,438 20
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18 62 54 1
Cash distributions to investors: 25 100 53 0
Annualized cash on cash
yield to investors: 10% 10% 5% 0
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-31
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 9,803 $ 168,784 $ 3,050
Other: 0 0 0
Less:
Operating Expenses: (120) (35,602) (13,606)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 9,683 133,182 (10,556)
Cash generated from operations: 9,683 133,182 (10,556)
Less: Cash distributions: 10,000 189,283 77,208
Cash generated after cash distributions: (317) (56,101) (87,764)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 5 70 (6)
Cash distributions to investors: 5 100 41
Annualized cash on cash
yield to investors: 2% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-32
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund IV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 41,109 $ 166,018 $ 22,431
Other: 0 342 0
Less:
Operating Expenses: (12,797) (22,925) (17,181)
Interest Expenses: 0 (40,388) 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 28,312 103,047 5,250
Cash generated from operations: 28,312 102,705 5,250
Less: Cash distributions: 15,000 92,000 27,130
Cash generated after cash distributions: 13,312 10,705 (21,880)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 28 103 5
Cash distributions to investors: 60 92 27
Annualized cash on cash
yield to investors: 6% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-33
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XIV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 30,000 $ 103,353 $ 44,419
Other: 5 232 631
Less:
Operating Expenses: (40) (204) (274)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 29,965 103,381 44,776
Cash generated from operations: 29,965 103,381 44,145
Less: Cash distributions: 30,000 119,281 44,070
Cash generated after cash distributions: (35) (15,900) 75
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 103 21
Cash distributions to investors: 30 119 44
Annualized cash on cash
yield to investors: 12% 12% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-34
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund X, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 14,811 $ 78,605 $ 7,264
Other: 0 0 0
Less:
Operating Expenses: (12,904) (67,045) (10,237)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 1,907 11,560 (2,973)
Cash generated from operations: 1,907 11,560 (2,973)
Less: Cash distributions: 9,147 112,615 13,428
Cash generated after cash distributions: (7,240) (101,055) (16,401)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 2 10 (2)
Cash distributions to investors: 8 94 11
Annualized cash on cash
yield to investors: 3% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. For 1997, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $________.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-35
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 21,000 $ 79,771 $ 12,669
Other: 3 90 190
Less:
Operating Expenses: (48) (330) (300)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 20,955 79,441 12,559
Cash generated from operations: 20,955 79,441 12,369
Less: Cash distributions: 21,000 81,643 12,362
Cash generated after cash distributions: (45) (2,202) 7
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 30 113 18
Cash distributions to investors: 30 117 18
Annualized cash on cash
yield to investors: 12% 12% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-36
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VIII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,097 $ 101,503 $ 38,892
Other: 0 0 1,708
Less:
Operating Expenses: (3,000) (31,873) (14,453)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 21,097 69,630 26,147
Cash generated from operations: 21,097 69,630 24,439
Less: Cash distributions: 8,640 92,430 30,450
Cash generated after cash distributions: 12,457 (22,800) (6,011)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18 58 22
Cash distributions to investors: 7 77 25
Annualized cash on cash
yield to investors: 3% 8% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-37
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Tax Credit Fund II, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 45,186 179,855 $ 151,372 $ 193,970
Other: 0 0 0 0
Less:
Operating Expenses: (31,697) (136,148) (114,363) (121,850)
Interest Expenses: (9,944) (41,463) (41,317) (38,995)
Depreciation and Amortization: (3,971) (15,884) (25,780) (25,565)
Other: Major Maintenance: (2,232) (3,394) (6,265) (8,135)
Net Income (Loss) - Tax Basis: (2,658) (17,034) (36,353) (575)
Cash generated from operations: 1,313 (1,150) (10,573) 24,990
Less: Cash distributions: 1,550 2,940 2,780 34
Cash generated after cash distributions: (237) (4,090) (13,353) 24,956
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (9) (55) (117) (2)
Cash distributions to investors: 5 9 9 0
Annualized cash on cash
yield to investors: 2% 1% 1% 0
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $54,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-38
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund IX, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 13,766 $ 48,637 $ 676
Other: 0 0 0
Less:
Operating Expenses: (3,040) (21,856) (4,443)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 10,726 26,781 (3,767)
Cash generated from operations: 10,726 26,781 (3,767)
Less: Cash distributions: 8,249 87,770 3,589
Cash generated after cash distributions: (31,162) (60,989) (7,356)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 4 22 (3)
Cash distributions to investors: 7 73 3
Annualized cash on cash
yield to investors: 3% 7% 1%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- ------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. Third, for tax purposes, the
depreciable basis in a residential apartment property is stepped up to reflect
the purchase price at the time of acquisition of fee simple title to the
property or of the equity interest in the partnership which owns such title.
Under GAAP accounting, stepped up basis is not recognized. In respect of the
partnership, there is no difference between net income (loss) determined on a
tax basis as reflected in the table above and net income (loss) determined on a
GAAP basis since the partnership does not own a direct or indirect interest in a
residential apartment property.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-39
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Central Florida Income Appreciation Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 75,469 $ 279,732 $ 228,623 $ 244,496
Other: 2,030 9,255 0 0
Less:
Operating Expenses: (43,062) (158,039) (112,911) (127,984)
Interest Expenses: (24,455) (117,214) (134,746) (124,291)
Depreciation and Amortization: (19,979) (78,023) (76,023) (74,942)
Other: Major Maintenance: (1,831) (33,907) (19,500) (1,346)
Net Income (Loss) - Tax Basis: (10,828) (98,196) (114,557) (84,067)
Cash generated from operations: 7,121 (29,428) (38,534) (9,125)
Less: Cash distributions: 10,000 4,114 0 105,000
Cash generated after cash distributions: (2,879) (33,542) (38,534) (114,125)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (10) (94) (109) (80)
Cash distributions to investors: 10 4 0 100
Annualized cash on cash
yield to investors: 4% 1% 0% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $3,000.
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-40
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Midwest Income Growth Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
3/31/99 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 68,386 $ 273,157 $ 257,567 $ 98,226
Other: 1,200 (953) 0 0
Less:
Operating Expenses: (18,122) (139,926) (84,233) (28,556)
Interest Expenses: (31,110) (98,286) (106,684) (28,631)
Depreciation and Amortization: (14,997) (59,349) (54,823) (17,563)
Other: Major Maintenance: 0 0 (61,985) 0
Net Income (Loss) - Tax Basis: 5,357 (25,357) (50,158) 23,476
Cash generated from operations: 19,154 34,945 4,665 41,039
Less: Cash distributions: 4,000 30,000 29,799 5,547
Cash generated after cash distributions: 15,154 4,945 (25,134) 35,492
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18 116 (167) 78
Cash distributions to investors: 13 100 99 18
Annualized cash on cash
yield to investors: 5% 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100% 100%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income (loss) - tax basis reflected in the table above differs from the
amount reported as taxable income (loss) due primarily to (a) in certain cases,
the inclusion of certain advances as taxable income and (b) major maintenance
expenses being reported as capital expenditures, rather than deductible expenses
for purposes of taxable income (loss).
The significant differences between tax basis net income (loss) determined on a
tax basis and net income (loss) determined on the basis of generally accepted
accounting principles ("GAAP") are as follows. First, for tax purposes,
residential apartment properties have a depreciable life of 27.5 years, compared
to 30 years under GAAP. Second, rental income is accounted for on a tax basis on
receipt, but accrued under GAAP accounting. According to management of the
Operating Partnership, the difference in accounting results attributable to the
different depreciable lives and timing of rental income under the two methods is
not material. Third, for tax purposes, the partnership's depreciable basis in
its residential apartment property was stepped up at the time of the investors'
acquisition of a limited partnership interest in the partnership to reflect
their purchase price. Under GAAP accounting, stepped up basis is not recognized.
For 1997, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $(22,000).
In certain cases, "cash distributions" may include net operating cash flow, a
portion of cash reserves funded out of net proceeds of the program's offering,
refinancing proceeds or advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-41
<PAGE>
TABLE IV:
RESULTS OF COMPLETED PROGRAMS
The following table includes information relating to the financial results of
one program sponsored by an affiliate of the Managing Shareholder of the Trust,
Baron Advisors, Inc., which completed operations within the last five years. The
prior program had investment objectives similar to those of the Trust and the
Operating Partnership in that the program provided financing in respect of a
residential property for current income and capital appreciation.
Tampa Capital Income Fund, Ltd.
Dollar Amount Raised: $ 1,050,000
Number of Properties Purchased: one
Date of Closing of Offering: 7/95
Date of Acquisition of Property: 12/94
Date of Sale of Property: 2/97
Tax and Distribution Data per $1,000 Investment through 1996:
Federal Income Tax Results:
Ordinary Income (loss):
from operations: 171 est.
from recapture: Not applicable
Capital Gain (loss): 138
Deferred Gain(1):
Capital: 138
Ordinary: Not applicable
Cash Distribution to Investors: 10%
Source (on GAAP basis):
Investment Income: $ 180,000
Return of capital: $ 900,000
Source (on cash basis):
Sales: $ 900,000
Refinancing: Not applicable
Operations: $ 180,000
Other: Not applicable
Receivable on Net Purchase Money Financing: $ 6,333(2)
- --------------------------------------------------------------------------------
(1) "Deferred Gain" represents the amount of capital gain or ordinary gain that
is realized upon receipt of installment payments under the promissory note
received in exchange for the property sold.
(2) $295,000 of purchase price was paid with a promissory note payable in 36
equal monthly payments including 9% annual interest rate. As of May 25, 1999,
the principal balance owed on the note is approximately $6,333.
IV-1
<PAGE>
TABLE V:
SALES OR DISPOSALS OF PROPERTIES
The following table includes certain financial information concerning the sale
of a property within the most recent three years by an investment program
sponsored by an Affiliate of the Managing Shareholder.
Tampa Capital Income Fund, Ltd.
Property: Lakewood Apartments
Date Acquired: 12/94
Date of Sale: 2/97
Selling Price, Net of Closing Costs and GAAP Adjustments: $ 2,795,000
Cash Received net of closing costs: $ 900,000
Mortgage Balance at time of sale: $ 1,500,000
Purchase money mortgage taken back by program: $ 295,000(1)
Adjustments resulting from application of GAAP: Not applicable
Total: $ 2,695,000(2)
Cost of Properties Including Closing and Soft Costs:
Original Mortgage Financing: $ 1,500,000
Total acquisition cost, capital improvements,
Closing and soft costs: $ 1,050,000(3)
Total: $ 2,550,000
Excess of Property Operating Cash Receipts
Over Cash Expenditures: $ 180,000(4)
- --------------------------------------------------------------------------------
(1) $295,000 of purchase price was paid with a promissory note payable in 36
equal monthly payments including 9% annual interest rate. The current
principal balance owed on the note is approximately $6,333.
(2) The entire gain ($145,000) will be treated as a capital gain for tax
purposes.
(3) Does not include offering costs.
(4) Estimated.
V-1
<PAGE>
OTHER PROGRAMS SPONSORED BY
AFFILIATES OF MANAGING SHAREHOLDER
<TABLE>
<CAPTION>
MAXIMUM
DATE CAPITAL
FORMED RAISE PARTNERSHIP NAME GENERAL PARTNER
- ------ ----- ---------------- ---------------
<S> <C> <C> <C>
10/2/96 $ 650,000 Baron Mortgage Development Fund VIII, Ltd. Baron Capital XXXVIII, Inc.
4/02/97 1,000,000 Baron Mortgage Development Fund XII, Ltd. Baron Capital XLVI, Inc.
5/20/97 1,000,000 Baron First Mortgage Development Fund XVI, Ltd. Baron Capital LX, Inc.
5/22/97 1,000,000 Baron First Mortgage Development Fund XVII, Ltd. Baron Capital LXI, Inc.
9/15/97 1,000,000 Baron Mortgage Development Fund XIX, L.P. Baron Capital LXVI, Inc.
9/10/97 1,000,000 Baron Mortgage Development Fund XX, L.P. Baron Capital LXVII, Inc.
11/24/97 1,000,000 Baron Mortgage Development Fund XXI, L.P. Baron Capital LXVIII, Inc.
1/7/99 1,200,000 Baron Mezzanine Fund XXXVI, Ltd. Baron Capital LXXXVII, Inc.
1/7/99 1,200,000 Baron Mezzanine Fund XXXVII, Ltd. Baron Capital LXXXVIII, Inc.
4/7/99 1,200,000 Baron Mezannine Fund XXXVIII, Ltd. Baron Capital LXXXIX, Inc.
</TABLE>
<PAGE>
EXHIBIT B
SUMMARY OF EXCHANGE PROPERTY, MORTGAGE
AND EXCHANGE PARTNERSHIP INFORMATION
<PAGE>
EXHIBIT B
In the Exchange Offering, the Operating Partnership will offer to issue its
Units to limited partners in the Exchange Partnerships in exchange for their
limited partnership interests therein. The tables comprising Exhibit B set forth
information relating to each Exchange Partnership.
Exchange Equity Partnerships
The table relating to each of the 13 Exchange Equity Partnerships sets forth the
following information: (i) the name of the partnership and its general partner,
(ii) the name and location of the residential apartment property in which it
directly or indirectly owns equity, (iii) the year the property was completed,
(iv) the number of units, acreage, rentable area, average unit size and average
rental rate per unit and per square feet of rentable area as of April 1, 1999,
(v) physical occupancy of each property as of April 1, 1999 and for each of the
five prior years, (vi) the property's estimated appraised value, and (vii)
certain property tax information.
The table also sets forth for each partnership certain information relating to
the first mortgage (and in one case, second mortgage) indebtedness secured by or
associated with the property, including: (i) initial principal balance and
balance as of April 30, 1999 and due at maturity, (ii) interest rate, (iii)
annual and monthly debt service requirements, (iv) amortization term, (v)
maturity date, and (vi) name of lending institution.
In addition, the table for each Exchange Equity Partnership sets forth (i)
certain information relating to the partnership's original private offering,
including, the offering commencement and termination dates, number of investors,
paid in capital, number of units sold, price per unit and the allocations
between the limited partners and the general partner of distributable cash and
net proceeds from a sale or refinancing of property, (ii) the number of
Operating Partnership Units (and their initial assigned value) being offered to
each limited partner in the particular partnership per $1,000 of original
investment, and (iii) the estimated deferred taxable gain from the Exchange
Offering for limited partners electing to accept the offering, per $1,000 of
original investment.
Exchange Mortgage Partnerships
The table relating to each of the six Exchange Mortgage Partnerships sets forth
the same information as described above relating to the underlying property
which secures second mortgage loans held by the partnership, the first mortgage
loan which is senior to the partnership's loan interests, the partnership's
original offering and the estimated deferred taxable gain resulting from
participation in the offering. The table also sets forth the replacement cost
new of property securing second mortgage interests of the partnership and
information relating to the second mortgage loan and other debt interests held
by the partnership, including: (i) initial principal balances and balances as of
March 31, 1999 and due at maturity, (ii) interest rates, (iii) annual and
monthly debt service requirements, (iv) amortization term, (v) maturity dates,
(vi) annual monthly debt service requirements, and (vii) similar information
regarding other Exchange Partnerships which hold second mortgage interests
secured by the same property in which the partnership holds a second mortgage
interest.
Exchange Hybrid Partnerships
The table relating to each of the four Exchange Hybrid Partnerships sets forth
the same information as described above relating to: (i) properties in which the
partnership directly or indirectly owns an equity interest and properties which
secure second mortgage loans held by the partnership, first mortgage loans which
are senior to the partnership's equity interests and second mortgage interests,
the partnership's original private offering and the estimated deferred taxable
gain resulting from participation in the Exchange Offering and (ii) the second
mortgage loan and other debt interests held by the partnership.
<PAGE>
EXCHANGE EQUITY PARTNERSHIPS
2
<PAGE>
FLORIDA INCOME GROWTH FUND V, LTD.
(GP: Baron Capital XI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership
interest in a limited partnership which holds fee simple
title to the property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1980
BLOSSOM CORNERS APARTMENTS-PHASE I APPROX. ACREAGE: 3.67
2143 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 15 300 $ 419
--------------------------------------------------------------------
1 BR 49 600 $ 499
--------------------------------------------------------------------
2 BR 6 900 $ 650
--------------------------------------------------------------------
Total 70 39,300
--------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 93% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,195,000
1998 OCCUPANCY %: 97% APPRAISAL DATE: 1/98
1997 AVG. MONTHLY OCCUPANCY %: 91% 11/1/98 FEDERAL INCOME TAX BASIS: $1,629,182
1996 AVG. MONTHLY OCCUPANCY %: 89% DEPRECIATION LIFE CLAIMED: 24.5 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 90% REALTY TAX RATE (MILLAGE): 21.6657
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $1,194,445
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/06
Column Financial, Inc.
3414 Peachtree Road N.E., Suite 1140
Atlanta, Georgia 30326-1113
INITIAL PRINCIPAL BALANCE: $1,050,000 ANNUAL DEBT SERVICE: $105,288
4/30/99 BALANCE: $1,020,990 MONTHLY PAYMENT: $ 8,774
BALANCE DUE AT MATURITY: $ 882,430
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 9.04% and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayment penalty equal to 1% of prepayment amount if
prepaid prior to fifth anniversary of loan; no prepayment penalty thereafter.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 10/95 NUMBER OF UNITS SOLD: 2,300
NUMBER OF INVESTORS: 49 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,150,000 DATE OFFERING TERMINATED: 2/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 114 Units Short Term Capital Gain (assuming 39% rate): $118
valued at $10 per Unit (or $1,140) Long Term Capital Gain (assuming 20% rate): $ 61
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
3
<PAGE>
FLORIDA CAPITAL INCOME FUND III, LTD.
(GP: Baron Capital VII, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1986
BRIDGE POINT APARTMENTS - PHASE II APPROX. ACREAGE: 3.39
1500 Monument Road
Jacksonville, Florida 32225
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $369-389
--------------------------------------------------------------------
1 BR 37 576 $449
--------------------------------------------------------------------
2 BR 5 864 $589-599
--------------------------------------------------------------------
Total 48 27,360
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 94% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,610,000
1998 AVG. MONTHLY OCCUPANCY %: 96% APPRAISAL DATE: 2/98
1997 AVG. MONTHLY OCCUPANCY %: 93% 11/1/98 FEDERAL INCOME TAX BASIS: $1,152,374
1996 AVG. MONTHLY OCCUPANCY %: 95% DEPRECIATION LIFE CLAIMED: 25.5 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 94% REALTY TAX RATE (MILLAGE): 21.4228
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $904,775
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 7/1/06
Huntington Mortgage Co.
41 South High Street, Suite 900
Columbus, Ohio 43215
INITIAL PRINCIPAL BALANCE: $735,000 ANNUAL DEBT SERVICE: $76,572
4/30/99 BALANCE: $713,208 MONTHLY PAYMENT: $ 6,381
BALANCE DUE AT MATURITY: $625,327
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 9.52% and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayment permitted only after 7/1/05.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 6/95 NUMBER OF UNITS SOLD: 1,600
NUMBER OF INVESTORS: 32 PRICE PER UNIT: $500
PAID IN CAPITAL: $800,000 DATE OFFERING TERMINATED: 11/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 117 Units Short Term Capital Gain (assuming 39% rate): $ 236
valued at $10 per Unit (or $1,170) Long Term Capital Gain (assuming 20% rate): $ 121
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
4
<PAGE>
MIDWEST INCOME GROWTH FUND VI, LTD.
(GP: Baron Capital of Ohio III, Inc.,
formerly named Sigma Financial Capital VI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1974
BROOKWOOD WAY APARTMENTS APPROX. ACREAGE: 3.92
327 N. Brookwood Way
Mansfield, Ohio 44906
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 3 288 $299
--------------------------------------------------------------------
1 BR 60 576 $379
--------------------------------------------------------------------
2 BR 3 864 $399
--------------------------------------------------------------------
Total 66 38,016
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 89% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,780,000
1998 AVG. MONTHLY OCCUPANCY %: 99% APPRAISAL DATE: 9/98
1997 AVG. MONTHLY OCCUPANCY %: 94% 11/1/98 FEDERAL INCOME TAX BASIS: $1,737,619
1996 AVG. MONTHLY OCCUPANCY %: 97% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 95% REALTY TAX RATE (MILLAGE): 78.13
1994 AVG. MONTHLY OCCUPANCY %: 96% 1997 PROPERTY TAX VALUE: $349,520
</TABLE>
===============================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 12/1/06
Mellon Bank
1422 Euclid #900
Cleveland, Ohio 44115
INITIAL PRINCIPAL BALANCE: $1,075,000 ANNUAL DEBT SERVICE: $108,612
4/30/99 BALANCE: $1,046,599 MONTHLY PAYMENT: $ 9,051
BALANCE DUE AT MATURITY: $ 890,263
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed
interest rate of 9.04% and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Loan may be prepaid in whole at any time after December
1, 2001 provided written notice of such prepayment is received by lender not
more than 60 days and not less than 30 days prior to the date of such payment.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/96 NUMBER OF UNITS SOLD: 600
NUMBER OF INVESTORS: 7 PRICE PER UNIT: $500
PAID IN CAPITAL: $300,000 DATE OFFERING TERMINATED: 10/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10%
non-cumulative return on their capital contributions; any remaining
distributable cash during the fiscal year is to be deposited in a
cash reserve acount.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions)
equal to their capital contributions plus a 10% yearly cash-on-cash
return, the GP is entitled to receive any remaining net proceeds
until it has received a similar return on its capital contribution;
thereafter the investors and the GP share any remaining net proceeds
70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 127 Units Short Term Capital Gain (assuming 39% rate): $429
valued at $10 per Unit (or $1,270) Long Term Capital Gain (assuming 20% rate): $220
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
5
<PAGE>
FLORIDA OPPORTUNITY INCOME PARTNERS, LTD.
(GP: Baron Capital III, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1982
CAMELLIA COURT APARTMENTS APPROX. ACREAGE: 5.15
1401 S. Clyde Morris Boulevard
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 59 576 $435
--------------------------------------------------------------------
2 BR 1 864 $599
--------------------------------------------------------------------
Total 60 34,848
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 95% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,833,000
1998 AVG. MONTHLY OCCUPANCY %: 98% APPRAISAL DATE: 8/98:
1997 AVG. MONTHLY OCCUPANCY %: 75% 11/1/98 FEDERAL INCOME TAX BASIS: $1,384,565
1996 AVG. MONTHLY OCCUPANCY %: 91% DEPRECIATION LIFE CLAIMED: 24.5 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE): 26.77249
1994 AVG. MONTHLY OCCUPANCY %: 78% 1997 PROPERTY TAX VALUE: $1,100,618
</TABLE>
======================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/06
Column Financial
6400 Congress Avenue #200
Boca Raton, Florida 33487
INITIAL PRINCIPAL BALANCE: $1,100,000 ANNUAL DEBT SERVICE: $111,132
4/30/99 BALANCE: $1,069,633 MONTHLY PAYMENT: $ 9,261
BALANCE DUE AT MATURITY: $ 984,430
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 9.04% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first five years of
the loan; thereafter, entire principal balance may be prepaid, provided during
the sixth and seventh years of the loan lender is paid a prepayment fee equal to
the greater of one percent of the outstanding loan balance or yield maintenance.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 8/95 NUMBER OF UNITS SOLD: 800
NUMBER OF INVESTORS: 29 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $800,000 DATE OFFERING TERMINATED: 12/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $254
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $130
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
6
<PAGE>
FLORIDA CAPITAL INCOME FUND, LTD.
(GP: Baron Capital II, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1987
EAGLE LAKE APARTMENTS APPROXIMATE ACREAGE: 4.68
1025 Eagle Lake Trail
Port Orange, Florida 32119
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 73 576 $459
--------------------------------------------------------------------
2 BR 4 864 $579
--------------------------------------------------------------------
Total 77 45,504
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 100% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,530,000
1998 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
1997 AVG. MONTHLY OCCUPANCY %: 94% 11/1/98 FEDERAL INCOME TAX BASIS: $2,066,071
1996 AVG. MONTHLY OCCUPANCY %: 96% DEPRECIATION LIFE CLAIMED: 24 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 92% REALTY TAX RATE (MILLAGE): 24.44549
1994 AVG. MONTHLY OCCUPANCY %: 95% 1997 PROPERTY TAX VALUE: $1,755,464
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 11/1/05
Column Financial, Inc.
3414 Peachtree Road N.E., Suite 1140
Atlanta, Georgia 30325-1113
INITIAL PRINCIPAL BALANCE: $1,500,000 ANNUAL DEBT SERVICE: $144,636
4/30/99 BALANCE: $1,433,616 MONTHLY PAYMENT: $ 12,053
BALANCE DUE AT MATURITY: $1,244,562
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 8.56% through maturity and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid after 10/25/00 with prepayment penalty
equal to 1% of prepayment amount.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/94 NUMBER OF UNITS SOLD: 1,614
NUMBER OF INVESTORS: 31 PRICE PER UNIT: $500
PAID IN CAPITAL: $807,000 DATE OFFERING TERMINATED: 6/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions. Thereafter, the investors are entitled
to receive all remaining distributable cash during the fiscal year less a
reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return (and, in the
case of a property sale, after the holders of second mortgage financing have
received 10% of the net sale proceeds remaining after the investors have
received an aggregate amount equal to their capital contributions), the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter, investors and the GP share any
remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY
OFFERED IN EXCHANGE OFFERING FROM EXCHANGE OFFERING (per $1,000 of Investors'
(per $1,000 of Investors' original investment): 115 Units original investment):
valued at $10 per Unit (or $1,150) Short Term Capital Gain (assuming 39% rate): $312
Long Term Capital Gain (assuming 20% rate): $160
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
7
<PAGE>
FLORIDA CAPITAL INCOME FUND II, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE I APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 28 1,075 $619-649
--------------------------------------------------------------------
3 BR 24 1,358 $719
--------------------------------------------------------------------
Total 52 62,692
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 98% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,990,820
1998 AVG. MONTHLY OCCUPANCY %: 99% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 82% 11/1/98 FEDERAL INCOME TAX BASIS: $1,512,371
1996 AVG. MONTHLY OCCUPANCY %: 85% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 93% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 95% 1997 PROPERTY TAX VALUE: $1,594,041
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $1,836,576 ANNUAL DEBT SERVICE: $145,920
4/30/99 BALANCE: $1,778,043 MONTHLY PAYMENT: $ 12,160
BALANCE DUE AT MATURITY: $1,681,926
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 5/94 NUMBER OF UNITS SOLD: 2,000*
NUMBER OF INVESTORS: 38 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000* DATE OFFERING TERMINATED: 7/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 169 Units Short Term Capital Gain (assuming 39% rate): $464
valued at $10 per Unit (or $1,690) Long Term Capital Gain (assuming 20% rate): $238
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
* Includes 1,840 units sold in the program's offering plus 160 units issued to
four investors in exchange for property interests acquired by them in an earlier
unrelated program which was terminated.
8
<PAGE>
REALTY OPPORTUNITY INCOME FUND VIII, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE II APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 23 1,075 $619-649
--------------------------------------------------------------------
3 BR 7 1,358 $719
--------------------------------------------------------------------
Total 30 34,231
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 96% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,173,162
1998 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 73% 11/1/98 FEDERAL INCOME TAX BASIS: $1,460,396
1996 AVG. MONTHLY OCCUPANCY %: 82% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $930,725
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 1,072,132 ANNUAL DEBT SERVICE: $85,188
4/30/99 BALANCE: $ 1,025,794 MONTHLY PAYMENT: $ 7,099
BALANCE DUE AT MATURITY: $ 981,813
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 3/94 NUMBER OF UNITS SOLD: 944
NUMBER OF INVESTORS: 45 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $944,000 DATE OFFERING TERMINATED: 6/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF INTEREST IN NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After
investors have received an aggregate amount (including prior distributions)
equal to their capital contributions plus a 10% yearly cash-on-cash return,
the GP is entitled to receive any remaining net proceeds until it has received
a similar return on its capital contribution; thereafter the investors and the
GP share any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $128
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $ 66
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
* The GP became a manager of this program in July 1995, replacing Realty Capital
I, Inc., the initial sponsor.
9
<PAGE>
FLORIDA INCOME ADVANTAGE FUND I, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE III APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 19 1,075 $619-649
--------------------------------------------------------------------
3 BR 7 1,358 $719
--------------------------------------------------------------------
Total 26 29,931
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 92% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,940,339
1998 AVG. MONTHLY OCCUPANCY %: 81% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 88% 11/1/98 FEDERAL INCOME TAX BASIS: $1,282,871
1996 AVG. MONTHLY OCCUPANCY %: 94% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 98% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $743,191
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 854,708 ANNUAL DEBT SERVICE: $67,908
4/30/99 BALANCE: $ 889,021 MONTHLY PAYMENT: $ 5,659
BALANCE DUE AT MATURITY: $ 782,744
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 2/94 NUMBER OF UNITS SOLD: 940
NUMBER OF INVESTORS: 46 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $940,000 DATE OFFERING TERMINATED: 5/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 107 Units Short Term Capital Gain (assuming 39% rate): $129
valued at $10 per Unit (or $1,070) Long Term Capital Gain (assuming 20% rate): $ 66
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
The GP became a manager of this program in July 1995, replacing Realty Capital
IV, Inc., the initial sponsor.
10
<PAGE>
FLORIDA INCOME APPRECIATION FUND I, LTD.
(GP: Baron Capital IV, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE IV APPROXIMATE ACREAGE: 6.85 (all 4
300 Forest Glen Boulevard phases)
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
2 BR 6 1,075 $619-649
--------------------------------------------------------------------
3 BR 2 1,358 $719
--------------------------------------------------------------------
Total 8 9,166
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 100% ESTIMATED APPRAISED PARTNERSHIP VALUE: $471,679
1998 AVG. MONTHLY OCCUPANCY %: 100% APPRAISAL DATE: 10/97
1997 AVG. MONTHLY OCCUPANCY %: 91% 11/1/98 FEDERAL INCOME TAX BASIS: $216,381
1996 AVG. MONTHLY OCCUPANCY %: 91% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 88% REALTY TAX RATE (MILLAGE): 26.41256
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $204,899
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/2005
Prudential Mortgage Capital
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
INITIAL PRINCIPAL BALANCE: $ 236,584 ANNUAL DEBT SERVICE: $18,792
4/30/99 BALANCE: $ 273,545 MONTHLY PAYMENT: $ 1,566
BALANCE DUE AT MATURITY: $ 216,712
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.01% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable after 4/2001 with yield maintenance until
10/2004; thereafter prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/94 NUMBER OF UNITS SOLD: 205
NUMBER OF INVESTORS: 13 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $205,000 DATE OFFERING TERMINATED: 9/94
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 124 Units Short Term Capital Gain (assuming 39% rate): $434
valued at $10 per Unit (or $1,240) Long Term Capital Gain (assuming 20% rate): $222
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
- ----------
The GP became a manager of this program in July 1995, replacing Realty Capital
II, Inc., the initial sponsor.
11
<PAGE>
FLORIDA CAPITAL INCOME FUND IV, LTD.
(GP: Baron Capital V, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1986
GLEN LAKE ARMS APARTMENTS APPROXIMATE ACREAGE: 7.16
2000 Gandy Boulevard North
St. Petersburg, Florida 33702
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 144 550 $674
--------------------------------------------------------------------
Total 144 79,200
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 65% ESTIMATED APPRAISED PARTNERSHIP VALUE: $6,483,079
1998 AVG. MONTHLY OCCUPANCY %: 49% APPRAISAL DATE: 3/98
1997 AVG. MONTHLY OCCUPANCY %: 78% 11/1/98 FEDERAL INCOME TAX BASIS: $4,110,622
1996 AVG. MONTHLY OCCUPANCY %: 81% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 72% REALTY TAX RATE (MILLAGE): 25.4849
1994 AVG. MONTHLY OCCUPANCY %: 79% 1997 PROPERTY TAX VALUE: $3,789,000
</TABLE>
================================================================================
MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: SECOND MORTGAGE HOLDER AND ADDRESS:
Republic Bank Glen Lake Arms Joint Venture
1301 Sixth Avenue West 10490 Gandy Boulevard North, Suite 2E
Bradenton, Florida 34205 St. Petersburg, Florida 33702
INITIAL PRINCIPAL BALANCE: $2,812,500 INITIAL PRINCIPAL BALANCE: $375,000
4/30/99 BALANCE: $2,690,614 4/30/99 BALANCE: $353,854
BALANCE DUE AT MATURITY: $2,652,341 BALANCE DUE AT MATURITY: $343,772
MATURITY DATE: 5/18/00 MATURITY DATE: 5/01/05
ANNUAL DEBT SERVICE: $ 293,700 ANNUAL DEBT SERVICE: $ 34,728
MONTHLY PAYMENT: $ 24,475 MONTHLY PAYMENT: $ 2,894
MORTGAGE INTEREST AND AMORTIZATION MORTGAGE INTEREST AND AMORTIZATION
PROVISIONS: The loan bears a fixed PROVISIONS: The loan bears a fixed
interest rate of 9.55% and amortizes interest rate of 8.0% and amortizes
on a 25-year basis. on a 25-year basis.
PREPAYMENT PROVISIONS:Prepayable without PREPAYMENT PROVISIONS:Prepayable
penalty without penalty
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 1/95 NUMBER OF UNITS SOLD: 3,640
NUMBER OF INVESTORS: 60 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,820,000 DATE OFFERING TERMINATED: 6/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive all remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return (and, in the
case of a property sale, after the holder of collateral mortgage financing has
received 10% of the net sale proceeds remaining after investors have received
an aggregate amount equal to their capital contributions), the GP is entitled
to receive any remaining net proceeds until it has received a similar return
on its capital contribution; thereafter the investors and the GP share any
remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 136 Units Short Term Capital Gain (assuming 39% rate): $336
valued at $10 per Unit (or $1,360) Long Term Capital Gain (assuming 20% rate): $172
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
12
<PAGE>
CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD.
(GP: Baron Capital of Florida, Inc.,
formerly named Sigma Financial Capital VI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1986
LAUREL OAKS APARTMENTS APPROXIMATE ACREAGE: 6.21
(FORMERLY GROVE HAMLET APARTMENTS
915B Grove Hamlet Way
Deland, Florida 32720
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 11 576 $435
--------------------------------------------------------------------
2 BR 45 864 $540-569
--------------------------------------------------------------------
Total 56 45,216
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 93% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,881,000
1998 AVG. MONTHLY OCCUPANCY %: 96% APPRAISAL DATE: 9/98
1997 AVG. MONTHLY OCCUPANCY %: 71% 11/1/98 FEDERAL INCOME TAX BASIS: $1,908,139
1996 AVG. MONTHLY OCCUPANCY %: 75% DEPRECIATION LIFE CLAIMED: 23 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 92% REALTY TAX RATE (MILLAGE): 25.17206
1994 AVG. MONTHLY OCCUPANCY %: 95% 1997 PROPERTY TAX VALUE: $1,240,948
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 12/1/28
Prudential Mortgage Capital Company, LLC
100 Mulberry Street - 9th Floor
Newark, NJ 07102-4069
INITIAL PRINCIPAL BALANCE: $1,600,000 ANNUAL DEBT SERVICE: $ 121,860
4/30/99 BALANCE: $1,592,583 MONTHLY PAYMENT: $ 10,155
BALANCE DUE AT MATURITY: $ 0
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 6.54% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment may be made until within six months of
maturity date.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 9/94 NUMBER OF UNITS SOLD: 2,100
NUMBER OF INVESTORS: 51 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,050,000 DATE OFFERING TERMINATED: 10/95
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive any remaining distributable cash during the fiscal year
less a reasonable cash reserve determined by the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 130 Units Short Term Capital Gain (assuming 39% rate): $405
valued at $10 per Unit (or $1,300) Long Term Capital Gain (assuming 20% rate): $208
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
13
<PAGE>
GSU STADIUM STUDENT APARTMENTS, LTD.
(GP: Baron Capital X, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1987
STADIUM CLUB APARTMENTS APPROXIMATE ACREAGE: 3.50
210 Lanier Drive
Statesboro, Georgia 30458
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 2 288 $345
--------------------------------------------------------------------
3 BR 3 880 $705-750
--------------------------------------------------------------------
4 BR 55 880 $940-1,000
--------------------------------------------------------------------
Total 60 51,616
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 70% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,800,000
1998 AVG. MONTHLY OCCUPANCY %: 64% APPRAISAL DATE: 12/97
1997 AVG. MONTHLY OCCUPANCY %: 86% 11/1/98 FEDERAL INCOME TAX BASIS: $2,014,060
1996 AVG. MONTHLY OCCUPANCY %: 90% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 74% REALTY TAX RATE (MILLAGE): 28.93
1994 AVG. MONTHLY OCCUPANCY %: 86% 1997 PROPERTY TAX VALUE: $1,802,200
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 10/1/05
GMAC
650 Dresher Road
Horsham, Pennsylvania 19044
INITIAL PRINCIPAL BALANCE: $1,750,000 ANNUAL DEBT SERVICE: $151,272
4/30/99 BALANCE: $1,718,457 MONTHLY PAYMENT: $ 12,606
BALANCE DUE AT MATURITY: $1,615,458
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 7.87% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable with prepayment fee in an amount equal to 1%
of the then outstanding principal balance.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/95 NUMBER OF UNITS SOLD: 2,000
NUMBER OF INVESTORS: 38 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000 DATE OFFERING TERMINATED: 2/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; thereafter, the GP receives all
remaining distributable cash during the fiscal year.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 10% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 70%/30%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 117 Units Short Term Capital Gain (assuming 39% rate): $262
valued at $10 per Unit (or $1,170) Long Term Capital Gain (assuming 20% rate): $135
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
14
<PAGE>
BARON STRATEGIC INVESTMENT FUND II, LTD.
(GP: Baron Capital XXXI, Inc.)
PARTNERSHIP PROPERTY INTEREST
The Partnership owns 100% of the limited partnership interest in
a limited partnership which holds fee simple title to the
property described below.
PROPERTY NAME AND ADDRESS: YEAR COMPLETED: 1977
STEEPLECHASE APARTMENTS APPROXIMATE ACREAGE: 3.2
841 W. 53rd Street
Anderson, Indiana 46013
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 12 550 $399
--------------------------------------------------------------------
2 BR 60 678 $435-445
--------------------------------------------------------------------
Total 72 47,280
---------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 86% ESTIMATED APPRAISED PARTNERSHIP VALUE: $1,690,000
1998 AVG. MONTHLY OCCUPANCY %: 76% APPRAISAL DATE: 8/98
1997 AVG. MONTHLY OCCUPANCY %: 73% 11/1/98 FEDERAL INCOME TAX BASIS: $1,273,899
1996 AVG. MONTHLY OCCUPANCY %: 70% DEPRECIATION LIFE CLAIMED: 25 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 82% REALTY TAX RATE (MILLAGE): 12.3716
1994 AVG. MONTHLY OCCUPANCY %: 78% 1997 PROPERTY TAX VALUE: $285,170
</TABLE>
================================================================================
FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 10/1/06
Crown Bank
105 Live Oaks Garden #129
Castleberry, Florida 32707
INITIAL PRINCIPAL BALANCE: $1,260,000 ANNUAL DEBT SERVICE: $ 91,344
4/30/99 BALANCE: $1,260,000 MONTHLY PAYMENT: $ 7,612
BALANCE DUE AT MATURITY: $1,099,557
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: During loan years 1 and 2,
interest rate is 7.25%; during years 3 and 4, interest rate is 7.75%;
thereafter, 8.25%. The loan is payable interest only for years 1 - 3 and then
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
================================================================================
INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 7/96 NUMBER OF UNITS SOLD: 1,600
NUMBER OF INVESTORS: 16 PRICE PER UNIT: $500
PAID IN CAPITAL: $800,000 DATE OFFERING TERMINATED: 10/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 12.5% non-cumulative
return on their capital contributions; the GP is then entitled to receive a
similar return on its capital contribution. Thereafter, the investors are
entitled to receive 50% of any remaining distributable cash during the fiscal
year less a reasonable cash reserve determined by the GP, and the GP the
remaining 50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 12.5% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds until it has received a similar
return on its capital contribution; thereafter the investors and the GP share
any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 103 Units Short Term Capital Gain (assuming 39% rate): $271
valued at $10 per Unit (or $1,030) Long Term Capital Gain (assuming 20% rate): $139
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Equity Partnerships)
15
<PAGE>
Endnotes to Exchange Equity Partnerships:
1. The First Mortgage Loan is not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed.
2. The Property is in good overall condition and is suitable and adequate for
the purpose for which it was built.
3. The Property is subject to significant competition from other residential
apartment properties in the general vicinity of the Property.
4. In the opinion of the Managing Shareholder, the Property is covered by
insurance of the types and amounts which are comparable for similar
properties located in the general vicinity of the Property.
5. Each Property is a residential apartment property (other than Glen Lake
Arms Apartments, which are short-term corporate residential units) which
generally leases units to tenants under lease agreements with terms of one
year or less which are common in the industry.
6. The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Equity
Partnership and in each Exchange Hybrid Partnership (to the extent of its
equity interest in the property) is based upon the following factors: (a)
the estimated appraised market value of the underlying property determined
by qualified and licensed independent appraisal firms; (b) the operating
history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the
amount of distributable cash flow currently being generated by the
property; plus (e) additional factors which the Managing Shareholder
believes are appropriate to consider including, among others, the
property's overall current condition and prospects for the property based
upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are
expected to be owned upon the completion of the Exchange Offering, and the
actual or potential benefits to be obtained by the sub-metering of
utilities in order to pass costs from the owner of the property to
individual tenants. There can be no assurance that the value of equity
interests acquired in properties will reflect their fair market value. See
the Prospectus at "THE EXCHANGE OFFERING."
7. The overall depreciable life of the Property is 30 years; depreciation is
determined using the straight-line method.
8. Based on certain factual representations made by the Operating Partnership
and on certain conditions specified at "FEDERAL INCOME TAX CONSIDERATIONS
- Exchange of Exchange Partnership Units for Operating Partnership Units,"
special tax counsel to the Operating Partnership has opined that Offerees
who accept the Exchange Offering will generally not incur any immediate
tax liability for any taxable gain in connection with such transaction.
Any such tax liability generally will be deferred until a later date. The
schedule at "Estimated Deferred Taxable Gain from Exchange Offering (per
$1,000 of Investors' original investment)" (prepared by the Managing
Shareholder and not reviewed by tax or other counsel) indicates the amount
of capital gain tax liability each Offeree who accepts the Exchange
Offering will defer in connection with such transaction per each $1,000 of
his original investment.
16
<PAGE>
EXCHANGE MORTGAGE PARTNERSHIPS
17
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
(GP: Baron Capital XXXII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
This Exchange Partnership owns (i) three unrecorded second
mortgage loans secured by the Blossom Corners Property-Phase II
and (ii) an unrecorded second mortgage loan secured by the Lake
Sycamore Property under development. The properties, interest of
the partnership and other Exchange Partnerships in the second
mortgages, terms of the first mortgage loans secured by the
properties, and other information are described below.
1. BLOSSOM CORNERS SECOND MORTGAGE LOANS:
NAME AND ADDRESS OF PROPERTY SECURING MORTGAGE LOANS:
BLOSSOM CORNERS APARTMENTS - PHASE II YEAR COMPLETED: 1981
("Blossom Corners Property") APPROX. ACREAGE: 3.51
2143 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 16 300 $419
--------------------------------------------------------------------
1 BR 45 600 $499
--------------------------------------------------------------------
2 BR 7 864 $650
--------------------------------------------------------------------
Total 68 38,100
---------------------------------------------------
4/1/99 OCCUPANCY %: 97% APPRAISED VALUE: $2,250,000
1998 AVG. MONTHLY OCCUPANCY %: 97% Cost Approach: $2,239,000
1997 AVG. MONTHLY OCCUPANCY %: 91% Income Approach: $2,322,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $2,160,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $3,390,187
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 1/98
PARTNERSHIP'S BLOSSOM CORNERS SECOND MORTGAGE LOAN INTERESTS:
<TABLE>
<S> <C>
DEBTOR: Blossom Corners Apartments II, Ltd. PARTNERSHIP'S UNDIVIDED INTEREST IN
(affiliate of Managing Shareholder) SECOND MORTGAGE NOTES: 100%
AGGREG. ORIGINAL PRINCIPAL BALANCE: $977,645 AGGREG. ANNUAL DEBT SERVICE: $62,552
AGGREG. 3/31/99 BALANCE: $850,966 (plus participation interest)
AGGREG. BALANCE DUE AT MATURITY: $850,966 AGGREG. MONTHLY PAYMENT: $ 5,213
AGGREG. ACCRUED UNPAID INTEREST: $ 43,113 MATURITY DATE: 4/02
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$622,103 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal balance to the extent of any available cash flow
during the year and additional non-cumulative participation interest equal to
30% of any remaining available cash flow during the year), (ii) adjustable
interest rate of 1% over the prime rate (current adjustable rate of 8.75%) as to
$68,861 of principal, and (iii) fixed interest rate of 12% as to $160,002 of
principal. The loans require payments of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans consisted of an
unrecorded second mortgage note with a principal balance of $622,103, an
unsecured promissory note with a principal balance of $68,861, an unsecured
demand note with a principal balance of $130,270 and advances of $29,732. On
12/15/98, the debtor restated and amended the $622,103 second mortgage note and
the $68,861 unsecured promissory note and made a new promissory note in favor of
the Exchange Partnership in the original principal amount of $160,002 (to
consolidate the $130,270 demand note and advances of $29,732). The debtor and
the Exchange Partnership also entered into a mortgage modification agreement.
Pursuant to the arrangement, the Exchange Partnership agreed to set the maturity
date on the unsecured notes at the same maturity date as the second mortgage
note, in exchange for the debtor's agreement to secure its repayment obligations
on the unsecured notes with a second mortgage on the property.
18
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD. (cont'd)
BLOSSOM CORNERS FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Blossom Corners
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,130,000 ANNUAL DEBT SERVICE: $106,824
4/30/99 BALANCE: $1,098,951 MONTHLY PAYMENT: $ 8,902
BALANCE DUE AT MATURITY: $1,050,024 MATURITY DATE: 3/02
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.24% and
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayment penalty equal to 1% of prepayment amount if
prepaid prior to third anniversary of loan; no prepayment penalty thereafter.
2. LAKE SYCAMORE SECOND MORTGAGE LOAN
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOAN:
VILLAS AT LAKE SYCAMORE
("Lake Sycamore Property")
1911 Chaucer Drive
Cincinnati, Ohio 45237
PARTNERSHIP'S SECOND MORTGAGE INTEREST:
The Partnership owns an unrecorded second mortgage note with a current principal
balance of $230,000. Accrued unpaid interest on the note as of 3/31/99 is
$20,415. The debtor is Sycamore Real Estate Development, L.P., an affiliate of
the Managing Shareholder. The note bears interest at the fixed rate of 12%
(annual interest payable of $27,600 or $2,300 per month) and matures on 12/03.
The note is secured by a second mortgage on the Villas at Lake Sycamore, a 164
townhome property under construction on 22.44 acres in Cincinnati, Ohio. Each
townhome has a rentable area per unit of approximately 1,325 square feet (or a
total area of 217,300 square feet). Construction commenced in December 1997 and
is expected to be completed in the last quarter of 2003. Each unit is expected
to have an initial monthly rental rate in the range of $889 to $990. In July
1998, an independent Cincinnati appraisal firm estimated the "as is" value of
the property at $1,080,000 and the value of the completed property to be
$14,312,000 (assuming completion of the project as designed, full rent up and
satisfactory environment-quality test).
Two other Exchange Partnerships, Baron Strategic Investment Fund VIII, Ltd. and
Baron Strategic Investment Fund IX, Ltd., own separate second mortgage notes
secured by the property with the same terms except that they are in the
principal amounts of $98,000 and $243,500 (with accrued unpaid interest in the
amounts of $2,683 and $7,204), respectively. The lending parties have agreed to
share the benefits of the second mortgage on a pari passu basis.
LAKE SYCAMORE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Metropolitan Savings REPAYMENT SECURED BY:
8050 Hosbrook Road, Suite 408 First Mortgage on Lake Sycamore
Cincinnati, Ohio 45236 Property
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $2,000,000 CURRENT ANNUAL DEBT SERVICE: $89,369
maximum approved CURRENT MONTHLY PAYMENT: $ 7,447
4/30/99 BALANCE: $1,021,362 MATURITY DATE: 11/01
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Adjustable interest rate equal to
lender's prime rate plus 1% (currently 8.75%); requires payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
19
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD. (cont'd)
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 6/96 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 42 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 12/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to investors until they have received a 12.5% non-cumulative
return on their capital contributions; thereafter, investors and the GP share
any remaining distributable cash during the fiscal year 50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return, the GP
is entitled to receive a similar return on its capital contribution;
thereafter, investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 111 Units Short Term Capital Gain (assuming 39% rate): $90
valued at $10 per Unit (or $1,110) Long Term Capital Gain (assuming 20% rate): $46
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Mortgage Partnerships)
20
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
(GP: Baron Capital XVII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
This Exchange Partnership owns two unrecorded second mortgage
loans secured by the Country Square Property-Phase I described
below. The Exchange Partnership's interest in the second
mortgage loans, terms of the first mortgage loan secured by the
property, and other information are described below.
COUNTRY SQUARE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOANS:
COUNTRY SQUARE APARTMENTS - PHASE I YEAR COMPLETED: 1981
("Country Square Property") APPROX. ACREAGE: 4.56
8401 Aiken Court
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 14 288 $345
--------------------------------------------------------------------
1 BR 52 576 $449
--------------------------------------------------------------------
2 BR 7 864 $559
--------------------------------------------------------------------
Total 73 40,032
---------------------------------------------------
4/1/99 OCCUPANCY %: 95% APPRAISED VALUE: $2,185,000
1998 AVG. MONTHLY OCCUPANCY %: 95% Cost Approach: $2,185,000
1997 AVG. MONTHLY OCCUPANCY %: 83% Income Approach: $2,281,000
1996 AVG. MONTHLY OCCUPANCY %: 84% Market Approach: $2,090,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $3,554,776
1994 AVG. MONTHLY OCCUPANCY %: 84% APPRAISAL DATE: 1/98
- --------------------------------------------------------------------------------
PARTNERSHIP'S COUNTRY SQUARE SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: PARTNERSHIP'S UNDIVIDED %
Country Square Apartments, Ltd. INTEREST IN SECOND
(affiliate of Managing Shareholder) MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,372,237 AGGREG. ANNUAL DEBT SERVICE: $163,746
AGGREG. 3/31/99 BALANCE: $1,364,549 AGGREG. MONTHLY PAYMENT: $ 13,645
AGGREG. BALANCE DUE AT MATURITY: $1,364,549 MATURITY DATE: 4/08
AGGREG. ACCRUED UNPAID INTEREST: $ 166,140
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None.
OTHER MATTERS: In 3/97, the Exchange Partnership received a loan with a current
principal balance of $259,639 (with accrued unpaid interest of $46,934) from
Baron Strategic Investment Fund VI, Ltd. ("Baron Fund VI"). The Exchange
Partnership, in turn, lent the loan proceeds to the debtor as part of the
Country Square Second Mortgage Loans. The loan from Baron Fund VI bears interest
at the rate of 15%, payable monthly, matures in 9/02 and is secured by the
Exchange Partnership's interest in two second mortgage notes and a second
mortgage.
Prior to 12/15/98, the second mortgage loans consisted of a second mortgage note
with a principal balance of $1,192,987 and an unsecured demand note with a
principal balance of $179,250. On 12/15/98, the debtor restated and amended the
notes and the debtor and the Exchange Partnership entered into a mortgage
modification agreement. Pursuant to the arrangement, the Exchange Partnership
agreed to set the maturity date on the demand note at the same maturity date as
the second mortgage note, in exchange for the debtor's agreement to secure its
repayment obligation on the demand note with a second mortgage on the Country
Square Property.
21
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD. (cont'd)
COUNTRY SQUARE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Country Square
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,600,000 ANNUAL DEBT SERVICE: $133,068
4/30/99 BALANCE: $1,584,989 MONTHLY PAYMENT: $ 11,089
BALANCE DUE AT MATURITY: $1,385,953 MATURITY DATE: 3/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: The loan bears a fixed interest rate
of 7.41% and amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/96 NUMBER OF UNITS SOLD: 2,000
NUMBER OF INVESTORS: 43 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,000,000 DATE OFFERING TERMINATED: 3/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 12% non-cumulative
return on their capital contributions; thereafter, any remaining
distributable cash during the fiscal year is to be distributed to the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 18% yearly cash-on-cash return, the GP is
entitled to receive any remaining net proceeds.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 39% rate): $82
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 20% rate): $42
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes of Exchange Mortgage Partnerships)
22
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
(GP: Baron Capital XL, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (i) an unrecorded second mortgage
loan secured by the Candlewood Property-Phase II, (ii) an
undivided interest in three unrecorded second mortgage loans and
a 100% interest in an unrecorded second mortgage loan secured by
the Curiosity Creek Property and (iii) four unrecorded second
mortgage loans secured by the Sunrise Property-Phase I. The
interest of the Exchange Partnership and other Exchange
Partnerships in the second mortgage loans, terms of the first
mortgage loans secured by the properties, and other information
are described below.
1. CANDLEWOOD SECOND MORTGAGE LOAN
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOAN:
CANDLEWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1984
("Candlewood Property") APPROX. ACREAGE: 2.75
5901 Bryce Lane
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $345
--------------------------------------------------------------------
1 BR 26 576 $449
--------------------------------------------------------------------
2 BR 1 864 $559
--------------------------------------------------------------------
Total 33 17,568
----------------------------------------------
4/1/99 OCCUPANCY %: 94% APPRAISED VALUE: $925,000
1998 AVG. MONTHLY OCCUPANCY %: 94% Cost Approach: $926,000
1997 AVG. MONTHLY OCCUPANCY %: 94% Income Approach: $922,000
1996 AVG. MONTHLY OCCUPANCY %: 95% Market Approach: $932,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $1,590,447
1994 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
PARTNERSHIP'S CANDLEWOOD SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Baron Strategic Investment Fund PARTNERSHIP'S UNDIVIDED INTEREST
III, Ltd. (affiliate of Managing IN SECOND MORTGAGE NOTE: 100%
Shareholder)
ORIGINAL PRINCIPAL BALANCE: $21,000 ANNUAL DEBT SERVICE: $2,520
3/31/99 BALANCE: $21,000 MONTHLY PAYMENT: $ 210
BALANCE DUE AT MATURITY: $21,000 MATURITY DATE: 3/03
ACCRUED UNPAID INTEREST: $ 2,472
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund VI,
Ltd. ("Baron Fund VI") and Baron Strategic Investment Fund IX, Ltd. ("Baron Fund
IX") own separate second mortgage loans secured by the Candlewood Property. The
original principal balance, aggregate 3/31/99 principal balance, and balance due
at maturity in respect of Baron Fund VI's and Baron Fund IX's second mortgage
loans are $68,000 (accrued unpaid interest of $7,927) and $75,500 (accrued
unpaid interest of $8,357), respectively; the annual (and monthly) payments due
them are $8,160 ($680) and $9,060 ($755), respectively. The other terms relating
to Baron Fund VI's and Baron Fund IX's second mortgage loans are the same as
stated herein in respect of the Exchange Partnership's loan.
OTHER MATTERS: Prior to 12/15/98, the Candlewood Second Mortgage Loan consisted
of an unsecured demand note with a principal balance of $21,000. On 12/15/98,
the debtor and the Exchange Partnership entered into a second mortgage agreement
under which the debtor agreed to secure its repayment obligation on the note
with a second mortgage on the Candlewood Property. At the same time, the debtor
agreed to secure the loans in favor of Baron Fund VI and Baron Fund IX with
separate second mortgages on the property. The lending parties have agreed to
share the benefits of the second mortgages on a pari passu basis.
23
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD. (cont'd)
CANDLEWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Candlewood Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
4/30/99 BALANCE: $589,671 MONTHLY PAYMENT: $ 4,679
BALANCE DUE AT MATURITY: $533,678 MATURITY DATE: 2/03
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of
7.79%;amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
2. CURIOSITY CREEK SECOND MORTGAGE LOANS
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOANS:
CURIOSITY CREEK APARTMENTS YEAR COMPLETED: 1982
("Curiosity Creek Property") APPROX. ACREAGE: 4.51
102 Curiosity Creek Lane
Tampa, Florida 33612
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 16 288 $370
--------------------------------------------------------------------
1 BR/ 1 Bath 59 576 $450
--------------------------------------------------------------------
2 BR/ 1 Bath 6 864 $565
--------------------------------------------------------------------
Total 81 43,776
---------------------------------------------------
4/1/99 OCCUPANCY %: 93% APPRAISED VALUE: $2,425,000
1998 AVG. MONTHLY OCCUPANCY %: 93% Cost Approach: $2,426,000
1997 AVG. MONTHLY OCCUPANCY %: 88% Income Approach: $2,552,000
1996 AVG. MONTHLY OCCUPANCY %: 86% Market Approach: $2,297,000
1995 AVG. MONTHLY OCCUPANCY %: 92% REPLACEMENT COST NEW: $3,941,164
1994 AVG. MONTHLY OCCUPANCY %: 89% APPRAISAL DATE: 3/98
PARTNERSHIP'S CURIOSITY CREEK SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Curiosity Creek Apartments, Ltd. PARTNERSHIP'S UNDIVIDED 26.3% in three
(affiliate of Managing Shareholder) % INTEREST IN SECOND loans and 100%
MORTGAGE NOTES: in one loan
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $474,703 AGGREG. ANNUAL DEBT SERVICE: $41,238
AGGREG. 3/31/99 BALANCE: $474,703 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $474,703 AGGREG. MONTHLY PAYMENT: $ 3,437
AGGREG. ACCRUED UNPAID INTEREST: $ 22,837 MATURITY DATE: 4/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$212,227 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow, plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of prime plus 1% (currently 8.75%) as
to $108,899 of principal, (iii) fixed interest rate of 12.5% as to $109,325 of
principal and (iv) fixed interest rate of 12% as to $44,253 of principal. The
loans require payments of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
24
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD. (cont'd)
PARTNERSHIP'S CURIOSITY CREEK SECOND MORTGAGE LOAN INTERESTS (cont'd)
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Vulture Fund I, Ltd.
("Baron Vulture Fund") owns the remaining undivided 73.7% interest in three
second mortgage loans and a 100% interest in one second mortgage loan secured by
the Curiosity Creek Property ("Curiosity Creek Second Mortgage Loans"). The
aggregate original principal balance, aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in respect of Baron Vulture Fund's interest in
the loans is $1,243,847 (accrued unpaid interest of $108,473); the aggregate
annual and monthly payments due it are $105,149 and $8,762, respectively. The
other terms relating to Baron Vulture Fund's interest in the loans are the same
as stated herein.
OTHER MATTERS: Prior to 12/15/98, the Curiosity Creek Second Mortgage Loans
consisted of a second mortgage note with a principal balance of $807,560, two
unsecured demand notes with a an aggregate principal balance of $830,360 and
advances in the amount of $66,171. On 12/15/98, the debtor, the Exchange
Partnership and Baron Vulture Fund entered into a mortgage modification
agreement pursuant to which the Exchange Partnership and Baron Vulture Fund
agreed to set the maturity date on the demand notes and the advances at the same
maturity date as the second mortgage note, in exchange for the debtor's
agreement to secure its repayment obligations on the unsecured notes and
advances with a second mortgage on the Curiosity Creek Property.
CURIOSITY CREEK FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Curiosity Creek
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,300,000 ANNUAL DEBT SERVICE: $106,737
4/30/99 BALANCE: $1,288,568 MONTHLY PAYMENT: $ 8,895
BALANCE DUE AT MATURITY: $1,122,800 MATURITY DATE: 4/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.28%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
3. SUNRISE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
SUNRISE APARTMENTS - PHASE I YEAR COMPLETED: 1981
("Sunrise Property") APPROX. ACREAGE: 4.08
3805 Hopkins Avenue
Titusville, Florida 32780
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR/ 1 Bath 54 576 $380
--------------------------------------------------------------------
2 BR/ 1Bath 6 864 $490
--------------------------------------------------------------------
Total 60 36,288
---------------------------------------------------
4/1/99 OCCUPANCY %: 88% APPRAISED VALUE: $1,510,000
1998 AVG. MONTHLY OCCUPANCY %: 88% Cost Approach: $1,361,500
1997 AVG. MONTHLY OCCUPANCY %: 90% Income Method: $1,424,000
1996 AVG. MONTHLY OCCUPANCY %: 85% Market Approach: $1,591,000
1995 AVG. MONTHLY OCCUPANCY %: 83% REPLACEMENT COST NEW: $2,700,611
1994 AVG. MONTHLY OCCUPANCY %: 89% APPRAISAL DATE: 4/98
25
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD. (cont'd)
PARTNERSHIP'S SUNRISE SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Sunrise Apartments I, Ltd. PARTNERSHIP'S UNDIVIDED INTEREST
(affiliate of Managing Shareholder) IN SECOND MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,036,450 AGGREG. ANNUAL DEBT SERVICE: $53,995
(plus any participation interest)
AGGREG. 3/31/99 BALANCE: $1,031,801 AGGREG. MONTHLY PAYMENT: $ 4,500
AGGREG. BALANCE DUE AT MATURITY: $1,031,801 MATURITY DATE: 10/07
AGGREG. ACCRUED UNPAID INTEREST: $ 15,893
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$335,000 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 20% of any remaining available
cash flow), (ii) fixed interest rate of 4% as to $621,515 of principal, (iii)
fixed interest rate of 12% as to $16,000 of principal and (iv) adjustable rate
of 1% over prime rate (currently 8.75%) as to $1,467. The loans require payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans secured by the
Sunrise Property (the "Sunrise Second Mortgage Loans") consisted of a second
mortgage note with a principal balance of $335,000, two unsecured demand notes
with an aggregate principal balance of $622,982 and advances in the amount of
$73,819. On 12/15/98, the debtor restated and amended the second mortgage note
and the demand notes and created a new promissory note in favor of the Exchange
Partnership in the original principal amount of $16,000 (to cover prior
advances). The debtor and the Partnership also entered into a mortgage
modification agreement. Pursuant to the arrangement, the Exchange Partnership
agreed to set the maturity date on the demand notes and the advances at the same
maturity date as the second mortgage note, in exchange for the debtor's
agreement to secure its repayment obligations on the unsecured notes and
advances with a second mortgage on the Sunrise Property.
SUNRISE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC Commercial Mortgage Company REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Sunrise Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,307,000 ANNUAL DEBT SERVICE: $174,020
4/30/99 BALANCE: $1,024,937 MONTHLY PAYMENT: $ 14,502
BALANCE DUE AT MATURITY: $ 932,217 MATURITY DATE: 1/05
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: Fixed interest rate of 7.5%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/96 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 56 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 6/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
to be distributed to the investors until they have received a 15%
non-cumulative return on their capital contributions; thereafter, any
remaining distributable cash during the fiscal year is to be distributed to
the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus a 15% yearly cash-on-cash return, the
investors and the GP will share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $73
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $38
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes of Exchange Mortgage Partnerships)
26
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
(GP: Baron Capital XLIV, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (i) an undivided interest in an
unrecorded second mortgage loan secured by the Heatherwood
Property-Phase II and three unsecured loans associated with such
property, (ii) three unrecorded second mortgage loans secured by the
Longwood Property-Phase I and (iii) an unrecorded second mortgage loan
secured by the Lake Sycamore Property (under development). The
interest of the Exchange Partnership and other Exchange Partnerships
in the second mortgage loans, terms of the first mortgage loans
secured by each property, and other information are described below.
1. HEATHERWOOD SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
HEATHERWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1982
("Heatherwood Property") APPROX. ACREAGE: 2.26
1105 North Hoagland Blvd.
Kissimmee, Florida 34741
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 10 288 $395-425
--------------------------------------------------------------------
1 BR/1 Bath 26 576 $510-530
--------------------------------------------------------------------
2 BR/1 Bath 4 864 $625
--------------------------------------------------------------------
2BR/2 Bath 1 864 $625
--------------------------------------------------------------------
Total 41 22,176
---------------------------------------------------
4/1/99 OCCUPANCY %: 98% APPRAISED VALUE: $1,285,000
1998 AVG. MONTHLY OCCUPANCY %: 98% Cost Approach: $1,188,000
1997 AVG. MONTHLY OCCUPANCY %: 97% Income Approach: $1,259,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $1,312,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $1,862,475
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 3/98
PARTNERSHIP'S HEATHERWOOD SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Heatherwood Apartments II, Ltd. PARTNERSHIP'S UNDIVIDED
(an affiliate of Managing Shareholder) % INTEREST IN LOANS: 58%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $206,260 AGGREG. ANNUAL DEBT SERVICE: $13,408
AGGREG. 3/31/99 BALANCE: $206,260 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $206,260 AGGREG. MONTHLY PAYMENT: $ 1,117
AGGREG. ACCRUED UNPAID INTEREST: $ 1,955 AGGREG. MATURITY DATE: 10/04
</TABLE>
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as
to $188,500 of principal (plus non-cumulative participation interest at the rate
of 3% on the unpaid principal to the extent of available cash flow plus
additional non-cumulative participation interest equal to 30% of any remaining
available cash flow), (ii) adjustable interest rate of 1% over prime rate
(currently 8.75%) as to $1,010 of principal, and (iii) fixed interest rate of
12% as to $16,749 of principal. The loans require payments of interest only
until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund X,
Ltd. ("Baron Fund X") owns the remaining undivided 42% interest in the second
mortgage loans secured by the Heatherwood Property and in the unsecured loans
associated with the property ("Heatherwood Loans"). The aggregate original
principal balance, aggregate 3/31/99 principal balance, and aggregate balance
due at maturity in respect of Baron Fund X's interest in the Heatherwood Loans
is $155,787 (accrued unpaid interest of $5,645); the aggregate annual (and
monthly) payments due it are $9,710 ($809). The other terms relating to Baron
Fund X's interest in the Heatherwood Loans are the same as stated herein.
OTHER MATTERS: The Heatherwood Loans consist of a second mortgage note secured
by the Heatherwood Property with a principal balance at 3/31/99 of $325,000 and
unsecured loans in the aggregate principal amount of $37,047.
27
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD. (cont'd)
HEATHERWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Heatherwood Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $710,000 ANNUAL DEBT SERVICE: $61,038
4/30/99 BALANCE: $701,026 MONTHLY PAYMENT: $ 5,087
BALANCE DUE AT MATURITY: $655,856 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
3. LONGWOOD SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
LONGWOOD APARTMENTS - PHASE I YEAR COMPLETED: 1981
("Longwood Property") APPROX. ACREAGE: 4.00
1524 Clearlake Road
Cocoa, Florida 32922
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR/1 Bath 51 576 $419
--------------------------------------------------------------------
2 BR/1 Bath 8 864 $525
--------------------------------------------------------------------
Total 59 36,288
---------------------------------------------------
4/1/99 OCCUPANCY %: 100% APPRAISED VALUE: $1,820,000
1998 AVG. MONTHLY OCCUPANCY %: 99% Cost Approach: $1,664,000
1997 AVG. MONTHLY OCCUPANCY %: 86% Income Approach: $1,788,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $1,844,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $2,666,862
1994 AVG. MONTHLY OCCUPANCY %: 95% APPRAISAL DATE: 3/98
PARTNERSHIP'S LONGWOOD SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Longwood Apartments I, Ltd. PARTNERSHIP'S UNDIVIDED
(an affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $969,268 AGGREG. ANNUAL DEBT SERVICE: $77,088
AGGREG. 3/31/99 BALANCE: $969,268 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $969,268 AGGREG. MONTHLY PAYMENT: $6,424
AGGREG. ACCRUED UNPAID INTEREST: $ 43,432 MATURITY DATE: 10/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$368,558 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of 1% over prime rate (currently
8.75%) as to $526,465 of principal, and (iii) fixed interest rate of 12% as to
$74,245 of principal. The loans require payments of interest only until
maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
28
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD. (cont'd)
PARTNERSHIP'S LONGWOOD SECOND MORTGAGE LOAN INTERESTS (cont'd):
OTHER MATTERS: Prior to 12/15/98, the Longwood Second Mortgage Loans consisted
of a second mortgage note with a principal balance of $368,558, an unsecured
demand note with a principal balance of $526,465, and advances of $74,245. On
12/15/98, the debtor restated and amended the second mortgage note and the
demand note and created a new promissory note in the original principal amount
of $74,245 (to cover prior advances). The debtor and the Exchange Partnership
also entered into a mortgage modification agreement. Pursuant to the
arrangement, the Exchange Partnership agreed to set the maturity date on the
demand note and the advances at the same maturity date as the second mortgage
note, in exchange for the debtor's agreement to secure its repayment obligations
on the demand note and advances with a second mortgage on the Longwood Property.
LONGWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Longwood Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,307,000 ANNUAL DEBT SERVICE: $89,150
4/30/99 BALANCE: $1,023,894 MONTHLY PAYMENT: $ 7,429
BALANCE DUE AT MATURITY: $1,204,545 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
3. LAKE SYCAMORE SECOND MORTGAGE LOAN:
NAME AND ADDRESS
OF PROPERTY SECURING
MORTGAGE:
VILLAS AT LAKE SYCAMORE
("Lake Sycamore Property")
1911 Chaucer Drive
Cincinnati, Ohio 45237
PARTNERSHIP'S SECOND MORTGAGE INTEREST:
The Partnership owns an unrecorded second mortgage note with a current principal
balance of $98,000. Accrued unpaid interest on the note as of 3/31/99 is $2,683.
The debtor is Sycamore Real Estate Development, L.P., an affiliate of the
Managing Shareholder. The note bears interest at the fixed rate of 12% (annual
interest payable of $11,760 or $980 per month) and matures on 12/03. The note is
secured by a second mortgage on the Villas at Lake Sycamore, a 164 townhome
property under construction on 22.44 acres in Cincinnati, Ohio. Each townhome
has a rentable area per unit of approximately 1,325 square feet (or a total area
of 217,300 square feet). Construction commenced in December 1997 and is expected
to be completed in the last quarter of 2003. Each unit is expected to have an
initial monthly rental rate in the range of $889 to $990. In July 1998, an
independent Cincinnati appraisal firm estimated the "as is" value of the
property at $1,080,000 and the value of the completed property to be $14,312,000
(assuming completion of the project as designed, full rent up and satisfactory
environment-quality test).
Two other Exchange Partnerships, Baron Strategic Investment Fund, Ltd. and Baron
Strategic Investment Fund IX, Ltd., own separate second mortgage notes secured
by the property with the same terms except that they are in the principal
amounts of $230,000 and $243,500 (with accrued unpaid interest in the amounts of
$20,415 and $7,204), respectively. The lending parties have agreed to share the
benefits of the second mortgage on a pari passu basis.
29
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD. (cont'd)
LAKE SYCAMORE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Metropolitan Savings REPAYMENT SECURED BY:
8050 Hosbrook Road, Suite 408 First Mortgage on Lake Sycamore
Cincinnati, Ohio 45236 Property
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $2,000,000 CURRENT ANNUAL DEBT SERVICE: $89,369
maximum approved CURRENT MONTHLY PAYMENT: $ 7,447
4/30/99 BALANCE: $1,021,362 MATURITY DATE: 11/01
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: Adjustable interest rate equal to
lender's prime rate plus 1% (currently 8.75%); requires payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/97 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 43 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 2/98
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 12.5%
non-cumulative return on their capital contributions; thereafter, investors
and the GP share any remaining distributable cash during the fiscal year
50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return,
investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 39% rate): $73
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 20% rate): $37
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Mortgage Partnerships)
30
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
(GP: Baron Capital XXVI, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns an undivided interest in three unrecorded
second mortgage loans and a 100% interest in one loan secured by the
Curiosity Creek Property described below. The interest of the Exchange
Partnership and a separate Exchange Partnership in the second mortgage
loans, terms of the first mortgage loan secured by the property, and other
information are described below.
CURIOSITY CREEK SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
CURIOSITY CREEK APARTMENTS
("Curiosity Creek Property") YEAR COMPLETED: 1982
102 Curiosity Creek Lane APPROX. ACREAGE: 4.51
Tampa, Florida 33612
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 16 288 $370
--------------------------------------------------------------------
1 BR/ 1 Bath 59 576 $450
--------------------------------------------------------------------
2 BR/ 1 Bath 6 864 $565
--------------------------------------------------------------------
Total 81 43,776
----------------------------------------------------
4/1/99 OCCUPANCY %: 93% APPRAISED VALUE: $2,425,000
1998 AVG. MONTHLY OCCUPANCY %: 93% Cost Approach: $2,426,000
1997 AVG. MONTHLY OCCUPANCY %: 88% Income Approach: $2,552,000
1996 AVG. MONTHLY OCCUPANCY %: 86% Market Approach: $2,297,000
1995 AVG. MONTHLY OCCUPANCY %: 92% REPLACEMENT COST NEW: $3,941,164
1994 AVG. MONTHLY OCCUPANCY %: 89% APPRAISAL DATE: 3/98
PARTNERSHIP'S CURIOSITY CREEK SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Curiosity Creek Apartments, Ltd. PARTNERSHIP'S UNDIVIDED 73.7% in three
(an affiliate of Managing Shareholder) % INTEREST IN SECOND loans and 100%
MORTGAGE NOTES: in one loan
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,243,847 AGGREG. ANNUAL DEBT SERVICE: $105,149
AGGREG. 3/31/99 BALANCE: $1,243,847 (plus participation interest)
AGGREG. BALANCE DUE AT MATURITY: $1,243,847 AGGREG. MONTHLY PAYMENT: $ 8,762
AGGREG. ACCRUED UNPAID INTEREST: $ 108,473 MATURITY DATE: 4/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$595,333 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of prime plus 1% (currently 8.75%) as
to $305,407 of principal, (iv) fixed interest rate of 12.5% as to $306,675 of
principal, and (iii) fixed interest rate of 12% as to $36,431 of principal. The
loans require payments of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund V,
Ltd. ( "Baron Fund V") owns the remaining undivided 26.3% interest in three
second mortgage loans and a 100% interest in one second mortgage loan secured by
the Curiosity Creek Property ("Curiosity Creek Second Mortgage Loans"). The
aggregate original principal balance, aggregate 3/31/99 principal balance, and
aggregate balance due at maturity in respect of Baron Fund V's interest in the
Curiosity Creek Second Mortgage Loans is $474,703 (accrued unpaid interest of
$22,837); the aggregate annual and monthly payments due it are $41,238 and
$3,437, respectively. The other terms relating to Baron Fund V's interest in the
Curiosity Creek Second Mortgage Loans are the same as stated herein.
OTHER MATTERS: Prior to 12/15/98, the Curiosity Creek Second Mortgage Loans
consisted of a second mortgage note with a principal balance of $807,560, two
unsecured demand notes with an aggregate principal balance of $830,360 and
advances in the amount of $66,171. On 12/15/98, the debtor, the Exchange
Partnership and Baron Fund V entered into a mortgage modification agreement
pursuant to which the Exchange Partnership and Baron Fund V agreed to set the
maturity date on the demand notes and the advances at the same maturity date as
the second mortgage note, in exchange for the debtor's agreement to secure its
repayment obligations on the unsecured notes and advances with a second mortgage
on the Curiosity Creek Property.
31
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD. (cont'd)
CURIOSITY CREEK FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Curiosity Creek
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,300,000 ANNUAL DEBT SERVICE: $106,737
4/30/99 BALANCE: $1,288,568 MONTHLY PAYMENT: $8,895
BALANCE DUE AT MATURITY: $1,122,800 MATURITY DATE: 4/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.28%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 5/96 NUMBER OF UNITS SOLD: 1,800
NUMBER OF INVESTORS: 42 PRICE PER UNIT: $500
PAID IN CAPITAL: $900,000 DATE OFFERING TERMINATED: 10/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 15% non-cumulative
return on their capital contributions; thereafter, any remaining
distributable cash during the fiscal year is to be distributed to the GP.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have first received an aggregate amount (including prior distributions) equal
to the amount of their capital contributions plus a 10% yearly cash-on-cash
return and the GP has then received a similar return on the amount of its
capital contribution, investors and the GP share any remaining net proceeds
50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 110 Units Short Term Capital Gain (assuming 39% rate): $175
valued at $10 per Unit (or $1,100) Long Term Capital Gain (assuming 20% rate): $ 90
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes to Exchange Mortgage Partnerships)
32
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
(GP: Baron Capital XII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns three unrecorded second mortgage
loans secured by the Meadowdale Property described below. The
Exchange Partnership's interest in the Second Mortgage Loans, terms
of the first mortgage loan secured by the property, and other
information are described below.
MEADOWDALE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
MEADOWDALE APARTMENTS
("Meadowdale Property") YEAR COMPLETED: 1984
248 E. University Boulevard APPROX. ACREAGE: 4.81
Melbourne, Florida 32901
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 56 576 $399
--------------------------------------------------------------------
2 BR 8 864 $499
--------------------------------------------------------------------
Total 64 39,168
----------------------------------------------------
4/1/99 OCCUPANCY %: 70% APPRAISED VALUE: $1,717,000
1998 AVG. MONTHLY OCCUPANCY %: 70% Cost Approach: $1,636,000
1997 AVG. MONTHLY OCCUPANCY %: 89% Income Approach: $1,629,000
1996 AVG. MONTHLY OCCUPANCY %: 90% Market Approach: $1,643,000
1995 AVG. MONTHLY OCCUPANCY %: 92% REPLACEMENT COST NEW: $3,084,043
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 8/98
PARTNERSHIP'S MEADOWDALE SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Florida Opportunity Income Fund III, Ltd. PARTNERSHIP'S UNDIVIDED
(affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTES: 100%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,048,861 AGGREG. ANNUAL DEBT SERVICE: $71,861
AGGREG. 3/31/99 BALANCE: $1,048,861 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $1,048,861 AGGREG. MONTHLY PAYMENT: $ 5,988
AGGREG. ACCRUED UNPAID INTEREST: $ 107,151 MATURITY DATE: 10/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$752,747 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 20% of any remaining available
cash flow), (ii) adjustable interest rate of 1% over prime rate (currently
8.75%) as to $271,923 of principal and (iii) fixed rate of 12% as to $24,191 of
principal.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: None
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans consisted of a
second mortgage note with a principal balance of $752,747, an unsecured demand
note with a principal balance of $271,923 and advances of $24,191. On 12/15/98,
the debtor restated and amended the second mortgage note and the demand note and
created a new promissory note in favor of the Exchange Partnership in the
original principal amount of $24,191 (to cover the prior advances). The debtor
and the Exchange Partnership also entered into a mortgage modification
agreement. Pursuant to the arrangement, the Exchange Partnership agreed to set
the maturity date on the demand note and the advances at the same maturity date
as the second mortgage note, in exchange for the debtor's agreement to secure
its repayment obligations on the demand note and the advances with a second
mortgage on the Meadowdale Property.
33
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD. (cont'd)
MEADOWDALE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Meadowdale Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $1,000,000 ANNUAL DEBT SERVICE: $93,935
4/30/99 BALANCE: $ 947,936 MONTHLY PAYMENT: $ 7,828
BALANCE DUE AT MATURITY: $ 905,918 MATURITY DATE: 7/01
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: Fixed interest rate of 8.75%;
amortizes on a 22-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 1/96 NUMBER OF UNITS SOLD: 575
NUMBER OF INVESTORS: 23 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $575,000 DATE OFFERING TERMINATED: 4/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, investors and the GP share
distributable cash 99%/1%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: Investors are
entitled to 100% of net proceeds until the entire amount of the Partnership's
Second Mortgage Loans have been repaid and the GP is entitled to receive any
remaining net proceeds.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 109 Units Short Term Capital Gain (assuming 39% rate): $210
valued at $10 per Unit (or $1,090) Long Term Capital Gain (assuming 20% rate): $108
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Mortgage Partnerships)
34
<PAGE>
Endnotes to Exchange Mortgage Partnerships:
1. The second mortgage interests held by the Exchange Partnership and the
first mortgage loans identified are not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed. Repayment of each of the loans indicated is
non-recourse beyond the underlying property and /or other assets of the
particular debtor.
2. In the opinion of the Managing Shareholder, each residential apartment
property identified is in good overall condition and is suitable and
adequate for the purpose for which it was built.
3. Each property is subject to significant competition from other residential
apartment properties in its general vicinity.
4. In the opinion of the Managing Shareholder, each property is covered by
insurance of the types and amounts which are comparable for similar
properties located in its general vicinity.
5. The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Mortgage
Partnership and in each Exchange Hybrid Partnership (to the extent of its
mortgage interest in the property) is based upon the following factors:
(a) the current principal balance of the amount of debt which is senior to
the mortgage interest to be acquired and other indebtedness to which the
property is subject; (b) the estimated appraised market value of the
underlying property determined by qualified and licensed independent
appraisal firms; (c) the operating history of the property; (d) the amount
of distributable cash flow currently being generated by the property; plus
(e) additional factors which the Managing Shareholder believes are
appropriate to consider including, among others, the property's overall
current condition and prospects for the property based upon improvements
made or to be made to the property and, in certain cases, the combination
of two or more phases of the property, which are expected to be owned upon
the completion of the Exchange Offering, and the actual or potential
benefits to be obtained by the sub-metering of utilities in order to pass
costs from the owner of the property to individual tenants. There can be
no assurance that the value of mortgage interests acquired in properties
will reflect their fair market value. See the Prospectus at "THE EXCHANGE
OFFERING."
6. Each property is a residential apartment property (other than Glen Lake
Arms Apartments, which are short-term corporate residential units) which
generally leases units to tenants under lease agreements with terms of one
year or less which are common in the industry.
7. The overall depreciable life of each property is 30 years; depreciation is
determined using the straight-line method.
8. Based on certain factual representations made by the Operating Partnership
and on certain conditions specified at "FEDERAL INCOME TAX CONSIDERATIONS
- Exchange of Exchange Partnership Units for Operating Partnership Units,"
special tax counsel to the Operating Partnership has opined that Offerees
who accept the Exchange Offering generally will not incur any immediate
tax liability for any taxable gain in connection with such transaction.
Any such tax liability will be deferred until a later date. The schedule
at "Estimated Deferred Taxable Gain from Exchange Offering (per $1,000 of
Investors' original investment)" (prepared by the Managing Shareholder and
not reviewed by tax or other counsel) indicates the amount of capital gain
tax liability each Offeree who accepts the Exchange Offering will defer in
connection with such transaction per each $1,000 of his original
investment.
35
<PAGE>
EXCHANGE HYBRID PARTNERSHIPS
36
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
(GP: Baron Capital XXXI, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (1) a 52.44% limited partnership
interest in a limited partnership which holds fee simple title to the
Pineview Property, (2) an unrecorded second mortgage loan secured by
the Candlewood Property-Phase II, (3) an undivided interest in two
recorded second mortgage loans secured by the Garden Terrace
Property-Phase III, and (4) a note receivable from another Exchange
Partnership which is secured by two unrecorded second mortgage notes
and a second mortgage on the Country Square Property-Phase I. The
interest of the Exchange Partnership and other Exchange Partnerships
in the Pineview Property and the second mortgage loans, the note
payable to the Exchange Partnership from another Exchange Partnership,
terms of the respective first mortgage loan and the Exchange
Partnership's second mortgage loans secured by the three properties
described below, and other information are described below.
1. EQUITY INTEREST IN PINEVIEW PROPERTY
NAME AND ADDRESS OF PROPERTY:
PINEVIEW APARTMENTS
("Pineview Property") YEAR COMPLETED: 1988
4731 Pine Hills Road APPROX. ACREAGE: 4.38
Orlando, Florida 32808
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 26 288 $409
--------------------------------------------------------------------
1 BR 59 576 $469
--------------------------------------------------------------------
2 BR 6 864 $600-625
--------------------------------------------------------------------
Total 91 46,656
---------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 98% ESTIMATED APPRAISED VALUE: $2,848,000
1998 AVG. MONTHLY OCCUPANCY %: 95% APPRAISAL DATE: 3/98
1997 AVG. MONTHLY OCCUPANCY %: 92% 11/1/98 FEDERAL INCOME TAX BASIS: $1,747,499
1996 AVG. MONTHLY OCCUPANCY %: 93% DEPRECIATION LIFE CLAIMED: 30 years
1995 AVG. MONTHLY OCCUPANCY %: 90% REALTY TAX RATE (MILLAGE): 21.4657
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $1,384,273
</TABLE>
PINEVIEW FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Pineview Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,620,000 ANNUAL DEBT SERVICE: $139,271
4/30/99 BALANCE: $1,599,549 MONTHLY PAYMENT: $ 11,606
BALANCE DUE AT MATURITY: $1,493,008 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to May 1, 2004; thereafter,
may be prepaid subject to a yield maintenance fee payable until 6 months prior
to maturity.
37
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
2. CANDLEWOOD SECOND MORTGAGE LOAN
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
CANDLEWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1984
("Candlewood Property") APPROX. ACREAGE: 2.75
5901 Bryce Lane
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $345
--------------------------------------------------------------------
1 BR 26 576 $449
--------------------------------------------------------------------
2 BR 1 864 $559
--------------------------------------------------------------------
Total 33 17,568
----------------------------------------------------
4/1/99 OCCUPANCY %: 94% APPRAISED VALUE: $ 925,000
1998 AVG. MONTHLY OCCUPANCY %: 94% Cost Approach: $ 926,000
1997 AVG. MONTHLY OCCUPANCY %: 94% Income Approach: $ 922,000
1996 AVG. MONTHLY OCCUPANCY %: 95% Market Approach: $ 932,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $1,590,447
1994 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
PARTNERSHIP'S CANDLEWOOD SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Baron Strategic Investment Fund III, Ltd. PARTNERSHIP'S UNDIVIDED
(affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTE: 100%
ORIGINAL PRINCIPAL BALANCE: $68,000 ANNUAL DEBT SERVICE: $8,160
3/31/99 BALANCE: $68,000 MONTHLY PAYMENT: $ 680
BALANCE DUE AT MATURITY: $68,000 MATURITY DATE: 3/03
ACCRUED UNPAID INTEREST: $ 7,927
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund V,
Ltd. ("Baron Fund V") and Baron Strategic Investment Fund IX, Ltd. ("Baron Fund
IX") own separate second mortgage loans secured by the Candlewood Property. The
original principal balance, aggregate 3/31/99 principal balance, and balance due
at maturity in respect of Baron Fund V's and Baron Fund IX's loans are $21,000
(accrued unpaid interest of $2,472) and $75,500 (accrued unpaid interest of
$8,357), respectively; the annual (and monthly) payments due them are $2,520
($210) and $9,060 ($755), respectively. The other terms relating to Baron Fund
V's and Baron Fund IX's loans are the same as stated herein in respect of the
Exchange Partnership's loan.
OTHER MATTERS: Prior to 12/15/98, the Candlewood Second Mortgage Loan consisted
of an unsecured demand note with a principal balance of $68,000. On 12/15/98,
the debtor and the Exchange Partnership entered into a second mortgage agreement
under which the debtor agreed to secure its repayment obligation on the note
with a second mortgage on the Candlewood Property. At the same time, the debtor
agreed to secure the loans in favor of Baron Fund V and Baron Fund IX with
separate mortgages on the property. The lending parties have agreed to share the
benefits of the second mortgages on a pari passu basis.
38
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
CANDLEWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Candlewood Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
4/1/99 BALANCE: $589,671 MONTHLY PAYMENT: $ 4,679
BALANCE DUE AT MATURITY: $533,678 MATURITY DATE: 2/03
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.79%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
3. GARDEN TERRACE SECOND MORTGAGE LOAN
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
GARDEN TERRACE APARTMENTS - PHASE III
("Garden Terrace Property") YEAR COMPLETED: 1983
8725 Del Ray Court APPROX. ACREAGE: 5.16
Tampa, Florida 33617
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 8 288 $344
--------------------------------------------------------------------
1 BR 67 576 $399
--------------------------------------------------------------------
2 BR 16 864 $530
--------------------------------------------------------------------
Total 91 54,720
----------------------------------------------------
4/1/99 OCCUPANCY %: 91% APPRAISED VALUE: $1,850,000
1998 AVG. MONTHLY OCCUPANCY %: 90% Cost Approach: $1,835,000
1997 AVG. MONTHLY OCCUPANCY %: 78% Income Approach: $1,782,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $1,901,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $4,297,897
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 6/98
PARTNERSHIP'S GARDEN TERRACE SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Garden Terrace Apartments III, Ltd. PARTNERSHIP'S UNDIVIDED INTEREST
IN SECOND MORTGAGE LOANS: 20%
ORIGINAL PRINCIPAL BALANCE: $248,353 ANNUAL DEBT SERVICE: $22,353
3/31/99 BALANCE: $248,353 MONTHLY PAYMENT: $ 1,863
BALANCE DUE AT MATURITY: $248,353 MATURITY DATE: 1/07
ACCRUED UNPAID INTEREST: $ 5,607
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 2% as to
$147,000 of principal if cash flow available (plus non-cumulative participation
interest at the rate of 7% on the unpaid principal to the extent of available
cash flow, plus additional participation interest equal to 30% of any remaining
cash flow (payable only to holders of note referred to in (ii) below) and (ii)
fixed interest rate of 9% as to $101,353 of principal, payable only from excess
cash flow after payment of 2% minimum interest and 7% participation interest due
on the note referred to in (i) above. The loans require payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund IX,
Ltd. ("Baron Fund IX") and Baron Strategic Investment Fund X, Ltd. ("Baron Fund
X") own the remaining undivided 80% interest in the second mortgage loans
secured by the Garden Terrace Property ("Garden Terrace Second Mortgage Loans").
The original principal balance, 3/31/99 principal balance, and balance due at
maturity in respect of Baron Fund IX's and Baron Fund X's interest in the Garden
Terrace Second Mortgage Loans is $310,442 (accrued unpaid interest of $7,246)
and $682,972 (accrued unpaid interest of $16,132), respectively; the annual (and
monthly) payments due them are $27,940 ($2,328) and $61,467 ($5,122),
respectively. The other terms relating to Baron Fund IX's and Baron Fund X's
interest in the Garden Terrace Second Mortgage Loans are the same as stated
herein.
39
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
GARDEN TERRACE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Mellon Mortgage Company REPAYMENT SECURED BY:
1422 Euclid Ave., Suite 900 First Mortgage Garden Terrace Property
Cleveland, Ohio 44115-2092
ORIGINAL PRINCIPAL BALANCE: $1,010,000 ANNUAL DEBT SERVICE: $96,047
4/30/99 BALANCE: $ 967,012 MONTHLY PAYMENT: $ 8,004
BALANCE DUE AT MATURITY: $ 822,063 MATURITY DATE: 5/05
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.31%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid beginning 4/99 with a 5% prepayment fee;
the fee decreases 1% per year until maturity.
4. NOTE PAYABLE BY BARON STRATEGIC INVESTMENT FUND IV, LTD.:
In 3/97, the Exchange Partnership provided a loan with a current principal
balance of $259,639 (with accrued and unpaid interest of $46,934) to another
Exchange Partnership, Baron Strategic Investment Fund IV, Ltd. ("Baron Fund
IV"). Baron Fund IV, in turn, lent the loan proceeds to the borrower as part of
the Country Square Second Mortgage Loans. (See the table for Baron Fund IV
above.) The loan from Baron Fund VI to Baron Fund IV bears interest at the
annual rate of 15%, payable monthly, matures in 9/02 and is secured by Baron
Fund IV's interest in the second mortgage note and second mortgage. Set forth
below is information relating to the Country Square Property and the Country
Second Mortgage Loans.
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
COUNTRY SQUARE APARTMENTS - PHASE I
("Country Square Property") YEAR COMPLETED: 1981
8401 Aiken Court APPROX. ACREAGE: 4.56
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 14 288 $345
--------------------------------------------------------------------
1 BR 52 576 $449
--------------------------------------------------------------------
2 BR 7 864 $559
--------------------------------------------------------------------
Total 73 40,032
---------------------------------------------------
4/1/99 OCCUPANCY %: 95% APPRAISED VALUE: $2,185,000
1998 AVG. MONTHLY OCCUPANCY %: 95% Cost Approach: $2,185,000
1997 AVG. MONTHLY OCCUPANCY %: 83% Income Approach: $2,281,000
1996 AVG. MONTHLY OCCUPANCY %: 84% Market Approach: $2,090,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $3,554,776
1994 AVG. MONTHLY OCCUPANCY %: 84% APPRAISAL DATE: 1/98
BARON FUND IV'S SECOND MORTGAGE LOAN INTEREST IN COUNTRY SQUARE PROPERTY:
DEBTOR: Country Square Apartments, Ltd. BARON FUND IV'S UNDIVIDED %
(affiliate of Managing Shareholder) INTEREST IN SECOND MORTGAGE
LOANS: 100%
ORIGINAL PRINCIPAL BALANCE: $1,372,237 ANNUAL DEBT SERVICE: $163,746
3/31/99 BALANCE: $1,364,549 MONTHLY PAYMENT: $ 13,645
BALANCE DUE AT MATURITY: $1,364,549 MATURITY DATE: 4/08
ACCRUED UNPAID INTEREST: $ 166,140
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER MATTERS: Prior to 12/15/98, the second mortgage loans consisted of a
second mortgage note with a principal balance of $1,192,987 and an unsecured
demand note with a principal balance of $179,250. On 12/15/98, the debtor
restated and amended the notes and the debtor and the Exchange Partnership
entered into a mortgage modification agreement. Pursuant to the arrangement, the
Exchange Partnership agreed to set the maturity date on the demand note at the
same maturity date as the second mortgage note, in exchange for the debtor's
agreement to secure its repayment obligation on the demand note with a second
mortgage on the Country Square Property.
40
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD. (cont'd)
COUNTRY SQUARE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Prudential Mortgage Capital Company, LLC REPAYMENT SECURED BY:
100 Mulberry Street - 9th Floor First Mortgage on Country Square
Newark, NJ 07102-4069 Property
ORIGINAL PRINCIPAL BALANCE: $1,600,000 ANNUAL DEBT SERVICE: $133,068
4/30/99 BALANCE: $1,584,989 MONTHLY PAYMENT: $ 11,089
BALANCE DUE AT MATURITY: $1,385,953 MATURITY DATE: 3/08
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.41%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 11/96 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 43 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 4/97
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to the investors until they have received a 12.5%
non-cumulative return on their capital contributions; thereafter, investors
and the GP share any remaining distributable cash during the fiscal year
50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return,
investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 107 Units Short Term Capital Gain (assuming 39% rate): $95
valued at $10 per Unit (or $1,070) Long Term Capital Gain (assuming 20% rate): $49
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Hybrid Partnerships)
41
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
(GP: Baron Capital LXII, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Partnership owns (i) a 44.96% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (ii) an undivided interest in an unrecorded second
mortgage loan secured by the Candlewood Property - Phase II, (iii) an
undivided interest in two recorded second mortgage loans secured by
the Garden Terrace Property-Phase III, and (iv) an unrecorded second
mortgage loan secured by the Lake Sycamore Property (under
development). The interest of the Exchange Partnership and other
Exchange Partnerships in the Crystal Court Property and the respective
second mortgage loans, terms of the respective first mortgage loan
secured by the Candlewood Property, the Garden Terrace Property and
the Lake Sycamore Property, and other information are described below.
1. EQUITY INTEREST IN CRYSTAL COURT PROPERTY
NAME AND ADDRESS OF PROPERTY:
CRYSTAL COURT APARTMENTS - PHASE I YEAR COMPLETED: 1982
("Crystal Court Property") APPROX. ACREAGE: 4.5
1969 Crystal Court Drive
Lakeland, Florida 33801
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 64 576 $389
--------------------------------------------------------------------
2 BR 8 864 $499-509
--------------------------------------------------------------------
Total 72 43,776
---------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 94% APPRAISED VALUE: $2,040,000
1998 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 6/98
1997 AVG. MONTHLY OCCUPANCY %: 95% 11/1/98 FEDERAL INCOME TAX BASIS: $1,673,788
1996 AVG. MONTHLY OCCUPANCY %: 90% DEPRECIATION LIFE CLAIMED: 28 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE 21.508
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $1,240,680
</TABLE>
CRYSTAL COURT FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Crystal Court
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,222,000 ANNUAL DEBT SERVICE: $102,533
4/30/99 BALANCE: $1,205,806 MONTHLY PAYMENT: $ 8,544
BALANCE DUE AT MATURITY: $1,126,207 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.50%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to 5/04; thereafter, may be
prepaid subject to a yield maintenance fee payable until 6 months prior to
maturity.
42
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
2. CANDLEWOOD SECOND MORTGAGE LOAN
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
CANDLEWOOD APARTMENTS - PHASE II YEAR COMPLETED: 1984
("Candlewood Property") APPROX. ACREAGE: 2.75
5901 Bryce Lane
Tampa, Florida 33615
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 6 288 $345
--------------------------------------------------------------------
1 BR 26 576 $449
--------------------------------------------------------------------
2 BR 1 864 $559
--------------------------------------------------------------------
Total 33 17,568
----------------------------------------------------
4/1/99 OCCUPANCY % 94% APPRAISED VALUE: $ 925,000
1998 AVG. MONTHLY OCCUPANCY %: 94% Cost Approach: $ 926,000
1997 AVG. MONTHLY OCCUPANCY %: 94% Income Approach: $ 922,000
1996 AVG. MONTHLY OCCUPANCY %: 95% Market Approach: $ 932,000
1995 AVG. MONTHLY OCCUPANCY %: 93% REPLACEMENT COST NEW: $1,590,447
1994 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
PARTNERSHIP'S CANDLEWOOD SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Baron Strategic Investment Fund III, Ltd. PARTNERSHIP'S UNDIVIDED
(affiliate of Managing Shareholder) % INTEREST IN SECOND
MORTGAGE NOTE: 100%
ORIGINAL PRINCIPAL BALANCE: $75,500 ANNUAL DEBT SERVICE: $9,060
3/31/99 BALANCE: $75,500 MONTHLY PAYMENT: $ 755
BALANCE DUE AT MATURITY: $75,500 MATURITY DATE: 3/03
ACCRUED UNPAID INTEREST: $ 8,357
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed rate of 12%; requires payments
of interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund V,
Ltd. ("Baron Fund V") and Baron Strategic Investment Fund VI, Ltd. ("Baron Fund
VI") own separate second mortgage loans secured by the Candlewood Property. The
original principal balance, aggregate 3/31/99 principal balance, and balance due
at maturity in respect of Baron Fund V's and Baron Fund VI's loans are $21,000
(accrued unpaid interest of $2,472) and $68,000 (accrued unpaid interest of
$7,927), respectively; the annual (and monthly) payments due them are $2,520
($210) and $8,160 ($680), respectively. The other terms relating to Baron Fund
V's and Baron Fund VI's loans are the same as stated herein in respect of the
Exchange Partnership's loan.
OTHER MATTERS: Prior to 12/15/98, the Candlewood Second Mortgage Loan consisted
of an unsecured demand note with a principal balance of $75,500. On 12/15/98,
the debtor and the Exchange Partnership entered into a second mortgage agreement
under which the debtor agreed to secure its repayment obligation on the note
with a second mortgage on the Candlewood Property. At the same time, the debtor
agreed to secure the loans in favor of Baron Fund V and Baron Fund VI with
separate mortgages on the property. The lending parties have agreed to share the
benefits of the second mortgages on a pari passu basis.
CANDLEWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Republic Bank REPAYMENT SECURED BY:
P.O. Box 33009 First Mortgage on Candlewood Property
St. Petersburg, Florida 33733-8009
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
4/30/99 BALANCE: $589,671 MONTHLY PAYMENT: $ 4,679
BALANCE DUE AT MATURITY: $533,678 MATURITY DATE: 2/03
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: Fixed interest rate of 7.79%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
43
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
3. GARDEN TERRACE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
GARDEN TERRACE APARTMENTS - PHASE III
("Garden Terrace Property") YEAR COMPLETED: 1983
8725 Del Ray Court APPROX. ACREAGE: 5.16
Tampa, Florida 33617
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 8 288 $344
--------------------------------------------------------------------
1 BR 67 576 $399
--------------------------------------------------------------------
2 BR 16 864 $530
--------------------------------------------------------------------
Total 91 54,720
----------------------------------------------------
4/1/99 OCCUPANCY %: 91% APPRAISED VALUE: $1,850,000
1998 AVG. MONTHLY OCCUPANCY %: 90% Cost Approach: $1,835,000
1997 AVG. MONTHLY OCCUPANCY %: 78% Income Approach: $1,782,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $1,901,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $4,297,897
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 6/98
PARTNERSHIP'S GARDEN TERRACE SECOND MORTGAGE LOAN INTEREST:
DEBTOR: Garden Terrace Apartments III, Ltd. PARTNERSHIP'S UNDIVIDED %
INTEREST IN SECOND
MORTGAGE LOANS: 25%
ORIGINAL PRINCIPAL BALANCE: $310,442 ANNUAL DEBT SERVICE: $27,940
3/31/99 BALANCE: $310,442 (plus any participation interest)
BALANCE DUE AT MATURITY: $310,442 MONTHLY PAYMENT: $ 2,328
ACCRUED UNPAID INTEREST: $ 7,246 MATURITY DATE: 1/07
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 2% as to
$183,500 of principal if cash flow available (plus non-cumulative participation
interest at the rate of 7% on the unpaid principal to the extent of available
cash flow, plus additional participation interest equal to 30% of any remaining
cash flow (payable only to holders of note referred to in (ii) below) and (ii)
fixed interest rate of 9% as to $126,692 of principal, payable only from excess
cash flow after payment of 2% minimum interest and 7% participation interest due
on the note referred to in (i) above. The loans require payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund VI,
Ltd. ("Baron Fund VI") and Baron Strategic Investment Fund X, Ltd. ("Baron Fund
X") own the remaining undivided 75% interest in the second mortgage loans
secured by the Garden Terrace Property ("Garden Terrace Second Mortgage Loans").
The original principal balance, 3/31/99 principal balance, and balance due at
maturity in respect of Baron Fund VI's and Baron Fund X's interest in the Garden
Terrace Second Mortgage Loans is $248,353 (accrued unpaid interest of $5,607)
and $682,972 (accrued unpaid interest of $16,132), respectively; the annual (and
monthly) payments due them are $22,352 ($1,863) and $61,467 ($5,122),
respectively. The other terms relating to Baron Fund VI's and Baron Fund X's
interest in the Garden Terrace Second Mortgage Loans are the same as stated
herein.
GARDEN TERRACE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Mellon Mortgage Company REPAYMENT SECURED BY:
1422 Euclid Ave., Suite 900 First Mortgage Garden Terrace Property
Cleveland, Ohio 44115-2092
ORIGINAL PRINCIPAL BALANCE: $1,010,000 ANNUAL DEBT SERVICE: $96,047
4/30/99 BALANCE: $ 967,012 MONTHLY PAYMENT: $ 8,004
BALANCE DUE AT MATURITY: $ 822,063 MATURITY DATE: 5/05
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.31%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid beginning 4/99 with a 5% prepayment fee;
the fee decreases 1% per year until maturity.
44
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
4. LAKE SYCAMORE SECOND MORTGAGE LOAN
NAME AND ADDRESS OF PROPERTY
SECURING MORTGAGE LOAN:
VILLAS AT LAKE SYCAMORE
("Lake Sycamore Property")
1911 Chaucer Drive
Cincinnati, Ohio 45237
PARTNERSHIP'S SECOND MORTGAGE INTEREST:
The Partnership owns an unrecorded second mortgage note with a current principal
balance of $243,500. Accrued unpaid interest on the note as of 3/31/99 is
$7,204. The debtor is Sycamore Real Estate Development, L.P., an affiliate of
the Managing Shareholder. The note bears interest at the fixed rate of 12%
(annual interest payable of $29,220 or $2,435 per month) and matures on 12/03.
The note is secured by a second mortgage on the Villas at Lake Sycamore, a 164
townhome property under construction on 22.44 acres in Cincinnati, Ohio. Each
townhome has a rentable area per unit of approximately 1,325 square feet (or a
total area of 217,300 square feet). Construction commenced in December 1997 and
is expected to be completed in the last quarter of 2003. Each unit is expected
to have an initial monthly rental rate in the range of $889 to $990. In July
1998, an independent Cincinnati appraisal firm estimated the "as is" value of
the property at $1,080,000 and the value of the completed property to be
$14,312,000 (assuming completion of the project as designed, full rent up and
satisfactory environment-quality test).
Two other Exchange Partnerships, Baron Strategic Investment Fund, Ltd. and Baron
Strategic Investment Fund VIII, Ltd., own separate second mortgage notes secured
by the property with the same terms except that they are in the principal
amounts of $230,000 and $98,000 (with accrued unpaid interest in the amounts of
$20,415 and $2,683), respectively. The lending parties have agreed to share the
benefits of the second mortgage on a pari passu basis.
LAKE SYCAMORE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Metropolitan Savings REPAYMENT SECURED BY:
8050 Hosbrook Road, Suite 408 First Mortgage on Lake Sycamore
Cincinnati, Ohio 45236 Property
<TABLE>
<S> <C>
ORIGINAL PRINCIPAL BALANCE: $2,000,000 CURRENT ANNUAL DEBT SERVICE: $89,369
maximum approved CURRENT MONTHLY PAYMENT: $ 7,447
4/30/99 BALANCE: $1,021,362 MATURITY DATE: 11/01
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
</TABLE>
MORTGAGE INTEREST/AMORTIZATION PROVISIONS: Adjustable interest rate equal to
lender's prime rate plus 1% (currently 8.75%); requires payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
45
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD. (cont'd)
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 6/97 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 51 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 5/98
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to investors until they have received a 15% non-cumulative
return on their capital contributions; the GP is then entitled to receive any
remaining distributable cash during the fiscal year.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 15% yearly cash-on-cash return, investors
and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 39% rate): $88
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 20% rate): $45
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on the Exchange Hybrid Partnerships)
46
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
(GP: Baron Capital LXIV, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Partnership owns (1) a 47.59% limited partnership interest in a
limited partnership which holds fee simple title to the Crystal Court
Property-Phase I, (2) a 39.56% limited partnership interest in a
limited partnership which holds fee simple title to the Pineview
Property, (3) an undivided interest in two recorded second mortgage
loans secured by the Garden Terrace Property-Phase III, and (4) an
undivided interest in an unrecorded second mortgage loan secured by
the Heatherwood Property-Phase II and in three unsecured loans
associated with such property. The interest of the Exchange
Partnership and other Exchange Partnerships in the Crystal Court
Property and the Pineview Property and the respective second mortgage
loans, terms of the respective first mortgage loans secured by the
Garden Terrace Property and the Heatherwood Property, and other
information are described below.
1. EQUITY INTEREST IN CRYSTAL COURT PROPERTY
NAME AND ADDRESS OF PROPERTY:
CRYSTAL COURT APARTMENTS - PHASE I YEAR COMPLETED: 1982
("Crystal Court Property") APPROX. ACREAGE: 4.5
1969 Crystal Court Drive
Lakeland, Florida 33801
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
1 BR 64 576 $389
--------------------------------------------------------------------
2 BR 8 864 $499-509
--------------------------------------------------------------------
Total 72 43,776
----------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $2,040,000
1998 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 6/98
1997 AVG. MONTHLY OCCUPANCY %: 95% 11/1/98 FEDERAL INCOME TAX BASIS: $1,673,788
1996 AVG. MONTHLY OCCUPANCY %: 90% DEPRECIATION LIFE CLAIMED: 28 yrs.
1995 AVG. MONTHLY OCCUPANCY %: 91% REALTY TAX RATE (MILLAGE): 21.508
1994 AVG. MONTHLY OCCUPANCY %: 91% 1997 PROPERTY TAX VALUE: $1,240,680
</TABLE>
CRYSTAL COURT FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Crystal Court
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,222,000 ANNUAL DEBT SERVICE: $102,533
4/30/99 BALANCE: $1,205,806 MONTHLY PAYMENT: $ 8,544
BALANCE DUE AT MATURITY: $1,126,207 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.50%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to 5/04; thereafter, may be
prepaid subject to a yield maintenance fee payable until 6 months prior to
maturity.
47
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
2. EQUITY INTEREST IN PINEVIEW PROPERTY
NAME AND ADDRESS OF PROPERTY:
PINEVIEW APARTMENTS
("Pineview Property") YEAR COMPLETED: 1988
4731 Pine Hills Road APPROX. ACREAGE: 4.38
Orlando, Florida 32808
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 26 288 $409
--------------------------------------------------------------------
1 BR 59 576 $469
--------------------------------------------------------------------
2 BR 6 864 $600-625
--------------------------------------------------------------------
Total 91 46,656
---------------------------------------------------
<TABLE>
<S> <C>
4/1/99 OCCUPANCY %: 98% ESTIMATED APPRAISED VALUE: $2,848,000
1998 AVG. MONTHLY OCCUPANCY %: 95% APPRAISAL DATE: 3/98
1997 AVG. MONTHLY OCCUPANCY %: 92% 11/1/98 FEDERAL INCOME TAX BASIS: $1,747,499
1996 AVG. MONTHLY OCCUPANCY %: 93% DEPRECIATION LIFE CLAIMED: 30 years
1995 AVG. MONTHLY OCCUPANCY %: 90% REALTY TAX RATE (MILLAGE): 21.4657
1994 AVG. MONTHLY OCCUPANCY %: 92% 1997 PROPERTY TAX VALUE: $1,384,273
</TABLE>
PINEVIEW FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Pineview Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $1,620,000 ANNUAL DEBT SERVICE: $139,271
4/30/99 BALANCE: $1,599,549 MONTHLY PAYMENT: $ 11,606
BALANCE DUE AT MATURITY: $1,493,008 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted prior to May 1, 2004; thereafter,
may be prepaid subject to a yield maintenance fee payable until 6 months prior
to maturity.
3. HEATHERWOOD SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
HEATHERWOOD APARTMENTS - PHASE II
("Heatherwood Property") YEAR COMPLETED: 1982
1105 North Hoagland Blvd. APPROX. ACREAGE: 2.26
Kissimmee, Florida 34741
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 10 288 $395-425
--------------------------------------------------------------------
1 BR/1 Bath 26 576 $510-530
--------------------------------------------------------------------
2 BR/1 Bath 4 864 $625
--------------------------------------------------------------------
2BR/2 Bath 1 864 $625
--------------------------------------------------------------------
Total 41 22,176
----------------------------------------------------
4/1/99 OCCUPANCY %: 98% APPRAISED VALUE: $1,285,000
1998 AVG. MONTHLY OCCUPANCY %: 97% Cost Approach: $1,188,000
1997 AVG. MONTHLY OCCUPANCY %: 97% Income Approach: $1,259,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $1,312,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $1,862,475
1994 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 3/98
48
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
PARTNERSHIP'S HEATHERWOOD SECOND MORTGAGE LOAN INTERESTS:
DEBTOR: Heatherwood Apartments II, Ltd. PARTNERSHIP'S UNDIVIDED
(an affiliate of Managing Shareholder) % INTEREST IN LOANS: 42%
<TABLE>
<S> <C>
AGGREG. ORIGINAL PRINCIPAL BALANCE: $149,361 AGGREG. ANNUAL DEBT SERVICE: $9,710
AGGREG. 3/31/99 BALANCE: $149,361 (plus any participation interest)
AGGREG. BALANCE DUE AT MATURITY: $149,361 AGGREG. MONTHLY PAYMENT: $ 809
AGGREG. ACCRUED UNPAID INTEREST: $ 5,645 AGGREG. MATURITY DATE: 10/04
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 6% as to
$136,500 of principal (plus non-cumulative participation interest at the rate of
3% on the unpaid principal to the extent of available cash flow plus additional
non-cumulative participation interest equal to 30% of any remaining available
cash flow), (ii) adjustable interest rate of 1% over prime rate (currently
8.75%) as to $732 of principal, and (iii) fixed interest rate of 12% as to
$12,310 of principal. The loans require payments of interest only until
maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund
VIII, Ltd. ("Baron Fund VIII") owns the remaining undivided 58% interest in the
second mortgage loans secured by the Heatherwood Property and in the unsecured
loans associated with the property ("Heatherwood Loans"). The aggregate original
principal balance, aggregate 3/31/99 principal balance, and aggregate balance
due at maturity in respect of Baron Fund VIII's interest in the Heatherwood
Loans is $206,260 (accrued unpaid interest of $1,955); the aggregate annual (and
monthly) payments due it are $13,408 ($1,117). The other terms relating to Baron
Fund VIII's interest in the Heatherwood Loans are the same as stated herein.
OTHER MATTERS: The Heatherwood Loans consist of a second mortgage note secured
by the Heatherwood Property with a principal balance at 3/31/99 of $325,000 and
unsecured loans in the aggregate principal amount of $37,047.
HEATHERWOOD FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
GMAC REPAYMENT SECURED BY:
650 Dresher Road, P.O. Box 809 First Mortgage on Heatherwood Property
Horsham, Pennsylvania 19044-0809
ORIGINAL PRINCIPAL BALANCE: $710,000 ANNUAL DEBT SERVICE: $61,038
4/30/99 BALANCE: $701,026 MONTHLY PAYMENT: $ 5,087
BALANCE DUE AT MATURITY: $655,856 MATURITY DATE: 11/04
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 7.75%;
amortizes on a 30-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first four years of
the loan term; thereafter, loan may be prepaid in whole subject to a prepayment
premium in accordance with the following schedule: yield maintenance for the
term of the loan, subject to a minimum of 1%, except that for the last six
months of the loan term, it may be prepaid at par.
49
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
4. GARDEN TERRACE SECOND MORTGAGE LOANS
NAME AND ADDRESS OF
PROPERTY SECURING MORTGAGES:
GARDEN TERRACE APARTMENTS - PHASE III
("Garden Terrace Property") YEAR COMPLETED: 1983
8725 Del Ray Court APPROX. ACREAGE: 5.16
Tampa, Florida 33617
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------
Studio 8 288 $344
--------------------------------------------------------------------
1 BR 67 576 $399
--------------------------------------------------------------------
2 BR 16 864 $530
--------------------------------------------------------------------
Total 91 54,720
---------------------------------------------------
4/1/99 OCCUPANCY %: 91% APPRAISED VALUE: $1,850,000
1998 AVG. MONTHLY OCCUPANCY %: 90% Cost Approach: $1,835,000
1997 AVG. MONTHLY OCCUPANCY %: 78% Income Approach: $1,782,000
1996 AVG. MONTHLY OCCUPANCY %: 81% Market Approach: $1,901,000
1995 AVG. MONTHLY OCCUPANCY %: 86% REPLACEMENT COST NEW: $4,297,897
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 6/98
PARTNERSHIP'S GARDEN TERRACE SECOND MORTGAGE LOAN INTEREST:
<TABLE>
<S> <C> <C>
DEBTOR: Garden Terrace Apartments III, Ltd. PARTNERSHIP'S UNDIVIDED %
INTEREST IN SECOND
MORTGAGE LOANS: 55%
ORIGINAL PRINCIPAL BALANCE: $682,972 ANNUAL DEBT SERVICE:
3/31/99 BALANCE: $682,972 (plus any participation interest) $61,467
BALANCE DUE AT MATURITY: $682,972 MONTHLY PAYMENT: $ 5,122
ACCRUED UNPAID INTEREST: $ 16,132 MATURITY DATE: 1/07
</TABLE>
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: (i) Fixed interest rate of 2% as to
$404,250 of principal if cash flow available (plus non-cumulative participation
interest at the rate of 7% on the unpaid principal to the extent of available
cash flow, plus additional participation interest equal to 30% of any remaining
cash flow (payable only to holders of note referred to in (ii) below) and (ii)
fixed interest rate of 9% as to $278,222 of principal, payable only from excess
cash flow after payment of 2% minimum interest and 7% participation interest due
on the note referred to in (i) above. The loans require payments of interest
only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER SECOND MORTGAGES SECURED BY PROPERTY: Baron Strategic Investment Fund VI,
Ltd. ("Baron Fund VI") and Baron Strategic Investment Fund IX, Ltd. ("Baron Fund
IX") own the remaining undivided 45% interest in the second mortgage loans
secured by the Garden Terrace Property ("Garden Terrace Second Mortgage Loans").
The original principal balance, 3/31/99 principal balance, and balance due at
maturity in respect of Baron Fund VI's and Baron Fund IX's interest in the
Garden Terrace Second Mortgage Loans is $248,353 (accrued unpaid interest of
$5,607) and $310,442 (accrued unpaid interest of $7,246), respectively; the
annual (and monthly) payments due them are $22,352 ($1,863) and $27,940
($2,328), respectively. The other terms relating to Baron Fund VI's and Baron
Fund IX's interest in the Garden Terrace Second Mortgage Loans are the same as
stated herein.
The Exchange Partnership paid a note (the "Note") with a current principal
balance of $400,000 to the seller in connection with its acquisition of an
undivided 75% interest in the Garden Terrace Second Mortgage Loans. The
partnership in turn sold to Baron Fund VI an undivided 20% interest (and
retained a 55% interest) in the loans. The Note bears an annual interest rate of
10%, has a maturity date of 1/1/07 and is secured by a collateral assignment of
the partnership's interest in the loans and a second mortgage on the property.
50
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD. (cont'd)
GARDEN TERRACE FIRST MORTGAGE INFORMATION:
FIRST MORTGAGE HOLDER AND ADDRESS:
Mellon Mortgage Company REPAYMENT SECURED BY:
1422 Euclid Ave., Suite 900 First Mortgage Garden Terrace Property
Cleveland, Ohio 44115-2092
ORIGINAL PRINCIPAL BALANCE: $1,010,000 ANNUAL DEBT SERVICE: $96,047
4/30/99 BALANCE: $ 967,012 MONTHLY PAYMENT: $ 8,004
BALANCE DUE AT MATURITY: $ 822,063 MATURITY DATE: 5/05
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 8.31%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: May be prepaid beginning 4/99 with a 5% prepayment fee;
the fee decreases 1% per year until maturity.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 7/97 NUMBER OF UNITS SOLD: 2,400
NUMBER OF INVESTORS: 57 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,200,000 DATE OFFERING TERMINATED: 3/98
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is to
be distributed to investors until they have received a 12.5% non-cumulative
return on their capital contributions; thereafter investors and the GP will
share any remaining distributable cash during the fiscal year 50%/50%.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: After investors
have received an aggregate amount (including prior distributions) equal to
their capital contributions plus an 12.5% yearly cash-on-cash return,
investors and the GP share any remaining net proceeds 50%/50%.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 107 Units Short Term Capital Gain (assuming 39% rate): $144
valued at $10 per Unit (or $1,070) Long Term Capital Gain (assuming 20% rate): $ 74
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Hybrid Partnerships)
51
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
(GP: Baron Capital IX, Inc.)
I. PARTNERSHIP PROPERTY INTERESTS
The Exchange Partnership owns (1) a 31.7% limited partnership
interest in a limited partnership which holds fee simple title to the
Lamplight Property and (2) two unrecorded second mortgage loans
secured by the Lamplight Property. The Lamplight Property, the
partnership's equity and second mortgage interest in the property and
other information are described below.
1. EQUITY INTEREST IN LAMPLIGHT COURT PROPERTY
NAME AND ADDRESS OF PROPERTY:
LAMPLIGHT COURT APARTMENTS YEAR COMPLETED: 1973
("Lamplight Property") APPROXIMATE ACREAGE: 6.00
1600 S. Detroit
Bellefontaine, OH 43311
UNIT MIX AND RENTAL RATES:
--------------------------------------------------------------------
APPROXIMATE
APPROXIMATE RENTABLE AVERAGE MONTHLY
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.) RENTAL RATE
---------------------------------------------------------------------
Studio 12 288 5 unfurnished $339
7 furnished $359
---------------------------------------------------------------------
1 BR/1 Bath 53 576 $375
---------------------------------------------------------------------
2 BR/1 Bath 15 864 $499
---------------------------------------------------------------------
Total 80 46,944
--------------------------------------------------
<TABLE>
<S> <C> <C>
4/1/99 OCCUPANCY %: 93% ESTIMATED APPRAISED VALUE: $2,183,000
1998 AVG. MONTHLY OCCUPANCY %: 91% Cost Approach: $2,295,000
1997 AVG. MONTHLY OCCUPANCY %: 87% Income Approach: $2,214,000
1996 AVG. MONTHLY OCCUPANCY %: 93% Market Approach: $2,111,000
1995 AVG. MONTHLY OCCUPANCY %: 88% REPLACEMENT COST NEW: $3,727,599
1994 AVG. MONTHLY OCCUPANCY %: 90% APPRAISAL DATE: 9/98
REALTY TAX RATE (MILLAGE): 46.67 11/1/98 FEDERAL INCOME TAX BASIS: $1,704,052
1997 PROPERTY TAX VALUE: $518,000 DEPRECIATION LIFE CLAIMED: 15.25 yrs.
</TABLE>
LAMPLIGHT COURT FIRST MORTGAGE INFORMATION
FIRST MORTGAGE HOLDER AND ADDRESS:
Column Financial
3414 Peachtree Road N.E.
Suite 1140
Atlanta, Georgia 30326
ORIGINAL PRINCIPAL BALANCE: $1,400,000 ANNUAL DEBT SERVICE: $141,445
4/30/99 BALANCE: $1,359,962 MONTHLY PAYMENT: $ 11,787
BALANCE DUE AT MATURITY: $1,158,349 MATURITY DATE: 11/06
MORTGAGE INTEREST/ AMORTIZATION PROVISIONS: Fixed interest rate of 9.04%;
amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: No prepayment permitted during the first five years of
the loan; thereafter, may be prepaid in whole; provided that during the sixth
and seventh years of the loan, lender is paid a prepayment fee equal to the
greater of one percent of the outstanding loan balance or yield maintenance.
52
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD. (cont'd)
2. PARTNERSHIP'S LAMPLIGHT COURT SECOND MORTGAGE LOAN INTEREST:
<TABLE>
<S> <C>
DEBTOR: Independence Village, Ltd. PARTNERSHIP'S UNDIVIDED %
(affiliate of Managing Shareholder) INTEREST IN SECOND
MORTGAGE NOTES: 100%
AGGREG. ORIGINAL PRINCIPAL BALANCE: $678,302 AGGREG. ANNUAL DEBT SERVICE: $60,634
AGGREG. 3/31/99 BALANCE: $678,302 AGGREG. MONTHLY PAYMENT: $ 5,053
AGGREG. BALANCE DUE AT MATURITY: $678,302 MATURITY DATE: 12/06
AGGREG. ACCRUED UNPAID INTEREST $125,554
</TABLE>
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: (i) Adjustable interest rate of
1% over prime rate (currently 8.75%) as to $585,000 of principal, and (ii) fixed
interest rate of 12% as to $93,302 of principal. The loans require payments of
interest only until maturity.
PREPAYMENT PROVISIONS: Prepayable without penalty.
OTHER MATTERS: Prior to 12/15/98, the Lamplight Court Second Mortgage Loans
consisted of a second mortgage note with a principal balance of $585,000 and an
unsecured demand note with a principal balance of $93,302. On 12/15/98, the
debtor and the Exchange Partnership entered into a mortgage modification
agreement under which the Exchange Partnership agreed to set the maturity date
on the demand note at 12/06, the same maturity date as the second mortgage note,
in exchange for the agreement of the debtor to secure its repayment obligations
on the demand note with a second mortgage on the Lamplight Court Property.
II. PARTNERSHIP INVESTMENT PROGRAM INFORMATION
DATE OFFERING BEGAN: 4/96 NUMBER OF UNITS SOLD: 700
NUMBER OF INVESTORS: 27 PRICE PER UNIT: $1,000
PAID IN CAPITAL: $700,000 DATE OFFERING TERMINATED: 11/96
ALLOCATION OF DISTRIBUTABLE CASH: Each fiscal year, all distributable cash is
distributed to the investors until they have received a 10% non-cumulative
return on their capital contributions; thereafter, the GP is entitled to
receive any remaining distributable cash during the fiscal year.
ALLOCATION OF NET PROCEEDS FROM PROPERTY SALE OR REFINANCING: All net proceeds
are allocated to investors until the entire principal amount of the Lamplight
Court Second Mortgage Loans has been repaid; then 31.7% of up to $350,000 of
any remaining net proceeds to the investors; and any balance to the GP.
<TABLE>
<S> <C>
-----------------------------------------------------------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
OFFERED IN EXCHANGE OFFERING (per $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 112 Units Short Term Capital Gain (assuming 39% rate): $214
valued at $10 per Unit (or $1,120) Long Term Capital Gain (assuming 20% rate): $110
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Endnotes on Exchange Hybrid Partnerships)
53
<PAGE>
Endnotes to Exchange Hybrid Partnerships:
1. The second mortgage interests held by the Exchange Partnership and the
first mortgage loans identified are not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed. Repayment of each of the loans indicated is
non-recourse beyond the underlying property and/or other assets of the
particular debtor.
2. In the opinion of the Managing Shareholder, each residential apartment
property identified is in good overall condition and is suitable and
adequate for the purpose for which it was built.
3. Each property is subject to significant competition from other residential
apartment properties in its general vicinity.
4. In the opinion of the Managing Shareholder, each property is covered by
insurance of the types and amounts which are comparable for similar
properties located in its general vicinity.
5. Each property is a residential apartment property (other than Glen Lake
Arms Apartments, which are short-term corporate residential units) which
generally leases units to tenants under lease agreements with terms of one
year or less which are common in the industry.
6. The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Equity
Partnership and in each Exchange Hybrid Partnership (to the extent of its
equity interest in the property) is based upon the following factors: (a)
the estimated appraised market value of the underlying property determined
by qualified and licensed independent appraisal firms; (b) the operating
history of the property; (c) the current principal balance of first
mortgage and other indebtedness to which the property is subject; (d) the
amount of distributable cash flow currently being generated by the
property; plus (e) additional factors which the Managing Shareholder
believes are appropriate to consider including, among others, the
property's overall current condition and prospects for the property based
upon improvements made or to be made to the property and, in certain
cases, the combination of two or more phases of the property, which are
expected to be owned upon the completion of the Exchange Offering, and the
actual or potential benefits to be obtained by the sub-metering of
utilities in order to pass costs from the owner of the property to
individual tenants.
The purchase price to be paid by the Operating Partnership in the Exchange
Offering for limited partnership interests in each Exchange Mortgage
Partnership and in each Exchange Hybrid Partnership (to the extent of its
mortgage interest in the property) is based upon the following factors:
(a) the current principal balance of the amount of debt which is senior to
the mortgage interest to be acquired and other indebtedness to which the
property is subject; (b) the estimated appraised market value of the
underlying property determined by qualified and licensed independent
appraisal firms; (c) the operating history of the property; (d) the amount
of distributable cash flow currently being generated by the property; plus
(e) additional factors which the Managing Shareholder believes are
appropriate to consider including, among others, the property's overall
current condition and prospects for the property based upon improvements
made or to be made to the property and, in certain cases, the combination
of two or more phases of the property, which are expected to be owned upon
the completion of the Exchange Offering, and the actual or potential
benefits to be obtained by the sub-metering of utilities in order to pass
costs from the owner of the property to individual tenants. There can be
no assurance that the value of equity or mortgage interests acquired in
properties will reflect their fair market value. See the Prospectus at
"THE EXCHANGE OFFERING."
7. The overall depreciable life of each property is 30 years; depreciation is
determined using the straight-line method.
8. Based on certain factual representations made by the Operating Partnership
and on certain conditions specified at "FEDERAL INCOME TAX CONSIDERATIONS
- Exchange of Exchange Partnership Units for Operating Partnership Units,"
special tax counsel to the Operating Partnership has opined that Offerees
who accept the Exchange Offering will generally not incur any immediate
tax liability for any taxable gain in connection with such transaction.
Any such tax liability will be deferred until a later date. The schedule
at "Estimated Deferred Taxable Gain from Exchange Offering (per $1,000 of
Investors' original investment)" (prepared by the Managing Shareholder and
not reviewed by tax or other counsel) indicates the amount of capital gain
tax liability each Offeree who accepts the Exchange Offering will defer in
connection with such transaction per each $1,000 of his original
investment.
54
<PAGE>
EXHIBIT C
FINANCIAL STATEMENTS OF THE TRUST,
THE OPERATING PARTNERSHIP AND
THE MANAGING SHAREHOLDER
<PAGE>
================================================================================
BARON CAPITAL TRUST
FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
<PAGE>
BARON CAPITAL TRUST
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statement of Operations F-3
Statement of Shareholders' Equity F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6-F-19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Trustees and Shareholders
Baron Capital Trust
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheet of Baron Capital
Trust (the "Trust") as of December 31, 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows from inception
(February 3, 1998) to December 31, 1998. These consolidated financial statements
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Baron
Capital Trust as of December 31, 1998, and the consolidated results of their
operations and their cash flows from inception (February 3, 1998) to December
31, 1998, in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 13, 1999
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Rental Apartments:
Land $ 1,178,693
Depreciable property 6,189,095
-----------
7,367,788
Less accumulated depreciation 1,246,627
-----------
6,121,161
Investments in Partnerships 730,330
Cash and Cash Equivalents 177,299
Restricted Cash 66,199
Property Management Reimbursements Receivable, Affiliates 155,071
Other Receivables 80,112
Advances to Affiliates 10,750
Other Property and Equipment 168,982
Other Assets 221,611
-----------
$ 7,731,515
===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Liabilities:
Mortgages payable $ 4,039,718
Note payable 375,000
Accounts payable and accrued liabilities, including
$136,941 to Managing Shareholder 388,385
Capital lease obligation 55,984
Security deposits 38,336
-----------
Total liabilities 4,897,423
===========
Commitments, Contingencies and Other Matters --
Shareholders' Equity:
Common shares of beneficial interest, no par value; 2,500,000
shares authorized; 463,650 shares issued and outstanding 4,257,101
Operating Partnership limited partnership units; 1,202,160 units issued and
outstanding, which are subject to escrow
restrictions (108,757 units convertible into common shares) 100,000
Deficit (1,450,850)
Distributions (72,159)
-----------
Total shareholders' equity 2,834,092
-----------
$ 7,731,515
===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
Revenues:
Property:
Rental $ 358,949
Other 35,155
Interest income 2,780
-----------
396,884
-----------
Real Estate Expenses:
Depreciation 80,296
Interest 164,333
Repairs and maintenance 86,349
Personnel 53,860
Property taxes 34,496
Property insurance 20,477
Utilities 27,299
Other 138,905
-----------
606,015
-----------
Administrative Expenses:
Personnel 721,715
Management, investment and administrative fees,
Managing Shareholder 324,213
Professional services 175,646
Other 20,145
-----------
1,241,719
-----------
Total expenses 1,847,734
-----------
Net Loss $(1,450,850)
===========
Net Loss Per Common Share $ (5.52)
===========
See notes to consolidated financial statements.
F-3
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Shares of Limited
Beneficial Interest Partnership Units
---------------------- --------------------------
Shares Amount Units Amount
------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Capital Contributions:
Managing Shareholder 10 $ 100 -- $ --
Founders -- -- 1,202,160 100,000
Proceeds from Sale of Common Shares of
Beneficial Interest, Net of Offering Costs 463,640 4,257,001 -- --
Distributions Paid -- -- -- --
Net Loss -- -- -- --
------- ----------- ----------- -----------
Balance, December 31, 1998 463,650 $ 4,257,101 1,202,160 $ 100,000
======= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit Distributions Total
----------- ------------- -----------
<S> <C> <C> <C>
Initial Capital Contributions:
Managing Shareholder $ -- $ -- $ 100
Founders -- -- 100,000
Proceeds from Sale of Common Shares of
Beneficial Interest, Net of Offering Costs -- -- 4,257,001
Distributions Paid -- (72,159) (72,159)
Net Loss (1,450,850) -- (1,450,850)
----------- ----------- -----------
Balance, December 31, 1998 $(1,450,850) $ (72,159) $ 2,834,092
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss $(1,450,850)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 80,296
Increase in operating assets and liabilities:
Other receivables (80,112)
Property management reimbursements receivable (155,071)
Other assets (221,611)
Accounts payable and accrued liabilities 388,385
Security deposits 38,336
Other (8,088)
-----------
Net cash used by operating activities (1,408,715)
-----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments (1,559,162)
Investment in partnerships, net of cash distributions (730,330)
Purchases of other property and equipment (117,771)
Advances to affiliates (10,750)
-----------
Net cash used in investing activities (2,418,013)
-----------
Cash Flows from Financing Activities:
Proceeds from sale of common shares of beneficial interest 4,265,089
Dividends paid (72,159)
Initial capital contributions 100,100
Payment on note payable (200,000)
Payments on mortgages payable (19,019)
Payments on capital lease obligation (3,785)
-----------
Net cash provided by financing activities 4,070,226
-----------
Net Increase in Cash and Cash Equivalents 243,498
Cash and Cash Equivalents, Beginning --
-----------
Cash and Cash Equivalents, Ending $ 243,498
===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 164,333
===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Capital Trust (the "Trust") was organized as a business trust
in Delaware on July 31, 1997. The Trust and its affiliate, Baron
Capital Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership, have been organized to acquire equity interests
in residential apartment properties located in the United States and
to provide or acquire debt mortgage loans secured by such types of
property.
The Managing Shareholder of the Trust is Baron Advisors, Inc., a
Delaware corporation which will manage the operations of the Trust
and the Operating Partnership subject to the supervisory authority
of the Board of the Trust over the activities of the Trust and the
Operating Partnership and the Board's prior approval authority in
respect of certain actions of the Trust and the Operating
Partnership specified in the Declaration of Trust of the Trust.
The Trust's Declaration authorizes it to issue up to 25,000,000
shares of beneficial interest, no par value per share, consisting of
common shares and of preferred shares of such classes with such
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms
or conditions of redemption as the Managing Shareholder may create
and authorize from time to time in accordance with Delaware law and
the Declaration.
The Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution.
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of the Trust and the Operating Partnership and all of the
Trust's interest in the partnerships that own Heatherwood Kissimmee,
Ltd., Riverwalk Enterprises, Ltd., and Crystal Court Apartments II,
Ltd.
All significant inter-company transactions and balances have been
eliminated in consolidation.
Concentrations of Credit Risk
Financial instruments that potentially subject the Trust to
concentrations of credit risk are comprised of cash and receivables.
Cash
At various times during the year the Trust had deposits in financial
institutions in excess of the federally insured limits. The Trust
maintains its cash with high quality financial institutions, which
the Trust believes limits these risks.
F-6
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk (Continued)
Property Management Reimbursements and Other Receivables
Receivables are comprised mainly of property management
reimbursements due to the Operating Partnership from various
properties it manages and monthly rents due. The Operating
Partnership monitors exposure to credit losses and does not maintain
an allowance for these receivables, as it believes that these
receivables are fully collectible.
Real Estate Rental Properties and Depreciation
Real estate rental properties are stated at cost less accumulated
depreciation. Ordinary repairs and maintenance are expensed as
incurred; replacements having an estimated useful life of at least
one year and improvements are capitalized and depreciated over their
estimated useful lives.
Depreciation is computed on a straight-line basis over useful lives
of the properties as follows:
Estimated Useful
Lives (Years)
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
Losses in carrying values of investment assets are provided by
management when the losses become apparent and the investment asset
is considered impaired in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Management evaluates its investment properties annually to assess
whether any impairment indications are present. If any investment
asset is considered impaired, a loss is provided to reduce the
carrying value of the property to its estimated fair value. No such
losses have been required or provided in the accompanying
consolidated financial statements.
Revenue Recognition
Apartment units are leased under operating leases with terms of
generally one year or less. Rental income is recognized when due
from tenants.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Trust considers all
investments purchased with an original maturity of three months or
less to be cash equivalents.
F-7
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Partnerships
The Trust's investments in unconsolidated partnerships are accounted
for on the cost method inasmuch as the respective ownership
interests represent less than 20% of the equity ownership therein.
The Trust periodically assesses the realizable value of these
investments in order to ascertain that there has been no impairment
in their recorded value.
Capital Reserve
In connection with the acquisition of the investment properties, as
required by the lending institutions, the Trust has established a
capital reserve account, which is to be used for significant
improvements to the property.
Loan Costs
The Trust has capitalized those costs incurred with obtaining
financing on the investment properties. Such costs (included with
other assets) are being amortized over the estimated term of the
financing of ten years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income Taxes
The Trust has not provided for federal income taxes because the
Trust believes it qualifies as a real estate investment trust (REIT)
under Section 856 to 860 of the Internal Revenue Code. A REIT will
generally not be subject to Federal income taxation on that portion
of its income that qualifies as REIT taxable income to the extent
that it distributes substantially all of its taxable income to its
stockholders and complies with certain other requirements.
Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments include
cash, receivables, accounts payable and accrued liabilities. Fair
values were assumed to approximate carrying values for these
financial instruments since they are short-term in nature and their
carrying amounts approximate fair values or they are receivable or
payable on demand.
F-8
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
The fair value of debt instruments has been estimated by using
discounted cash flow models incorporating discount rates based on
current market interest rates for similar types of instruments. At
December 31, 1998, the differences between estimated fair value and
the carrying value of debt instruments were not material.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No.
130 establishes standards for reporting and displaying comprehensive
income, its components, and accumulated balances. SFAS No. 131
establishes standards for the way that public companies report
information about operating segments in annual financial statements
and requires reporting of selected information about operating
segments in interim financial statements issued to the public. Both
SFAS No. 130 and SFAS No. 131 are effective for periods beginning
after December 15, 1997. The Trust adopted these new accounting
standards in 1998, and their adoption had no effect on the Trust's
financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. If certain conditions are
met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of the gain or loss
recognition of the hedging derivative with the recognition of (i)
the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not designated
as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
Historically, the Trust has not entered into derivatives contracts
to hedge existing risks or for speculative purposes. Accordingly,
the Trust does not expect adoption of the new standard on January 1,
2000 to affect its financial statements.
NOTE 2. RENTAL APARTMENTS
Heatherwood Apartments
On June 30, 1998, the Operating Partnership acquired the entire
limited partnership interest in Heatherwood Kissimmee, Ltd., (the
"Heatherwood Property") a Florida limited partnership which owns fee
simple title to a 67-unit residential property located at Kissimmee,
Florida for
F-9
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. RENTAL APARTMENTS (Continued)
Heatherwood Apartments (Continued)
a purchase price of approximately $830,000. The Heatherwood Property
is subject to first mortgage financing with an original balance of
approximately $1,250,000 collateralized by the property. The
mortgage calls for monthly payments of principal and interest of
$8,847 and bears a fixed interest rate of 7.625%. The entire
balance, including accrued interest, is due on December 2004 and may
be prepaid with a prepayment fee equal to 1% of the then outstanding
principal balance. The principal balance outstanding as of December
31, 1998 was $1,238,755.
Subsequent to December 31, 1998, the Operating Partnership received
$7,000 in distributions from the Heatherwood Property.
Crystal Court Apartments
On July 31, 1998, the Operating Partnership acquired the entire
limited partnership interest in Crystal Court Apartments II, Ltd.,
(the "Crystal Court Property") a Florida limited Partnership which
owns fee simple title to an 80-unit residential apartment property
located in Lakeland, Florida for a purchase price of approximately
$704,000. The Crystal Court Property is subject to first mortgage
financing with an original balance of $1,494,000 collateralized by
the property. The mortgage calls for monthly payments of principal
and interest of $10,446 and bears a fixed interest rate of 7.5%. The
entire balance, including accrued interest, is due on October 2004
and may be prepaid with a prepayment fee equal to 1% of the then
outstanding principal balance. The principal balance outstanding as
of December 31, 1998 was $1,477,797.
Subsequent to December 31, 1998, the Operating Partnership received
$20,000 in distributions from the Crystal Court Property.
Riverwalk Apartments
On September 1, 1998, the Operating Partnership acquired the entire
limited partnership interest in Riverwalk Enterprises, Ltd., (the
"Riverwalk Property") a Florida limited partnership which owns fee
simple title to a 50-unit residential property located at New Smyrna
Beach, Florida for a purchase price of approximately $700,000. The
Riverwalk Property is subject to first mortgage financing with an
original balance of approximately $1,400,000 collateralized by the
property. The mortgage calls for monthly payments of principal and
interest of $11,626 and bears a fixed interest rate of 8.75%
amortized over 25 years. The holder of the first mortgage has the
right to adjust the rate in October 1999 for the remaining five
years of the loan to a rate equal to 200 basis points above the then
current rate for five-year treasury notes. The entire balance,
including accrued interest, is due on October 2004 and may be
prepaid with a prescribed prepayment fee. The principal balance
outstanding as of December 31, 1998 was $1,323,166.
F-10
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. RENTAL APARTMENTS (Continued)
Riverwalk Apartments (Continued)
In connection with the purchase of the Riverwalk Property, the Trust
executed a promissory note payable to the sellers of the Riverwalk
Property with an original balance of $575,000. The note called for a
lump-sum payment of principal and accrued interest at a rate of 18%
per annum on December 1, 1998. In December 1998, the Operating
Partnership paid $226,163 of principal and interest towards the note
and exercised its option to extend the maturity of the note to
February 1, 1999 for an extension fee of one (1%) percent of the
original loan amount or $5,750. The principal balance outstanding as
of December 31, 1998 was $375,000.
Subsequent to December 31, 1998, the Operating Partnership exercised
another option to extend the note to June 1, 1999 for an extension
fee of one (1%) percent of the outstanding loan amount or $3,750.
Also, subsequent to December 31, 1998, the Operating Partnership
received $17,000 in distributions from the Riverwalk Property.
NOTE 3. INVESTMENTS IN PARTNERSHIPS
Alexandria Property, net of distributions $389,050
Other Limited Partnership Interests 341,280
--------
$730,330
========
Alexandria Apartments
On October 14, 1998, the Operating Partnership acquired an
approximate 12.3% limited partnership interest in Alexandria
Development, L.P. (the "Alexandria Property"), a Delaware limited
partnership which is the owner and developer of a 168-unit
residential apartment property under construction in Alexandria,
Kentucky. The Operating Partnership paid $400,000 for eight (8)
units of limited partnership interest out of a total of sixty-five
(65) units and retains an option to acquire the remaining
fifty-seven (57) units of limited partnership interests for $50,000
per unit or approximately $2,850,000. The option is exercisable as
additional apartments are completed and rented and expires on
October 15, 1999. An affiliate of the Trust, affiliated through
common ownership, sold the partnership interest in the Alexandria
Property to the Operating Partnership and also serves as the
managing general partner of the Alexandria Property. During the
construction stage of the apartment property, the Operating
Partnership's limited partnership interest in the Alexandria
Property is entitled to an annual 12% preferential return, which is
senior to the other limited partnership interests and the general
partner's nominal 1% interest.
Subsequent to December 31, 1998, the Operating Partnership exercised
its option to purchase an additional fourteen (14) units of limited
partnership interest for $675,000. In addition, $12,000 was
distributed to the Operating Partnership.
F-11
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENTS IN PARTNERSHIPS (Continued)
Other Limited Partnership Interests
In July 1998, the Operating Partnership also was admitted as a
limited partner in 13 real estate limited partnerships managed by
affiliates of the Managing Partnership. The Operating Partnership
acquired the interests in consideration of a capital contribution
ranging from approximately $2,900 to $83,300 in each such
partnership. The aggregate contribution made by the Operating
Partnership was approximately $341,000. The percentage interest
acquired by the Operating Partnership (less than 4% in each case)
was calculated at fair market value. In each instance, the Operating
Partnership agreed that its right to receive distributions from cash
flow or from a capital event would be subordinate to the right of
the existing limited partners to receive any preferred return
described in the partnership agreement of the respective
partnership.
NOTE 4. OTHER PROPERTY AND EQUIPMENT
Furniture and equipment $112,272
Computer equipment and software 44,455
Leasehold improvements 20,813
--------
177,540
Less accumulated depreciation 8,558
--------
$168,982
========
NOTE 5. MORTGAGES PAYABLE
<TABLE>
<CAPTION>
Balance at
Original Maturity Interest December 31,
Property Amount Date Rate 1998
-------- ------ ---- ---- ----
<S> <C> <C> <C> <C>
Heatherwood Apartments $1,250,000 12/31/2004 7.625% $1,238,755
Crystal Court Apartments 1,494,000 10/31/2004 7.5 1,477,797
Riverwalk Apartments 1,400,000 10/31/2004 8.75 1,323,166
---------- ----------
Total mortgage note payables $4,139,000 $4,039,718
========== ==========
</TABLE>
All mortgage notes payable are collateralized by the underlying properties
described in Note 2 above.
The aggregate maturities of mortgages payable for each of the five years
subsequent to December 31, 1998 are as follows:
Principal
----------
Year ending December 31:
1999 $50,544
2000 54,799
2001 59,415
2002 64,420
2003 69,872
Thereafter (2004) 3,740,668
----------
Total $4,039,718
----------
F-12
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. CAPITAL LEASE OBLIGATION
During 1998, the Operating Partnership purchased office furniture
financed through a capital lease obligation. The loan is
non-interest bearing, secured by the office furniture purchased and
requires forty-eight (48) monthly payments of $1,245. Future minimum
capital lease payments and the net present value of the future
minimum lease payments at December 31, 1998 are as follows:
Year Ending December 31:
1999 $14,942
2000 14,942
2001 14,942
2002 11,158
-------
Total minimum lease payments $55,984
-------
NOTE 7. COMMITMENTS AND CONTINGENCIES
Contract to Purchase Additional Properties
In September 1998, the Trust entered in an agreement with three real
estate development companies to acquire two luxury residential
apartment properties in the development stage upon the completion of
construction. The development companies (Brentwood at Southgate,
Ltd., Burlington Residential, Ltd. and The Shoppes at Burlington,
Ltd.) are controlled by one of the Trust's founders and chief
executive officer. The properties are scheduled to have a total of
652 units, comprised of one, two and three bedroom/one or two
bathroom apartments. Construction of one of the properties, located
in Louisville, Kentucky, is expected to be completed prior to the
end of 2000, and construction of the other property, located in
Burlington, Kentucky (part of the Cincinnati metropolitan area), is
expected to be completed by the end of 2001. The aggregate purchase
price for the two properties is in the range of approximately
$41,000,000 to $43,000,000. The closing of each acquisition, which
is expected to occur shortly following the completion of
construction, is conditioned on, among other things, the completion
of the respective apartment property, the availability of first
mortgage financing and the Trust's raising the balance of the funds
necessary for the acquisition in its ongoing Cash Offering or
otherwise have funds available to make the acquisition.
In connection with the transaction and in exchange for certain
benefits described below, the Trust agreed to co-guarantee (along
with the chief executive officer), up to 35% (or approximately
$12,500,000) of the development portion of long-term construction
loans with an aggregate principal amount of up to $36,000,000 to be
provided by a bank to the development companies. As of December 31,
1998, approximately $4,600,000 of such loans had been drawn down,
resulting in outstanding guarantees of approximately $1,600,000.
Subject to the fulfillment of certain closing and funding
conditions, the construction loans will be made to the development
companies in connection with the development and construction of the
two apartment properties and of an 111,000 square foot shopping
center being developed in Burlington, Kentucky. The interest rates
on the construction loans range from 7.36% to 7.52%. The Trust also
agreed that, if the loans are not repaid prior to the expiration of
the guarantee, it will either buy out the bank's position on the
entire amount of the construction loans or arrange for a third party
to do so. The construction loans are expected to be replaced by a
long-term credit facility.
F-13
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. COMMITMENTS AND CONTINGENCIES (Continued)
Contract to Purchase Additional Properties (Continued)
The Trust expects to receive significant benefits from the
transaction in addition to the acquisition of two large luxury
apartment properties located in attractive communities. In exchange
for the guarantee of the development portion of the construction
loans, the Trust will receive a discount of approximately $212,500
(representing a one-half of one percent reduction) on the purchase
price of the properties. The Trust and the development companies are
negotiating a further price reduction which would apply if the
development portion of the loans is not repaid prior to the
expiration of the guarantee period and the Trust is required to buy
out or arrange for the buyout of the lender's position on the loans.
Officers' Compensation
A founder of the Trust and the Operating Partnership serves as Chief
Executive Officer of the Trust, the Operating Partnership and the
Managing Shareholder. He has agreed to serve a Chief Executive
Officer for the first year in exchange for compensation in the form
of common shares or units of the Operating Partnership in an amount
not to exceed 25,000 shares or units, as applicable, to be
determined by the Executive Compensation Committee based upon his
performance, in addition to benefits and eligibility for
participation in any option plan and bonus incentive compensation
plan which may be implemented by the Trust.
The other founder of the Trust and Operating Partnership serves as
the Chief Operating Officer of the Trust, the Operating Partnership
and the Managing Shareholder. His initial annual salary has been set
at $100,000, in addition to benefits, and eligibility for
participation in any common share option plan and bonus incentive
compensation plan which may be implemented by the Trust.
Operating Leases
During 1998, the Operating Partnership executed an operating lease
for its office facilities. The lease, which expires in June 15,
2003, requires monthly payments of $5,000. The Operating Partnership
has three options of five years each to extend its lease for a total
of fifteen additional years.
Minimum future lease payments on this lease are as follows:
Year ending December 31:
1999 $ 60,000
2000 60,000
2001 60,000
2002 60,000
2003 30,000
--------
Total $270,000
========
Rent expense was approximately $ 24,000 for 1998.
F-14
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. RELATED PARTY TRANSACTIONS
Trust Management Agreement
The Trust has entered into a Trust Management Agreement with the
Managing Shareholder under which the Managing Shareholder is
obligated to provide management, administrative and investment
advisory services to the Trust. The services to be rendered include,
among other things, communicating with and reporting to investors,
administering accounts, providing to the Trust of office space,
equipment and facilities and other services necessary for the
Trust's operation, and representing the Trust in its relations with
custodians, depositories, accountants, attorneys, brokers and
dealers, corporate fiduciaries, insurers, banks and others, as
required. The Managing Shareholder is also responsible for
determining which real estate investments and non-real estate
investments (including the temporary investment of the Trust's
available funds prior to their commitment to particular real estate
investments) the Trust will make and for making divestment
decisions, subject to the provisions of the Declaration. The Trust
Management Agreement has an initial term of one year and may be
extended on a year-to-year basis on approval of (i) the Board or a
majority of the stockholders entitled to vote on such matter or (ii)
a majority of the Independent Trustees.
The Trust will reimburse the Managing Shareholder for all Trust
expenses in an amount not to exceed 2% of gross proceeds from the
sale by the Trust of common shares in the Trust's initial offering.
Under the Trust Management Agreement, the Trust will reimburse the
Managing Shareholder, on a monthly basis during the term of the
agreement, for its operating expenses relating to the business of
the Trust and the Operating Partnership in an amount up to the sum
of (i) 1% of the gross proceeds from the sale by the Trust of common
shares in the Trust's initial offering, and (ii) 1% of the initial
stock price for each unit of limited partnership interest ("Unit")
in the Operating Partnership issued in connection with a Proposed
Exchange Offering of Units as contemplated in the Trust's
Prospectus. The Managing Shareholder in its sole discretion may
elect to receive payment for its service in the form of common
shares with an equivalent value. The Trust will also reimburse the
Managing Shareholders for expenses incurred prior to and during the
Cash Offering in investigating and evaluating investment
opportunities and assisting the Trust in consummating its
investments in an amount not to exceed 4% of the gross proceeds from
the sale by the Trust of common shares in the Trust's initial
offering for the Managing Shareholder's services.
During 1998, the Trust paid the Managing Shareholder $92,393 for
reimbursable expenses incurred during the Cash Offering, $185,456
for reimbursable investment expenses and $46,364 for reimbursable
management expenses. As of December 31, 1998, $136,941 is due to the
Managing Shareholder for reimbursable expenses and investment fees.
Transactions with Affiliated Entities
During 1998, the Operating Partnership paid approximately $12,000 to
an affiliated corporation for computers being used by the Operating
Partnership.
F-15
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. RELATED PARTY TRANSACTIONS (Continued)
Property Management Reimbursements
The Operating Partnership is reimbursed for administrative expenses
relating to the management of 36 rental properties affiliated to the
Trust through common ownership. During 1998, the Operating
Partnership was reimbursed for approximately $496,000 in expenses
relating to administrative duties performed for the rental
properties.
Advances
From time to time, the Operating Partnership advances funds to
affiliates. These advances do not accrue interest and are due on
demand. As of December 31, 1998, the Operating Partnership had
advanced $10,750 to two affiliates.
NOTE 9. SHAREHOLDERS' EQUITY
Cash Offering
On May 15, 1998, pursuant to a registration statement on Form SB-2,
the Trust commenced an initial public offering of a maximum of
2,500,000 common shares of beneficial interest in the Trust at $10
per common share, which is payable in full upon subscription, for
proposed total gross proceeds of $25,000,000 (the Cash Offering).
All of the common shares to be issued or sold by the Trust in the
offering will be tradable without restriction under the Securities
Act, but will be subject to certain restrictions designed to permit
the Trust to qualify and maintain its status as a Real Estate
Investment Trust under the Internal Revenue Code. The Cash Offering
will terminate no later than November 30, 1999.
Exchange Offering
The Operating Partnership has filed a registration statement on Form
S-4 with the Securities and Exchange Commission covering up to
2,500,000 units of limited partnership interest ("Units") to be
registered under the Securities Act of 1933, as amended (the "Act")
("Exchange Offering").
It is proposed that these units would be exchanged for units of
limited partnership interest in 23 limited partnerships (the
"Exchange Partnerships"), which directly or indirectly own equity
and/or mortgage interests in one or more residential apartment
properties. The Exchange Partnerships are managed by corporate
general partners which are affiliated with one of the founders of
the Operating Partnership, who is the sole stockholder and director
of the Managing Shareholder of the Trust. This registration
statement has not yet become effective.
F-16
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. SHAREHOLDERS' EQUITY (Continued)
Exchange Offering (Continued)
The number of Units being offered in exchange for the limited
partnership interests in the Exchange Partnerships will be based on
appraisals prepared by qualified and licensed independent appraisal
firms for each underlying residential apartment property. For
purposes of the Exchange Offering, each Unit has been arbitrarily
assigned an initial value of $10, which corresponds to the offering
price of each Trust Common Share currently being offered to the
public pursuant to the Cash Offering. The value of each Unit and
Common Share outstanding will be substantially identical since Unit
holders, including recipients of Units in the Exchange Offering,
will be entitled to exchange all or a portion of their Units at any
time and from time to time for an equivalent number of Trust Common
Shares, so long as the exchange would not cause the exchanging party
to own (taking into account certain ownership attribution rules) in
excess of 5% of the then outstanding shares in the Trust, subject to
the Trust's right to cash out any holder of Units who requests an
exchange and subject to certain other exceptions. To facilitate such
exchanges of Units into Common Shares, 2,500,000 Common Shares (in
addition to the 2,500,000 Common Shares being offered by the Trust
in the Cash Offering) have been registered with the Commission.
As its initial investment targets in the Exchange Offering, the
Operating Partnership is offering to acquire equity and/or
subordinated mortgage interests in 26 properties (the "Exchange
Properties") directly or indirectly owned by the 23 Exchange
Partnerships. The Operating Partnership will acquire interests in a
particular property and/or mortgages by acquiring from limited
partners their units of limited partnership interest in the
respective Exchange Partnership. Each of the Exchange Partnerships
directly or indirectly owns equity and/or mortgage interests in one
or more properties. Certain of the Exchange Partnerships directly or
indirectly own equity interests in 16 properties which consist of an
aggregate of 1,012 residential units (comprised of studio, one, two,
three and four bedroom units). Certain of the Exchange Partnerships
directly or indirectly own mortgage interests in 10 properties,
which consist of an aggregate of 813 existing residential units
(studio and one and two bedroom units) and 168 units (two and three
bedroom units) under development. Of the Exchange Properties, 21
properties are located in Florida, three properties in Ohio and one
property each in Georgia and Indiana.
Operating Partnership Limited Partnership Units
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors each subscribed for 601,080
limited partnership units of the Operating Partnership (a total of
1,202,160 units). In consideration for the units subscribed for by
them, the Original Investors made a $100,000 capital contribution to
the Operating Partnership. If the Cash Offering and the Exchange
Offering are fully subscribed, those Units would represent 19% of
the total Common Shares outstanding after completion of the Cash
Offering and exchange by the Operating Partnership of 2,500,000 of
its Units for units of limited partnership interest in real estate
limited partnerships (including any exchange pursuant to the
F-17
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. SHAREHOLDERS' EQUITY (Continued)
Operating Partnership Limited Partnership Units (Continued)
Exchange Offering), calculated on a fully diluted basis assuming all
then outstanding Units (other than those acquired by the Trust) have
been exchanged into an equivalent number of Common Shares. If,
however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units
subscribed for by each Original Investment represents a percentage
greater than 19% of the then outstanding Common Shares, calculated
on a fully diluted basis assuming that all then outstanding Units
(other than those acquired by the Trust) have been exchanged into an
equivalent number of Common Shares, each Original Investor has
agreed to return any excess Units to the Operating Partnership for
cancellation. The Original Investors have deposited Units subscribed
for by them into a security escrow account for six to nine years,
subject to earlier release under certain conditions.
Under the subscription agreement, the Original Investors agreed to
waive future administrative fees for managing Participating Exchange
Partnerships; agreed to assign to the Operating Partnership the
right to receive all residual economic rights attributable to the
general partner interests in Participating Exchange Partnerships;
and, in order to permit management of the Exchange Properties by the
Operating Partnership, caused the Exchange Partnerships to cancel
the partnerships' prior property management agreements and agreed to
forego the right to have a property management firm controlled by
the Original Investors assume the property management role in
respect of properties in which the Trust or the Operating
Partnership invest.
Based upon the total Common Shares outstanding as of December 31,
1998, the Original Investors would be entitled to exchange their
limited partnership units for a net amount of 108,757 Common Shares.
These equivalent common shares have been taken into consideration in
the calculation of net loss per share on an as-converted basis (see
Note 10).
Distributions
During 1998, the Board of Trustees authorized the payment of two
quarterly distributions aggregating $72,159 ($.225 per common share
of beneficial interest) from the surplus of the Trust. This amount
is presented in the accompanying consolidated financial statements
as a deduction from shareholders' equity under the caption
"Distributions".
NOTE 10. NET LOSS PER SHARE
The Trust computes per share data in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share". SFAS 128 requires dual presentation of basic and diluted
earnings per share on the face of the income statement.
F-18
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. NET LOSS PER SHARE (Continued)
Basic net loss per share equals net loss divided by the weighted
average shares outstanding during the year. The computation of
diluted net loss per share that includes dilutive common stock
equivalents in the weighted average shares outstanding has not been
presented as it is anti-dilutive in 1998.
The components used in calculating basic net loss per share are as
follows:
Weighted
Average Loss
Net Loss Shares (a) Per Share
-------- ---------- ---------
1998 $(1,450,850) 262,631 $(5.52)
=========== ======= ======
(a) Weighted average shares are comprised of the following: 1998
----
Investors 212,731
Founders (on an as-converted basis) 49,900
-------
Total 262,631
=======
NOTE 11. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
During 1998, the Operating Partnership acquired three rental
apartment properties through the assumption of mortgage payables and
a note payable, as follows:
Mortgages payable $4,058,737
Note payable 575,000
----------
$4,633,737
==========
Also, the Operating Partnership acquired furniture and equipment in
1998 by means of capital lease financing in the amount of $59,769.
F-19
<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ended ______________ to ______________
Commission file number 333-35063
Baron Capital Trust
(Exact name of small business issuer as specified in its charter)
Delaware 31-1574856
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
7826 Cooper Road, Cincinnati, Ohio 45242
(Address of principal executive offices)
(513) 984-5001
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BARON CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND MARCH 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
<S> <C> <C>
ASSETS
Rental Apartments:
Land $ 1,178,693 $ 1,178,693
Depreciable Property 6,189,095 6,189,095
----------- -----------
7,367,788 7,367,788
Less: Accumulated Depreciation (1,246,627) (1,287,894)
----------- -----------
6,121,161 6,079,894
Investments in Partnerships 730,330 1,409,497
Cash and Cash Equivalents 177,299 10,261
Restricted Cash 66,199 68,540
Property Management Reimbursements Rec., Affiliates 155,071 155,071
Other Receivables 80,112 99,754
Advances to Affiliates 10,750 10,750
Other Property and Equipment 168,982 199,403
Other Assets 221,611 208,178
----------- -----------
880,024 751,957
Total Assets $ 7,731,515 $ 8,241,348
----------- -----------
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities:
Mortgages Payable $ 4,039,718 $ 4,029,810
Notes Payables 375,000 375,000
Accounts Payable and accrued liabilities
including $105,573 due to Managing Shareholder 388,385 237,922
Capital Lease Obligation 55,984 55,984
Security Deposit 38,336 40,865
----------- -----------
Total Liabilities 4,897,423 4,739,581
Shareholder's Equity:
Common Shares of beneficial interest, no par value; $ 4,257,101 $ 5,389,503
2,500,000 shares authorized; 583,850 shares issued and outstanding
Operating Partnership limited partnership units; 100,000 100,000
1,202,160 units issued and outstanding; which are subject to
escrow restrictions (122,561 convertible into common shares)
Distributions (72,159) (146,341)
Retained Earnings (1,450,850) (1,450,850)
Current Year Deficit -- (390,545)
----------- -----------
Total Shareholders Equity 2,834,092 3,501,767
Total Liabilities and Shareholders Equity $ 7,731,515 $ 8,241,348
----------- -----------
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 19998 AND 1999
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999
<S> <C> <C>
REVENUES:
Property $ 257,350
Rental 4,844
Other 383
Total Revenues 0 262,577
REAL ESTATE EXPENSES:
Depreciation 36,453
Interest 73,186
Repairs and Maintenance 17,476
Personnel 29,040
Property Taxes 20,596
Property Insurance 7,206
Utilities 11,551
Other 9,214
---------
0 204,722
ADMINISTRATIVE EXPENSES:
Personnel 23,600 272,661
Management, investment and administrative fees, 92,873
Managing Shareholder
Professional Services 9,785 59,710
Other 13,768 29,323
--------- ---------
47,153 454,567
Total Expenses 47,153 659,289
Income/(Loss) from Investment 6,167
Net Loss ($47,153) ($390,545)
========= =========
Net Loss per Common Share ($471.53) ($0.61)
========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss ($ 47,153) ($ 390,545)
Adjustments to Reconcile Net Loss to Net Cash
Depreciation -- 41,267
Other Receivables (2,062) (19,642)
Other Assets -- 13,433
Accounts Payable and Accrued Expenses (150,463)
Security Deposits -- 2,529
----------- -----------
(2,062) (112,876)
Cash Flows from Investing Activities:
Investment in Partnerships -- (679,167)
Purchases of Other Property and Equipment -- (30,421)
----------- -----------
-- (709,588)
Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock 100 1,132,402
Dividends (74,182)
Proceeds from Sale of Operating Partnership Units 50,000
Payments on Mortgages -- (9,908)
----------- -----------
50,100 1,048,312
Net Increase (Decrease) in Cash and Equivalents $ 885 ($ 164,697)
Cash and Equivalents, Beginning 0 243,498
Cash and Equivalents, Ending $ 885 $ 78,801
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND CAPITALIZATION
Baron Capital Trust (the "Trust") was organized as a business trust in
Delaware on July 31, 1997. The Trust and its affiliate, Baron Capital
Properties, L.P. (the "Operating Partnership"), a Delaware limited
partnership, constitute an integrated real estate company which has been
organized to acquire equity interests in residential apartment properties
located in the United States and to provide or acquire debt mortgage loans
secured by such types of property.
The Managing Shareholder of the Trust is Baron Advisors, Inc., a Delaware
corporation which will manage the operations of the Trust and the
Operating Partnership subject to the supervisory authority of the Board of
the Trust over the activities of the Trust and the Operating Partnership
and the Board's prior approval authority in respect of certain actions of
the Trust and the Operating Partnership specified in the Declaration of
Trust of the Trust.
The Trust's Declaration authorizes it to issue up to 25,000,000 shares of
beneficial interest, no par value per share, consisting of common shares
and of preferred shares of such classes with such preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption as the Managing
Shareholder may create and authorize from time to time in accordance with
Delaware law and the Declaration.
The Trust commenced operations on February 3, 1998, at which time it
received its initial capital contribution.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Trust and the Operating Partnership and all of the Trust's interest in
the partnerships that own Heatherwood Kissimmee, Ltd., Riverwalk
Enterprises, Ltd., and Crystal Court Apartments II, Ltd.
All significant inter-company transactions and balances have been
eliminated in consolidation.
The accompanying condensed consolidated financial statements at March 31,
1999 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB promulgated by the Securities and Exchange Commission. These
condensed consolidated financial statements include all adjustments which,
in the opinion of management, are necessary in order to make the financial
statements not misleading and for a fair presentation of financial
position as of March 31, 1999 and results of operations for the three
months ended March 31, 1999 and 1998 and cash flows for the three months
ended March 31, 1999 and 1998. All such adjustments are of a normal
recurring nature. The results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Trust to concentrations
of credit risk are comprised of cash and receivables.
Cash
At various times during the year the Trust had deposits in financial
institutions in excess of the federally insured limits. The Trust
maintains its cash with high quality financial institutions, which the
Trust believes limits these risks.
Property Management Reimbursements and Other Receivables
Receivables are comprised mainly of property management reimbursements due
to the Operating Partnership from various properties it manages
5
<PAGE>
and monthly rents due. The Operating Partnership monitors exposure to
credit losses and does not maintain an allowance for these receivables, as
it believes that these receivables are fully collectible.
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION
Real estate rental properties are stated at cost less accumulated
depreciation. Ordinary repairs and maintenance are expensed as incurred;
replacements having an estimated useful life of at least one year and
improvements are capitalized and depreciated over their estimated useful
lives.
Depreciation is computed on a straight-line basis over useful lives of the
properties as follows:
Estimated Useful
Lives (Years)
-------------
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
Losses in carrying values of investment assets are provided by management
when the losses become apparent and the investment asset is considered
impaired in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Management evaluates its investment
properties annually to assess whether any impairment indications are
present. If any investment asset is considered impaired, a loss is
provided to reduce the carrying value of the property to its estimated
fair value. No such losses have been required or provided in the
accompanying consolidated financial statements.
REVENUE RECOGNITION
Apartment units are leased under operating leases with terms of generally
one year or less. Rental income is recognized when due from tenants.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Trust considers all
investments purchased with an original maturity of three months or less to
be cash equivalents.
INVESTMENTS IN PARTNERSHIPS
The Trust's investments in unconsolidated partnerships are accounted for
on the cost method inasmuch as the respective ownership interests
represent less than 20% of the general partnership interest therein. The
Trust periodically assesses the realizable value of these investments in
order to ascertain that there has been no impairment in their recorded
value.
CAPITAL RESERVE
In connection with the acquisition of the investment properties, as
required by the lending institutions, the Trust has established a capital
reserve account, which is to be used for significant improvements to the
property.
LOAN COSTS
The Trust has capitalized those costs incurred with obtaining financing on
the investment properties. Such costs (included with other assets) are
being amortized over the estimated term of the financing of ten years.
6
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INCOME TAXES
The Trust has not provided for federal income taxes because the Trust
believes it qualifies as a real estate investment trust (REIT) under
Section 856 to 860 of the Internal Revenue Code. A REIT will generally not
be subject to federal income taxation on that portion of its income that
qualifies a REIT taxable income to the extent that it distributes
substantially all of its taxable income to its stockholders and complies
with certain other requirements. The Trust made an REIT election for the
year ended December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These instruments include cash,
receivables, accounts payable and accrued liabilities. Fair values were
assumed to approximate carrying values for these financial instruments
since they are short-term in nature and their carrying amounts approximate
fair values or they are receivable or payable on demand.
The fair value of debt instruments has been estimated by using discounted
cash flow models incorporating discount rates based on current market
interest rates for similar types of instruments. At December 31, 1998, the
differences between estimated fair value and the carrying value of debt
instruments were not material.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and displaying comprehensive income,
its components, and accumulated balances. SFAS No. 131 establishes
standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. Both SFAS No. 130 and SFAS No. 131 are
effective for periods beginning after December 15, 1997. The Trust adopted
these new accounting standards in 1998, and their adoption had no effect
on the Trust's financial statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at
fair value. If certain conditions are met, a derivative may be
specifically designated as a hedge, the objective of which is to match the
timing of the gain or loss recognition of the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
Historically, the Trust has not entered into derivatives contracts to
hedge existing risks or for speculative purposes. Accordingly, the Trust
does not expect adoption of the new standard on January 1, 2000 to affect
its financial statements.
NOTE 2. MATERIAL SUBSEQUENT EVENTS AND CONTINGENCIES
Alexandria Property, net of distributions $ 1,062,050
Other Limited Partnership Interests 341,280
-----------
$ 1,403,330
ALEXANDRIA APARTMENTS
7
<PAGE>
On October 14, 1998, the Operating Partnership acquired an approximate
12.3% limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Property"), a Delaware limited partnership which is the owner
and developer of a 168-unit residential apartment property under
construction in Alexandria, Kentucky. The Operating Partnership paid
$400,000 for eight (8) units of limited partnership interest out of a
total of sixty-five (65) units and retains an option to acquire the
remaining fifty-seven (57) units of limited partnership interests for
$50,000 per unit or approximately $2,850,000. The option is exercisable as
additional apartments are completed and rented and expires on October 15,
1999. An affiliate of the Trust, affiliated through common ownership, sold
the partnership interest in the Alexandria Property to the Operating
Partnership and also serves as the managing general partner of the
Alexandria Property. During the construction stage of the apartment
property, the Operating Partnership's limited partnership interest in the
Alexandria Property is entitled to an annual 12% preferential return,
which is senior to the other limited partnership interests and the general
partner's nominal 1% interest.
As of March 31, 1999 the Operating Partnership owned twenty-one and seven
tenths (21.7) units of limited partnership interest for which it paid
$1,085,000. Subsequent to March 31, 1999, the Operating Partnership
exercised its option to purchase an additional two and one half (2.5)
units of limited partnership interest for $125,000. In addition, $12,000
was distributed to the Operating Partnership during the three (3) months
ended March 31, 1999 and $10,000 was distributed to the Operating
Partnership subsequent to March 31, 1999.
CONTRACT TO PURCHASE ADDITIONAL PROPERTIES
In September 1998, the Trust entered in an agreement with three real
estate development companies to acquire two luxury residential apartment
properties in the development stage upon the completion of construction.
The development companies (Brentwood at Southgate, Ltd., Burlington
Residential, Ltd. and The Shoppes at Burlington, Ltd.) are controlled by
one of the Trust's founders and chief executive officer. The properties
are scheduled to have a total of 652 units, comprised of one, two and
three bedroom/one or two bathroom apartments. Construction of one of the
properties, located in Louisville, Kentucky, is expected to be completed
prior to the end of 2000, and construction of the other property, located
in Burlington, Kentucky (part of the Cincinnati metropolitan area), is
expected to be completed by the end of 2001. The aggregate purchase price
for the two properties is in the range of approximately $41,000,000 to
$43,000,000. The closing of each acquisition, which is expected to occur
shortly following the completion of construction, is conditioned on, among
other things, the completion of the respective apartment property, the
availability of first mortgage financing and the Trust's raising the
balance of the funds necessary for the acquisition in its ongoing Cash
Offering or otherwise have funds available to make the acquisition.
In connection with the transaction and in exchange for certain benefits
described below, the Trust agreed to co-guarantee (along with the chief
executive officer), up to 35% (or approximately $12,500,000) of the
development portion of long-term construction loans with an aggregate
principal amount of up to $36,000,000 to be provided by a bank to the
development companies. As of March 31, 1999, approximately $4,850,000 of
such loans had been drawn down, resulting in outstanding guarantees of
approximately $1,700,000. Subject to the fulfillment of certain closing
and funding conditions, the construction loans will be made to the
development companies in connection with the development and construction
of the two apartment properties and of an 111,000 square foot shopping
center being developed in Burlington, Kentucky. The interest rates on the
construction loans range from 7.36% to 7.52%. The Trust also agreed that,
if the loans are not repaid prior to the expiration of the guarantee, it
will either buy out the bank's position on the entire amount of the
construction loans or arrange for a third party to do so. The construction
loans are expected to be replaced by a long-term credit facility.
The Trust expects to receive significant benefits from the transaction in
addition to the acquisition of two large luxury apartment properties
located in attractive communities. In exchange for the guarantee of the
development portion of the construction loans, the Trust will receive a
discount of approximately $212,500 (representing a one-half of one percent
reduction) on the purchase price of the properties. The Trust and the
development companies are negotiating a further price reduction which
would apply if the development portion of the loans is not repaid prior to
the expiration of the guarantee period and the Trust is required to buy
out or arrange for the buyout of the lender's position on the loans.
NOTE 3. SHAREHOLDERS' EQUITY
CASH OFFERING
On May 15, 1998, pursuant to a registration statement on Form SB-2, the
Trust commenced an initial public offering of a maximum of 2,500,000
common shares of beneficial interest in the Trust at $10 per common share,
which is payable in full upon subscription, for proposed total gross
proceeds of $25,000,000 (the Cash Offering). All of the common shares to
be issued or sold by the Trust in the offering will be tradable without
restriction under the Securities Act, but will be subject to certain
restrictions designed to permit the Trust to qualify and maintain its
status as a Real Estate Investment Trust under the Internal Revenue Code.
The Cash Offering will terminate no later than November 30, 1999.
EXCHANGE OFFERING
The Operating Partnership has filed a registration statement on Form S-4
with the Securities and Exchange Commission covering up to 2,500,000 units
of limited partnership interest ("Units") to be registered under the
Securities Act of 1933, as amended (the "Act") ("Exchange Offering"). It
is proposed that these units would be exchanged for units of limited
partnership interest in 23 limited partnerships (the "Exchange
Partnerships"), which directly or indirectly own equity and/or mortgage
interests in one or more residential apartment properties. The Exchange
Partnerships are managed by corporate general partners which are
affiliated with one of the founders of the Operating Partnership, who is
the
8
<PAGE>
sole stockholder and director of the Managing Shareholder of the Trust.
This registration statement has not yet become effective.
The number of Units being offered in exchange for the limited partnership
interests in the Exchange Partnerships will be based on appraisals of the
respective real property prepared by qualified and licensed independent
appraisal firms for each underlying residential apartment property. For
purposes of the Exchange Offering, each Unit has been arbitrarily assigned
an initial value of $10, which corresponds to the offering price of each
Trust Common Share currently being offered to the public pursuant to the
Cash Offering. The value of each Unit and Common Share outstanding will be
substantially identical since Unit holders, including recipients of Units
in the Exchange Offering, will be entitled to exchange all or a portion of
their Units at any time and from time to time for an equivalent number of
Trust Common Shares, so long as the exchange would not cause the
exchanging party to own (taking into account certain ownership attribution
rules) in excess of 5% of the then outstanding shares in the Trust,
subject to the Trust's right to cash out any holder of Units who requests
an exchange and subject to certain other exceptions. To facilitate such
exchanges of Units into Common Shares, 2,500,000 Common Shares (in
addition to the 2,500,000 Common Shares being offered by the Trust in the
Cash Offering) have been registered with the Commission.
As its initial investment targets in the Exchange Offering, the Operating
Partnership is offering to acquire equity and/or subordinated mortgage
interests in 26 properties (the "Exchange Properties") directly or
indirectly owned by the 23 Exchange Partnerships. The Operating
Partnership will acquire interests in a particular property and/or
mortgages by acquiring from limited partners their units of limited
partnership interest in the respective Exchange Partnership. Each of the
Exchange Partnerships directly or indirectly owns equity and/or mortgage
interests in one or more properties. Certain of the Exchange Partnerships
directly or indirectly own equity interests in 16 properties which consist
of an aggregate of 1,012 residential units (comprised of studio, one, two,
three and four bedroom units). Certain of the Exchange Partnerships
directly or indirectly own mortgage interests in 10 properties, which
consist of an aggregate of 813 existing residential units (studio and one
and two bedroom units) and 168 units (two and three bedroom units) under
development. Of the Exchange Properties, 21 properties are located in
Florida, three properties in Ohio and one property each in Georgia and
Indiana.
OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS
In connection with the formation of the Trust and the Operating
Partnership, each of the Original Investors subscribed for 601,080 limited
partnership units of the Operating Partnership (a total of 1,202,160
units). In consideration for the units subscribed for by them, each of the
Original Investors made a $50,000 capital contribution to the Operating
Partnership. If the Cash Offering and the Exchange Offering are fully
subscribed, those Units would represent 19% of the total Common Shares
outstanding after completion of the Cash Offering and exchange by the
Operating Partnership of 2,500,000 of its Units for units of limited
partnership interest in real estate limited partnerships (including any
exchange pursuant to the Exchange Offering), calculated on a fully diluted
basis assuming all then outstanding Units (other than those acquired by
the Trust) have been exchanged into an equivalent number of Common Shares.
If, however, as of November 30, 1999, the Cash Offering and/or the
Exchange Offering has been completed and the number of Units subscribed
for by each Original Investment represents a percentage greater than 19%
of the then outstanding Common Shares, calculated on a fully diluted basis
assuming that all then outstanding Units (other than those acquired by the
Trust) have been exchanged into an equivalent number of Common Shares,
each Original Investor has agreed to return any excess Units to the
Operating Partnership for cancellation. The Original Investors have
deposited Units subscribed for by them into a security escrow account for
six to nine years, subject to earlier release under certain conditions.
Based upon the total Common Shares outstanding as of March 31, 1999, the
Original Investors would be entitled to exchange their limited partnership
units for a net amount of 122,561 Common Shares. These equivalent common
shares have been taken into consideration in the calculation of net loss
per share on an as-converted basis (see Note 4).
NOTE 4. NET LOSS PER SHARE
The Trust computes per share data in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share".
SFAS 128 requires dual presentation of basic and diluted earnings per
share on the face of the income statement.
Basic net loss per share equals net loss divided by the weighted average
shares outstanding during the year. The computation of diluted net loss
per share that includes dilutive common stock equivalents in the weighted
average shares outstanding has not been presented as it is anti-dilutive
for the three months ended March 31, 1999.
The components used in calculating basic net loss per share are as
follows:
Weighted
Average Loss
Net Loss Shares (a) Per Share
-------- ---------- ---------
Three months ended
March 31, 1999 $(390,545) 645,056 $(0.61)
========= ======= ======
(a) Weighted average shares are comprised of the following:
9
<PAGE>
1998
----
Investors 522,495
Founders (on an as-converted basis) 122,561
-------
Total 645,056
=======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto.
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Report contains certain
forward-looking statements within the meaning of the Securities Litigation
Reform Act of 1995 that are based on current expectations, estimates and
projections about the Trust's business, management's beliefs and assumptions
made by management. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," and variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements due to numerous factors, including, but not
limited to those discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as those discussed elsewhere in
this Report and from time to time in the Trust's other Securities and Exchange
Commission filings and reports. In addition, such statements could be affected
by general domestic and international economic conditions. The forward-looking
statements contained in this report speak only as of the date on which they are
made, and the Trust does not undertake any obligation to update any
forward-looking statement to reflect events or circumstances after the date of
this Report. If the Trust does update one or more forward-looking statements,
investors and others should not conclude that the Trust will make additional
updates with respect thereto or with respect to other forward-looking
statements.
PLAN OF OPERATION
The Trust commenced operations on May 17, 1998. Through its Operating
Partnership, it started acquiring interests in properties including the total
limited partnership interests in Heatherwood I Apartments in June, 1998; Crystal
Court II Apartments in July 1998; and Riverwalk Apartments in September, 1998.
In July, 1998 it acquired a limited partnership interest in 20 real estate
limited partnerships managed by affiliates of Gregory K. McGrath (a founder and
Chief Executive Officer of the Registrant and the Operating Partnership). In
October, 1998 it acquired a 12.3 percent interest in Alexandria Apartments (see
Item 2 - Description of Properties).
The Trust plans to continue raising equity under its current offering
dated May 15, 1998. The current offering is for $25,000,000, and is effective
through November 30, 1999. Through March 31, 1999 the Trust has raised
$5,838,403. The net cash proceeds from the issuance of Common Shares in
connection with this offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units in the Operating
Partnership. The Operating Partnership will use the net cash proceeds of the
offering, unissued units of limited partnership interest in the operating
partnership or a combination of net cash proceeds and unissued units to acquire
interests in residential apartment properties or interests in other partnerships
substantially all of whose assets consist of residential apartment property
interests, and payment of fees and expenses as described in the Prospectus dated
May 15, 1998. The Trust has the ability to satisfy its cash requirements for the
foreseeable future. However, it will be necessary to raise additional capital
during the next 12 months to make acquisitions and to meet management's revenue
and cash flow goals.
The Operating Partnership intends to conduct an exchange offering under
which it will offer to issue units ("Units") of limited partnership interest to
be registered, with an initial assigned value of $25,000,000, in exchange for
limited partnership interests in real estate limited partnerships which directly
or indirectly own interests in residential apartments in the United States. The
Registrant and the Operating Partnership intend to investigate making an
additional public or private offering of Common Shares and/or Units within the
next 12 months.
The Registrant and the Operating Partnership expect no material change in
the number of employees over the next 12 months.
PART II - OTHER INFORMATION
10
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
The Registrant is a claimant in the Georgia-Pacific class action lawsuit.
ITEM 2. CHANGES IN SECURITIES
There were no material modifications in the instruments defining the
rights of any class of registered securities. There were no sales of any
unregistered securities.
The Registrant's Form SB-2 Registration Statement (the "Registration
Statement") (Commission file number 333-35063) was declared effective by the
Commission on May 15, 1998. On May 18, 1998, the Registrant commenced its public
offering (the "Offering") of common shares of beneficial interest in the
Registrant ("Common Shares"), the class of securities registered, and the
Offering is currently ongoing. The name of the managing underwriter of the
Offering is Sigma Financial Corporation. The amount of Common Shares registered
is 2,500,000 shares. The offering price per Common Share is $10.00, and the
aggregate price of the offering amount registered is $25,000,000. As of the date
of this report, 614,110 Common Shares have been sold in the Offering, for an
aggregate offering price of $6,141,103.
From the effective date of the Registration Statement through March 31,
1999, the following expenses have been incurred for the Registrant's account in
connection with the issuance and distribution of the registered Common Shares:
<TABLE>
<S> <C>
Underwriting discounts and commissions: $448,999 (plus five-year warrants to Acquire
33,107 Common Shares at an exercise
price of $13.00 per share)
Finder's Fees: $ 0
Expenses Paid to or for Underwriter: $ 0
Other Expenses (reimbursement for
Advisory and investment expenses): $374,024
Total Expenses: $823,023
</TABLE>
Of such expense payments, $361,233 were made directly to Baron Advisors,
Inc., the Managing Shareholder of the Registrant. The remaining payments of
$316,388 were made directly or indirectly to others. The net offering proceeds
to the Registrant after deducting the foregoing total expenses were $5,015,380.
From the effective date of the Registration Statement through March 31,
1999, the net offering proceeds to the Registrant were used for the following
purposes:
Improvements to buildings and facilities: $ 0
Purchase and installation of equipment: $ 0
Repayment of indebtedness: $ 0
Working capital: $ 0
Temporary investments: $ 0
Investment in Baron Capital Properties, L.P.
(the Operating Partnership) - 3/31/99 value $4,707,240
Other purposes for which 5% or more of net
offering proceeds or $100,000 (whichever
is less) have been used: $ 0
11
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On October 14, 1998, the Operating Partnership acquired an approximate
12.3% limited partnership interest in Alexandria Development, L.P. (the
"Alexandria Property"), a Delaware limited partnership which is the owner and
developer of a 168-unit residential apartment property under construction in
Alexandria, Kentucky. The Operating Partnership paid $400,000 for eight (8)
units of limited partnership interest out of a total of sixty-five (65) units
and retains an option to acquire the remaining fifty-seven (57) units of limited
partnership interests for $50,000 per unit or approximately $2,850,000. The
option is exercisable as additional apartments are completed and rented and
expires on October 15, 1999. An affiliate of the Trust, affiliated through
common ownership, sold the partnership interest in the Alexandria Property to
the Operating Partnership and also serves as the managing general partner of the
Alexandria Property. During the construction stage of the apartment property,
the Operating Partnership's limited partnership interest in the Alexandria
Property is entitled to an annual 12% preferential return, which is senior to
the other limited partnership interests and the general partner's nominal 1%
interest.
As of March 31, 1999 the Operating Partnership owned twenty-one and seven
tenths (21.7) units of limited partnership interest for which it paid
$1,085,000. Subsequent to March 31, 1999, the Operating Partnership exercised
its option to purchase an additional two and one half (2.5) units of limited
partnership interest for $125,000. During the three (3) months ended March 31,
1999, $12,000 was distributed to the Operating Partnership from the Alexandria
Property and subsequent to March 31, 1999, $10,000 was distributed to the
Operating Partnership from the Alexandria Property.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
----------- -----------
20.1 1998 Annual Report to Shareholders
27.1* Financial Data Schedule (3/31/99)
27.2* Financial Data Schedule (12/31/98)
----------
* Contained in electronic filing only.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1999.
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
12
<PAGE>
May 14, 1999 BARON CAPITAL TRUST
By: /s/ Gregory K. McGrath
---------------------------------
Gregory K. McGrath
Chief Executive Officer
By: /s/ Mark L. Wilson
---------------------------------
Mark L. Wilson
Interim-Chief Financial Officer
13
<PAGE>
================================================================================
BARON ADVISORS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
<PAGE>
BARON ADVISORS, INC.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholder
Baron Advisors, Inc.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Advisors, Inc. (an
S-Corporation) as of December 31, 1998 and the related statements of income and
retained earnings and cash flows from inception (February 28, 1998) to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Baron Advisors, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
period from inception (February 28, 1998) to December 31, 1998 in conformity
with generally accepted accounting principles.
Miami, Florida
April 13, 1999
<PAGE>
BARON ADVISORS, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash $ 587
Due from the Trust 136,941
--------
$137,528
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses $ 11,022
--------
Total liabilities 11,022
--------
Commitments and Subsequent Events --
Stockholder's Equity:
Common stock, $.10 par value; 1,000 shares
authorized; issued and outstanding 100
Retained earnings 126,406
--------
Total stockholder's equity 126,506
--------
$137,528
========
See notes to financial statements.
-2-
<PAGE>
BARON ADVISORS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FROM INCEPTION (FEBRUARY 28, 1998) TO DECEMBER 31, 1998
Revenue $324,213
--------
Operating Expenses:
Investment consulting services 131,040
Legal services 64,000
Filing fees 2,700
Bank charges 67
--------
Total operating expenses 197,807
--------
Net Income 126,406
Retained Earnings, Beginning --
--------
Retained Earnings, ending $126,406
========
See notes to financial statements.
-3-
<PAGE>
BARON ADVISORS, INC.
STATEMENT OF CASH FLOWS
FROM INCEPTION (FEBRUARY 28, 1998) TO DECEMBER 31, 1998
Cash Flows from Operating Activities:
Net income $ 126,406
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in due from affiliate (136,941)
Increase in accounts payable and accrued expenses 11,022
---------
Net cash provided by operating activities 487
---------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 100
---------
Net cash provided by financing activities 100
---------
Net Increase in Cash 587
Cash, Beginning --
---------
Cash, Ending $ 587
=========
See notes to financial statements.
-4-
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Baron Advisors, Inc., (the "Management Company") was incorporated in
July 1997 as a Delaware corporation. The Management Company was
formed for the sole purpose of managing the Baron Capital Trust (the
"Trust") and, therefore, there was no activity for the period since
incorporation until February 28, 1998, when operations for the Trust
began. The Management Company is the managing shareholder of the
Trust.
As the Management Company of the Trust, Baron Advisors, Inc., will
have direct and exclusive discretion in management and control of
the affairs of the Trust and Baron Capital Properties, L.P. (the
"Operating Partnership"), subject to general supervision and review
by the Independent Trustees and the Management Company acting
together as the Board of the Trust and to prior approval of a
majority of the Board and a majority of the Independent Trustees in
respect of certain specified actions. The Corporate Trustee, Baron
Capital Properties, Inc. (an affiliate of the Management Company),
will act on the instructions of the Management Company, and will not
take independent discretionary action on behalf of the Trust.
Concentration of Credit Risk
The Management Company's entire receivable balance is due from the
Trust.
Revenue Recognition
Revenue is recognized when services are performed.
Income Taxes
The Management Company and its stockholders have elected "S
Corporation" status for federal income tax purposes. As an S
Corporation, the tax liability for income generated and the benefit
for losses incurred pass directly to the stockholders. Accordingly,
no provision for income taxes is presented in the accompanying
financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are
based on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
-5-
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. RELATED PARTY TRANSACTION
Trust Management Agreement
On May 15, 1998, the Management Company entered into a Trust
Management Agreement with the Trust under which the Management
Company is obligated to provide management, administrative and
investment advisory services to the Trust. The services to be
rendered include, among other things, communicating with and
reporting to investors, administering accounts, providing to the
Trust office space, equipment and facilities and other services
necessary for the Trust's operation, and representing the Trust in
its relations with custodians, depositories, accountants, attorneys,
brokers and dealers, corporate fiduciaries, insurers, banks and
others, as required. The Management Company will also be responsible
for determining which real estate investments and non-real estate
investments (including the temporary investment of the Trust's
available funds prior to their commitment to particular real estate
investments) the Trust will make and for making divestment
decisions, subject to the provisions of the Amended and Restated
Declaration of Trust. The Trust Management Agreement has an initial
term of one year and may be extended on a year-to-year basis on
approval of (i) the Board or a majority of the shareholders entitled
to vote on such matter or (ii) a majority of the Independent
Trustees.
The Trust will reimburse the Management Company for all Trust
expenses in an amount not to exceed 2% of gross proceeds from the
sale by the Trust of Common Shares in the Trust's initial offering.
As compensation for the Management Company's performance under the
Trust Management Agreement, beginning June 1, 1998, the Trust will
pay to the Management Company, on a monthly basis during the term of
the agreement, an annual management fee in the sum of (i) 1% of the
gross proceeds from the sale by the Trust of Common Shares in the
Trust's initial offering, and (ii) 1% of the initial stock price for
each unit of limited partnership interest ("Unit") in the Operating
Partnership issued in connection with a Proposed Exchange Offering
of Units as contemplated in the Trust's Prospectus, (iii) an
investment fee in an amount equal to 4% of the gross proceeds from
the sale by the Trust of common shares in the Trust's initial
offering for the Management Company's services in investigating and
evaluating investment opportunities and assisting the Trust in
consummating its investments. The Management Company in its sole
discretion may elect to receive payment for its service in the form
of common shares with an equivalent value.
During 1998, the Management Company received from the Trust
approximately $92,000 in reimbursed expenses, $185,000 for
investment fees and $46,000 as management fees. As of December 31,
1998, $136,941 is due from the Trust for reimbursable expenses and
investment fees.
Subsequent to year end, the Management Company received
approximately $28,000 in reimbursed expenses and $53,000 in
investment fees from the Trust.
-6-
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. YEAR 2000 (UNAUDITED)
As the Year 2000 approaches, the Management Company recognizes the
need to ensure its operations will not be adversely impacted by Year
2000 software failures. The Management Company is addressing this
issue to ensure the availability and integrity of its financial
systems and the reliability of its operating systems. Processes have
been established for evaluating and managing the risks and costs
associated with this problem. The Management Company has and will
continue to make certain investments in its software systems and
applications to ensure that it is Year 2000 compliant.
NOTE 4. SUBSEQUENT EVENT
Effective March 1999, the Management Company's sole investment
consultant raised the investment fees from two percent (2%) to 4
percent (4%). The investment consultant charges a commission based
on the gross proceeds from the sale by the Trust of Common Shares in
the Trust's initial cash offering.
-7-
<PAGE>
EXHIBIT D
FINANCIAL STATEMENTS OF THE
EXCHANGE PROPERTIES/
EXCHANGE PARTNERSHIPS
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Blossom Corners Apartments, Phase I, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Blossom Corners Apartments, Phase I, for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Blossom Corners Apartments, Phase I, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Blossom Corners Apartments, Phase I, for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 338,755 $ 273,596 $ 78,458 $ 84,869
Other income 14,260 20,987 1,440 3,565
--------- --------- --------- ---------
Total revenues 353,015 294,583 79,898 88,434
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 43,980 38,493 7,078 10,995
Real estate taxes and insurance 32,696 33,224 8,366 8,174
Mortgage interest expense 93,696 94,358 22,999 23,424
Management fees and
reimbursed expenses 27,362 20,039 6,464 6,841
Other operating expenses 60,038 71,416 14,739 19,735
--------- --------- --------- ---------
Total certain expenses 257,772 257,530 59,646 69,169
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 95,243 $ 37,053 $ 20,252 $ 19,265
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Blossom Corners Apartments, Phase I, consist of 70 units located in
Orlando, Florida. The property was acquired by purchase July 7, 1995 by
Florida Income Growth Fund V, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1997 93%
December 31, 1998 87%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Blossom Corners Apartments, Phase
I.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of
Bridgepoint Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of Bridgepoint Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of
Bridgepoint Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of Bridgepoint Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
BRIDGEPOINT APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 237,872 $ 212,608 $ 58,461 $ 59,468
Other income 13,760 6,605 7,274 3,440
--------- --------- --------- ---------
Total revenues 251,632 219,213 65,735 62,908
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 19,159 14,531 4,552 4,790
Real estate taxes and insurance 24,924 24,715 6,076 6,231
Mortgage interest expense 68,574 69,345 17,011 17,144
Management fees and
reimbursed expenses 20,712 14,751 5,346 5,178
Other operating expenses 73,929 62,047 14,752 23,067
--------- --------- --------- ---------
Total certain expenses 207,298 185,389 47,737 56,410
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 44,334 $ 33,824 $ 17,998 $ 6,498
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Bridgepoint Apartments consist of 48 units located in Jacksonville,
Florida. The property was acquired by purchase July 17, 1995 by Florida
Capital Income Fund III, Ltd. The following percentage of units that were
occupied at the various period ending dates:
December 31, 1997 85%
December 31, 1998 92%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Bridgepoint Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Brookwood Way Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Brookwood Way Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Brookwood Way Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Brookwood Way Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
BROOKWOOD WAY APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 275,189 $ 248,950 $ 68,386 $ 68,797
Other income 8,015 7,988 1,200 2,004
--------- --------- --------- ---------
Total revenues 283,204 256,938 69,586 70,801
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 30,819 22,296 7,074 7,705
Real estate taxes and insurance 22,640 17,645 5,973 5,660
Mortgage interest expense 102,287 96,565 31,110 25,572
Management fees and
reimbursable expenses 21,964 15,720 4,159 5,491
Other operating expenses 51,148 45,855 916 11,635
--------- --------- --------- ---------
Total certain expenses 228,858 198,081 49,232 56,063
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 54,346 $ 58,857 $ 20,354 $ 14,738
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BROOKWOOD WAY APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Brookwood Way Apartments consist of 66 units located in Mansfield, Ohio.
The property was acquired by purchase in November 1996 by Midwest Income
Growth Fund VI, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1997 88%
December 31, 1998 97%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Brookwood Way Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
BROOKWOOD WAY APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Camellia Court Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Camellia Court Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Camellia Court Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Camellia Court Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
CAMELLIA COURT APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 266,911 $ 213,718 $ 72,811 $ 66,728
Other income 23,575 16,516 5,850 5,894
--------- --------- --------- ---------
Total revenues 290,486 230,234 78,661 72,622
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 35,205 35,481 8,584 8,801
Real estate taxes and insurance 39,651 35,934 10,011 9,913
Mortgage interest expense 98,620 98,851 24,118 24,655
Management fees and
reimbursed expenses 22,465 13,884 5,887 5,616
Other operating expenses 60,671 64,905 14,544 27,092
--------- --------- --------- ---------
Total certain expenses 256,612 249,055 63,144 76,077
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 33,874 $ (18,821) $ 15,517 $ (3,455)
========= ========= ========= ========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
CAMELLIA COURT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Camellia Court Apartments consist of 60 units located in Daytona Beach,
Florida. The property was acquired by purchase March 6, 1995 by Florida
Opportunity Income Partners, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1997 78%
December 31, 1998 95%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Camellia Court Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
form the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
CAMELLIA COURT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Eagle Lake Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Eagle Lake Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Eagle Lake Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Eagle Lake Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
EAGLE LAKE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 382,121 $ 346,154 $ 94,139 $ 95,530
Other income 25,123 21,065 3,447 6,281
--------- --------- --------- ---------
Total revenues 407,244 367,219 97,586 101,811
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 48,167 34,983 10,538 12,042
Real estate taxes and insurance 55,688 49,694 13,457 13,922
Mortgage interest expense 127,820 158,727 30,723 31,955
Management fees and
reimbursable expenses 37,896 26,702 7,305 9,474
Other operating expenses 88,716 71,050 15,317 27,226
--------- --------- --------- ---------
Total certain expenses 358,287 341,156 77,340 94,619
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 48,957 $ 26,063 $ 20,246 $ 7,192
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Eagle Lake Apartments consist of 77 units located in Port Orange, Florida.
The property was acquired by purchase July 12, 1994 by Florida Capital
Income Fund, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1997 94%
December 31, 1998 91%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Eagle Lake Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase I, for the years ended December 31, 1997 and 1998.
This financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase I, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase I, for the years ended December 31, 1997 and 1998.
This financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase I, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 362,118 $ 319,763 $ 94,877 $ 90,530
Other income 16,098 7,968 1,321 4,025
--------- --------- --------- ---------
Total revenues 378,216 327,731 96,198 94,555
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 54,733 35,958 6,506 13,683
Real estate taxes and insurance 46,578 45,223 11,517 11,645
Mortgage interest expense 116,664 149,908 30,966 29,166
Management fees and
reimbursable expenses 25,812 17,219 7,146 6,453
Other operating expenses 67,541 60,553 10,100 16,885
--------- --------- --------- ---------
Total certain expenses 311,328 308,861 66,235 77,832
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 66,888 $ 18,870 $ 29,963 $ 16,723
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase I, consist of 52 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Capital Income
Fund II, Ltd. and three other limited partnerships). Under a land trust
agreement, Florida Capital Income Fund II, Ltd. owns beneficial interest
in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase I of the Forest Glen Property.
The following percentage of units were occupied at year ending dates:
December 31, 1997 87%
December 31, 1998 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase I.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase II, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase II, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase II, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase II, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 204,746 $ 159,093 $ 49,592 $ 51,187
Other income 6,773 6,252 5,466 1,693
--------- --------- --------- ---------
Total revenues 211,519 165,345 55,058 52,880
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 20,454 20,767 3,769 5,114
Real estate taxes and insurance 27,095 25,939 6,654 6,774
Mortgage interest expense 66,542 60,222 18,584 16,636
Management fees and
reimbursable expenses 17,248 9,454 5,385 4,312
Other operating expenses 37,111 37,056 7,944 14,540
--------- --------- --------- ---------
Total certain expenses 168,450 153,438 42,336 47,376
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 43,069 $ 11,907 $ 12,722 $ 5,504
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase II, consist of 30 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Realty Opportunity
Income Fund VIII, Ltd. and three other limited partnerships). Under a land
trust agreement, Realty Opportunity Income Fund VIII, Ltd. owns beneficial
interest in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase II of the Forest Glen Property.
The following percentage of units were occupied at year ending dates:
December 31, 1997 70%
December 31, 1998 93%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase II.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase III, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase III, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase III, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase III, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 176,122 $ 170,175 $ 47,548 $ 44,031
Other income 11,808 7,031 1,197 2,952
--------- --------- --------- ---------
Total revenues 187,930 177,206 48,745 46,983
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 17,651 17,461 3,191 4,413
Real estate taxes and insurance 25,738 21,947 7,507 6,435
Mortgage interest expense 56,304 49,070 15,725 14,076
Management fees and
reimbursable expenses 15,923 8,646 4,849 3,981
Other operating expenses 32,125 31,238 5,623 14,913
--------- --------- --------- ---------
Total certain expenses 147,741 128,362 36,895 43,818
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 40,189 $ 48,844 $ 11,850 $ 3,165
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase III, consist of 26 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Income Advantage
Fund I, Ltd. and three other limited partnerships). Under a land trust
agreement, Florida Income Advantage Fund I, Ltd. owns beneficial interest
in, and is obligated to pay operating expenses in respect of, the
residential units comprising Phase III of the Forest Glen Property.
The following percentage of units were occupied at the year ending dates:
December 31, 1997 96%
December 31, 1998 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase III.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase IV, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase IV, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Forest Glen Apartments, Phase IV, for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Forest Glen Apartments, Phase IV, for the years ended December 31, 1997
and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 53,558 $ 56,139 $ 15,282 $ 13,390
Other income 3,081 2,437 80 770
--------- --------- --------- ---------
Total revenues 56,639 58,576 15,362 14,160
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 6,091 5,132 1,014 1,523
Real estate taxes and insurance 7,364 6,985 1,792 1,841
Mortgage interest expense 17,915 17,843 5,003 4,479
Management fees and
reimbursable expenses 8,690 3,987 3,269 2,173
Other operating expenses 10,115 10,384 1,780 5,537
--------- --------- --------- ---------
Total certain expenses 50,175 44,331 12,858 15,553
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 6,464 $ 14,245 $ 2,504 $ (1,393)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Forest Glen Apartments, Phase IV, consist of 8 units located in Daytona
Beach, Florida. All four phases of the Forest Glen Property are owned by a
trustee on behalf of four beneficiaries (including Florida Income
Appreciation Fund I, Ltd. and three other limited partnerships). Under a
land trust agreement, Florida Income Appreciation Fund I, Ltd. owns
beneficial interest in, and is obligated to pay operating expenses in
respect of, the residential units comprising Phase IV of the Forest Glen
Property.
The following percentage of units were occupied at the year ending dates:
December 31, 1997 100%
December 31, 1998 100%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase IV.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the Glen
Lake Arms Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Glen Lake Arms Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the Glen
Lake Arms Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Glen Lake Arms Apartments for the years ended December 31, 1997 and 1998
in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
GLEN LAKE ARMS APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 703,744 $ 745,649 $ 147,230 $ 175,936
Other income 26,875 22,536 79,526 6,719
---------- --------- --------- ---------
Total revenues 730,619 768,185 226,756 182,655
---------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 172,502 85,191 30,934 43,126
Real estate taxes and insurance 111,857 118,041 31,731 27,964
Mortgage interest expense 318,032 310,603 53,001 79,508
Management fees and
reimbursable expenses 17,849 42,276 12,154 4,462
Other operating expenses 403,731 223,580 73,123 110,193
---------- --------- --------- ---------
Total certain expenses 1,023,971 779,691 200,943 265,253
---------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (293,352) $ (11,506) $ 25,813 $ (82,598)
========== ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Glen Lakes Arms Apartments consist of 144 units located in St. Petersburg,
Florida. The property was acquired by purchase May 18, 1995 by Glen Lake
Investors, Ltd. in which Florida Capital Income Fund IV, Ltd. owns a 99%
limited partnership interest. At December 31, 1997 81% of the units were
occupied.
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Glen Lake Arms Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units were rented under lease agreements with terms of one year
or less. Starting in April 1998, as annual leases expired, the available
units were rented on a short term basis as extended stay motel suites.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the annual leases, a performance fee of $2.00 per residential
apartment unit for each month the property manager collected more than 96%
of gross potential rents and a monthly bookkeeping fee in the range of $275
to $325. Effective June 30, 1998, this property management agreement was
terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31, 1997 and
1998. This financial statement is the responsibility of the Company's
management. My responsibility is to express an opinion on this financial
statement based upon my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Grove Hamlet Apartments (Laurel Oaks) for the years ended December 31,
1997 and 1998 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
GROVE HAMLET APARTMENTS (LAUREL OAKS)
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 282,024 $ 221,070 $ 76,469 $ 70,506
Other income 10,963 7,510 2,030 2,741
---------- ---------- ---------- ----------
Total revenues 292,987 228,580 78,499 73,247
---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 40,337 31,912 8,299 10,084
Real estate taxes and insurance 31,851 35,289 11,175 7,963
Mortgage interest expense 117,215 125,177 24,455 29,304
Management fees and
reimbursable expense 24,245 14,028 6,647 6,061
Other operating expenses 50,876 27,602 16,941 15,175
---------- ---------- ---------- ----------
Total certain expenses 264,524 234,008 67,517 68,587
---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 28,463 $ (5,428) $ 10,982 $ 4,660
========== ========== ========== ==========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GROVE HAMLET APARTMENTS (LAUREL OAKS)
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Grove Hamlet Apartments consist of 57 units located in Deland, Florida. The
property was acquired by purchase December 29, 1993 by Central Florida
Income Appreciation Fund, Ltd. The following percentage of units were
occupied at the various period ending dates:
December 31, 1997 82%
December 31, 1998 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Grove Hamlet Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
GROVE HAMLET APARTMENTS (LAUREL OAKS)
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Stadium Club Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Stadium Club Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Stadium Club Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Stadium Club Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
STADIUM CLUB APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 397,831 $ 458,687 $ 104,712 $ 99,458
Other income 44,049 27,710 1,756 11,012
--------- --------- --------- ---------
Total revenues 441,880 486,397 106,468 110,470
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 77,976 72,107 12,896 19,494
Real estate taxes and insurance 31,459 36,528 5,367 7,865
Mortgage interest expense 141,388 146,120 33,913 35,347
Management fees and
reimbursable expenses 44,449 25,469 8,264 11,112
Other operating expenses 129,209 108,499 12,239 40,469
--------- --------- --------- ---------
Total certain expenses 424,481 388,723 72,679 114,287
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 17,399 $ 97,674 $ 33,789 $ (3,817)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Stadium Club Apartments consist of 229 units located in Statesboro,
Georgia. The property was acquired by purchase June 30, 1995 by GSU Stadium
Student Apartments, Ltd. The following percentage of units were occupied at
the various period ending dates:
December 31, 1997 86%
December 31, 1998 59%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Stadium Club Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units, which are student housing, are rented under lease
agreements that correspond to the school semesters.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Steeplechase Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form SB-2 of
Baron Capital Trust, a Delaware business trust) and excludes material expenses
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Steeplechase Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of the
Steeplechase Apartments for the years ended December 31, 1997 and 1998. This
financial statement is the responsibility of the Company's management. My
responsibility is to express an opinion on this financial statement based upon
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and certain expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenues and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
presentation of the statement of revenues and certain expenses. I believe that
my audit provides a reasonable basis for my opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the Registration Statement on Form S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) and excludes
material expenses described in Note 1 to the combined statement of revenues and
certain expenses, that would not be comparable to those resulting from the
proposed future operations of the property.
In my opinion, the statement of revenues and certain expenses presents fairly,
in all material respects, the revenues and certain expenses, as defined above,
of the Steeplechase Apartments for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
April 15, 1999
<PAGE>
STEEPLECHASE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31, December 31, March 31, March 31,
1998 1997 1999 1998
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 297,880 $ 234,305 $ 69,727 $ 74,470
Other income 23,059 10,733 19,056 5,765
--------- --------- --------- ---------
Total revenues 320,939 245,038 88,783 80,235
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 60,173 50,624 11,970 15,043
Real estate taxes and insurance 37,339 33,112 9,005 9,335
Mortgage interest expense 91,982 93,448 24,593 22,996
Management fees and
reimbursable expenses 23,119 15,227 6,164 5,780
Other operating expenses 104,662 99,927 9,815 32,161
--------- --------- --------- ---------
Total certain expenses 317,275 292,338 61,547 85,315
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 3,664 $ (47,300) $ 27,239 $ (5,080)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
STEEPLECHASE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
1. Descriptions and Summary of Significant Accounting Policies
Description
Steeplechase Apartments consist of 72 units located in Anderson, Indiana.
The property was acquired on October 1, 1996 by Income Partners III, Ltd.
in which Baron Strategic Investment Fund II, Ltd. owns a 99% limited
partnership interest. The following percentage of units were occupied at
the various period ending dates:
December 31, 1997 65%
December 31, 1998 74%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Steeplechase Apartments.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
Property Management
In exchange for services performed during 1997 and 1998, a property manager
was paid a property management fee equal to 5% of collected rental income
from the property, a performance fee of $2.00 per residential apartment
unit for each month the property manager collected more than 96% of gross
potential rents and a monthly bookkeeping fee in the range of $275 to $325.
Effective June 30, 1998, this property management agreement was terminated.
Other Matters
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. (the "Operating Partnership"), will offer to exchange Operating
Partnership Units to the limited partners of partnerships which directly or
indirectly own the equity interest in residential apartment properties,
including the subject property. These Units are exchangeable for an
equivalent number of Common Shares of beneficial interest in Baron Capital
Trust, a real estate investment trust for which Baron Capital Properties,
L.P. is the operating partnership. Subject to the completion of the
proposed Exchange Offering, the Trust and the Operating Partnership will
account for the acquisition of the limited partnership interests in the
offering on the purchase method and therefore record the assets acquired
and liabilities assumed at their fair value at the date of acquisition.
<PAGE>
STEEPLECHASE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Unaudited Financial Information
The accompanying financial information for the quarters ended March 31,
1998 and 1999 is unaudited. However, in the opinion of management, all
adjustments, consisting of normal recurring accruals and adjustments for a
fair presentation of revenues and certain expenses have been made. The
results of operations for the quarters is not necessarily indicative of
results to be expected for a full year.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment
Fund, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Cash $ 7,234 $ 7,653
Notes receivable from affiliates 787,148 787,148
Accrued interest receivable from affiliates 91,427 90,089
--------- ---------
$ 885,809 $ 884,890
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner 7,500 6,000
--------- ---------
Commitments and Other Matter - -
Partners' Capital:
General partner 90 90
Limited partners 878,219 878,800
--------- ---------
878,309 878,890
--------- ---------
$ 885,809 $ 884,890
========= =========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three
Months
Ended Year Ended
March 31, December
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliate $ 21,338 $ 105,368 $ 76,981
Other 15 365 1,906
-------- -------- --------
21,353 105,733 78,887
-------- -------- --------
Costs and Expenses:
General and administrative 434 23,981 10,745
Administrative fees to general partner 1,500 6,000 6,000
-------- -------- --------
1,934 29,981 16,745
-------- -------- --------
Net Income $ 19,419 $ 75,752 $ 62,142
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 90 $ 910,570 $ 910,660
Year Ended December 31, 1997:
Distributions - (112,664) (112,664)
Net income - 62,142 62,142
-------- --------- --------
Partners' Capital, December 31, 1997 90 860,048 860,138
Year Ended December 31, 1998:
Distributions - (57,000) (57,000)
Net income - 75,752 75,752
-------- --------- --------
Partners' Capital, December 31, 1998 90 878,800 878,890
Three Months Ended March 31, 1999 (Unaudited):
Distributions - (20,000) (20,000)
Net income - 19,419 19,419
-------- --------- --------
Partners' Capital, March 31, 1999 (Unaudited) $ 90 $ 878,219 $ 878,309
======== ========= ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December
March 31, ------------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 19,419 $ 75,752 $ 62,142
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (1,338) (68,630) (15,981)
Increase (decrease) in administrative fees payable
to general partner 1,500 (3,500) 6,000
-------- -------- --------
Net cash provided by operating activities 19,581 3,622 52,161
-------- -------- --------
Cash Flows from Investing Activities:
Investment in notes receivables from affiliates - (133,670) (339,000)
Advances to affiliates - - (7,239)
Collection of notes receivables from affiliates - 155,261 -
-------- -------- --------
Net cash provided by (used in) investing activities - 21,591 (346,239)
-------- -------- --------
Cash Flows from Financing Activities:
Distributions to limited partners (20,000) (57,000) (112,664)
Syndication costs - - (6,800)
-- -- -------
Net cash used in financing activities (20,000) (57,000) (119,464)
-------- -------- --------
Net Decrease in Cash (419) (31,787) (413,542)
Cash, Beginning 7,653 39,440 452,982
-------- -------- --------
Cash, Ending $ 7,234 $ 7,653 $ 39,440
======== ======== ========
Supplemental Disclosures:
Non-cash transactions:
Reclassification of advance to note receivable $ - $ 249,739 $ -
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Line of Interest Notes
Cash Credit Receivable Receivable
---- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Begining Balance, December 31, 1997 39,440 249,739 21,459 559,000
Ending Balance, December 31, 1998 7,653 - 90,089 787,148
------- -------- ------ -------
(31,787) (249,739) 68,630 228,148
Cash Flows from Operating Activities:
Net income 75,752
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest (68,630) (68,630)
Decrease in admin. fees payable to general partner (3,500)
Increase in loan payable due to affiliate -
Net cash provided by operating activities 3,622
Cash Flows from Investing Activities:
Purchase of investment in affiliates (133,670) (133,670)
Reclass of advance to note - 249,739 (249,739)
Line of credit to affiliate 155,261 155,261
--------
Net cash provided (required) by
investing activities 21,591
--------
Cash Flows from Financing Activities:
Distribution (57,000)
Limited partner contributions -
Limited partner distributions -
--------
Net cash used in financing activities (57,000)
Net Increase (Decrease) in Cash (31,787)
Cash, Beginning 39,440
Cash, Ending 7,653
========
</TABLE>
<TABLE>
<CAPTION>
Partners'
Due to G/P Capital
---------- -------
<S> <C> <C>
Begining Balance, December 31, 1997 (9,500) (860,138)
Ending Balance, December 31, 1998 (6,000) (878,890)
------ --------
3,500 (18,752)
Cash Flows from Operating Activities:
Net income 75,752
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest
Decrease in admin. fees payable to general partner (3,500)
Increase in loan payable due to affiliate
Net cash provided by operating activities
Cash Flows from Investing Activities:
Purchase of investment in affiliates
Reclass of advance to note
Line of credit to affiliate
Net cash provided (required) by
investing activities
Cash Flows from Financing Activities:
Distribution (57,000)
Limited partner contributions
Limited partner distributions
Net cash used in financing activities
Net Increase (Decrease) in Cash
Cash, Beginning
Cash, Ending
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund, Ltd. ("the Partnership") was
initially organized on April 24, 1996 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital
contributions of partners to be comprised of (a) the general partner
capital contribution of $90 in cash; and (b) the maximum capital
contributions of the limited partners of $1,200,000, to be divided
into 2,400 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three
months ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable,
is recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits.
The Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the
related allowance for impairment, if any, of such notes receivable.
The Partnership accounts for such notes under the provisions of
Statement of Financial Accounting Standard No. 114, Accounting by
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates (Continued)
Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting Standard No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to
be impaired when it is probable that the Partnership will be unable
to collect all amounts due according to the contractual terms of the
note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate;
and (b) the liquidation value of the note's collateral reduced by
expected selling costs and other notes secured by the same
collateral. Cash receipts on impaired notes receivable are applied
to reduce the principal amount of such receivables until the
principal has been recovered, and are recognized as interest income
thereafter.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheet and operations
for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the
near term relates to the collectibility of the notes receivable due
from affiliates. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal
income tax purposes and as such does not incur income taxes.
Instead, its earnings and losses are included in the personal
returns of the partners and taxed depending on their personal tax
situations. The financial statements do not reflect a provision for
income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of May
20, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2026, unless
sooner terminated by law or under certain provisions of the
Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal
year will not be reinvested but will be distributed in order
of priority to the Partners, if available, quarterly, to (a)
the limited partners who will receive 100% of the
distributable cash until they have received a 12.5%
non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each
limited partner's admission date; and (b) the excess, if any,
will be allocated 50% to the limited partners and 50% to the
general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all
indebtedness secured by the assets to (a) the limited partners
who will receive 100% of the distributions until the total
amount distributed to them when added to all prior
distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus
an annual 12.5% cash-on-cash return; and (b) next to the
general partner, until the total amount so distributed to it
when added to all prior distributions of distributable cash
and net proceeds made to it, is equal to the sum of its
capital contribution plus an annual 12.5% cash-on-cash return
and; (c) the balance, if any is distributed 50% to the limited
partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction
and credit recognized by the Partnership for federal income tax
purposes will be made as follows:
Income
The first 100% of income is allocated to the general partner
until the profits allocated plus the cumulative profits
allocated to the general partner for prior fiscal periods
during which a profit was earned by the Partnership equal the
cumulative amounts distributable to the general partner under
the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses
are allocated 99% to the limited partners and 1% to the
general partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it,
unless the holders of a majority of the units then outstanding vote
to continue the Partnership and elect one or more successor general
partners willing to serve in such capacity to continue the business
of the Partnership; (d) the sale of all or substantially all of the
Partnership's property; (e) the repayment in full of all loans made
by the Partnership, unless the Partnership thereafter continues to
own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will
take full account of the Partnership's assets and liabilities, and
the assets will be liquidated as promptly as is consistent with
obtaining fair value of the assets, and the proceeds will be applied
and distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the
partners shall be paid in proportion thereto; and (c) finally, to
the limited partners and the general partner in proportion to their
respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $500 per month through December 1, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and accrued
interest from affiliates at March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Blossom Corners Apartments II, Ltd.
("Blossom II") $557,148 $43,113 $557,148 $48,581 (a)
Sycamore Real Estate Development, LP
("Sycamore") 230,000 20,415 230,000 13,609 (b)
Falls Properties III, Ltd. ("Falls III") - 27,899 - 27,899 (c)
-------- ------- -------- -------
$787,148 $91,427 $787,148 $90,089
======== ======= ======== =======
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In November 1996, the Partnership acquired certain receivables from
an unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Blossom II, were converted into promissory notes as more
fully described in the table below:
Blossom II Second Mortgage Note; matures on
April 1, 2002; accrues interest at an minimum
annual rate of 6% and provides for
participation interest at the rate of 3% per
annum based upon the amount of the unpaid
principal, which shall be due and payable to
the extent that it does not exceed the
available cash flow, as defined in the note;
secured by a lien upon certain real and
personal property of Blossom II; provides for
additional participation interest in an amount
equal to 30% of remaining available cash flow,
as defined, which will continue to be made
until such time as the collateral has been
sold, and which obligation will continue
notwithstanding total repayment of the
principal amount of the note; subordinated to
the first mortgage which had a balance of
approximately $1,100,000 and $1,104,000 as of
March 31, 1999 and December 31, 1998,
respectively. $622,103
Secured promissory note representing advances
made by the former general partner to Blossom
II. The note matures on April 1, 2002; accrues
interest, which is payable quarterly, at 1%
over prime (8.75% as of March 31, 1999 and
December 31, 1998). 68,861
Secured promissory note representing other
receivables related to advances made by the
former general partner to Blossom II for
refinancing fees and professional services. The
note matures on April 1, 2002; accrues
interest, which is payable quarterly, at 12%. 29,732
--------
720,696
Less discount 263,696
--------
Subtotal of notes receivable, net of discount 457,000
Secured promissory note representing other
advances made to Blossom II. The note matures
on April 1, 2002; accrues interest, which is
payable quarterly, at 12%. 100,148
--------
Total $557,148
========
On December 15, 1998, Blossom II amended and restated all the above
notes and mortgages and entered into a Second Amendment to Open-End
Second Mortgage and Security Agreement by which all of the above
notes will be secured by the Second Mortgage. The amendment also
provides for additional advances not to exceed a $1,250,000 maximum
to be evidenced by an Additional Advance Agreement or note.
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(b) Secured promissory note representing advances made to Sycamore Real
Estate Development, L.P. The note matures on December 14, 2003;
accrues interest at an annual rate of 12%; is secured by a lien upon
certain real and personal property of Villas at Lake Sycamore; and
is subordinated to the first mortgage which had a balance of
approximately $866,000 as of March 31, 1999 and December 31, 1998.
Two other affiliated partnerships also hold second mortgage notes in
the aggregate principal amount of $320,000 secured by the property.
The lending parties have agreed to share the benefits of the second
mortgage on a pari-passu basis.
Note receivable $230,000
--------
(c) In April 1997, the Partnership acquired, at a discount, from an
unrelated party certain receivables owned by Falls III. In December,
1998 the Partnership endorsed to Sycamore the note from Falls III in
exchange for Sycamore exchange for a promissory note from Sycamore
[see (b) above]. The accrued interest receivable represents interest
on the notes through December, 1998.
NOTE 4. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated May 20, 1996, the Partnership issued the 2,400 units of limited
partner interest being offered at $500 per unit for total gross proceeds
of $1,200,000. Costs of $284,000 incurred in connection with syndicating
the limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $284,000 in syndication costs, the
Partnership paid $164,000 to its general partner for administrative, legal
and investment fees.
NOTE 5. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND IV, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund IV, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund IV, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
IV, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3, 4 and 5, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Cash $ 794 $ 853
Notes receivable from affiliate 976,439 976,439
Advances receivable from affiliates 19,500 19,500
Accrued interest receivable from affiliates 168,683 142,576
----------- -----------
$ 1,165,416 $ 1,139,368
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Note payable to affiliate $ 259,639 $ 259,639
Accrued syndication costs 400 400
Administrative fees payable to general partner 29,000 26,000
Accrued interest payable to affiliate 46,934 37,198
----------- -----------
335,973 323,237
----------- -----------
Commitments and Other Matter -- --
Partners' Capital:
General partner 1,824 1,541
Limited partners 827,619 814,590
----------- -----------
829,443 816,131
----------- -----------
$ 1,165,416 $ 1,139,368
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliate $ 41,106 $ 166,018 $ 128,047
Other 3 342 1,573
-------- --------- --------
41,109 166,360 129,620
-------- --------- --------
Costs and Expenses:
Interest expense to affiliate 9,736 40,388 67,699
Administrative fees to general partner 3,000 12,000 12,000
General and administrative 61 10,925 5,181
-------- --------- --------
12,797 63,313 84,880
-------- --------- --------
Net Income $ 28,312 $ 103,047 $ 44,740
======== ========= ========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 64 $ 70,023 $ 70,087
Year Ended December 31, 1997:
Capital contributions, net of syndication costs - 604,810 604,810
Distributions - (27,130) (27,130)
Net income 447 44,293 44,740
------- --------- ---------
Partners' Capital, December 31, 1997 511 691,996 692,507
Year Ended December 31, 1998:
Capital Contributions, Net of Syndication Costs - 112,590 112,590
Distributions - (92,013) (92,013)
Net Income 1,030 102,017 103,047
------- --------- ---------
Partners' Capital, December 31, 1998 $ 1,541 $ 814,590 $ 816,131
Three Months Ended March 31, 1999 (Unaudited):
Distributions - (15,000) (15,000)
Net Income 283 28,029 28,312
------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 1,824 $ 827,619 $ 829,443
======= ========= =========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 1999 AND YEARS ENDED DECEMBER 31, 1998 AND 1997
(SEE ACCOUNTANTS' REPORT)
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 28,312 $ 103,047 $ 44,740
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities:
Increase in interest receivable from affiliates (26,107) (121,718) (20,858)
Increase in administrative fees payable to general partner 3,000 12,000 12,000
Increase in interest due to affiliate 9,736 35,016 2,182
------- -------- --------
Net cash provided by operating activities 14,941 28,345 38,064
------- -------- --------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliate - (7,688) (981,237)
Payment received on loan to affiliate - - 12,486
Advances to affiliates - - (19,500)
------- -------- --------
Net cash used in investing activities - (7,688) (988,251)
------- -------- --------
Cash Flows from Financing Activities:
Proceeds from notes payable to affiliate - - 690,000
Payments on note payable to affiliate - (119,628) (310,733)
Increase (decrease) in accrued syndication costs payable - (19,700) 20,100
Partners' capital contributions - 140,737 769,263
Syndication costs (28,147) (164,453)
Distributions to limited partners (15,000) (92,013) (27,130)
------- -------- --------
Net cash provided by (used in) financing activities (15,000) (118,751) 977,047
------- -------- --------
Net Increase (Decrease) in Cash (59) (98,094) 26,860
Cash, Beginning 853 98,947 72,087
------- -------- --------
Cash, Ending $ 794 $ 853 $ 98,947
======= ======== ========
Supplemental Disclosures:
Cash paid during the period for interest $ - $ 5,372 $ 65,517
======= ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Notes Affiliate
Cash Receivable Interest
---- ---------- --------
<S> <C> <C> <C> <C>
Begining Balance, December 31, 1997 98,947 968,751 20,858
Ending Balance, December 31, 1998 853 976,439 142,576
------- ------- -------
(98,094) 7,688 121,718
Cash Flows from Operating Activities:
Net Income 103,047
Adjustments to reconcile net loss to net cash
provided by operating activities
Changes in operating assets and liabilities:
Increase in note receivable from affiliate -
Increase in accrued interest from affiliate (121,718) (121,718)
Decrease in administrative fees payable to general partner 12,000
Increase in interest due to affiliate 35,016
--------
Net cash used in /provided by operating activities 28,345
--------
Cash Flows from Investing Activities:
Advance to affiliates -
Payment received on loan to affiliate -
Purchase of notes receivable (7,688) (7,688)
--------
Net cash used in investing activities (7,688)
--------
Cash Flows from Financing Activities:
Loan from affiliate -
Payment made on loan from affiliate (119,628)
Decrease in accrued syndication costs (19,700)
Contributions 140,737
Limited partner distributions (92,013)
Syndication costs (28,147)
--------
Net cash provided by financing activities (118,751)
--------
Net increase (decrease) in cash (98,094)
Cash, Beginning 98,947
Cash, Ending 853
-------- ------- ------- -------
- -
Supplemental Disclosures of Cash Flow Information
- - -
-------- ------- ------- -------
- - -
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Affiliate Affiliate Amounts Accrued
Advances Note Pay Due GP Expenses
-------- -------- ------ --------
<S> <C> <C> <C> <C>
Begining Balance, December 31, 1997 19,500 (379,267) (14,000) (20,100)
Ending Balance, December 31, 1998 19,500 (259,639) (26,000) (400)
------ -------- ------- -------
- 119,628 (12,000) 19,700
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net loss to net cash
provided by operating activities
Changes in operating assets and liabilities:
Increase in note receivable from affiliate
Increase in accrued interest from affiliate
Decrease in administrative fees payable to general partner 12,000
Increase in interest due to affiliate
Net cash used in /provided by operating activities
Cash Flows from Investing Activities:
Advance to affiliates
Payment received on loan to affiliate
Purchase of notes receivable -
Net cash used in investing activities
Cash Flows from Financing Activities:
Loan from affiliate
Payment made on loan from affiliate (119,628)
Decrease in accrued syndication costs (19,700)
Contributions
Limited partner distributions
Syndication costs
Net cash provided by financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------ -------- ------- -------
- - - -
Supplemental Disclosures of Cash Flow Information
- - - -
------ -------- ------- -------
- - - -
====== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Other Partners'
Debt Capital
------- ---------
<S> <C> <C> <C>
Begining Balance, December 31, 1997 (2,182) (692,507) -
Ending Balance, December 31, 1998 (37,198) (816,131) $ -
------- -------- --------
(35,016) (123,624) -
Cash Flows from Operating Activities:
Net Income 103,047
Adjustments to reconcile net loss to net cash
provided by operating activities
Changes in operating assets and liabilities:
Increase in note receivable from affiliate
Increase in accrued interest from affiliate
Decrease in administrative fees payable to general partner
Increase in interest due to affiliate 35,016
Net cash used in /provided by operating activities
Cash Flows from Investing Activities:
Advance to affiliates
Payment received on loan to affiliate
Purchase of notes receivable
Net cash used in investing activities
Cash Flows from Financing Activities:
Loan from affiliate
Payment made on loan from affiliate
Decrease in accrued syndication costs
Contributions 140,737
Limited partner distributions (92,013)
Syndication costs (28,147)
Net cash provided by financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------- -------- --------
- -
Supplemental Disclosures of Cash Flow Information
- - -
------- -------- --------
- - -
======= ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IV, Ltd. ("the Partnership") was
initially organized on October 1, 1996 under the laws of the State
of Florida.
The Agreement of Limited Partnership provides for capital
contributions of partners to be comprised of (a) the general partner
capital contribution of $90 in cash; and (b) the maximum capital
contributions of the limited partners of $1,000,000, to be divided
into 2,000 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt financing to existing affiliated
limited partnerships owning residential apartment communities
located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three
months ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable,
is recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits.
The Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the
related allowance for impairment, if any, of such notes receivable.
The Partnership accounts for such notes under the provisions of
Statement of Financial Accounting Standard No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting Standard No. 118,
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure. Management, considering current
information and events regarding the borrowers' ability to repay
their obligations, considers a note to be impaired when it is
probable that the Partnership will be unable to collect all amounts
due according to the contractual terms of the note. When a loan is
considered to be impaired, the amount of impairment is measured
based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheet and operations
for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the
near term relates to the collectibility of the notes receivable due
from affiliates. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal
income tax purposes and as such does not incur income taxes.
Instead, its earnings and losses are included in the personal
returns of the partners and taxed depending on their personal tax
situations. The financial statements do not reflect a provision for
income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
October 22, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,000,000, to be divided into 2,000 units of limited partnership
units. A capital account is maintained for each partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2026, unless
sooner terminated by law or under certain provisions of the
Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal
year will not be reinvested but will be distributed in order
of priority to the Partners, if available, quarterly, to (a)
the limited partners who will receive 100% of the
distributable cash until they have received a 12%
non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each
limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all
indebtedness secured by the assets to (a) the limited partners
who will receive 100% of the distributions until the total
amount distributed to them, when added to all prior
distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus
an annual 18% cash-on-cash return; and (b) the balance, if
any, is distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction
and credit recognized by the Partnership for federal income tax
purposes will be made as follows:
Income
The first 100% of income is allocated to the general partner
until the profits allocated plus the cumulative profits
allocated to the general partner for prior fiscal periods
during which a profit was earned by the Partnership equal the
cumulative amounts distributable to the general partner under
the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses
are allocated 99% to the limited partners and 1% to the
general partner.
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining general partner then in office
and the refusal of any successor general partner to replace it,
unless the holders of a majority of the units then outstanding vote
to continue the Partnership and elect one or more successor general
partners willing to serve in such capacity to continue the business
of the Partnership; (d) the sale of all or substantially all of the
Partnership's property; (e) the repayment in full of all loans made
by the Partnership, unless the Partnership thereafter continues to
own non-loan assets; and (f) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will
take full account of the Partnership's assets and liabilities, and
the assets will be liquidated as promptly as is consistent with
obtaining fair value of the assets, and the proceeds will be applied
and distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the
partners shall be paid in proportion thereto; and (c) finally, to
the limited partners and the general partner in proportion to their
respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31,
2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The following are the balances of the notes receivable from affiliate and
a portion of the balance of accrued interest receivable from affiliates as
of March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Country Square Apartments, Ltd.
("Country Square") $797,189 $127,110 $797,189 $102,780 (a)
Country Square 179,250 39,030 179,250 37,756 (b)
-------- -------- -------- --------
$976,439 $166,140 $976,439 $140,536
======== ======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
(a) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Country Square, were converted into promissory notes as
more fully described in the table below:
Country Square Second Mortgage Note; matures on
April 30, 2008; accrues interest at an minimum
annual rate of 12%; secured by a lien upon
certain real and personal property of Country
Square; subordinated to the first mortgage
which had a balance of approximately $1,586,000
and $1,590,000 as of March 31, 1999 and
December 31, 1998, respectively. $1,192,987
Less discount 395,798
----------
Note receivable, net of discount $ 797,189
==========
(b) In July 1997, the Partnership made a loan to Country Square of
$171,562 pursuant to the terms of a promissory note. During 1998,
the loan was amended and restated at $179,250. The note matures on
April 30, 2008 and accrues interest, which is payable quarterly, at
12% per annum.
On December 15, 1998, Country Square amended and restated the above note
and mortgage and whereby the note and mortgage are secured by a
Consolidated Replacement Second Mortgage Deed executed on February 26,
1998.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
The following comprise the advances and accrued interest receivable from
affiliates as of March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
Accrued Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Baron Strategic Vulture Fund I, Ltd. $17,000 $2,543 $17,000 $2,040 (a)
Country Square 2,500 - 2,500 - (b)
------- ------ ------- ------
$19,500 $2,543 $19,500 $2,040
======= ====== ======= ======
</TABLE>
(a) During 1997, the Partnership made advances aggregating $17,000 to
Baron Strategic Vulture Fund I, Ltd., an affiliate. These advances
are due on demand and bear interest at 12% commencing in 1998.
(b) During 1997, the Partnership made advances aggregating $2,500 to
Country Square Apartments, Ltd. ("Country Square"), an affiliate.
These advances are due on demand.
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTE PAYABLE TO AFFILIATE
In March 1997, the Partnership borrowed funds from Baron Strategic
Investment Fund VI, Ltd. ("Fund VI") pursuant to the terms of a promissory
note. The outstanding principal balance of $259,639 is due at maturity in
September 2002 with interest payable monthly at 15% per annum. As
collateral for the note payable, the Partnership has granted Fund VI a
security interest in the second mortgage notes and mortgages (see Note 3).
The note had an unpaid principal balance of $259,639 as of March 31, 1999
and December 31, 1998. Interest expense to the affiliate amounted to
$9,736 for the three months ended March 31, 1999 and $40,388 and $67,699
for 1998 and 1997, respectively. Accrued interest of $46,934 and $37,198
remained unpaid as of March 31, 1999 and December 31, 1998, respectively.
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated October 22, 1996, the Partnership issued 180 units of limited
partnership interest of the 2,000 units being offered at $500 per unit for
total gross proceeds of $90,000. Costs of $17,400 incurred in connection
with syndicating the partnership units were recorded as a reduction of
limited partners' capital contributions. Of the syndication costs, $14,000
was paid to the General Partner for administrative, legal and investment
fees.
During 1997, the Partnership issued 1,538.5 units of limited partnership
interest at $500 per unit for total gross proceeds of $769,263. This
issuance increased the total units sold to 1,718.5 units of the 2,000
units being offered. Costs of $164,453 incurred in connection with
syndicating these partnership units have been recorded as a reduction of
limited partners' capital contributions. Of the syndication costs, $80,570
was incurred with regard to the General Partner for administrative, legal
and investment fees.
During 1998, the Partnership issued the remaining 281.5 units at $500 per
unit for a total of $140,737. Costs of $28,147 incurred in connection with
syndicating these partnership units were recorded as a reduction of
limited partner's capital contributions in 1998. Of the syndication costs,
$25,430 was paid to the General Partner for administrative, legal and
investment fees. Syndication costs of $400 were unpaid and accrued as of
March 31, 1999 and December 31, 1998.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND V, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund V, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund V, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
V, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the stockholder and president of the Partnership's general
partner. As discussed in Notes 3 and 4, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Cash $ 1,017 $ 52
Notes receivable from affiliates 743,100 743,100
Advances receivable from affiliates 80,939 80,939
Accrued interest receivable from affiliates 46,930 52,802
--------- ---------
$ 871,986 $ 876,893
--------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 10,000 $ 7,000
--------- ---------
Commitments and Other Matter - -
Partners' Capital
General partners 69 69
Limited partners 861,917 869,824
--------- ---------
861,986 869,893
--------- ---------
$ 871,986 $ 876,893
========= =========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliates $ 25,128 $ 93,797 $ 55,694
Other 6 493 3,423
-------- -------- --------
25,134 94,290 59,117
-------- -------- --------
Cost and Expenses:
Administrative fees to general partner 3,000 12,000 12,000
General and administrative 41 7,512 5,117
-------- -------- --------
3,041 19,512 17,117
-------- -------- --------
Net Income $ 22,093 $ 74,778 $ 42,000
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 69 $ 85,614 $ 85,683
Year Ended December 31, 1997
Capital contributions, net of syndication costs - 850,300 850,300
Distributions - (62,868) (62,868)
Net Income - 42,000 42,000
--------- --------- ---------
Partners' Capital, December 31, 1998 69 915,046 915,115
Year Ended December 31, 1998:
Distributions - (120,000) (120,000)
Net Income - 74,778 74,778
--------- --------- ---------
Partners' Capital, December 31, 1998 69 869,824 869,893
Three Months Ended March 31, 1999 (Unaudited):
Distributions - (30,000) (30,000)
Net income - 22,093 22,093
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 69 $ 861,917 $ 861,986
========= ========= =========
</TABLE>
See notes to financial statements
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 22,093 $ 74,778 $ 42,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Changes in operating assets and liabilities:
Increase (decrease) in accrued interest receivable from affiliates 5,872 2,892 (55,694)
Increase (decrease) in administrative fees payable to general partner 3,000 (7,000) 12,000
-------- -------- --------
Net cash provided by (used in) operating activities 30,965 70,670 (1,694)
-------- -------- --------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliates - (29,500) (706,100)
Investment in advance receivable from affiliates - (77,339) (54,800)
Collection of advance receivable from affiliates - 43,700 -
-------- -------- --------
Net cash used in investing activities - (63,139) (760,900)
-------- -------- --------
Cash Flows from Financing Activities:
Partners' capital contributions - - 1,090,000
Syndication costs paid - - (239,700)
Distributions to limited partners (30,000) (120,000) (62,868)
-------- -------- --------
Net cash provided by (used in) financing activities (30,000) (120,000) 787,432
-------- -------- --------
Net Increase (Decrease) in Cash 965 (112,469) 24,838
Cash, Beginning 52 112,521 87,683
-------- -------- --------
Cash, Ending $ 1,017 $ 52 $112,521
-------- -------- --------
Supplemental Information:
Non-cash transactions:
Reclassification of advances receivable to notes
receivable from affiliates $ - $ 7,500 $ -
======== ======== ========
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
Cash Flow Worksheet
MARCH 31, 1999
<TABLE>
<CAPTION>
Affiliate Accrued
Cash Notes Interest
---- ----- --------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1998 52 743,100 52,802
Ending Balance, March 31, 1999 1,017 743,100 46,930
--------- --------- --------
965 - (5,872)
Cash Flows from Operating Activities:
Net Income 22,093
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Administrative fees 3,000
Interest received net 5,872 5,872
---------
Net cash provided (used in) by operating activities 30,965
---------
Cash Flows from Investing Activities:
Investment in advance receivable from affiliates -
Investment in notes receivable from affiliates -
Reclass of advance to loan -
Collection of advance receivable from affiliates -
Purchase of affiliate second mortgage and receivables net -
---------
Net cash provided by (used in) investing activities
---------
Cash Flows from Financing Activities:
Limited partner contributions
Limited partner distributions (30,000)
Syndication costs -
---------
Net cash provided by (used in) financing activities (30,000)
---------
Net increase (decrease) in cash 965
Cash, Beginning 52
---------
Cash, Ending 1,017
---------
------------------------------------------
- - -
</TABLE>
<TABLE>
<CAPTION>
Affiliate Amounts Partners'
Advances Due GP Capital
-------- ------ -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1998 80,939 (7,000) (869,893) -
Ending Balance, March 31, 1999 80,939 (10,000) (861,986) -
-------- -------- --------- ---------
- (3,000) 7,907 -
Cash Flows from Operating Activities:
Net Income 22,093
Adjustments to reconcile net loss to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Administrative fees 3,000
Interest received net
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in advance receivable from affiliates
Investment in notes receivable from affiliates
Reclass of advance to loan
Collection of advance receivable from affiliates
Purchase of affiliate second mortgage and receivables net
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Limited partner contributions
Limited partner distributions (30,000)
Syndication costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
---------------------------------------------
- - -
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund V, Ltd. ("the Partnership") was
initially organized on October 1, 1996 under the laws of the State
of Florida.
The Agreement of Limited Partnership provides for capital
contributions of partners to be comprised of (a) the general partner
capital contribution of $90 in cash; and (b) the maximum capital
contributions of the limited partners of $1,200,000, to be divided
into 2,400 equal units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three
months ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable,
is recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits.
The Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the
related allowance for impairment, if any, of such notes receivable.
The Partnership accounts for such notes under the provisions of
Statement of Financial Accounting Standard No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by Statement of
Financial Accounting
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates (Continued)
Standard No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure. Management, considering current
information and events regarding the borrowers' ability to repay
their obligations, considers a note to be impaired when it is
probable that the Partnership will be unable to collect all amounts
due according to the contractual terms of the note. When a loan is
considered to be impaired, the amount of impairment is measured
based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amount of assets
and liabilities as of the date of the balance sheet and operations
for the year then ended. Material estimates as to which it is
reasonably possible that a change in the estimate could occur in the
near term relates to the allowance for impairment and the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current
events and actions it may undertake in the future, they may
ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal
income tax purposes and as such does not incur income taxes.
Instead, its earnings and losses are included in the personal
returns of the partners and taxed depending on their personal tax
situations. The financial statements do not reflect a provision for
income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
October 23, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless
sooner terminated by law or under certain provisions of the
Agreement.
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal
year will not be reinvested but will be distributed in order
of priority to the Partners, if available, quarterly, to (a)
the limited partners who will receive 100% of the
distributable cash until they have received a 15%
non-cumulative annual cash-on-cash return on the aggregate
amount of their capital contribution as calculated from each
limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all
indebtedness secured by the assets to (a) the limited partners
who will receive 100% of the distributions until the total
amount distributed to them, when added to all prior
distributions of distributable cash and net proceeds made to
them, is equal to the sum of their capital contributions plus
an annual 15% cash-on-cash return; and (b) the balance, if
any, is distributed 50% to the limited partners and 50% to the
general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction
and credit recognized by the Partnership for federal income tax
purposes will be made as follows:
Income
The first 100% of income is allocated to the general partner
until the profits allocated plus the cumulative profits
allocated to the general partner for prior fiscal periods
during which a profit was earned by the Partnership equal the
cumulative amounts distributable to the general partner under
the terms of the distributions of cash and net proceeds. The
balance, if any, is allocated to the limited partners.
Losses
After giving effect to certain tax provisions, taxable losses
are allocated 99% to the limited partners and 1% to the
general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution (Continued)
general partner then in office and the refusal of any successor
general partner to replace it, unless the holders of a majority of
the units then outstanding vote to continue the Partnership and
elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the
sale of all or substantially all of the Partnership's property; (e)
the repayment in full of all loans made by the Partnership, unless
the Partnership thereafter continues to own non-loan assets; and (f)
the occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will
take full account of the Partnership's assets and liabilities, and
the assets will be liquidated as promptly as is consistent with
obtaining fair value of the assets, and the proceeds will be applied
and distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the
partners shall be paid in proportion thereto; and (c) finally, to
the limited partners and the general partner in proportion to their
respective positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31,
2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and a portion of
the accrued interest due from affiliates as of March 31, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sunrise Apartments, Ltd.("Sunrise") $504,000 $15,893 $504,000 $24,588 (a)
Curiosity Creek Apartments, Ltd.
("Curiosity Creek") 218,100 19,722 218,100 18,425 (b)
Baron Strategic Investment Fund III,
Ltd. ("Candlewood II") 21,000 2,472 21,000 1,850 (c)
-------- ------- -------- -------
$743,100 $38,087 $743,100 $44,863
======== ======= ======== =======
</TABLE>
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In June 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Sunrise, were converted into promissory notes as more fully
described in the table below.
Sunrise Second Mortgage Note; matures on
October 1, 2007; accrues interest at an minimum
annual rate of 6% and provides for
participation interest at the rate of 3% per
annum based upon the amount of the unpaid
principal, which shall be due and payable to
the extent that it does not exceed the
available cash flow, as defined in the note;
provides for additional participation interest
in an amount equal to 20% of remaining
available cash flow, as defined, which will
continue to be made until such time as the
collateral has been sold, and which obligation
will continue notwithstanding total repayment
of the principal amount of the note; secured by
a lien upon certain real and personal property
of Sunrise; subordinated to the first mortgage
which had a balance of approximately $1,026,000
and $1,027,000 as of March 31, 1999 and
December 31, 1998, respectively. $ 335,000
Secured promissory note, representing advances
made by the former general partner to Sunrise.
The note matures on October 1, 2007; accrues
interest, which is payable quarterly, at 4% per
annum. 621,515
Secured promissory note, representing advances
made by the former general partner to Sunrise.
The note matures on October 1, 2007; accrues
interest, which is payable quarterly, at 1%
over prime (8.75% as of March 31, 1999 and
December 31, 1998). 1,467
Other receivables, related to advances for
refinancing fees and professional services; due
on demand; bears interest at 12% effective
December 15, 1998. 48,468
-----------
1,006,450
Less discount 518,450
-----------
Subtotal of notes receivable, net of discount 488,000
Secured promissory note representing other
advances made to Sunrise. The note matures on
October 1, 2007; accrues interest, which is
payable quarterly, at 12% per annum. 16,000
-----------
Total $ 504,000
===========
On December 15, 1998, Sunrise amended and restated all the above
notes and mortgages and entered into a Second Amendment to Open-End
Second Mortgage and Security Agreement by which all of the above
notes [except for the $49,468 receivables] will be secured by the
Second Mortgage. The amendment also provides for additional advances
not to exceed a $2,000,000 maximum to be evidenced by an Additional
Advance Agreement or note.
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(b) In March 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Curiosity Creek, were converted into promissory notes as
more fully described in the table below.
Curiosity Creek Second Mortgage Note; matures on
April 1, 2007; accrues interest at an minimum annual
rate of 6% and participation interest at the rate of
3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the
extent that it does not exceed the available cash
flow, as defined in the note; provides for additional
participation interest in an amount equal to 30% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain
real and personal property of Curiosity Creek;
subordinated to the first mortgage which had a
balance of approximately $1,290,000 and $1,293,000 as
of March 31, 1999 and December 31, 1998,
respectively. $ 807,560
Unsecured promissory note, representing advances made
by the former general partner to Curiosity Creek. The
note is payable upon demand and bears an annual
interest at the rate of 12.5%, payable monthly. 416,000
Unsecured promissory note, representing advances made
by the former general partner to Curiosity Creek. The
note is payable on demand and bears interest at 1%
over prime (8.75% as of March 31, 1999 and December
31, 1998). 414,380
Other receivables, related to advances for refinancing
fees and professional fees 29,732
----------
1,667,672
Percentage purchased 26.27%
----------
438,097
Less discount 219,997
----------
Notes receivable, net of discount $ 218,100
==========
(c) In April, 1998 Candlewood made a promissory note in favor of the
Partnership in the original principal amount of $21,000 to cover
certain advances made to Candlewood. The note matures on March 1,
2003, and accrues interest, which is payable quarterly, at an annual
rate of 12%. The note is subordinated to the first mortgage which
had a balance of approximately $595,000 as of March 31, 1999 and
December 31, 1998 and is secured by an Open-End Second Mortgage and
Security Agreement on the Candlewood II apartment property. Two
other loans by affiliated partnerships in the aggregate principal
amount of $143,500 are also secured by separate second mortgages on
the property. Each of the lending parties has agreed to share the
benefits of the second mortgages on a pari-passu basis.
Notes receivable $ 21,000
==========
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
In 1998, the Partnership provided funding to affiliates by means of
advances in an arrangement equivalent to an open ended line of credit. The
advances are due on demand and provide for interest at 12% per annum. The
balances as of March 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Advance Accrued Advance Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Curiosity Creek $36,439 $3,115 $36,439 $3,528
Baron Strategic Vulture Fund I, Ltd. 44,500 5,728 44,500 4,411
------- ------ ------- ------
Total $80,939 $8,843 $80,939 $7,939
======= ====== ======= ======
</TABLE>
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated October 23, 1996, the Partnership issued 220 units of limited
partnership interest units at $500 per unit for gross proceeds of
$110,000. Costs of $22,300 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $22,300 in syndication costs
incurred in 1996, the Partnership paid $17,500 to its general partner for
administrative, legal and investment fees.
During 1997, the Partnership issued the remaining 2,180 units of the
limited partner interest units at $500 per unit for gross proceeds of
$1,090,000. Costs of $239,700 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $239,700 in syndication costs
incurred in 1997, the Partnership paid $124,500 to its general partner for
administrative, legal and investment fees.
NOTE 6. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VI, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund VI, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund VI, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
VI, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 393 $ 334
Investment in affiliate 323,709 325,409
Notes receivable from affiliates 327,639 327,639
Notes receivable from non-affiliate 160,000 160,000
Advance receivable from affiliates 135 135
Accrued interest receivable from affiliates 54,861 43,112
Accrued interest receivable from non-affiliate 5,607 4,382
-------- --------
$872,344 $861,011
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advance payable to affiliates $ 48,756 $ 48,756
Administrative fees payable to general partner 28,000 25,000
-------- --------
76,756 73,756
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 81 81
Limited partners 795,507 787,174
-------- --------
795,588 787,255
-------- --------
$872,344 $861,011
======== ========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliate $ 7,100 $ 4,590 $ --
Interest income from affiliates 12,973 50,684 67,699
Other 2 644 4,638
------- ------- -------
20,075 55,918 72,337
------- ------- -------
Costs and Expenses:
Equity in net loss of affiliate -- -- 26,181
Administrative fees to general partner 3,000 12,000 12,000
General and administrative 39 5,023 5,974
------- ------- -------
3,039 17,023 44,155
------- ------- -------
Net Income $17,036 $38,895 $28,182
======= ======= =======
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 81 $ 449,650 $ 449,731
Year Ended December 31, 1997:
Capital contributions, net of syndication costs -- 475,450 475,450
Distributions -- (85,003) (85,003)
Net income -- 28,182 28,182
--------- --------- ---------
Partners' Capital, December 31, 1997 81 868,279 868,360
Year Ended December 31, 1998:
Distributions -- (120,000) (120,000)
Net income -- 38,895 38,895
--------- --------- ---------
Partners' Capital, December 31, 1998 81 787,174 787,255
Nine Months Ended March 31, 1999 (Unaudited):
Distributions -- (8,703) (8,703)
Net income -- 17,036 17,036
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 81 $ 795,507 $ 795,588
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 17,036 $ 38,895 $ 28,182
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net (income) loss of affiliate (7,100) (4,590) 26,181
Changes in operating assets and liabilities:
Increase in accrued interest receivable from non-affiliate (1,225) (4,382) --
Increase in accrued interest receivable from affiliates (11,749) (40,930) (2,182)
Increase in advance payable to affiliates -- 966 --
Increase in administrative fees payable to general partner 3,000 12,000 12,000
--------- --------- ---------
Net cash provided by (used in) operating activities (38) 1,959 64,181
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in affiliate -- -- (347,000)
Investment in note receivable from affiliate -- (68,000) (690,000)
Collection of note receivable from affiliate -- 119,628 --
Investment in note receivable from non-affiliate -- (160,000) --
Repayments of note receivable from affiliate -- -- 310,733
Distribution from affiliates 8,800 -- --
Advances to affiliates -- -- (2,570)
--------- --------- ---------
Net cash provided by (used in) investing activities 8,800 (108,372) (728,837)
--------- --------- ---------
Cash Flows from Financing Activities:
Partners' capital contributions -- -- 668,000
Syndication costs -- -- (192,550)
Distributions to limited partners (8,703) (120,000) (85,003)
Advances from affiliates -- 42,175 8,050
--------- --------- ---------
Net cash provided by (used in) financing activities (8,703) (77,825) 398,497
--------- --------- ---------
Net Increase (Decrease) in Cash 59 (184,238) (266,159)
Cash, Beginning 334 184,572 450,731
--------- --------- ---------
Cash, Ending $ 393 $ 334 $ 184,572
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Affiliate Advances Advances
Cash Loans to Affiliate fm Affiliate
---- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 184,572 379,267 320,819 2,570
Ending Balance, December 31, 1998 334 327,639 325,409 135
-------- -------- -------- --------
(184,238) (51,628) 4,590 (2,435)
Cash Flows from Operating Activities:
Net Income 38,895
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity net income from affiliate (4,590) (4,590)
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates (40,930)
Interest due from non-affiliate (4,382)
Advances from affiliates 966
Amounts due GP 12,000
--------
Net cash provided (used in) by operating activities 1,959
--------
Cash Flows from Investing Activities:
Advances to affiliate (68,000) (68,000)
Repayments of note receivable from affiliate 119,628 119,628
Investment in affiliates --
Investment in non -affiliates (160,000)
--------
Net cash provided by (used in) investing activities (108,372)
--------
Cash Flows from Financing Activities:
Loans to affiliates 42,175 2,435
Partner contributions --
Limited partner distributions (120,000)
--------
Net cash provided by (used in) financing activities (77,825)
--------
Net increase (decrease) in cash (184,238)
Cash, Beginning 184,572
--------
Cash, Ending 334
----------------------------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
-- -- --
-------- -------- --------
<CAPTION>
Accrued Interest
---------------- Receivable Amounts
non-affiliate affiliate fr. non-affiliate Due GP
------------- --------- ----------------- ------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 -- 2,182 -- (13,000)
Ending Balance, December 31, 1998 4,382 43,112 160,000 (25,000)
-------- -------- -------- --------
4,382 40,930 160,000 (12,000)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity net income from affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates (40,930)
Interest due from non-affiliate (4,382)
Advances from affiliates
Amounts due GP 12,000
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Advances to affiliate
Repayments of note receivable from affiliate
Investment in affiliates
Investment in non -affiliates (160,000)
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Loans to affiliates
Partner contributions
Limited partner distributions
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
-------------------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
-- -- --
-------- -------- --------
<CAPTION>
Accrued Partners'
Expenses Capital
-------- -------
<S> <C> <C> <C>
Beginning Balance, December 31, 1997 (8,050) (868,360) --
Ending Balance, December 31, 1998 (48,756) (787,255) --
-------- --------
(40,706) 81,105 --
Cash Flows from Operating Activities:
Net Income 38,895
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity net income from affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates
Interest due from non-affiliate
Advances from affiliates 966
Amounts due GP
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Advances to affiliate
Repayments of note receivable from affiliate
Investment in affiliates
Investment in non -affiliates
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Loans to affiliates 39,740
Partner contributions
Limited partner distributions (120,000)
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
--------------------------------------
-- --
Supplemental Disclosures of Cash Flow Information
-- -- --
-------- -------- --------
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VII, Ltd. ("the Partnership") was
initially organized on October 30, 1996 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates and Non-Affiliate
Notes receivable from affiliates and non-affiliate are recorded at
cost, less the related allowance for impairment, if any, of such notes
receivable. The Partnership accounts for such notes under the
provisions of Statement of Financial Accounting Standard No. 114,
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates and Non-Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to
collect all amounts due according to the contractual terms of the note.
When a loan is considered to be impaired, the amount of impairment is
measured based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling
costs and other notes secured by the same collateral. Cash receipts on
impaired notes receivable are applied to reduce the principal amount of
such receivables until the principal has been recovered, and are
recognized as interest income thereafter.
Investment in Affiliate
The Partnership holds a 52.44% limited partner interest in Pineview
Apartments, Ltd. ("Pineview"), a limited partnership which owns a
residential apartment property in Orlando, Florida. The investment in
Pineview is accounted for using the equity method of accounting as a
result of the Partnership and Pineview having the same general partner
president and the general partner's ability to exercise significant
influence on Pineview. As such, the investment in Pineview is carried
at cost and adjusted for the Partnership's share of undistributed
earnings or losses using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
November 12, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited
partners who will receive 100% of the distributable cash until they
have received a 12.5% non-cumulative annual cash-on-cash return on
the aggregate amount of their capital contribution as calculated
from each limited partner's admission date; and (b) the excess, if
any, will be allocated 50% to the limited partners and 50% to the
general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's
assets will not be reinvested but will be distributed to the
partners in order of priority after repayment of all indebtedness
secured by the assets to (a) the limited partners who will receive
100% of the distributions until the total amount distributed to
them, when added to all prior distributions of distributable cash
and net proceeds made to them, is equal to the sum of their capital
contributions plus an annual 12.5% cash-on-cash return; and (b) the
balance, if any, is distributed 50% to the limited partners and 50%
to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss (Continued)
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2003.
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Pineview as of March 31, 1999 and December 31, 1998 and for
the three months and year then ended, respectively.
Financial position: March 31, December 31,
1999 1998
---- ----
(Unaudited)
Rental apartments $2,026,402 $2,043,777
Other assets 254,064 177,459
---------- ----------
Total assets $2,280,466 $2,221,236
========== ==========
Mortgage payable $1,599,549 $1,603,303
Other liabilities 106,251 30,901
---------- ----------
Total liabilities 1,705,800 1,634,204
Partners' capital 574,666 587,032
---------- ----------
$2,280,466 $2,221,236
========== ==========
Revenues (including rental income of $117,444 and
$471,979, respectively) $ 125,151 $ 549,085
Costs and expenses 111,679 540,990
---------- ----------
Net income $ 13,472 $ 8,095
========== ==========
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and a portion of
accrued interest due from affiliates at March 31, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Baron Strategic Investment Fund IV,
Ltd. ("BSIF IV") $259,639 $ 46,934 $259,639 $ 37,198(a)
Baron Strategic Investment Fund III,
Ltd. ("Candlewood II") 68,000 7,927 68,000 5,914(b)
-------- -------- -------- --------
$327,630 $ 54,861 $327,630 $ 43,112
======== ======== ======== ========
</TABLE>
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In March 1997, the Partnership advanced funds to, and
received a $690,000 note from, Baron Strategic
Investment Fund IV, Ltd. ("BSIF IV"), an affiliate, with
an annual interest rate of 15%. The note, which is
secured by real property of County Square Apartments,
Ltd., an affiliate, provides for monthly payments of
interest only on the unpaid principal balance, with
principal plus any accrued interest due in September
2002. Interest income recognized on the note for the
three months ended March 31, 1999 and for the year ended
December 31, 1998 was $9,736 and $40,388, respectively. $259,639
(b) Secured promissory note representing advances made to
Candlewood II. The note matures on March 1, 2003;
accrued interest at an annual rate of 12%, which is
payable quarterly, is secured by an Open-End Second
Mortgage and Security Agreement regarding certain real
and personal property at Candlewood II; and is
subordinated to the first mortgage which had a balance
of approximately $591,000 and $595,000 as of March 31,
1999 and December 31, 1998, respectively. The Open-End
Second Mortgage and Security Agreement provides for
additional advances not to exceed $500,000 maximum to be
secured under a future advance clause. 68,000
--------
Total notes receivable $327,639
========
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE
In January 1998, Baron Strategic Investment Fund X, Ltd.
("BSIF X"), an affiliate, purchased from an unrelated party an
undivided 75% interest in a second mortgage note in the
original principal amount of $735,000 (with accrued unpaid
interest thereon of $506,767) made by Garden Terrace
Apartments III, Ltd. ("Garden Terrace"), a non-affiliate. In
February 1998, the Partnership purchased from BSIF X an
undivided 20% interest of the Garden Terrace second mortgage
note and accrued interest for $160,000. In October 1998,
Garden Terrace restated and amended the $735,000 second
mortgage note and created a new second mortgage note in the
original principal amount of $506,767 to cover accrued
interest. The notes receivable are more fully described below:
Garden Terrace Second Mortgage Note; matures on January 1,
2007; accrues interest at an minimum annual rate of 2% and
provides for participation interest at the rate of 7% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not exceed
the available cash flow, as defined in the note; provides for
additional participation interest in an annual equal to 30% of
remaining available cash flow, as defined, which will continue
to be made until such time as the collateral has been sold,
and which obligation will continue notwithstanding total
repayment of the principal amount of the note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had $735,000
a balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively.
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
Garden Terrace Accrued Interest Second Mortgage Note;
matures on January 1, 2007; accrues interest at an annual
rate of 9% payable annually from excess cash flow after 2%
minimum interest and 7% participation interest has been
paid on the $735,000 second mortgage note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had a
balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively. 506,767
----------
1,241,767
Percentage purchased* 20%
----------
248,353
Less discount 88,353
----------
Notes receivable, net of discount $ 160,000
==========
* BSIF X and Baron Strategic Investment Fund IX, Ltd. ("BSIF IX"),
affiliates of the Partnership, own the remaining undivided 80% interest
on the notes.
NOTE 6. ADVANCES PAYABLE TO AFFILIATES
The following are the balances of the advances payable to affiliates as of
March 31, 1999 and December 31, 1998:
Advances
Payable
-------
Pineview Apartments, Ltd. ("Pineview") $39,740
Country Square Apartments, Ltd. ("Country Square") 9,016
-------
$48,756
=======
NOTE 7. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated November 12, 1996, the Partnership issued 1,064 units of limited
partnership interest at $500 per unit for gross proceeds of $532,000.
Costs of $81,450 incurred in connection with syndicating the limited
partnership units were recorded as a reduction of limited partners'
capital contributions. Of the $81,450 in syndication costs incurred in
1996, the Partnership paid $38,890 to its general partner for
administrative, legal and investment fees.
During 1997, the Partnership issued the remaining 1,336 units of limited
partner interest at $500 per unit for gross proceeds of $668,000. Costs of
$192,550 incurred in connection with syndicating the limited partnership
units were recorded as a reduction of limited partners' capital
contributions. Of the $192,550 in syndication costs incurred in 1997, the
Partnership paid $115,110 to its general partner for administrative, legal
and investment fees.
13
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
14
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund VIII, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund VIII, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
VIII, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ -- $ 50
Notes receivable from affiliates 807,155 807,155
Advances receivable from affiliates 10,000 10,159
Accrued interest receivable from affiliates 55,836 40,439
-------- --------
$872,991 $857,803
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Bank overdraft $ 84 $ --
Administrative fees payable to general partner 10,000 7,000
-------- --------
20,084 7,000
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 90 90
Limited partners 862,817 850,713
-------- --------
862,907 850,803
-------- --------
$872,991 $857,803
======== ========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ---------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliates $ 24,097 $100,741 $ 38,892
Other -- 762 1,708
-------- -------- --------
24,097 101,503 40,600
-------- -------- --------
Costs and Expenses:
Administrative fees to general partner 3,000 12,000 10,000
General and administrative -- 19,873 4,453
-------- -------- --------
3,000 31,873 14,453
-------- -------- --------
Net Income $ 21,097 $ 69,630 $ 26,147
======== ======== ========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ -- $ -- $ --
Year Ended December 31, 1997:
Capital contributions, net of syndication costs 90 865,611 865,701
Distributions -- (30,450) (30,450)
Net income -- 26,147 26,147
--------- --------- ---------
Partners' Capital, December 31, 1997 90 861,308 861,398
Year Ended December 31, 1998:
Capital contributions, net of syndication costs 38,299 38,299
Distributions -- (118,524) (118,524)
Net income -- 69,630 69,630
--------- --------- ---------
Partners' Capital, December 31, 1998 90 850,713 850,803
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (8,993) (8,993)
Net income -- 21,097 21,097
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 90 $ 862,817 $ 862,907
========= ========= =========
</TABLE>
See accountant report
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 21,097 $ 69,630 $ 26,147
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (15,397) (1,547) (38,892)
Increase (decrease) in administrative fees payable
to general partner 3,000 (3,000) 10,000
----------- ----------- -----------
Net cash provided by operating activities 8,700 65,083 (2,745)
----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliates -- (104,159) (685,650)
Advances to affiliates 159 (159) (65,095)
Collection on notes receivables and advances -- 37,749 --
----------- ----------- -----------
Net cash provided by (used in) investing activities 159 (66,569) (750,745)
----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions -- 50,869 1,149,131
Syndication costs paid -- (12,570) (283,430)
(Decrease) increase in accrued syndication costs -- (2,854) 2,854
Distributions to limited partners (8,993) (118,524) (30,450)
Increase in bank overdraft 84 -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities (8,909) (83,079) 838,105
----------- ----------- -----------
Net Increase (Decrease) in Cash (50) (84,565) 84,615
Cash, Beginning 50 84,615 --
----------- ----------- -----------
Cash, Ending $ -- $ 50 $ 84,615
=========== =========== ===========
Supplemental Information:
Non-cash transactions:
Reclassification of advances receivable to
notes receivable from affiliates $ -- $ 46,120 $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Advances Interest Purchased
Cash Affiliates Receivable Receivable
---- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 84,615 65,095 38,892 685,650
Ending Balance, December 31, 1998 50 10,159 40,439 807,155
-------- -------- -------- --------
(84,565) (54,936) 1,547 121,505
Cash Flows from Operating Activities:
Net income 69,630
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accrued interest (1,547) (1,547)
Increase (decrease) in liabilities:
Increase in accrued syndication costs (2,854)
Accounts payable and accrued liabilities (3,000)
--------
Net cash provided by operating activities 62,229
--------
Cash Flows from Investing Activities:
Advances to affiliates (159) (159)
-- 46,120 (46,120)
(104,159) (104,159)
Collection on purchased receivables and advances 37,749 8,975 28,774
--------
Net cash provided (required) by investing activities (66,569)
--------
Cash Flows from Financing Activities:
Syndication costs paid (12,570)
Partners capital contributions 50,869
Limited partner distributions (118,524)
--------
Net cash used in financing activities (80,225)
--------
Net Increase (Decrease) in Cash (84,565)
--------
Cash, Beginning 84,615
Cash, Ending 50
========
-------------------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Adjustment to contributed capital
<CAPTION>
Accrued Accrued Partners'
Syndication Admin Fees Capital
----------- ---------- -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 (2,854) (10,000) (861,398) --
Ending Balance, December 31, 1998 -- (7,000) (850,803) (0)
-------- -------- -------- --------
2,854 3,000 10,595
--
Cash Flows from Operating Activities:
Net income 69,630
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accrued interest
Increase (decrease) in liabilities:
Increase in accrued syndication costs (2,854)
Accounts payable and accrued liabilities (3,000)
Net cash provided by operating activities
Cash Flows from Investing Activities:
Advances to affiliates
Collection on purchased receivables and advances
Net cash provided (required) by investing activities
Cash Flows from Financing Activities:
Syndication costs paid (12,570)
Partners capital contributions 50,869
Limited partner distributions (118,524)
Net cash used in financing activities
Net Increase (Decrease) in Cash
Cash, Beginning
Cash, Ending
----------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Adjustment to contributed capital
--
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VIII, Ltd. ("the Partnership") was
initially organized on February 25, 1997 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in
Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates
Notes receivable from affiliates are recorded at cost, less the related
allowance for impairment, if any, of such notes receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of Financial Accounting
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates (Continued)
Standard No. 118, Accounting by Creditors for Impairment of a Loan
Income Recognition and Disclosure. Management, considering current
information and events regarding the borrowers' ability to repay their
obligations, considers a note to be impaired when it is probable that
the Partnership will be unable to collect all amounts due according to
the contractual terms of the note. When a loan is considered to be
impaired, the amount of impairment is measured based upon (a) the
present value of expected future cash flows discounted at the note's
effective interest rate; and (b) the liquidation value of the note's
collateral reduced by expected selling costs and other notes secured by
the same collateral. Cash receipts on impaired notes receivable are
applied to reduce the principal amount of such receivables until the
principal has been recovered, and are recognized as interest income
thereafter.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable from affiliates. Although these
estimates are based on management's knowledge of current events and
actions it may undertake in the future, they may ultimately differ from
actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
February 26, 1997.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 12.5% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated 50% to the limited partners and 50% to the general
partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 12.5% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2004.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES
The following are the principal balances of the notes receivable, net of
unamortized discount, and a portion of accrued interest due from
affiliates at March 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Longwood Apartments I, Ltd.
("Longwood I") $577,429 $43,432 $577,429 $28,484 (a)
Heatherwood Apartments II, Ltd.
("Heatherwood II") 152,726 1,956 152,726 3,785 (b)
Burlington Development, L.P. ("Burlington") - 7,765 - 7,765 (c)
Sycamore Real Estate Development,
Ltd. ("Sycamore") 77,000 2,683 77,000 405 (d)
-------- -------- -------- --------
$807,155 $55,836 $807,155 $40,439
======== ======== ======== ========
</TABLE>
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) In July 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Longwood I, were converted into promissory notes as more
fully described in the table below:
Longwood I Second Mortgage Note; matures on October 1,
2007; accrues interest at an minimum annual rate of 6%
and provides for participation interest at the rate of
3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent
that it does not exceed the available cash flow, as
defined in the note; provides for additional
participation interest in an annual equal to 20% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and
personal property of Longwood I; subordinated to the
first mortgage which had a balance of approximately
$1,025,000 and $1,027,000 as of March 31, 1999 and
December 31, 1998, respectively. $368,558
Secured promissory note, representing advances made by
the former general partner to Longwood I. The note
matures on October 1, 2007 and bears interest, which is
payable quarterly, at 1% over prime (8.75% as of March
31, 1999 and December 31, 1998). 526,465
Secured promissory note, representing other receivables,
related to advances for refinancing fees and
professional services. The note matures on October 1,
2007 and bears interest at 12%, which is payable
quarterly. 21,966
--------
916,989
Less discount 391,839
--------
Notes receivable, net of discount 525,150
Secured promissory note representing other advances made
to Longwood I by the Partnership. The note matures on
October 1, 2007; and bears interest, which is payable
quarterly, at 12% per annum. 52,279
--------
Net second mortgage notes receivable $577,429
========
On December 15, 1998, Longwood I amended and restated all the above
notes and mortgages and entered into a Second Amendment to Open-End
Second Mortgage and Security Agreement by which all of the above notes
are secured by lien of the Second Mortgage. The amendment also provides
for additional advances not to exceed a $1,300,000 maximum to be
evidenced by an Additional Advance Agreement or note.
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(b) In August 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest
due from Heatherwood II, were converted into promissory notes as
more fully described in the table below:
Heatherwood II Second Mortgage Note; matures on October
1, 2004; accrues interest at an minimum annual rate of
6% and participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal,
which shall be due and payable to the extent that it
does not exceed the available cash flow, as defined in
the note; provides for additional participation interest
in an annual equal to 20% of remaining available cash
flow, as defined, which will continue to be made until
such time as the collateral has been sold, and which
obligation will continue notwithstanding total repayment
of the principal amount of the note; secured by a lien
upon certain real and personal property of Heatherwood
II; subordinated to the first mortgage which had a
balance of approximately $702,000 and $703,000 as of
March 31, 1999 and December 31, 1998, respectively. $325,000
Unsecured promissory note, representing advances made by
the former general partner to Heatherwood II. The note
is payable on demand and bears interest at 1% over prime
(8.75% as of March 31, 1999 and December 31, 1998). 1,742
--------
326,742
Percentage purchased 58%
--------
189,511
Less discount 36,785
--------
Notes receivable, net of discount $152,726
========
(c) During 1998, the Partnership made net advances aggregating $77,000
to Burlington, an affiliate. The advances bear interest at 12% and
are due on demand. In December 1998, the Partnership endorsed the
promissory note to Sycamore. Sycamore provided a new promissory note
to the Partnership as more fully described in (d) below.
(d) Secured promissory note representing advances made to Sycamore Real
Estate Development, L.P. The note matures on December 14, 2003;
accrues interest at an annual rate of 12%; is secured by a lien upon
certain real and personal property of Villas at Lake Sycamore; and
is subordinated to the first mortgage which had a balance of
approximately $866,000 as of March 31, 1999 and December 31, 1998.
Two other affiliated partnerships also hold second mortgage notes in
the aggregate principal amount of $473,000 secured by the property.
The lending parties have agreed to share the benefits of the second
mortgage on a pari-passu basis.
Note receivable $77,000
=======
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATES
During 1997 and 1998, the Partnership provided funding to affiliates by
means of advances in an arrangement equivalent to an open ended line of
credit. The advances are due on demand and are non-interest bearing. The
balance as of March 31, 1999 and December 31, 1998 is comprised of the
following:
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Pineview Apartments, Ltd. $10,000 $10,000
Heatherwood Apartments II, Ltd. -- 159
------- -------
$10,000 $10,159
======= =======
NOTE 5. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement
Memorandum dated February 26, 1997, the Partnership issued 2,298 units of
limited partner interest of the 2,400 units being offered at $500 per unit
for gross proceeds of $1,149,041. Costs of $283,430 incurred in connection
with syndicating the partnership units were recorded as a reduction of
limited partners' capital contributions. Of the syndication costs,
$168,525 was paid to the General Partner for administrative, legal and
investment fees.
During 1998, the Partnership issued the remaining 102 units at $500 per
unit for gross proceeds of $50,959. Costs of $12,570 incurred in
connection with syndicating the partnership units were recorded as a
reduction of limited partners' capital contributions in 1998. Of the
syndication costs, $7,475 was paid to the General Partner for
administrative, legal and investment fees.
NOTE 6. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
13
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND IX, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund IX, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund IX, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
IX, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3 and 4, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 102 $ 140
Investment in affiliate 249,056 254,956
Notes receivable from affiliates 319,000 319,000
Notes receivable from non-affiliate 200,000 200,000
Advances receivable from affiliate 6,541 6,541
Accrued interest receivable from affiliates 39,265 29,631
Accrued interest receivable from non-affiliate 7,246 5,716
Other receivable 3,131 3,131
--------- ---------
$ 824,341 $ 819,115
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner 10,500 7,500
--------- ---------
10,500 7,500
--------- ---------
Commitments and Other Matter -- --
Partners' Capital:
General partner (54) (161)
Limited partners 813,895 811,776
--------- ---------
813,841 811,615
--------- ---------
$ 824,341 $ 819,115
========= =========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliate $ 2,600 $ -- $ 4,207
Interest income from affiliate 11,163 37,686 392
Other 3 3,654 676
-------- -------- --------
13,766 41,340 5,275
-------- -------- --------
Costs and Expenses:
Equity in net loss of affiliate -- 38,251 --
Administrative fees to general partner 3,000 12,000 7,000
General and administrative 40 9,856 4,533
-------- -------- --------
3,040 60,107 11,533
-------- -------- --------
Net Income (Loss) $ 10,726 $(18,767) $ (6,258)
======== ======== ========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ -- $ -- $ --
Year Ended December 31, 1997:
Capital contributions, net of syndication costs 90 471,400 471,490
Distributions -- (3,589) (3,589)
Net loss (63) (6,195) (6,258)
--------- --------- ---------
Partners' Capital, December 31, 1997 27 461,616 461,643
Year Ended December 31, 1998:
Capital contributions, net of syndication costs -- 456,510 456,510
Distributions -- (87,771) (87,771)
Net loss (188) (18,579) (18,767)
--------- --------- ---------
Partners' Capital, December 31, 1998 (161) 811,776 811,615
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (8,500) (8,500)
Net income 107 10,619 10,726
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ (54) $ 813,895 $ 813,841
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 10,726 $ (18,767) $ (6,258)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net loss (income) of affiliate (2,600) 38,251 (4,207)
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (8,735) (5,324) (392)
Increase in accrued interest receivable from non-affiliate (2,429) (29,631) --
Increase in other receivable -- (3,131) --
Decrease in accrued syndication costs -- (42,435) --
Increase in administrative fees payable to general partner 3,000 500 7,000
--------- --------- ---------
Net cash used in operating activities (38) (60,537) (3,857)
--------- --------- ---------
Cash Flows from Investing Activities:
Distribution from affiliates 8,500 -- --
Investment in loans receivable from non-affiliate -- (200,000) --
Investment in loans receivable from affiliates -- (319,000) (289,000)
Investment in advances receivable from affiliates -- 14,954 (21,495)
--------- --------- ---------
Net cash provided by (used in) investing activities 8,500 (504,046) (310,495)
--------- --------- ---------
Cash Flows from Financing Activities:
Partners' capital contributions -- 577,000 623,090
Syndication costs paid -- (120,490) (109,165)
Distributions to limited partners (8,500) (87,771) (3,589)
--------- --------- ---------
Net cash provided by (used in) financing activities (8,500) 368,739 510,336
--------- --------- ---------
Net Increase (Decrease) in Cash (38) (195,844) 195,984
Cash, Beginning 140 195,984 --
--------- --------- ---------
Cash, Ending $ 102 $ 140 $ 195,984
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Loans Rec.
Investment ----------
Cash Affiliates Affiliate Non-aff.
---- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 195,984 293,207 -- --
Ending Balance, December 31, 1998 $ 140 254,956 319,000 200,000
--------- --------- --------- ---------
(195,844) (38,251) 319,000 200,000
Cash Flows from Operating Activities:
Net income (18,767)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity in net income of affiliate 38,251 38,251
Changes in operating assets and liabilities:
(Increase) decrease in: --
Accrued interest (5,324)
Accrued interest (29,631)
Other receivable (3,131)
Accrued liabls (42,435)
Due to general partner 500
---------
Net cash provided (used in) by operating activities (60,537)
---------
Cash Flows from Investing Activities:
Investment in loans from non affiliates (200,000) (200,000)
Investment in loans from affiliates (319,000) (319,000)
Loans under line of credit 14,954
---------
Net cash provided by (used in) investing activities (504,046)
---------
Cash Flows from Financing Activities:
Principal payments on mortgage payable --
Principal payment on note payable --
Capital Contribution 577,000
Distribution (87,771)
Syndication costs (120,490)
---------
Net cash provided by (used in) financing activities 368,739
---------
Net increase (decrease) in cash (195,844)
Cash, Beginning 195,984
Cash, Ending $ 140
========= --------------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ --
=========
<CAPTION>
Advance Accrued Interest Other
Rec. Affiliate Non-aff. Rec.
---- --------- -------- ----
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 21,495 392 -- --
Ending Balance, December 31, 1998 6,541 5,716 29,631 3,131
--------- --------- --------- ---------
(14,954) 5,324 29,631 3,131
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity in net income of affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Accrued interest (5,324)
Accrued interest (29,631)
Other receivable (3,131)
Accrued liabls
Due to general partner
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in loans from non affiliates
Investment in loans from affiliates
Loans under line of credit 14,954
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Principal payments on mortgage payable
Principal payment on note payable
Capital Contribution
Distribution
Syndication costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
-------------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
<CAPTION>
Accr. Accr Partners'
Liability Liab Capital
--------- ---- -------
<S> <C> <C> <C>
Beginning Balance, December 31, 1997 (42,435) (7,000) (461,643)
Ending Balance, December 31, 1998 -- (7,500) (811,615)
--------- --------- ---------
42,435 (500) (349,972)
Cash Flows from Operating Activities:
Net income (18,767)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Equity in net income of affiliate
Changes in operating assets and liabilities:
(Increase) decrease in:
Accrued interest
Accrued interest
Other receivable
Accrued liabls (42,435)
Due to general partner 500
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in loans from non affiliates
Investment in loans from affiliates
Loans under line of credit
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Principal payments on mortgage payable
Principal payment on note payable
Capital Contribution 577,000
Distribution (87,771)
Syndication costs (120,490)
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------------------------------------
-- -- (0)
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund IX, Ltd. ("the Partnership") was
initially organized on June 2, 1997 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue consisting of equivalent income of affiliate is recognized on
the equity method, as more fully described below.
Revenue consisting of interest on notes receivable is recognized as it
becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliates and Non-Affiliate
Notes receivable from affiliates and non-affiliate are recorded at
cost, less the related allowance for impairment, if any, of such notes
receivable. The Partnership accounts for such
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates and Non-Affiliate (Continued)
notes under the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by Statement of Financial Accounting Standard No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Investment in Affiliate
The Partnership holds a 44.96% limited partner interest in Crystal
Court Properties, Ltd. ("Crystal Court"), a limited partnership which
owns a residential apartment property in Jacksonville, Florida. The
investment in Crystal Court is accounted for using the equity method of
accounting as a result of the Partnership and Crystal Court having the
same general partner president and the general partner's ability to
exercise significant influence on Crystal Court. As such, the
investment in Crystal Court is carried at cost and adjusted for the
Partnership's share of undistributed earnings or losses using the
equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of June
2, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 15% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 15% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss (Continued)
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2004.
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Crystal Court as of March 31, 1999 and December 31, 1998 and
for the three months and year then ended, respectively.
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Financial position:
Rental apartments $ 1,640,997 $ 1,758,032
Other assets 140,038 102,453
----------- -----------
Total assets $ 1,781,035 $ 1,860,485
=========== ===========
Mortgage payable $ 1,205,806 $ 1,208,774
Other liabilities 102,199 75,078
----------- -----------
Total liabilities 1,308,005 1,283,852
Partners' capital 473,030 576,633
----------- -----------
$ 1,781,035 $ 1,860,485
=========== ===========
Results of operations:
Revenues (including rental income of $76,212 and
$274,036, respectively) $ 78,514 $ 294,984
Costs and expenses (72,713) (390,849)
----------- -----------
Net income (loss) $ 5,801 $ (95,865)
=========== ===========
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES
The following are the balances of the notes receivable and a portion of
accrued interest due from affiliates as of March 31, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sycamore Real Estate Development, LP
("Sycamore") $243,500 $ 7,205 $243,500 $ 1,281 (a)
Apartment Development Holding, L.P.
("Apartment Development") - 13,747 - 12,968 (b)
Burlington Development, L.P.
("Burlington") - 9,639 - 9,137 (c)
Baron Strategic Investment Fund III, Ltd.
("Candlewood II") 75,500 8,357 75,500 6,123 (d)
-------- -------- -------- --------
$319,000 $38,948 $319,000 $29,509
======== ======== ======== ========
</TABLE>
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE FROM AFFILIATES (Continued)
(a) Secured promissory note representing advances made to
Sycamore. The note matures on December 14, 2003; accrues
interest at an annual rate of 12%; is secured by a lien
upon certain real and personal property of Villas at
Lake Sycamore; and is subordinated to the first mortgage
which had a balance of approximately $866,000 as of
March 31, 1999 and December 31, 1998. Two other
affiliated partnerships also hold second mortgage notes
in the aggregate principal amount of $307,000 secured by
the property. The lending parties have agreed to share
the benefits of the second mortgage on a pari-passu
basis. $243,500
(b) Unsecured promissory note of $148,000 representing
advances made to Apartment Development; due on demand;
accrues interest at 12%; endorsed to Sycamore on
December 15, 1998. --
(c) Unsecured promissory note of $95,500 representing
advances made to Burlington; due on demand; accrues
interest at 12%; endorsed to Sycamore on December 15,
1998. --
(d) Secured promissory note representing advances made to
Candlewood II. The note matures on March 1, 2003;
accrued interest at an annual rate of 12%, which is
payable quarterly, is secured by an Open-End Second
Mortgage and Security Agreement regarding certain real
and personal property at Candlewood II; and is
subordinated to the first mortgage which had a balance
of approximately $595,000 as of March 31, 1999 and
December 31, 1998. The Open-End Second Mortgage and
Security Agreement provides for additional advances not
to exceed $500,000 maximum to be secured under a future
advance clause. 75,500
--------
Total notes receivable $319,000
========
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE
In January 1998, the Partnership purchased from an unrelated party an
undivided 25% interest in a second mortgage note in the original principal
amount of $735,000 (with accrued unpaid interest thereon of $506,767) made
by Garden Terrace Apartments III, Ltd. ("Garden Terrace"), a
non-affiliate. In October 1998, Garden Terrace restated and amended the
$735,000 second mortgage note and created a new second mortgage note in
the original principal amount of $506,767 to cover accrued interest. The
notes receivable are more fully described below:
Garden Terrace Second Mortgage Note; matures on January 1,
2007; accrues interest at an minimum annual rate of 2% and
provides for participation interest at the rate of 7% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
participation interest in an annual equal to 30% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral has
been sold, and which obligation will continue
notwithstanding total repayment of the principal amount of
the note; secured by a lien upon certain real and personal
property of Garden Terrace; subordinated to the first
mortgage which had a balance of approximately $967,000 and
$967,500 as of March 31, 1999 and December 31, 1998, $735,000
respectively.
Garden Terrace Accrued Interest Second Mortgage Note;
matures on January 1, 2007; accrues interest at an annual
rate of 9% payable annually from excess cash flow after 2%
minimum interest and 7% participation interest has been
paid on the $735,000 second mortgage note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had a
balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively. 506,767
----------
1,241,767
Percentage purchased* 25%
----------
310,442
Less discount 116,442
----------
Notes receivable, net of discount $ 200,000
==========
* Baron Strategic Investment Fund VI, Ltd. ("BSIF VI") and Baron
Strategic Investment Fund X, Ltd. ("BSIF X"), affiliates of the
Partnership, own the remaining undivided 75% interest on the notes.
NOTE 6. ADVANCES TO AFFILIATE
During 1997 and 1998, the Partnership provided funding to Crystal Court by
means of advances in an arrangement equivalent to an open ended line of
credit. The advances are due on demand and accrue interest at 12% per
annum. The principal balance as of March 31, 1999 and December 31, 1998 is
$6,541. Accrued interest of $317 and $122 was outstanding as of March 31,
1999 and December 31, 1998, respectively.
NOTE 7. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement
Memorandum dated June 3, 1997, the Partnership issued 1,246 units of
limited partner interest being offered at $500 per unit for total gross
proceeds of $623,000. Costs of $151,600 incurred in connection with
syndicating the partnership units were recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $88,530 was
paid or accrued to the General Partner for administrative, legal and
investment fees.
13
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS (Continued)
In 1998, the Partnership issued the remaining 1,154 units of limited
partner interest at $500 per unit for total gross proceeds of $577,000.
Costs of $120,400 incurred with syndicating the partnership have been
recorded as a reduction of limited partners' capital contributions. Of the
syndication costs, $63,400 was paid or accrued to the General Partner for
administrative, legal and investment fees.
NOTE 8. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
14
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND X, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Investment Fund X, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Investment
Fund X, Ltd. (the "Partnership") as of December 31, 1998, and the related
statements of operations, partners' capital and cash flows for each of the two
years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Investment Fund
X, Ltd. at December 31, 1998, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3, 4, 5 and 6, the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 2,154 $ 4,584
Investments in affiliates 530,390 525,680
Notes receivable from affiliate 117,500 117,500
Notes receivable from non-affiliate 440,000 440,000
Advances receivable from affiliate 38,287 38,287
Accrued interest receivable from affiliate 5,645 5,670
Accrued interest receivable from non-affiliate 16,133 12,765
Other receivable 9,394 9,394
----------- -----------
$ 1,159,503 $ 1,153,880
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued interest payable $ 47,299 $ 37,436
Note payable 400,000 400,000
Administrative fees payable to general partner 12,393 9,393
----------- -----------
459,692 446,829
----------- -----------
Commitments and Other Matter -- --
Partners' Capital:
General partner (720) (739)
Limited partners 700,531 707,790
----------- -----------
699,811 707,051
----------- -----------
$ 1,159,503 $ 1,153,880
=========== ===========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliates $ 8,100 -- --
Interest income from affiliates 6,703 $ 27,290 $ 7,622
Other 8 9,668 2,116
--------- --------- ---------
14,811 36,958 9,738
--------- --------- ---------
Costs and Expenses:
Equity in net losses of affiliates -- 36,990 15,330
Interest expense 9,863 37,436 --
Administrative fees to general partner 3,000 12,000 6,000
General and administrative 41 17,609 4,237
--------- --------- ---------
12,904 104,035 25,567
--------- --------- ---------
Net Income (Loss) $ 1,907 $ (67,077) $ (15,829)
========= ========= =========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ -- $ -- $ --
Year Ended December 31, 1997:
Capital contributions, net of syndication costs 90 859,740 859,830
Distributions -- (13,428) (13,428)
Net loss (158) (15,671) (15,829)
--------- --------- ---------
Partners' Capital, December 31, 1997 (68) 830,641 830,573
Year Ended December 31, 1998:
Capital contributions, net of syndication costs -- 56,170 56,170
Distributions -- (112,615) (112,615)
Net loss (671) (66,406) (67,077)
--------- --------- ---------
Partners' Capital, December 31, 1998 (739) 707,790 707,051
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (9,147) (9,147)
Net income 19 1,888 1,907
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ (720) $ 700,531 $ 699,811
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 1,907 $ (67,077) $ (15,829)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net income (loss) of affiliates (8,100) 36,990 15,330
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable from affiliate 25 1,952 (7,622)
Increase in accrued interest receivable from non-affiliate (3,368) (12,765) --
Increase in other receivable -- (9,394) --
Increase in accrued interest payable 9,863 37,436 --
Increase in administrative fees payable to general partner 3,000 3,393 6,000
Decrease in accrued expenses -- (79,708) --
----------- ----------- -----------
Net cash provided by (used in) operating activities 3,327 (89,173) (2,121)
----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in affiliates -- -- (578,000)
Partnership distributions received 3,390 -- --
Investment in notes receivable -- (600,000) (117,500)
Collection of notes receivable -- 160,000 --
Advances to affiliate -- 18,213 (56,500)
----------- ----------- -----------
Net cash provided by (used in) investing activities 3,390 (421,787) (752,000)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from notes payable -- 560,000 --
Repayment of notes payable -- (160,000) --
Partner capital contributions -- 71,910 1,128,090
Syndication costs paid -- (15,740) (188,552)
Distributions to limited partners (9,147) (112,615) (13,428)
----------- ----------- -----------
Net cash provided by (used in) financing activities (9,147) 343,555 926,110
----------- ----------- -----------
Net Increase (Decrease) in Cash (2,430) (167,405) 171,989
Cash, Beginning 4,584 171,989 --
----------- ----------- -----------
Cash, Ending $ 2,154 $ 4,584 $ 171,989
=========== =========== ===========
Supplemental Disclosure:
Interest paid during the period $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Loans Advances
----- --------
Cash Affiliate non-aff. Affiliate
---- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 171,989 117,500 -- 56,500
Ending Balance, December 31, 1998 4,584 117,500 440,000 38,287
-------- -------- -------- --------
(167,405) -- 440,000 (18,213)
Cash Flows from Operating Activities:
Net Income (67,077)
Adjustments to reconcile net loss to net cash
Equity in net income of affiliate 36,990
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates 1,952
Interest due from non affiliates (12,765)
Other receivables (9,394)
Accrued Interest Payable 37,436
Accrued pauables (79,708)
Amounts due GP 3,393
--------
Net cash provided (used in) by operating activities (89,173)
--------
Cash Flows from Investing Activities:
Investment in mortgages (600,000) (600,000)
Collection of mortgages 160,000 160,000
Repayment in Loan Receivable from affiliate 18,213 18,213
Net cash provided by (used in) investing activities (421,787)
--------
Cash Flows from Financing Activities:
Payment of loans payable (160,000)
Loans to non-affiliate 560,000
Partner contributions 71,910
Limited partner distributions (112,615)
Syndication costs (15,740)
Net cash provided by (used in) financing activities 343,555
--------
Net increase (decrease) in cash (167,405)
Cash, Beginning 171,989
Cash, Ending 4,584
----------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
Accrual for syndication costs/contributed capital -- -- -- --
-------- -------- -------- --------
-- -- -- --
======== ======== ======== ========
<CAPTION>
Accrued Interest Other
---------------- ----- Investment Amounts
Affiliate non-aff. Rec. in Affiliate Due GP
--------- -------- ---- ------------ ------
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 7,622 -- -- 562,670 (6,000)
Ending Balance, December 31, 1998 5,670 12,765 9,394 525,680 (9,393)
-------- -------- -------- -------- --------
(1,952) 12,765 9,394 (36,990) (3,393)
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net loss to net cash
Equity in net income of affiliate 36,990
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates 1,952
Interest due from non affiliates (12,765)
Other receivables (9,394)
Accrued Interest Payable
Accrued pauables
Amounts due GP 3,393
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in mortgages
Collection of mortgages
Repayment in Loan Receivable from affiliate
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Payment of loans payable
Loans to non-affiliate
Partner contributions
Limited partner distributions
Syndication costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------------------------------------------------------------
-- -- -- -- --
Supplemental Disclosures of Cash Flow Information
Accrual for syndication costs/contributed capital -- -- -- -- --
-------- -------- -------- -------- --------
-- -- -- -- --
======== ======== ======== ======== ========
<CAPTION>
Accrued Accrued Note Partners'
Expenses Int. Pyble Payable Capital
-------- ---------- ------- -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 (79,708) -- -- (830,573)
Ending Balance, December 31, 1998 -- (37,436) (400,000) (707,051)
-------- -------- -------- --------
79,708 (37,436) (400,000) 123,522
Cash Flows from Operating Activities:
Net Income (67,077)
Adjustments to reconcile net loss to net cash
Equity in net income of affiliate
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Interest due from affiliates
Interest due from non affiliates
Other receivables
Accrued Interest Payable 37,436
Accrued pauables (79,708)
Amounts due GP
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Investment in mortgages
Collection of mortgages
Repayment in Loan Receivable from affiliate
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Payment of loans payable (160,000)
Loans to non-affiliate 560,000
Partner contributions 71,910
Limited partner distributions (112,615)
Syndication costs (15,740)
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
---------------------------------------------
-- -- -- --
Supplemental Disclosures of Cash Flow Information
Accrual for syndication costs/contributed capital -- -- -- --
-------- -------- -------- --------
-- -- -- --
======== ======== ======== ========
</TABLE>
6
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund X, Ltd. ("the Partnership") was
initially organized on June 26, 1997 under the laws of the State of
Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $1,200,000, to be divided into 2,400 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
7
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate and Non-Affiliate
Notes receivable from affiliate and non-affiliate are recorded at cost,
less the related allowance for impairment, if any, of such notes
receivable. The Partnership accounts for such notes under the
provisions of Statement of Financial Accounting Standard No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by
Statement of Financial Accounting Standard No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a note to be
impaired when it is probable that the Partnership will be unable to
collect all amounts due according to the contractual terms of the note.
When a loan is considered to be impaired, the amount of impairment is
measured based upon (a) the present value of expected future cash flows
discounted at the note's effective interest rate; and (b) the
liquidation value of the note's collateral reduced by expected selling
costs and other notes secured by the same collateral. Cash receipts on
impaired notes receivable are applied to reduce the principal amount of
such receivables until the principal has been recovered, and are
recognized as interest income thereafter.
Investments in Affiliates
The Partnership holds a 47.586% limited partner interest in Crystal
Court Properties, Ltd. ("Crystal Court"), a limited partnership which
owns a residential apartment property in Lakeland, Florida. The
investment in Crystal Court is accounted for using the equity method of
accounting as a result of the Partnership and Crystal Court having the
same general partner president and the general partner's ability to
exercise significant influence on Crystal Court. As such, the
investment in Crystal Court is carried at cost and adjusted for the
Partnership's share of undistributed earnings or losses using the
equity method of accounting.
The Partnership holds a 39.56% limited partner interest in Pineview
Apartments, Ltd. ("Pineview"), a limited partnership which owns a
residential apartment property in Orlando, Florida. The investment in
Pineview is accounted for using the equity method of accounting as a
result of the Partnership and Pineview having the same general partner
president and the general partner's ability to exercise significant
influence on Pineview. As such, the investment in Pineview is carried
at cost and adjusted for the Partnership's share of undistributed
earnings or losses using the equity method of accounting.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
8
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of June
26, 1997:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$1,200,000, to be divided into 2,400 units of limited partnership
units. A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 12.5% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated 50% to the limited partners and 50% to the general
partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 12.5% cash-on-cash return; and (b) the balance, if any, is
distributed 50% to the limited partners and 50% to the general
partner.
9
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
10
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $1,000 per month through December 31, 2003.
11
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENTS IN AFFILIATES
The following is a summary of the financial position and results of
operations of the Partnership's investments as of March 31, 1999 and
December 31, 1998 and for the three months and year then ended,
respectively.
Pineview Crystal Court
-------- -------------
March 31, December 31, March 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Financial position:
Rental apartments $ 2,026,402 $ 2,043,777 $ 1,640,997 $ 1,758,032
Other assets 254,064 177,459 140,038 102,453
----------- ----------- ----------- -----------
Total assets $ 2,280,466 $ 2,221,236 $ 1,781,035 $ 1,860,485
=========== =========== =========== ===========
Mortgage payable $ 1,599,549 $ 1,603,303 $ 1,205,806 $ 1,208,774
Other liabilities 106,251 30,901 102,199 75,078
----------- ----------- ----------- -----------
Total liabilities 1,705,800 1,634,204 1,308,005 1,283,852
Partners' capital 574,666 587,032 473,030 576,633
----------- ----------- ----------- -----------
$ 2,280,466 $ 2,221,236 $ 1,781,035 $ 1,860,485
=========== =========== =========== ===========
Results of operations:
Rental income $ 117,444 $ 471,979 $ 76,212 $ 274,036
Other income 7,707 77,106 2,302 20,948
Costs and expenses (111,679) (540,990) (72,713) (390,849)
----------- ----------- ----------- -----------
Net income (loss) $ 13,472 $ 8,095 $ 5,801 $ (95,865)
=========== =========== =========== ===========
NOTE 4. NOTES RECEIVABLE FROM AFFILIATE
In August 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Heatherwood Apartments II, Ltd. ("Heatherwood II") were converted into
promissory notes as more fully described in the table below.
Heatherwood II Second Mortgage Note; matures on October 1,
2004; accrues interest at an minimum annual rate of 6% and
provides for participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an amount
equal to 20% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will
continue notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain real and
personal property of Heatherwood II; subordinated to the
first mortgage which had a balance of approximately
$702,000 and $703,000 as of March 31, 1999 and December 31,
1998, respectively. $325,000
12
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE FROM AFFILIATE (Continued)
Unsecured promissory note, representing advances made by
the former general partner to Heatherwood II. The note is
payable upon demand and bears interest at 1% over prime
(8.75% as of March 31, 1999 and December 31, 1998). 1,742
Other receivables, related to advances for refinancing fees
and professional services 13,404
--------
340,146
Percentage purchased 42%
--------
142,861
Less discount 25,361
--------
Notes receivable, net of discount $117,500
========
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE
In January 1998, the Partnership purchased from an unrelated party for
$40,000 and a promissory note in the original principal amount of
$560,000, an undivided 75% interest in a second mortgage note in the
original principal amount of $735,000 (with accrued unpaid interest
thereon of $506,767) made by Garden Terrace Apartments III, Ltd. ("Garden
Terrace"), a non-affiliate. In February 1998, the Partnership sold to
Baron Strategic Investment Fund VI, Ltd. ("BSIF VI"), an affiliate, an
undivided 20% interest in the Garden Terrace second mortgage note and
accrued interest for $160,000. In October 1998, Garden Terrace restated
and amended the $735,000 second mortgage note and created a new second
mortgage note in the original principal amount of $506,767 to include
accrued interest. The notes receivable are more fully described below:
Garden Terrace Second Mortgage Note; matures on January 1,
2007; accrues interest at a minimum annual rate of 2% and
provides for participation interest at the rate of 7% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an amount
equal to 30% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will
continue notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain real and
personal property of Garden Terrace; subordinated to the
first mortgage which had a balance of approximately
$967,000 and $967,500 as of March 31, 1999 and December 31,
1998, respectively. $735,000
Garden Terrace Accrued Interest Second Mortgage Note;
matures on January 1, 2007; accrues interest at an annual
rate of 9% payable annually from excess cash flow after 2%
minimum interest and 7% participation interest has been
paid on the $735,000 second mortgage note; secured by a
lien upon certain real and personal property of Garden
Terrace; subordinated to the first mortgage which had a
balance of approximately $967,000 and $967,500 as of March
31, 1999 and December 31, 1998, respectively. 506,767
-----------
13
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
1,241,767
Percentage purchased* 55%
----------
682,972
Less discount 242,972
----------
Notes receivable, net of discount $ 440,000
==========
* BSIF VI and Baron Strategic Investment Fund IX, Ltd. ("BSIF IX"),
affiliates of the Partnership, own the remaining undivided 45% interest
on the notes.
NOTE 6. ADVANCES RECEIVABLE FROM AFFILIATES
During 1997, the Partnership provided funding to Heatherwood, an
affiliate, by means of advances in an arrangement equivalent to an open
ended line of credit. The advances are due on demand and are bear interest
at 12%. The balance as of March 31, 1999 and December 31, 1998 is $38,287.
NOTE 7. NOTE PAYABLE
In connection with the January 1998 purchase of the second mortgages of
Garden Terrace (see Note 5), the Partnership borrowed funds from an
unrelated entity as more fully described below:
Promissory note payable to Investors Funding Resources
Trust; original principal amount of $560,000; matures on
June 30, 1998; accrues interest at an annual rate of 10%
payable upon maturity of the note; collateralized by
Partnership's undivided 75% interest in Second Mortgage of
$735,000 as more fully described in Note 4. $400,000
--------
NOTE 8. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1997, in accordance with the terms of a Private Placement
Memorandum dated June 26, 1997, the Partnership issued 2,256 units of
limited partner interest at $500 per unit for gross proceeds of
$1,128,000. Costs of $268,260 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $268,260 in syndication costs
incurred in 1997, the Partnership incurred a total of $164,000 to its
general partner for administrative, legal and investment fees.
During 1998, the Partnership issued the remaining 144 units at $500 per
unit for gross proceeds of $72,000. Costs of $15,740 incurred in
connection with syndicating the limited partners units were recorded as a
reduction of limited partners' capital contributions.
14
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
15
<PAGE>
================================================================================
BARON STRATEGIC VULTURE FUND I, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Strategic Vulture Fund I, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Strategic Vulture Fund
I, Ltd. (the "Partnership") as of December 31, 1998, and the related statements
of operations, partners' capital and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Baron Strategic Vulture Fund I,
Ltd. at December 31, 1998, and the results of its operations and its cash flows
for each of the two years in the period then ended in conformity with generally
accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Notes 3, 4 and 5 the Partnership and its
affiliates have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 4,368 $ 6,039
Notes receivable from affiliate 612,000 612,000
Advances receivable from affiliate 14,513 14,513
Accrued interest receivable from affiliate 108,474 103,342
-------- --------
$739,355 $735,894
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advances payable to affiliates $ 61,500 $ 61,500
Administrative fees payable to general partner 17,500 16,000
Accrued interest payable to affiliate 8,271 6,451
-------- --------
87,271 83,951
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 81 81
Limited partners 652,003 651,862
-------- --------
652,084 651,943
-------- --------
$739,355 $735,894
======== ========
See notes to financial statements.
2
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December
March 31, ----------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $ 25,932 $108,204 $ 82,471
Other 48 447 1,581
-------- -------- --------
25,980 108,651 84,052
-------- -------- --------
Costs and Expenses:
General and administrative 19 10,445 8,246
Interest expense to affiliates 1,820 6,451 --
Administrative fees to general partner 1,500 6,000 6,000
-------- -------- --------
3,339 22,896 14,246
-------- -------- --------
Net Income $ 22,641 $ 85,755 $ 69,806
======== ======== ========
See notes to financial statements.
3
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 81 $ 676,196 $ 676,277
Year Ended December 31, 1997:
Distributions -- (89,895) (89,895)
Net income -- 69,806 69,806
--------- --------- ---------
Partners' Capital, December 31, 1997 81 656,107 656,188
Year Ended December 31, 1998:
Distributions -- (90,000) (90,000)
Net income -- 85,755 85,755
--------- --------- ---------
Partners' Capital, December 31, 1998 81 651,862 651,943
Three Months Ended March 31, 1999 (Unaudited):
Distribution -- (22,500) (22,500)
Net Income -- 22,641 22,641
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 81 $ 652,003 $ 652,084
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December
March 31, ----------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 22,641 $ 85,755 $ 69,806
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (5,132) (47,871) (55,471)
Increase in accrued interest payable to affiliates 1,820 6,451 --
Increase in administrative fees payable to general partner 1,500 6,000 6,000
--------- --------- ---------
Net cash provided by operating activities 20,829 50,335 20,335
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliate -- -- (128,000)
Advances to affiliate -- -- (8,513)
--------- --------- ---------
Net cash used in investing activities -- -- (136,513)
--------- --------- ---------
Cash Flows from Financing Activities:
Distributions to limited partners (22,500) (90,000) (89,895)
Advance from or notes due to affiliates -- 44,500 17,000
--------- --------- ---------
Net cash used in financing activities (22,500) (45,500) (72,895)
--------- --------- ---------
Net Increase (Decrease) in Cash (1,671) 4,835 (189,073)
Cash, Beginning 6,039 1,204 190,277
--------- --------- ---------
Cash, Ending $ 4,368 $ 6,039 $ 1,204
========= ========= =========
Supplemental Disclosures:
Interest paid during the year $ -- $ -- $ --
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Note Rec Advances
Cash fr. affiliate Receivable
---- ------------- ----------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 1,204 612,000 14,513
Ending Balance, December 31, 1998 6,039 612,000 14,513
-------- -------- --------
4,835 -- --
Cash Flows from Operating Activities:
Net Income 85,755
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partne 6,000
Increase in accrued interest payable to affiliate 6,451
Increase in accrued interest receivable from affiliate (47,871)
--------
Net cash provided (used in) by operating activities 50,335
--------
Cash Flows from Investing Activities:
Principal collected on affiliate advances --
Advances made to affiliate 44,500
Purchase of affiliate second mortgage and receivable --
--------
Net cash provided by (used in) investing activities 44,500
--------
Cash Flows from Financing Activities:
Proceeds from affiliate advance --
Principal payment on note payable --
Contribution --
Distribution (90,000)
Syndication Costs --
--------
Net cash provided by (used in) financing activities (90,000)
--------
Net increase (decrease) in cash 4,835
Cash, Beginning 1,204
Cash, Ending 6,039
---------------------------------------
-- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
<CAPTION>
Accrued Advance
Int. Rec. Payable Admin Fee
fr. affiliate to affiliate Payable
------------- ------------ -------
<S> <C> <C> <C>
Beginning Balance, December 31, 1997 55,471 (17,000) (10,000)
Ending Balance, December 31, 1998 103,342 (61,500) (16,000)
-------- -------- --------
47,871 (44,500) 6,000
Cash Flows from Operating Activities:
Net Income
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partne (6,000)
Increase in accrued interest payable to affiliate
Increase in accrued interest receivable from affiliate (47,871)
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Principal collected on affiliate advances
Advances made to affiliate 44,500
Purchase of affiliate second mortgage and receivable
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Proceeds from affiliate advance
Principal payment on note payable
Contribution
Distribution
Syndication Costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
------------------------------------------
-- -- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
<CAPTION>
Accrued Partners'
Int. Pyble Capital
---------- -------
<S> <C> <C>
Beginning Balance, December 31, 1997 -- (656,188)
Ending Balance, December 31, 1998 (6,451) (651,943)
-------- --------
6,451 (4,245)
Cash Flows from Operating Activities:
Net Income (85,755)
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
Increase in administrative fees payable to general partne
Increase in accrued interest payable to affiliate (6,451)
Increase in accrued interest receivable from affiliate
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Principal collected on affiliate advances
Advances made to affiliate
Purchase of affiliate second mortgage and receivable
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Proceeds from affiliate advance
Principal payment on note payable
Contribution
Distribution 90,000
Syndication Costs
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
-------------------------
-- --
Supplemental Disclosures of Cash Flow Information
Cash payments for interest
</TABLE>
6
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Vulture Fund I, Ltd. ("the Partnership") was initially
organized on April 9, 1996 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $900,000, to be divided into 1,800 equal
units of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the related
allowance for impairment, if any, of such notes receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of
Financial Accounting Standard No. 118,
7
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
allowance for impairment and the collectibility of the notes receivable
due from affiliates. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future,
they may ultimately differ from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of April
24, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$900,000, to be divided into 1,800 units of limited partnership units.
A capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
8
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 15% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the excess, if any,
will be allocated to the general partner.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 10% cash-on-cash return; (b) the general partner until the
total amount distributed to them when added to all prior
distributions of distributable cash and net proceeds made to it, is
equal to the sum of its capital contribution plus an annual 10%
cash-on-cash return and; (c) the balance, if any, is distributed 50%
to the limited partners and 50% to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership;
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
9
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Dissolution (Continued)
(c) the death, resignation, retirement, dissolution, removal,
bankruptcy, adjudication of insolvency, or adjudication of insanity or
incompetence of the last remaining general partner then in office and
the refusal of any successor general partner to replace it, unless the
holders of a majority of the units then outstanding vote to continue
the Partnership and elect one or more successor general partners
willing to serve in such capacity to continue the business of the
Partnership; (d) the sale of all or substantially all of the
Partnership's property; (e) the repayment in full of all loans made by
the Partnership, unless the Partnership thereafter continues to own
non-loan assets; and (f) the occurrence of any other event which, by
law, would require the Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $500 per month through December 31, 2003.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
In January 1997, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. The
receivables, which included notes receivable and accrued interest due from
Curiosity Creek Apartments, Ltd. ("Curiosity Creek"), were converted into
promissory notes as more fully described in the table below:
Curiosity Creek Second Mortgage Note; matures on April 1,
2007; accrues interest at an minimum annual rate of 6% and
provides for participation interest at the rate of 3% per
annum based upon the amount of the unpaid principal, which
shall be due and payable to the extent that it does not
exceed the available cash flow, as defined in the note;
provides for additional participation interest in an amount
equal to 30% of remaining available cash flow, as defined,
which will continue to be made until such time as the
collateral has been sold, and which obligation will
continue notwithstanding total repayment of the principal
amount of the note; secured by a lien upon certain real and
personal property of Curiosity Creek; subordinated to the
first mortgage which had a balance of approximately
$1,290,000 and $1,293,000 as of March 31, 1999 and December
31, 1998, respectively. $807,560
10
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
Unsecured promissory note, representing advances made by
the former general partner to Curiosity Creek. The note is
payable upon demand and bears interest at 12.5%, payable
monthly. 416,000
Unsecured promissory note, representing advances made by
the former general partner to Curiosity Creek. The note is
payable upon demand and bears interest at 1% over prime
(8.75% as of March 31, 1999 and December 31, 1998). 414,380
Other receivables, related to advances for refinancing fees
and professional services. 29,732
----------
1,667,672
Percentage purchased 73.73%
----------
1,229,575
Less discount 617,575
----------
Notes receivable, net of discount $ 612,000
===========
Interest receivable of $105,731 and $100,445 is due on the note receivable
as of March 31, 1999 and December 31, 1998, respectively.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
Prior to 1998, the Partnership provided funding to Curiosity Creek
Apartments, Ltd. ("Curiosity Creek"), an affiliate, by means of advances
in an arrangement equivalent to an open ended line of credit. The advances
are due on demand and provide for interest at 12% per annum. The balance
of $14,513 remained outstanding from Curiosity Creek as of March 31, 1999
and December 31, 1998.
NOTE 5. ADVANCES PAYABLE TO AFFILIATES
During 1997 and 1998, the Partnership received advances from affiliate
partnerships. The advances bear interest at 12% and are due on demand.
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Advance Accrued Advance Accrued
Payable Interest Payable Interest
------- -------- ------- --------
Baron Strategic Investment Fund V, Ltd., $44,500 $ 5,728 $44,500 $ 4,411
Baron Strategic Vulture Fund I, Ltd. 17,000 2,543 17,000 2,040
------- ------- ------- -------
$61,500 $ 8,271 $61,500 $ 6,451
======= ======= ======= =======
11
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
In 1996, in accordance with the terms of a Private Placement Memorandum
dated April 24, 1996, the Partnership issued the 1,800 units of limited
partner interest being offered at $500 per unit for total gross proceeds
of $900,000. Costs of $209,000 incurred in connection with syndicating the
limited partnership units were recorded as a reduction of limited
partners' capital contributions. Of the $209,000 in syndication costs, the
Partnership paid $119,000 to its general partner for administrative, legal
and investment fees.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
12
<PAGE>
================================================================================
BREVARD MORTGAGE PROGRAM, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Brevard Mortgage Program, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Brevard Mortgage Program, Ltd.
(the "Partnership") as of December 31, 1998, and the related statements of
operations, partners' capital and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brevard Mortgage Program, Ltd.
at December 31, 1998, and the results of its operations and its cash flows for
each of the two years in the period then ended in conformity with generally
accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the sole stockholder and president of the Partnership's
general partner. As discussed in Note 3, the Partnership and its affiliates have
engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 951 $ 5,412
Notes receivable from affiliate 474,191 474,191
Accrued interest receivable from affiliate 107,152 99,433
-------- --------
$582,294 $579,036
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advances due to affiliate $ 1,850 $ 1,850
Administrative fees payable to general partner 29,250 27,000
-------- --------
31,100 28,850
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 1,596 1,442
Limited partners 549,598 548,744
-------- --------
551,194 550,186
-------- --------
$582,294 $579,036
======== ========
See notes to financial statements.
2
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $17,719 $73,533 $72,300
Other -- 35 909
------- ------- -------
17,719 73,568 73,209
------- ------- -------
Costs and Expenses:
Administrative fees to general partner 2,250 9,000 9,000
General and administrative 86 3,554 2,119
------- ------- -------
2,336 12,554 11,119
------- ------- -------
Net Income $15,383 $61,014 $62,090
======= ======= =======
See notes to financial statements.
3
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 683 $ 541,399 $ 542,082
Year Ended December 31, 1997:
Distributions -- (57,500) (57,500)
Net income 149 61,941 62,090
--------- --------- ---------
Partners' Capital, December 31, 1997 832 545,840 546,672
Year Ended December 31, 1998:
Distributions -- (57,500) (57,500)
Net income 610 60,404 61,014
--------- --------- ---------
Partners' Capital, December 31, 1998 1,442 548,744 550,186
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (14,375) (14,375)
Net income 154 15,229 15,383
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 1,596 $ 549,598 $ 551,194
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 15,383 $ 61,014 $ 62,090
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliate (7,719) (34,339) (56,200)
Increase in advances due to affiliate -- 1,850 --
Increase in administrative fees payable to general partner 2,250 9,000 9,000
-------- -------- --------
Net cash provided by operating activities 9,914 37,525 14,890
-------- -------- --------
Cash Flows from Investing Activities:
Advances to affiliate -- -- (25,000)
-------- -------- --------
Net cash used in investing activities -- -- (25,000)
-------- -------- --------
Cash Flows from Financing Activities:
Distributions to limited partners (14,375) (57,500) (57,500)
-------- -------- --------
Net cash used in financing activities (14,375) (57,500) (57,500)
-------- -------- --------
Net Decrease in Cash (4,461) (19,975) (67,610)
Cash, Beginning 5,412 25,387 92,997
-------- -------- --------
Cash, Ending $ 951 $ 5,412 $ 25,387
======== ======== ========
</TABLE>
See notes to financial statements.
5
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Interset Mortgage
Cash Advances Receivable Receivable
---- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Begining Balance, December 31, 1997 25,387 474,191 65,094 --
Ending Balance, December 31, 1998 5,412 474,191 99,433 --
-------- -------- -------- --------
(19,975) -- 34,339 --
Cash Flows from Operating Activities:
Net income 61,014
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest (34,339) (34,339)
Increase in admin. fees payable to general partner 9,000
Increase in loan payable due to affiliate 1,850
--------
Net cash provided by operating activities 37,525
Cash Flows from Investing Activities:
Line of credit to affiliate --
Net cash provided (required) by investing activities --
--------
Cash Flows from Financing Activities:
Distribution (57,500)
Limited partner contributions --
Limited partner distributions --
--------
Net cash used in financing activities (57,500)
--------
Net Increase (Decrease) in Cash (19,975)
--------
Cash, Beginning 25,387
Cash, Ending 5,412
--------
---------------------------------------------------------
-- -- --
<CAPTION>
A/P & Accrued Partners'
Acc. Exp. Admin Fees Capital
--------- ---------- -------
<S> <C> <C> <C>
Begining Balance, December 31, 1997 -- (18,000) (546,672)
Ending Balance, December 31, 1998 (1,850) (27,000) (550,186)
-------- -------- --------
1,850 9,000 3,514
Cash Flows from Operating Activities:
Net income (61,014)
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in accrued interest
Increase in admin. fees payable to general partner (9,000)
Increase in loan payable due to affiliate (1,850)
Net cash provided by operating activities
Cash Flows from Investing Activities:
Line of credit to affiliate
Net cash provided (required) by investing activities
Cash Flows from Financing Activities:
Distribution 57,500
Limited partner contributions
Limited partner distributions
Net cash used in financing activities
Net Increase (Decrease) in Cash
Cash, Beginning
Cash, Ending
---------------------------------
-- -- --
</TABLE>
6
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Brevard Mortgage Program, Ltd. ("the Partnership") was initially
organized on November 14, 1995 under the laws of the State of Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $575,000, to be divided into 575 equal units
of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt financing to existing affiliated limited
partnerships owning residential apartment communities located in
Florida.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Notes Receivable from Affiliate
Notes receivable from affiliate are recorded at cost, less the related
allowance for impairment, if any, of such notes receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of Financial Accounting
Standard No. 118,
7
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
collectibility of the notes receivable due from affiliates. Although
these estimates are based on management's knowledge of current events
and actions it may undertake in the future, they may ultimately differ
from actual results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of
December 8, 1995.
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$575,000 to be divided into 575 units of limited partnership units. A
capital account is maintained for each partner.
8
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Term
The Partnership will continue through December 31, 2025, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 99% of the distributable cash; and (b) to the
general partner who will receive 1% of the distributable cash.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the entire principal amount of the purchased
second mortgage loan has been repaid; and (b) the balance, if any, is
distributed to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
9
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; (e) the
repayment in full of all loans made by the Partnership, unless the
Partnership thereafter continues to own non-loan assets; and (f) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $750 per month through December 31, 2002.
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE
The Partnership had the following receivables from Florida Opportunity
Income Partners II, Ltd. ("Meadowdale") as of March 31, 1999 and
December 31, 1998:
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
Notes receivable, net of discount $450,000 $102,231 $450,000 $ 95,228(a)
Advances 24,191 4,291 24,191 4,205(b)
-------- -------- -------- --------
$474,191 $107,152 $474,191 $ 99,433
======== ======== ======== ========
10
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATE (Continued)
(a) In December 1995, the Partnership acquired certain receivables from an
unrelated entity at a discount from the face amount thereof. These
receivables, which include notes receivable and accrued interest due
from Meadowdale, were converted into promissory notes as more fully
described in the table below:
Meadowdale Second Mortgage Note; matures on July 31,
2001; accrues interest at a minimum annual rate of 6%
and provides for participation interest at the rate of
3% per annum based upon the amount of the unpaid
principal, which shall be due and payable to the extent
that it does not exceed the available cash flows, as
defined in the note; provides for additional
participation interest in an amount equal to 20% of
remaining available cash flow, as defined, which will
continue to be made until such time as the collateral
has been sold, and which obligation will continue
notwithstanding total repayment of the principal amount
of the note; secured by a lien upon certain real and
personal property of Meadowdale and; subordinated to a
first mortgage, which had a balance of approximately
$949,000 and $954,000 as of March 31, 1999 and December
31, 1998, respectively. $752,747
Secured promissory note representing advances made by
the former general partner to Meadowdale. The note
matures on July 31, 2001 and bears interest, which is
payable quarterly, at an annual interest rate of 1% over
prime (8.75% as of March 31, 1999 and December 31, 1998) 271,923
----------
1,024,670
Less discount 574,670
----------
Notes receivable, net of discount $ 450,000
==========
(b) During 1997, the Partnership provided funds to Meadowdale by means of
advances as more fully described below:
Secured promissory note representing advances made by
the Partnership. The note matures on July 31, 2001 and
bears interest, which is payable quarterly, at 12% per
annum. $24,191
=======
On December 15, 1998, Meadowdale amended and restated all the above notes
and mortgages and entered into an Amendment to Open-End Second Mortgage
and Security Agreement by which all of the above notes will be secured by
the Second Mortgage. The amendment also provides for additional advances
not to exceed a $1,500,000 maximum to be evidenced by an Additional
Advance Agreement or note.
11
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement
Memorandum dated December 8, 1995, the Partnership issued the 575 units of
limited partner interest being offered at $1,000 per unit for total gross
proceeds of $575,000. Costs of $67,500 incurred in connection with
syndicating the partnership units were recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $10,000 was
paid to the General Partner for administrative, legal and investment fees.
NOTE 5. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
12
<PAGE>
================================================================================
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
================================================================================
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Lamplight Court of Bellefontaine Apartments, Ltd.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Lamplight Court of
Bellefontaine Apartments, Ltd. (the "Partnership") as of December 31, 1998, and
the related statements of operations, partners' capital and cash flows for each
of the two years in the period then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lamplight Court of
Bellefontaine, Ltd. at December 31, 1998, and the results of its operations and
its cash flows for each of the two years in the period then ended in conformity
with generally accepted accounting principles.
The Partnership is affiliated with certain other limited partnerships (the
"affiliates") in similar lines of business, all of whom are controlled by a
common person who is the stockholder and president of the Partnership's general
partner. As discussed in Notes 3, 4 and 5, the Partnership and its affiliates
have engaged in significant transactions with each other.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
1
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
BALANCE SHEETS
March 31, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 7 $ 2
Note receivable from affiliate 365,000 365,000
Advances receivable from affiliate 93,302 93,302
Accrued interest receivable from affiliate 125,554 114,171
-------- --------
$583,863 $572,475
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 12,000 $ 10,500
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 90 90
Limited partners 571,773 561,885
-------- --------
571,863 561,975
-------- --------
$583,863 $572,475
======== ========
See notes to financial statements.
2
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF OPERATIONS
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $15,382 $66,772 $63,188
Other 31 158 1,973
------- ------- -------
15,413 66,930 65,161
------- ------- -------
Costs and Expenses:
Administrative fees to general partner 1,500 6,000 6,000
General and administrative 25 5,350 1,262
------- ------- -------
1,525 11,350 7,262
------- ------- -------
Net Income $13,888 $55,580 $57,899
======= ======= =======
See notes to financial statements.
3
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Partners' Capital, January 1, 1997 $ 90 $ 587,931 $ 588,021
Year Ended December 31, 1997:
Distributions -- (69,525) (69,525)
Net income -- 57,899 57,899
--------- --------- ---------
Partners' Capital, December 31, 1997 90 576,305 576,395
Year Ended December 31, 1998:
Distributions -- (70,000) (70,000)
Net income -- 55,580 55,580
--------- --------- ---------
Partners' Capital, December 31, 1998 90 561,885 561,975
Three Months Ended March 31, 1999 (Unaudited):
Distributions -- (4,000) (4,000)
Net income -- 13,888 13,888
--------- --------- ---------
Partners' Capital, March 31, 1999 (Unaudited) $ 90 $ 571,773 $ 571,863
========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three
Months Year Ended
Ended December 31,
March 31, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 13,888 $ 55,580 $ 57,899
Adjustments to reconcile net income to
net cash provided by operating activities:
Changes in operating assets and liabilities:
Increase in interest receivable from affiliate (11,383) (36,371) (55,189)
Increase in administrative fees payable to the general partner 1,500 -- 6,000
--------- --------- ---------
Net cash provided by operating activities 4,005 19,209 8,710
--------- --------- ---------
Cash Flows from Investing Activities:
Advances to affiliate -- -- (17,366)
--------- --------- ---------
Net cash used in investing activities -- -- (17,366)
--------- --------- ---------
Cash Flows from Financing Activities:
Distributions to limited partners (4,000) (70,000) (69,525)
--------- --------- ---------
Net cash used in financing activities (4,000) (70,000) (69,525)
--------- --------- ---------
Net Increase (Decrease) in Cash 5 (50,791) (78,181)
Cash, Beginning 2 50,793 128,974
--------- --------- ---------
Cash, Ending $ 7 $ 2 $ 50,793
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
LAMPLIGHT COURT OF BELLFONTAINE, LTD.
Cash Flow Worksheet
December 31, 1998
<TABLE>
<CAPTION>
Loans Accrued Investment
Cash Receivable Interest R/P
---- ---------- -------- ---
<S> <C> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 50,793 93,302 77,800 --
Ending Balance, December 31, 1998 2 93,302 114,171 --
-------- -------- -------- ------
(50,791) -- 36,371 --
Cash Flows from Operating Activities:
Net income 55,580
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Loans receivable
Accrued interest (36,371) (36,371)
Security deposits and prepaid rents --
Payable to GP --
--------
Net cash provided (used in) by operating activities 19,209
--------
Cash Flows from Investing Activities:
Loans to affiliated limited partnership -- --
Repayments on notes receivable --
--------
Net cash provided by (used in) investing activities --
--------
Cash Flows from Financing Activities:
Principal payments on mortgage payable --
Principal payment on note payable --
General partner contributions --
General partner distributions (70,000)
Limited partner contributions --
Limited partner distributions --
Bank overdraft --
--------
Net cash provided by (used in) financing activities (70,000)
--------
Net increase (decrease) in cash (50,791)
Cash, Beginning 50,793
Cash, Ending 2
-------------------------------------------
0 -- -- -- --
Supplemental Disclosures of Cash Flow Information
<CAPTION>
Mtg. Partners'
Receivable Accr Liab Capital
---------- --------- -------
<S> <C> <C> <C> <C>
Beginning Balance, December 31, 1997 365,000 (10,500) (576,395) --
Ending Balance, December 31, 1998 365,000 (10,500) (561,975) (0)
-------- -------- --------
-- -- 14,420
--
Cash Flows from Operating Activities:
Net income 55,580
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Changes in operating assets and liabilities:
(Increase) decrease in:
Loans receivable
Accrued interest
Security deposits and prepaid rents
Payable to GP --
Net cash provided (used in) by operating activities
Cash Flows from Investing Activities:
Loans to affiliated limited partnership
Repayments on notes receivable
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Principal payments on mortgage payable
Principal payment on note payable
General partner contributions
General partner distributions (70,000)
Limited partner contributions
Limited partner distributions
Bank overdraft
Net cash provided by (used in) financing activities
Net increase (decrease) in cash
Cash, Beginning
Cash, Ending
--------------------------------------------
-- (0)
Supplemental Disclosures of Cash Flow Information
</TABLE>
6
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Lamplight Court of Bellefontaine Apartments, Ltd. ("the Partnership")
was initially organized on February 16, 1996 under the laws of the
State of Florida.
The Agreement of Limited Partnership provides for capital contributions
of partners to be comprised of (a) the general partner capital
contribution of $90 in cash; and (b) the maximum capital contributions
of the limited partners of $700,000, to be divided into 700 equal units
of limited partnership interest.
See Note 2 for a summary of other provisions of the Agreement of
Limited Partnership.
Business
The Partnership provides debt and equity financing to existing
affiliated limited partnerships owning residential apartment
communities located in Ohio.
Unaudited Financial Information
The accompanying financial information as of and for the three months
ended March 31, 1999 is unaudited. However, in the opinion of
management, all adjustments, consisting of normal recurring accruals
and adjustments, necessary for a fair presentation of financial
position, results of operations and cash flows have been made.
The results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Revenue Recognition
Revenue, which consists primarily of interest on notes receivable, is
recognized as it becomes due.
Concentration of Credit Risk
At various times during the year the Partnership had deposits in
financial institutions in excess of the federally insured limits. The
Partnership maintains its cash with a high quality financial
institution which the Partnership believes limits these risks.
Note Receivable from Affiliate
Note receivable from affiliate is recorded at cost, less the related
allowance for impairment, if any, of such note receivable. The
Partnership accounts for such notes under the provisions of Statement
of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement of Financial Accounting
Standard No. 118,
7
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Note Receivable from Affiliate (Continued)
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers
a note to be impaired when it is probable that the Partnership will be
unable to collect all amounts due according to the contractual terms of
the note. When a loan is considered to be impaired, the amount of
impairment is measured based upon (a) the present value of expected
future cash flows discounted at the note's effective interest rate; and
(b) the liquidation value of the note's collateral reduced by expected
selling costs and other notes secured by the same collateral. Cash
receipts on impaired notes receivable are applied to reduce the
principal amount of such receivables until the principal has been
recovered, and are recognized as interest income thereafter.
Investment in Affiliate
In 1996, the Partnership acquired certain receivables and a limited
partner interest in Independence Village, Ltd. ("Independence Village")
from an unrelated entity at a discount from the face amount thereof
(see Note 3). As a result, the Partnership holds a 31.7% limited
partner interest in Independence Village, a limited partnership which
owns a residential apartment property in Bellefontaine, Ohio. The
investment in Independence Village is accounted for using the equity
method of accounting as a result of the Partnership and Independence
Village having the same general partner president and the general
partner's ability to exercise significant influence on Independence
Village. As such, the investment in Independence Village is carried at
cost and adjusted for the Partnership's share of undistributed earnings
or losses using the equity method of accounting. At the date of
purchase, management estimated the value of the limited partner
interest to be insignificant and did not allocate any of the purchase
price to the investment.
Use of Estimates
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities
as of the date of the balance sheet and operations for the year then
ended. Material estimates as to which it is reasonably possible that a
change in the estimate could occur in the near term relates to the
value of the limited partner interest and the collectibility of the
notes receivable due from affiliates. Although these estimates are
based on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual
results.
Income Taxes
The Partnership is treated as a limited partnership for federal income
tax purposes and as such does not incur income taxes. Instead, its
earnings and losses are included in the personal returns of the
partners and taxed depending on their personal tax situations. The
financial statements do not reflect a provision for income taxes.
8
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP
The following is a summary of the significant provisions of the Agreement
of Limited Partnership ("the Agreement") made and entered into as of March
7, 1996:
Capital Contributions of Partners
The Agreement provides for the general partner to contribute $90 in
cash, and maximum capital contributions of the limited partners of
$700,000, to be divided into 700 units of limited partnership units. A
capital account is maintained for each partner.
Term
The Partnership will continue through December 31, 2026, unless sooner
terminated by law or under certain provisions of the Agreement.
Distributions
Cash Distributions
The Partnership's distributable cash, if any, in each fiscal year
will not be reinvested but will be distributed in order of priority
to the Partners, if available, quarterly, to (a) the limited partners
who will receive 100% of the distributable cash until they have
received a 10% non-cumulative annual cash-on-cash return on the
aggregate amount of their capital contribution as calculated from
each limited partner's admission date; and (b) the general partner
will receive 100% of the remaining distributable cash.
Distributions of Net Proceeds
Net proceeds from the sale or refinancing of the Partnership's assets
will not be reinvested but will be distributed to the partners in
order of priority after repayment of all indebtedness secured by the
assets to (a) the limited partners who will receive 100% of the
distributions until the total amount distributed to them, when added
to all prior distributions of distributable cash and net proceeds
made to them, is equal to the sum of their capital contributions plus
an annual 10% cash-on-cash return; and (b) then 31.7% of up to
$350,000 of any remaining net proceeds to the limited partners; and
(c) the balance, if any, to the general partner.
Allocation of Income and Loss
Allocations of all items of income, gain, expense, loss, deduction and
credit recognized by the Partnership for federal income tax purposes
will be made as follows:
9
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
Allocation of Income and Loss (Continued)
Income
The first 100% of income is allocated to the general partner until
the profits allocated plus the cumulative profits allocated to the
general partner for prior fiscal periods during which a profit was
earned by the Partnership equal the cumulative amounts distributable
to the general partner under the terms of the distributions of cash
and net proceeds. The balance, if any, is allocated to the limited
partners.
Losses
After giving effect to certain tax provisions, taxable losses are
allocated 99% to the limited partners and 1% to the general partner.
Dissolution
The Partnership will be dissolved upon (a) the expiration of the term
of the Agreement; (b) the determination of the limited partners
exercising their voting rights to dissolve the Partnership; (c) the
death, resignation, retirement, dissolution, removal, bankruptcy,
adjudication of insolvency, or adjudication of insanity or incompetence
of the last remaining general partner then in office and the refusal of
any successor general partner to replace it, unless the holders of a
majority of the units then outstanding vote to continue the Partnership
and elect one or more successor general partners willing to serve in
such capacity to continue the business of the Partnership; (d) the sale
of all or substantially all of the Partnership's property; and (e) the
occurrence of any other event which, by law, would require the
Partnership to be dissolved.
Winding Up
Upon the dissolution of the partnership, the general partner will take
full account of the Partnership's assets and liabilities, and the
assets will be liquidated as promptly as is consistent with obtaining
fair value of the assets, and the proceeds will be applied and
distributed (a) first to the Partnership creditors, other than
partners; (b) then, any loans owed by the Partnership to the partners
shall be paid in proportion thereto; and (c) finally, to the limited
partners and the general partner in proportion to their respective
positive capital accounts.
Fees to the General Partner
Pursuant to a Partnership Administration Contract (the "Contract")
between the Partnership and the general partner stipulated in the
Agreement, the Partnership retained the general partner to provide
administrative services for $500 per month through December 31, 2002.
10
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTE RECEIVABLE FROM AFFILIATE
In 1996, the Partnership acquired certain receivables and a 31.7% interest
in Independence Village from an unrelated entity at a discount from the
face amount thereof. The receivables, which included notes receivable and
accrued interest due from Independence Village, were converted into
promissory notes as more fully described in the table below.
Independence Village Second Mortgage Note; matures in
December 2006; accrues interest at an annual rate of 9.5%;
secured by a lien upon certain real and personal property
of Independence Village; subordinated to the first mortgage
which had a balance of approximately $1,362,000 and
$1,366,000 as of March 31, 1999 and December 31, 1998,
respectively. $585,000
Less discount 220,000
--------
Note receivable, net of discount $365,000
========
Interest receivable on the note was $100,254 and $91,632 as of March 31,
1999 and December 31, 1998, respectively.
NOTE 4. ADVANCES RECEIVABLE FROM AFFILIATE
In 1996 and during 1997, the Partnership provided funding to Independence
Village by means of advances in an arrangement equivalent to an open ended
line of credit advances. The outstanding advances are due on demand and
accrue interest at 12% per annum. The balance of $93,302 remained
outstanding as of March 31, 1999 and December 31, 1998. Interest income of
$2,761 was recognized during the three months ended March 31, 1999 and
$11,196 was recognized during the year ended December 31, 1998. Accrued
interest of $25,300 and $22,539 remained outstanding as of March 31, 1999
and December 31, 1998, respectively.
NOTE 5. INVESTMENT IN AFFILIATE
The following is a summary of the financial position and results of
operations of Independence Village as of March 31, 1999 and December 31,
1998 and for the three months and year then ended, respectively.
March 31, December 31,
1999 1998
---- ----
(Unaudited)
Financial position:
Rental apartments $ 1,719,536 $ 1,719,536
Other assets 176,025 121,589
----------- -----------
Total assets $ 1,895,561 $ 1,841,125
=========== ===========
Mortgage payable $ 1,361,555 $ 1,366,078
Other liabilities 927,765 894,922
----------- -----------
Total liabilities 2,289,320 2,261,000
Partners' deficiency (393,755) (419,875)
----------- -----------
$ 1,895,561 $ 1,841,125
=========== ===========
11
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. INVESTMENT IN AFFILIATE (Continued)
Results of operations:
Revenues (including rental income of $81,251 and
$361,716, respectively) $ 86,509 $ 365,274
Costs and expenses (65,797) (565,309)
----------- -----------
Net income (loss) $ 20,713 $ (200,035)
=========== ===========
As discussed in Note 1, upon acquisition of certain receivables and the
limited partnership interest in Independence Village, the Partnership did
not allocate any of the purchase price to the investment in affiliate. The
Partnership has deferred recognition of its proportionate share of net
losses because there is no personal obligation to fund the resulting
negative limited partner's capital account balance. Future net income, if
any, will not be recognized until such time as the limited partner's
capital account becomes a positive balance.
NOTE 6. LIMITED PARTNERS' CAPITAL CONTRIBUTIONS
During 1996, in accordance with the terms of a Private Placement
Memorandum dated March 7, 1996, the Partnership issued 700 units of
limited partnership interest units at $1,000 per unit for total gross
proceeds of $700,000. Costs of $120,000 incurred in connection with
syndicating the partnership were recorded as a reduction of limited
partners' capital contributions. Of the syndication costs, $57,000 was
paid to the General Partner for administrative, legal and investment fees.
NOTE 7. OTHER MATTER
In connection with a proposed Exchange Offering, Baron Capital Properties,
L.P. ("the Operating Partnership"), a partnership under common control,
will offer to exchange Operating Partnership Units to the limited partners
of the Partnership in exchange for their limited partner interests. These
units are exchangeable for an equivalent number of common shares of
beneficial interest in Baron Capital Trust, a real estate investment trust
under common control, for whom Baron Capital Properties, L.P. is the
operating partnership. Subject to the completion of the proposed Exchange
Offering, the Trust and the Operating Partnership will account for the
acquisition of the limited partnership interests in the offering on the
purchase method and therefore record the assets acquired and the
liabilities assumed at their fair value at the date of acquisition.
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED BARON CAPITAL TRUST
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE HEREBY. IF GIVEN OR MADE, THE OTHER INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS $______________
HAVING BEEN AUTHORIZED BY BARON TRUST OR SIGMA.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY 2,500,000 COMMON SHARES
OF THE COMMON SHARES IN ANY JURISDICTION WHERE, BENEFICIAL INTEREST
OR TO ANY PERSON, TO WHOM, IT IS UNLAWFUL TO
MAKE THE OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF BARON TRUST
SINCE THE DATE HEREOF.
- --------------------------------------------------------- ----------------------------------------------------
</TABLE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Table of Contents................................ 2
Prospectus Summary............................... 3
Risk Factors..................................... 6
Who May Invest.................................. 21
Tax Status of Trust............................. 22
Use of Proceeds................................. 23 PROSPECTUS
Compensation of the Managing
Persons and Affiliates........................ 24
Conflicts of Interest........................... 29 The date of this Prospectus is
Fiduciary Responsibility........................ 32 __________ ____, 1999
Special Note Regarding Forward-Looking
Statements.................................... 33
Prior Performance of Affiliates of Managing
Shareholder................................... 34
Management...................................... 47
Business of Baron Trust......................... 53
Investment Objectives and Policies.............. 61
Initial Real Estate Investments................. 66
Federal Income Tax Considerations............... 84
Summary of Declaration of Trust................. 92
Reports to Shareholders........................ 102
Capital Stock of Baron Trust................... 103
Capitalization................................. 106
Terms of the Offering.......................... 106
Other Information.............................. 108
Litigation..................................... 110
Experts........................................ 110
Legal Matters.................................. 110
Additional Information......................... 111
Glossary....................................... 112
EXHIBITS
</TABLE>
A Prior Performance of Affiliates of Baron
Advisors
B Summary of Exchange Property and Exchange
Partnership Information
C Financial Statements of Baron Trust and Baron
Advisors
D Financial Statements of the Exchange Properties
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------- ----------------------------------------------------
UNTIL __________ __, 1999 (90 DAYS AFTER THE
COMMENCEMENT OF THIS OFFERING), ALL DEALERS SIGMA FINANCIAL CORPORATION
EFFECTING TRANSACTIONS IN THE COMMON SHARES,
WHETHER OR NOT PARTICIPATING IN THE
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------- ----------------------------------------------------
- --------------------------------------------------------- ----------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under Section 3817 of the Delaware Business Trust Act, subject to such
standards and restrictions, if any, as are set forth in the governing instrument
of a Delaware business trust, a business trust shall have the power to indemnify
and hold harmless any trustee or beneficial owner or other person from and
against any and all claims and demands whatsoever, and the absence of such a
provision shall not be construed to deprive any trustee or beneficial owner or
other person of any right to indemnity which is otherwise available to such
person under the laws of Delaware.
Under Sections 3.7 and 3.8 of the Declaration of Trust for the Trust
("Registrant"), each of the Registrant's officers, agents, and Affiliates, the
Managing Shareholder, the Trustees, any other members of the Board of the Trust,
each Affiliate of the Managing Shareholder, a Trustee, other member of the
Board, and any directors, officers or agents of any of the foregoing when acting
for the Managing Shareholder, a Trustee, any other member of the Board or any of
their respective Affiliates on behalf of the Registrant (collectively, "Managing
Persons," and individually a "Managing Person") shall be indemnified out of the
assets of the Registrant against any losses, liabilities, judgments, expenses
and amounts paid in settlement of any claims sustained by him in connection with
the Registrant or claims by the Registrant, in right of the Registrant or by or
in right of any Shareholders of the Registrant, if the Managing Person, in good
faith, determined that its course of conduct was in the Registrant's best
interest, within the scope of the Declaration and did not constitute negligence
or misconduct in the case of any Managing Person who is not an Independent
Trustee and did not constitute gross negligence or willful misconduct in the
case of any Managing Person who is an Independent Trustee, and in addition, in
the case of Managing Persons other than the Managing Shareholder, Trustees and
other members of the Board, the indemnitees were acting within the scope of
authority validly delegated to them by the Managing Shareholder, Trustees or any
other members of the Board. In no case, however, will a Managing Person or any
broker-dealer be indemnified, or be advanced expenses for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws, unless (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (ii) those claims have been dismissed with prejudice
on the merits by a court of competent jurisdiction as to the particular
indemnitee or (iii) a court of competent jurisdiction approves a settlement of
the claims against the particular indemnitee and finds that indemnification of
the settlement and the related costs should be made. In any claim for federal or
state securities law violations, the party seeking indemnification shall place
before the court the positions of the Securities and Exchange Commission and of
securities administrators of states in which securities of the Registrant were
offered or sold to the extent required by them with respect to the issue of
indemnification for securities law violations.
The following provisions apply to all rights of indemnification and
advances of expenses under the Declaration:
(a) Expenses, including attorneys' fees, incurred by a Managing Person
in defending any action, suit or proceeding may be paid by the Registrant in
advance of the final disposition of the action, suit or proceeding only if all
of the following conditions are satisfied:
<PAGE>
(i) The action, suit or proceeding relates to acts or
omissions with respect to the performance of duties or services on behalf of the
Registrant;
(ii) The action, suit or proceeding is initiated by a third
party who is not a Shareholder or it is initiated by a Shareholder acting in its
capacity as such and a court of competent jurisdiction specifically approves
such advancement; and
(iii) The Managing Person seeking advancement of expenses
undertakes to repay such amount, together with the applicable legal rate of
interest thereon, if it shall ultimately be determined that the Managing Person
is not entitled to be indemnified by the Registrant under the Declaration or
otherwise and if at least one of the following conditions is satisfied:
(1) The Managing Person provides appropriate security
for the undertaking;
(2) The Managing Person is insured against losses or
expenses of defense or settlement so that the advances may be recovered or
(3) Either a majority of the Independent Trustees who
are not parties to the action, suit or proceeding, or independent legal counsel
in a written opinion, determines, based upon a review of the then readily
available facts, that there is reason to believe that the Managing Person will
be found to be entitled to indemnification under the terms and conditions of the
Declaration.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for the reciprocal indemnification by the underwriter of the
Registrant, and its directors, officers and controlling persons, and by the
Registrant of the underwriter, and its directors, officers and controlling
persons, against certain liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 27. Exhibits.
A list of exhibits included as part of this Registration Statement is
set forth in the Index to Exhibits which immediately precedes such exhibits.
Item 28. Undertakings.
The Trust undertakes to do the following:
1. If the Trust is registering the securities under Rule 415 of the
Securities Act of 1933, as amended (the "Securities Act"), the Trust will:
(a) File, during the period in which it offers or sell
securities, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section
10(a)(3) of the Securities Act;
<PAGE>
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the Registration Statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(b) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(c) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
2. The Trust will provide to the underwriter of the offering at the
closings specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
3. If the Registrant requests acceleration of the effective date of the
registration statement under Rule 461 under the Securities Act:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
4. If the Registrant relies on Rule 430A under the Securities Act, the
Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time the Commission declared it
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
5. The Registrant undertakes to file a sticker supplement pursuant to
Rule 424(c) under the Act during the distribution period describing each
property not identified in the Prospectus at such time as
<PAGE>
there arises a reasonable probability that such property will be acquired and to
consolidate all such stickers into a post-effective amendment filed at least
once every three months, with the information contained in such amendment
provided simultaneously to the existing Shareholders. Each sticker supplement
should disclose all compensation and fees received by the Managing Shareholder
and its affiliates in connection with any such acquisition. The post-effective
amendment shall include audited financial statements meeting the requirements of
Rule 3-14 of Regulation S-X (or Rule 310 of Regulation S-B, if applicable) only
for properties acquired during the distribution period.
6. The Registrant also undertakes to file, after the end of the
distribution period, a current report on Form 8-K containing the financial
statements and any additional information required by Rule 3-14 of Regulation
S-X (or Rule 310 of Regulation S-B, if applicable), to reflect each commitment
(i.e., the signing of a binding purchase agreement) made after the end of the
distribution period involving the use of 10% or more (on a cumulative basis) of
the net proceeds of the offering and to provide the information contained in
such report to the Shareholders at least once each quarter after the
distribution period of the offering has ended.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Post-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned,in the City of Cincinnati, State of Ohio on June 1, 1999.
BARON CAPITAL TRUST
By: Baron Advisors, Inc.
Managing Shareholder
By: /s/Gregory K. Mcgrath
------------------------------
Gregory K. McGrath, President
BARON CAPITAL PROPERTIES, L.P.
By: Baron Capital Trust, General Partner
By: Baron Advisors, Inc.,
Managing Shareholder
By: /s/Gregory K. Mcgrath
------------------------------
Gregory K. McGrath, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 4 to the Registration Statement was signed by the following person
in the capacity and on the date stated
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/Gregory K. Mcgrath
- ------------------------
Gregory K. McGrath President of Baron Advisors, Inc.
Managing Shareholder of Registrant
Baron Capital Trust June 1, 1999
/s/Gregory K. Mcgrath
- ------------------------
Gregory K. McGrath President of Baron Advisors, Inc.,
Managing Shareholder of Registrant
Baron Capital Trust, General Partner
of Registrant Baron Capital Properties, L.P. June 1, 1999
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document Description
- ------- --------------------
<S> <C>
1.1** Underwriting Agreement, dated as of May 15, 1998, between Sigma
Financial Corporation and the Registrant
3.1** Certificate of Business Trust Registration of the Registrant
3.2.1** Amended and Restated Declaration of Trust for the Registrant made
as of May 15, 1998
3.3.2+ Amended and Restated Declaration of Trust for the Registrant made
as of August 11, 1998
3.3** Form of By-laws of the Registrant
4.1** Form of Common Share Certificate
5.1** Opinion of Schoeman, Marsh & Updike, LLP as to legality of
securities being registered
5.2** Opinion of Keating, Muething & Klekamp P.L.L. on certain tax
matters
5.3*** Opinion of Manatt, Phelps & Phillips, LLP on certain tax matters
10.1** Trust Management Agreement, dated as of May 15, 1998, between the
Registrant and Baron Advisors, Inc.
10.2** Form of Escrow Agreement between the Registrant and Sigma
Financial Corporation
10.3** Form of Indemnification Agreement among the Registrant, Baron
Advisors, Inc., and the Registrant's Independent Trustees and
officers (included in Sections 3.6 and 3.7 of the Amended and
Restated Declaration of Trust attached hereto as Exhibit 3.2)
10.4** Warrant Purchase Agreement, dated as of May 15, 1998, between the
Registrant and Sigma Financial Corporation
10.5** Form of Subscription Documents
10.6** Agreement of Limited Partnership of Baron Capital Properties,
L.P. dated as of May 15, 1998
10.7** Form of Security Escrow Agreement among Gregory K. McGrath,
Robert S. Geiger, Baron Capital Trust and American Stock Transfer
& Transfer Company
10.8*** Amended and Restated Security Excrow Agreement dated as of May
15, 1998 among Gregory K. McGrath, Robert S. Geiger, Baron
Capital Trust, and American Stock Transfer & Trust Company.
10.9*** Founders' Subscription Agreement.
</TABLE>
<PAGE>
INDEX TO EXHIBITS
(CONTINUED)
<TABLE>
<CAPTION>
Exhibit
Number Document Description
<S> <C>
23.1** Consent of Schoeman, Marsh & Updike, LLP (included in the opinion
filed as Exhibit 5.1 to this Registration Statement)
23.2** Consent of Keating, Muething & Klekamp, P.L.L. (included in the
opinion filed as Exhibit 5.2 to this Registration Statement)
23.3+ Consent of Manatt, Phelps & Phillips, LLP
99.1** Consent of James H. Bownas to being named as prospective
Independent Trustee of the Registrant
99.2** Consent of Peter M. Dickson to being named as prospective
Independent Trustee of the Registrant
99.3*** Prior Performance Table VI: Acquisitions of Properties by Program
required under Guide 5 relating to preparation of registration
statements relating to interests in real estate limited
partnerships
99.4+ Consent of Elroy D. Miedema, Certified Public Accountant
99.5+ Consent of Rachlin Cohen & Holtz, Independent Certified Public
Accountants
</TABLE>
- ----------------
+ Filed herewith
** Previously filed
*** Incorporated by reference from the Registrant's filing on Form
S-4 dated June 2, 1999 (SEC file # 333-55753).
<PAGE>
Exhibit 23-3
MANATT
- --------
PHELPS
- --------
PHILLIPS
- --------
ATTORNEYS AT LAW
File No: 21307-030
May 27, 1999
Baron Capital Trust
Baron Capital Properties, L.P.
7826 Cooper Road
Cincinnati, Ohio 45242
RE: CONSENT TO THE FILING OF OUR OPINION DATED MAY 26, 1999
REGARDING CERTAIN TAX MATTERS
Ladies and Gentlemen:
We hereby consent to the incorporation by reference into the
Post-Effective Amendment No. 1 to the Registration Statement on Form SB-2 (File
No. 333-35063) of our opinion addressed to Baron Capital Properties, L.P. dated
May 26, 1999 regarding certain federal income tax consequences of the exchange
offering of operating partnership units by Baron Capital Properties, L.P.
MANATT, PHELPS & PHILLIPS, LLP
/s/ Manatt, Phelps & Phillips, LLP
<PAGE>
EXHIBIT 99.4
CONSENT OF ELROY D. MIEDEMA,
CERTIFIED PUBLIC ACCOUNTANT
<PAGE>
Exhibit 99.4
Consent of Independent Auditor
The Board of Baron Capital Trust:
I consent to the use of my reports in respect of 13 residential
apartment properties included in this Form SB-2 Registration Statement of
Baron Capital Trust and incorporated herein by reference and to the reference
to my firm and such reports under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
---------------------------
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
June 1, 1999
<PAGE>
EXHIBIT 99.5
CONSENTS OF RACHLIN COHEN & HOLTZ,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 13, 1999 relating to the financial statements of Baron
Capital Trust.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Investment Fund, Ltd., and to all references to our firm appearing
in such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Investment Fund IV, Ltd., and to all references to our firm appearing
in such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Investment Fund V, Ltd., and to all references to our firm appearing
in such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Investment Fund VI, Ltd., and to all references to our firm appearing
in such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Investment Fund, VIII Ltd., and to all references to our firm
appearing in such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Investment Fund IX, Ltd., and to all references to our firm appearing
in such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Investment Fund X, Ltd., and to all references to our firm appearing
in such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Baron
Strategic Vulture Fund I, Ltd., and to all references to our firm appearing in
such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Brevard
Mortgage Program, Ltd., and to all references to our firm appearing in such
Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated April 2, 1999 relating to the financial statements of Lamplight
Court of Bellefontaine, Ltd., and to all references to our firm appearing in
such Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
June 1, 1999
