<PAGE>
As filed with the Securities and Exchange Commission on November 4, 1999
Registration No. 333-55753
- --------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
AMENDMENT NO. 8 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Baron Capital Properties, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6798 31-1574856
--------------------------- ------------------------- -------------------
State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
Baron Capital Trust
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 6798 31-1584691
--------------------------- ------------------------- -------------------
State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification No.)
or organization) Code Number)
Gregory K. McGrath
7826 Cooper Road 7826 Cooper Road
Cincinnati, Ohio 45242 Cincinnati, Ohio 45242
(513) 984-5001 (513) 984-5001
- ------------------------------------------ ------------------------------------
(Address, including ZIP Code and telephone (Name, address, including ZIP Code,
number, including area code, of and telephone number, including area
registrants' principal executive offices) code, of agent for service)
Copies to:
Edward L. Lublin, 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.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Title of each class of Dollar amount to Proposed maximum Proposed maximum Amount of
securities to be registered be registered offering price per unit aggregate offering price registration fee (1)
- --------------------------- ------------- ----------------------- ------------------------ --------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 Units of Limited
Partnership Interest $25,000,000 $10.00 $25,000,000 $7,576.00
- ----------------------------------------------------------------------------------------------------------------------------
2,500,000 Common Shares of
Beneficial Interest in
Baron Capital Trust into
which the registered Units
will be exchangeable N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Previously paid.
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.
2
<PAGE>
CROSS REFERENCE SHEET
Location or Heading in
Item Number Caption Prospectus
- ----------- ------- ----------
Item 1 Forepart of Registration Outside Front Cover
Statement and Outside Front
Cover Page of Prospectus
Item 2 Inside Front and Outside Back Inside Front Cover; Outside
Cover Pages of Prospectus Back Cover, Additional
Information; Summary of
Declaration of Trust -
Quarterly and Annual Reports
Item 3 Risk Factors, Ratio of Earnings Outside Front Cover; Summary
to Fixed Charges and Other of the Trust and the Operating
Information Partnership; Summary of Risk
Factors; Risk Factors; Tax
Status
Item 4 Terms of the Transaction Summary of the Trust and the
Operating Partnership; The
Exchange Offering; The Trust
and the Operating Partnership;
Investment Objectives and
Policies; Initial Real Estate
Investments; Comparison of
Rights of Holders of Exchange
Partnership Units, Operating
Partnership Units and Trust
Common Shares
Item 5 Pro Forma Financial Information Financial Statements
Item 6 Material Contacts with the The Trust and the Operating
Company Being Acquired Partnership; Summary of the
Operating Partnership Agreement
Item 7 Additional Information Required
for Reoffering by Persons and Not Applicable
Parties Deemed to be
Underwriters
Item 8 Interests of Named Experts and Outside Front Cover; Summary
Counsel of the Trust and the Operating
Partnership; The Exchange
Offering; Experts; Legal
Matters
Item 9 Disclosure of Commission Summary of Declaration of
Position on Indemnification of Trust - Liability and
Securities Act Liabilities Indemnification
Item 10 Information with Respect to S-3 Not Applicable
Registrants
Item 11 Incorporation of Certain Not Applicable
Information by Reference
Item 12 Information with Respect to S-2 Not Applicable
or S-3 Registrants
Item 13 Incorporation of Certain Not Applicable
Information by Reference
3
<PAGE>
Item 14 Information with Respect to Summary of the Trust and the
Registrants Other than S-2 or Operating Partnership; The
S-3 Registrants Exchange Offering; Initial
Real Estate Investments;
Litigation; Financial Statements
of the Trust, the Operating
Partnership and the Managing
Shareholder
Item 15 Information with Respect to S-3 Not Applicable
Companies
Item 16 Information with Respect to S-2 Not Applicable
or S-3 Companies
Item 17 Information with Respect to Not Applicable
Companies Other than S-2 or S-3
Companies
Item 18 Information if Proxies, Consents
or Authorizations are to be Not Applicable
Solicited
Item 19 Information if Proxies, Consents Summary of the Trust and the
or Authorizations are not to be Operating Partnership; The
Solicited or in an Exchange Offer Exchange Offering; Management;
The Trust and the Operating
Partnership - Formation
Transactions
Item 20 Indemnification of Directors and Summary of Declaration of
Officers Trust - Liability and
Indemnification; Part II of
Registration Statement
Item 21 Exhibits and Financial Statement Part II of Registration
Schedules Statement
Item 22 Undertakings Part II of Registration
Statement
4
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
Date of Issuance: ________________, 1999
Subject to Completion:
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
PROSPECTUS BARON CAPITAL PROPERTIES, L.P.
______________, 1999 2,500,000 Units of Limited Partnership Interest
Exchange Partnerships
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund II, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Central Florida Income Appreciation Fund, Ltd.
Florida Capital Income Fund, Ltd.
Florida Capital Income Fund II, Ltd.
Florida Capital Income Fund III, Ltd.
Florida Capital Income Fund IV, Ltd.
Florida Income Advantage Fund I, Ltd.
Florida Income Appreciation Fund I, Ltd.
Florida Income Growth Fund V, Ltd.
Florida Opportunity Income Partners, Ltd.
GSU Stadium Student Apartments, Ltd.
Lamplight Court of Bellefontaine Apartments, Ltd.
Midwest Income Growth Fund VI, Ltd.
Realty Opportunity Income Fund VIII, Ltd.
THE EXCHANGE OFFERING WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE DESCRIBED IN THE ELECTION FORM, UNLESS EXTENDED.
Baron Capital Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership, hereby offers, upon the terms and subject to the conditions
set forth in this prospectus (as the same may be amended or supplemented from
time to time, the "Prospectus") and in the accompanying Letter of Transmittal
and Election Form (which together constitute the "Exchange Offering"), to issue
up to 2,500,000 units of limited partnership interest in the Operating
Partnership ("Operating Partnership Units" or "Units"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which this Prospectus constitutes a
part, in exchange for units of limited partnership interest ("Exchange
Partnership Units") owned by individual limited partners ("Exchange Limited
Partners") in 23 limited partnerships (the "Exchange Partnerships") which
directly or indirectly own equity and/or subordinated mortgage interests in one
or more residential apartment properties.
SEE "SUMMARY OF RISK FACTORS" AND "RISK FACTORS" ON PAGES ____ THROUGH
_______ AND PAGES _____ THROUGH ____, RESPECTIVELY, FOR A DISCUSSION OF CERTAIN
MATERIAL FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE
OFFERING AND THE OWNERSHIP OF OPERATING PARTNERSHIP UNITS AND TRUST COMMON
SHARES, INCLUDING THE FOLLOWING:
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Trust Common Shares (into
which Units are exchangeable on a one-for-one basis), if listed on a
national securities exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders
of the Trust and the Operating Partnership with no separate counsel
or advisor for the Exchange Limited Partners.
o Offerees may not have an opportunity prior to their decision to
accept the Exchange Offering to evaluate a significant number of
properties in which the Trust and the Operating Partnership may
acquire an interest, and they will not have the benefit of knowing
in advance of deciding whether to accept the offering the extent of
the Operating Partnership's investment in respect of properties
involved in the offering until the offering is completed.
<PAGE>
o If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be
tendering their current investment in the particular Exchange
Partnership with an expected limited duration in exchange for an
investment in the Operating Partnership, which has an unlimited
duration.
o The Original Investors (described below under "Compensation") and
affiliates have significant influence over the operation of the
Trust, the Operating Partnership, and the Exchange Partnerships, and
the Exchange Offering involves transactions among them which involve
conflicts of interest which may result in decisions that do not
fully represent the interests of all Shareholders of the Trust,
Unitholders in the Operating Partnership and limited partners in the
Exchange Partnerships.
o All of the Exchange Partnerships are managed by corporate general
partners affiliated with one of the founders of the Operating
Partnership, and all of the mortgage interests owned by the Exchange
Partnerships relate to properties owned by other limited
partnerships affiliated with one of the founders of the Operating
Partnership.
o The purchase price to be paid by the Operating Partnership in the
Exchange Offering for the equity and mortgage interests in
properties 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 (or in the case of a mortgage interest the current amount of
debt which is senior to the mortgage interest to be acquired and
other indebtedness 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 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 property interests acquired will reflect their fair
market value.
o A significant portion of the value of the equity and mortgage
interests in properties owned by the Exchange Partnerships was
determined subjectively by the Managing Shareholder which is
affiliated with the general partner of each Exchange Partnership.
This affiliation creates a potential conflict in making such
determination of value.
o Offerees who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors
paid for Units issued to them in connection with the formation of
the Trust and the Operating Partnership.
o Offerees who accept the offering may not experience returns
comparable to or in excess of those experienced by Limited Partners
in the Exchange Partnerships.
o There can be no assurance of the successful completion of the
Exchange Offering and the Trust's Cash Offering.
o In exchange for his capital contribution of $50,000, each of the
Original Investors has received Units assigned an initial value of
$6,010,800 if all 2,500,000 Common Shares are sold in the Cash
Offering by November 30, 1999 and all 2,500,000 Units offered in the
Exchange Offering are sold by such date. In addition, each serves as
an officer of the Trust, the Operating Partnership and the Managing
Shareholder and will receive compensation for such services.
2
<PAGE>
The Operating Partnership and its general partner, Baron Capital Trust
(the "Trust" or the "General Partner"), a Delaware business trust, constitute an
affiliated 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 mortgage loans secured by such types of property. The
Trust, indirectly through the Operating Partnership, 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. See "SUMMARY OF THE TRUST AND OPERATING
PARTNERSHIP," "THE TRUST AND THE OPERATING PARTNERSHIP," and "INVESTMENT
OBJECTIVES AND POLICIES" below. The management of the Trust has been involved in
the residential property business for over 10 years.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold all direct or indirect property interests acquired. The
Trust, as its sole General Partner, will control the activities of the Operating
Partnership. The Trust will also acquire a limited partnership interest in the
Operating Partnership with the net proceeds of the Trust's ongoing $25,000,000
best efforts cash offering (the "Cash Offering") of Common Shares of beneficial
interest ("Trust Common Shares" or "Common Shares"). As of the date of this
Prospectus, the Trust has sold _____ Common Shares at $10.00 per share (gross
proceeds of $________) and has acquired _____ Units in the Operating
Partnership. The Trust intends to apply for listing on a national stock exchange
of the Common Shares being offered in the Cash Offering and the Trust Common
Shares into which Units issued in the Exchange Offering will be exchangeable.
The Operating Partnership will not complete the Exchange Offering in
respect of any particular Exchange Partnership unless limited partners holding
at least 90% of the limited partnership interests in the Exchange Partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units with an initial assigned
value of at least $6,000,000.
The Exchange Partnerships are managed by corporate general partners (the
"Corporate General Partners") which are affiliated with one of the founders of
the Operating Partnership. Substantially all of the mortgage interests owned by
the Exchange Partnerships relate to properties owned by other limited
partnerships affiliated with one of the founders of the Operating Partnership
THIS PROSPECTUS AND THE ACCOMPANYING EXHIBITS SHOULD BE READ IN THEIR
ENTIRETY BY EACH OFFEREE AND HIS ADVISORS BEFORE ACCEPTING THE EXCHANGE
OFFERING. ADDITIONAL COPIES OF THIS MATERIAL MAY BE OBTAINED BY CONTACTING THE
OPERATING PARTNERSHIP AT THE ADDRESS SET FORTH BELOW.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The address and telephone and fax numbers of the principal office of the Trust
and the Operating Partnership are:
Baron Capital Trust/ Baron Capital Properties, L.P.
7826 Cooper Road
Cincinnati, Ohio 45242
(513) 984-5001 (Telephone)
(513) 984-4550 (Fax)
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP...........................................................................10
Summary of the Trust and the Operating Partnership.......................................................................10
Background and Reasons for the Exchange Offering.........................................................................18
Summary of Use of Proceeds of Cash Offering..............................................................................20
Summary of Fees and Reimbursable Expenses................................................................................21
DESCRIPTION OF EXCHANGE PARTNERSHIPS.........................................................................................23
Baron Strategic Investment Fund, Ltd.....................................................................................23
Baron Strategic Investment Fund II, Ltd..................................................................................23
Baron Strategic Investment Fund IV, Ltd..................................................................................23
Baron Strategic Investment Fund V, Ltd...................................................................................24
Baron Strategic Investment Fund VI, Ltd..................................................................................24
Baron Strategic Investment Fund VIII, Ltd................................................................................24
Baron Strategic Investment Fund IX, Ltd..................................................................................24
Baron Strategic Investment Fund X, Ltd...................................................................................24
Baron Strategic Vulture Fund I, Ltd......................................................................................25
Brevard Mortgage Program, Ltd............................................................................................25
Central Florida Income Appreciation Fund, Ltd............................................................................25
Florida Capital Income Fund, Ltd.........................................................................................25
Florida Capital Income Fund II, Ltd......................................................................................25
Florida Capital Income Fund III, Ltd.....................................................................................26
Florida Capital Income Fund IV, Ltd......................................................................................26
Florida Income Advantage Fund I, Ltd.....................................................................................26
Florida Income Appreciation Fund I, Ltd..................................................................................26
Florida Income Growth Fund V, Ltd........................................................................................26
Florida Opportunity Income Partners, Ltd.................................................................................27
GSU Stadium Student Apartments, Ltd......................................................................................27
Lamplight Court of Bellefontaine Apartments, Ltd.........................................................................27
Midwest Income Growth Fund VI, Ltd.......................................................................................27
Realty Opportunity Income Fund VIII, Ltd.................................................................................27
VALUATION TABLE..............................................................................................................28
SUMMARY OF RISK FACTORS......................................................................................................30
TAX STATUS...................................................................................................................34
The Operating Partnership................................................................................................34
Exchange of Exchange Partnership Units for Operating Partnership Units...................................................35
The Trust................................................................................................................35
COMPENSATION OF MANAGING PERSONS AND AFFILIATES..............................................................................36
CONFLICTS OF INTEREST........................................................................................................43
FIDUCIARY RESPONSIBILITY.....................................................................................................45
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS............................................................................46
RISK FACTORS.................................................................................................................46
Arbitrary Offering Price.................................................................................................47
No Separate Representation of Offerees...................................................................................47
Terms of Exchange Offering May Be More Favorable to Original Investors than Offerees.....................................47
Acceptance of Exchange Offering Involves Exchange of Current Investment with
Expected Limited Duration for Investment in Operating Partnership with Unlimited Duration..............................47
Offerees May Not Have Information Available to Evaluate Property Interests to be
Acquired by the Operating Partnership, Prior to Decision Whether to Accept the Exchange Offering.......................48
Possible Adverse Influence of Original Investors.........................................................................48
Conflicts of Interest....................................................................................................49
No Assurance of Successful Performance of Partnership Interests to be Acquired in Exchange Offering......................50
Potential Loss of Future Appreciation on Exchange Properties.............................................................50
Investors in Successful Exchange Partnerships Could Lose Advantage by Combining with
Less Successful Exchange Partnerships..................................................................................50
Valuation of Mortgage Interests to be Acquired May Exceed Actual Value...................................................51
Several Factors Could Have Possible Adverse Effects on Operation of Properties...........................................51
No Assurance of Avoiding Operating Losses................................................................................52
</TABLE>
4
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<TABLE>
<S> <C>
Adverse Effects of Under-Performing Mortgage Investments.................................................................53
Subordinated Mortgage Loans to Be Acquired May Not Be Recorded...........................................................53
Several Factors Could Have Possible Adverse Effects on Distributions to Shareholders and Unitholders.....................53
Distributions to Shareholders and Unitholders Adversely Affected by Poor Operating Results of Operating Partnership......54
Competition..............................................................................................................54
Lack of Liquidity of Real Estate.........................................................................................54
Cash Distributions Could be Reduced by Cost of Capital Improvements......................................................55
Real Estate Investments May Fail to Perform to Expected Level............................................................55
Debt Service Obligations Could Adversely Affect Cash Flow................................................................55
Possible Adverse Effects as a Result of Loss of Key Management...........................................................56
Uncertainty of Successful Completion of Cash Offering and Exchange Offering..............................................56
Limited Marketability of Units and Common Shares.........................................................................57
Possible Adverse Effect on Market Price as a Result of Availability of Units and Common Shares for Future Sale...........58
Possible Adverse Effect of Market Interest Rates on Common Share Prices..................................................58
Potential Adverse Tax Consequences.......................................................................................58
Taxation of the Trust as a Corporation if It Fails to Qualify as a REIT...............................................58
REIT Requirements With Respect to Shareholder Distributions...........................................................59
Potential Legislation Regarding REIT's................................................................................59
Taxation of the Operating Partnership as a Corporation if It Fails to be Classified as a Partnership..................59
Deferral of Gain from Exchange Offering Subject to Certain Exceptions.................................................59
Termination of Exchange Partnerships..................................................................................60
Investors Liable for State and Local Taxes............................................................................60
Non-participating Limited Partners in Participating Exchange Partnerships Will Have
Significant Influence over Certain Actions of the Partnerships.........................................................60
Possible Dilution as a Result of Issuance of Additional Securities.......................................................61
Limits on Ownership and Transfers of Common Shares and Units Which May Delay or
Prevent a Takeover Offering a Premium Price............................................................................62
Lack of Liquidity of Retained Interest in an Exchange Partnership Following the Exchange Offering........................62
No Operating History.....................................................................................................62
Limited Participation Rights of Shareholders and Unitholders in Management...............................................63
Regulatory Non-compliance Could Result in Fines or Judgments.............................................................63
Fair Housing Amendments Act of 1988...................................................................................63
Americans with Disabilities Act.......................................................................................63
Compliance with Environmental Laws....................................................................................63
Shareholders and Unitholders Could be Adversely Affected by Limited Liability and
Indemnification of the Managing Persons................................................................................64
No Assurance of Shareholder Limited Liability for Activities of Delaware Business Trust..................................64
No Assurance of Profitable Sale of Trust and Operating Partnership Property..............................................64
Property Losses May Not be Insurable.....................................................................................64
Possible Lack of Independent Assessment of Prior Operating Results of Acquired Property Interests........................65
Initial Value Assigned to Operating Partnership Units Offered in Exchange for
Exchange Partnership Units Exceeds Current Book Value of Exchange Partnerships.........................................65
Changes in Laws Could Increase Operating Expenses........................................................................65
No Rights of Dissent.....................................................................................................65
Possible Lack of Diversification in Property Investments.................................................................65
Other Participants May Fail to Fulfill Obligations.......................................................................66
Extended and Uncertain Investing Period Could Adversely Affect Returns...................................................66
Possible "Year 2000" Problems............................................................................................66
THE EXCHANGE OFFERING........................................................................................................66
Accounting Treatment.....................................................................................................69
Background of the Exchange Offering......................................................................................70
Effects of the Formation Transactions, Cash Offering and Exchange Offering...............................................71
Exchange Property Appraisals.............................................................................................72
CAI and CACSI.........................................................................................................73
RAS...................................................................................................................74
S&W...................................................................................................................75
Voyt..................................................................................................................75
Historical Cash Distributions and Corporate General Partner Compensation.................................................75
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Terms of the Exchange Offering..........................................................................................75
Expiration Date, Extensions, and Amendments.............................................................................77
Acceptance for Exchange and Issuance of Operating Partnership Units.....................................................77
Procedures for Tendering Exchange Partnership Units.....................................................................78
Valid Tender.........................................................................................................78
Certificates.........................................................................................................78
Delivery.............................................................................................................78
Determination of Validity............................................................................................78
Conditions to the Exchange Offering.....................................................................................79
Exchange Agent..........................................................................................................79
Fees and Expenses of the Exchange Offering..............................................................................80
PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER.....................................................................80
MANAGEMENT..................................................................................................................89
Managing Shareholder....................................................................................................90
Trust Management Agreement..............................................................................................91
Officers of the Trust and the Operating Partnership.....................................................................92
The Board of the Trust, Committees and Trustees.........................................................................93
The Board of the Trust...............................................................................................93
Independent Trustees.................................................................................................94
Corporate Trustee....................................................................................................95
THE TRUST AND THE OPERATING PARTNERSHIP.....................................................................................95
The Operating Partnership...............................................................................................96
Formation Transactions..................................................................................................98
Ownership of the Trust and the Operating Partnership...................................................................100
Regulations............................................................................................................103
General.............................................................................................................103
Fair Housing Amendments of 1988.....................................................................................103
Americans with Disabilities Act ("ADA").............................................................................103
Environmental Regulations...........................................................................................104
Rent Control Legislation............................................................................................104
Employees..............................................................................................................104
INVESTMENT OBJECTIVES AND POLICIES.........................................................................................104
General................................................................................................................104
Trust Policies with Respect to Certain Activities......................................................................106
Investment Policies.................................................................................................106
Disposition Policies................................................................................................107
Financing Policies..................................................................................................107
Conflict of Interest Policies.......................................................................................108
INITIAL REAL ESTATE INVESTMENTS............................................................................................109
The Acquired Properties................................................................................................109
Heatherwood Apartments..............................................................................................109
Crystal Court Apartments............................................................................................110
Riverwalk Apartments................................................................................................111
Alexandria Property.................................................................................................113
Acquisition of Limited Partnership Interests........................................................................113
Contract to Purchase Two Additional Properties......................................................................114
The Exchange Properties................................................................................................114
Equity Property Interests..................................................................................................117
Property Information Debt Property Interests...............................................................................120
Mortgage Information Equity Property Interests.............................................................................123
Mortgage Information Mortgage Properties...................................................................................126
EXCHANGE MORTGAGE PARTNERSHIPS.............................................................................................127
Property Description...................................................................................................151
Lease Agreements.......................................................................................................151
Competition............................................................................................................151
Insurance..............................................................................................................151
Property Management....................................................................................................151
SELECTED FINANCIAL DATA....................................................................................................152
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..................................................................177
Plan of Operation......................................................................................................177
</TABLE>
6
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<TABLE>
<S> <C>
Year 2000..............................................................................................................178
FEDERAL INCOME TAX CONSIDERATIONS..........................................................................................179
CLASSIFICATION AS A PARTNERSHIP............................................................................................179
EXCHANGE OF EXCHANGE PARTNERSHIP UNITS FOR OPERATING PARTNERSHIP UNITS.....................................................180
RELIEF FROM LIABILITIES/DEEMED CASH DISTRIBUTION...........................................................................181
DISGUISED SALE REGULATIONS.................................................................................................182
Effect of Assumption of Liabilities Under the Disguised Sale Regulations...............................................182
Effect of Cash Distributions Under the Disguised Sale Regulations......................................................183
Effect of Right to Convert to a Share of the Trust.....................................................................183
Effect of Disguised Sale Characterization..............................................................................183
SECTION 465(E) RECAPTURE...................................................................................................184
TRANSFER TO AN INVESTMENT COMPANY..........................................................................................184
WITHHOLDING................................................................................................................185
TAX TREATMENT OF UNITHOLDERS WHO HOLD OPERATING PARTNERSHIP UNITS
AFTER THE EXCHANGE......................................................................................................185
INCOME AND DEDUCTIONS IN GENERAL...........................................................................................185
TREATMENT OF PARTNERSHIP DISTRIBUTIONS.....................................................................................186
INITIAL BASIS OF OPERATING PARTNERSHIP UNITS...............................................................................186
ALLOCATIONS OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTIONS...............................................................186
EFFECT OF THE EXCHANGE ON DEPRECIATION.....................................................................................187
TAX ALLOCATIONS WITH RESPECT TO BOOK-TAX DIFFERENCE ON CONTRIBUTED
PROPERTIES...............................................................................................................187
DISSOLUTION OF PARTNERSHIP.................................................................................................187
LIMITATIONS ON DEDUCTIBILITY OF LOSSES; TREATMENT OF PASSIVE ACTIVITIES
AND PORTFOLIO INCOME....................................................................................................187
SECTION 754 ELECTION.......................................................................................................188
DISPOSITION OF OPERATING PARTNERSHIP UNITS BY UNITHOLDERS..................................................................188
TAX TREATMENT OF CONVERSION RIGHT..........................................................................................188
CONSTRUCTIVE TERMINATION...................................................................................................189
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS.......................................................................189
PARTNERSHIP INCOME TAX INFORMATION RETURNS AND PARTNERSHIP AUDIT PROCEDURES................................................190
REGISTRATION AS A TAX SHELTER..............................................................................................190
ACTIVITIES ENGAGED IN FOR PROFIT...........................................................................................191
ORGANIZATIONAL AND SYNDICATION FEES........................................................................................191
ANTI-ABUSE REGULATIONS.....................................................................................................191
ALTERNATIVE MINIMUM TAX ON ITEMS OF TAX PREFERENCE.........................................................................192
STATE AND LOCAL TAXES......................................................................................................192
INCOME TAX CONSIDERATIONS WITH RESPECT TO THE TRUST........................................................................192
TAXATION OF THE TRUST......................................................................................................193
Stock Ownership Tests..................................................................................................193
Asset Tests.........................................................................................................194
Gross Income Tests..................................................................................................194
The 75% Test.....................................................................................................194
The 95% Test.....................................................................................................195
Annual Distribution Requirements....................................................................................195
Failure to Qualify..................................................................................................196
TAX ASPECTS OF THE TRUST'S INVESTMENT IN THE OPERATING PARTNERSHIP.........................................................196
Entity Classification..................................................................................................196
Tax Allocations with Respect to Trust Properties.......................................................................196
Sale of Trust Properties...............................................................................................197
TAXATION OF SHAREHOLDERS...................................................................................................197
Taxation of Taxable Domestic Shareholders..............................................................................197
Backup Withholding.....................................................................................................198
Taxation of Tax-Exempt Shareholders....................................................................................198
Taxation of Foreign Shareholders.......................................................................................198
OTHER TAX CONSIDERATIONS...................................................................................................199
Possible Legislative or Other Actions Affecting Tax Consequences.......................................................199
State and Local Taxes..................................................................................................199
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT.............................................................................199
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
SUMMARY OF DECLARATION OF TRUST............................................................................................199
Term...................................................................................................................199
Control of Operations..................................................................................................200
Liability and Indemnification..........................................................................................204
Distributions..........................................................................................................205
Quarterly and Annual Reports...........................................................................................205
Accounting.............................................................................................................205
Books and Records; Tax Information.....................................................................................205
Governing Law..........................................................................................................205
Amendments and Voting Rights...........................................................................................205
Dissolution of Trust...................................................................................................206
Removal and Resignation of the Managing Shareholder....................................................................206
Transferability of Shareholders' Interests.............................................................................206
Independent Activities.................................................................................................206
Power of Attorney......................................................................................................207
Meetings and Voting Rights.............................................................................................207
Additional Offerings of Shares.........................................................................................207
Temporary Investments..................................................................................................208
REPORTS TO UNITHOLDERS AND SHAREHOLDERS....................................................................................208
Operating Partnership Unitholders......................................................................................208
Trust Shareholders.....................................................................................................208
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES.....................................................................209
Issuance of Additional Securities......................................................................................210
Term of Existence......................................................................................................212
Management Control.....................................................................................................212
Economic Interest......................................................................................................213
Net Losses.......................................................................................................214
Property Investments and Anticipated Holding Period....................................................................215
Restrictions on Transfers of Securities................................................................................216
Tax Status.............................................................................................................216
Pre-emptive Rights.....................................................................................................217
Managing Entity Removal and Resignation Rights.........................................................................217
Reporting Rights.......................................................................................................218
Assessments............................................................................................................220
Amendments of Governing Agreements.....................................................................................220
Liability and Indemnification..........................................................................................221
Compensation of Managing Persons and Affiliates........................................................................222
Meetings and Voting Rights.............................................................................................223
Accounting Method and Period...........................................................................................224
CAPITAL STOCK OF THE TRUST.................................................................................................224
General................................................................................................................224
Transfer Agent.........................................................................................................225
Restrictions on Ownership and Transfer.................................................................................225
CAPITALIZATION.............................................................................................................226
TERMS OF THE CASH OFFERING.................................................................................................227
AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE
PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS...................................................................228
OTHER INFORMATION..........................................................................................................235
General................................................................................................................235
Authorized Sales Material..............................................................................................236
Financial Statements...................................................................................................236
LITIGATION.................................................................................................................237
EXPERTS....................................................................................................................237
LEGAL MATTERS..............................................................................................................237
EXPENSES OF THE EXCHANGE OFFERING..........................................................................................238
ADDITIONAL INFORMATION.....................................................................................................238
GLOSSARY...................................................................................................................239
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
TABLES
Pre-Offering Organizational Chart.....................................................................................12
Post-Offering Organizational Chart....................................................................................13
Use of Proceeds of Trust's Cash Offering..............................................................................18
Fees and Reimbursable Expenses Table..................................................................................19
Valuation Table.......................................................................................................27
Compensation of Managing Shareholder and Affiliates...................................................................35
Property Information - Equity Property Interests.....................................................................112
Property Information - Debt Property Interests.......................................................................115
Mortgage Information - Equity Property Interests.....................................................................118
Mortgage Information - Mortgage Property Interests...................................................................122
EXHIBITS
A Prior Performance of Affiliates of Managing Shareholder
B Summary of Exchange Property and Exchange Partnership Information
C Exchange Property Appraisal Values
FINANCIAL STATEMENTS
Financial Statements of the Trust, the Operating Partnership and the Managing Shareholder
Pro Forma Financial Statements of the Trust and the Operating Partnership
Financial Statements of the Exchange Properties/Exchange Partnerships and Acquired Properties
Combined Statement of Estimated Taxable Operating Results and
Cash Available From Operations
</TABLE>
EVEN THOUGH, AS DESCRIBED HEREIN, THE TRUST BELIEVES THAT IT WILL BE TREATED AS
A REAL ESTATE INVESTMENT TRUST (A "REIT") FOR FEDERAL INCOME TAX PURPOSES, THE
TRUST HAS NOT OBTAINED, AND DOES NOT INTEND TO REQUEST, A RULING FROM THE
INTERNAL REVENUE SERVICE ("IRS") THAT IT WILL BE TREATED AS A REIT. ALTHOUGH THE
TRUST DOES NOT INTEND TO REQUEST SUCH A RULING FROM THE IRS, THE TRUST HAS
OBTAINED THE OPINION OF ITS SPECIAL TAX COUNSEL THAT, BASED ON THE ORGANIZATION
AND PROPOSED OPERATION OF THE TRUST AND THE OPERATING PARTNERSHIP AND BASED ON
CERTAIN OTHER ASSUMPTIONS AND REPRESENTATIONS, IT WILL QUALIFY AS A REIT. THE
OPINION IS NOT BINDING ON THE IRS OR ANY COURT.
EACH OFFEREE SHOULD CONSULT HIS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISERS AS TO
LEGAL, TAX, ECONOMIC AND RELATED MATTERS CONCERNING THE INVESTMENT DESCRIBED
HEREIN AND ITS SUITABILITY FOR HIM.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY
STATE OR IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED.
NO BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN RESPECT OF THIS EXCHANGE OFFERING
OR THE CASH OFFERING, OTHER THAN THOSE CONTAINED HEREIN (OR INFORMATION
REQUESTED BY AN OFFEREE AND FURNISHED TO SUCH OFFEREE IN WRITTEN FORM, SIGNED ON
BEHALF OF THE TRUST OR THE OPERATING PARTNERSHIP) AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST, THE OPERATING PARTNERSHIP OR ANY OTHER PERSON. ANY OTHER
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. EXCEPT AS OTHERWISE
INDICATED, THIS PROSPECTUS SPEAKS AS OF THE DATE ON THE COVER PAGE. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY CONSUMMATION OF AN EXCHANGE OFFERING MADE
HEREUNDER SHALL CREATE ANY INFERENCE
9
<PAGE>
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE TRUST OR THE OPERATING
PARTNERSHIP SINCE THE RESPECTIVE DATES AT WHICH THE INFORMATION IS GIVEN HEREIN
OR THE DATE HEREOF.
CERTAIN DEFINED TERMS MAY BE FOUND AT "GLOSSARY."
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND OFFEREES
SHOULD NOT ACCEPT THIS EXCHANGE OFFERING AND THEREBY INVEST IN OPERATING
PARTNERSHIP UNITS (OR TRUST COMMON SHARES, IF THE HOLDER OF SUCH UNITS EXCHANGES
THEM INTO COMMON SHARES) UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" FOR THE RISK FACTORS THAT MANAGEMENT BELIEVES PRESENT THE
MOST SUBSTANTIAL RISKS TO AN OFFEREE IN THIS EXCHANGE OFFERING AND AN INVESTMENT
IN OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES.
IN MAKING AN INVESTMENT DECISION, OFFEREES MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE EXCHANGE OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP
The following summary of this Prospectus is for the convenience of
Offerees and does not fully reflect all of the terms of the Exchange Offering.
This Prospectus describes in detail the numerous aspects of the transaction.
This Prospectus and accompanying Exhibits should be read in their entirety by
each Offeree and his advisors before accepting the Exchange Offering. The
following summary is qualified in its entirety by reference to the full text of
this Prospectus and the documents referred to herein. Unless the context
otherwise requires, the term "Trust" as used in this Prospectus shall refer to
Baron Capital Trust, the General Partner of the Operating Partnership and issuer
of the Common Shares being offered in the Cash Offering, and its affiliate,
Baron Capital Properties, L.P., the Operating Partnership, which is the issuer
of Units being offered in this Exchange Offering and will conduct the real
estate operations of the Trust and hold its property interests.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL AND ELECTION FORM
CONTAIN IMPORTANT INFORMATION. HOLDERS OF EXCHANGE PARTNERSHIP UNITS ARE URGED
TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL AND ELECTION FORM
CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR EXCHANGE PARTNERSHIP UNITS
PURSUANT TO THE EXCHANGE OFFERING.
Offerees may tender their Exchange Partnership Units for exchange on or
prior to 5:00 p.m., New York City time, on the Expiration Date set forth in the
Election Form, unless the Exchange Offering is extended by the Operating
Partnership (in which case the term "Expiration Date" shall mean the latest date
and time to which the Exchange Offering is extended). The Operating Partnership
will not complete the Exchange Offering in respect of any particular Exchange
Partnership unless limited partners holding at least 90% of the limited
partnership interests in the Exchange Partnership affirmatively elect to accept
the offering. In addition, the Operating Partnership will not complete any
transaction in the offering whatsoever unless a sufficient number of Offerees
accept the offering such that the offering involves the issuance of Operating
Partnership Units with an initial assigned value of at least $6,000,000.
An Offeree must exchange all of his Exchange Partnership Units in order to
participate in the Exchange Offering. Partial exchanges will not be accepted.
Any Offeree who is a limited partner of an Exchange Partnership and does not
desire to participate in the Exchange Offering will be entitled to retain his
limited partnership interest in his respective Exchange Partnership on terms
substantially the same as those of his original investment. Offerees who elect
not to accept the offering will not have dissenters' or appraisal rights.
Neither the Operating Partnership nor the Trust will receive any cash
proceeds from the issuance of the Operating Partnership Units offered hereby. No
dealer-manager is being used in connection with this Exchange Offering. See "-
Use of Proceeds" and "THE EXCHANGE OFFERING."
Summary of the Trust and the Operating Partnership
This Prospectus constitutes the prospectus for the Exchange Offering being
conducted by the Operating Partnership, under which it is offering to issue
registered Units in exchange for limited partnership interests owned by
individual limited partners in limited partnerships which own direct or indirect
interests in residential apartment properties. Holders of Operating Partnership
Units, including recipients of
10
<PAGE>
Units in the Exchange Offering, may elect at any time and from time to time to
exchange all or a portion of their Units into an equivalent number of Common
Shares in the Trust 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. See "THE EXCHANGE OFFERING."
This Prospectus and the accompanying Transmittal Letter and Election Form
are first being sent to Offerees in connection with the Exchange Offering on or
about the date indicated on the Election Form. Offerees who elect to accept the
Exchange Offering are required to indicate their acceptance of the offering in
the space provided on the Election Form and sign, date and return it, together
with the certificates representing their Exchange Partnership Units in a
particular Exchange Partnership, to American Stock Transfer & Trust Company (the
"Exchange Agent") by the Expiration Date. Assuming the satisfaction or waiver of
the closing conditions of the Exchange Offering, as soon as practicable after
the Expiration Date, the Exchange Agent will send certificates representing
Operating Partnership Units to each Offeree who accepts the Exchange Offering
and delivers to the Exchange Agent a completed, dated and signed copy of the
Election Form and the certificate representing their Exchange Partnership Units.
See "THE EXCHANGE OFFERING - Exchange Offering Procedures."
The Trust and the Operating Partnership constitute an affiliated real
estate company which has 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. The Trust,
indirectly through the Operating Partnership, 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 management of the Trust and the Operating Partnership
has been involved in the residential property business for over 10 years. See
"MANAGEMENT," "THE TRUST AND THE OPERATING PARTNERSHIP" and "INVESTMENT
OBJECTIVES AND POLICIES."
The Managing Shareholder of the Trust is affiliated with a total of 56
partnerships or other real estate entities. The Operating Partnership has filed
this registration statement with the Commission to acquire 23 real estate
partnerships, each of which is affiliated with the Managing Shareholder of the
Trust. These 23 real estate partnerships were selected because each partnership
owns income producing residential apartment property or other qualified
investment assets which meet the investment objectives established by the Board
of the Trust. See "INVESTMENT OBJECTIVES AND POLICIES". The Operating
Partnership does not intend to acquire interests in properties only from
affiliates of the Managing Shareholder. Although the Exchange Offering will
involve 23 Exchange Partnerships, which are affiliates of the Managing
Shareholder, the Operating Partnership intends to acquire a significant number
of property interests from non-affiliates, depending on the amount of cash
raised in the Cash Offering.
The Trust made quarterly pro rata distributions to its Shareholders
commencing November 1998. Additional distributions were made in March and May
1999. The Trust and the Operating Partnership intend to make regular quarterly
pro rata distributions to their Shareholders and Unitholders, respectively, of
net income generated from investments in property interests, generally within 45
to 60 days after the end of each calendar quarter. The initial distribution by
the Operating Partnership was made in the first quarter of 1999. The Trust
intends to operate as a REIT for federal income tax purposes, provided, however,
that if its Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partners of the Exchange Partnerships, by Gregory K. McGrath,
a founder of the Trust and the Operating Partnership) determines, with the
affirmative vote of a Majority of Shareholders entitled to vote on such matter
approving the Managing Shareholder's determination, that it is no longer in the
best interests of the Trust to continue to qualify as a REIT, the Managing
Shareholder may revoke or otherwise terminate the Trust's REIT election pursuant
to applicable federal tax law. See "TAX STATUS" and "FEDERAL INCOME TAX
CONSIDERATIONS" below.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold all direct or indirect property interests acquired. The
Operating Partnership will own record title to properties or limited partnership
interests or other equity interests in limited partnerships and other entities
which own direct or indirect interests in properties. The Trust is the sole
General Partner of the Operating Partnership, and, in such capacity, the Trust
will control the activities of the Operating Partnership. See "THE TRUST AND THE
OPERATING PARTNERSHIP." The operations of the Trust will be carried on through
the Operating Partnership (and any other subsidiaries the Trust may have in the
future), among other reasons, in order to (i) enhance the ability of the Trust
to qualify and maintain its status as a REIT for federal income tax purposes,
and (ii) enable the Trust to indirectly acquire interests in residential
apartment properties in exchange transactions, such as this Exchange Offering,
that involve the exchange of Operating Partnership Units for limited partnership
interests in limited partnerships which directly or indirectly own such property
interests, and thereby provide the opportunity for deferral until a later date
of any tax liabilities that sellers of partnership interests otherwise would
incur if they received cash or Trust Common Shares in connection therewith. See
"FEDERAL INCOME TAX CONSIDERATIONS." The Operating Partnership will be
responsible for, and pay when due, its share of all administrative and operating
expenses of property interests it acquires. See "THE TRUST AND THE OPERATING
PARTNERSHIP."
The Trust's Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath) is
Baron Advisors, Inc. ("Baron Advisors"), a Delaware corporation which will
manage the day-to-day operations of the Trust and the Operating Partnership. The
Trust and the Managing Shareholder are affiliates of each other, and each of
them is an Affiliate of the Operating Partnership. The Board of the Trust, a
majority of whose members are comprised of Independent Trustees,
11
<PAGE>
will have general supervisory authority over the activities of the Trust and the
Operating Partnership and prior approval authority in respect of certain actions
of the Trust and Operating Partnership specified in the Declaration of Trust for
the Trust. Investment decisions for the Trust and the Operating Partnership will
be made by (i) Gregory K. McGrath (a founder of the Trust and the Operating
Partnership, the Chief Executive Officer of the Trust, the Operating Partnership
and the Managing Shareholder, and the sole shareholder and sole director of the
Managing Shareholder) and (ii) Robert S. Geiger (a founder of the Trust and the
Operating Partnership and the Chief Operating Officer of the Trust, the
Operating Partnership and the Managing Shareholder) (together, the "Original
Investors"), and (iii) James H. Bownas and Peter M. Dickson, the initial
Independent Trustees of the Trust. The Original Investors and affiliates have
significant influence over the operation of the Trust, the Operating Partnership
and the Exchange Partnerships, and the Exchange Offering involves transactions
among them which involve conflicts of interest which may result in decisions
that do not fully represent the interests of all Shareholders of the Trust,
Unitholders in the Operating Partnership and limited partners in the Exchange
Partnerships. See "CONFLICTS OF INTEREST," "MANAGEMENT" and "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
All of the Units being offered by the Operating Partnership pursuant to
this Prospectus are being offered in connection with the Exchange Offering. In
the Exchange Offering, the Operating Partnership is offering to issue Units to
individual limited partners in the Exchange Partnerships, which directly or
indirectly own interests in residential apartment properties or in Mortgages on
such properties, in exchange for their limited partnership interests.
The number of Operating Partnership Units being offered in exchange for the
limited partnership interests owned by Offerees will be derived from appraisals
of the respective real property prepared by qualified and licensed independent
appraisal firms for each underlying residential apartment property involved in
the Exchange Offering and other subjective considerations described herein. For
purposes of the Exchange Offering, each Unit has been arbitrarily assigned an
initial value of $10.00, which corresponds to the offering price of each Trust
Common Share being offered in the Cash Offering. The value of each Unit and
Common Share outstanding will be substantially identical since Unitholders,
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.
In the Exchange Offering, each limited partner in an Exchange Partnership will
be given the option to acquire the number of Units per $1,000 of original
investment in the partnership listed on the table set forth on page 27 of this
Prospectus (and on the inside cover of the Prospectus Supplement accompanying
this Prospectus) in exchange for all Exchange Partnership Units held by the
limited partner.
The net cash proceeds from the sale of Common Shares in the Cash Offering
(approximately $_____ gross proceeds raised as of the date of this Prospectus)
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 Trust and the
Operating Partnership will use the net cash proceeds of the Cash Offering and
unissued Units and Shares, together with available cash flow from operations
and/or other available financing sources (i) to acquire interests in residential
apartment properties or equity interests in partnerships or entities
substantially all of whose assets consist of residential apartment property
interests, (ii) for capital improvements which may be required on properties in
which the Trust and the Operating Partnership acquire an interest and (iii) for
working capital purposes. The Trust intends to apply for listing on a national
stock exchange of the Trust Common Shares being offered in the Cash Offering and
the Trust Common Shares into which Operating Partnership Units issued in the
Exchange Offering will be exchangeable.
The Pre-Offering and Post-Offering Organizational Charts set forth below
indicate on a pre-Exchange Offering and post-Exchange Offering basis the
structure, control, affiliations and percentage ownership levels of the
Operating Partnership, the Trust, the Managing Shareholder, the Exchange
Partnerships to be involved in the Exchange Offering and the other
partnership programs affiliated with the Managing Shareholder.
Although this Prospectus has been prepared in connection with the offering of
Operating Partnership Units in the Exchange Offering, this Prospectus also
describes the material terms of the Cash Offering and an investment in Trust
Common Shares since Units are exchangeable into an identical number of Common
Shares at any time (subject to certain restrictions); and the economic interests
represented by Units and Common Shares are substantially identical.
12
<PAGE>
13
<PAGE>
PRE-OFFERING ORGANIZATIONAL CHART
<TABLE>
<S> <C>
------------------ ------------------ ---------------------
PUBLIC MCGRATH INDIVIDUAL
SHAREHOLDERS AND ------------------------------- LIMITED
FROM AFFILIATES --------- --------- PARTNERS
CASH OFFERING
------------------ ------------------ ---------------------
own all outstanding own 10 owns 9.4% McGrath own all
Trust Common Shares Trust of outstanding controls limited
except 10 shares Common Operating Corporate partnership
owned by Managing Shares Partnership General units which
Shareholder directly Units Partner have
which owns preferred
subordinated equity
equity interest**
interest**
------------------------------------------- -------------------------------------
SAMPLE OF
23
TRUST EXCHANGE
PARTNERSHIPS***
(Delaware business trust)
(Florida/Michigan
limited partnerships)
------------------------------------------- -------------------------------------
General Partner
and owns 81.2%
of outstanding
Operating
Partnership
Units
-------------------------------------------
OPERATING
---------
PARTNERSHIP
(Delaware limited partnership)
-------------------------------------------
</TABLE>
Footnotes:
* Assumes completion in full of Cash Offering and Exchange Offering. If the
Exchange Offering is not accepted by all limited partners in any particular
Participating Exchange Partnership, dissenting limited partners would own up
to 10% of the interest in the partnership.
** Prior to the completion of the Exchange Offering, the limited partners in
Exchange Partnerships have an economic interest which has a preference over
the GP's interest. See "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE
PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES -
Economic Interest." Following the completion of the Exchange Offering, the
Trust, as GP of Participating Exchange Partnerships, will receive a nominal
.1% interest for partnership taxation purposes.
*** "Participating Exchange Partnerships" refer to Exchange Partnerships
whose limited partners owning at least 90% of the outstanding limited
partnership interest elect to accept the Exchange Offering. See "THE
EXCHANGE OFFERING."
<PAGE>
POST-OFFERING ORGANIZATIONAL CHART*
<TABLE>
<S> <C>
------------------ ------------------
PUBLIC
SHAREHOLDERS MCGRATH
IN CASH OFFERING AND
AND BROKER- AFFILIATES ----------------------------
DEALERS IN --------- -------
EXCHANGE
OFFERING
------------------ ------------------
own 95.2% and owns 10 owns 9.6%
4.8%, respectively, Trust of outstanding
of outstanding Common Operating
Trust Common Shares Shares Partnership
directly Units
-------------------------------------------
TRUST
- --------
-------------------------------------------
General Partner and owns 40.9% of outstanding
Operating Partnership Units; remaining 49.5%
owned by Offerees and Geiger
-------------------------------------------
OPERATING ---------
PARTNERSHIP
-------------------------------------------
-----------------------
INDIVIDUAL
LIMITED
PARTNERS
-----------------------
General Partner owns 99.9% of McGrath
and owns .01% of limited controls own all
limited partnership Corporate limited
partnership interests General partnership
interests Partner units, which
which owns have
subordinated preferred
equity equity
interest** interests**
------------------------------------------- ----------------------------------
SAMPLE OF 33 LIMITED
PARTICIPATING PARTNERSHIPS
EXCHANGE NOT INVOLVED
- -------- IN EXCHANGE OFFERING
PARTNERSHIPS*** (Florida/Delaware limited
partnerships)
------------------------------------------- ----------------------------------
</TABLE>
<PAGE>
The Trust and the Operating Partnership intend to investigate making an
additional public or private offering of Trust Common Shares and/or Operating
Partnership Units within the 12-month period following the commencement of the
Exchange Offering if the Managing Shareholder (wholly owned and controlled,
along with the Corporate General Partner of each Exchange Partnership, by Mr.
McGrath) determines that suitable property acquisition opportunities which
fulfill the Trust's investment criteria are available and such an offering would
fulfill its cost of funds requirements. The issuance by the Trust and the
Operating Partnership of additional Shares and Units subsequent to the
completion of the Cash Offering and the Exchange Offering could have a dilutive
effect on Shareholders who acquire Common Shares in the Cash Offering and on
Unitholders who receive Units in the Exchange Offering.
The address and telephone and fax numbers for the Managing Shareholder are
as follows:
Baron Advisors, Inc.
7826 Cooper Road
Cincinnati, Ohio 45242
Phone: (513) 984-5001
Fax: (513) 984-4550
The term of the Trust 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 then outstanding to dissolve the Trust; (c) the sale of all or
substantially all of the Trust's Property, (d) the withdrawal of the Cash
Offering by the Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath)
prior to the Termination Date of the Cash Offering, and (e) the occurrence of
any other event which, by law, would require the Trust to terminate. See
"SUMMARY OF DECLARATION OF TRUST - Term." The Operating Partnership will
terminate on December 31, 2098 unless terminated earlier in connection with a
merger or a sale of all or substantially all of its assets, upon a vote of its
partners or upon the occurrence of various other events. See "THE TRUST AND THE
OPERATING PARTNERSHIP."
As described below in this Prospectus, the Managing Shareholder, certain
of its affiliates, the Independent Trustees, and others will receive substantial
commissions, compensation or expense reimbursements from the Trust and the
Operating Partnership in connection with the Cash Offering and the Exchange
Offering, the operation of the Trust and the Operating Partnership and the
acquisition, ownership, operation, improvement and disposition of property of
the Trust and the Operating Partnership. See "COMPENSATION OF THE MANAGING
SHAREHOLDER AND AFFILIATES," "THE TRUST AND THE OPERATING PARTNERSHIP" and
"TERMS OF THE CASH OFFERING."
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 23
Exchange Partnerships managed by Corporate General Partners affiliated with the
Managing Shareholder. The Operating Partnership will acquire interests in a
particular property by acquiring from limited partners ("Exchange Limited
Partners") their units of limited partnership interest in the respective
partnership ("Exchange Partnership Units"). 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 Exchange 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 Exchange Properties, which consist of an aggregate of 813
existing residential units (studio and one and two bedroom units) and 164 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. The Exchange Properties are described in further
detail at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "INITIAL REAL ESTATE
INVESTMENTS" and Exhibit B hereto.
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 interests in
16
<PAGE>
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
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 $16,576,606 at June 30, 1999. The current 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 $7,489,325 at June 30, 1999.
The current book value of the 23 Exchange Partnerships was approximately
$13,069,079 at June 30, 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 $24,980,660,
comprised of Operating Partnership Units to be issued. The interests to be
acquired with the balance of the Operating Partnership Units being offered in
the Exchange Offering have not yet been finally determined.
In June and July 1998, the Operating Partnership acquired beneficial
ownership of a 67-unit residential apartment property located in Orlando,
Florida and an 80-unit property located in Lakeland, Florida. In September 1998,
the Operating Partnership acquired beneficial ownership of a 50-unit residential
apartment property located in New Smyrna Beach, Florida. In October 1998, the
Operating Partnership acquired an approximately 12.3% limited partnership
interest in a limited partnership which is the owner and developer of a 168-unit
residential apartment property under construction in Alexandria, Kentucky.
Subsequently, the Operating Partnership acquired additional limited partnership
units and, as of the date of this Prospectus, the Operating Partnership owns an
approximately 40% limited partnership interest in this limited partnership. One
hundred twelve of the 168 residential units (approximately 67%) have been
completed as of June 30, 1999 and are in the rent-up stage. The acquisitions
described above, which had a total cash purchase price of $3,648,506, were paid
out of the net proceeds of the Trust's ongoing Cash Offering.
In July 1998, the Operating Partnership made capital contributions in the
range of $2,900 to $83,300 (aggregate amount approximately $341,000) to 13 real
estate partnerships managed by affiliates of the Managing Shareholder, including
certain of the Exchange Partnerships, in exchange for a limited partnership
interest in such partnerships (less than 4% in each case). In September 1998,
the Trust entered into an agreement to acquire two luxury residential apartment
properties (total of 652 units) upon the completion of construction for an
aggregate purchase price in the range of approximately $41,000,000 to
$43,000,000. See "INITIAL REAL ESTATE INVESTMENTS."
Other than as described above, the available net cash proceeds of the Cash
Offering (approximately $______ as of the date of this Prospectus) and future
proceeds of the Cash Offering have not yet been committed to specific
properties. Offerees will not have any vote in the selection of property
investments after they accept the Exchange Offering. Therefore, Offerees who
elect to accept the Exchange Offering may not have available any information on
any additional properties to be acquired in the Exchange Offering and properties
to be acquired with a portion of the net proceeds of the Cash Offering, in which
case they will be required to rely on management's judgment regarding those
purchases.
In connection with the completion of the Exchange Offering in respect of
each Participating Exchange Partnership (i.e., each Exchange Partnership which
receives the requisite limited partner acceptance of the offering to allow the
partnership to participate in the offering, assuming it closes), (i) Mr.
McGrath, the sole stockholder, director and executive officer of the Corporate
General Partner of each of the Exchange Partnerships, will for nominal
consideration either (a) grant the Board of the Trust a management proxy coupled
with an interest to vote the shares of approximately five Corporate General
Partners of the Participating Exchange Partnerships or (b) contract to assign
all of the stock in of approximately eighteen Corporate General Partners to the
Trust; (ii) the Corporate General Partner will assign to the Operating
Partnership 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.
As of the date of this Prospectus, the Trust has applied $________ of the
net proceeds of the Cash Offering to acquire _____ Units in the Operating
Partnership. The Units acquired and to be acquired by the Trust with the net
proceeds of the Cash Offering are in addition to the 2,500,000 Units that are
available for issuance in connection with the Exchange Offering. Assuming the
Trust sells all 2,500,000 Common Shares being offered in the Cash Offering, the
Trust will contribute the net proceeds of the Cash Offering (up to $21,500,000,
after payment of selling commissions and reimbursable offering expenses) to the
Operating Partnership in exchange for 2,500,000 Units. In that case, assuming
that no transactions have been completed in the Exchange Offering, the Trust
would own approximately 81.2% of the then outstanding Units and the Original
Investors would own the remaining approximately 18.8%. The Original Investors
received the Units in exchange for their $100,000 initial capitalization of the
Operating Partnership and such Units have been deposited into a security escrow
17
<PAGE>
account for a period of six to nine years, subject to earlier release under
certain conditions. See "THE TRUST AND THE OPERATING PARTNERSHIP - Formation
Transactions" and " - Ownership of the Trust and the Operating Partnership." If
the Trust's Cash Offering and the Exchange Offering are completed in full, each
Original Investor would own 601,080 Units. In that case, the value of the Units
held by each Original Investor, calculated at the $10.00 initial value assigned
to each Unit to be issued in the Exchange Offering, would then be $6,010,800
less a significant discount attributable to the long-term escrow arrangement.
The Trust has authority under the Declaration of Trust to issue an
aggregate of up to 25,000,000 Shares (consisting of Common Shares and Preferred
Shares). The Operating Partnership has authority under the Operating Partnership
Agreement to issue any number of Units as may be determined by the Trust in its
sole discretion. However, because outstanding Units (other than those acquired
by the Trust) are exchangeable into an equivalent number of Trust Common Shares,
the Operating Partnership may not issue more than 25,000,000 Units, absent an
appropriate amendment of the Declaration of Trust and the Operating Partnership
Agreement. Assuming the Cash Offering and the Exchange Offering are completed in
full 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 issued or to be issued to the Dealer Manager and
participating broker-dealers in connection with the Cash Offering), immediately
upon the completion of the offerings, the Trust would have 2,625,000 Common
Shares outstanding and the Operating Partnership would have 6,264,808 Units
outstanding. On a fully diluted basis assuming that all then outstanding Units
(other than those owned by the Trust) have been exchanged into an equivalent
number of Common Shares, all participants in the offerings would beneficially
own an aggregate of 6,327,160 Common Shares of the Trust (i.e., have the right
to vote or dispose of such Common Shares or to acquire ownership of Common
Shares in exchange for Units). Of those Common Shares, purchasers of Common
Shares in the Cash Offering as a group would beneficially own 2,500,000 Common
Shares (39.5%) and recipients of Units in the Exchange Offering as a group would
beneficially own 2,500,000 Common Shares (39.5%). The remaining Common Shares
would be beneficially owned by the Original Investors (approximately 19%) and
broker-dealers who earn Common Shares as commissions in exchange for their
services in the Exchange Offering (approximately 2%). See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions" and " - Ownership of the Trust
and the Operating Partnership."
To the extent Units remain available for issuance after completion of the
exchange transactions described herein, the Trust intends to investigate other
investment opportunities for the Exchange Offering, including equity or debt
interests held in additional properties by unaffiliated parties and by other
limited partnerships managed by affiliates of the Managing Shareholder (wholly
owned and controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath). See also "PRIOR PERFORMANCE BY AFFILIATES OF
MANAGING SHAREHOLDER."
Properties in which the Operating Partnership will acquire an interest are
expected to use the straight-line method of depreciation over 30 years. Among
other investment policies described below at "INVESTMENT OBJECTIVES AND
POLICIES," the Operating Partnership 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, the Trust and the
Operating Partnership will not acquire or provide mortgage loans or other debt
interests in respect of any property where the amount invested by the Trust and
the Operating Partnership 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 the Managing Shareholder, unless substantial
justification exists.
Each Offeree who is a limited partner in an Exchange Partnership will
receive a copy of a Supplement to this Prospectus which describes the Exchange
Offering, the Cash Offering and certain aspects of the business of his
particular Exchange Partnership, the Operating Partnership and the Trust. The
Supplement is part of, and should be read in conjunction with, this Prospectus.
Unless specifically requested, Exchange Limited Partners will not receive a copy
of the various other supplements which contain information concerning other
Exchange Partnerships, the Operating Partnership and the Trust and which have
been distributed to their limited partners. Certain information concerning each
of the Exchange Partnerships and their property investments is included in this
Prospectus in this "SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP" section
and at "INITIAL REAL ESTATE INVESTMENTS," in certain tables herein indexed in
the table of contents, and in Exhibits A, B, and C. Upon receipt of a written
request by any Exchange Limited Partner or his representative who has been so
designated in writing, the Operating Partnership will promptly deliver, without
charge, copies of other supplements to be delivered to limited partners in other
Exchange Partnerships. Limited Partners may make such request in writing to the
Operating Partnership at its principal executive office at the following
address: Baron Capital Properties, L.P., 7826 Cooper Road, Cincinnati, Ohio
45242, telephone 513-984-5001. Such request should be made to the attention of
Sharon Studt.
See "THE EXCHANGE OFFERING," "INITIAL REAL ESTATE INVESTMENTS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" and "COMPARISON OF
RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND
TRUST COMMON SHARES." For the definition of certain terms used in this
Prospectus, see "GLOSSARY."
Background and Reasons for the Exchange Offering
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<PAGE>
In the first quarter of 1997, the Original Investors determined that a
single integrated structure of ownership by the Exchange Partnerships and
administration of the property interests controlled by them and projected to be
acquired by future affiliated programs would be far more efficient, cost
effective and advantageous for operations and for the various program investors.
In anticipation of its growth and change in structure, the organization
developed by the Original Investors has been able to attract highly experienced
management and financial personnel capable of managing a substantially larger
real estate portfolio. See "MANAGEMENT - Officers of the Trust and the Operating
Partnership."
The Exchange Partnership Corporate General Partners (wholly owned and
controlled, along with the Managing Shareholder of the Trust, by Mr. McGrath)
considered various alternatives to the Exchange Offering including continuation
of the partnerships in accordance with their existing business plans and sale or
liquidation of the partnership interests or assets held. In the case of each
Exchange Partnership, its Corporate General Partner has determined that the
Exchange Offering provides equal or greater value to the Exchange Limited
Partners compared with any other considered alternative.
Continuation of the existing business plans of the Exchange Partnerships
has been determined by their Corporate General Partners to be disadvantageous
for their respective limited partners compared with the opportunity to
participate in the Exchange Offering. Each of the Exchange Partnerships is a
"stand-alone" entity with an interest in one or more residential apartment
properties or Subordinated Mortgage Loans on similar properties. As a result,
the Exchange Partnerships have higher personnel and other operating and
financing expenses on a per-unit basis than the combined enterprise will have.
In addition, the combined enterprise will afford the Exchange Partnerships
highly experienced management and financial personnel that, for the individual
partnerships acting alone, would not be cost effective. Moreover, no market
exists for the limited partnership interests of the Exchange Limited Partners,
and therefore such interests are not currently liquid.
Liquidation has been determined by the Corporate General Partners of the
Exchange Partnerships to be impractical and disadvantageous for their respective
limited partners. In the case of each Exchange Partnership, its Corporate
General Partner has either explored the sale of the partnership assets or has
determined that such a sale would be premature as it would not maximize investor
value.
The Original Investors initiated the Exchange Offering, and the Corporate
General Partners participated in the structuring of the offering. The Corporate
General Partner of each Exchange Partnership believes that the Exchange Offering
is fair to the Exchange Limited Partners (regardless of whether all Exchange
Partnerships receive the requisite limited partner acceptance to allow them to
participate in the offering) and recommends that they accept the Exchange
Offering for the following reasons:
o The Units to be issued in the Exchange Offering have values derived
from qualified independent third party appraisals of the Exchange
Partnerships' property interests and certain additional subjective
factors which the Managing Shareholder believes are appropriate to
consider and reflect a value greater than the original investments
of the Exchange Limited Partners.
o The Exchange Offering has been structured to permit each Exchange
Limited Partner, if desired, to decide not to accept the offering
and instead retain his existing interest in his current partnership
on substantially the same terms and conditions as those of his
original investment.
o The Operating Partnership will not complete the offering in respect
of any Exchange Partnership unless limited partners holding at least
90% of the limited partnership interests therein affirmatively elect
to accept the offering. In addition, the Operating Partnership will
not complete any transaction in the offering whatsoever unless a
sufficient number of Offerees accept the offering such that the
offering involves the issuance of Operating Partnership Units with
an initial assigned value of at least $6,000,000.
o The Exchange Offering will provide each Exchange Limited Partner
with a significantly more diversified interest in income producing
real property and debt interests with a possible opportunity that
the Operating Partnership Units received and Common Shares into
which they are exchangeable will be marketable in the future.
o The Trust and the Operating Partnership have been able to attract
highly experienced management and financial personnel capable of
managing a substantially larger real estate portfolio.
o Upon the completion of the Exchange Offering it is anticipated (but
not assured) that the large number of residential units to be owned
by the Operating Partnership will provide the Exchange Partnerships
with a lower operating cost per residential unit and, as a
consequence, increase operating performance.
o The Corporate General Partners (wholly owned and controlled, along
with the Managing Shareholder of the Trust, by Mr. McGrath) believe
that a single integrated structure of ownership by the Exchange
Partnerships and administration of the
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property interests which are controlled by them and which were
projected to be acquired by future affiliated programs would be far
more efficient, cost effective and advantageous for operations and
for the various program investors.
o The Exchange Offering has been designed to afford Exchange Limited
Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to
exchange the Units received in the offering for an equivalent number
of Common Shares of the Trust. The exchange into Common Shares may
be made at any time at the sole discretion of each Exchange Limited
Partner.
o The Corporate General Partners considered various alternatives to
the Exchange Offering, including continuation of the existing
business plans of the Exchange Partnerships and sale or liquidation
of the partnership assets held, and have determined that the
Exchange Offering provides equal or greater value to the Exchange
Limited Partners compared with any other considered alternative.
Summary of Use of Proceeds of Cash Offering
Set forth below is the estimated application of proceeds of the Trust's
Cash Offering, assuming the Trust sells all 2,500,000 Common Shares being
offered. See also "COMPENSATION OF THE MANAGING SHAREHOLDER AND AFFILIATES" and
"TERMS OF THE CASH OFFERING." The table below provides information based on the
$25,000,000 maximum offering amount of the Cash Offering.
Maximum
Offering
Amount Percent
------ -------
Gross Cash Offering Proceeds: $25,000,000 100%
Cash 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%
Maximum Amount of Proceeds to be
Used to Acquire Limited Partnership
Interests in the Operating Partnership: 21,500,000 86%
Cash Offering Expenses: 2,500,000 10%
----------- -----------
Total Application of Proceeds: $25,000,000 100%
=========== ===========
Footnotes:
1. The Trust will pay the Dealer Manager of the Cash Offering, selling
commissions in an amount equal to 8% of the gross proceeds received from
its sales of Common Shares in the offering from which it will pay any
broker-dealers that the Trust or the Dealer Manager selects to participate
in the sale of Common Shares. All or a portion of the commissions payable
may be reallocated to participating broker-dealers. The Trust has also
granted the Dealer Manager a five-year warrant, exercisable beginning on
the first anniversary of the commencement of the offering and ending on
the fifth anniversary, 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.
2. The Trust will reimburse the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath) for distribution, due diligence and
organizational expenses incurred in connection with the formation of the
Trust and the Operating Partnership and with the Cash Offering in an
amount not to exceed 1% of the gross proceeds from sales of Common Shares
in the offering ($250,000 maximum).
3. The Trust will reimburse the Managing Shareholder for legal, accounting
and consulting fees and printing, filing, recording, postage and other
miscellaneous expenses incurred in connection with the Cash Offering in an
amount not to exceed 1% of gross proceeds from
20
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sales of Common Shares in the offering ($250,000 maximum). The
reimbursements described in footnote 2 and this footnote 3 will be payable
out of the net proceeds of the offering. To the extent which the
distribution, due diligence and organizational expenses or the legal,
accounting and consulting fees and printing, filing, recording, postage
and other miscellaneous expenses exceed 1% of the gross proceeds from the
offering, those expenses will not be reimbursed to the Managing
Shareholder.
4. The Trust will reimburse the Managing Shareholder for expenses incurred
prior to and during the Cash Offering for investigating and evaluating
investment opportunities for the Trust and the Operating Partnership and
for assisting them in consummating their investments, in an amount not to
exceed 4% of the gross proceeds from sales of Common Shares in the
offering (maximum $1,000,000) (reimbursable expenses paid in connection
with investment activities plus other acquisition fees and expenses may
not exceed 6% of the contract purchase price for acquisitions unless the
Independent Trustees determine that the transaction is commercially
reasonable). Such reimbursement will be payable from available net
proceeds of the Cash Offering or as cash flow permits as determined by the
Board of the Trust.
Summary of Fees and Reimbursable Expenses
Set forth below is a summary of fees and reimbursable expenses payable in
connection with the Cash Offering and the Exchange Offering and the operation of
the Trust and the Operating Partnership:
Type and Amount of Fees and
Recipient Reimbursable Expenses
- --------- ---------------------
Broker-Dealers Selling commission in an amount
Participating in Cash Offering equal to 8% of the subscription
price of all Common Shares sold in
the Cash Offering ($2,000,000
maximum). As additional
compensation, the Dealer Manager
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
Cash Offering by the Dealer Manager
or participating broker-dealers, at
a purchase price equal to $13.00
per Common Share. See "TERMS OF THE
CASH OFFERING."
Managing Shareholder Reimbursement for distribution, due
diligence and organizational
expenses incurred in connection
with the formation of the Trust and
the Operating Partnership and with
the Cash Offering, in an amount not
to exceed 1% of gross offering
proceeds ($250,000 maximum).
Managing Shareholder Reimbursement for legal, accounting
and consulting fees and printing,
filing, recording, postage and
other miscellaneous expenses
incurred in connection with the
Cash Offering, in an amount not to
exceed 1% of gross offering
proceeds ($250,000 maximum).
Managing Shareholder Reimbursement for expenses incurred
prior to and during the Cash
Offering for investigating,
evaluating and consummating
investments of the Trust and the
Operating Partnership to be
acquired from unaffiliated parties
with net proceeds of the Cash
Offering, in an amount not to
exceed 4% of gross offering
proceeds; payable from available
net proceeds of the Cash Offering
or as cash flow permits as
determined by the Board of the
Trust.
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<PAGE>
Type and Amount of Fees and
Recipient Reimbursable Expenses (cont'd)
- --------- ------------------------------
Gregory K. McGrath, a founder of the Mr. McGrath received no
Trust and the Operating Partnership and compensation for the year ended
Chief Executive Officer of the Trust, December 31, 1998, but received
the Operating Partnership and the health benefits. Beginning in 1999,
Managing Shareholder his compensation and benefits will
be determined by the Executive
Committee of the Board of the
Trust. In exchange for an initial
cash capital contribution of
$50,000 to the Operating
Partnership, 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
the Cash 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
the Trust) have been exchanged into
an equivalent number of Common
Shares. See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation
Transactions."
Robert S. Geiger, a founder of the Trust Initial annual compensation of
and the Operating Partnership and Chief $100,000, plus health benefits and
Operating Officer of the Trust, the eligibility to participate in any
Operating Partnership and the Managing option plan and bonus incentive
Shareholder plan which may be implemented by
the Executive Compensation
Committee of the Board of the
Trust. In exchange for an initial
cash capital contribution of
$50,000 to the Operating
Partnership, 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 the Cash 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 the Trust) have been
exchanged into an equivalent number
of Common Shares. See "THE TRUST
AND THE OPERATING PARTNERSHIP -
Formation Transactions."
Robert L. Astorino, President - Property Initial annual salary of $150,000,
of the Operating Partnership plus health benefits and
eligibility to participate in any
option plan and bonus incentive
plan which may be implemented by
the Executive Compensation
Committee of the Board of the
Trust.
Mark L. Wilson, Chief Financial Officer Initial annual salary of $110,000,
of the Operating Partnership and plus health benefits and
Secretary of the Trust eligibility to participate in any
option plan and bonus incentive
plan which may be implemented by
the Executive Compensation
Committee of the Board of the
Trust.
Independent Trustees Annual fee of $6,000.
Managing Shareholder Annual payment under the Trust
Management Agreement, in an amount
equal to up to 1% of gross proceeds
from the Cash Offering plus 1% of
initial assigned value of Units
issued in Exchange Offering, to
reimburse the Managing Shareholder
for its operating expenses relating
to the business of the Trust and
the Operating Partnership.
Broker-Dealers Participating in Commission payable to
Exchange Offering broker-dealers who assist in the
Exchange Offering, consisting of a
number of unregistered Common
Shares equal to 5% of Units
solicited by them in the Exchange
Offering.
22
<PAGE>
DESCRIPTION OF EXCHANGE PARTNERSHIPS
As its initial acquisition candidates in connection with the Exchange
Offering, the Operating Partnership will offer to acquire all limited
partnership interests owned by partners in the 23 Exchange Partnerships. To the
extent Units remain available for issuance after completion of the exchange
transactions described herein, the Operating Partnership 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 parties and interests held by other limited partnerships
managed by affiliates of the Managing Shareholder.
Set forth below is a summary of certain information relating to each of
the Exchange Partnerships. Exchange Partnerships which directly or indirectly
own only equity interests in residential apartment properties are referred to
herein as "Exchange Equity Partnerships;" partnerships which own only
subordinated mortgage interests in properties and other debt interests are
referred to herein as "Exchange Mortgage Partnerships;" and partnerships which
directly or indirectly own a combination of equity and subordinated mortgage
interests in properties and other debt interests are referred to herein as
"Exchange Hybrid Partnerships." Each of the partnerships was formed with the
objectives to generate current cash flow for distribution to partners from the
rental of residential apartments or receipt of interest income and, where
applicable, to provide the opportunity for capital appreciation from the future
sale or refinancing of the residential apartment property. The Corporate General
Partners of the Exchange Partnerships (wholly owned and controlled, along with
the Managing Shareholder of the Trust, by Mr. McGrath) believe these objectives
have been substantially achieved. None of the Exchange Partnerships was
organized as a tax credit program. The rights and obligations of the limited
partners and the Corporate General Partner of each of the Exchange Partnerships
under the respective limited partnership agreement is summarized below at
"COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES." For additional information
concerning the Exchange Partnerships and their respective property interests,
see "SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP" and "INITIAL REAL
ESTATE INVESTMENTS," the tables herein indexed in the table of contents and
Exhibits A, B and C.
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund, Ltd., an Exchange Mortgage Partnership,
was organized as a Florida limited partnership in April 1996. Commencing June
12, 1996, Baron Capital XXXII, Inc., the general partner of the partnership and
an affiliate of the Managing Shareholder (wholly owned and controlled, along
with the general partner of the partnership and each general partner of the
other partnerships described below, by Mr. McGrath), sponsored a private
offering of 2,400 units of limited partnership interest in the partnership at a
purchase price of $500 per unit (gross proceeds of $1,200,000). The offering was
fully subscribed and closed on December 16, 1996. The partnership invested the
net proceeds of its offering to acquire (i) three unrecorded Subordinated
Mortgage Loans secured by a 68-unit residential apartment property referred to
as the Blossom Corners Property-Phase II located in Orlando, Florida and (ii) an
unrecorded Subordinated Mortgage Loan secured by a 164-townhome property
referred to as the Lake Sycamore Property under development in Cincinnati, Ohio.
The termination date of the partnership is December 31, 2026. It was anticipated
that the investment would be sold or mature by 2005.
Baron Strategic Investment Fund II, Ltd.
Baron Strategic Investment Fund II, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in April 1996. Commencing July 9,
1996, Baron Capital XXXI, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,600
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $800,000). The offering was fully subscribed and
closed on October 30, 1996. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 72-unit residential apartment
property referred to as the Steeplechase Apartment Property located in Anderson,
Indiana. The termination date of the partnership is December 31, 2026. It was
anticipated that the property would be listed for sale within three years, but
no listing has occurred to date.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund IV, Ltd., an Exchange Mortgage
Partnership, was organized as a Florida limited partnership in October 1996.
Commencing November 25, 1996, Baron Capital XVII, Inc., the general partner of
the partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,000 units of limited partnership interest in the
partnership at a purchase price of $500 per unit (gross proceeds of $1,000,000).
The offering was fully subscribed and closed on March 10, 1997. The partnership
invested the net proceeds of its offering (and of a note payable to another
Exchange Partnership, Baron Strategic Investment Fund VI, Ltd.) to acquire two
unrecorded Subordinated Mortgage Loans secured by a 73-unit residential
apartment property referred to as the Country Square Property-Phase I located in
Tampa, Florida. The termination date of the partnership is December 31, 2026. It
was anticipated that the investment would be sold or mature by 2001.
23
<PAGE>
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund V, Ltd., an Exchange Mortgage Partnership,
was organized as a Florida limited partnership in October 1996. Commencing
November 1, 1996, Baron Capital XL, Inc., the general partner of the partnership
and an affiliate of the Managing Shareholder, sponsored a private offering of
2,400 units of limited partnership interest in the partnership at a purchase
price of $500 per unit (gross proceeds of $1,200,000). The offering was fully
subscribed and closed on June 16, 1997. The partnership invested the net
proceeds of its offering to acquire (i) an unrecorded Subordinated Mortgage Loan
secured by a 33-unit residential apartment property referred to as the
Candlewood Property-Phase II located in Tampa, Florida, (ii) an undivided 26.3%
interest in three unrecorded Subordinated Mortgage Loans and a 100% interest in
an unrecorded Subordinated Mortgage Loan secured by an 81-unit residential
apartment property referred to as the Curiosity Creek Property located in Tampa,
Florida, and (ii) four unrecorded Subordinated Mortgage Loans secured by a
60-unit residential apartment property referred to as the Sunrise Property-Phase
I located in Titusville, Florida. The termination date of the partnership is
December 31, 2026. It was anticipated that the investment would be sold or
mature within three to five years.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VI, Ltd., an Exchange Hybrid Partnership,
was organized as a Florida limited partnership in October 1996. Commencing
November 18, 1996, Baron Capital XXXI, Inc., the general partner of the
partnership and an affiliate of the Managing Shareholder, sponsored a private
offering of 2,400 units of limited partnership interest in the partnership at a
purchase price of $500 per unit (gross proceeds of $1,200,000). The offering was
fully subscribed and closed on April 14, 1997. The partnership invested the net
proceeds of its offering (i) to acquire a 52.44% limited partnership interest in
a limited partnership which holds fee simple title to a 91-unit residential
apartment property referred to as the Pineview Property located in Orlando,
Florida, (ii) to acquire an unrecorded Subordinated Mortgage Loan secured by a
33-unit residential apartment property located in Tampa, Florida referred to as
the Candlewood Property-Phase II, (iii) to acquire an undivided 20% interest in
a Subordinated Mortgage Loan secured by a 91-unit residential apartment property
located in Tampa, Florida referred to as the Garden Terrace Property-Phase III,
and (iv) to provide a loan (secured by a mortgage) to another Exchange
Partnership, Baron Strategic Investment Fund IV, Ltd., which in turn used such
loan proceeds and net proceeds from its own offering to acquire an unrecorded
Subordinated Mortgage Loan secured by a 73-unit residential apartment property
referred to as the Country Square Property-Phase I located in Tampa, Florida.
The termination date of the partnership is December 31, 2026. It was anticipated
that the investment would be sold or mature within three to five years.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund VIII, Ltd., an Exchange Mortgage
Partnership, was organized as a Florida limited partnership in February 1997.
Commencing April 25, 1997, Baron Capital XLIV, Inc., the general partner of the
partnership and an affiliate of the Managing Shareholder, sponsored a private
offering of 2,400 units of limited partnership interest in the partnership at a
purchase price of $500 per unit (gross proceeds of $1,200,000). The offering was
fully subscribed and closed on February 5, 1998. The partnership invested the
net proceeds of its offering to acquire (i) an undivided 58% interest in an
unrecorded Subordinated Mortgage Loan secured by a 41-unit residential apartment
property referred to as the Heatherwood Property located in Kissimmee, Florida
and in three unsecured loans associated with such property, (ii) three
unrecorded Subordinated Mortgage Loans secured by a 59-unit residential
apartment property referred to as the Longwood Property-Phase I located in
Cocoa, Florida, and (iii) an unrecorded Subordinated Mortgage Loan secured by a
164-townhome property referred to as the Lake Sycamore Property under
development in Cincinnati, Ohio. The termination date of the partnership is
December 31, 2025. It was anticipated that the investment would be sold or
mature within three to five years.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund IX, Ltd., an Exchange Hybrid Partnership,
was organized as a Florida limited partnership in June 1997. Commencing June 6,
1997, Baron Capital XLII, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,400
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $1,200,000). The offering was fully subscribed
and closed on May 8, 1998. The partnership invested the net proceeds of its
offering to acquire (i) a 44.96% limited partnership interest in a limited
partnership which holds fee simple title to a 72-unit residential apartment
property referred to as the Crystal Court Property-Phase I located in Lakeland,
Florida, (ii) an unrecorded Subordinated Mortgage Loan secured by a 33-unit
residential apartment property located in Tampa, Florida referred to as the
Candlewood Property-Phase II, (iii) an undivided 25% interest in a Subordinated
Mortgage Loan secured by a 91-unit residential apartment property located in
Tampa, Florida referred to as the Garden Terrace Property-Phase III, and (iv) an
unrecorded Subordinated Mortgage Loan secured by a 164-townhome property
referred to as the Lake Sycamore Property under development in Cincinnati, Ohio.
The termination date of the partnership is December 31, 2026. It was anticipated
that the investment would be sold or mature within three to five years.
Baron Strategic Investment Fund X, Ltd.
24
<PAGE>
Baron Strategic Investment Fund X, Ltd., an Exchange Hybrid Partnership,
was organized as a Florida limited partnership in June 1997. Commencing July 2,
1997, Baron Capital XLIV, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,400
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $1,200,000). The offering was fully subscribed
and closed on March 13, 1998. The partnership invested the net proceeds of its
offering to acquire (i) a 47.59% limited partnership interest in a limited
partnership which holds a fee simple interest in a 72-unit residential apartment
property referred to as the Crystal Court Property-Phase I located in Lakeland,
Florida, (ii) a 39.56% limited partnership interest in a limited partnership
which holds a fee simple interest in a 91-unit residential apartment property
referred to as the Pineview Property located in Orlando, Florida, (iii) an
undivided 55% interest in a Subordinated Mortgage Loan secured by a 91-unit
residential apartment property located in Tampa, Florida referred to as the
Garden Terrace Property-Phase III, and (iv) an undivided 42% interest in an
unrecorded Subordinated Mortgage Loan secured by a 41-unit residential apartment
property referred to as the Heatherwood Property-Phase II located in Kissimmee,
Florida and in three unsecured loans associated with such property. The
termination date of the partnership is December 31, 2026. It was anticipated
that the investment would be sold or mature within three to five years.
Baron Strategic Vulture Fund I, Ltd.
Baron Strategic Vulture Fund I, Ltd., an Exchange Mortgage Partnership,
was organized as a Florida limited partnership in April 1996. Commencing May 21,
1996, Baron Capital XXVI, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,800
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $900,000). The offering was fully subscribed
and closed on October 28, 1996. The partnership invested the net proceeds of its
offering to acquire an undivided 73.7% interest in three unrecorded Subordinated
Mortgage Loans and a 100% interest in an unrecorded Subordinated Mortgage Loan
secured by an 81-unit residential apartment property referred to as the
Curiosity Creek Property located in Tampa, Florida. The termination date of the
partnership is December 31, 2026. There was no anticipated date of sale of the
investment.
Brevard Mortgage Program, Ltd.
Brevard Mortgage Program, Ltd., an Exchange Mortgage Partnership, was
organized as a Florida limited partnership in November 1995. Commencing January
2, 1996, Baron Capital XII, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 575 units
of limited partnership interest in the partnership at a purchase price of $1,000
per unit (gross proceeds of $575,000). The offering was fully subscribed and
closed on April 15, 1996. The partnership invested the net proceeds of its
offering to acquire three unrecorded Subordinated Mortgage Loans secured by a
64-unit residential apartment property referred to as the Meadowdale Property
located in Melbourne, Florida. The termination date of the partnership is
December 31, 2025. It was anticipated that the investment would be sold or
mature by 2005.
Central Florida Income Appreciation Fund, Ltd.
Central Florida Income Appreciation Fund, Ltd., an Exchange Equity
Partnership, was organized as a Florida limited partnership in April 1993.
Commencing September 12, 1994, Baron Capital of Florida, Inc. (formerly named
Sigma Financial Capital VI, Inc.), the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,100
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $1,050,000). The offering was fully subscribed and
closed on October 19, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 56-unit residential apartment
property referred to as the Laurel Oaks (formerly Grove Hamlet) Apartment
Property located in Deland, Florida. The termination date of the partnership is
December 31, 2025. It was anticipated that the property would be listed for sale
within two years. The property was listed for sale in 1997, but no sale has
occurred.
Florida Capital Income Fund, Ltd.
Florida Capital Income Fund, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in August 1994. Commencing November
16, 1994, Baron Capital II, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,614
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $807,000). The offering was fully subscribed and
closed on June 8, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 77-unit residential apartment
property referred to as the Eagle Lake Apartment Property located in Port
Orange, Florida. The termination date of the partnership is December 31, 2025.
It was anticipated that the property would be listed for sale within three to
five years. The property was listed for sale in 1997, but no sale has occurred.
Florida Capital Income Fund II, Ltd.
Florida Capital Income Fund II, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in April 1993. In May 1995, Baron
Capital IV, Inc., an affiliate of the Managing Shareholder, became general
partner of the partnership, which on May 25,
25
<PAGE>
1994 commenced a private offering of 1,840 units of limited partner interest in
the partnership at a purchase price of $500 per unit (gross proceeds of
$920,000). (The partnership also issued 160 units to four investors in exchange
for property interests acquired by them in an unrelated program which was
terminated.) The offering was fully subscribed and closed on July 6, 1995. The
partnership invested the net proceeds of its offering to acquire all of the
limited partnership interests in a limited partnership which holds a beneficial
interest in an unrecorded land trust which holds a fee simple interest in a
52-unit residential apartment property referred to as the Forest Glen Apartment
Property (Phase I) located in Daytona Beach, Florida. The termination date of
the partnership is December 31, 2025. It was anticipated that the property would
be listed for sale within three years, but no listing has occurred to date.
Florida Capital Income Fund III, Ltd.
Florida Capital Income Fund III, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in April 1995. Commencing June 2,
1995, Baron Capital VII, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 1,600
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $800,000). The offering was fully subscribed and
closed on November 1, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 48-unit residential apartment
property referred to as the Bridge Point Apartment Property located in
Jacksonville, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within three
to five years, but no listing has occurred to date.
Florida Capital Income Fund IV, Ltd.
Florida Capital Income Fund IV, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in August 1995. Commencing January
11, 1995, Baron Capital V, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 3,640
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $1,820,000). The offering was fully subscribed and
closed on June 6, 1996. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 144-unit residential
apartment property referred to as the Glen Lake Apartment Property located in
St. Petersburg, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within two
years, but no listing has occurred to date.
Florida Income Advantage Fund I, Ltd.
Florida Income Advantage Fund I, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in September 1993. In January 1995,
Baron Capital IV, Inc., an affiliate of the Managing Shareholder, became general
partner of the partnership, which on February 22, 1994 commenced a private
offering of 940 units of limited partner interest in the partnership at a
purchase price of $1,000 per unit (gross proceeds of $940,000). The offering was
fully subscribed and closed on May 27, 1994. The partnership invested the net
proceeds of its offering to acquire all of the limited partnership interests in
a limited partnership which holds a beneficial interest in an unrecorded land
trust which holds a fee simple interest in a 26-unit residential apartment
property referred to as the Forest Glen Apartment Property (Phase III) located
in Daytona Beach, Florida. The termination date of the partnership is December
31, 2025. It was anticipated that the property would be listed for sale within
two years, but no listing has occurred to date.
Florida Income Appreciation Fund I, Ltd.
Florida Income Appreciation Fund I, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in September 1993. In January
1995, Baron Capital IV, Inc., an affiliate of the Managing Shareholder, became
the general partner of the partnership, which on April 5, 1994 commenced a
private offering of 205 units of limited partner interest in the partnership at
a purchase price of $1,000 per unit (gross proceeds of $205,000). The offering
was fully subscribed and closed on September 2, 1994. The partnership invested
the net proceeds of its offering to acquire all of the limited partnership
interests in a limited partnership which holds a beneficial interest in an
unrecorded land trust which holds a fee simple interest in an 8-unit residential
apartment property referred to as the Forest Glen Apartment Property (Phase IV)
located in Daytona Beach, Florida. The termination date of the partnership is
December 31, 2025. It was anticipated that the property would be listed for sale
within two years, but no listing has occurred to date.
Florida Income Growth Fund V, Ltd.
Florida Income Growth Fund V, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in June 1995. Commencing January 31,
1995, Baron Capital XI, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,300
units of limited partnership interest in the partnership at a purchase price of
$500 per unit (gross proceeds of $1,150,000). The offering was fully subscribed
and closed on February 27, 1997. The partnership invested the net proceeds of
26
<PAGE>
its offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 70-unit residential apartment
property referred to as the Blossom Corners Apartment Property (Phase I) located
in Orlando, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within two
years, but no listing has occurred to date.
Florida Opportunity Income Partners, Ltd.
Florida Opportunity Income Partners, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in December 1994. Commencing
August 17, 1995, Baron Capital III, Inc., the general partner of the partnership
and an affiliate of the Managing Shareholder, sponsored a private offering of
800 units of limited partner interest in the partnership at a purchase price of
$1,000 per unit (gross proceeds of $800,000). The offering was fully subscribed
and closed on December 8, 1995. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 60-unit residential apartment
property referred to as the Camellia Court Apartment Property located in Daytona
Beach, Florida. The termination date of the partnership is December 31, 2025. It
was anticipated that the property would be listed for sale within two years, but
no listing has occurred to date.
GSU Stadium Student Apartments, Ltd.
GSU Stadium Student Apartments, Ltd., an Exchange Equity Partnership, was
organized as a Florida limited partnership in June 1995. Commencing May 25,
1995, Baron Capital X, Inc., the general partner of the partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,000
units of limited partner interest in the partnership at a purchase price of $500
per unit (gross proceeds of $1,000,000). The offering was fully subscribed and
closed on February 26, 1996. The partnership invested the net proceeds of its
offering to acquire all of the limited partnership interests in a limited
partnership which holds a fee simple interest in a 60-unit residential apartment
property referred to as the Stadium Club Apartment Property located in
Statesboro, Georgia. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within three
years, but no listing has occurred to date.
Lamplight Court of Bellefontaine Apartments, Ltd.
Lamplight Court of Bellefontaine Apartments, Ltd., an Exchange Hybrid
Partnership, was organized as a Florida limited partnership in February 1996.
Commencing April 22, 1996, Baron Capital IX, Inc., the general partner of the
partnership and an affiliate of the Managing Shareholder, sponsored a private
offering of 700 units of limited partner interest in the partnership at a
purchase price of $1,000 per unit (gross proceeds of $700,000). The offering was
fully subscribed and closed on November 22, 1996. The partnership invested the
net proceeds of its offering to acquire (i) a 31.7% limited partnership interest
in a limited partnership which holds fee simple title to an 80-unit residential
apartment property referred to as the Lamplight Court Apartment Property located
in Bellefontaine, Ohio and (ii) two unrecorded Subordinated Mortgage Loans
secured by such property. The termination date of the partnership is December
31, 2026. It was anticipated that the property would be listed for sale within
three years, but no listing has occurred to date.
Midwest Income Growth Fund VI, Ltd.
Midwest Income Growth Fund VI, Ltd., an Exchange Equity Partnership, was
organized as a Michigan limited partnership in March 1996. Commencing April 22,
1996, Baron Capital of Ohio III, Inc. (formerly named Sigma Financial Capital
VI, Inc.), the general partner of the partnership and an affiliate of the
Managing Shareholder, sponsored a private offering of 600 units of limited
partner interest in the partnership at a purchase price of $500 per unit (gross
proceeds of $300,000). The offering was fully subscribed and closed on October
29, 1996. The partnership invested the net proceeds of its offering to acquire
all of the limited partnership interests in a limited partnership which holds a
fee simple interest in a 66-unit residential apartment property referred to as
the Brookwood Way Apartment Property located in Mansfield, Ohio. The termination
date of the partnership is December 31, 2026. It was anticipated that the
property would be listed for sale within three years, but no listing has
occurred to date.
Realty Opportunity Income Fund VIII, Ltd.
Realty Opportunity Income Fund VIII, Ltd., an Exchange Equity Partnership,
was organized as a Florida limited partnership in April 1993. In January 1995,
Baron Capital IV, Inc., an affiliate of the Managing Shareholder, became general
partner of the partnership, which on March 3, 1994 commenced a private offering
of 944 units of limited partner interest in the partnership at a purchase price
of $1,000 per unit (gross proceeds of $944,000). The offering was fully
subscribed and closed on June 16, 1994. The partnership invested the net
proceeds of its offering to acquire all of the limited partnership interests in
a limited partnership which holds a beneficial interest in an unrecorded land
trust which holds a fee simple interest in a 30-unit residential apartment
property referred to as the Forest Glen Apartment Property (Phase II) located in
Daytona Beach, Florida. The termination date of the partnership is December 31,
2025. It was anticipated that the property would be listed for sale within two
years, but no listing has occurred to date.
27
<PAGE>
VALUATION TABLE
In the Exchange Offering, each Limited Partner in an Exchange Partnership
will be given the option to acquire Operating Partnership Units in exchange for
all limited partnership units held by the Limited Partner in the partnership.
Set forth in the table below is the following information in respect of each
Exchange Equity Partnership, Exchange Mortgage Partnership and Exchange Hybrid
Partnership: (i) the name of the partnership, its respective Corporate General
Partner (wholly owned and controlled, along with the Managing Shareholder, by
Mr. McGrath), and the residential apartment property or properties in which the
partnership owns a direct or indirect interest, (ii) the number of investors and
number of outstanding limited partnership units in the partnership, (iii) the
valuation of the partnership determined by the Managing Shareholder: (with
respect to each Exchange Equity Partnership and each Exchange Hybrid Partnership
(to the extent of their property interests) the value was 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 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; with respect to each Exchange Mortgage Partnership and
each Exchange Hybrid Partnership (to the extent of their mortgage interests in
properties and other debt interests) the value was based upon the following
factors: (1) the current principal balance of the amount of debt which is senior
to the mortgage interest to be acquired and the other indebtedness to which the
property is subject; (2) the estimated appraised market value of the underlying
property determined by qualified and licensed independent appraisal firms; (3)
the operating history of the property; (4) the amount of distributable cash flow
currently being generated by the property; plus (5) 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 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); (iv) the aggregate number
of Operating Partnership Units being offered to all Limited Partners in the
partnership (and the initial dollar value assigned to them), (v) the amount of
original investment made by investors in each Exchange Partnership; (vi) the
number of Operating Partnership Units being offered to each Limited Partner in
the partnership per $1,000 of original investment in the partnership (and the
initial dollar value assigned to them), and (vii) the percentage of Units
offered to all limited partners in each Exchange Partnership in relation to
Units offered to limited partners in all Exchange Partnerships participating in
the initial transactions of the Exchange Offering.
Although the appraisals do not address the fairness of the Exchange
Offering as a whole and to the offerees in each Exchange Partnership,
opinions as to the fairness from a financial point of view with respect to
each of the 23 transactions contemplated by the Exchange Offering were not
obtained because the cost of such opinions would have imposed a substantial
burden in addition to the costs already incurred for appraisals of the
Exchange Properties by qualified independent appraisers.
28
<PAGE>
VALUATION TABLE
<TABLE>
<CAPTION>
Exchange Partnership General Partner Property(s) Number of Investors
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Income Growth Fund V, Ltd. Baron Capital VI, Inc. Blossom Corners I 49
Florida Capital Income Fund III, Ltd. Baron Capital VII, Inc. Bridge Point II 32
Midwest Income Growth Fund VI, Ltd. Baron Capital of Ohio III, Inc. Brookwood Way 7
Florida Opportunity Income Partners, Ltd. Baron Capital III, Inc. Camellia Court 29
Florida Capital Income Fund, Ltd. Baron Capital II, Inc. Eagle Lake 31
Florida Capital Income Fund II, Ltd. Baron Capital IV, Inc. Forest Glen I 38
Realty Opportunity Income Fund VIII, Ltd. Baron Capital IV, Inc. Forest Glen II 45
Florida Income Advantage Fund I, Ltd. Baron Capital IV, Inc. Forest Glen III 46
Florida Income Appreciation Fund I, Ltd. Baron Capital IV, Inc. Forest Glen IV 13
Central Florida Income Appreciation Fund, Ltd. Baron Capital of Florida, Inc. Laurel Oaks 51
GSU Stadium Student Apartments, Ltd. Baron Capital X, Inc. Stadium Club 38
Baron Strategic Investment Fund II, Ltd. Baron Capital XXXI, Inc. Steeplechase 16
Florida Capital Income Fund IV, Ltd. Baron Capital V, Inc. Glen Lake Suites 60
Baron Strategic Investment Fund, Ltd. Baron Capital XXXII, Inc. Blossom Corners II 42
Baron Strategic Investment Fund IV, Ltd. Baron Capital XVII, Inc. Country Square I 52
Baron Strategic Investment Fund V, Ltd. Baron Capital XL, Inc. Curiosity Creek,
Candlewood II, Sunrise I 52
Baron Strategic Investment Fund VI, Ltd. Baron Capital XXXI, Inc. Pineview, Garden Terrace,
Candlewood II 38
Baron Strategic Investment Fund VIII, Ltd. Baron Capital XLIV, Inc. Heatherwood II, Longwood
I, Sycamore 41
Baron Strategic Investment Fund IX, Ltd. Baron Capital LXII, Inc. Crystal Court I,
Candlewood II, Garden
Terrace, Sycamore 50
Baron Strategic Investment Fund X, Ltd. Baron Capital LXIV, Inc. Crystal Court I,
Candlewood II, Garden
Terrace, Pineview 49
Baron Strategic Vulture Fund, Ltd. Baron Capital XXVI, Inc. Curiosity Creek 40
Brevard Mortgage Program, Ltd. Baron Capital XII, Inc. Meadowdale 23
Lamplight Court of Bellefontaine, Ltd. Baron Capital IX, Inc. Lamplight Court 26
<CAPTION>
Aggregate Number
of Units Offered Initial
Valuation of to All Limited Assigned Dollar Original
Exchange Partnership Partnership Partners Value of Units Investment
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florida Income Growth Fund V, Ltd. $ 1,310,347 131,035 $ 1,310,350 $ 1,150,000
Florida Capital Income Fund III, Ltd. $ 936,442 93,644 $ 936,440 $ 800,000
Midwest Income Growth Fund VI, Ltd. $ 381,063 38,106 $ 381,060 $ 300,000
Florida Opportunity Income Partners, Ltd. $ 840,996 84,100 $ 840,100 $ 800,000
Florida Capital Income Fund, Ltd. $ 924,487 92,449 $ 924,490 $ 807,000
Florida Capital Income Fund II, Ltd. $ 1,554,087 155,409 $ 1,554,090 $ 920,000
Realty Opportunity Income Fund VIII, Ltd. $ 987,220 98,722 $ 987,220 $ 944,000
Florida Income Advantage Fund I, Ltd. $ 1,006,575 100,658 $ 1,006,580 $ 205,000
Florida Income Appreciation Fund I, Ltd. $ 254,159 25,416 $ 254,160 $ 205,000
Central Florida Income Appreciation Fund, Ltd. $ 1,360,237 136,024 $ 1,360,240 $ 1,050,000
GSU Stadium Student Apartments, Ltd. $ 1,051,818 105,182 $ 1,051,820 $ 900,000
Baron Strategic Investment Fund II, Ltd. $ 824,306 82,431 $ 824,310 $ 800,000
Florida Capital Income Fund IV, Ltd. $ 2,475,501 247,550 $ 2,475,500 $ 1,820,000
Baron Strategic Investment Fund, Ltd. $ 1,327,230 132,723 $ 1,327,230 $ 1,200,000
Baron Strategic Investment Fund IV, Ltd. $ 1,040,000 104,000 $ 1,040,000 $ 1,000,000
Baron Strategic Investment Fund V, Ltd. $ 1,265,358 126,536 $ 1,265,360 $ 1,200,000
Baron Strategic Investment Fund VI, Ltd. $ 1,253,314 125,331 $ 1,253,310 $ 1,200,000
Baron Strategic Investment Fund VIII, Ltd. $ 1,257,650 125,765 $ 1,257,650 $ 1,200,000
Baron Strategic Investment Fund IX, Ltd. $ 1,251,000 125,100 $ 1,251,000 $ 1,200,000
Baron Strategic Investment Fund X, Ltd. $ 1,282,220 128,222 $ 1,282,220 $ 1,200,000
Baron Strategic Vulture Fund, Ltd. $ 990,101 99,010 $ 990,100 $ 900,000
Brevard Mortgage Program, Ltd. $ 624,738 62,474 $ 624,740 $ 575,000
Lamplight Court of Bellefontaine, Ltd. $ 781,757 78,176 $ 781,760 $ 700,000
-------------------------------------------------------------------------
$24,980,660 2,498,061 $24,980,660 $21,811,000
<CAPTION>
Percentage of
Units to All
Number of Units Limited Partners
Offered to Each Initial Partnership in
Limited Partner Assigned Relations Units
per $1,000 of Dollar Value Offered to All
Original per $1,000 Partners in all
Exchange Partnership Investment Investment Partnerships
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Income Growth Fund V, Ltd. 114 $1,140 5.25%
Florida Capital Income Fund III, Ltd. 117 $1,170 3.75%
Midwest Income Growth Fund VI, Ltd. 127 $1,270 1.53%
Florida Opportunity Income Partners, Ltd. 105 $1,050 3.37%
Florida Capital Income Fund, Ltd. 115 $1,150 3.70%
Florida Capital Income Fund II, Ltd. 169 $1,690 6.22%
Realty Opportunity Income Fund VIII, Ltd. 105 $1,050 3.95%
Florida Income Advantage Fund I, Ltd. 107 $1,070 4.03%
Florida Income Appreciation Fund I, Ltd. 124 $1,240 1.02%
Central Florida Income Appreciation Fund, Ltd. 130 $1,300 5.45%
GSU Stadium Student Apartments, Ltd. 117 $1,170 4.21%
Baron Strategic Investment Fund II, Ltd. 103 $1,030 3.30%
Florida Capital Income Fund IV, Ltd. 136 $1,360 9.91%
Baron Strategic Investment Fund, Ltd. 111 $1,110 5.31%
Baron Strategic Investment Fund IV, Ltd. 104 $1,040 4.16%
Baron Strategic Investment Fund V, Ltd.
105 $1,050 5.07%
Baron Strategic Investment Fund VI, Ltd.
104 $1,040 5.02%
Baron Strategic Investment Fund VIII, Ltd.
105 $1,050 5.03%
Baron Strategic Investment Fund IX, Ltd.
104 $1,040 5.01%
Baron Strategic Investment Fund X, Ltd.
107 $1,070 5.13%
Baron Strategic Vulture Fund, Ltd. 110 $1,100 3.96%
Brevard Mortgage Program, Ltd. 109 $1,090 2.50%
Lamplight Court of Bellefontaine, Ltd. 112 $1,120 3.13%
--------------------------------------------------
115 $1,150 100.00%
</TABLE>
29
<PAGE>
SUMMARY OF RISK FACTORS
The following is a summary of the material risk factors applicable to the
Exchange Offering and an investment in Units and Common Shares and the
operations of the Trust and the Operating Partnership. For a more detailed
description of the risk factors relating to the Exchange Offering and the
proposed activities of the Trust and the Operating Partnership, including those
set forth below, see "RISK FACTORS" below.
o The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of the Trust (into
which the Units are exchangeable), if listed on a national securities
exchange, will trade at a lower price.
o The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership with no separate counsel or advisor
for the Offerees. Each Offeree is advised to seek independent advice and
counsel before deciding whether to accept the Exchange Offering.
o If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in a particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration. See "COMPARISON OF RIGHTS OF
HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND
TRUST COMMON SHARES - PROPERTY INTERESTS AND ANTICIPATED HOLDING PERIOD."
o If the Operating Partnership consummates exchanges in respect of all
Exchange Partnership Units initially targeted for investment in the
Exchange Offering, the partnership interests acquired will have a purchase
price totaling approximately $24,980,660, comprised of Operating
Partnership Units to be issued. The property interests to be acquired with
the balance of the Operating Partnership Units being offered in the
Exchange Offering have not yet been finally determined. In addition, to
date, the Operating Partnership has acquired beneficial interests in four
properties for cash, entered into an agreement to acquire two properties
under development and invested in other real estate limited partnerships
as of the date of this Prospectus, but has not committed the available net
cash proceeds raised to date or to be raised in the future to any
additional specific properties. Therefore, Offerees who elect to accept
the Exchange Offering may not have available any information on additional
properties to be acquired, in which case they will be required to rely on
management's judgment regarding those purchases. In addition, Offerees
will not have the benefit of knowing in advance of deciding whether to
accept the offering the extent of the Operating Partnership's investment
in respect of properties involved in the offering until the offering is
completed.
o The Original Investors in the Operating Partnership serve as executive
officers of the Trust, the Operating Partnership and the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) and will be
compensated for their services. (See "COMPENSATION OF MANAGING PERSONS AND
AFFILIATES.") Each of the Original Investors owns an amount of Operating
Partnership Units (up to 601,080 Units with an initial assigned value of
$6,010,800 when valued at $10.00 per Unit) which are exchangeable (subject
to escrow restrictions described below) into 9.5% of the Trust Common
Shares outstanding as of the earlier to occur of the completion of the
Cash 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 the Trust) have been exchanged into an equivalent
number of Common Shares. (The Original Investors received the Units in
exchange for their initial contributions of $50,000 each to the
capitalization of the Operating Partnership, and such Units have been
deposited into a security escrow account for a period of six to nine
years, subject to earlier release under certain conditions described at
"THE TRUST AND THE OPERATING PARTNERSHIP - Formation Transactions.")
Accordingly, the Original Investors and affiliates have significant
influence over the affairs of the Trust, the Operating Partnership and the
Exchange Partnerships, and the Exchange Offering involves transactions
among them which may result in decisions that do not fully represent the
interests of all Shareholders of the Trust, Unitholders in the Operating
Partnership and limited partners in the Exchange Partnerships. In
addition, Offerees who acquire Operating Partnership Units in the Exchange
Offering will pay a higher price per unit than the Original Investors paid
for their Operating Partnership Units. See "MANAGEMENT" and "THE
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<PAGE>
TRUST AND THE OPERATING PARTNERSHIP - Formation Transactions" and "
Ownership of the Trust and the Operating Partnership."
o The Operating Partnership and the Trust will use Units, Common Shares, net
proceeds from the sale of securities, including the Trust's Cash Offering,
and available cash flow from operations to acquire direct or indirect
equity and mortgage and other debt interests in residential apartment
properties. The purchase price to be paid by the Operating Partnership 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 a 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 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 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 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 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 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 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 property
interests or mortgage interests acquired is fair and reasonable and will
reflect their fair market value.
o A significant portion of the value of the equity and mortgage interests in
properties owned by the Exchange Partnerships was determined subjectively
by the Managing Shareholder which is affiliated with the general partner
of each Exchange Partnership. This affiliation creates a potential
conflict in making such determination.
o Although the Trust has adopted certain policies designed to eliminate or
minimize their effect, potential conflicts of interest may arise among the
Trust, the Operating Partnership, the Managing Shareholder (wholly owned
and controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), the Original Investors and their respective
affiliates, including certain affiliates which 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
the Trust and the Operating Partnership will seek to acquire.
Substantially all of the mortgage interests owned by the Exchange
Partnerships relate to properties owned by other limited partnerships
affiliated with Mr. McGrath. The Trust and the Operating Partnership may
be restricted from investing in certain properties since affiliates of the
Managing Shareholder may have other investment vehicles investing in
similar properties. In addition, there will be competing demands for
management resources of the Managing Shareholder, the Trust and the
Operating Partnership and transactions are expected to be completed by the
Trust and the Operating Partnership with affiliates of the Managing
Shareholder. See "CONFLICTS OF INTEREST" and "INVESTMENT OBJECTIVES AND
POLICIES - Conflict of Interest Policies."
o Subject to certain exceptions, the Trust and the Operating Partnership 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 the Trust or the
Operating Partnership, 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
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<PAGE>
compared to a new building, plus the estimated current market value of the
underlying land (generally determined using the direct sales comparison
approach).
o Offerees who accept the Exchange Offering may not experience returns
comparable to or in excess of those experienced by Limited Partners in the
Exchange Partnerships.
o The current returns of the Exchange Partnerships may not be achieved by
the Trust and the Operating Partnership after completion of the Exchange
Offering and may be higher or lower than the current returns of other
partnerships which participate in the offering.
o Real estate investment considerations, individually or in the aggregate,
may negatively impact the ability of the Trust and Operating Partnership
to make distributions to Shareholders and Unitholders, including without
limitation the effect of national and local economic and other conditions
on residential apartment property values, the general lack of liquidity of
investments in real estate, the risks associated with investments in
mortgages, the ability of tenants to pay rents, the possibility that
rental units may not be occupied or may be occupied on terms unfavorable
to the Trust and the Operating Partnership, the frequent need for capital
improvements, the possibility that (including the effects of depreciation
and interest) certain properties may have experienced recurring losses for
financial reporting purposes, the possibility of uninsured losses, the
ability of the property investments of the Trust and the Operating
Partnership to generate sufficient cash flow to meet expenses, including
debt service requirements, or to be sold on favorable terms, if at all,
the availability of capital for investment, and competition in seeking
properties for acquisition and in seeking tenants.
o Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the
potential inability to refinance any mortgage indebtedness of the Trust
and the Operating Partnership upon maturity, risks associated with
possible investments in loans secured by Subordinated Mortgages on
property which may or may not be recorded, and the risk of higher interest
rates on any adjustable interest rate debt or debt incurred to refinance
indebtedness. The Operating Partnership expects to acquire mortgage
interests which are not recorded because of restrictions in loan documents
executed in connection with First Mortgages issued to other unrelated
lenders. If a Mortgage is not recorded, the security interest of the
Operating Partnership would not be perfected and the respective debt would
rank pari passu with all other unsecured creditors of the borrower.
o The Trust and the Operating Partnership will each be permitted to incur
indebtedness in an aggregate amount up to 300% of their respective net
assets (subject to certain exceptions described at "INVESTMENT OBJECTIVES
AND POLICIES - Trust Policies with respect to Certain Activities -
Financing Policies"), which could result in the Trust and the Operating
Partnership becoming highly leveraged, which in turn could adversely
affect the ability of the Trust and the Operating Partnership to make
distributions to Shareholders and Unitholders and increase the risk of
default under their respective indebtedness.
o The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance acquisitions and improvements of
property without additional debt or equity financing; financing such
acquisitions and improvements, in turn, may limit cash available for
distribution to Shareholders and Unitholders. See "TAX STATUS" and
"FEDERAL INCOME TAX CONSIDERATIONS."
o The successful operation of the Trust and the Operating Partnership is
dependent on key management. In addition, each of the Original Investors,
Mr. McGrath and Mr. Geiger, have other business interests and neither will
devote full business time to the Trust, the Operating Partnership or the
Managing Shareholder. See "MANAGEMENT."
o There can be no assurance of the successful completion of the Exchange
Offering and the Cash Offering and it is unlikely that the cash proceeds
from the sale in the Cash Offering of only a minimum number of Common
Shares will be sufficient to meet the investment objectives of the Trust
and the Operating Partnership.
o No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national stock exchange, it is possible that no public
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<PAGE>
market for the Common Shares will ever develop or be maintained, resulting
in lack of liquidity of the Common Shares.
o The Trust will be taxed as a corporation if it fails to qualify as a REIT
for federal income tax purposes. In that event, the Trust will be liable
for certain federal, state and local income taxes and cash available for
distribution to Shareholders and Unitholders will decrease. Even if the
Trust qualifies for taxation as a REIT, the Trust may be subject to
certain Federal, state and local taxes on its income and property. See
"FEDERAL INCOME TAX CONSIDERATIONS."
o Under certain circumstances described at "FEDERAL INCOME TAX
CONSIDERATIONS - Exchange of Exchange Partnership Units for Operating
Partnership Units," an Exchange Limited Partner may recognize tax upon the
exchange of Exchange Partnership Units for Operating Partnership Units.
o The possible issuance by the Trust and the Operating Partnership of
additional Shares and Units subsequent to the completion of the Exchange
Offering and the Cash Offering, which issuance in turn may result in the
dilution of Offerees who elect to accept this Exchange Offering and
Shareholders of the Trust and affect the then prevailing market price of
Common Shares.
o Certain provisions in the Declaration of Trust for the Trust and other
statutory provisions have the potential to delay or prevent a takeover of
the Trust or other transaction in which the holders of some, or a
majority, of the outstanding Common Shares might receive a premium on
their Common Shares over the then prevailing market price or which such
holders might believe to be otherwise in their best interest. Such
provisions generally limit the actual or constructive ownership by any one
person or entity (other than the Original Investors) of equity securities
in the Trust to 5% of the outstanding Shares.
o As a result of certain amendments which will be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Offerees who elect not to accept the Exchange Offering ("Non-participating
Limited Partners") following the Exchange Offering, such Non-participating
Limited Partners, voting as a class, will have the ability to veto certain
actions of the partnership, such as the sale of the partnership's
property, which might be in the best interest of the partnership, the
Operating Partnership, the Trust or the holders of securities of the Trust
and the Operating Partnership. There can be no assurance that
Non-participating Limited Partners will not use such voting power in a
manner which may have an adverse effect on the operations of the Trust or
the Operating Partnership.
o Following the Exchange Offering, the limited partnership interests of
Non-participating Limited Partners in Participating Exchange Partnerships
are likely to remain extremely illiquid because they will represent a
small minority interest in the partnership and because of the uncertainty
whether the property interests held by the partnership would be sold in
the near future due to the REIT and other provisions of the Code which
would penalize the Trust and possibly limited partners in the partnership
who accept the offering if the Operating Partnership sells the property
interest in the short term.
o The potential liability of the Trust and the Operating Partnership for
unknown or future environmental liabilities and the costs of compliance
with the Americans with Disabilities Act and other governmental
regulations, which may negatively impact the financial condition and
results of operations of the Trust and the Operating Partnership and cash
available to them for distribution to Shareholders and Unitholders.
o The $13,069,079 aggregate book value of the 23 Exchange Partnerships
initially targeted for investment in the Exchange Offering is less than
the $24,980,660 total of the initial value assigned to the Operating
Partnership Units being offered for Exchange Partnership Units. This
discrepancy is due to depreciation taken against the original price paid
by Exchange Equity Partnerships and Exchange Hybrid Partnerships for
direct or indirect equity interests in properties and the appreciation of
the properties since such purchase. As a result, the return on investment
of the Exchange Partnerships based on the initial assigned value of the
Units offered for limited partnership interests in such partnerships will
be less than the return on investment of the partnerships based on their
respective book values.
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<PAGE>
o Any Offeree who is a limited partner of an Exchange Partnership and does
not desire to participate in the Exchange Offering will be entitled to
retain his limited partnership interest in his respective Exchange
Partnership on substantially the same terms and conditions as his original
investment. Neither applicable law nor the limited partnership agreement
relating to any Exchange Partnership provides any rights of dissent or
appraisal to Offerees who do not elect to accept the Exchange Offering.
o The use of Units being offered in the Exchange Offering and the net
proceeds of the Cash Offering to acquire interests in one or more existing
residential apartment properties may occur over an extended period during
which the Trust and the Operating Partnership will face risks of changes
in interest rates and adverse changes in the real estate market.
Similarly, during periods in which proceeds are invested in interim
investments prior to such application, the Trust and the Operating
Partnership may be affected by changes in prevailing interest rate levels.
Such interim investments would be expected to earn rates of return which
are lower than those earned on the real estate investments of the Trust
and the Operating Partnership.
TAX STATUS
The Operating Partnership
No ruling has been or will be sought from the IRS as to the status of the
Operating Partnership as a partnership for federal income tax purposes. Instead,
the Operating Partnership has relied on the opinion of special tax counsel that,
based upon the Code, the Regulations thereunder, published revenue rulings and
court decisions, the Operating Partnership will be classified as a partnership
for federal income tax purposes. In rendering its opinion, tax counsel has
relied on the following factual representations made by the Operating
Partnership and the Trust, as its General Partner:
o The Operating Partnership has not, and will not, elect to be treated
as an association taxable as a corporation;
o The Operating Partnership has been and will continue to be operated
in accordance with (i) all applicable partnership statutes, (ii) the
Agreement of Limited Partnership of the Operating Partnership, and
(iii) the description in this Prospectus;
o At least 22% in value of all of the assets of the Operating
Partnership shall always consist of assets other than those
described in Section 351(e)(1) of the Code; and
o The Operating Partnership will be operated so as to avoid treatment
as a publicly-traded partnership as set forth in Section 7704 of the
Code and applicable Regulations thereunder.
Under Section 7704 of the Code, certain "publicly-traded" partnerships are
treated as corporations for federal tax purposes. A partnership is a
publicly-traded partnership when interests in the partnership are traded on an
established securities market or are readily tradable on a secondary market or
the substantial equivalent thereof. Under Code Section 7704(c), a
publicly-traded partnership will nevertheless be treated as a partnership for
tax purposes if 90% or more of its gross income for the taxable year and each
preceding taxable year beginning after December 31, 1987, during which the
partnership (or any predecessor) was in existence consists of passive-type
income, such as interest, dividends, real property rents and gain from the sale
or other disposition of real property, and the partnership would not be
described as a regulated investment company under Code Section 851(a) were it a
domestic corporation.
Under Regulation Section 1.7704-1, interests in a partnership are
generally considered readily tradable on a secondary market or the substantial
equivalent thereof if (a) such interests are regularly quoted by any person,
such as a broker or dealer, making a market in the interests, (b) any person
makes available to the public bid or offer quotes with respect to such interests
and stands ready to effect buy or sell transactions at the quoted prices for
itself or on behalf of others, (c) the holder of an interest has a readily
available, regular and on-going opportunity to dispose of his interest through a
public means of obtaining or providing information of offers to buy, sell or
exchange such interests, or (d) prospective buyers and sellers have the
opportunity to buy, sell or exchange interests in a time frame and with the
regularity and continuity that the existence of a secondary market would
provide.
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<PAGE>
The Operating Partnership and the Trust have represented to special tax
counsel that the Units of the Operating Partnership will not be traded on an
established securities market and will not be readily tradable on a secondary
market (or the substantial equivalent thereof) within the meaning of the
Regulations. Additionally, the Operating Partnership and the Trust have further
represented that, at all times throughout the existence of the Operating
Partnership, at least 90% or more of the Operating Partnership's gross income
will consist of passive-type income, and the Operating Partnership will not be a
regulated investment company described in Code Section 851(a). Special tax
counsel has relied on such representations in rendering its opinion that the
Operating Partnership will be classified as a partnership for federal income tax
purposes.
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to the Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum of 35%. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income at a rate currently ranging
to a maximum of 39.6% (to the extent of the Operating Partnership's current or
accumulated earnings and profits) or (in the absence of earnings and profits) a
non-taxable return of capital (to the extent of the Unitholder's tax basis in
his Units) or taxable capital gain (after the Unitholder's tax basis in the
Units has been reduced to zero). Accordingly, treatment of the Operating
Partnership as an association taxable as a corporation would result in a
material reduction in a Unitholder's cash flow and after-tax return and thus
would likely result in a substantial reduction of the value of the Units.
Exchange of Exchange Partnership Units for Operating Partnership Units
In general, a contribution by an Exchange Limited Partner of a limited
partnership interest ("Exchange Partnership Units") to the Operating Partnership
in exchange for Operating Partnership Units (the "Exchange") will not result in
the recognition of taxable gain at the time of the Exchange. There is an
exception to this general rule if the Exchange Limited Partner receives in
connection with the Exchange a cash distribution (or a deemed cash distribution
resulting from relief from liabilities) that exceeds such Exchange Limited
Partner's aggregate adjusted basis in his Exchange Partnership Units at the time
of the Exchange and other exceptions to non-recognition of gain described at
"FEDERAL INCOME TAX CONSIDERATIONS - Exchange of Exchange Partnership Units for
Operating Partnership Units." Special tax counsel is unable to issue an opinion
as to whether or not a particular Exchange Limited Partner will defer
recognition of gain upon the Exchange due to the number of factors that must be
considered with respect to each Exchange Limited Partner.
The Offerees will not receive any cash distributions in connection with
the Exchange Offering. Whether a particular Exchange Limited Partner will
receive a deemed cash distribution attributable to relief from liabilities in
connection with the Exchange that exceeds his adjusted basis in his Exchange
Partnership Units at the time of the Exchange will depend on a number of
variables, including such Exchange Limited Partner's adjusted tax basis in his
partnership interest at such time, the assets that the Exchange Limited Partner
originally contributed to the partnership in exchange for such Exchange
Partnership Units, the indebtedness, if any, of the Exchange Partnership in
which the Exchange Limited Partner owns an interest at the time of the Exchange,
the tax basis of any such contributed assets in the hands of the Exchange
Partnership at the time of the Exchange, the Exchange Limited Partner's share of
the "unrealized gain" with respect to the Exchange Partnership's assets at the
time of the Exchange, and the extent to which the Exchange Limited Partner
includes in his basis for his Exchange Partnership Units a share of the Exchange
Partnership's recourse liabilities by reason of indemnification or "deficit
restoration" obligations that will be eliminated by reason of the Exchange. See
"FEDERAL INCOME TAX CONSIDERATIONS - Exchange of Exchange Partnership Units for
Operating Partnership Units."
The Trust
The Trust has elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its taxable year ending December 31, 1998. To
maintain REIT status, an entity must meet a number of organizational and
operational requirements, including a requirement that it currently distribute
to its shareholders at least 95% of its REIT taxable income (determined without
regard to the dividends paid deduction and by excluding net capital gains).
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<PAGE>
As a REIT, the Trust generally will not be subject to federal income tax
on net income it distributes currently to its Shareholders. If the Trust fails
to qualify as a REIT in any taxable year, it 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. See "RISK FACTORS - Adverse Consequences of
Failure to Qualify as a REIT" and the Cash Offering Prospectus at "FEDERAL
INCOME TAX CONSIDERATIONS." Even if the Trust qualifies for taxation as a REIT,
the Trust may be subject to certain federal, state and local taxes on its income
and property.
COMPENSATION OF MANAGING PERSONS AND AFFILIATES
The Trust is not entitled to receive any compensation for services
performed in its capacity as General Partner of the Operating Partnership. The
Trust, however, is entitled to be reimbursed on a monthly basis for expenses
incurred on behalf of the Operating Partnership, subject to certain limitations
described below. The Trust will contribute all net proceeds from the sale of
Common Shares in the Cash Offering to the Operating Partnership in exchange for
an equivalent number of Units, and as the owner of such Units will have
generally the same economic rights and other rights as other Unitholders. See
"THE TRUST AND THE OPERATING PARTNERSHIP - The Operating Partnership." The
Operating Partnership Agreement authorizes the Trust to cause the Operating
Partnership to issue additional Units to the Unitholders or to third parties or
the Trust which have designations, preferences or other special rights that are
senior to those of the Unitholders.
No special fees or commissions were or will be paid to the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) or any affiliates in
connection with the Exchange Offering. Broker-dealers who assist the
Operating Partnership in consummating the Exchange Offering with individual
Offerees will be paid as a commission a number of unregistered Common Shares
of the Trust equal to 5% of the Units solicited by them in the Exchange
Offering.
The following table describes all material fees, compensation,
reimbursable expenses and other payments that may be received by the Managing
Shareholder, the Independent Trustees and executive officers of the Trust, the
Operating Partnership and the Managing Shareholder in exchange for their
respective services and expenses incurred in connection with the Cash Offering
and preparation of the Prospectus relating thereto, the operation of the Trust
and the Operating Partnership and investments investigated, evaluated and
consummated by the Trust and the Operating Partnership. The determination of the
type and amount of such compensation and payments was not the result of
arms'-length negotiation. See "CONFLICTS OF INTEREST."
The Independent Trustees must determine that organizational and offering
expenses payable by the Trust and the Operating Partnership in connection with
the formation of the Trust and the Operating Partnership 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
Declaration of Trust.)
The Independent Trustees must determine that the total amount of
acquisition fees and expenses payable by the Trust or the Operating Partnership
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, or
in the case of a mortgage loan provided or acquired by the Trust or the
Operating Partnership, 6% of the funds advanced, unless a majority of the
disinterested members of the Board of the Trust 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 fee is
commercially competitive, fair and reasonable to the Trust and the Operating
Partnership. (See Section 1.9(h) of the Declaration of Trust.)
The total operating expenses (excluding certain items, including capital
raising expenses, interest payments, taxes, non-cash expenditures such as
depreciation, and acquisition fees and expenses) of each of the Trust and the
Operating Partnership 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. (See the sixth bullet point on page ___ of this Prospectus and Section
1.9(i) of the Declaration of Trust.) It is likely that the total operating
expenses of the Trust and the Operating
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<PAGE>
Partnership for their initial years of operations will exceed the 2%/25%
limitations described above. In August 1998, the Independent Trustees made a
finding that such expenses are justified in respect of the first fiscal year of
operations on the basis that (i) the Trust and the Operating Partnership are
start-up companies which will expand their property interests through
acquisitions paid for with net proceeds from the Cash Offering and Units in
exchange transactions, including the Exchange Offering, and (ii) significant
start-up expenses incurred to cover the acquisition or leasing of equipment,
rental obligations and leasehold improvements and salary expenses as a
percentage of assets or net income will decrease as operations expand.
The payment by the Trust and the Operating Partnership 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 Declaration of Trust.)
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 the
Trust or the Operating Partnership in the future will require the approval of a
majority of the Independent Trustees.
OFFERING AND ORGANIZATIONAL STAGE
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder Reimbursement for distribution, due diligence and Not to exceed $250,000
(Baron Advisors) organizational expenses incurred in connection with
the formation of the Trust and the Operating
Partnership and with the Cash Offering in an amount
not to exceed 1% of gross proceeds from the Cash
Offering.
Managing Shareholder Reimbursement for legal, accounting and consulting Not to exceed $250,000
fees and filing, recording, printing, postage and
other miscellaneous expenses incurred in connection
with the Cash Offering in an amount not to exceed
1% of gross proceeds from the Cash Offering.
Baron Capital Properties, No compensation will be payable to the Corporate Reimbursable expenses are
Inc. (the Corporate Trustee performing services on behalf of the Trust expected to be limited to the
Trustee of the Trust) at the expense of operating an office direction of in Delaware (approximately
the Managing Shareholder; however, reimbursement $1,500 per year initially) as
will be made for reasonable expenses incurred on required by the Delaware Act -
behalf of the Trust which are approved in advance see "MANAGEMENT -
by the Managing Shareholder. Corporate Trustee."
</TABLE>
37
<PAGE>
OFFERING AND ORGANIZATIONAL STAGE (cont'd)
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder The Managing Shareholder and certain affiliates are Amount of reimbursable
and Affiliates entitled to be reimbursed by the Trust and the expenses incurred on behalf of
Operating Partnership for all reasonable direct the Trust and the Operating
expenses incurred on behalf of the Trust and the Partnership.
Operating Partnership, 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
Declaration of Trust and the Operating Partnership
Agreement and do not constitute payment for
activities for which they already receive a fee,
compensation and reimbursement as described herein.
</TABLE>
ACQUISITION AND OPERATING STAGE
<TABLE>
<S> <C> <C>
Managing Shareholder Reimbursement for expenses incurred prior to and Not to exceed $1,000,000;
during the Cash Offering for investigating and (reimbursable expenses paid in
evaluating investment opportunities for the Trust connection with investment
and the Operating Partnership (other than the activities plus other acquisition
Exchange Properties) and for assisting them in fees and expenses may not exceed
consummating their investments, in an amount not to 6% of the contract purchase price
exceed 4% of gross proceeds from the Cash Offering; for acquisitions unless the
payable from available net proceeds of the Cash Independent Trustees determine
Offering or as cash flow permits as determined by that the transaction is
the Board of the Trust. commercially reasonable).
Managing Shareholder Annual payment under the Trust Management Agreement Not to exceed $500,000 per year;
to reimburse it for its operating expenses relating payable on a monthly basis during
to the business of the Trust and the Operating the term of the agreement
Partnership, in an amount not to exceed 1% of gross beginning June 1, 1998; at its
proceeds of the Cash Offering plus 1% of the option the Managing Shareholder
initial assigned value of Units issued in may elect to be paid in Common
connection with the Exchange Offering. Shares with an equivalent value.
</TABLE>
38
<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 Mr. McGrath received no
founder of the Trust and compensation for the year ended
the Operating Partnership December 31, 1998, but received
and Chief Executive health benefits. Beginning in
Officer of the Trust, the 1999, his compensation and
Operating Partnership and benefits will be determined by the
the Managing Shareholder Executive Compensation Committee
of the Board of The Trust. In
exchange for an initial cash
capital contribution to the
Operating Partnership, 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 the Cash 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 the Trust)
have been exchanged into an
equivalent number of Common
Shares. See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation
Transactions."
Robert S. Geiger, a Initial annual compensation $100,000, plus health benefits and
founder of the Trust and eligibility to participate in any
the Operating Partnership option plan and bonus incentive
and Chief Operating plan which may be implemented by
Officer of the Trust, the the Executive Compensation
Operating Partnership and Committee of the Board of the
the Managing Shareholder Trust. In exchange for an initial
cash capital contribution to the
Operating Partnership, 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 the Cash Offering
and the Exchange Offering or
November 30, 1999, calculated on a
fully diluted basis
</TABLE>
39
<PAGE>
<TABLE>
<S> <C> <C>
assuming that all then outstanding
Units (other than those owned by
the Trust) have been exchanged
into an equivalent number of
Common Shares. See "THE TRUST AND
THE OPERATING PARTNERSHIP -
Formation Transactions."
</TABLE>
ACQUISITION AND OPERATING STAGE (cont'd)
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Robert L. Astorino, Initial annual salary $150,000, plus health benefits and
President - Properties of eligibility to participate in any
the Operating Partnership option plan and bonus incentive
plan which may be implemented by
the Executive Compensation
Committee of the Board of the
Trust.
Mark L. Wilson, Chief Initial annual salary $110,000, plus health benefits and
Financial Officer of the eligibility to participate in any
Operating Partnership and option plan and bonus incentive
Secretary of the Trust plan which may be implemented by
the Executive Compensation
Committee of the Board of the
Trust.
Independent Trustees Annual fee $6,000
Managing Shareholder Subject to operational limitations on REITs for The compensation, price or fee
and Affiliates federal income tax purposes, the Trust is payable must be comparable to and
authorized to contract with the Managing competitive with that charged by a
Shareholder and affiliates to provide goods and third party rendering comparable
services other than those specified herein, but no goods and services which could
such contract is contemplated at this time. Any reasonably be made available to
such contract would require, among other things, the Trust.
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.
</TABLE>
The tables below set forth (i) the actual amounts of compensation and
distributions, separately identified, paid by each Exchange Partnership to its
general partner (all such general partners are owned and controlled by an
Original Investor, Gregory K. McGrath) for such partnerships' last three fiscal
years and most recently ended interim period; and (ii) the amounts of
compensation and distributions that would have been paid to the Managing
Shareholder if the compensation and distributions structure to be in effect
after the Exchange Offering had been in effect during such period.
40
<PAGE>
Baron Capital Properties, L.P.
Schedule of Pre/Post Transaction Payments to General Partner
****************** Assumption: Offering not yet completed.
<TABLE>
<CAPTION>
Property Fund 1996 1996 1996 1997
Name Name Management Accounting Total Management
<S> <C> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 13,930 3,900 17,830 13,680
Bridgepoint Florida Capital Income Fund III, Ltd. 11,423 3,900 15,323 10,961
Brookwood Way Midwest Income Growth Fund VI, Ltd. 12,138 3,900 16,038 12,847
Camellia Court Florida Opportunity Income Partners 13,736 3,900 17,636 11,512
Eagle Lake Florida Capital Income Fund, Ltd. 19,024 3,900 22,924 18,361
Forest Glen I Florida Capital Income Fund II, Ltd. 16,802 3,900 20,702 16,387
Forest Glen II Realty Opportunity Income Fund VIII, Ltd. 9,260 3,900 13,160 8,267
Forest Glen III Florida Income Advantage Fund I, Ltd. 9,314 3,900 13,214 8,860
Forest Glen IV Florida Income Appreciation Fund 2,996 3,900 6,896 2,929
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 37,779 3,900 41,679 38,409
Laurel Oaks/Grove Central Florida Income Appreciation
Hamlet Fund, Ltd. 11,970 3,900 15,870 11,429
Stadium Club GSU Stadium Student Apartments, Ltd. 22,486 3,900 26,386 24,320
Steeplechase Baron Strategic Investment Fund II, Ltd. 12,265 3,900 16,165 12,252
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Lamplight Court of Bellefontaine, Ltd.
------------------------------------------------------------
193,122 50,700 243,822 190,213
============================================================
<CAPTION>
Property Fund 1997 1997 1998 1998
Name Name Accounting Total Management Accounting
<S> <C> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 3,900 17,580 17,459 3,900
Bridgepoint Florida Capital Income Fund III, Ltd. 3,900 14,861 12,582 3,900
Brookwood Way Midwest Income Growth Fund VI, Ltd. 3,900 16,747 14,802 3,900
Camellia Court Florida Opportunity Income Partners 3,900 15,412 14,524 3,900
Eagle Lake Florida Capital Income Fund, Ltd. 3,900 22,261 20,527 3,900
Forest Glen I Florida Capital Income Fund II, Ltd. 3,900 20,287 18,628 3,900
Forest Glen II Realty Opportunity Income Fund VIII, Ltd. 3,900 12,167 10,606 3,900
Forest Glen III Florida Income Advantage Fund I, Ltd. 3,900 12,760 9,397 3,900
Forest Glen IV Florida Income Appreciation Fund 3,900 6,829 2,852 3,900
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 3,900 42,309 36,486 3,900
Laurel Oaks/Grove Central Florida Income Appreciation
Hamlet Fund, Ltd. 3,900 15,329 14,649 3,900
Stadium Club GSU Stadium Student Apartments, Ltd. 3,900 28,220 22,082 3,900
Steeplechase Baron Strategic Investment Fund II, Ltd. 3,900 16,152 15,353 3,900
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Lamplight Court of Bellefontaine, Ltd.
-------------------------------------------------------------
50,700 240,913 209,947 50,700
=============================================================
<CAPTION>
1st Qtr 1st Qtr 1st Qtr
Property Fund 1998 1999 1999 1999 Total
Name Name Total Management Accounting Total
<S> <C> <C> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 21,359 5,489 975 6,464 63,232
Bridgepoint Florida Capital Income Fund III, Ltd. 16,482 4,371 975 5,346 52,011
Brookwood Way Midwest Income Growth Fund VI, Ltd. 18,702 4,915 975 5,890 57,376
Camellia Court Florida Opportunity Income Partners 18,424 4,912 975 5,887 57,359
Eagle Lake Florida Capital Income Fund, Ltd. 24,427 6,330 975 7,305 76,918
Forest Glen I Florida Capital Income Fund II, Ltd. 22,528 6,170 975 7,145 70,662
Forest Glen II Realty Opportunity Income Fund VIII, Ltd. 14,506 4,410 975 5,385 45,218
Forest Glen III Florida Income Advantage Fund I, Ltd. 13,297 3,873 975 4,848 44,118
Forest Glen IV Florida Income Appreciation Fund 6,752 2,293 975 3,268 23,744
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 40,386 11,179 975 12,154 136,528
Laurel Oaks/Grove Central Florida Income Appreciation
Hamlet Fund, Ltd. 18,549 5,421 975 6,396 56,145
Stadium Club GSU Stadium Student Apartments, Ltd. 25,982 6,788 975 7,763 88,352
Steeplechase Baron Strategic Investment Fund II, Ltd. 19,253 5,189 975 6,164 57,733
Baron Strategic Investment Fund, Ltd.
Baron Strategic Investment Fund IV, Ltd.
Baron Strategic Investment Fund V, Ltd.
Baron Strategic Investment Fund VI, Ltd.
Baron Strategic Investment Fund VIII, Ltd.
Baron Strategic Investment Fund IX, Ltd.
Baron Strategic Investment Fund X, Ltd.
Baron Strategic Vulture Fund I, Ltd.
Brevard Mortgage Program, Ltd.
Lamplight Court of Bellefontaine, Ltd.
-------------------------------------------------------------
260,647 71,340 12,675 84,015 829,396
=============================================================
</TABLE>
Note:
1) The assumption made is that the Original Investor and Affiliates
controlled management during the full periods, 1996 through 1998. Actually
Original Investor and Affiliates controlled management and received
payment only during 7/98 through 12/98.
2) Received a total of $343,100 for all properties and $89,000 for Exchange
Properties from 7/98 through 12/98.
3) Fee amounts based upon 5% management fee, $325/mo. accounting fee and
$500-$1,000/mo. administrative fee.
4) General Partner is not entitled to distributions until all limited
partners are compensated at 12-15% return on investment annually.
41
<PAGE>
Baron Capital Properties, L.P.
Schedule of Pre/Post Transaction Payments to General Partner
*********** Assumption: Exchange Offering was completed 3 years ago.
<TABLE>
<CAPTION>
Property Fund 1st Qtr
Name Name 1996 1997 1998 1999 Total
<S> <C> <C> <C> <C> <C> <C>
Blossom Corners I Florida Income Growth Fund V, Ltd. 7,025 10,829 4,618 1,140 23,611
Bridgepoint Florida Capital Income Fund III, Ltd. 7,448 6,331 1,120 188 15,087
Brookwood Way Midwest Income Growth Fund VI, Ltd. 1,220 2,850 2,850 380 7,300
Camellia Court Florida Opportunity Income Partners 7,357 7,600 7,600 0 22,557
Eagle Lake Florida Capital Income Fund, Ltd. 7,667 6,320 950 475 15,411
Forest Glen I Florida Capital Income Fund II, Ltd. 6,341 469 2,410 475 9,696
Forest Glen II Realty Opportunity Income Fund VIII, Ltd. 5,338 285 1,520 95 7,238
Forest Glen III Florida Income Advantage Fund I, Ltd. 5,516 1,051 1,986 190 8,742
Forest Glen IV Florida Income Appreciation Fund 1,721 189 775 0 2,685
Glen Lake Arms Florida Capital Income Fund IV, Ltd. 15,261 16,752 9,168 0 41,181
Laurel Oaks/ Central Florida Income Appreciation Fund, Ltd. 7,018 0 391 950 8,359
Grove Hamlet
Stadium Club GSU Stadium Student Apartments, Ltd. 9,506 9,755 7,109 950 27,319
Steeplechase Baron Strategic Investment Fund II, Ltd. 1,857 6,460 1,292 190 9,799
Baron Strategic Investment Fund, Ltd. 2,984 11,020 4,845 1,140 19,989
Baron Strategic Investment Fund IV, Ltd. 32 4,131 8,433 190 12,785
Baron Strategic Investment Fund V, Ltd. 77 8,745 11,400 1,140 21,362
Baron Strategic Investment Fund VI, Ltd. 270 10,655 9,391 812 21,128
Baron Strategic Investment Fund VIII, Ltd. 0 5,622 9,349 466 15,436
Baron Strategic Investment Fund IX, Ltd. 0 1,092 7,955 285 9,331
Baron Strategic Investment Fund X, Ltd. 0 3,525 9,305 1,060 13,891
Baron Strategic Vulture Fund I, Ltd. 5,241 8,028 8,235 2,138 23,641
Brevard Mortgage Program, Ltd. 4,655 5,463 5,463 0 15,580
Lamplight Court of Bellefontaine, Ltd. 3,128 6,629 5,368 475 15,599
==================================================
99,660 133,798 121,530 12,739 367,726
==================================================
</TABLE>
Notes:
1) The distributions equal the 9.5% interest deemed to be owned by the Original
Investor in each Exchange Partnership.
2) Excludes any compensation to be awarded to Mr. McGrath as Chief Executive
Officer, which has not yet been determined by the Trustees.
42
<PAGE>
CONFLICTS OF INTEREST
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) will use
its best efforts to conduct the affairs of the Trust and the Operating
Partnership for the benefit of the Shareholders and Unitholders, respectively.
However, the Trust and the Operating Partnership are subject to various
conflicts of interest arising out of their relationship with the Managing
Shareholder, affiliates of the Managing Shareholder, the Original Investors, the
Shareholders and the Unitholders, including but not limited to those described
below.
The Managing Shareholder was formed for the sole purpose of serving as the
Managing Shareholder of the Trust. Certain affiliates of the Managing
Shareholder, 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 the Managing
Shareholder are corporate general partners of 56 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 areas of the United States. Of such 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
Subordinated Mortgage Loans to developers of single-family homes, five have
invested in Subordinated Mortgage Loans to developers of condominium projects,
two have invested in Subordinated Mortgage Loans to shopping center developers
and one has invested in a Subordinated 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 the
Managing Shareholder will organize similar programs in the future.
A significant portion of the value of the equity and mortgage interests in
properties owned by the Exchange Partnerships was determined subjectively by the
Managing Shareholder which is affiliated with the general partner of each
Exchange Partnership. This affiliation creates a potential conflict in making
such determination of value.
Certain affiliates of the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath) have sponsored or may sponsor real estate
investment limited partnerships which may seek to acquire interests in
properties similar to those which the Trust may seek to acquire. In addition,
the Trust may attempt to acquire interests in properties from certain
partnerships or other entities, including the Exchange Partnerships, managed by
affiliates of the Managing Shareholder that directly or indirectly own interests
in properties or from investors in such partnerships. Substantially all of the
Mortgage and other debt interests owned by the prior partnerships relate to
properties owned by other limited partnerships or other entities affiliated with
Mr. McGrath.
Furthermore, the Original Investors, Mr. McGrath and Mr. Geiger, serve as
executive officers of the Trust, the Operating Partnership and the Managing
Shareholder and are principal Unitholders in the Operating Partnership. Mr.
McGrath is also the sole principal of the Managing Shareholder 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 the Trust and the
Operating Partnership may acquire an interest. In addition, affiliates of Mr.
McGrath are also the corporate general partners of limited partnerships which
are debtors under Subordinated Mortgage Loans and other debt interests owned by
certain 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 the Trust, the Operating Partnership 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 the Trust and
the Operating Partnership.
In order to eliminate or minimize conflicts of interest among the Trust,
the Operating Partnership, the Managing Shareholder, the Original Investors and
their respective affiliates which may arise in such situations, the Trust has
adopted provisions in the Declaration which require that at least a majority of
the members of the Board be Independent Trustees and that a majority of the
Board, and, in certain cases, a majority of the Independent Trustees, approve
transactions between the Trust and the Managing Shareholder, a Trustee, any
other member of the Board or any of their respective affiliates. See "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
43
<PAGE>
In addition, the Board of the 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 the Managing Shareholder,
an Independent Trustee, any other member of the Board, 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 the Trust and the Operating Partnership, 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 the 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 the Trust and the Operating Partnership 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 the Trust and the Operating Partnership 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 the Trust and the Operating
Partnership elect to exercise their right of first refusal to participate in the
proposed transaction on the terms and conditions specified in the written
proposal. See "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with Respect
to Certain Activities - Conflict of Interest Policies."
The Board of the Trust and the Independent Trustees are responsible for
overseeing the policy under the circumstances described above to insure that it
is applied fairly to the Trust. However, there can be no assurance that the
policies of the Trust and the Operating Partnership 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 the Managing Shareholder and its
affiliates is identical. For example, the Chief Executive Officer, sole
stockholder and sole director of the Managing Shareholder 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 second
paragraph of this section. See "MANAGEMENT." As a result, the activities of
other investment programs organized by affiliates of the Managing Shareholder
may also result in conflicting demands upon the time and effort of the
management of the Managing Shareholder in the performance of its duties to the
Trust and the Operating Partnership. However, the Managing Shareholder will
devote as much attention to the activities of the Trust and the Operating
Partnership as is reasonably necessary to manage them.
In the event that any dispute arises in which the interests of the Trust
or the Operating Partnership and any other programs sponsored by the affiliates
of the Managing Shareholder diverge, the Trust, if necessary, intends to retain
separate counsel for each party with an adverse interest.
The Managing Shareholder, the Original Investors and certain affiliates
are entitled under the Declaration of Trust 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 the Managing Shareholder, 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 the Trust or
the Operating Partnership by the Managing Shareholder, the Original Investors or
affiliates or the value of the property acquired or disposed of.
In addition, the level of reimbursable expenses payable to the Managing
Shareholder or its affiliates in connection with the organization and operation
of the Trust may be greater or less than compensation or 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 the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath). The Managing Shareholder and certain of its
affiliates, by reasons of their interests in the Trust and their receipt of
compensation and reimbursable expenses from the 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 the
Trust or the Operating Partnership may produce an economic benefit for the
Managing Shareholder and/or an Affiliate but adverse tax consequences for the
Shareholders and Unitholders. Also, circumstances may arise where termination of
44
<PAGE>
business by the Trust or the Operating Partnership may be advantageous to the
Managing Shareholder and/or affiliates, while continuation of the Trust and/or
the Operating Partnership might be advantageous to the Shareholders and the
Unitholders.
The Declaration of Trust and the Operating Partnership Agreement provide
that the Trust and the Operating Partnership will indemnify the Managing
Shareholder, Independent Trustees, other members of the Board of the 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" and "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP
UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES - Liability and
Indemnification."
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) intends
to utilize the services of certain suppliers of goods and services for the Trust
and the Operating Partnership that have previously provided goods or services to
prior investment programs organized by affiliates of the Managing Shareholder.
While such providers of goods and services are unaffiliated with the Managing
Shareholder, the existence of previous business relationships may affect the
ability of the Managing Shareholder to independently represent the interests of
the Trust and the Operating Partnership with respect to such providers of goods
and services in light of such other business relationships. While the Managing
Shareholder believes that it has represented and will continue to represent the
interests of the Trust and the Operating Partnership and believes that there are
benefits to utilizing the services of parties with whom the Managing Shareholder
has previous experience, Offerees who are concerned about such potential
conflicts are advised to request further information from the Managing
Shareholder and to independently evaluate such relationships.
No independent representation has been provided to Offerees to negotiate
the terms of the Exchange Offering on behalf of the Offerees, and each Offeree
should seek independent advice and counsel before deciding whether to accept the
Exchange Offering. However, independent appraisal firms have been retained to
prepare appraisals of each Exchange Property, and the exchange value to be
offered by the Operating Partnership for each limited partnership interest to be
acquired in the Exchange Offering will be based on such appraisals and other
considerations. In addition, the Trust has incorporated into the Declaration of
Trust substantially all of the guidelines of the Statement of Policy Regarding
Real Estate Investment Trusts of the North American Securities Administrators
Association, Inc. Such guidelines have been adopted by the securities
administrators of numerous states in which the Cash Offering and the Exchange
Offering are being made and are designed to protect individual investors in
REITs. The provisions of the Declaration of Trust which conform to such
guidelines set forth certain guidelines, limitations and restrictions on the
Cash Offering and the Exchange Offering and the operations of the Trust and the
Operating Partnership. See "SUMMARY OF DECLARATION OF TRUST - Control of
Operations."
While potential conflicts of interest, including those described herein,
may not be entirely eliminated, the Trust believes that any actual conflicts
that may arise will not materially affect the obligation of the Managing
Shareholder, the Independent Trustees, and any other members of the Board to act
in the best interests of the Trust and the Operating Partnership and their
Shareholders and Unitholders. See "FIDUCIARY RESPONSIBILITY" and "RISK FACTORS."
FIDUCIARY RESPONSIBILITY
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), the
Trustees and other members of the Board of the Trust are deemed to be in a
fiduciary relationship to the Trust and the Operating Partnership and their
Shareholders and Unitholders, respectively, and consequently must exercise good
faith and integrity in handling the affairs of the Trust and the Operating
Partnership. The Trustees and other members of the Board of the Trust also have
a fiduciary duty to the Shareholders and Unitholders to supervise the
relationship of the Trust and the Operating Partnership with the Managing
Shareholder. Where the question has arisen, courts have held that a limited
partner may institute legal action on behalf of himself 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 Securities Act of 1934, as amended, 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.
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 the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr.
45
<PAGE>
McGrath), an Independent Trustee or any other member of the Board has occurred
or who have questions concerning the duties of such persons should consult with
their own counsel.
The Declaration of Trust and the Operating Partnership Agreement provide
that the Trust and the Operating Partnership, respectively, will indemnify the
Managing Shareholder, 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 the Trust and the Operating Partnership within the scope of
the Declaration of Trust and the Operating Partnership Agreement, as the case
may be, unless negligence or misconduct is involved. As a result of these
indemnification arrangements, Offerees who accept the Exchange Offering and
Shareholders of the Trust have more limited rights of action than they would
have absent the limitations in the Declaration of Trust and the Operating
Partnership Agreement. The exculpatory provisions do not include indemnification
for liabilities arising under the Securities Act of 1933, as amended (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 Declaration of
Trust. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to the Managing Shareholder, the Independent Trustees,
other members of the Board and their respective affiliates and their respective
officers, directors, shareholders, partners, agents and employees pursuant to
the foregoing provisions, or otherwise, the 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."
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) is not
permitted to commingle any funds of the Trust or the Operating Partnership with
its own funds or the funds of any other person. The Trust and the Operating
Partnership are expressly prohibited from making any loans to the Managing
Shareholder. The Trust and the Operating Partnership may borrow money from the
Managing Shareholder, 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) the anticipated business strategies
of the Trust and the Operating Partnership and (ii) the intention of the Trust
and the Operating Partnership to acquire property interests in exchange for cash
proceeds the Trust receives from the Cash Offering and contributes to the
Operating Partnership, Common Shares or Preferred Shares of the Trust, loan
proceeds from any debt financings they may effect, any available net operating
revenue of the Operating Partnership, and Units of the Operating Partnership in
connection with the Exchange Offering and other possible transactions. 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 "SUMMARY OF THE
TRUST AND THE OPERATING PARTNERSHIP," "SUMMARY OF RISK FACTORS," "RISK FACTORS,"
"TAX STATUS," "CONFLICTS OF INTEREST," "THE EXCHANGE OFFERING," "MANAGEMENT,"
"THE TRUST AND THE OPERATING PARTNERSHIP," "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 factors that may have a direct
bearing on the business, financial condition and results of operations of the
Trust and the Operating Partnership 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 the Trust and the Operating Partnership
acquire an interest, and (iii) the volatility of the trading market for the
Common Shares and general economic conditions. The Trust and the Operating
Partnership assume no obligation to update such forward-looking statements or to
advise of changes in the assumptions and factors on which they are based. Given
these uncertainties, Offerees are cautioned not to place undue reliance on such
forward-looking statements.
RISK FACTORS
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Offerees should carefully consider the following material risk factors, in
addition to the other information set forth in this Prospectus, in connection
with the Exchange Offering, an investment in the Units being offered hereby and
Common Shares in the Trust and the proposed operations of the Trust and the
Operating Partnership. See also "SUMMARY OF RISK FACTORS" above.
Unless the context otherwise requires, the term "Trust" as used herein
shall collectively refer to Baron Capital Trust and its affiliate, Baron Capital
Properties, L.P., which is making the Exchange Offering pursuant to this
Prospectus and which will conduct the real estate operations of the Trust and
hold its property interests.
Arbitrary Offering Price
The offering price of $10.00 per Common Share in the Cash Offering and the
equivalent initial value assigned to each Unit to be issued in the Exchange
Offering have been arbitrarily established by the Trust, and do not necessarily
represent a price at which the Common Shares or Units could be resold, if at
all. See " - Limited Marketability of Units and Common Shares."
No Separate Representation of Offerees
The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership with no separate counsel or advisor for the
Offerees. Each Offeree is advised to seek independent advice and counsel before
deciding whether to accept the Exchange Offering. As described herein at "THE
EXCHANGE OFFERING - Exchange Property Appraisals," appraisals of the fair market
value and replacement cost new of each of the Exchange Properties to be involved
in the initial transactions of the Exchange Offering have been prepared by
qualified independent appraisal firms. Offerees should note, however, that
appraisals are only opinions of value or replacement cost and cannot be relied
upon as measures of realizable value or replacement cost. The amount that a
beneficial owner of an Exchange Property might realize from a sale thereof may
be more or less than estimates of the value considered by the appraiser,
depending upon condition of the property, current and anticipated uses and
zoning, financial, economic, market and other considerations that may affect a
property's value.
Terms of Exchange Offering May Be More
Favorable to Original Investors than Offerees
The terms and conditions of the Exchange Offering may be more favorable
for the Original Investors who formed the Trust and the Operating Partnership
and affiliates of the Original Investors than for Offerees. Offerees who acquire
Operating Partnership Units in the Exchange Offering will pay a higher price per
unit than the subscription price Gregory K. McGrath and Robert S. Geiger, the
Original Investors, paid for their Operating Partnership Units in connection
with the formation of the Trust and the Operating Partnership. The Original
Investors subscribed for their Units in exchange for a $100,000 initial
capitalization of the Operating Partnership, and such Units have been deposited
into a security escrow account for a period of six to nine years, subject to
earlier release under certain conditions. If the Trust's Cash Offering and the
Exchange Offering are completed in full, each Original Investor would own
601,080 Units. In that case, the value of the Units held by each Original
Investor, calculated at the $10.00 initial value assigned to each Unit to be
issued in the Exchange Offering, would then be $6,010,800 less a significant
discount attributable to the long-term escrow arrangement.
Mr. McGrath to serves as Chief Executive Officer of the Trust and the
Operating Partnership. He received no compensation for the initial year of
operations, but received health benefits. Beginning in 1999, Mr. McGrath will be
entitled to receive compensation and benefits, including, without limitations,
health, disability and life insurance, determined by the Executive Compensation
Committee in exchange for his services. Mr. Geiger has agreed to serve as the
Chief Operating Officer of the Trust and the Operating Partnership in exchange
for an initial annual salary of $100,000 plus benefits. See "MANAGEMENT."
Acceptance of Exchange Offering Involves Exchange of Current Investment
with Expected Limited Duration for Investment in
Operating Partnership with Unlimited Duration
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If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering their
current investment in a particular Exchange Partnership with an expected limited
duration in exchange for an investment in the Operating Partnership, which has
an unlimited duration. See "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE
PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES."
Offerees May Not Have Information Available to Evaluate
Property Interests to be Acquired by the Operating Partnership,
Prior to Decision Whether to Accept the Exchange Offering
In the Exchange Offering, the Operating Partnership will offer to issue
registered Operating Partnership Units in exchange for limited partnership
interests in limited partnerships which directly or indirectly own equity or
debt interests in residential apartment properties. If acquisitions are
consummated in respect of all Exchange Partnership Units initially targeted in
the Exchange Offering, the partnership interests acquired will have a purchase
price totaling approximately $24,980,660, comprised of Units to be issued with
an initial assigned value of such amount. The property interests to be acquired
with the balance of the Units to be offered in the Exchange Offering have not
yet been finally determined. The Trust 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 the Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath).
The Operating Partnership will use a significant portion of the net cash
proceeds of the Trust's Cash Offering to acquire interests in residential
apartment properties or interests in other partnerships substantially all of
whose assets consist of direct or indirect interests in residential apartment
property. As of the date of this Prospectus, $3,789,506 of the net cash proceeds
of the Cash Offering (out of gross proceeds of approximately $___________) have
been used to acquire beneficial interests in four properties and to make capital
contributions to 13 real estate limited partnerships, including certain of the
Exchange Partnerships, in exchange for limited partnership interests therein.
For a description of the acquired property interests, see "INITIAL REAL PROPERTY
INVESTMENTS - The Acquired Properties." None of the remaining net proceeds and
future net proceeds have been committed to specific properties. Although the
Operating Partnership has several investment opportunities under review for the
application of such proceeds, none of such potential opportunities has developed
beyond the negotiating stage. The Operating Partnership 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 the Operating Partnership 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.
As a result of the foregoing, prior to deciding whether to accept the
Exchange Offering, Offerees may not have available sufficient information to
evaluate acquisitions of property interests by the Operating Partnership using
available net cash proceeds of the Cash Offering, available operating cash flow
or Units or other securities of the Trust or the Operating Partnership. In
addition, Offerees will not have any vote in the selection of investments in
property interests by the Trust or the Operating Partnership after they accept
the Exchange Offering. Consequently, Offerees will be relying upon the judgment
of the management of the Trust and the Operating Partnership for such decisions.
The actual number of properties in which the Operating Partnership will acquire
an interest will depend upon the number of suitable investment opportunities
available, the amount of net proceeds from the Cash Offering and any subsequent
offerings, operating cash flow and other financing sources the Operating
Partnership has available to invest, the willingness of Offerees in the Exchange
Offering and other sellers to accept Operating Partnership Units or other
securities in exchange for their property interests, and the amount of funds and
number of securities required for each investment opportunity. See "RISK
FACTORS," "MANAGEMENT," "THE TRUST AND THE OPERATING PARTNERSHIP," "INVESTMENT
OBJECTIVES AND POLICIES" and "INITIAL REAL ESTATE INVESTMENTS."
Possible Adverse Influence of Original Investors
Mr. McGrath and Mr. Geiger, the Original Investors in the Operating
Partnership, each own an amount of Operating Partnership Units which are
exchangeable (with certain escrow restrictions described at "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions") into 9.5% of the Common Shares
outstanding as of the earlier to occur of the completion of the offerings or
November 30, 1999 (up to 601,080 Common Shares out of total maximum outstanding
of 6,327,160 Common Shares), calculated on a fully diluted basis assuming that
all then outstanding Units (other than those owned by the Trust) have been
exchanged into an equivalent number of Common Shares. Under the Declaration of
Trust, no other Shareholder or Unitholder may hold more than 5% of the
beneficial interest in the Trust. Although a majority of the members of the
Board of the Trust will be unaffiliated Independent Trustees as required under
the Declaration of Trust,
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Mr. McGrath serves as the Chief Executive Officer of the Trust and the Operating
Partnership and is the Chief Executive Officer, sole stockholder and sole
director of the Managing Shareholder and the sole principal of the Corporate
General Partners of the Exchange Partnerships, and Mr. Geiger serves as Chief
Operating Officer of the Trust, the Operating Partnership and the Managing
Shareholder. See "MANAGEMENT." Although there is no agreement, understanding or
arrangement for such individuals to act together in any manner, they are in a
position to exercise significant influence over the affairs of the Trust, the
Operating Partnership and the Managing Shareholder if they were to act together
in the future. In addition, affiliates of Mr. McGrath are also the corporate
general partners of limited partnerships which are debtors under Subordinated
Mortgage Loans and other debt interests owned by certain 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. Accordingly, the Original Investors have
significant influence over the affairs of the Trust, the Operating Partnership,
the Managing Shareholder and the Exchange Partnerships which may result in
decisions that do not fully represent the interests of all Shareholders,
Unitholders and Exchange Limited Partners. See "INVESTMENT OBJECTIVES AND
POLICIES - Trust Policies with Respect to Certain Activities - Conflict of
Interest Policies."
Conflicts of Interest
The Operating Partnership is subject to conflicts of interest arising out
of its relationship to the Trust, the Managing Shareholder, affiliates of the
Managing Shareholder, the Original Investors, Shareholders, the Exchange
Partnerships and Offerees in the Exchange Offering and other sellers of property
interests who receive Units in exchange for their property interests. For
example, Mr. McGrath, a founder of the Trust and the Operating Partnership and
the sole principal of the Managing Shareholder, is also the sole principal of
the corporate general partners of numerous real estate investment limited
partnerships (including the Exchange Partnerships involved in the Exchange
Offering) which own interests in residential apartment properties in which the
Trust and the Operating Partnership may acquire an interest. In addition,
affiliates of Mr. McGrath are also the corporate general partners of limited
partnerships which are debtors under Subordinated Mortgage Loans and other debt
interests owned by certain 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.
Moreover, certain affiliates of the Managing Shareholder controlled by Mr.
McGrath have sponsored and/or managed, or may in the future sponsor and/or
manage, real estate investment programs which may seek to acquire interests in
properties similar to those which the Trust and the Operating Partnership may
seek to acquire. The Trust and the Operating Partnership may be restricted from
investing in certain properties since affiliates of the Managing Shareholder may
have other investment vehicles investing in similar properties. In addition, the
Trust and the Operating Partnership may attempt to acquire interests in
properties from certain other partnerships managed by affiliates of the Managing
Shareholder that directly or indirectly own interests in properties or from
investors in such partnerships.
A significant portion of the value of the equity and mortgage interests in
properties owned by the Exchange Partnerships was determined subjectively by the
Managing Shareholder which is affiliated with the general partner of each
Exchange Partnership. This affiliation creates a potential conflict in making
such determination of value.
Furthermore, as described above at " - Possible Adverse Influence of
Original Investors," the Original Investors, Mr. McGrath and Mr. Geiger, serve
as executive officers of the Trust, the Operating Partnership and the Managing
Shareholder and have made an initial capital contribution to the Operating
Partnership in exchange for a significant number of Units. Therefore,
individually and collectively they will have significant influence over the
affairs of the Trust, the Operating Partnership, the Managing Shareholder and
the Exchange Partnerships which may result in decisions that do not fully
represent the interests of all Shareholders, Unitholders and Exchange Limited
Partners. Exchange Limited Partners who acquire Units in the Exchange Offering
will pay a higher price per Unit than the consideration the Original Investors
paid for Units issued to them.
The Trust has adopted certain policies designed to eliminate or minimize
conflicts of interest. These policies include provisions in the Declaration of
Trust which require that (i) at least a majority of the members of the Board of
the Trust be Independent Trustees and (ii) a majority of the Board, and, in
certain cases, a majority of the Independent Trustees, approve transactions
between the Trust or the Operating Partnership and the Managing Shareholder, any
other member of the Board of the Trust, or any of their respective affiliates,
including the Exchange Partnerships. In addition, the Board of the Trust has
adopted a policy which restricts the Managing Shareholder, an Independent
Trustee, any other member of the Board, an Original Investor or any of their
respective affiliates from pursuing for their own account any residential
apartment property investment opportunity which may be suitable for the Trust
and the Operating Partnership unless the Trust and the Operating Partnership
have first been given a right of first refusal to participate in the
opportunity. See "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with
Respect to Certain Activities - Investment Policies" and " -Conflict of Interest
Policies."
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However, there can be no assurance that these policies will always be
successful in eliminating 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. While the conflicts of interest
cannot be eliminated, the Trust and the Operating Partnership believe that any
actual conflicts will not materially affect the obligation of the Managing
Shareholder, the Board and the Independent Trustees to act in the best interests
of the Trust, the Shareholders, the Operating Partnership and the Unitholders.
See "CONFLICTS OF INTEREST."
No Assurance of Successful Performance of Partnership
Interests to be Acquired in Exchange Offering
The annual rate of return on investment for 1997, for 1998 and for the
first half of 1999 generated by the Exchange Partnerships, which are the initial
acquisition candidates involved in the Exchange Offering, ranged between zero
and ten percent. The annual rate of return on investment for those periods
generated by other real estate partnerships managed by affiliates of the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath) ranged between ten
and twelve percent. Distributions were not made during these periods by certain
of the Exchange 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
Cash Offering and the Exchange Offering. There can be no assurance that future
operations of the Participating Exchange Partnerships or any other property
investments in which the Operating Partnership or the Trust acquires a limited
partnership or other interest in connection with the Exchange Offering or other
transactions will be profitable or that Shareholders who acquire Common Shares
in the Cash Offering and Offerees who accept the Exchange Offering will
experience returns, if any, comparable to or in excess of those experienced by
investors in certain of the Exchange Partnerships or in certain other real
estate limited partnerships managed by affiliates of the Managing Shareholder.
There is also no assurance that the current returns of the Participating
Exchange Partnerships will be achieved by the Operating Partnership after
completion of the Exchange Offering or will be higher than the current returns
of other partnerships which may participate in the offering, although such other
partnerships may offer higher future growth potential than the Participating
Exchange Partnerships.
Potential Loss of Future Appreciation on Exchange Properties
In the absence of the consummation of the Exchange Offering, the
investment held by an Exchange Partnership in respect of an Exchange Property
might appreciate in value and might be able to be sold at a later date for more
consideration in favor of the Exchange Limited Partners in such partnership than
they would receive under the terms and conditions of the Exchange Offering.
Investors in Successful Exchange Partnerships Could Lose Advantage
by Combining with Less Successful Exchange Partnerships
In connection with the Exchange Offering, Exchange Limited Partners are
being offered the opportunity to exchange their existing limited partnership
units in their respective Exchange Partnership for Operating Partnership Units.
The number of Operating Partnership Units being offered for an interest in a
particular Exchange Partnership has an initial assigned value in the range of
103% to 169% of the amount of an Offeree's original investment in his Exchange
Partnership. For purposes of the Exchange Offering, the Units have been assigned
an initial value of $10 per unit, which is the price at which the Trust is
currently offering Common Shares in its Cash Offering. The value of Units and
Common Shares is linked since holders of Operating Partnership Units, including
recipients of Units 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 the Operating Partnership 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 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 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 number of
Units being offered in respect of each of the Exchange Mortgage Partnerships and
each of the Exchange Hybrid
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Partnerships (to the extent of its 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 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 (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 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. By accepting the Exchange
Offering, Exchange Limited Partners in Participating Exchange Partnerships which
are performing relatively better than other partnerships could lose any such
advantage while Exchange Limited Partners in Participating Exchange Partnerships
which are performing relatively poorer than the average could correspondingly
benefit.
Valuation of Mortgage Interests to be Acquired May Exceed Actual Value
Subject to certain exceptions, the Trust and the Operating Partnership 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 the Trust or the Operating
Partnership, 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). The amount to be paid by
the Operating Partnership for Mortgage interests will be based on appraisals of
the underlying property prepared by qualified independent appraisers and other
considerations. There can be no assurance that the amount paid by the Operating
Partnership for a mortgage interest will not exceed its value.
The purchase price to be paid by the Operating Trust for mortgage
interests will be based on the following factors: (1) 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; (2) the
estimated appraised market value of the underlying property determined by
qualified and licensed independent appraisal firms; (3) the operating history of
the property; (4) the amount of distributable cash flow currently being
generated by the property; plus (5) 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 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 the mortgage interests acquired will reflect their fair market
value. Offerees should note that appraisals are only opinions of value and
cannot be relied upon as measures of realizable value. The amount that a
beneficial owner of an Exchange Property might realize from a sale of a mortgage
interest in a particular property may be more or less than the value to be paid
for such interest.
Several Factors Could Have Possible Adverse Effects on Operation of Properties
The results of operations of the Trust and the Operating Partnership will
depend, among other things, upon the quality of opportunities available for
investment. It is possible that the properties in which the Trust and the
Operating Partnership will acquire an interest will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. The performance of an
investment in the Trust and the Operating Partnership will depend on many
factors over which the Trust and the Operating Partnership may have no control,
including without limitation the continuation of certain advantageous provisions
of federal tax laws, adverse changes in national and local economic conditions,
increases in operating costs, adverse local conditions such as decreases in
employment or changes in real estate zoning laws and other characteristics of
the geographical location of investments of the Trust and the Operating
Partnership, which may reduce the desirability of real estate in the area,
excessive building, changes in interest rates, the availability of long-term
mortgage funds, changes in federal, state or local government laws, regulations,
or policies, changes in tax laws, the ability of tenants to pay rents, the
possibility that rental units may not be occupied or may be occupied on terms
unfavorable to the Trust or the Operating Partnership, the frequent need for
capital improvements, the possibility that (including the effects of
depreciation and interest) certain properties may have experienced recurring
losses for financial reporting purposes, various uninsurable risks, liabilities
in tort (which may exceed insurance coverage), acts of God and other
catastrophes, hazardous substances and other environmental problems in respect
of investments of the Trust
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and the Operating Partnership, the availability of financing for operating or
capital needs and the management capabilities of the management of the Trust,
the Operating Partnership, the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), the Independent Trustees and other members of the
Board of the Trust and their respective affiliates and developers, borrowers and
property managers.
The above factors may also adversely affect the ability of a borrower to
meet its repayment obligations to the Trust or the Operating Partnership in
connection with mortgage loans that may be provided or acquired by it. In the
event of a default under such an obligation, the Trust or the Operating
Partnership, as the case may be, may experience substantial delays in enforcing
its rights as mortgagee and may incur substantial costs associated with
protecting its investment. In certain cases, the Trust or the Operating
Partnership may be required to acquire title to a property and thereafter to
make substantial improvements or repairs in order to maximize the property's
investment potential. In such circumstances, the Trust or the Operating
Partnership may be required to attempt to borrow or raise additional funds and
may not be able ultimately to recover its investment.
The Trust or the Operating Partnership may provide or acquire mortgage
loans which provide for the repayment of principal, in whole or in part, in
lump-sum "balloon" payments. The borrower's ability to make such payments may
depend upon its ability to obtain refinancing or sell a particular property
securing the loan. There is no assurance that either replacement financing or a
sale can be obtained or completed by the borrower. The borrower's ability to
refinance or sell its property will depend on general economic conditions, the
value of the property and, in the case of a refinancing, upon the financial
strength of the borrower. In the event the borrower fails to make any necessary
payment upon maturity or scheduled payments as they become due, the Trust or the
Operating Partnership may be compelled to institute foreclosure proceedings.
Each of the Trust and the Operating Partnership expects that mortgage
loans it provides or acquires which are secured by residential apartment
properties would generally be made on a non-recourse basis under which the other
participants in respect of the property would not be responsible for the debt
and it would be able to look only to the unencumbered assets of the property
and/or other assets of the debtor for repayment. In most cases, mortgage
investments made by the Trust or the Operating Partnership are expected to be
Subordinated Mortgages which are subordinated to Senior Mortgages. In that case,
in the event of a default on the Senior Mortgage, the Trust or the Operating
Partnership may find it necessary to make payments to prevent foreclosure on the
Senior Mortgage, without necessarily improving its position with respect to the
underlying real property. Failure to make such payments could result in
foreclosure on the Senior Mortgage and the extinguishment of the Subordinated
Mortgage held by the Trust or the Operating Partnership. In such event, the
entire investment of the Trust or the Operating Partnership in the property
could be lost. In addition, non-payment of any Junior Mortgage Loan that may be
provided or acquired by the Trust or the Operating Partnership may constitute an
event of default to a borrower under the underlying Senior Mortgage Loan(s), and
such Senior Mortgage Loan(s) may have to be repaid by the borrower before
Shareholders and Unitholders will receive any return on their investment in
Common Shares and Units, respectively. Furthermore, Mortgage Loans provided or
acquired by the Trust or the Operating Partnership will not be insured or
guaranteed by governmental agencies or otherwise.
If the Trust or the Operating Partnership owns real property directly, it
may be on a pari passu basis with other investors. In the event of a default
under such an investment, its remedies may be ---- ----- limited by the size of
its investment relative to that of other participants.
No Assurance of Avoiding Operating Losses
There can be no assurance that the Trust or the Operating Partnership will
be able to avoid operating losses in the future in respect of properties in
which it acquires an interest or that a Shareholder's investment in the Trust or
a Unitholder's investment in the Operating Partnership will be recovered. In
order for the Trust and the Operating Partnership to make cash distributions to
Shareholders and Unitholders from revenue generated by residential apartment
properties in which they acquire a direct or indirect equity interest, certain
occupancy percentages and rental rates will need to be achieved and expense
levels maintained in respect of properties. No assurance can be given that these
percentages, rates or expenses can be achieved or maintained. If the properties
do not achieve and maintain such occupancy percentages at such rates, the
ability to make cash distributions to Shareholders and Unitholders may be
eliminated. No assurance can be given that rental increases can be instituted
while maintaining acceptable occupancy levels. If the Trust or the Operating
Partnership 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 the Trust or the Operating Partnership
is partially dependent upon general economic conditions, the value of property
interests and the financial strength of the Trust and the Operating Partnership.
See " - Debt Service Obligations Could Adversely Affect Cash Flow."
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Similarly, in cases where the Trust or the Operating Partnership provides
or acquires a mortgage interest in a property, the borrower's ability to repay
the mortgage loan will depend on the same factors described above.
Adverse Effects of Under-Performing Mortgage Investments
The Trust and the Operating Partnership may invest in mortgages, either by
providing mortgage financing or acquiring mortgages. Mortgage investments are
subject to the risk that borrowers may not be able to make debt service payments
or pay principal when due, the risk that the value of the mortgaged property may
be less than the amounts owed, and the risk that interest rates payable to the
Trust or the Operating Partnership on the mortgages may be lower than its cost
of funds. If the Trust or the Operating Partnership invested in mortgages and if
any of the above occurred, the ability to make distributions to Shareholders and
Unitholders could be adversely affected.
Subordinated Mortgage Loans to Be Acquired May Not Be Recorded
Any Subordinated Mortgage Loan the Trust or the Operating Partnership may
provide or acquire may or may not be recorded. Substantially all the
Subordinated Mortgage interests to be acquired from the Exchange Partnerships
are not recorded. This is because loan documents executed in connection with the
respective First Mortgage prohibit the recording of mortgages evidencing
subordinated debt. If any particular Mortgage is not recorded, the security
interest of the Trust or the Operating Partnership, as the case may be, in such
Mortgage would not be perfected and until recorded it would be pari passu (i.e.,
on an equal basis) with all other unsecured creditors of the borrower, provided,
however, the security instrument which will be entered into in connection with
any Mortgage Loan proposed to be provided or acquired by the Trust or the
Operating Partnership will generally restrict the borrower's ability to enter
into a subsequent loan arrangement with third parties which would be senior to
or pari passu with the Mortgage to be held by it.
Several Factors Could Have Possible Adverse Effects
on Distributions to Shareholders and Unitholders
Distributions to Shareholders and Unitholders will be based principally on
cash available for distributions from property interests in which the Trust and
the Operating Partnership invest. Increases in rents under leases of properties
acquired will increase the cash available for distribution to Shareholders and
Unitholders. In contrast, the amount available to make distributions may
decrease if rental rates are lowered or if properties acquired yield lower than
expected returns. See also "Several Factors Could Have Possible Adverse Effects
on Operations of Properties."
The distribution requirements for REITs under federal income tax laws may
limit the ability of the Trust and the Operating Partnership to finance future
acquisitions and capital improvements of property interests without additional
debt or equity financing. If the Trust or the Operating Partnership incurs
indebtedness in the future, it will require additional funds to service such
indebtedness and, as a result, amounts available to make distributions may
decrease. Distributions by the Trust and the Operating Partnership will also be
dependent on a number of other factors, including the financial condition of the
Trust and the Operating Partnership, any decision to reinvest funds rather than
to distribute such funds, capital expenditures, the annual distribution
requirements under the REIT provisions of the Code, and such other factors as
the Trust deems relevant. In addition, the Trust and the Operating Partnership
may issue from time to time additional Common Shares, Preferred Shares, Units or
debt securities in connection with the acquisition of property interests or in
certain other circumstances. No prediction can be made as to the number of such
securities which may be issued, if any, and, if issued, the effect on cash
available for distribution, on a per Share or per Unit basis, to Shareholders
and Unitholders, respectively. Such issuances, if any, could have a dilutive
effect on cash available for distribution on a per Share and per Unit basis to
Shareholders and Unitholders, respectively.
To obtain the favorable tax treatment associated with REITs, the Trust
generally will be required to distribute to its Shareholders at least 95% of its
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains) each year. The Trust will be subject to tax at
regular corporate rates to the extent that it distributes less than 100% of its
taxable income (including net capital gains). The Trust will also be subject to
a 4% non-deductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year, are less than the
sum of 85% of its ordinary income, 95% of its capital gain net income, and 100%
of its undistributed income from prior years. The Trust may elect to retain
rather than distribute its net long-term capital gains. The effect of such
election is that (i) the Trust is required to pay the tax on such gains, (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 the Trust, and (iii) the tax basis of a
Shareholder's Shares would be increased by the amount of undistributed long-term
capital gains (less the amount of capital gains tax paid by the Trust) included
in the Shareholder's long-term capital gains.
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The Trust intends to make distributions to its 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 the
Trust 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. See Section 1.9 of the Declaration of Trust.
Distributions to Shareholders and Unitholders Adversely Affected
by Poor Operating Results of Operating Partnership
Net cash proceeds from the issuance of Common Shares by the Trust in
connection with the Cash Offering and 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. The Trust's ownership
of Units in the Operating Partnership will entitle it to share in cash
distributions from, and in the profits and losses of, the Operating Partnership
in proportion to its percentage ownership of Units. The Trust in turn will
distribute such cash distributions to the Shareholders of the Trust. The other
Unitholders of the Operating Partnership, including the Original Investors and
Offerees in the Exchange Offering who elect to receive Units in exchange for
their respective limited partnership interests in real estate limited
partnerships, will own the remaining economic interest in the Operating
Partnership (other than the Trust's 1% interest as General Partner of the
Operating Partnership).
Distributions of available cash flow to Shareholders of the Trust and
Unitholders of the Operating Partnership will be dependent upon the operating
profits generated by the Operating Partnership. Assuming the Cash Offering and
the Exchange Offering are completed in full under the terms currently
contemplated and no other transactions have taken place (including, without
limitation, any additional issuances of Common Shares or Units, any conversion
of Units into Common Shares or any exercise of Common Share purchase warrants
issued by the Trust to the Dealer Manager and participating broker-dealers in
the Cash Offering), immediately upon the completion of the offerings, the
Shareholders (including Shareholders who acquire Common Shares in the Cash
Offering and certain broker-dealers who effect transactions in connection with
the Exchange Offering and receive unregistered Common Shares as commissions)
would receive approximately 41.5% of any distributions made by the Operating
Partnership; the Unitholders (including Offerees who accept the Exchange
Offering and the Original Investors) would receive the remaining approximately
58.5% of such distributions. The actual percentage allocation of any cash
distributions between the Shareholders and the Unitholders will depend upon the
number of Common Shares and Units outstanding as of the date of the particular
cash distribution, which in turn will depend upon (i) the actual mix of the
number of Common Shares which are issued in the Cash Offering and the number of
Units which are issued in the Exchange Offering and (ii) the number of issued
Units which have been exchanged by their holders into Common Shares as of the
date of the particular cash distribution. See "THE TRUST AND THE OPERATING
PARTNERSHIP - Ownership of the Trust and the Operating Partnership."
Competition
The Trust and the Operating Partnership 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 those of
the Trust and the Operating Partnership. See "INVESTMENT OBJECTIVES AND
POLICIES." Many of these competitors will have greater resources than the Trust
and the Operating Partnership and some may have, or may have access to, more
extensive real estate and financial experience than do the Managing Shareholder
(wholly owned and controlled, along with the Corporate General Partner of each
Exchange Partnership, by Mr. McGrath), the Independent Trustees, any other
members of the Board of the Trust, and executive officers of the Trust, the
Operating Partnership and the Managing Shareholder.
It is expected that all properties in which the Trust and the Operating
Partnership will invest will be located in developed areas that include other
residential apartment properties. Certain of these competitive apartment
properties may be owned by limited partnerships managed by affiliates of the
Managing Shareholder. The number of competitive apartment properties in a
particular area could have a material effect on the ability of the Trust and
Operating Partnership to lease apartment units to tenants at such properties and
on the rents charged. The Trust and the Operating Partnership may be competing
for tenants with others that have greater resources than the Trust and the
Operating Partnership and whose officers and directors have more experience than
the officers of the Trust and the Operating Partnership and members of the Board
of the Trust, including the Managing Shareholder and the Independent Trustees.
In addition, other forms of multifamily residential properties provide housing
alternatives to potential tenants of residential apartment properties.
Lack of Liquidity of Real Estate
Real estate investments are relatively illiquid, and, therefore, the Trust
and the Operating Partnership will have limited ability to vary their portfolio
quickly in response to changes in economic or other conditions. In addition, the
prohibitions in the Code and related regulations on a REIT holding property for
sale may affect the ability of the Trust and the Operating Partnership to sell
properties without adversely affecting distributions to the Shareholders and
Unitholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust -
Gross Income Tests."
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Cash Distributions Could be Reduced by Cost of Capital Improvements
Properties in which the Trust and the Operating Partnership may invest
will vary in age and require capital improvements regularly. The cost of such
capital improvements (including capital improvements that may be required in
respect of properties in which the Trust and the Operating Partnership intend to
acquire an interest from real estate limited partnerships managed by affiliates
of the Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) in
connection with the Exchange Offering) may be funded out of the net proceeds of
the Cash Offering and other securities offerings, available cash flow of the
Trust and the Operating Partnership or borrowed funds. If the costs of
improvement, whether required to attract and maintain tenants or to comply with
governmental requirements, substantially increases, cash available for
distribution to Shareholders and Unitholders could be reduced.
Real Estate Investments May Fail to Perform to Expected Level
The Trust and the Operating Partnership intend to actively seek to acquire
interests in residential apartment properties to the extent they can be acquired
on advantageous terms and meet their investment criteria. See "INVESTMENT
OBJECTIVES AND POLICIES." Acquisitions in respect of such 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. In addition, there are general investment risks associated
with any real estate investment.
The Trust and the Operating Partnership will acquire property interests
from time to time in exchange for cash or unissued Units, Common Shares or other
securities. They will obtain appraisals with respect to the market value and
replacement cost new of each property interest that they acquire or an opinion
as to the fairness of the allocation of Units in the Operating Partnership or
other consideration payable to sellers of property interests. Appraisals and
fairness opinions are only estimates of value and replacement cost and should
not be relied upon as precise measures of true worth or realizable value or
replacement cost. There can be no assurance that the value of the aggregate
percentage interests in the Operating Partnership paid to persons contributing
assets to it in exchange for Units is equivalent to the value the Trust and the
Operating Partnership will realize from those contributions, that the initial
public offering price of the Cash Offering will reflect the fair market value of
the Common Shares purchased in the Cash Offering or that the cash price for any
property interests acquired by the Trust and the Operating Partnership is fair
and reasonable.
Subject to the REIT provisions of the Code and regulations issued
thereunder and certain limitations set forth in Section 1.9 of the Declaration
of Trust, the Trust and the Operating Partnership are also authorized to invest
in raw land, stocks, bonds, notes, partnership interests and other securities,
and thus will be dependent to a lesser extent upon the satisfactory performance
of such assets and securities. See "FEDERAL INCOME TAX CONSIDERATIONS" for a
description of the REIT provisions of the Code and regulations issued thereunder
and Section 7.4 of the Declaration of Trust regarding such permitted
investments.
Debt Service Obligations Could Adversely Affect Cash Flow
The Trust and the Operating Partnership will be subject to the risks
normally associated with debt financing, including the risks that cash flow will
be insufficient to meet required payments of principal and interest on any
indebtedness incurred by them, the risk that the interest rates on any
adjustable interest rate indebtedness will increase, the risk that indebtedness
secured by properties in which the Trust or the Operating Partnership own an
interest will not be refinanced at maturity or the risk that the terms of such
refinancing will not be as favorable as the terms of such indebtedness. If the
Trust or the Operating Partnership were unable to refinance its indebtedness on
acceptable terms, if at all, it might be forced to dispose of one or more of its
properties upon disadvantageous terms, which might result in losses to it and
might adversely affect the cash available for distribution to Shareholders and
Unitholders. If prevailing interest rates or other factors at the time of the
refinancing result in higher interest rates on refinancings, the interest
expense of the Trust or the Operating Partnership, as the case may be, would
increase, which would adversely affect its cash flow and its ability to pay
distributions to Shareholders and Unitholders. Further, if a property is
mortgaged to secure payment of indebtedness, and the Trust or the
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Operating Partnership is not able to meet mortgage payments, or is in default
under the related mortgage or deed of trust, such property could be transferred
to the mortgagee or the mortgagee could foreclose upon the property, appoint a
receiver and receive an assignment of rents and leases, or pursue other
remedies, all with the consequence of loss of income and asset value to the
Trust or the Operating Partnership. Foreclosures could also create taxable
income without accompanying cash proceeds, thereby hindering the Trust's ability
to meet the REIT distribution requirements of the Code.
In connection with the acquisition by the Trust or the Operating
Partnership of an equity interest in a given property, it may assume the
seller's obligations under any underlying Mortgage Loan or obtain Mortgage
financing in connection with the acquisition. Any such loan would be secured by
the property acquired and may require a "balloon" payment upon the maturity of
its term. The ability of the Trust or the Operating Partnership to repay such
obligation 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. There is no assurance that either replacement debt or equity
financing or a sale could be obtained, and the Trust or the Operating
Partnership could suffer a complete loss of its investment if neither a sale nor
such replacement financing could be obtained. The ability to obtain refinancing
will depend upon general economic conditions, the value of the property and the
financial strength of the Trust and the Operating Partnership. There is no
assurance that any such property could be refinanced upon the maturity of any
replacement debt. Failure to obtain the refinancing necessary to make the
foregoing payment when due, or to make any scheduled payments due with respect
to any obligation secured in whole or in part by the property, could result in a
foreclosure and loss of the property, and the Trust or the Operating Partnership
could suffer a complete loss of its investment in the property. See "THE TRUST
AND THE OPERATING PARTNERSHIP" and "INVESTMENT OBJECTIVES AND POLICIES."
Under the Declaration of Trust, the Trust and the Operating Partnership
may incur aggregate borrowings in an amount up to 300% of the amount of their
respective net assets, except where the Trust determines that a higher level of
borrowing is appropriate. Therefore, the Trust and the Operating Partnership
could become highly leveraged, increasing the risks of leverage as described
above. There can be no assurance that the ratio of debt to any measure of asset
value of the Trust and the Operating Partnership will maximize the level of
distributions to Shareholders and Unitholders.
Possible Adverse Effects as a Result of Loss of Key Management
The Trust and the Operating Partnership will be dependent upon the efforts
of management of the Trust, the Operating Partnership and the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) (primarily Gregory K.
McGrath, Robert S. Geiger, Robert L. Astorino and Mark L. Wilson) and other
members of management (including, without limitation, the Independent Trustees
and any other members of the Board of the Trust). While the Trust believes that
it could find replacements for such management, the loss of their services could
have an adverse effect on the business, financial condition and operating
results of the Trust and the Operating Partnership. In addition, each of Mr.
McGrath and Mr. Geiger has other business interests and neither will devote full
business time to the Trust, the Operating Partnership or the Managing
Shareholder.
Uncertainty of Successful Completion of Cash Offering and Exchange Offering
In the Cash Offering the Trust is offering for sale to the public
2,500,000 Common Shares at $10.00 per share (maximum gross proceeds of
$25,000,000). In the Exchange Offering, the Operating Partnership will offer to
issue registered Units in exchange for limited partnership interests in limited
partnerships which own direct or indirect interests in residential apartment
properties. To facilitate the Exchange Offering, the Operating Partnership has
registered with the Commission 2,500,000 Units, and the Trust has registered an
additional 2,500,000 Common Shares into which holders of Units may exchange such
Units, subject to certain conditions.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold title to property interests acquired. The Trust will
contribute to the Operating Partnership the net cash proceeds from the sale of
Common Shares in the Cash Offering in exchange for an equivalent number of
Units. The Operating Partnership will use a portion of the net cash proceeds of
the Cash Offering, unissued Units or a combination of net cash proceeds and
unissued Units (i) to acquire interests in residential apartment properties or
interests in other partnerships or other entities substantially all of whose
assets consist of residential apartment property interests, (ii) for capital
improvements which may be required on properties in which the Trust or the
Operating Partnership acquires an interest and (iii) for working capital
purposes. Therefore, the successful performance of the Operating Partnership
will be largely dependent upon the successful completion of the Cash Offering.
It is unlikely that the cash proceeds from the sale in the Cash Offering
of only a minimum number of Common Shares will be sufficient to meet the
investment objectives of the Trust. In addition, during the period of the Cash
Offering
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and the Exchange Offering there may be ongoing unregistered private offerings by
real estate limited partnerships sponsored and managed by affiliates of the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath). Therefore,
despite the different nature and scope of proposed activities of the Trust and
such partnerships, the Trust would be competing with such unregistered offerings
to sell investment securities to prospective Investors with the possible adverse
effect that the Trust will sell fewer Common Shares in the Cash Offering than
otherwise might be the case absent such unregistered offerings. See " -
Conflicts of Interest."
As a Unitholder, the Trust will have an economic interest in the Operating
Partnership which will entitle it to share in cash distributions from, and in
the profits and losses of, the Operating Partnership. The Trust in turn will
distribute such cash distributions to the Shareholders of the Trust. Thus, the
performance of an investment in Common Shares will depend in large part upon
successful completion of the Exchange Offering and profitable operating results
of the properties in which the Operating Partnership acquires an interest.
In addition, the Operating Partnership will not complete the Exchange
Offering in respect of any particular Exchange Partnership unless limited
partners holding at least 90% of the limited partnership interests in the
partnership affirmatively elect to accept the offering. Moreover, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units which have been arbitrarily
assigned an initial value of at least $6,000,000. There can be no assurance that
a significant number of Offerees will accept the terms of the Exchange Offering
or that property interests acquired in the Exchange Offering will generate
operating profits sufficient to permit the Trust and the Operating Partnership
to make cash distributions to Shareholders and Unitholders. See " - Several
Factors Could Have Possible Adverse Effects on Operation of Properties," " -
Real Estate Investments May Fail to Perform to Expected Level" and " - No
Assurance of Avoiding Operating Losses."
In addition, the Trust and the Operating Partnership will incur
significant operating expenses. Among such expenses is total annual cash
compensation payable to the executive officers of the Trust and the Operating
Partnership of $496,000. The amount of executive compensation and other payroll
expenses will remain significant in relation to the net asset value and
operating cash flow of the Operating Partnership until the Trust sells a
substantial portion of the Common Shares being offered in the Cash Offering and
the Exchange Partnership completes transactions in the Exchange Offering in
respect of a substantial number of properties. Furthermore, regardless of the
operating results of the Trust and the Operating Partnership, the Managing
Shareholder will be entitled to be reimbursed up to $1,000,000 (an amount not to
exceed 4% of gross offering proceeds in the Cash Offering) for expenses incurred
prior to and during the Cash Offering for investigating, evaluating and
consummating investments and up to $500,000 (an amount not to exceed 1% of gross
proceeds in the Cash Offering plus 1% of initial assigned value of Units issued
in the Exchange Offering) for expenses incurred each year relating to the
operations of the Trust and the Operating Partnership. The ability of the Trust
and the Operating Partnership to continue to cover operating expenses will be
dependent upon the success of the Cash Offering and the Exchange Offering and
the performance of property interests acquired.
Limited Marketability of Units and Common Shares
Although Operating Partnership Units to be issued in the Exchange Offering
and Trust Common Shares issued and to be issued in the Cash Offering have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and will be freely transferable (subject to certain restrictions described
below), a public market is not expected to develop for such Units, and such
Common Shares have not yet been registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or listed on a national stock exchange.
The Trust intends to apply for listing on a national stock exchange of Common
Shares issued and to be issued in connection with the Cash Offering and Common
Shares into which Units issued in the Exchange Offering will be exchangeable.
However, there can be no assurance that the Common Shares will qualify for
listing on any stock exchange and, if so, of the timing of the effectiveness of
any such listing. Thus, there can be no assurance that an active trading market
will develop after the offerings.
Accordingly, an Offeree should participate in the Exchange Offering only
as a long-term investment and should be prepared to remain a Unitholder or
Shareholder indefinitely. In addition, to facilitate the Trust's continued
compliance with federal tax laws and regulations governing REIT's, the
Declaration of Trust contains significant restrictions relating to the ownership
and transfer of Shares. See " - Limits on Ownership and Transfers of Shares,"
"CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and Transfer," and
Article 2A of the Declaration of Trust.
Furthermore, the initial public offering price of Common Shares being
offered in the Cash Offering and the initial assigned value of the Units to be
issued in the Exchange Offering may not be indicative of the market price for
Common Shares after completion of the Cash Offering and the Exchange Offering.
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Possible Adverse Effect on Market Price as a Result of
Availability of Units and Common Shares for Future Sale
Future sales or issuances of a substantial number of Common Shares and/or
Units following the completion of the Cash Offering and the Exchange Offering,
or the perception that such sales or issuances could occur, could adversely
affect then prevailing market prices for Common Shares. In addition to up to
2,500,000 Common Shares to be issued in the Cash Offering, up to 1,202,160 Units
(exchangeable into an equivalent number of Common Shares subject to conditions
described at "THE TRUST AND THE OPERATING PARTNERSHIP- Formation Transactions")
have been subscribed for by the Original Investors in the Operating Partnership
in connection with its initial capitalization. The Original Investors have
deposited their Units into a security escrow account for a period of six to nine
years following the date of the Cash Offering Prospectus (May 15, 1998), subject
to earlier release if the Trust achieves certain operating results described at
"THE TRUST AND THE OPERATING PARTNERSHIP- Formation Transactions." The practical
effect of such escrow arrangement is that the Original Investors may not
exchange such Units for an equivalent number of Common Shares and then sell such
Common Shares while the Units are subject to such arrangement.
In addition, up to 2,500,000 Units (exchangeable into an equivalent number
of Common Shares) may be issued in the Exchange Offering to Offerees who are
limited partners in limited partnerships which own direct or indirect interests
in residential apartment properties, in exchange for their limited partnership
interests. Such Units may be exchanged by their holders into an equivalent
number of Common Shares following the Exchange Offering. The Executive
Compensation Committee of the Board of the Trust may also vote to reserve
additional Common Shares or Units for issuance in connection with employee and
management option plans that may be adopted by the committee. See "MANAGEMENT -
Option Plan" and "THE TRUST AND THE OPERATING PARTNERSHIP - Ownership of the
Trust and the Operating Partnership."
Possible Adverse Effect of Market Interest Rates on Common Share Prices
One of the factors that may influence the price of the Common Shares in
public markets will be the annual yield from dividend distributions made by the
Trust and the Operating Partnership to Shareholders and Unitholders,
respectively. Thus, following the completion of the Cash Offering and the
Exchange Offering, an increase in market interest rates may lead future
purchasers of Common Shares to demand a higher annual yield, which could
adversely affect the market price of the Common Shares.
Potential Adverse Tax Consequences
Unfavorable resolution of any of a number of tax issues could adversely
affect Unitholders and Shareholders. The following is a summary of the principal
tax risks of an investment in the Operating Partnership and the Trust,
respectively. For a more detailed description of the Federal income tax
consequences and the tax-related risks of an investment in the Operating
Partnership and the Trust, respectively, see "FEDERAL INCOME TAX
CONSIDERATIONS." Neither the Trust nor the Operating Partnership has obtained or
expects to request a letter ruling from the IRS as to the classification and
treatment of the Operating Partnership and the Trust, respectively, for federal
tax considerations described herein, or any other tax matters. The Trust has
obtained the opinion of its special tax counsel that, based on the organization
and proposed operation of the Trust and based on certain other assumptions and
representations, it will qualify as a REIT for federal income tax purposes. The
Operating Partnership has obtained the opinion of its special tax counsel that,
based on the organization and proposed operation of the Operating Partnership
and based on certain other assumptions and representations, it will be
classified as a partnership for federal income tax purposes. Neither of these
opinions is binding on the IRS or on any court, and no assurance can be given
that the IRS will not challenge the conclusions in such opinion. Offerees are
advised to consult with and rely upon their own legal, tax and investment
advisor regarding how an investment in the Operating Partnership and the Trust
will affect them.
Taxation of the Trust as a Corporation if It Fails to Qualify as a REIT
The Trust intends to operate and has elected to qualify as a REIT under
the Code, commencing with its taxable year ending December 31, 1998. Although
the Managing Shareholder believes that the Trust will be organized and will
operate in such a manner, no assurance can be given that the Trust will be
organized or will be able to operate in a manner so as to qualify or remain so
qualified. 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 of which there are only
limited judicial and administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Trust's control. For example, in order to qualify as a REIT, at least 95% of
the Trust's gross income in any year must be derived from qualifying sources and
the Trust must pay distributions to Shareholders
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aggregating annually at least 95% of its REIT taxable income (determined without
regard to the dividends paid deduction and by excluding net capital gains). 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 the Trust will do). No assurance can be given
that legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. No assurance can be given that actual operating results will meet
the REIT requirements.
Notwithstanding that the Trust currently intends to operate in a manner
designed to enable it to qualify as a REIT, future economic, market, legal, tax,
or other considerations may cause the Managing Shareholder to determine that it
is in the best interests of the Trust, the Operating Partnership, the
Shareholders and the Unitholders to revoke its REIT election.
If the Trust fails to qualify for taxation as a REIT in any taxable year
and no relief provisions apply, the 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 such year will not be deductible by
the Trust nor will they be required to be made. In such event, to the extent of
current or accumulated earnings and profits, all distributions to Shareholders
will be taxed as ordinary income. Moreover, unless entitled to relief under
certain statutory provisions, the Trust 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 the net earnings of the Trust
available for investment or distribution to Shareholders because of the
additional tax liability to the Trust for the years involved. In addition,
distributions to Shareholders would no longer be required to be made. "FEDERAL
INCOME TAX CONSIDERATIONS - Taxation of the Trust."
REIT Requirements With Respect to Shareholder Distributions
To qualify as a REIT under the Code, the Trust generally will be required
each year to distribute as dividends to its Shareholders at least 95% of its
"REIT taxable income" (determined without regard to the dividends paid deduction
and excluding capital gains). Failure to comply with this requirement would
result in the Trust's income being subject to tax at regular corporate rates. In
addition, the Trust will be subject to a nondeductible 4% excise tax on the
amount, if any, by which certain distributions considered as paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
for the calendar year, 95% of its capital gains net income for the calendar
year, and any undistributed taxable income from prior periods.
Potential Legislation Regarding REIT's
From time to time a variety of legislative proposals are advanced in
Congress by the Administration concerning the tax rules applicable to REITs. It
is not possible to predict in advance what legislative proposals might arise in
the future, but it is possible that such proposals (if enacted) could adversely
affect the Trust's ability to qualify as a REIT or the tax consequences to the
Trust or the Shareholders of such continued qualification.
Taxation of the Operating Partnership as a Corporation if It Fails to be
Classified as a Partnership
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to the Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum of 35%. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income at a rate currently ranging
to a maximum of 39.6% (to the extent of the Operating Partnership's current or
accumulated earnings and profits) or (in the absence of earnings and profits) a
non-taxable return of capital (to the extent of the Unitholder's tax basis in
his Units) or taxable capital gain (after the Unitholder's tax basis in the
Units has been reduced to zero). Accordingly, treatment of the Operating
Partnership as an association taxable as a corporation would result in a
material reduction in a Unitholder's cash flow and after-tax return and thus
would likely result in a substantial reduction of the value of the Units.
Deferral of Gain from Exchange Offering Subject to Certain Exceptions
Deferral of recognition of gain upon the contribution to the Operating
Partnership of Exchange Partnership Units by an Exchange Limited Partner in
exchange for Operating Partnership Units (the "Exchange") will not apply in all
circumstances. If any of the following circumstances apply, gain will be
recognized currently rather than being deferred:
1. Any decrease in an Exchange Limited Partner's share of liabilities of an
Exchange Partnership, if not offset by a corresponding increase in the
Exchange Limited Partner's share of Operating Partnership liabilities,
could cause the Exchange Limited Partner to recognize taxable gain as a
result of the Exchange Limited Partner being deemed to
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have received a cash distribution from the Exchange Limited Partnership in
excess of the Exchange Limited Partner's tax basis. This recognition of
gain could occur even if the decrease arose in connection with a
contribution or distribution that would otherwise qualify for tax-free
treatment under Section 721 or Section 731 of the Code. A decrease in an
Exchange Limited Partner's share of Operating Partnership liabilities (and
the resulting deemed cash distribution) might occur upon a repayment of
part or all of the liabilities of an Exchange Partnership following the
Exchange.
2. A contribution of Exchange Partnership Units that is treated in whole or
in part as a "disguised sale" of the contributed property under the Code.
3. A distribution of "marketable securities" under Section 731(c) of the
Code.
4. Recapture under Section 465(e) of the Code.
5. A contribution of Exchange Partnership Units if the Operating Partnership
would be treated as an investment company (within the meaning of Section
351) if the Operating Partnership were incorporated.
See "FEDERAL INCOME TAX CONSIDERATIONS - Exchange of Exchange Partnership Units
for Operating Partnership Units."
Termination of Exchange Partnerships
If the Exchange Offering is completed and the required number of limited
partners of an Exchange Partnership exchange their interests in the Exchange
Partnership for Operating Partnership Units, a termination of the Exchange
Partnership will occur for purposes of Section 708 of the Code. Under Section
168(i)(7) of the Code, such Exchange Partnership must depreciate their
properties as if they were newly-acquired properties using the same depreciation
system used by the terminated partnership. In other words, the depreciable lives
of the properties will be reset and the depreciation schedules will be
lengthened as a result.
Investors Liable for State and Local Taxes
Each Investor will also be liable for state and local income taxes payable
in the state or locality in which the Investor is a resident or doing business
or in a state or locality in which the Trust or the Operating Partnership
conducts or is deemed to conduct business. Depending upon the state in question,
an Investor who pays such taxes in a foreign state may be entitled to receive a
credit for all or a portion of such amount paid against any income taxes payable
in his state of residence. Thus each Investor will likely be required to file
multiple state income tax returns as a result of his investment in the Trust or
the Operating Partnership.
EACH OFFEREE IS URGED AND EXPECTED TO CONSULT WITH HIS PERSONAL TAX
ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES RELATED TO AN INVESTMENT IN
THE TRUST AND THE OPERATING PARTNERSHIP.
Non-participating Limited Partners in Participating Exchange Partnerships
Will Have Significant Influence over Certain Actions of the Partnerships
Following the completion of the Exchange Offering, each Exchange Limited
Partner in a Participating Exchange Partnership who has not accepted the
Exchange Offering ("Non-participating Limited Partner") will retain his existing
interest in the partnership. The Non-participating Partners will retain all of
their economic and voting rights, rights to receive reports and substantially
all other rights as set forth in their respective partnership agreement. See
"COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES." Although Non-participating Limited
Partners in any particular Participating Exchange Partnership together will hold
no more than 10% of the limited partnership interest in the partnership, they
will have significant influence over certain activities of the partnership and
the Operating Partnership by virtue of certain partnership agreement amendments
in favor of the Non-participating Limited Partners which will be made upon
completion of the Exchange Offering. The purpose of the amendments is to permit
Non-participating Limited Partners in Participating Exchange Partnerships the
opportunity to vote as a class whether to approve certain actions which the
Operating Partnership might otherwise unilaterally cause a particular
Participating Exchange Partnership to take by exercising the Operating
Partnership's voting rights in its capacity as a majority holder of limited
partnership interests in the partnership following the Exchange Offering.
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As described in further detail in this Prospectus at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS," following the Exchange Offering, the
partnership agreement of each Participating Exchange Partnership which has one
or more Non-participating Limited Partners will be amended so that such partners
will be entitled to vote as a class in respect of all matters as to which
limited partners are entitled to vote under the partnership agreement relating
to the partnership prior to the completion of the Exchange Offering, with
certain exceptions. In addition, the Trust and the Operating Partnership have
agreed that in respect of certain proposed actions, the Participating Exchange
Partnership must obtain the prior approval of Non-participating Limited Partners
holding a majority of the limited partnership interests held by all
Non-participating Limited Partners in the partnership. For example, the
partnership may not sell its existing property interest, acquire any additional
property interests or cease to exist without such approval.
As a result of such amendments, Non-participating Limited Partners in a
Participating Exchange Partnership will have the ability to veto certain actions
of the partnership, such as the sale of the partnership's property, which might
be in the best interest of the partnership, the Operating Partnership, the Trust
or the holders of securities of the Trust and the Operating Partnership. There
can be no assurance that Non-participating Limited Partners will not use such
voting power in a manner which may have an adverse effect on the operations of
the Trust or the Operating Partnership.
Possible Dilution as a Result of Issuance of Additional Securities
The Trust and the Operating Partnership have authority to offer authorized
but unissued Shares (which may be comprised of Common Shares and/or Preferred
Shares in the discretion of the Trust), debt securities and Units in exchange
for property, cash or otherwise. In order to facilitate the Exchange Offering,
the Operating Partnership has registered with the Commission 2,500,000 Units and
the Trust has registered an additional 2,500,000 Common Shares into which such
Units are exchangeable by their holders, subject to certain restrictions. In
addition, the Trust intends to investigate making an additional public or
private offering of Common Shares and/or Units within the 12-month period
following the commencement of the Exchange Offering if management determines
that suitable property acquisition opportunities are available at attractive
prices and such an offering would fulfill its cost of funds requirements.
Offerees who acquire Operating Partnership Units in connection with the Exchange
Offering and Shareholders of the Trust will not have any preemptive rights to
acquire any such additional Shares, debt securities or Units, and could suffer
dilution as a result of subsequent issuances of securities. See Article 2 of the
Declaration of Trust and Section 4.2 of the Operating Partnership Agreement.
In addition, in connection with the formation of the Trust and the
Operating Partnership, each of Mr. McGrath and Mr. Geiger, the Original
Investors, has subscribed for an amount of Units in the Operating Partnership
which are exchangeable (subject to escrow restrictions described at "THE TRUST
AND THE OPERATING PARTNERSHIP - Formation Transactions") into 9.5% of the Common
Shares outstanding as of the earlier to occur of the completion of the Cash
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 the Trust) have been exchanged into an equivalent number of Common Shares.
Each of the Original Investors paid $50,000 for 601,080 Units assuming that all
2,500,000 Common Shares are sold by November 30, 1999 and all 2,500,000 Units
being offered in the Exchange Offering are issued by such date. Assuming the
initial assigned value of $10.00 per unit, Units subscribed for by each Original
Investor would be valued at $6,010,800.
Purchasers of Common Shares in the Cash Offering and Offerees who accept
the Exchange Offering will pay a higher price per Common Share and Unit than the
Original Investors paid for their Units. As a result of the issuance of such
Units to the Original Investors and the use of a portion of the gross proceeds
of the Cash Offering to cover expenses of the Cash Offering and the Exchange
Offering and to reimburse the Managing Shareholder for reimbursable expenses
incurred prior to and during the Cash Offering for investigating, evaluating and
consummating investments of the Trust and the Operating Partnership, purchasers
of Common Shares in the Cash Offering and Offerees who accept the Exchange
Offering will experience immediate dilution in their investment in the Trust and
the Operating Partnership, respectively.
To the extent that the Trust and the Operating Partnership issue
additional securities in the future (including, without limitation, Common
Shares purchased by broker-dealers who exercise warrants to purchase Common
Shares received as partial compensation for their services in connection with
the Cash Offering), there will be further dilution. See "THE
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TRUST AND THE OPERATING PARTNERSHIP - Ownership of the Trust and the Operating
Partnership." In addition, the property interests owned by the Exchange
Partnerships involved in the initial transactions of the Exchange Offering have
not previously been put on the market for sale by the Exchange Partnerships, and
the acquisition of beneficial ownership of such property interests by the
Operating Partnership at their estimated value may result in the property
interests being carried at a value above or below what may be obtainable in the
market. Moreover, any acquisition of property interests in the Exchange Offering
above their carrying value would result in deferred gains to the sellers and
could reduce the potential returns on investment results for the Operating
Partnership.
Limits on Ownership and Transfers of Common Shares and Units
Which May Delay or Prevent a Takeover Offering a Premium Price
In order for the Trust to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares and Units may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which the election to be treated as a REIT has been made). Furthermore,
after the first taxable year for which a REIT election is made, the Trust's
Shares must be held by a minimum of 100 persons for at least 335 days of a
12-month taxable year (or a proportionate part of a short tax year). In
addition, if the Trust, or an owner of 10% or more of the Trust, actually or
constructively, owns 10% or more of a tenant of the Trust (or a tenant of any
partnership in which the Trust is a partner), the rent received by the Trust
(either directly or indirectly through any such partnership) from such tenant
will not be qualifying income for purposes of the REIT gross income tests of the
Code. See "FEDERAL INCOME TAX CONSIDERATIONS Taxation of the Trust." In order to
protect the Trust against the risk of losing REIT status due to a concentration
of ownership among Shareholders and Unitholders, the Declaration of Trust limits
actual or constructive ownership of Shares and Units by any single Shareholder
(other than the Original Investors) to 5% (the "Limit") of the then outstanding
Shares. See "CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and
Transfer." The Managing Shareholder (upon receipt of a ruling from the Internal
Revenue Service (the "Service") or an opinion of counsel or other evidence
satisfactory to the Managing Shareholder and upon such other conditions as the
Managing Shareholder may require) may in its discretion waive the Limit
depending on 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 Declaration of Trust) on any
Shareholders relating to transfer of their Shares. See Section 2A.12 of the
Declaration of Trust. The Managing Shareholder will waive the Limit with respect
to a particular Shareholder if it is satisfied, based upon the foregoing, that
ownership by such Shareholder in excess of the Limit would not jeopardize the
Trust's status as a REIT and the Managing Shareholder otherwise decided that
such action would be in the best interests of the Trust.
Actual or constructive ownership of Shares in excess of the Limit, or with
the consent of the Managing Shareholder, such other limit, will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of Shares in excess of the Limit, or, with the consent
of the Managing Shareholder, such other limit, as applicable. Such purported
transferee or owner would have no right to vote such Shares or be entitled to
dividends or other distributions with respect to such Shares. See "CAPITAL STOCK
OF THE TRUST - Restrictions on Ownership and Transfer" and Article 2A of the
Declaration of Trust for additional information regarding the Limit.
The foregoing ownership limitations could have the effect of delaying,
deferring or preventing a takeover or other transaction in which holders of
some, or a majority, of the Common Shares might receive a premium for their
Common Shares over the then prevailing market price or which such holders might
believe to be otherwise in their best interest. See "CAPITAL STOCK OF THE TRUST
- - Restrictions on Ownership and Transfer" and Article 2A of the Declaration of
Trust for additional information regarding the ownership limitations.
Lack of Liquidity of Retained Interest in an
Exchange Partnership Following the Exchange Offering
Exchange Limited Partners who have not accepted the Exchange Offering will
retain their limited partnership interest in their respective Exchange
Partnership with substantially the same rights they had prior to the offering.
Following the Exchange Offering, limited partnership interests retained in any
Participating Exchange Partnership by Non-participating Limited Partners are
likely to remain extremely illiquid because such interests will represent a
small minority interest (10% or less) in the partnership and because of the
uncertainty whether the property interest would be sold in the near future due
to the REIT and other provisions of the Code which would penalize the Trust and
possibly Exchange Limited Partners in such partnership who accept the Exchange
Offering if the Trust sold a property interest in the short term.
No Operating History
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Operating Partnership Units being offered in the Exchange Offering and
Trust Common Shares into which such Units are exchangeable must be considered
speculative investments, and there can be no assurance that the Trust will
fulfill its investment objectives. The Trust, the Operating Partnership and the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath) have no
significant operating history. In addition, the assets of the Trust and the
Operating Partnership will consist primarily of direct or indirect equity or
debt investments they may make in respect of particular residential apartment
properties and thus will be largely dependent upon the successful operation of
such properties. Management of the Trust, the Operating Partnership and the
Managing Shareholder, however, has substantial prior experience in and knowledge
of the residential apartment property market and its financing, and has
significant experience in the management of investment programs.
Limited Participation Rights of Shareholders and Unitholders in Management
Management of the Trust and the Operating Partnership is vested in the
Managing Shareholder, subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership. Shareholders and Unitholders will generally not have the right to
participate in the management of the Trust and the Operating Partnership and
their property interests or in the decisions of management relating to their
investments. See Sections 1.9, 6.1 and 7.1 of the Declaration of Trust. Although
the members of the Board of the Trust owe fiduciary duties to the Trust, their
failure to enforce the material terms of any agreements entered into by the
Trust and the Operating Partnership, particularly the indemnification provisions
and remedy provisions for breaches of representations and warranties, could
result in a substantial monetary loss to the Trust and the Operating
Partnership.
Regulatory Non-compliance Could Result in Fines or Judgments
Fair Housing Amendments Act of 1988. The Fair Housing Amendments Act of
1988 (the "FHA") requires residential apartment properties first occupied after
March 13, 1990 to be accessible to the handicapped. Non-compliance with the FHA
could result in the imposition of fines or an award of damages to private
litigants. Each of the Trust and the Operating Partnership will use its best
efforts to ensure that properties subject to the FHA in which it acquires an
interest will be in compliance with such law.
Americans with Disabilities Act. Properties in which the Trust or the
Operating Partnership acquire an interest must comply with Title III of the
Americans with Disabilities Act (the "ADA") to the extent that such properties
are "public accommodations" and/or "commercial facilities" as defined by the
ADA. Compliance with the ADA regulations requires that public accommodations
"reasonably accommodate" individuals with disabilities, which includes removal
of structural barriers to handicapped access in certain public areas of the
properties of the Trust and the Operating Partnership, where such removal is
readily achievable, and that new construction or alterations made to "commercial
facilities" conform to accessibility guidelines unless "structurally
impracticable" for new construction, or exceeds 20% of the cost of the
alteration for existing structures. The ADA does not, however, consider
residential properties, such as residential apartment properties, to be public
accommodations or commercial facilities except to the extent portions of such
facilities, such as a leasing office, are open to the public. Each of the Trust
and the Operating Partnership will use its best efforts to ensure that its
properties comply with all present requirements under the ADA and applicable
state laws. Noncompliance with the ADA could result in imposition of injunctive
relief, fines or an award of damages.
Compliance with Environmental Laws. Under various federal, state and local
laws, ordinances and regulations, 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. Such laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of such hazardous substances. The presence of such substances, or
the failure to properly remediate such substances, when released, may adversely
affect the owner's ability to sell such real estate or to borrow using such real
estate as collateral.
In order to address these issues, the Trust intends, where necessary, to
retain an unaffiliated consultant to conduct a Phase I environmental audit of
any property in which it or the Operating Partnership intends to acquire an
interest. The Phase I audit generally consists of an on-site inspection of the
land and improvements; a review of the building plans and specifications to
determine the construction materials and procedures used; a review of EPA and
other governmental agency files to determine if the subject property or any
other properties in its vicinity have been the subject of any investigations,
reports or classifications that would indicate potential environmental risks;
and a review of the chain of title of the subject property to determine the
ownership history of the property. Phase I audits do not include soil sampling
or subsurface investigations. Thus, a Phase I audit is not comprehensive or
exhaustive and will not identify all possible hazardous
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substances. The Trust and the Operating Partnership will obtain Phase II
environmental audits where matters disclosed in the Phase I audit warrant
further investigation. No assurances can be given, however, that the
environmental studies undertaken with respect to any particular property will
reveal all potential environmental liabilities, that any prior owner of a
property did not create any material environmental conditions not known to the
Trust or the Operating Partnership, or that a material environmental condition
does not otherwise exist as to any particular property in which the Trust or the
Operating Partnership acquires an interest. If it is ever determined that
hazardous substances are present, the Trust or the Operating Partnership 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 by
it.
Shareholders and Unitholders Could be Adversely Affected
by Limited Liability and Indemnification of the Managing Persons
Although the Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath),
Independent Trustees and any other members of the Board will be accountable to
the Trust and the Operating Partnership as fiduciaries and, consequently, will
be required to exercise good faith and integrity in handling the assets and
affairs of the Trust and the Operating Partnership, the Declaration of Trust and
the Operating Partnership Agreement provide that such persons and their
respective officers, directors, shareholders, partners, agents and employees
will not be liable to the Trust, the Operating Partnership or any of the
Shareholders for errors in judgment or for actions or omissions taken without
negligence or bad faith, provided they acted within the scope of the Declaration
of Trust and the Operating Partnership Agreement. Moreover, the Declaration of
Trust and the Operating Partnership Agreement provide that the Trust and the
Operating Partnership will indemnify the Managing Shareholder, Independent
Trustees, other members of the Board and such other persons against all
liabilities, costs and expenses (including legal fees and expenses) incurred by
the Managing Shareholder or any such persons arising out of or incidental to the
Exchange Offering or the Cash Offering or the operation of the Trust and the
Operating Partnership on certain conditions. See Section 3.7 of the Declaration
of Trust and Section 7.7 of the Operating Partnership Agreement. As a result,
the Shareholders and Unitholders will have more limited rights against the
Managing Shareholder and such persons than they would have absent the
limitations in the Declaration of Trust and the Operating Partnership Agreement.
See "FIDUCIARY RESPONSIBILITY" and "SUMMARY OF DECLARATION OF TRUST - Liability
and Indemnification."
No Assurance of Shareholder Limited Liability
for Activities of Delaware Business Trust
The Trust has been organized as a Delaware business trust having limited
liability of the Shareholders of the Trust. Many states have enacted legislation
recognizing the limited liability provisions of the Delaware business trust.
Other states have not enacted such legislation, although it is expected
(although not assured) that most of such states will also recognize the limited
liability of the Shareholders. Accordingly, there is a risk that Shareholders
will not have limited liability for activities of the Trust in any other state
in which the Trust may conduct activities which does not recognize the limited
liability of beneficiaries of a Delaware business trust. Such risk is
substantially mitigated by the Trust conducting its activities and holding its
interest in properties in the Operating Partnership.
No Assurance of Profitable Sale of Trust and Operating Partnership Property
The Trust will periodically review the portfolio of assets which the Trust
and the Operating Partnership may acquire. The Trust has no current intention to
dispose of any interest in properties to be acquired, although it reserves the
right to do so. There is no assurance as to the timing of any sales of property
or that if the 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 such potential purchasers and the state of the
market for residential properties of the type sought to be sold. The management
of the Trust and the Operating Partnership will have full discretion to
determine whether the properties should be sold and the timing, price and other
terms of any such sales. In addition, the prohibitions in the Code and related
regulations on a REIT holding property for sale may affect the Trust's ability
to sell properties without adversely affecting distributions to Shareholders and
Unitholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust."
Property Losses May Not be Insurable
Properties in which the Trust and the Operating Partnership invest are
expected to be covered by adequate comprehensive liability and all-risk
insurance provided by reputable companies and with commercially reasonable
deductibles, limits and policy specifications customarily carried for similar
properties. Certain types of losses, however, may
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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, the Trust or the Operating
Partnership could lose its investment in and anticipated profit and cash flow
from a property and would continue to be obligated on any mortgage indebtedness
or other obligations related to such properties. Any such loss would adversely
affect the Trust and the Operating Partnership and their ability to make
distributions to Shareholders and Unitholders.
Possible Lack of Independent Assessment of
Prior Operating Results of Acquired Property Interests
In making an investment decision in respect of any given property, the
Trust and the Operating Partnership may rely on financial statements covering
the operations of the property which may have been prepared by the then current
owner or property manager of the property and which may have not been compiled,
reviewed or audited by independent public accountants or reviewed by counsel to
the Trust, the Operating Partnership or the Managing Shareholder. In any such
case, therefore, there will not have been any independent assessment of any of
such financial statements and accordingly the Trust and the Operating
Partnership would be subject to the risk that such financial statements do not
properly reflect the prior operation of the property.
Initial Value Assigned to Operating Partnership Units Offered
in Exchange for Exchange Partnership Units Exceeds Current Book Value of
Exchange Partnerships
The $13,069,079 aggregate book value of the 23 Exchange Partnerships
initially targeted for acquisition in the Exchange Offering is less than the
$24,980,660 total of the initial value assigned to the Operating Partnership
Units being offered for the Exchange Partnership Units. This discrepancy is due
to depreciation taken against the original price paid by the Exchange Equity
Partnerships and Exchange Hybrid Partnerships for direct or indirect equity
interests in the properties and the appreciation of the properties since such
purchase. As a result, the return on investment of the Exchange Partnerships
based on the initial value assigned to Units offered for Exchange Partnership
Units in such partnerships in connection with the Exchange Offering will be less
than the return on investment of the partnerships based on their book value.
Changes in Laws Could Increase Operating Expenses
Increased costs resulting from changes in real estate taxes or other
governmental requirements may generally not be passed directly through to
tenants, inhibiting the ability of the Trust and Operating Partnership to
recover such increased costs. An attempt to pass through any substantial
increases in such 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
adversely affect the ability of the Trust and the Operating Partnership to make
distributions to Shareholders and Unitholders. Changes in laws increasing
potential liability for environmental conditions or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures, which would adversely affect the ability of the Trust and the
Operating Partnership to make distributions to Shareholders and Unitholders.
No Rights of Dissent
Offerees who elect not to accept the Exchange Offering will retain their
existing limited partnership interest in their respective Exchange Partnership
on substantially the same terms and conditions as their original investment.
Upon the completion of the Exchange Offering, the limited partnership interests
in each Participating Exchange Partnership will be owned by the Operating
Partnership and any Non-participating Limited Partners in the partnership.
Neither applicable law nor the limited partnership agreement relating to any
Exchange Partnership provides any rights of dissent or appraisal to Offerees who
do not elect to accept the Exchange Offering.
Possible Lack of Diversification in Property Investments
Although the Trust and the Operating Partnership are expected to invest in
several residential apartment properties, the number of properties in which they
ultimately invest may be insufficient to afford adequate diversification against
the risk that their investments will not be profitable or return their invested
capital. There can be no assurance that the properties invested in will earn a
return or that the returns on the investments will be sufficient to permit
distributions to Shareholders and Unitholders.
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Other Participants May Fail to Fulfill Obligations
In certain cases, the Trust and the Operating Partnership will jointly
participate with one or more other entities in respect of their property
investments, including without limitation developers, property owners, and First
Mortgage lenders and other financing sources. If any such other participants
fail to fulfill their obligations, have divergent interests or are in a position
to take action contrary to the policies or objectives of the Trust or the
Operating Partnership, the interest of the Trust or the Operating Partnership,
as the case may be, in such project may be adversely affected. The successful
operation of certain property interests acquired will, to a certain extent, be
determined by the quality and performance of other participants.
Extended and Uncertain Investing Period Could Adversely Affect Returns
The use of the net proceeds of the Cash Offering and Units in the
Operating Partnership to acquire interests in one or more residential apartment
properties may occur over an extended period, including the offering period,
during which the Trust and the Operating Partnership will face risks of changes
in interest rates and adverse changes in the real estate market. Similarly,
during periods in which net proceeds of the Cash Offering are invested in
interim investments prior to such application, the Trust and the Operating
Partnership may be affected by changes in prevailing interest rate levels. Such
interim investments would be expected to earn rates of return which are lower
than those earned on real estate investments made.
Possible "Year 2000" Problems
Although the computer systems of the Trust and the Operating Partnership
have been tested for year 2000 problems and management believe that such systems
are year 2000 compatible, it is possible that certain computer systems or
software products of their suppliers may experience year 2000 problems and that
such problems could adversely affect their operations. The Trust is in the
process of inquiring as to the progress of the principal suppliers of the Trust
and the Operating Partnership in identifying and addressing problems that their
computer systems will face in correctly processing date information as the year
2000 approaches. However, there can be no assurance that the Trust and the
Operating Partnership will identify the future date-handling problems of their
suppliers in advance of the occurrence of such problems, or that such parties
will be able to successfully remedy any problems that are discovered. The
failure to identify and solve all year 2000 problems affecting them could have
an adverse effect on the business, financial condition and results of operations
of the Trust and the Operating Partnership.
THE EXCHANGE OFFERING
All of the Units being offered by the Operating Partnership pursuant to
this Prospectus are being offered in connection with the Exchange Offering. In
the Exchange Offering, the Operating Partnership is offering to issue registered
Units to individual limited partners in limited partnerships which directly or
indirectly own equity and/or debt interests in residential apartment properties,
in exchange for the limited partners' limited partnership interests.
As its initial investment targets in the Exchange Offering, the Operating
Partnership is offering to acquire direct or indirect equity and/or subordinated
mortgage and other debt interests in 26 residential apartment properties (the
"Exchange Properties") directly or indirectly owned by 23 real estate limited
partnerships managed by Corporate General Partners affiliated with the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) (collectively, the
"Exchange Partnerships" and individually, an "Exchange Partnership"). Certain of
the Exchange Partnerships directly or indirectly own equity interests in 16
Exchange Properties which consist of an aggregate of 1,012 residential units
(comprised of studio and one, two, three and four-bedroom units). Certain of the
Exchange Partnerships directly or indirectly own Subordinated Mortgage interests
in 10 Exchange Properties, which consist of an aggregate of 813 existing
residential units (studio and one and two bedroom units) and 164 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.
The acquisition committee of the Trust investigated all affiliated
partnerships to determine which met its investment criteria. After thorough
review, only the 23 Exchange Partnerships involved in the Exchange Offering met
the required standard. The Committee has applied its investment criteria to the
pricing of all Exchange Partnerships. In each circumstance the purchase price is
below estimated replacement cost, provides potential attractive returns with
significant upsides in cash flow, are all located strategically within
geographical boundaries in which the Operating Partnership intends
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to operate, and are expected to be able to provide total returns that will both
increase distributions as well as overall market value of the underlying
properties. See "INVESTMENT OBJECTIVES AND POLICIES."
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 interests 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 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 loan in one or more properties (and in one case,
unsecured debt interests). Such property interests are described in further
detail at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "INITIAL REAL ESTATE
INVESTMENTS" and in Exhibit B hereto. See also "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION" and "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE
PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES."
Each Exchange Partnership is a real estate investment program which owns
directly or indirectly either all or a portion of the record title to and/or a
Subordinated Mortgage and other debt interest in an Exchange Property or all or
a portion of the limited partnership interest or beneficial interest in a
limited partnership or other entity which owns such an interest. The Operating
Partnership will indirectly acquire interests in the Exchange Properties by
offering to issue registered Units in exchange for limited partnership interests
("Exchange Partnership Units") held by individual limited partners in the
Exchange Partnerships (individually, an "Exchange Limited Partner" and
collectively, the "Exchange Limited Partners"). The Original Investors
(comprised of Gregory K. McGrath and Robert S. Geiger) do not hold limited
partnership interests in any of the Exchange Partnerships. Mr. McGrath is the
sole stockholder, director and executive officer of each of the Corporate
General Partners of the Exchange Partnerships. Affiliates of Mr. McGrath are
also the corporate general partners of limited partnerships which are debtors
under Subordinated Mortgage Loans and other debt interests owned by certain 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. See "MANAGEMENT."
Any Offeree who is a limited partner of an Exchange Partnership and does
not desire to participate in the Exchange Offering will be entitled to retain
his limited partnership interest in his respective Exchange Partnership on
substantially the same terms as his original investment. The Operating
Partnership will not complete the Exchange Offering in respect of any particular
Exchange Partnership unless limited partners holding at least 90% of the limited
partnership interests in the Exchange Partnership affirmatively elect to accept
the offering. In addition, the Operating Partnership will not complete any
transaction in the offering whatsoever unless a sufficient number of Offerees
accept the offering such that the offering involves the issuance of Operating
Partnership Units with an initial assigned value of at least $6,000,000. An
Offeree must exchange all of his units of limited partnership in an Exchange
Partnership in order to participate in the Exchange Offering. Partial exchanges
will not be accepted.
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 $16,576,606 at June 30, 1999. The current 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 $7,489,325 at June 30, 1999.
The current book value of the 23 Exchange Partnerships was approximately
$13,069,079 at June 30, 1999. If exchanges are consummated for all Exchange
Partnership Units in the partnerships in connection with the Exchange Offering,
the partnership interests acquired will have a purchase price totaling
approximately $24,980,660, comprised of Operating Partnership Units to be issued
with an initial assigned value in that amount. The property interests to be
acquired with the balance of the Operating Partnership Units to be offered in
the Exchange Offering have not yet been finally determined. The Trust intends to
investigate other investment opportunities for the Exchange Offering, including
interests held in additional properties by unaffiliated parties and by other
limited partnerships managed by affiliates of the Managing Shareholder. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
In June and July 1998, the Operating Partnership acquired beneficial
ownership of a 67-unit residential apartment property located in Orlando,
Florida and an 80-unit property located in Lakeland, Florida. In September 1998,
the Operating
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Partnership acquired beneficial ownership of a 50-unit residential apartment
property located in New Smyrna Beach, Florida. In October 1998, the Operating
Partnership acquired an approximately 12.3% limited partnership interest in a
limited partnership which is the owner and developer of a 168-unit residential
apartment property under construction in Alexandria, Kentucky. Subsequently, the
Operating Partnership acquired additional limited partnership units; and as of
June 30, 1999, the Operating Partnership owns an approximately 40% limited
partnership interest in this limited partnership. One hundred twelve of the 168
residential units (approximately 67%) have been completed as of June 30, 1999
and are in the rent-up stage. The acquisitions described above, which had a
total cash purchase price of $3,648,506, were paid out of the net proceeds of
the Trust's ongoing Cash Offering.
The foregoing properties were acquired with the investment strategies of
buying below estimated replacement cost and having potential significant
increases in cash flow. The properties are strategically located, of high
quality and competitive in their markets, and have been undermanaged. The
Alexandria partnership involves a new development which is expected to provide
attractive returns with significant potential growth in cash flow. The property
is strategically located, of high quality and is competitive in the market. Each
of these partnerships is expected to provide total returns that will increase
Trust distributions as well as overall market value. See INVESTMENT OBJECTIVES
AND POLICIES.
In July 1998, the Operating Partnership made capital contributions in the
range of $2,900 to $83,300 (aggregate amount approximately $341,000) to 13 real
estate partnerships managed by affiliates of the Managing Shareholder, including
certain of the Exchange Partnerships, in exchange for a limited partnership
interest in such partnerships (less than 4% in each case). In September 1998,
the Trust entered into an agreement to acquire two luxury residential apartment
properties (total of 652 units) upon the completion of construction for an
aggregate purchase price in the range of $41,000,000 to $43,000,000. See
"INITIAL REAL ESTATE INVESTMENTS."
Other than as described above, the remaining net cash proceeds of the Cash
Offering (approximately $_________ as of the date of this Prospectus) and future
net proceeds from the Cash Offering have not yet been committed to specific
properties. Offerees will not have any vote in the selection of property
investments after they accept the Exchange Offering. Therefore, Offerees who
elect to accept the Exchange Offering may not have available any information on
any additional properties to be acquired in the Exchange Offering and properties
to be acquired with net proceeds of the Cash Offering, in which case they will
be required to rely on management's judgment regarding those purchases.
The commencement of the Exchange Offering in respect of the 23 Exchange
Partnerships was approved by the Independent Trustees of the Trust, who together
with the Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), serve
as the members of the Board of the Trust. The Managing Shareholder abstained
from voting since Gregory K. McGrath, the sole stockholder, director and
executive officer of the Corporate General Partner of each of the Exchange
Partnerships, is also one of the founders of the Trust and the Operating
Partnership, the sole stockholder and director of the Managing Shareholder, and
Chief Executive Officer of the Trust, the Operating Partnership and the Managing
Shareholder. As described above, affiliates of Mr. McGrath are also the
corporate general partners of limited partnerships which are debtors under
Subordinated Mortgage Loans and other debt interests owned by certain of the
Exchange Partnerships.
The Corporate General Partner of each Exchange Partnership recommends that
the Offerees elect to accept the Exchange Offering based on an analysis of the
benefits and disadvantages of the offering to Offerees and the Exchange
Partnerships and an analysis of possible alternative transactions. See below at
" - Background of the Exchange Offering" and " - Effects of the Formation
Transactions, Cash Offering and Exchange Offering."
The number of Units being offered to each Exchange Limited Partner in a
particular Exchange Partnership per $1,000 of his original investment is
indicated on the table set forth on page 27 of this Prospectus, on page 3 of the
accompanying Prospectus Supplement and at the bottom of the table relating to
such partnership set forth at Exhibit B to this Prospectus. The number of Units
being offered to each Exchange Limited Partner in exchange 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 purposes of the Exchange Offering, each Unit has been
arbitrarily assigned an initial value of $10.00 per Unit, which corresponds to
the offering price of each Trust Common Share offered in the Cash Offering. The
value of each outstanding Unit and Common Share will be substantially identical
since Unitholders, including recipients of Units 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 the Operating Partnership 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
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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 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 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 its 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 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 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 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 the Operating Partnership
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. See " Exchange Property
Appraisals."
In connection with the completion of the Exchange Offering in respect of
each Participating Exchange Partnership, (i) Mr. McGrath will either grant the
Board of the Trust a management proxy coupled with an interest to vote the
shares of its Corporate General Partner (wholly owned and controlled, along with
the Managing Shareholder of the Trust, by Mr. McGrath) or contract to assign all
of the stock in the Corporate General Partner to the Trust for nominal
consideration; (ii) the Corporate General Partner will assign to the Operating
Partnership 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.
A description of certain differences among the terms and conditions of (i)
the Exchange Partnership Units currently owned by Exchange Limited Partners,
(ii) the Operating Partnership Units being offering in the Exchange Offering and
(iii) the Trust Common Shares into which the Operating Partnership Units are
exchangeable, is set forth below under "COMPARISON OF RIGHTS OF HOLDERS OF
EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON
SHARES."
As a Unitholder, each recipient of Units in the Exchange Offering will be
entitled to exchange all or a portion of his 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 (at a price equal to the average of the daily market price
for the 10 consecutive trading days immediately preceding the date the Trust
receives the exchange notice, or, in the absence of a public trading market, at
a price determined in good faith by the Trust) 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. The Trust
intends to apply for listing on a national stock exchange of the Common Shares
being offered in the Cash Offering and the Common Shares into which Units issued
in the Exchange Offering will be exchangeable. There can be no assurance that
such securities will qualify for listing or the timing of such listing. See
"TERMS OF THE CASH OFFERING."
The Trust and the Operating Partnership intend to investigate making an
additional public or private offering of Common Shares and/or Units within the
12-month period following the commencement of the Exchange Offering if the
Managing Shareholder determines that suitable property acquisition opportunities
are available to the Trust at attractive prices and that such an offering would
fulfill its cost of funds requirements. The issuance by the Trust and the
Operating Partnership of additional Shares and Units subsequent to the
completion of the Cash Offering and the Exchange Offering could have a dilutive
effect on Offerees who accept this Exchange Offering and Shareholders of the
Trust.
Accounting Treatment
Subject to the completion of the Exchange Offering, the Trust and the
Operating Partnership will account for the acquisition by the Operating
Partnership of the limited partnership interests in Participating Exchange
Partnerships on the
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purchase method and therefore record the assets acquired and the liabilities
assumed at their fair value at the date of acquisition. The acquisition by the
Operating Partnership of the general partnership interests in Participating
Exchange Partnerships will be accounted for on the purchase method, and
therefore will be recorded at their fair value at the date of acquisition.
Background of the Exchange Offering
In the first quarter of 1997, the Original Investors determined that a
single integrated structure of ownership by the Exchange Partnerships and
administration of the property interests which were controlled by them and which
were projected to be acquired by future affiliated programs would be far more
efficient, cost effective and advantageous for operations and for the various
program investors. In anticipation of its growth and change in structure, the
organization developed by the Original Investors has been able to attract highly
experienced management and financial personnel capable of managing a
substantially larger real estate portfolio. See "MANAGEMENT - Officers of the
Trust and the Operating Partnership."
The Original Investors did not wish to exclude any investors in any of the
investment programs managed by affiliates of the Managing Shareholder (wholly
owned and controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), including the Exchange Partnerships, which have
been privately placed in the last four years from the opportunity to diversify
their real estate ownership interest by an exchange of their existing limited
partnership units for an ownership interest in a publicly structured
organization with the ultimate potential of receiving the benefit of holding the
interest in a marketable form of security. At the same time, the Original
Investors have structured the Exchange Offering to afford each limited partner
in the Exchange Partnerships the opportunity, if desired, to continue with the
investment as originally purchased and in an entirely undisturbed manner.
Moreover, unless at least 90% of the limited partners of any Exchange
Partnership affirmatively elects to accept the Exchange Offering, the Operating
Partnership will not acquire any limited partnership interests in that
partnership. In addition, the Operating Partnership will not complete any
transaction in the offering whatsoever unless a sufficient number of Offerees
accept the offering such that the offering involves the issuance of Units with
an initial assigned value of at least $6,000,000. Following the completion of
the Exchange Offering, each Exchange Partnership will continue to own and
operate its respective Exchange Property interest without significant
modification.
The amount of capital raised from limited partners in the original private
placement offering of each Exchange Partnership is set forth at "PRIOR
PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER" and the VALUATION TABLE on
page 27 and in the respective table in Exhibit B to this Prospectus. The entire
net proceeds from each of the original offerings have been invested in the
property interest which the particular Exchange Partnership currently holds. The
funds were invested as planned. Each of the partnerships was formed with the
objectives to generate current cash flow for distribution to partners from the
rental of residential apartments and interest income and, where applicable, to
provide the opportunity for capital appreciation from the future sale of the
residential apartment property. The Exchange Partnership Corporate General
Partners (wholly owned and controlled, along with the Managing Shareholder of
the Trust, by Mr. McGrath) believe these objectives have been substantially
achieved. Neither the Corporate General Partners of the Exchange Partnerships
nor any affiliated person materially dependent upon its compensation arrangement
with an Exchange Partnership has experienced, since the most recently completed
fiscal year, or is likely to experience, any material adverse financial
development.
The Corporate General Partners of the Exchange Partnerships considered
various alternatives to the Exchange Offering, including continuation of the
partnerships in accordance with their existing business plans and sale or
liquidation of the partnership interest or assets held. In the case of each
Exchange Partnership, its Corporate General Partner has determined that the
Exchange Offering provides equal or greater value to the Exchange Limited
Partners compared with any other considered alternative. In the case of certain
affiliated income producing partnerships which are not included in the Exchange
Offering, the Corporate General Partner concluded otherwise, determining that
the Operating Partnership could not offer sufficient value for the exchange.
Continuation of the existing business plans of the Exchange Partnerships
has been determined by their Corporate General Partners (wholly owned and
controlled, along with the Managing Shareholder of the Trust, by Mr. McGrath) to
be disadvantageous for their respective limited partners compared with the
opportunity to participate in the Exchange Offering. Each of the Exchange
Partnerships is a "stand-alone" entity with an interest in one or more
residential apartment properties. As a result, the Exchange Partnerships have
higher personnel and other operating and financing expenses on a per-unit basis
than the combined enterprise will have. In addition, the combined enterprise
will afford the Exchange Partnerships highly experienced management and
financial personnel that, for the individual partnerships acting alone, would
not be cost effective. Moreover, no market exists for the limited partnership
interests of the Exchange Limited Partners, and therefore such interests are not
currently liquid.
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Liquidation has been determined by the Corporate General Partners of the
Exchange Partnerships to be impractical and disadvantageous for their respective
limited partners. In the case of each Exchange Partnership, its Corporate
General Partner has either explored the sale of the partnership assets or has
determined that such a sale would be premature as it would not maximize investor
value.
The Original Investors initiated the Exchange Offering, and the Corporate
General Partners of the Exchange Partnerships (wholly owned and controlled,
along with the Managing Shareholder of the Trust, by Mr. McGrath) participated
in the structuring of the offering. The Corporate General Partner of each
Exchange Partnership believes that the Exchange Offering is fair to the Exchange
Limited Partners (regardless of whether all Exchange Partnerships receive the
requisite limited partner acceptance to allow them to participate in the
offering) and recommends that they accept the Exchange Offering for the
following reasons:
o The Units to be issued in the Exchange Offering have been valued
based upon a qualified independent third party appraisal of the
Exchange Partnership's property interests and certain additional
factors which the Managing Shareholder believes are appropriate to
consider and reflect a value greater than the original investments
of the Exchange Limited Partners in the partnership.
o The Exchange Offering has been structured to permit each Exchange
Limited Partner, if desired, to decide not to accept the offering
and instead retain his existing interest in his current partnership
on substantially the same terms and conditions as those of his
original investment.
o The Operating Partnership will not complete the offering in respect
of any Exchange Partnership unless limited partners holding at least
90% of the limited partnership interests therein affirmatively elect
to accept the offering. In addition, the Operating Partnership will
not complete any transaction in the offering whatsoever unless a
sufficient number of Offerees accept the offering such that the
offering involves the issuance of Operating Partnership Units with
an initial assigned value of at least $6,000,000.
o The Exchange Offering will provide each Exchange Limited Partner
with a significantly more diversified interest in income producing
real property with a greater opportunity that the interest received
will be marketable in the future.
o The Trust and the Operating Partnership have been able to attract
highly experienced management and financial personnel capable of
managing a substantially larger real estate portfolio.
o Upon the completion of the Exchange Offering it is anticipated (but
not assured) that the large number of residential units to be owned
by the Operating Partnership will provide the Exchange Partnership
with a lower operating cost per residential unit and, as a
consequence, increase operating performance.
o The Corporate General Partners (wholly owned and controlled, along
with the Managing Shareholder of the Trust, by Mr. McGrath) believe
that a single integrated structure of ownership by the Exchange
Partnerships and administration of the property interests which are
controlled by them and which were projected to be acquired by future
affiliated programs would be far more efficient, cost effective and
advantageous for operations and for the various program investors.
o The Exchange Offering has been designed to afford Exchange Limited
Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to
exchange the Units received in the offering for an equivalent number
of Common Shares of the Trust. The exchange into Common Shares may
be made at any time at the sole discretion of each Exchange Limited
Partner.
o The Corporate General Partners considered various alternatives to
the Exchange Offering, including continuation of the existing
business plans of the Exchange Partnerships and sale or liquidation
of the partnership assets held, and have determined that the
Exchange Offering provides equal or greater value to the Exchange
Limited Partners compared with any other considered alternative.
Effects of the Formation Transactions, Cash Offering and Exchange Offering
The formation transactions, the Cash Offering and Exchange Offering will
have various beneficial effects on the operations of the Trust, the Operating
Partnership and the Participating Exchange Partnerships, including the operation
of the
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Exchange Properties and other property interests to be acquired, but may have
certain disadvantages for the purchasers of Common Shares in the Cash Offering
and Offerees who accept the Exchange Offering.
The principal benefits include the following:
o The Exchange Limited Partners will be able to participate in a more
diversified investment in a more advantageous form of ownership with
a greater potential for marketability of the security.
o The Operating Partnership has been able to attract highly
experienced management and financial personnel capable of managing a
substantially larger real estate portfolio.
o The Trust and the Operating Partnership, on the one hand, and each
of the Exchange Partnerships, on the other hand, will benefit from a
highly qualified management team which has been assembled and the
economy of scale attendant to operation of the Exchange Properties
as part of a single business entity. The Corporate General Partners
of the Exchange Partnerships (wholly owned and controlled, along
with the Managing Shareholder of the Trust, by Mr. McGrath) believe
that a single integrated structure of ownership by the Exchange
Partnerships and administration of the property interests which are
controlled by them and which were projected to be acquired by future
affiliated programs would be far more efficient, cost effective and
advantageous for operations and for the various program investors.
o The Trust and the Operating Partnership will be able to acquire
interests in residential apartment properties with cash and Units.
o The Operating Partnership and the Trust will have enhanced ability
to obtain more favorable terms for the financing of their assets
including, where appropriate, the Exchange Properties.
o The Exchange Offering has been designed to afford Exchange Limited
Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to
exchange all or a portion of their Units for an equivalent number of
Common Shares of the Trust. The exchange to Common Shares may be
made at any time at the sole discretion of each Exchange Limited
Partner.
o The Corporate General Partners of the Exchange Partnerships
considered various alternatives to the Exchange Offering, including
continuation of the existing business plans of the Exchange
Partnerships and sale or liquidation of the partnership assets held,
and have determined that the Exchange Offering provides equal or
greater value to the Exchange Limited Partners compared with any
other considered alternative. Liquidation has been determined to be
impractical and disadvantageous for the Exchange Limited Partners.
The Corporate General Partners have either explored the sale of
partnership assets or determined that such a sale would be premature
as it would not maximize investor value.
The principal disadvantages are as follows (see "RISK FACTORS"):
o Conflicts of interests among the Trust, the Operating Partnership,
the Managing Shareholder and the Original Investors with respect to
the formation and future operations of the Trust and the Operating
Partnership.
o The significant influence of the Original Investors over the affairs
of the Trust and the Operating Partnership by virtue of their
collective ownership of Operating Partnership Units.
o Purchasers of Common Shares in the Cash Offering and Offerees who
accept the Exchange Offering will pay greater consideration per
Common Share and per Operating Partnership Unit than the Original
Investors paid for their Operating Partnership Units.
Exchange Property Appraisals
In connection with the refinancing of first mortgage financing or to
obtain evidence of current valuation, the Corporate General Partners of the
Exchange Partnerships (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) retained Consortium Appraisal, Inc.
("CAI"), and its affiliate, Consortium Appraisal and Consulting Services, Inc.
("CACSI"), both of Winter Park, Florida, Richards Appraisal Service, Inc.
("RAS"), Melbourne, Florida, Dennis J. Voyt ("Voyt"), Winter Park, Florida, and
Strickland & Wright ("S&W"), Cincinnati, Ohio, to
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prepare appraisal reports as to the fair market value and/or replacement cost
new of each of the Exchange Properties in which the Operating Partnership
proposes to acquire a direct or indirect equity or debt interest in connection
with the initial transactions of the Exchange Offering. CAI or CACSI prepared
appraisal reports in respect of 19 of the Exchange Properties, RAS prepared an
appraisal report in respect of four of the properties, S&W prepared an appraisal
report in respect of two properties and Voyt prepared an appraisal report in
respect of one property. The number of Operating Partnership Units which will be
issued to each Offeree who elects to accept the Exchange Offering will be based
on the appraisal relating to the respective property and other considerations.
The appraisal firms were retained based on their experience in connection with
preparing appraisals for resident apartment properties, as well as their
familiarity with the relevant property markets. CAI and CACSI are familiar with
certain of the Exchange Properties they appraised, having completed appraisals
for previous acquisitions and/or financings of such properties.
The appraisal firms have delivered their written appraisals in respect of
each of the Exchange Properties to the effect that, as of the appraisal date and
based on the matters described therein, each Exchange Property has an estimated
fair market value and replacement cost new stated therein. The appraised value
and replacement cost new of each Exchange Property are set forth on the
applicable table contained in Exhibit B to this Prospectus which sets forth
information relating to the property interest, first mortgage indebtedness
relating thereto and the limited partnership program which owns a direct or
indirect interest in the property. The appraisal reports constitute only the
opinion of the respective appraisal firm as to the estimated fair market values
and replacement cost new of the properties each of them appraised, and do not
constitute a recommendation as to whether or not an Exchange Limited Partner
should accept the Operating Partnership's Exchange Offering. Compensation paid
or payable to the appraisal firms is not contingent upon the completion or level
of acceptance of the Exchange Offering.
The summary of the appraisal reports set forth in this Prospectus is
qualified in its entirety by reference to each report. The appraisals are
available for inspection and copying at the Trust's principal executive
offices during its regular business hours by any interested Offeree or his
representative who has been so designated in writing by the Offeree. A copy
of any appraisal report will be delivered without charge by the Trust to any
interested Offeree or his authorized representative upon written request.
Offerees are urged to review such appraisal reports carefully and in their
entirety for a description of the procedures followed, the factors considered
and the assumptions made by the appraisal firm.
The table in Exhibit C to this Prospectus sets forth the appraised value
and replacement cost new of each Exchange Property determined by the respective
appraisal firm and the value of each property determined by it under the three
traditional property valuation methods described below.
CAI and CACSI
CAI or CACSI prepared appraisal reports as to the fair market value and
the replacement cost new of 19 of the Exchange Properties in which the Operating
Partnership will offer to acquire a direct or indirect equity or debt interest
in connection with the initial transactions of the Exchange Offering. The number
of Operating Partnership Units which will be issued to each Offeree who elects
to accept the Exchange Offering will be based on these appraisals and other
considerations described above. CAI and CACSI were retained based on their
experience in connection with preparing appraisals for residential apartment
properties, as well as their familiarity with the relevant property markets, in
general, and familiarity with the Exchange Properties appraised, in specific,
having completed appraisals for previous acquisitions and/or financings of
several of the Exchange Properties.
In connection with the preparation of its appraisal reports, CAI or CACSI,
as the case may be, among other things: (i) physically inspected each Exchange
Property appraised (but did not inspect occupied units); (ii) reviewed a site
and building plan for each property; (iii) discussed with county planning,
zoning and tax officials the current zoning, future land use designation and
real estate assessments applicable to each property; (iv) reviewed the property
appraiser's records for the preceding five-year sales history of each property;
(v) analyzed the metropolitan area, market area and neighborhood in which each
property is located, including past and present development trends and current
market conditions; (vi) reviewed past sales and current listings involving
similar properties; and (vii) analyzed rental rates and terms for similar
properties located in each property's general market area, operating expenses of
each property compared to similar properties in its general market area, and the
property's historic operations. CAI and CACSI did not review sub-soil,
structural, mechanical or other engineering reports (and recommended that such
reports be obtained) relating to the current condition of any property, and
CAI's and CACSI's appraisals are based on there being no such conditions which
would materially adversely affect the value of any property.
In preparing their appraisal reports, CAI and CACSI employed the three
traditional property valuation methods: the
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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 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 deficiencies of the existing building compared to a new
building.
Subject to certain exceptions, the Trust and the Operating Partnership 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 the Trust or the Operating
Partnership, 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).
The Trust and the Operating Partnership have relied upon appraisals
performed by independent appraisal firms in respect of the replacement cost new
of properties in which Exchange Partnerships involved in the Exchange Offering
own a Subordinated Mortgage Interest. In certain cases, the appraised
replacement cost new of a property in which an Exchange Partnership owns a
mortgage interest significantly exceeds the appraised value of the property
determined under the three traditional real property valuation approaches, the
income approach, the comparison approach and the cost approach (which takes into
account deficiencies of the existing improvements compared to a new building).
Offerees should note that appraisals are only opinions of value or replacement
cost new and cannot be relied upon as measures of realizable value or
replacement cost new.
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 CAI's and CACSI's appraisal process is reconciling the
values estimated under the three approaches. CAI and CACSI consider the relative
applicability of each approach, examine the range between the estimated values
and emphasize the approach that appears to produce the most reliable estimate.
According to CAI and CACSI, 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. CAI and
CACSI 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 that incorporate favorable rates of
return.
CAI and CACSI are to be paid fees ranging from $3,000 to $6,000 by the
respective Exchange Partnership or the mortgage lender for each appraisal report
prepared in connection with the initial transactions of the Exchange Offering,
or a total not exceeding $95,000. CAI or CACSI has completed or commenced
additional appraisal reports in connection with the acquisition and/or financing
of property interests by other real estate limited partnerships managed by
affiliates of the Managing Shareholder, several of which partnerships may be
involved in later stages of the Exchange Offering. It is anticipated that CAI
and CACSI will perform additional appraisal services for the Trust and its
affiliates in the future.
RAS
RAS prepared appraisal reports as to the fair market value of three
different configurations of four Exchange
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Properties, which consist of four phases of a residential apartment community
referred to as the Forest Glen Apartments. RAS researched the subject market
area and selected three recent sales of properties which are similar and in
close proximity to the subject properties. RAS principally relied upon the
direct sales comparison approach as described above under " - CAI and CACSI."
Its appraisal estimate was supported by the cost approach and the income
approach. An RAS representative inspected the interior and exterior areas of
each subject property and the exterior of the three comparable properties.
According to RAS, the subject property is in good condition and there appears to
be no adverse conditions on the site or in the vicinity of the site. RAS has
been paid a fee of $300 for its appraisal services. It is not expected to
provide appraisal reports for any additional properties in connection with the
Exchange Offering.
S&W
S&W prepared an appraisal report as to (i) the estimated market value of a
72-unit residential apartment property located in Anderson, Indiana known as
Steeplechase Apartments and (ii) the estimated "as is" value and prospective
market value of a 164-townhome residential apartment property (appraised for use
as a condominium) under development in Cincinnati, Ohio. S&W inspected the
subject properties and made a study of the neighborhood data relating to the
properties and competing properties. In estimating each property's market value,
S&W relied upon the income approach and direct sales comparison approach as
described above under " - CAI and CACSI." S&W also assumed structural integrity
of the subject buildings and no existing environmental contamination. In
addition, as to the Indiana property, S&W assumed that the condition of units
that were not inspected is similar to that of the inspected units and that water
and sewer charges for the individual units are recouped by the property owner.
In estimating the prospective market value of the Cincinnati property as of
January 1, 2000, the projected date of completion, S&W assumed the completion of
construction as proposed by the developer with satisfactory workmanship and
materials and full rent-up of the property as of such date. S&W has been paid a
fee of $5,000 for its appraisal services. It is not expected to provide
appraisal reports for any additional properties in connection with the Exchange
Offering.
Voyt
Voyt prepared an appraisal report as to the fair market value of two
different configurations of a 56-unit residential apartment property (appraised
for use as a condominium) known as Laurel Oaks (formerly Grove Hamlet)
Apartments located in Deland, Florida. Voyt researched the subject market area
and selected three recent sales of properties which are similar and in close
proximity to the subject property. Voyt exclusively relied upon the direct sales
comparison approach as described above under " - CAI and CACSI." Voyt inspected
the interior and exterior areas of the subject property and public records in
respect of the three comparable properties. According to Voyt, the subject
property is in good condition and there appears to be no adverse environmental
conditions on the site or in the vicinity of the site. Voyt assumed structural
integrity of the subject buildings and no existing environmental contamination.
The appraisal is subject to completion of the planned renovation of certain
units with new carpeting, vinyl, wallpaper and painting. Voyt has been paid a
fee of $_______ for its appraisal services. Voyt is not expected to provide
appraisal reports for any additional properties in connection with the Exchange
Offering.
Historical Cash Distributions and Corporate General Partner Compensation
On an aggregate basis, the limited partners in the 23 Exchange
Partnerships have received the following approximate amount of cash
distributions during the periods indicated: 1995: $563,370, 1996: $1,049,051,
1997: $1,408,402, 1998: $1,279,259, throughJune 30, 1999: $295,035, and all such
periods combined: $4,595,117$. The Corporate General Partners of the Exchange
Partnerships (wholly owned and controlled, along with the Managing Shareholder
of the Trust, by Mr. McGrath) and affiliates have received compensation during
such periods in the aggregate amount of approximately $2,806,104 (including
commissions and fees relating to the original private offering). During such
period, the Corporate General Partner and affiliates have not received any cash
distributions from the partnerships. If the compensation structure to be in
effect after each Participating Exchange Partnership's participation in the
Exchange Offering had been in effect during such period, for serving as Chief
Executive Officer of the Trust and the Operating Partnership, Mr. McGrath would
have received compensation and benefits determined annually by the Executive
Compensation Committee of the Trust. Mr. McGrath also would have received
distributions from the Participating Exchange Partnerships in the aggregate
amount of approximately $380,528 (9.5% of all distributions) on Units subscribed
for by him in connection with the formation of the Operating Partnership and the
Trust.
Terms of the Exchange Offering
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The Operating Partnership hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal and Election Form, to exchange up to 2,500,000 Operating Partnership
Units for all Exchange Partnership Units held by all Offerees properly tendered
on or prior to the Expiration Date. The Operating Partnership will issue,
promptly after the Expiration Date, up to 2,500,000 Operating Partnership Units
in exchange for Exchange Partnership Units tendered and accepted in connection
with the Exchange Offering. As of the date of this Prospectus, ________
Operating Partnership Units are outstanding; of such Units, ten are held by the
Trust and ___________* are held by the Original Investors (subject to adjustment
as described at "THE TRUST AND THE OPERATING PARTNERSHIP - Formation
Transactions").
This Prospectus and the accompanying Transmittal Letter and Election Form
are first being sent to Offerees in connection with the Exchange Offering on or
about the date indicated on the Election Form. Offerees who elect to accept the
Exchange Offering are required to indicate their acceptance of the offering in
the space provided on the accompanying green Election Form and sign and return
it, together with certificates representing their Exchange Partnership Units, to
the Exchange Agent by the Expiration Date. The Election Forms will be tabulated
effective the Expiration Date. An Offeree's Election Form bearing the latest
date that is either post-marked on or before the Expiration Date or physically
received by the Exchange Agent by the close of business on the Expiration Date
will constitute the Offeree's election.
Assuming satisfaction or waiver of the closing conditions of the Exchange
Offering (described below at " - Conditions to the Exchange Offering"), from and
after the Expiration Date, each Exchange Limited Partner in a Participating
Exchange Partnership who accepts the Exchange Offering will be entitled to
receive the number of Operating Partnership Units per $1,000 of his original
investment indicated on page 27 of this Prospectus, on page 3 of the Prospectus
Supplement relating to his partnership and on the bottom of the table of Exhibit
B to this Prospectus relating to his partnership. As soon as practicable after
the Expiration Date, the Exchange Agent will mail to each Offeree who delivers
to the Exchange Agent a completed and signed copy of the Election Form
indicating his acceptance of the offering (together with the certificate(s)
representing his Exchange Partnership Units), certificates representing the
number of Operating Partnership Units to which the Offeree is entitled.
Assuming satisfaction or waiver of the closing conditions of the Exchange
Offering, Exchange Limited Partners in a Participating Exchange Partnership who
accept the Exchange Offering will not be entitled to receive any dividends or
other distributions on his Exchange Partnership Units from and after
____________. Each such Offeree will be entitled to receive distributions on his
Operating Partnership Units which are payable as of any record date occurring
after he has exchanged his Exchange Partnership Units.
Assuming satisfaction or waiver of the closing conditions of the Exchange
Offering from and after the Expiration Date, the Operating Partnership will be
registered as the owner of all Exchange Partnership Units in Participating
Exchange Partnerships owned prior to the completion of the Exchange Offering by
Exchange Limited Partners who accept the Exchange Offering. Similarly, Exchange
Limited Partners who accept the Exchange Offering will be registered as the
owner of all Operating Partnership Units received in connection with the
offering.
If any Operating Partnership Units are to be issued in a name other than
that in which the corresponding Exchange Partnership Units are registered, it is
a condition to the exchange that the Exchange Limited Partner involved comply
with applicable transfer requirements and pay any applicable transfer or other
taxes.
The Operating Partnership will not complete the Exchange Offering in
respect of any particular Exchange Partnership unless limited partners holding
at least 90% of the limited partnership interests in the partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units with an initial assigned
value of at least $6,000,000. An Offeree must exchange all of his Exchange
Partnership Units in order to participate in the Exchange Offering. Partial
exchanges will not be accepted.
Any Offeree who is a limited partner of an Exchange Partnership and does
not desire to participate in the Exchange Offering will be entitled to retain
his limited partnership interest in his respective Exchange Partnership on terms
substantially the same as those of his original investment. Except as described
herein, Offerees who do not affirmatively elect to accept the offering
("Non-participating Limited Partners") will retain their limited partnership
interest in their respective Exchange Partnership on substantially the same
terms and conditions as their original investment in the partnership. Upon the
completion of the Exchange Offering in respect of a Participating Exchange
Partnership, Non-participating Limited Partners and the Operating Partnership
will constitute all the limited partners of such partnership. As described in
further detail in this Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS,"
the original partnership agreement of each
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Participating Exchange Partnership with one or more Non-participating Limited
Partners following the closing of the Exchange Offering will be amended to
require the prior approval (majority or unanimous, as the case may be) of
Non-participating Limited Partners voting as a class in respect of substantially
all matters as to which limited partners are entitled to vote under the
partnership agreement prior to the completion of the Exchange Offering. The
partnership agreement, as amended, will continue in full force and effect after
the completion of the offering as long as any Non-participating Partners remain
limited partners of the Exchange Partnership.
Holders of Exchange Partnership Units do not have any appraisal or
dissenters' rights in connection with the Exchange Offering. Exchange
Partnership Units that are not tendered for or are tendered but not accepted in
connection with the Exchange Offering will remain outstanding and be entitled to
the benefits of the partnership agreement pertaining to the holder's respective
Exchange Partnership . If any tendered Exchange Partnership Units are not
accepted for an exchange because of an invalid tender, the occurrence of certain
other events set forth herein or otherwise, certificates received by the
Exchange Agent for any such unaccepted Exchange Partnership Units will be
returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Expiration Date, Extensions, and Amendments
The term "Expiration Date" means 5:00 p.m., New York City time, on the
date specified in the Election Form unless the Exchange Offering is extended by
the Operating Partnership (in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offering is extended).
The Operating Partnership expressly reserves the right in its sole and
absolute discretion, subject to applicable law, at any time and from time to
time, (i) to delay the acceptance of the Exchange Partnership Units for
exchange, (ii) to terminate the Exchange Offering (whether or not any Exchange
Partnership Units have theretofore been accepted for exchange) if the Operating
Partnership determines, in its sole and absolute discretion, that any of the
events or conditions referred to below under " - Conditions to the Exchange
Offering" have occurred or exist or have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offering and retain all Exchange Partnership
Units tendered pursuant to the Exchange Offering, and (iv) to waive any
condition or otherwise amend the terms of the Exchange Offering in any respect.
If the Exchange Offering is amended in a manner determined by the Operating
Partnership to constitute a material change, or if the Operating Partnership
waives a material condition of the Exchange Offering, the Operating Partnership
will promptly disclose such amendment by means of a prospectus supplement that
will be distributed to the holders of the Exchange Partnership Units, and the
Operating Partnership will extend the Exchange Offering to the extent required
by Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
Business Day following the previously scheduled Expiration Date. Without
limiting the manner in which the Operating Partnership may choose to make any
public announcement and subject to applicable laws, the Operating Partnership
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency.
Acceptance for Exchange and Issuance of Operating Partnership Units
Upon the terms and subject to the conditions of the Exchange Offering,
promptly after the Expiration Date, the Operating Partnership will exchange, and
will issue to the Exchange Agent, Operating Partnership Units for Exchange
Partnerships Units validly tendered. In all cases, delivery of Operating
Partnership Units in exchange for Exchange Partnership Units tendered and
accepted for exchange pursuant to the Exchange Offering will be made only after
timely receipt by the Exchange Agent of certificates representing such Exchange
Partnership Units, the Election Form (or facsimile thereof), properly completed
and duly executed, and any other documents required by the Letter of
Transmittal.
Subject to the terms and conditions of the Exchange Offering, the
Operating Partnership will be deemed to have accepted for exchange, and thereby
exchanged, Exchange Partnership Units validly tendered as if and when the
Operating Partnership gives oral or written notice to the Exchange Agent (any
such oral notice to be promptly confirmed in writing) of the Operating
Partnership's acceptance of such Exchange Partnership Units for exchange
pursuant to the Exchange Offering. The Exchange Agent will act as agent for the
Operating Partnership for the purpose of receiving tenders of certificates
representing Exchange Partnership Units, Election Forms and related documents,
and as agent for tendering holders for the purpose of receiving certificates
representing Exchange Partnership Units, Election Forms and related documents
and transmitting Operating Partnership Units to validly tendered holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Exchange Partnership
Units
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tendered pursuant to the Exchange Offering is delayed (whether before or after
the Operating Partnership's acceptance for exchange of Exchange Partnership
Units) or the Operating Partnership extends the Exchange Offering or is unable
to accept for exchange or exchange Exchange Partnership Units tendered pursuant
to the Exchange Offering, then, without prejudice to the Operating Partnership's
rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the
Operating Partnership and subject to Rule 14e-1 under the Exchange Act, retain
tendered Exchange Partnership Units and such Exchange Partnership Units may not
be withdrawn.
Pursuant to the Election Form, a holder of Exchange Partnership Units will
warrant and agree that he has full power and authority to tender, exchange,
sell, assign and transfer Exchange Partnership Units, that the Operating
Partnership will acquire good, marketable and unencumbered title to the tendered
Exchange Partnership Units, free and clear of all liens, restrictions, charges
and encumbrances, and the Exchange Partnership Units tendered for exchange are
not subject to any adverse claims or proxies. The holder also will warrant and
agree that he will, upon request, execute and deliver any additional documents
deemed by the Operating Partnership or the Exchange Agent to be necessary or
desirable to complete the exchange, sale, assignment, and transfer of the
Exchange Partnership Units tendered pursuant to the Exchange Offering.
Procedures for Tendering Exchange Partnership Units
Valid Tender
Except as set forth herein, in order for Exchange Partnership Units to be
validly tendered pursuant to the Exchange Offering a properly completed and duly
executed Election Form (or facsimile thereof), with any other required
documents, must be received by the Exchange Agent at its address set forth below
under "- Exchange Agent," and tendered Exchange Partnership Units must be
received by the Exchange Agent.
THE METHOD OF DELIVERY OF THE CERTIFICATES, THE ELECTION FORM AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RESPONSIBILITY OF THE
TENDERING HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Certificates
Certificates representing Exchange Partnership Units as well as the
Election Form (or facsimile thereof), properly completed and duly executed, with
any other documents required by the Letter of Transmittal must be received by
the Exchange Agent at its address set forth under " - Exchange Agent" on or
prior to the Expiration Date in order for such tender to be effective.
Delivery
The method of delivery of the certificates representing tendered Exchange
Partnership Units, the Election Form, and all other required documents is at the
option and sole responsibility of the tendering holder, and delivery will be
deemed made only when actually received by the Exchange Agent. If delivery is by
mail, registered mail, return receipt requested, properly insured, or an
overnight delivery service is recommended. In all cases, sufficient time should
be allowed to ensure timely delivery.
Notwithstanding any other provisions hereof, the delivery of Operating
Partnership Units in exchange for Exchange Partnership Units tendered and
accepted for exchange pursuant to the Exchange Offering will in all cases be
made only after timely receipt by the Exchange Agent of certificates
representing Exchange Partnership Units and a properly completed and duly
executed Election Form (or facsimile thereof), together with any other documents
required by the Letter of Transmittal. Accordingly, the delivery of Operating
Partnership Units might not be made to all tendering holders at the same time,
and will depend upon when certificates representing Exchange Partnership Units
and other required documents are received by the Exchange Agent.
Determination of Validity
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered Exchange
Partnership Units will be determined by the Operating Partnership in its sole
discretion, whose determination shall be final and binding on all parties. The
Operating Partnership reserves the absolute right, in its
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sole and absolute discretion, to reject any and all tenders determined by it not
to be in proper form or the acceptance of which, or exchange for, may, in the
opinion of counsel to the Operating Partnership, be unlawful. The Operating
Partnership also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offering as set forth below under "
- - Conditions to the Exchange Offering" or any condition or irregularity in any
tender of Exchange Partnership Units of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The interpretation by the Operating Partnership of the terms and
conditions of the Exchange Offering (including the Letter of Transmittal and the
Election Form) will be final and binding. No tender of Exchange Partnership
Units will be deemed to have been validly made until all irregularities with
respect to such tender have been cured or waived. None of the Operating
Partnership, the Trust, any affiliates or assigns of the Operating Partnership
or the Trust, the Exchange Agent or any other person shall be under any duty to
give any notification of any irregularities in tenders or incur any liability
for failure to give any such notification.
If any Election Form, endorsement, bond power, power of attorney, or any
other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and unless waived by the Operating Partnership,
proper evidence satisfactory to the Operating Partnership, in its sole
discretion, of such person's authority to so act must be submitted.
Conditions to the Exchange Offering
The Operating Partnership will not complete the Exchange Offering in
respect of any particular Exchange Partnership unless limited partners holding
at least 90% of the limited partnership interests in the partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units with an initial assigned
value of at least $6,000,000. Notwithstanding any other provisions of the
Exchange Offering, or any extension of the Exchange Offering, the Operating
Partnership will not be required to accept for exchange, or to exchange, any
Exchange Partnership Units for any Operating Partnership Units and, as described
herein, may terminate the Exchange Offering (whether or not any Exchange
Partnership Units have theretofore been accepted for exchange) or may waive any
conditions to or amend the Exchange Offering, if any of the following additional
conditions have occurred or exists or have not been satisfied:
(i) Any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of Operating Partnership or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offering, or
(ii) A stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration Statement,
or proceedings shall have been initiated or, to the knowledge of the Operating
Partnership, threatened for that purpose, or any governmental approval has not
been obtained, which approval the Operating Partnership shall, in its sole
discretion, deem necessary for the consummation of the Exchange Offering as
contemplated hereby.
If the Operating Partnership determines in its sole and absolute
discretion that any of the foregoing events or conditions has occurred or exists
or has not been satisfied, it may, subject to applicable law, terminate the
Exchange Offering (whether or not any Exchange Partnership Units have
theretofore been accepted for exchange) or may waive any such condition or
otherwise amend the terms of the Exchange Offering in any respect. If such
waiver or amendment constitutes a material change to the Exchange Offering, the
Operating Partnership will promptly disclose such waiver or amendment by means
of a prospectus supplement that will be distributed to the registered holders of
the Exchange Partnership Units and will extend the Exchange Offering to the
extent required by Rule 14e-1 under the Exchange Act.
Exchange Agent
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offering. Delivery of the Election Form, certificates
representing tendered Exchange Partnership Units and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus, Prospectus Supplement, or of the Letter of
Transmittal or Election Form should be directed to the Exchange Agent as
follows:
For Information Call:
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American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(212) 936-5100
Fax: (718) 236-4588
Confirm: ________________________
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
Fees and Expenses of the Exchange Offering
The Operating Partnership has agreed to pay the Exchange Agent reasonable
and customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith. The Operating Partnership will
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus and related documents to the beneficial owners of Exchange
Partnership Units and in handling or tendering their customers.
All legal, accounting, due diligence and other expenses incurred by each
of the Exchange Partnerships and the Operating Partnership incident to the
Exchange Offering will be paid by the party incurring such expense, except that
all of the expenses incurred in connection with the preparation, filing,
printing and distributing of the Registration Statement, of which this
Prospectus is a part, and completion of the transactions described therein
(estimated to be approximately $683,000) will be paid by the Operating
Partnership out of the net proceeds of the Trust's Cash Offering and net
available cash flow. No special fees or commissions were or will be paid to the
Managing Shareholder (wholly owned and controlled, along with the Corporate
General Partner of each Exchange Partnership, by Mr. McGrath), any Corporate
General Partner of an Exchange Partnership, or any of their respective
affiliates, in connection with the Exchange Offering. As of the date of this
Prospectus, in connection with the Exchange Offering, each Exchange Partnership
has paid out of available cash flow an estimated amount in the range of $10,000
to $24,000 of expenses for professional fees. The Exchange Partnerships are not
expected to incur any significant additional expenses related to the offering.
Any broker-dealer who assists the Operating Partnership in consummating
the Exchange Offering with individual Offerees will be paid a commission
equal to a number of unregistered Common Shares of the Trust having a value
equal to 5% of the Units solicited by them in the Exchange Offering.
PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER
This section provides certain historical information regarding 51 private
real estate limited partnerships sponsored and/or managed by affiliates of the
Trust's Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath).
Offerees 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 the Trust or the Operating Partnership will experience results
similar to those reflected below and in the tables or that an Offeree who
acquires Units in this Exchange Offering or any Shareholder in the Trust
(including without limitation any Unitholder who exchanges his Units for Common
Shares) will receive returns, if any, comparable to those experienced by
investors in such limited partnerships; (ii) except as otherwise described in
this Prospectus, Offerees who acquire Units in the Exchange Offering and
Shareholders of the Trust 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
Offerees to evaluate the experience of the Managing Shareholder and its
affiliates and, in certain cases, to evaluate certain properties in which the
Operating Partnership 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 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
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Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
Gregory K. McGrath, the sole director and sole stockholder of the Managing
Shareholder and the Chief Executive Officer of the Trust, the Operating
Partnership and the Managing Shareholder has substantial experience in the real
estate industry. See "MANAGEMENT." Since 1994, Affiliates of the Managing
Shareholder and of Mr. McGrath have sponsored and/or managed 56 prior real
estate investment limited partnership offerings, certain of them with investment
objectives similar to those of the 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 the Managing
Shareholder commenced in September 1994. As of _______, 1999, the prior
partnerships had raised aggregate capital contributions of approximately
$__________ from approximately ______ 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 between ten and twelve percent. 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 this Exchange Offering and the Cash 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 $_________ at ________, 1999. The
property interests acquired have consisted of the following: direct or indirect
equity interests in 21 residential apartment properties comprised of 1,311
units; mortgage financing interests in 17 residential apartment properties
comprised of 2,052 units; mortgage financing interests in four residential
condominium properties comprised of 578 units; mortgage financing interests in
six single-family housing developments relating to approximately 981 homes; a
mortgage financing interest in 8.2 acres of land for development into a 195-unit
condominium property; a mortgage financing interest in 4.0 acres of land for
development into a shopping center; a mortgage financing interest in respect of
the conversion of a 144-unit residential apartment property into an
extended-stay hotel; mortgage financing interests in land zoned for 147
residential units in Crystal River, Florida; and mortgage financing interests in
land zoned for 360 residential units in Gulf Harbor, Florida. Each of the
properties is subject to first mortgage financing. Substantially all of the
Mortgage and other debt interests owned by the prior partnerships relate to
properties owned by other limited partnerships or other entities affiliated with
Mr. McGrath. One property interest has been sold as of the date of this
Prospectus. 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. Additional information relating to the
original acquisitions of such property interests is included in Part II of the
Form S-4 registration statement filed with the Commission by the Operating
Partnership in connection with the Exchange Offering. The Trust will provide
such information at no charge to any Offeree who requests it. 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, the Operating
Partnership will offer to acquire limited partnership interests held by
individual limited partners in 23 of the prior partnerships. The Operating
Partnership 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 the Managing Shareholder, which may include certain of the
partnerships described below.
Commencing September 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 Cash 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, the Operating
Partnership will offer to acquire partnership interests in this partnership
owned by the partners
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thereof. Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing September 1994, Baron Capital I, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing November 1994, Baron Capital II, Inc., an Affiliate of the
Managing Shareholder, 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 June 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Appreciation Fund I, Ltd.,
a Florida limited partnership, which commencing in April 1994 sold 205 units of
limited partnership interest in the partnership (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, the
Operating Partnership 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 "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Income Advantage Fund I, Ltd., a
Florida limited partnership, which commencing in February 1994 sold 940 units of
limited partnership interest in the partnership (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, the
Operating Partnership 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 "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In January 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Realty Opportunity Income Fund VIII,
Ltd., a Florida limited partnership, which commencing in March 1994 sold 944
units of limited partnership interest in the partnership (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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
In May 1995, Baron Capital IV, Inc., an Affiliate of the Managing
Shareholder, became general partner of Florida Capital Income Fund II, Ltd., a
Florida limited partnership, which commencing in May 1994 sold 1,840 units of
limited partnership interest in the partnership (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, the Operating Partnership will offer to acquire partnership interests
in this partnership owned by the partners thereof. Additional information
relating to the property interests owned by this
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partnership and to the Exchange Offering is included at "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in May 1995, Baron Capital VI, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in August 1995, Baron Capital III, Inc., an Affiliate of the
Managing Shareholder, 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 December 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in June 1995, Baron Capital VII, Inc., an Affiliate of the
Managing Shareholder, 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in December 1995, Baron Capital VIII, Inc., an Affiliate of the
Managing Shareholder, 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 offering to make a Subordinated
Mortgage Loan to the developer of approximately 200 single-family home sites
located in Louisville, Kentucky.
Commencing in January 1995, Baron Capital V, Inc., an Affiliate of the
Managing Shareholder, 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in May 1995, Baron Capital X, Inc., an Affiliate of the
Managing Shareholder, 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in January 1995, Baron Capital XI, Inc., an Affiliate of the
Managing Shareholder, 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
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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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE
OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this
Prospectus.
Commencing in January 1996, Baron Capital XII, Inc., an Affiliate of the
Managing Shareholder, 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, the
Operating Partnership 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 "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in January 1996, Baron Capital XV, Inc., an Affiliate of the
Managing Shareholder, sponsored an offering of up to 1,000 units of limited
partner interest in Baron First Time Home Buyer Mortgage Fund II, 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 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.
Commencing in February 1996, Baron Capital XVI, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in April 1996, Baron Capital IX, Inc., an Affiliate of the
Managing Shareholder, 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, the Operating
Partnership 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
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in May 1996, Baron Capital XXVI, Inc., an Affiliate of the
Managing Shareholder, 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in April 1996, Baron Capital XXVII, Inc., an Affiliate of the
Managing Shareholder, 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.
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Commencing in June 1996, Baron Capital XXVIII, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing May 1996, Baron Capital XXIX, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in July 1996, Baron Capital XXXI, Inc., an Affiliate of the
Managing Shareholder, 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, the Operating Partnership
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
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in June 1996, Baron Capital XXXII, Inc., an Affiliate of the
Managing Shareholder, 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in August 1996, Baron Capital XXIX, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing 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 the Cash 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in September 1996, Baron Capital XXXIV, an Affiliate of the
Managing Shareholder, 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.
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Commencing in November 1996, Baron Capital XVII, Inc., an Affiliate of the
Managing Shareholder, 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 March 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in November 1996, Baron Capital XXXVII, Inc., an Affiliate of
the Managing Shareholder, 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.
Commencing in October 1996, Baron Capital XXXVIII, Inc., an Affiliate of
the Managing Shareholder, 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.
Commencing in November 1996, Baron Capital XL, Inc., an Affiliate of the
Managing Shareholder, 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,
the Operating Partnership 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 "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in November 1996, Baron Capital XXXI, Inc., an Affiliate of the
Managing Shareholder, 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 Capital 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in January 1997, Baron Capital XLI, Inc., an Affiliate of the
Managing Shareholder, 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
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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.
Commencing in November 1996, Baron Capital XLIII, Inc., an Affiliate of
the Managing Shareholder, 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.
Commencing in January 1997, Baron Capital XLII, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in March 1997, Baron Capital XXXIII, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in April 1997, Baron Capital XLIV, Inc., an Affiliate of the
Managing Shareholder, 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 second
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 second 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, the Operating
Partnership 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
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in May 1997, Baron Capital XLVII, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in April 1997, Baron Capital XLVI, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in June 1997, Baron Capital XLVIII, Inc., an Affiliate of the
Managing Shareholder, 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
$700,000). 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.
Commencing in May 1997, Baron Capital LX, Inc., an Affiliate of the
Managing Shareholder, 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
First Mortgage Loan to the developer of approximately 200 entry-level
single-family homes in Cincinnati, Ohio.
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Commencing in May 1997, Baron Capital LXI, Inc., an Affiliate of the
Managing Shareholder, 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 the net proceeds of its
offering to make a First Mortgage Loan to the developer of approximately 140
entry-level single-family homes in Crystal River, Florida.
Commencing in June 1997, Baron Capital LXII, Inc., an Affiliate of the
Managing Shareholder, 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
44.96% 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
Second 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, the Operating Partnership
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
"DESCRIPTION OF EXCHANGE PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL
REAL ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
Commencing in July 1997, Baron Capital LXIV, Inc., an Affiliate of the
Managing Shareholder, 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
47.59% 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, the Operating Partnership 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 "DESCRIPTION OF EXCHANGE
PARTNERSHIPS," "THE EXCHANGE OFFERING" and "INITIAL REAL ESTATE INVESTMENTS" and
in Exhibits A and B to this Prospectus.
Commencing in July 1997, Baron Capital LXV, Inc., an Affiliate of the
Managing Shareholder, 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.
Commencing in September 1997, Baron Capital LXVI, Inc., an Affiliate of
the Managing Shareholder, 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 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.
Commencing in September 1997, Baron Capital LXVII, Inc., an Affiliate of
the Managing Shareholder, 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.
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Commencing in November 1997, Baron Capital LXVIII, Inc., an Affiliate of
the Managing Shareholder, 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.
Commencing in January 1999, Baron Capital LXXXVII, Inc., an Affiliate of
the Managing Shareholder, 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 offering has raised $935,500 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 initially been allocated to a 147 unit apartment
community to be developed in Crystal River, Florida.
Commencing in January 1999, Baron Capital LXXXVIII, Inc., an Affiliate of
the Managing Shareholder, 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.
Commencing in April 1999, Baron Capital LXXXIX, Inc., an Affiliate of the
Managing Shareholder, 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 partnership 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.
There have been no major adverse business developments or conditions
experienced to date by any of the prior limited partnerships (other than those
described below under "Management's Discussion and Analysis or Plan of
Operation") that would be material to Offerees who acquire Units in this
Exchange Offering or any Shareholder in the Trust (including without limitation
any Unitholder who exchanges his Units for Common Shares). Offerees 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
As Managing Shareholder of the Trust, Baron Advisors, Inc. ("Baron
Advisors") will have direct and exclusive discretion in management and control
of the affairs of the Trust and the Operating Partnership, subject to general
supervision and review by the Independent Trustees and the Managing Shareholder
acting together as the Board of the 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. The Corporate Trustee, Baron Properties (an affiliate
of the Managing Shareholder), will act on the instructions of the Managing
Shareholder, and will not take independent discretionary action on behalf of the
Trust. The Managing Shareholder, the Corporate Trustee and the Corporate General
Partner of each Exchange Partnership are wholly owned and controlled by Mr.
McGrath, a founder of the Trust and the Operating Partnership. The audited
consolidated balance sheets of the Trust and the Operating Partnership as of
December 31, 1998, the audited balance sheet of the Managing Shareholder as of
December 31, 1998, and statements of operations, statements of shareholders'
capital and statements of cash flow for the year then ended for the Trust and
Operating Partnership and the Managing Shareholder, together with the unaudited
balance sheets of the Trust, the Operating Partnership and the Management
Shareholder, as ofJune 30, 1999 and statements
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of operations, statements of shareholders' capital, and statements of cash flow
for the three-month period then ended for the Trust, Operating Partnership and
the Managing Shareholder are included at the end of this Prospectus.
The Board of the Trust and the Independent Trustees will act only where
their consent and participation is required under the Declaration of the Trust.
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 the Trust's best interests and may
compel action by the Managing Shareholder to carry out that duty if necessary,
but ordinarily they have no duty to manage or direct the management of the Trust
outside their enumerated duties.
Although the Managing Shareholder will be in control of the Trust and the
Operating Partnership (subject to the powers and obligations of the Board and
the Independent Trustees), it will have no liability to the Trust, the Operating
Partnership, Shareholders or Unitholders for losses or liabilities except in
cases of its negligence, misconduct or breach of the Declaration. See "FIDUCIARY
RESPONSIBILITY."
Managing Shareholder
Baron Advisors, Inc., the Managing Shareholder of the Trust, was
incorporated in July 1997 as a Delaware corporation. The management of Baron
Advisors has substantial prior experience in and knowledge of the residential
apartment property and single-family housing market and its financing and
experience in the management of investment programs and in directing their
operations. The Chief Executive Officer, sole director and sole shareholder of
Baron Advisors is Gregory K. McGrath (who also wholly owns and controls the
Corporate General Partner of each Exchange Partnership) and its Chief Operating
Officer is Robert S. Geiger. The Trust will reimburse the Managing Shareholder
on a monthly basis during the term of the Trust Management Agreement for its
operating expenses relating to the business of the Trust and the Operating
Partnership, in an annual amount up to 1% of the gross proceeds of the Cash
Offering plus 1% of the initial value of Units issued in connection with the
proposed Exchange Offering (annual maximum $500,000). The Managing Shareholder
in its sole discretion may elect to receive payment for its services in the form
of Common Shares with an equivalent value.
Officers and employees of the Managing Shareholder who perform services on
behalf of the Trust will not be paid any additional compensation by the Trust
for such services. Such officers and employees generally will serve in the same
capacity for the Trust or the Operating Partnership and will be compensated by
the Trust or the Operating Partnership in amounts determined by the Managing
Shareholder, in the case of employees, and by the Executive Compensation
Committee described below, in the case of officers. See " - Trust Management
Agreement." Set forth below is certain information concerning Mr. McGrath and
Mr. Geiger.
Gregory K. McGrath, age 38, is one of the founders of the Trust and the
Operating Partnership and serves as the Chief Executive Officer of the Trust and
the Operating Partnership. He is also the Chief Executive Officer, sole director
and sole shareholder of Baron Advisors, the Managing Shareholder of the Trust.
Affiliates of Mr. McGrath are also the corporate general partners of limited
partnerships which are debtors under Subordinated Mortgage Loans and other debt
interests owned by certain 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.
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. ("Baron"), an Ohio corporation
headquartered in Cincinnati, Ohio, which he co-founded in 1989. Under Mr.
McGrath's leadership, Baron grew from the property manager of a single site in
Ohio to managing over 40 residential apartment properties containing over 3,000
units which have a current value in excess of $100 million, and commercial
space. In January 1997, substantially all of Baron's property management
operations were sold to Affirmative Management, Inc., an Affiliate of
Affirmative Equities Company, L.P., a New York City-based owner, operator and
manager of multi-family residential apartment properties. Mr. McGrath is also a
principal of The Baron Organization, Inc., a Delaware corporation which asset
manages an approximately $100 million real estate portfolio. In addition to the
affiliations described below, Mr. McGrath is also a principal in a number of
other related business entities which are involved in various aspects of the
real estate industry. Mr. McGrath attended Miami University.
Mr. McGrath is also the President, sole director and sole shareholder of
each of ten Delaware or Florida corporations which is the sole general partner
of one of ten separate real estate investment limited partnerships organized in
Delaware or Florida since 1994 to invest in real estate located in the
midwestern and southeastern portions of the United States. The name
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of each such corporation and the limited partnership sponsored by it are listed
on the last page of Exhibit A hereto. Each of these limited partnerships is
currently offering limited partner interests in private securities offerings
and/or has not commenced significant operations yet. One of a group of 37
separate affiliates of the Managing Shareholder identified above in "PRIOR
PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER" (and in Table I at the
beginning of Exhibit A hereto) is also the sole general partner of one of 41
additional real estate investment limited partnerships formed in Florida or
Delaware which have commenced operations. Mr. McGrath is the President, sole
director and sole shareholder of each of such affiliated corporations. These
partnerships have provided financing in respect of residential apartment
properties and other real estate located in the midwestern and southeastern
portions of the United States. Each of the partnerships has completed its
private placement offering and invested the net proceeds thereof. Attached
hereto at the beginning of Exhibit A are five tables (Tables I through V) which
summarize certain information about such offerings, compensation paid to the
general partners of such programs and their affiliates in connection therewith,
operating results of such programs, the application of net offering proceeds to
real estate investments, and sales of properties.
Robert S. Geiger, age 48, is one of the founders of the Trust and the
Operating Partnership and serves as the Chief Operating Officer of the Trust,
the Operating Partnership and the Managing Shareholder. Since August 1, 1998,
Mr. Geiger, an attorney, has operated his own law firm. Between 1986 and July
1998, Mr. Geiger was managing director of the law firm of Geiger Kasdin Heller
Kuperstein Chames & Weil, P.A., a Miami, Florida law firm which had a general
practice, and its predecessor firms. Mr. Geiger's practice is concentrated in
complex commercial and real property transactions and business reorganizations.
He has served as general counsel for national, regional and small business
corporations engaged in a wide range of business activities, including regulated
industry matters. Mr. Geiger's firms have performed and his current firm is
expected to continue to perform legal services for the Trust and affiliates of
the Managing Shareholder. Compensation received by the firms for such services
has not represented a material portion of the revenues of the firms. Mr. Geiger
will continue in his current law practice after the Offering. Prior to 1986, Mr.
Geiger practiced law at private law firms. Mr. Geiger is a member of the Panel
of Arbitrators, American Arbitration Association, Dade County and American Bar
Associations, The Florida Bar (member, Corporation, Business and Banking Law),
and the International Bar Association. Mr. Geiger earned a law degree from the
University of Florida in 1974 and a Bachelor of Arts degree from Hobart College
in 1972. Mr. Geiger maintains an "av" rating, the highest recognized by the
Martindale-Hubbell directory of American lawyers.
Mr. McGrath and Mr. Geiger are the founders of the Trust and the Operating
Partnership. Each of them has contributed $50,000 for the initial capitalization
of the Operating Partnership in exchange for an amount of Units which are
exchangeable (subject to escrow restrictions described below at "THE TRUST AND
THE OPERATING PARTNERSHIP - Formation Transactions") into 9.5% of the Common
Shares outstanding as of the earlier to occur of the completion of the Cash
Offering and the Exchange Offering or November 30, 1999, 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. Such Units are exchangeable into an equivalent number of Common Shares,
subject to a security escrow agreement among Mr. McGrath, Mr. Geiger, the Trust
and an institutional escrow agent. See "THE TRUST AND THE OPERATING PARTNERSHIP
- - Formation Transactions." Such Units and the Common Shares into which they are
exchangeable are in addition to the 2,500,000 Common Shares which the Trust is
offering for sale in the Cash Offering and the 2,500,000 Units which the
Operating Partnership will offer in connection with the Exchange Offering (and
the equivalent number of Common Shares into which such Units are exchangeable).
See "THE TRUST AND THE OPERATING PARTNERSHIP - Ownership of the Trust and the
Operating Partnership."
The holders of at least 10% of the Common Shares may propose the removal
of the Managing Shareholder, either by calling a meeting or soliciting consents
in accordance with the terms of the Declaration. Removal of the Managing
Shareholder requires either the affirmative vote of a majority of the Common
Shares (excluding Common Shares held by the Managing Shareholder 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 Managing Shareholder."
Trust Management Agreement
The Trust has entered into a Trust Management Agreement with the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) under which the Managing
Shareholder is obligated to provide management, administrative and investment
advisory services to the Trust from the commencement of the Cash Offering. The
Trust Management Agreement has been approved by the Board of 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
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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 of Trust.
The Trust will reimburse the Managing Shareholder on a monthly basis
during the term of the Trust Management Agreement for its operating expenses
relating to the business of the Trust and the Operating Partnership, in an
amount up to 1% of the gross proceeds of the Cash Offering plus 1% of the
initial value of Units issued in connection with the Exchange Offering (annual
maximum $500,000). The Managing Shareholder in its sole discretion may elect to
receive payment for its services in the form of Common Shares with an equivalent
value.
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 Agreement has been extended for an additional year by
the Independent Trustees. The Independent Trustees have responsibility for
determining that the reimbursable amount payable to the Managing Shareholder
under the Trust Management Agreement is 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 the Managing Shareholder. Amendment of the
agreement requires the approval of (i) a majority of the 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 the Managing Shareholder, a majority of the Independent
Trustees, any officer of the Trust or Shareholders who hold 10% or more of the
Common Shares then outstanding.
Officers of the Trust and the Operating Partnership
The Declaration provides that the Managing Shareholder will appoint
officers of the Trust and the Operating Partnership who may act and sign
documents on their respective behalf as authorized by the Managing Shareholder
and who will have the duties and powers usually applicable to similar officers
of a Delaware corporation in carrying out Trust or Operating Partnership
business, as the case may be. Officers act under the supervision and control of
the Managing Shareholder, which can remove any officer at any time for any or no
reason. Unless otherwise specified by the Managing Shareholder, the Chief
Executive Officer of the Trust will have full power to act on behalf of the
Trust. Gregory K. McGrath, 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 received no compensation for the first year of
operations. Beginning in 1999, Mr. McGrath will be entitled to receive
compensation in an amount determined by the Executive Compensation Committee
based upon his performance, in addition to benefits, including without
limitation health, disability and life insurance, and eligibility for
participation in any option plan and bonus incentive compensation plan which may
be implemented by the Trust.
Robert S. Geiger, the other founder of the Trust and the 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, including without limitation health,
disability and life insurance, and eligibility for participation in any Common
Share option plan and bonus incentive compensation plan which may be implemented
by the Trust).
Officers and employees of the Managing Shareholder who perform services on
behalf of the Trust will not be paid any additional compensation by the Trust
for such services. Such officers and employees generally will serve in the same
capacity for the Trust or the Operating Partnership and will be compensated by
the Trust or the Operating Partnership, as the case may be, in amounts
determined by the Managing Shareholder, in the case of employees, and by the
Executive Compensation Committee described below, in the case of officers.
Information concerning Mr. McGrath and Mr. Geiger is set forth above at "
- - Managing Shareholder." Information concerning the other executive officers of
the Trust and the Operating Partnership is set forth below.
Robert L. Astorino, age 52, has served as President - Property of the
Operating Partnership 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,
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California, where his responsibilities included the operation and sale of
residential and commercial real estate obtained in foreclosure. Between 1986 and
1991, Mr. Astorino was employed by Lexford, Inc. ("Lexford") (formerly Cardinal
Realty Services, Inc. and prior to that Cardinal Industries, Inc.), where he
served first as the Regional Director of Apartment Management and then as the
Vice President of Operations. Lexford is a publicly traded company headquartered
in Reynoldsburg, Ohio which has sponsored numerous real estate investment
limited partnerships. Prior to 1986, Mr. Astorino was employed by National
Housing Partnership in Washington, D.C. where he served as an Executive Vice
President of NCHP Property Management and then as Vice President of Property
Management. He has also served as a Director of the Housing Authority of
Louisville and in various positions for other municipal and rural real estate
development programs. Mr. Astorino is a member of the Kentucky Bar Association,
the National Association of Realtors and the National Association of
Homebuilders. He is also a member of the Kentucky Housing Association, where he
served as president in 1982 and as a legislative chairman in 1980, 1981 and
1983, and is a member of Louisville Housing Services, where he served on the
Board of Directors from 1984 through 1988. Mr. Astorino received a law degree
from the University of Louisville, a Masters degree in Public Administration
from Syracuse University and an undergraduate degree from the University of
Massachusetts, Amherst. He has also completed the Senior Public Executive
Program at Harvard University.
Mr. Astorino's initial annual salary has been set at $150,000, in addition
to benefits, including without limitation health, disability and life insurance,
and eligibility to participate in any option plan and bonus incentive plan which
may be implemented by the Executive Compensation Committee.
Mark L. Wilson, age 52, was elected Interim Chief Financial Officer of the
Operating Partnership in November 1998 and became Chief Financial Officer and
Secretary in May 1999. Mr. Wilson replaced David E. Williams, who served as
Chief Financial Officer of the Operating Partnership from May 1998 until his
resignation in November 1998 to devote his complete attention to other business
activities of The Baron Organization, an affiliate of Mr. McGrath. Between 1989
and 1997, Mr. Wilson served as Vice President of Baron Real Estate Services,
Inc., an affiliate of Mr. McGrath. Mr. Wilson was responsible for financial
control, accounting and tax functions for that company in addition to financial
control and accounting for all of the properties which it managed. In addition,
Mr. Wilson served as President of The Baron Companies, a registered securities
broker-dealer which served as the dealer manager of numerous private offerings
of limited partnerships affiliated with Mr. McGrath. Prior to that time, Mr.
Wilson served in various financial and accounting capacities at five other
entities, including the position of Chief Financial Officer of two publicly
traded companies. Mr. Wilson, an attorney and Certified Public Accountant,
earned a Bachelor of Science degree from the University of Maryland; an MBA, Cum
Laude, from the University of California at Berkeley; and a Juris Doctorate, Cum
Laude, from Capital University.
Mr. Wilson's initial annual salary has been set at $110,000, in addition
to benefits, including without limitation health, disability and life insurance,
and eligibility to participate in any option plan and bonus incentive plan which
may be implemented by the Executive Compensation Committee.
The Board of the Trust, Committees and Trustees
As Managing Shareholder of the Trust, Baron Advisors will have discretion
in management and control of the affairs of the Trust and the Operating
Partnership, subject to general supervision and review by the Independent
Trustees and the Managing Shareholder acting together as the Board of the Trust
and to prior approval authority of the Board and the Independent Trustees in
respect of certain actions specified in the Declaration and described at
"SUMMARY OF THE DECLARATION - Control of Operations."
The Board of the Trust
The Board of the Trust has continuing exclusive authority over the
management of the Trust, the conduct of its affairs and, with certain
limitations, the management and disposition of the Trust property. The Board of
the Trust has general supervisory authority over the activities of the Managing
Shareholder and prior approval authority in respect of certain actions under the
Declaration. A majority of the members of the Board must be Independent
Trustees. The initial Board of the Trust is comprised of the Managing
Shareholder and two individuals described below who serve as the initial
Independent Trustees. Each member of the Board must have adequate experience in
the residential real estate industry. The term of each member of the Board is
one year. Each member of the Board (other than the initial members and any
member who is elected to fill the unexpired term of another member no longer
serving) must be elected by vote of the Shareholders entitled to vote on such
matter at the annual meeting of Shareholders. Mid-term vacancies may be filled
by a majority of the remaining members of the Board. Each member may serve an
unlimited number of terms.
The Board may establish such committees as it deems appropriate, provided,
the majority of the members of any such committee are Independent Trustees. The
Board of the Trust has established an Audit Committee, Acquisition
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Committee, Executive Compensation Committee, and Nominating Committee. The
members of the Audit Committee, the Acquisition Committee and the Nominating
Committee are the Managing Shareholder and the Independent Trustees. The members
of the Executive Compensation Committee are the Independent Trustees. The Audit
Committee will make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the internal accounting controls of the Trust and the Operating
Partnership. The Acquisition Committee will determine whether particular
investment targets of the Operating Partnership meet the Trust's investment
criteria. The Executive Compensation Committee will determine compensation for
the executive officers of the Trust and the Operating Partnership and implement
a Common Share option plan and bonus incentive compensation plan for members of
management and key employees of the Trust and the Operating Partnership. The
Nominating Committee will nominate the members of the Board of the Trust to be
presented to Shareholders for election at each annual meeting beginning in 1999.
The Trust will pay its Independent Trustees an annual fee of $6,000. The
Executive Compensation Committee will consider from time to time adjustments in
the compensation payable to members of the Board and the possibility of
permitting the members of the Board to participate in any option plans which the
Trust may adopt. Mr. McGrath, the Chief Executive Officer of the Trust, the
Operating Partnership and the Managing Shareholder, will not be paid any fees
for serving on the Board on behalf of the Managing Shareholder. In addition, the
Trust will reimburse all members of the Board for expenses incurred in attending
meetings.
The Board will meet at least annually, and, except to the extent
conflicting with the Delaware Act or the 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 Executive Compensation
Committee of the Board may review the compensation payable to the Independent
Trustees and other members of the Board (other than the Managing Shareholder,
which will not be compensated for serving on the Board) annually and may
increase or decrease it as the committee deems reasonable. Any member of the
Board may resign by giving notice to the Trust, and may be removed (i) for cause
by the action of at least two-thirds of the remaining members of the Board or
(ii) with or without cause by action of the holders of at least a majority of
the then outstanding Shares entitled to vote thereon. Shares in the Trust owned
by the Managing Shareholder, the Trustees, other members of the Board of the
Trust, the Original Investors and any of their respective affiliates may not
vote regarding the removal of the Managing Shareholder, the Trustees or any
other member of the Board or any transaction between the Trust (or the Operating
Partnership) and any of them.
Independent Trustees
The Trust is required to have at least two Independent Trustees, and such
Independent Trustees must constitute a majority of the Board. To qualify to
serve the Trust as an Independent Trustee, a person may not be associated or
have been associated within the last two years with the Managing Shareholder (or
any successor advisor to the Trust). A person is deemed to be associated with
the Managing Shareholder if he (i) owns an interest in, is employed by, or is an
officer, director or trustee of the Managing Shareholder or any of its
affiliates; (ii) performs services, other than as an Independent Trustee, for
the Trust; (iii) is a trustee for more than three REITs organized or advised by
the Managing Shareholder; or (iv) has any material business or professional
relationship with the Managing Shareholder or any of its affiliates.
The term of each Independent Trustee is one year, and each Independent
Trustee (other than the initial Independent Trustees and any Independent Trustee
who has been elected to fill the unexpired term of another Independent Trustee
who no longer serves in such capacity) must be elected by a vote of the
Shareholders. Mid-term vacancies may be filled by a majority of the remaining
members of the Board. Any person may serve an unlimited number of terms. The
Independent Trustees will nominate replacements for vacancies created in the
authorized number of Independent Trustees prior to the end of a term. An
Independent Trustee may resign by giving notice to the Trust, and may be removed
(i) for cause by the action of at least two-thirds of the remaining members of
the Board or (ii) with or without cause by action of the holders of at least a
majority of the then outstanding Shares entitled to vote thereon. The
Independent Trustees are not obligated to persons other than Shareholders for
the obligations of the Trust. See "SUMMARY OF DECLARATION OF TRUST - Liability
and Indemnification."
James H. Bownas and Peter M. Dickson serve as the initial Independent
Trustees of the Trust. Set forth below is certain information concerning these
individuals, who are not otherwise affiliated with the Trust, the Operating
Partnership, the Managing Shareholder or any of their respective affiliates. In
performing their responsibilities to the Trust, the Independent Trustees are
under a fiduciary duty and obligation to act in the best interests of the Trust.
In interpreting the scope of this obligation, the Independent Trustees will have
the responsibilities of, and will be entitled to, the defenses of directors of a
Delaware corporation.
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James H. Bownas, age 51, is a principal in Gamble Hartshorn Johnson Co.
LPA, a Columbus, Ohio law firm with a general practice. Mr. Bownas's 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 Lexford, Inc. ("Lexford") (formerly Cardinal
Realty Services, Inc. and prior to that Cardinal Industries, Inc.), a publicly
traded company headquartered in Reynoldsburg, Ohio which has sponsored numerous
real estate investment limited partnerships. At Lexford, Mr. Bownas developed
significant experience in the syndication of real estate investment limited
partnerships, negotiated the resolution of over $2 billion of creditors' claims
in connection with the bankruptcy reorganization of Cardinal Industries, Inc.,
and coordinated the transition of Cardinal Industries, Inc. from a bankruptcy
creditor to a successful publicly traded company. Since 1995, Lexford has
engaged in several arms-length transactions (none of which represented a
material portion of Lexford's assets, liabilities, revenues or expenditures)
with affiliates of the Managing Shareholder, including certain of the Exchange
Partnerships involved in the Exchange Offering, pursuant to which equity and
debt interests in multi-family real estate were sold to, purchased from and
managed by and for such entities. Prior to 1989, Mr. Bownas served as General
Counsel and Vice President of Alliance Corporate Resources, Inc., Dublin, Ohio,
a third party equipment lessor, and practiced law at private law firms. Mr.
Bownas is a member of the American Bar Association, the Ohio State Bar
Association and the Columbus Bar Association. Mr. Bownas earned a law degree
from Harvard University in 1971 and a Bachelor of Science degree from Xavier
University in 1968.
Since 1991, Peter M. Dickson, age 49, has been managing director of the
Guardian Management Company Limited, a global financial services corporation
based in Bermuda. 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. Between 1979 and 1985, Mr.
Dickson held several positions with Peat, Marwick, Bermuda, beginning as a
Senior Accountant/Supervisor, before being promoted to Manager, then to Senior
Manager, and finally to Director of Accounting Services. Prior to 1979, Mr.
Dickson was a Senior Accountant with Deloitte, Haskin & Sells in Manchester,
with whom he was Articled. Mr. Dickson qualified as a Chartered Accountant in
1974 with the Institute of Chartered Accountants in England and Wales. Mr.
Dickson is a member of the Bermuda Institute of Chartered Accountants, Chartered
Institute of Marketing, and The Offshore Institute. He is a member of the
Institute of Chartered Accountants in England & Wales, Institute of Cost and
Executive Accountants, Association of Financial Controllers Managers and
Association of Business Executives. Mr. Dickson serves as Fellow of the
Institute of Chartered Accountants in England & Wales, Faculty of Corporate
Executive Secretaries, Institute of Directors, Faculty of Business Administrator
and Institute of Financial Accountants. Mr. Dickson earned his undergraduate
degree from Wrekin College, Shropshire, England in 1969.
Corporate Trustee
The Corporate Trustee of the Trust is Baron Capital Properties, Inc.
("Baron Properties"), a Delaware corporation formed in July 1997 and an
Affiliate of the Managing Shareholder. 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
the Trust) have an office in Delaware. Legal title to Trust or Operating
Partnership Property will be in the name of the Trust or the Operating
Partnership, if possible, or Baron Properties as trustee. Baron Properties, as
Corporate Trustee of the Trust, will act only at the direction of the Managing
Shareholder, and will not take independent discretionary action on behalf of the
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 the Managing Shareholder. Such
expenses are expected to be limited to those incurred in connection with the
operation of its Delaware office. Baron Properties may be a trustee of other
similar entities that may organized by the Managing Shareholder, Baron Capital,
Inc., and any of their affiliates. The President, sole director and sole
stockholder of Baron Properties is Gregory K. McGrath. See " - Managing
Shareholder." The principal office of Baron Properties is at 1105 North Market
Street, Suite 1300, Wilmington, Delaware 19899. The Corporate Trustee is not
obligated to persons other than Shareholders for the obligations of the Trust.
See "SUMMARY OF THE DECLARATION."
THE TRUST AND THE OPERATING PARTNERSHIP
The Trust and the Operating Partnership constitute an affiliated real
estate company which has been organized to indirectly acquire equity interests
in residential apartment properties located in the United States and to provide
or acquire mortgage loans secured by such types of property. The Trust 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. See "INVESTMENT OBJECTIVES AND
POLICIES" below. The management of the Trust has been involved in the
residential apartment business for over 10 years.
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The Trust made its first quarterly pro rata cash distribution to its
Shareholders in November 1998 for the third quarter of 1998. Additional
distributions were made in March 1999 for the fourth quarter of 1998 and in May
1999 for the first quarter of 1999. The Trust and the Operating Partnership
intend to make regular quarterly distributions to their Shareholders and
Unitholders of net income generated from their investments, generally within 45
to 60 days after the end of each calendar quarter. The Trust intends to operate
as a real estate investment trust (a "REIT") for federal income tax purposes,
provided, however, that if the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath) determines, with the affirmative vote of a Majority
of Shareholders entitled to vote on such matter approving the Managing
Shareholder's determination, that it is no longer in the best interests of the
Trust to continue to qualify as a REIT, the Managing Shareholder may revoke or
otherwise terminate the Trust's REIT election pursuant to applicable federal tax
law.
The Operating Partnership
The operations of the Trust will be carried on through the Operating
Partnership (and any other subsidiaries the Trust may have in the future), among
other reasons, in order to (i) enhance the ability of the Trust to qualify as a
REIT under the Code, (ii) enable the Trust to indirectly acquire interests in
residential apartment properties in exchange transactions, such as the Exchange
Offering, that involve the issuance of Units of limited partnership interest in
the Operating Partnership in exchange for limited partnership interests in
limited partnerships which own such property interests and thereby provide an
opportunity for 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. See "FEDERAL INCOME TAX CONSIDERATIONS."
Substantially all of the Trust's assets (including the property interests
acquired) will be held by, and its operations conducted through, the Operating
Partnership. As its sole General Partner, the Trust will control the Operating
Partnership as well as hold Units representing an economic interest in the
Operating Partnership. The Operating Partnership will be responsible for, and
pay when due, its share of all administrative and operating expenses of
properties in which it acquires an interest.
Net cash proceeds from the issuance of Common Shares of the Trust in
connection with the Cash Offering and 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 of limited partnership
interest in the Operating Partnership ("Units"). The Operating Partnership will
use net cash proceeds of the Cash Offering, unissued Units or a combination of
net cash proceeds and unissued Units to acquire interests in residential
apartment properties or interests in other partnerships or entities
substantially all of whose assets consist of residential apartment property
interests. See " - Ownership of the Trust and the Operating Partnership."
In the Exchange Offering, the Operating Partnership is offering to issue
Units in exchange for units of limited partnership interest in limited
partnerships which directly or indirectly own equity and/or mortgage interests
in residential apartment properties. As its initial investment targets in the
Exchange Offering, the Operating Partnership will offer to acquire limited
partnership interests owned by individual limited partners in 23 real estate
limited partnerships (individually, an "Exchange Partnership" and collectively,
the "Exchange Partnerships") managed by Corporate General Partners affiliated
with the Managing Shareholder which directly or indirectly own equity and/or
Subordinated Mortgage interests in 26 residential apartment properties (the
"Exchange Properties"). The Exchange Properties are described in further detail
at "DESCRIPTION OF EXCHANGE PARTNERSHIPS," "INITIAL REAL ESTATE INVESTMENTS" and
Exhibit B hereto. If exchanges are consummated for all Exchange Partnership
Units in the partnerships in connection with the Exchange Offering, the
partnership interests acquired will have a purchase price totaling approximately
$24,980,660, comprised of Operating Partnership Units to be issued with an
initial assigned value in that amount. The property interests to be acquired
with the balance of the Operating Partnership Units to be offered in the
Exchange Offering have not yet been finally determined. The Trust intends to
investigate other investment opportunities for the Exchange Offering, including
interests held in additional properties by unaffiliated parties and by other
limited partnerships managed by affiliates of the Managing Shareholder. See also
"PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
In the initial transactions of the Exchange Offering, the Operating
Partnership is offering to issue Operating Partnership Units to each individual
limited partner in an Exchange Partnership (individually, an "Exchange Limited
Partner" and collectively, the "Exchange Limited Partners") in exchange for his
respective limited partnership interest in the Exchange Partnership. The number
of Operating Partnership Units to be offered to each Exchange Limited Partner
for his interest in a given Exchange Partnership has 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
Operating Partnership Unit will be initially valued at $10.00, the same offering
price of each Trust Common Share offered in the Cash Offering. The value of
Units and Common Shares is substantially identical since holders of Operating
Partnership Units may exchange their Units into an equivalent number of Common
Shares at any time, subject to certain conditions described below. Any Exchange
Limited Partner who does not desire to participate in the Exchange Offering will
be entitled to retain his limited partnership interest in
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his partnership on substantially the same terms and conditions as his original
investment. As part of the transaction, the Operating Partnership will either
acquire the Corporate General Partner's equity interest in each of the Exchange
Partnerships involved or the Board of the Trust will receive a management proxy.
See "THE EXCHANGE OFFERING."
The number of Units being offered by the Operating Partnership 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 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 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 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 its 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 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 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 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 the Operating Partnership 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. See " Exchange Property Appraisals."
To facilitate the Exchange Offering, the Operating Partnership has
registered with the Commission 2,500,000 Units. Unitholders of the Operating
Partnership, including recipients of Units in the 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 cause the exchanging party to own (taking into account
certain ownership attribution rules) in excess of 5% of the then outstanding
Shares, subject to the Trust's right to cash out any holder of Units who
requests an exchange (at a price equal to the average of the daily market price
for the 10 consecutive trading days immediately preceding the date the Trust
receives the exchange notice, or, in the absence of a public trading market, at
a price determined in good faith by the Trust) and subject to certain other
exceptions. Therefore, in conjunction with the registration of the Common Shares
being offered in the Cash Offering, the Trust has registered 2,500,000 Common
Shares (in addition to the 2,500,000 Common Shares being offered in the Cash
Offering) for issuance to holders of Units who request the Trust to exchange
Units for Common Shares.
The Trust and the Operating Partnership intend to investigate making an
additional public or private offering of Common Shares and/or Units within the
12-month period following the commencement of the Exchange Offering if the
Managing Shareholder determines that suitable property acquisition opportunities
are available to the Trust at attractive prices and that such an offering would
fulfill its cost of funds requirements. The issuance by the Trust and the
Operating Partnership of additional Shares and Units subsequent to the
completion of the Cash Offering and the Exchange Offering could have a dilutive
effect on purchasers of Common Shares in the Cash Offering and Unitholders.
The Trust's ownership of Units in the Operating Partnership will entitle
it to share in cash distributions from, and in the profits and losses of, the
Operating Partnership. The Trust, in turn, will distribute such cash
distributions to the Shareholders of the Trust. The other Unitholders (i.e.,
other Limited Partners) of the Operating Partnership, including the Original
Investors and recipients of Units in the Exchange Offering, will own the
remaining economic interest in the Operating Partnership. 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), although the transferee may only be
admitted as a Unitholder with the consent of the Trust as General Partner. As
described below at " - Formation Transactions," the Original Investors have
entered into a security escrow agreement with the Trust under which they have
deposited into an escrow account with an institutional escrow agent for a period
of six to nine years (subject to their earlier release if the Trust meets
certain specified operating criteria) all Units issued to them in connection
with the formation of the Trust and the Operating Partnership. 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 cash out their investment in
the Operating Partnership
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by exchanging their Units into Common Shares and then selling any Common Shares.
As Unitholders exchange their Units for Common Shares, the Trust's percentage
interest in the Operating Partnership will increase.
The Trust will contribute to the Operating Partnership the net proceeds
from the sale of Common Shares of the Trust in the Cash Offering and of any
other issuance of Common Shares in exchange for an equivalent number of Units.
The Trust will hold one Unit in the Operating Partnership for (i) each Common
Share that it sells in the Cash 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.
As the General Partner of the Operating Partnership, the Trust will have
the exclusive power under the Operating Partnership Agreement to manage and
conduct the business of the Operating Partnership. Baron Advisors, Inc., the
Trust's Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), has
complete discretion in the day to day management and control of the Trust and
the Operating Partnership (subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder acting together as the Board
of the Trust and subject to prior approval of the Board and the Independent
Trustees in respect of certain activities of the Trust and the Operating
Partnership). Gregory K. McGrath, the Chief Executive Officer of the Trust, the
Operating Partnership and the Managing Shareholder, and Robert S. Geiger, the
Chief Operating Officer of the Trust, the Operating Partnership and the Managing
Shareholder, and James H. Bownas and Peter M. Dickson, the initial Independent
Trustees of the Trust, will make investment decisions for the Trust. The
Independent Trustees and the Managing Shareholder comprise all the initial
members of the Board of the Trust. The Operating Partnership 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 the Operating Partnership or
upon a vote of the Partners or upon the occurrence of various other events. The
Operating Partnership 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 the Trust and the Operating Partnership. Gregory K. McGrath and Robert S.
Geiger are the founders of the Trust and the Operating Partnership (the
"Original Investors"). Mr. McGrath serves as the Chief Executive Officer of the
Trust and the Operating Partnership and is the Chief Executive Officer, sole
shareholder and sole director of Baron Advisors, Inc., the Trust's Managing
Shareholder, which will manage the day to day operations of the Trust and the
Operating Partnership. McGrath is also the President, sole shareholder and sole
director of the corporate general partners of 56 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 "DESCRIPTION OF EXCHANGE PARTNERSHIPS," and "INITIAL REAL ESTATE
INVESTMENTS," certain of the prior partnerships, including the Exchange
Partnerships, own interests in properties which the Trust may acquire in
connection with the Exchange Offering. Mr. Geiger serves the Trust, the
Operating Partnership and the Managing Shareholder as their Chief Operating
Officer.
In connection with the formation of the Trust and the Operating
Partnership, Mr. McGrath and Mr. Geiger, the Original Investors, each subscribed
for 601,080 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, the Units owned by each Original Investor would represent 9.5% of
the total Common Shares outstanding after completion of the Cash Offering by the
Trust and the Exchange Offering 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 completed 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 Investor represents a percentage greater
than 9.5% 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. 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 the Operating Partnership the right to receive
all residual economic rights attributable to the general partner interests in
Participating Exchange
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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.
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 the Cash Offering and the Units being offered in
the Exchange Offering), the Original Investors have deposited into an escrow
account with ASTTC the Units issued to them in connection with the formation of
the Trust and the Operating Partnership. 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 the Cash Offering,
provided that the escrowed Units may be released in their entirety earlier if
either (i) the Trust achieves annual net earnings per Common Share of at least
$.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 the Cash Offering, or (ii) the Trust achieves average annual net
earnings per share of at least $.50 (after taxes and excluding extraordinary
items) for any consecutive five-year period following the commencement of the
Cash 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 the Cash Offering (May 15, 1998). In
addition, the Original Investors' Units will be subject to the trading
restrictions under Rule 144 issued under the Securities Act of 1933, as amended.
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 the Operating Partnership 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 the 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
(less amounts required to pay tax obligations of the Original Investors in
respect of the escrowed securities) will be held in the escrow account and
available for distribution of the assets of the Operating Partnership (such as
its dissolution, liquidation, merger or sale of substantially all of its assets)
to the extent that the other Shareholders and Unitholders otherwise would not
receive in connection with such transaction, distributions in an amount equal to
at least the initial public offering price of the Common Shares.
Assuming the Exchange Offering and the Cash 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 the Dealer
Manager and participating broker-dealers in connection with the Cash Offering),
immediately upon the completion of the offerings, Mr. McGrath and Mr. Geiger
would each own 601,080 Units of the Operating Partnership, representing
beneficial ownership of 9.5% of the Trust Common Shares. If the Cash 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 the Cash 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 the Trust and the
Operating Partnership."
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Ownership of the Trust and the Operating Partnership
Set forth below is a description of the ownership of the Trust and the
Operating Partnership on a pro forma basis, assuming that the Cash Offering
and the Exchange Offering are completed in their entirety as contemplated
herein and that the Dealer Manager or other participating broker-dealer has
not exercised any Common Share warrants granted to it in connection with the
Cash Offering and that no Unitholders have exercised their right to exchange
Units into Common Shares. Immediately after the completion of the Cash
Offering and the Exchange Offering, there would be 2,625,000 Common Shares
and 6,264,808 Units outstanding. The purchasers of Common Shares in the Cash
Offering would own 2,500,000 Common Shares, representing a 95.2% ownership
interest in the Trust as of the closing of the Cash 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
solicited by them) 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 the Trust) have been exchanged
into an equivalent number of Common Shares, the purchasers of Common Shares
in the Cash Offering, recipients of Units in the 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 the Trust,
respectively.
The Trust will contribute net proceeds of the Cash Offering to the
Operating Partnership in exchange for up to 2,500,000 unregistered Units, and in
its capacity as General Partner of the Operating Partnership, the Trust will
also receive a 1% partnership interest in the Operating Partnership. Units held
by the 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 the Cash Offering and the Exchange Offering. The
first table assumes the consummation in full of the Cash Offering by itself
without taking into account the Exchange Offering. The second table assumes the
consummation in full of the Cash Offering and the Exchange Offering.
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Cash Offering
- ---------------------------------- Ownership:
Managing Shareholder 0.0%
Purchasers of Common
BARON CAPITAL TRUST Shares in Cash Offering 100.0%
("TRUST")
- ----------------------------------
- ---------------------------------- General Partner
Baron Capital Trust 1.0%
Limited Partners
BARON CAPITAL PROPERTIES, L.P. Baron Capital Trust 80.2%
Original Investors 18.8%
("OPERATING PARTNERSHIP") -----
Total 100.0%
- ----------------------------------
If the Trust sells all 2,500,000 Common Shares being offered in the Cash
Offering (gross proceeds of $25,000,000), and, assuming that the Dealer Manager
and participating broker-dealers have not exercised any Common Share warrants
granted to them in connection with the Cash Offering and that no transactions
are effected pursuant to the Exchange Offering, the following would result:
o The Trust would use net proceeds of the Cash Offering (up to
$21,500,000) (remaining after payment of commissions and
reimbursable offering expenses) to acquire 2,500,000 Units in the
Operating Partnership (80.2% of the then outstanding amount). The
Original Investors would own 18.8% of the then outstanding Units
(586,420 Units) and the Trust, in its capacity as general partner of
the Operating Partnership, would own the remaining 1% (31,176
Units).
o The purchasers of Common Shares in the Cash Offering would own 100%
of the equity interest in the Trust, which, in turn, would own an
80.2% limited partnership interest in the Operating Partnership.
(The Managing Shareholder owns 10 Common Shares.)
o The respective ownership percentage interests in the Trust and the
Operating Partnership would remain proportionately the same in the
event the Trust sells less than all Common Shares being offered in
the Cash Offering, even though there would be fewer outstanding
Common Shares and Units.
o The Operating Partnership would use the cash proceeds received from
the Trust to acquire property interests and for working capital and
other general business purposes. Until such time that the election
of the Trust to be treated as a REIT for federal income taxes is
revoked, said uses of the cash proceeds shall exclude the
acquisition of assets that are listed in Section 351(e)(1) of the
Code to the extent that such assets would cause the Operating
Partnership to own more than 78% of the assets that are listed in
Section 351(e)(1) of the Code. The purpose of this requirement is to
prevent the Operating Partnership from being treated as an
"investment company" for federal income tax purposes. "See FEDERAL
INCOME TAX CONSIDERATIONS - Transfer to an Investment Company."
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Cash Offering and Exchange Offering
- ----------------------------------- Ownership:
Managing Shareholder(1) 0.0%
Purchasers of Common 95.2%
BARON CAPITAL TRUST Shares in Cash Offering
Broker-dealers earning
("TRUST") commissions in Exchange 4.8%
-----
Offering 100.0%
Total
- -----------------------------------
- ----------------------------------- General Partner
Baron Capital Trust 1.0%
Limited Partners
BARON CAPITAL PROPERTIES, L.P. Baron Capital Trust 39.9%
("OPERATING PARTNERSHIP") Recipients of Units
in Exchange Offering 39.9%
Original Investors 19.2%
-----
Total 100.0%
- -----------------------------------
If the Trust sells all 2,500,000 Common Shares being offered in the Cash
Offering, and the Operating Partnership issues all 2,500,000 registered Units to
complete the Exchange Offering, the following would result:
o The Trust would use net proceeds of the Cash Offering (up to
$21,500,000) (remaining after payment of commissions and
reimbursable offering expenses) to acquire 2,500,000 Units in the
Operating Partnership.
o The Operating Partnership would (i) issue all 2,500,000 registered
Units to individual limited partners of Exchange Partnerships which
directly or indirectly own property interests in exchange for their
limited partnership interests and (ii) acquire additional property
interests with the cash proceeds received from the Trust.
o Each broker-dealer who assists the Operating Partnership in
consummating the Exchange Offering with individual Offerees will
be paid as a commission a number of unregistered Common Shares
of the Trust in an amount equal to 5% of the number of Operating
Partnership Units solicited by them.
- ----------
(1) Owns 10 Common Shares.
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o Assuming no Unitholders have exercised their right to exchange their
Units for an equivalent number of Common Shares, the purchasers of
Common Shares in the Cash Offering and broker-dealers providing
services in the Exchange Offering would own 95.2% and 4.8%,
respectively, of the equity interest in the Trust, and Unitholders
of the Operating Partnership would own limited partnership interests
in the Operating Partnership as follows:
<TABLE>
<CAPTION>
Number Percentage
of Units Interest
-------- --------
Limited Partners
<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 the Trust would be held as
follows:
<TABLE>
<CAPTION>
Number of Common Shares Percentage
Beneficial Owners Beneficially Owned Interest
------------------ --------
<S> <C> <C>
Managing Shareholder 10 0.0%
Purchasers of Common Shares in Cash 2,500,000 39.5%
Offering
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 the Cash 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 purchasers of Common Shares in the Cash Offering and broker-dealers
providing services in the Exchange Offering would still together hold 100% of
the then outstanding Common Shares of the Trust (but in varying percentages
between them, depending upon the number of Units issued), and the Trust and the
recipients of Units in the Exchange Offering would own varying numbers 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 collectively 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 beneficial 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. The
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.
Fair Housing Amendments of 1988. 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. The 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 the Trust
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
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facilities, such as a leasing office, are open to the public. The Trust 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 the Trust
might anticipate, or if changes must be made on a more accelerated basis than it
might anticipate, the ability of the Trust and the Operating Partnership to make
expected distributions to Shareholders and Unitholders, respectively, could be
adversely affected. The Trust believes that its competitors would face similar
costs to comply with the requirements of the ADA.
Environmental Regulations. The Trust is 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.
The Trust, 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 the Trust and counsel
prior to purchase of an interest in any property.
Rent Control Legislation. Although none currently are applicable to any of
the properties in which the Trust and the Operating Partnership are
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. The
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.
Employees
The Trust and the Operating Partnership initially expect to employ a total
of approximately 20 employees. The number of employees they will hire will
depend upon the amount of net proceeds raised in the Cash Offering and the
results of the Exchange Offering.
INVESTMENT OBJECTIVES AND POLICIES
General
The Trust and the Operating Partnership 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. 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 the Trust and the Operating Partnership provide or acquire which are
secured by mortgages on such types of properties. The Managing Shareholder
(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 Shareholders and Unitholders
from rental payments from the rental of residential apartment units which the
Trust and the Operating Partnership may acquire and/or principal and interest
payments in respect of Mortgage Loans which the Trust and the Operating
Partnership may provide or acquire and (2), where applicable, provide the
opportunity for capital appreciation of residential apartment properties. The
Trust and the Operating Partnership intend to pay regular quarterly
distributions to the Shareholders and the Unitholders. Properties in which the
Trust and the Operating Partnership acquire an interest are expected to use the
straight-line method of depreciation over 30 years.
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The management of the Trust and the Operating Partnership has been
involved in the residential property business for over 10 years and has
extensive experience and presence in the residential property business which
have enabled it to form key alliances and working relationships with owners of
residential apartment properties and financial institutions.
The Trust and the Operating Partnership intend 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 the Trust and the Operating Partnership 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 the Trust and the Operating
Partnership and their overall market value. The Trust will make investments in
properties indirectly through the Operating Partnership in which it will hold
all of its real estate assets and conduct all real estate operations. Unless the
context otherwise requires, the term "Trust" as used herein shall collectively
refer to Baron Capital Trust and the Operating Partnership.
The primary business objective of the Trust is to increase distributions
to Shareholders and Unitholders and to increase the value of the Trust's
portfolio of properties in which it acquires an interest. The Trust intends 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 the Trust's 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;
(iii) Increasing cash flow of the 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 the Trust's competitive
advantages in its markets.
The Trust and the Operating Partnership intend 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. The
Trust will not provide or acquire mortgage loans in respect of any property
where the amount invested by the Trust or the Operating Partnership 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 Exchange
Offering collectively manage the properties in which they have an interest and
share property management expenses. Other properties in which the Trust acquires
an interest will be similarly managed.
After the Trust has invested net proceeds of the Cash Offering and
completed the Exchange Offering, it intends 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. The Trust intends to investigate
making an additional public or private offering of Common Shares and/or Units
within the 12-month period following the commencement of the Exchange Offering
if the Board of the Trust determines that suitable property acquisition
opportunities which meet its investment criteria are available to the Trust at
attractive prices and such an offering would fulfill its cost of funds
requirements. There can be no assurance, however, that the Trust will be able to
obtain capital for any such acquisitions or improvements on terms favorable to
the Trust.
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The Trust qualified as a REIT for federal income tax purposes beginning
with its taxable year ending December 31, 1998. See "TAX STATUS OF THE TRUST"
and "FEDERAL INCOME TAX CONSIDERATIONS - Taxation of the Trust."
Trust Policies with Respect to Certain Activities
The following is a discussion of the Trust's policies with respect to
investments, dispositions, financings, and conflicts of interest. These policies
have been determined by the Trust's Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath) and under the Declaration of Trust may be amended
or revised from time to time at the discretion of the Board with approval of a
majority in interest of the Shareholders entitled to vote on such matters. The
Declaration of Trust contains certain additional limitations on the Trust's
activities. See "SUMMARY OF THE DECLARATION OF TRUST - Control of Operations"
and Section 1.9 of the Declaration.
At all times, the Trust intends to make investments and conduct its
operations in such a manner as to be consistent with the requirements of the
Code for the Trust to qualify as a REIT unless, because of changing
circumstances or changes in the Code (or in Treasury Regulations), the Managing
Shareholder, with the consent of a majority of the Shareholders entitled to vote
on such matter approving the Managing Shareholder's determination, determines
that it is no longer in the best interests of the Trust to qualify as a REIT. No
assurance can be given that the Trust's objectives will be attained.
Investment Policies
The Trust's investment objective is to provide quarterly cash
distributions and achieve long-term appreciation through increases in cash flows
and the value of its property interests. The Trust 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 its qualification as a REIT. The Trust may invest in
First 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. The Trust 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 REIT qualification, the Trust 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 the Trust." The Trust 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 Trust's investment policies.
The Trust 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, the Trust will not provide or acquire debt
financing in respect of any property where the amount invested by the Trust 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 the Managing
Shareholder unless substantial justification exists. Repayment of any Mortgage
Loans provided or acquired by the Trust would typically be secured by a Mortgage
on the land, apartment units, and other improvements financed by the 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, the Trust will provide or acquire a Subordinated Mortgage
Loan that is subordinate to a large-scale First Mortgage Loan provided by a
lending institution. In certain cases, Mortgage Loans provided or acquired by
the Trust may be in the form of First Mortgage Loans.
Subordinated Mortgages securing Subordinated Mortgage Loans to be provided
or acquired by the Trust may or may not be recorded. If any Subordinated
Mortgage in favor of the Trust is not recorded, the Trust's security interest in
the Mortgage would be unperfected and, until the Subordinated Mortgage is
recorded, the Trust 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 the Trust 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 the Trust. Non-payment
of any Subordinated Mortgage Loan that may be provided or acquired by the Trust
may constitute an event of default by the borrower under the underlying Senior
Mortgage Loan, and such Senior Mortgage Loan may have to be repaid by the
borrower before Shareholders in the Trust will receive any return on their
investment.
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The Board of the Trust has adopted a policy, described below at "
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 an Independent Trustee, any other 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 the Trust and
the Operating Partnership. 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 the Trust and the Operating Partnership will not exercise
the right or they fail to respond to the requesting party's proposal within a
specified period.
The Trust 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 (with a deductible per loss ranging between $1,000 and
$5,000 except in the case of flood and hurricane damage where the deductible
ranges between 1% to 2% 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. There can be no assurance, however, that the Trust's
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, the Trust 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 the Trust.
Pending the commitment of Trust and Operating Partnership funds for the
purposes described in this Prospectus, for distributions to Shareholders and
Unitholders or for application of reserve funds to their purposes, the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) 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 the Trust
may invest.
The Trust 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.
Disposition Policies
The Managing Shareholder will periodically review the portfolio of assets
which the Trust acquires. The Trust 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 the Trust's 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 the Managing Shareholder. The prohibitions in the
Code and related regulations on a REIT holding property for sale may affect the
Trust's ability to sell properties without adversely affecting distributions to
Shareholders and Unitholders. See "FEDERAL INCOME TAX CONSIDERATIONS - Taxation
of the Trust."
Financing Policies
The Trust will have the right to borrow funds, and use the Trust's
available assets as security for any such loan, if the Trust's cash requirements
exceed its available cash. Under the Declaration of the Trust, the aggregate
borrowings of the Trust in relation to its net assets may not exceed 300%,
except where the Trust determines that a higher level of borrowing is
appropriate. It is expected that each property in which the Trust invests will
secure a First Mortgage Loan. The principal balance of any such First Mortgage
Loan typically would represent a substantial percentage of the Trust's basis in
any property in which the Trust owns an equity interest.
To the extent that the Managing Shareholder desires that the Trust obtain
additional capital, the Trust may raise such capital through additional public
and private equity offerings, debt financing, retention of cash flow (subject to
satisfying the Trust's distribution requirements under the REIT rules) or a
combination of these methods. The 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). The Trust 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
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limited partnership interest in the Operating Partnership and any other
partnerships the Trust 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 the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
the Operating Partnership, to refinance existing indebtedness or to finance
acquisitions or capital improvements of new properties.
Conflict of Interest Policies
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest, as described below. However, there can be no
assurance 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.
The Managing Shareholder (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 the Trust
and the Operating Partnership, subject to (i) general supervision and review by
the Independent Trustees and the Managing Shareholder acting together as the
Board of the 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 the Trust and the Operating Partnership. The Declaration of the Trust
requires that a majority of the Board of the Trust be comprised of Independent
Trustees not affiliated with the Managing Shareholder or its affiliates.
Actions of the Trust and the Operating Partnership requiring approval of
the Board and/or the Independent Trustees include, without limitation, the
payment of compensation to the Managing Shareholder, a Trustee, any other member
of the Board of the Trust or any of their respective affiliates in amounts in
excess of certain specified limits for services performed for the Trust, and the
acquisition of properties from, or the sale of properties to, any such parties.
For example, the Trust may not purchase property from the Managing Shareholder,
a Trustee, any other member of the Board or any of their respective affiliates
unless a majority of the members of the Board and, in addition, a majority of
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 the
Trust and that the purchase price to the Trust for such property is no greater
than the cost of the property to such proposed seller, or if the purchase price
to the Trust 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, the Trust does
not contemplate using any substantial portion of the net proceeds of the Cash
Offering to acquire property interests from the Managing Shareholder, any
Trustee or any other member of the Board of the Trust or any of their respective
affiliates.
The Board of the Trust has adopted a policy designed to eliminate or
minimize potential conflicts of interests which may arise in respect of
investment opportunities suitable for the Trust and the Operating Partnership
which may be presented to the Managing Shareholder, an Independent Trustee, any
other member of the Board, 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
the Trust and the Operating Partnership (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
the 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 the
Trust and the Operating Partnership 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 the Trust and the Operating Partnership 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 the Trust
or the Operating Partnership 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 the 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 the Trust. However, there
can be no assurance that the
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policies of the Trust and the Operating Partnership 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 Trust and Operating Partnership actions
requiring approval of the Board and/or the Independent Trustees, see "SUMMARY OF
DECLARATION OF TRUST - Control of Operations."
INITIAL REAL ESTATE INVESTMENTS
The Acquired Properties
Set forth below is a description of the Operating Partnership's
acquisition between June 1998 and June 1999 of beneficial interests in 67-unit,
80-unit, 50-unit and a 40% limited partnership interest in a 168-unit
residential apartment properties located in Orlando, Lakeland and New Smyrna
Beach, Florida, and Alexandria, Kentucky, respectively, and a limited
partnership interest in 13 real estate partnerships managed by affiliates of the
Managing Shareholder, including certain of the Exchange Partnerships, which own
direct or indirect equity or debt interests in residential apartment properties
(less than 4% in each case). By acquiring general and limited partnership
interests, the Operating Partnerships avoids certain costs, such as first
mortgage assumption fees and recordation of title costs. The investments were
made using net proceeds of the Trust's Cash Offering. Also described is a
purchase agreement recently entered into by the Trust under which the Trust,
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 Apartments
In June 1998, the Operating Partnership 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. On November 10, 1997 an affiliate of the Operating
Partnership, Baron Capital XLV, Inc., acquired the general partnership interest
in the Heatherwood Partnership. Set forth below is certain information
describing the property, first mortgage financing to which the property is
subject and the acquisition by the Operating Partnership 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 June 30, 1999
for each type of unit was approximately $410, $525 and $649, respectively, or
$1.42, $.91 and $.75 per square foot, respectively. The average monthly
occupancy rates for 1994, 1995, 1996, 1997 and 1998 were approximately 91%, 88%,
93%, 97%, and 94% respectively. The average annual rental rate per unit for each
of the last five years has been $5,280 (1994), $5,424 (1995), $5,628 (1996),
$5,820 (1997) and $6,060 (1998).
The Operating Partnership 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 based on independent appraisal of the market value of the
property plus the value of any additional assets, less all liabilities, and was
approved by the Board of the Trust. The Heatherwood Property is subject to first
mortgage financing with a current principal balance of approximately $1,239,000.
The mortgage is held by GMAC Commercial Mortgage Corp. The maturity date of the
first 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.
There is no lease, option, or contract to purchase or sell the Heatherwood
Property. A renovation program has been in place since the date of acquisition.
This program includes both interior and exterior improvements at a cost of
approximately $2,500 per unit. The costs have been paid from maintenance
reserves established and maintained by the property on a monthly basis. The
property is in Florida and, as such, subject to the competitive nature of the
state. The demand for units is high between October and April and much lower for
the other months. This situation overrides any other competitive factor. The
Heatherwood Property is not located in an overbuilt area and demand is adequate.
The Heatherwood Property is adequately covered by insurance.
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The Heatherwood Property is a residential community; there is no tenant
who occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Heatherwood Property. The property
leases units for periods of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,571,341. Depreciation is taken on a
straight-line basis over 30 years. The Heatherwood Property is taxed at 200
mills per $10,000 valuation, and the 1998 taxes due March 31, 1999 were
$22,787.05. Estimated taxes on proposed improvements are not material.
In March 1998, prior to completion of the acquisition, the property was
appraised by Consortium Appraisal, Inc., an independent appraisal firm in Winter
Park, Florida which estimated the market value of the property at $2,075,000.
The methods employed in appraising the property are discussed at "THE EXCHANGE
OFFERING - Exchange Property Appraisals." The Trust and the Operating
Partnership were not responsible for the payment of any fees or expenses for the
appraisal. The acquisition was unanimously approved in advance by the Board of
the Trust.
Crystal Court Apartments
In July 1998, the Operating Partnership 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. On January
15, 1986 an affiliate of the Operating Partnership, Baron Capital LIX, Inc.,
acquired the general partnership interest in the Crystal Court Partnership. Set
forth below is certain information describing the property, first mortgage
financing to which the property is subject and the acquisition by the Operating
Partnership 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 June 30, 1999
for each type of unit is approximately $309, $399 and $605, respectively, or
$1.07, $.69 and $.58 per square foot, respectively. The average monthly
occupancy rates for 1994, 1995, 1996, 1997 and 1998 were approximately 91%, 91%,
90%, 95% and 91% respectively. The average annual rental rate per unit for the
Crystal Court Property for each of the last five years has been $4,068 (1994),
$4,188 (1995), $4,356 (1996), $4,632 (1997) and $4,812 (1998).
The Operating Partnership 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 based on an independent appraisal
of the market value of the property plus the value of any additional assets,
less all liabilities, and was approved by the Board of the Trust. The Crystal
Court Property is subject to first
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mortgage financing with a current principal balance of approximately $1,471,705.
The mortgage is held by GMAC Commercial Mortgage Corp. The maturity date of the
first 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 $125,355. 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.
There is no lease, option, or contract to purchase or to sell the Crystal
Court Property. A renovation program has been in place since the original
acquisition. This program includes both interior and exterior improvements at a
cost of approximately $2,000 per unit. The costs have been paid from maintenance
reserves established and maintained by the property on a monthly basis. The
property is in Florida and, as such, subject to the competitive nature of the
state. The demand for units is high between October and April and much lower for
the other months. This situation overrides any other competitive factor. The
Crystal Court Property is not located in an overbuilt area and demand is
adequate. The Crystal Court Property is adequately covered by insurance.
The Crystal Court Property is a residential community; there is no tenant
who occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Crystal Court Property. The
property leases units for periods of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,657,232. Depreciation is taken on a
straight-line basis over 30 years. The Crystal Court Property is taxed at 21.4
mills per $1,000 valuation, and the 1998 taxes due March 31, 1999 were
$24,897.65. Estimated taxes on proposed improvements are not material.
In June 1998, prior to completion of the acquisition, the property was
appraised by Consortium Appraisal, Inc., an independent appraisal firm which
estimated the market value of the property at $2,170,000. The Trust and the
Operating Partnership were not responsible for the payment of any fees and
expenses for the appraisal. The acquisition was unanimously approved in advance
by the Board of the Trust.
Riverwalk Apartments
In September 1998, the Operating Partnership 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 the Operating
Partnership, Riverwalk, LC, a Florida limited liability company, acquired the
general partnership interest in Riverwalk. Gregory K. McGrath, the Chief
Executive Officer of the Operating Partnership and the Trust, is the manager of
Riverwalk, LC. The Operating Partnership owns 99% of the membership interests in
Riverwalk, LC. The remaining 1% membership interest is nominally held by the
Managing Shareholder of the Trust, as agent for the Operating Partnership.
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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. The Operating Partnership will operate the property
as a rental community for the indefinite future. Occupancy data for the years
1994 through 1997 for the Riverwalk Property is unavailable. The occupancy rate
in 1998 was 98%. As of June 30, 1999, the property was 92% occupied. The average
monthly rental rate as of June 30, 1999 was approximately $565 for a one bath
unit and $605 for a two bath unit. The property has 51,024 square feet of
rentable space, or approximately 1,020 square feet per unit. The current rent
per square foot is approximately $.55. The average annual rental rate for 1998
was approximately $6,780 per unit.
The Operating Partnership acquired the Riverwalk limited partnership
interests from 12 unaffiliated individuals and Riverwalk, LC acquired the
Riverwalk general partnership interest from Riverwalk Enterprises, Inc., whose
principal was Michael Green, for a total purchase price of approximately
$700,000. Mr. Green is not affiliated with the Trust or the Operating
Partnership. The purchase price was based on an independent appraisal of the
property less all liabilities, and was approved by the Board of the Trust. The
sale was subject to a first mortgage of approximately $1,330,000, held by TMG
Life Insurance Company. The current principal balance of the mortgage is
approximately $1,585,589. The mortgage matures in November 2004 and has a
current interest rate of 8.75%. The holder of the first 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 $1,411,716. The monthly debt service payments
are $14,071, or an annual amount of $168,859. Prepayment is permitted at any
time, subject however to a yield maintenance termination fee calculated in
accordance with the terms of the loan.
There is no lease, option, or contract to purchase or to sell the
Riverwalk Property. A renovation program has been in place since the original
acquisition. This program includes both interior and exterior improvements at a
cost of approximately $500 per unit to date. The cost will increase per unit as
more renovations are completed. The costs have been paid from maintenance
reserves established and maintained by the property on a monthly basis. The
property is in Florida and, as such, subject to the competitive nature of the
state. The demand for units is high between October and April and much lower for
the other months. This situation overrides any other competitive factor. The
Riverwalk Property is not located in an overbuilt area and demand is adequate.
The Riverwalk Property is adequately covered by insurance.
The Riverwalk Property is a residential community; there is no tenant who
occupies 10% or more of the rentable square footage. There is no business,
occupation or profession taking place on the Riverwalk Property. The property
leases units for periods of no longer than one year. The federal tax
depreciation basis as of June 30, 1999 is $1,518,035. Depreciation is taken on a
straight-line basis over 30 years. Riverwalk is taxed at 24.95 mills per $1,000
valuation and the 1998 taxes due March 31, 1999 were $34,985.58. Estimated taxes
on proposed improvements are not material.
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The total cost of the acquisition to the Operating Partnership was
approximately $655,000, 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. The Operating
Partnership borrowed $575,000 from I. Stanley Levine, Trustee, of Miami,
Florida, in order to complete the acquisition. The Levine loan matured in
December 1998. 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. The Operating Partnership funded the acquisition and will
satisfy the Levine loan from the net proceeds of the Trust's sale of Common
Shares in the ongoing Cash Offering. The purchase price was determined by the
parties in an arms-length negotiation. The Operating Partnership 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 the 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 (the "Alexandria Property"). One hundred twelve of the 168 residential
units (approximately 67%) have been completed as of June 30, 1999 and are in the
rent-up stage. As of June 30, 1999, 44 of the 112 completed units have been
rented at an average annual rental rate of $8,244. The average monthly occupancy
rate for 1998 was 14%. The Operating Partnership paid $400,000 for the acquired
partnership interest and retains an option to acquire the remaining limited
partnership interests at the same price per percentage interest (for a total
price of approximately $3,250,000 for the entire limited partnership interest).
Subsequently, the Operating Partnership acquired additional limited partnership
units for $885,000 and as of June 30, 1999 it owns an approximately 40% limited
partnership interest. The Acquisition Agreement called for an installment sale
with the Operating Partnership to acquire limited partnership interests as
buildings are completed. The purchase price was based on an independent
appraisal of the property less all liabilities, and was approved by the Board of
the Trust. 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 the Operating Partnership and also serves as
its managing general partner. During the construction stage of the apartment
property, the Operating Partnership's 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.
The Alexandria Property is a new development, and there is no renovation
program in place. The property has substantial technological advantages over its
competition in the area and is looking to maximize these advantages in the
future. Alexandria is not in an over-developed location. The Alexandria Property
is adequately covered by insurance. The Alexandria Property is a residential
community; there is no tenant who occupies 10% or more of the rentable square
footage. There is no business, occupation or profession taking place on the
Alexandria Property. The property leases units for periods of no longer than one
year. The property is still in construction and as such there are no assets to
depreciate on the partnership books. The construction company is paying only
land taxes on the Alexandria Property.
Acquisition of Limited Partnership Interests
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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, including certain of the Exchange Partnerships. 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. In addition, the
Operating Partnership agreed with the Exchange Partnerships that the acquisition
would not affect the valuation of the limited partnership interests for purposes
of the Exchange Offering. These various partnerships will be accounted for on
the cost method since their respective ownership interests represent less than
20% of the equity ownership therein. In addition, the partnerships will
periodically assess the realizable value of these investments in order to
ascertain that there has been no impairment in their recorded value.
Contract to Purchase Two 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 Gregory K. McGrath.
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 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 having 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 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 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.
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. First, 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.
The Exchange Properties
In the Exchange Offering, the Operating Partnership will offer to issue
registered Units in exchange for limited partnership interests owned by
individual limited partners in limited partnerships which directly or indirectly
own equity and/or debt interests in residential apartment properties. As its
initial investment targets in the Exchange Offering, the Operating Partnership
is offering to acquire limited partnership interests from individual limited
partners (collectively, the "Exchange Limited Partners" and individually an
"Exchange Limited Partner") in 23 limited partnerships (collectively referred to
herein as the "Exchange Partnerships" and individually as an "Exchange
Partnership") 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"). The Operating
Partnership 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
114
<PAGE>
Partnerships are managed by Corporate General Partners affiliated with the
Managing Shareholder (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, three and four-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 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) is
approximately $16,576,606. The total current 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 is approximately $7,489,325.
Certain information relating to the 26 Exchange Properties and mortgage
indebtedness secured thereby is summarized in the four tables set forth below.
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 $24,980,660, comprised of Operating
Partnership Units to be issued with an initial assigned value in that amount.
The Trust and the Operating Partnership 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 the Managing Shareholder. See also "PRIOR PERFORMANCE BY
AFFILIATES OF MANAGING SHAREHOLDER," "THE TRUST AND THE OPERATING PARTNERSHIP"
and "INVESTMENT OBJECTIVES AND POLICIES."
Upon the completion of the Exchange Offering in respect of each
Participating Exchange Partnership, (i) Gregory K. McGrath, a founder of the
Trust and the Operating Partnership, the Chief Executive Officer of the Trust,
the Operating Partnership and the Managing Shareholder, and the sole
stockholder, director and executive officer of the Corporate General Partner of
each of the Exchange Partnerships, will for nominal consideration (a) grant the
Board of the Trust a management proxy coupled with an interest to vote the
shares of approximately five Corporate General Partners of the Exchange
Partnerships or (b) contract to assign all of the stock in approximately
eighteen Corporate General Partners to the Trust; (ii) the Corporate General
Partner will assign to the Operating Partnership 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.
In the initial transactions of the Exchange Offering, the Operating
Partnership is offering to issue Units to each individual Exchange Limited
Partner in exchange for his respective limited partnership interest in an
Exchange Partnership. Each Exchange Limited Partner will have the opportunity to
elect on an individual basis either (i) to accept Units in exchange for his
limited partnership interest in his respective Exchange Partnership or (ii) to
retain his interest in the Exchange Partnership on substantially the same terms
and conditions as his original investment. The Operating Partnership will not
complete the Exchange Offering in respect of any particular Exchange Partnership
unless limited partners holding at least 90% of the limited partnership
interests in the partnership affirmatively elect to accept the offering. In
addition, the Operating Partnership will not complete any transaction in the
offering whatsoever unless a sufficient number of Offerees accept the offering
such that the offering involves the issuance of Operating Partnership Units with
an initial value of at least $6,000,000. After the completion of the Exchange
Offering, each Exchange Partnership will continue to own its interest in its
respective Exchange Property, but all of the limited partnership interests in a
given Participating Exchange Partnership would then be owned by the Operating
Partnership, if all Exchange Limited Partners in the partnership elect to accept
the
115
<PAGE>
Exchange Offering, or by the Operating Partnership and any Exchange Limited
Partners who elect not to accept the Exchange Offering.
The number of Operating Partnership Units 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 Operating Partnership Unit will be initially valued at $10.00,
the offering price of each Trust Common Share offered in the Cash Offering. The
value of the Units and the Common Shares are substantially identical since, as
described above, recipients of Operating Partnership Units in the Exchange
Offering may exchange their Units into an equivalent number of Common Shares at
any time, subject to certain conditions. "See "SUMMARY OF THE TRUST AND THE
OPERATING PARTNERSHIP" and "THE EXCHANGE OFFERING."
The number of Units being offered by the Operating Partnership 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 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 one 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. 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 its 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 and other indebtedness to
which the property be 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 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 one 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 the Operating Partnership 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. See " - Exchange Property Appraisals."
All expenses incurred in connection with the Exchange Offering to produce,
file, print and distribute the Prospectus will be paid by the Trust and the
Operating Partnership. No special fees or commissions were or will be paid in
connection with the Exchange Offer to the Managing Shareholder (wholly owned and
controlled, along with the Corporate General Partner of each Exchange
Partnership, by Mr. McGrath), any Corporate General Partner of an Exchange
Partnership, or any of their respective affiliates. Broker-dealers who assist
the Operating Partnership 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 the Trust equal to 5% of the Units issued to
Offerees as a result of their efforts.
116
<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 ofJune 30, 1999, and (v) physical occupancy of each property as
ofJune 30, 1999. In the Exchange Offering, the Operating Partnership 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 Approx.
Apartment Rentable
Property (and type Year Approx. Area
Partnership GP of interest) Location Completed No. of Units Acres (Sq. Ft.)*
- ----------- -- ------------ -------- --------- ------------ ----- ----------
<S> <C> <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, Florida 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>
Physical
6/30/99 Occupancy
Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 6/30/99
- ----------- --------- ------------------------ -------
<S> <C> <C> <C> <C> <C>
Exchange Equity
Partnerships:
- -------------
Baron Strategic Avg. 657 $433 $.66 92%
Investment Fund 1 BR 550
II, Ltd. 2 BR 678
Central Florida Avg. 807 $531 $.66 98%
Income 1 BR 576
Appreciation Fund, 2 BR 864
Ltd.
Florida Capital Avg. 591 $465 $.78 96%
Income Fund, Ltd. 1 BR 576
2 BR 864
Florida Capital Avg. 1,205 $673 $.56 94%
Income Fund II, 2 BR 1,075
Ltd. 3 BR 1,358
Florida Capital Avg. 570 $465 $.82 94%
Income Fund III, Studio 288
Ltd. 1 BR 576
2 BR 864
Florida Capital Avg. 550 $674 $1.23 76%
Income Fund IV, 1 BR 550
Ltd.
Florida Income Avg. 1,151 $656 $.57 88%
Advantage Fund I, 2 BR 1,075
Ltd. 3 BR 1,358
Florida Income Avg. 1,146 $655 $.57 100%
Appreciation Fund 2 BR 1,075
I, Ltd. 3 BR 1,358
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area
Partnership GP of interest) Location Completed No. of Units Acres (Sq. Ft.)*
- ----------- -- ------------ -------- --------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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>
Physical
6/30/99 Occupancy
Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 6/30/99
- ----------- --------- ------------------------ -------
<S> <C> <C> <C> <C> <C>
Florida Income Avg. 561 $495 $.88 95%
Growth Fund V, Ltd. Studio 300
1 BR 600
2 BR 900
Florida Avg. 581 $436 $.75 93%
Opportunity Income 1 BR 576
Partners, Ltd. 2 BR 864
GSU Stadium Avg. 860 $963 $1.13 70%
Student Studio 288
Apartments, Ltd. 3 BR 880
4 BR 880
Midwest Income Avg. 576 $376 $.65 94%
Growth Fund VI, Studio 288
Ltd. 1 BR 576
2 BR 864
Realty Opportunity Avg. 1,141 $653 $.57 90%
Income Fund VIII, 2 BR 1,075
Ltd. 3 BR 1,358
Exchange Hybrid
Partnerships:
Baron Strategic Avg. 513 $461 $.90 92%
Investment Fund Studio 288
VI, Ltd. 1 BR 576
2 BR 864
Baron Strategic Avg. 608 $410 $.68 96%
Investment Fund 1 BR 576
IX, Ltd. 2 BR 864
Baron Strategic Avg. 608 $410 $.68 96%
Investment Fund X, 1 BR 576
Ltd. 2 BR 864
Avg. 513 $461 $.90 92%
1 BR 288
2 BR 576
864
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area
Partnership GP of interest) Location Completed No. of Units Acres (Sq. Ft.)*
- ----------- -- ------------ -------- --------- ------------ ----- ----------
<S> <C> <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>
Physical
6/30/99 Occupancy
Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 6/30/99
- ----------- --------- ------------------------ -------
<S> <C> <C> <C> <C> <C>
Lamplight Court of Avg. 587 $397 $.68 88%
Bellefontaine Studio 288
Apartments, Ltd. 1 BR 576
2 BR 864
------------------------------------------------
673 $533 $.80 89.5%
================================================
</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 39.56% 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.
(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.
119
<PAGE>
Property Information
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 ofJune
30, 1998, and (v) physical occupancy of each property as ofJune 30, 1999. In the
Exchange Offering, the Operating Partnership 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 Approx.
Apartment Rentable
Property (and type Year Approx. Area
Partnership GP of interest) Location Completed No. of Units Acres (Sq. Ft.)*
- ----------- -- ------------ -------- --------- ------------ ----- ----------
<S> <C> <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 Capital Apartments Florida Studio 14
IV, 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>
Physical
6/30/99 Occupancy
Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 6/30/99
- ----------- --------- ------------------------ -------
<S> <C> <C> <C> <C> <C>
Exchange Mortgage
Partnerships:
Baron Strategic Avg. 557 $513 $.92 90%
Investment Fund, Studio 300
Ltd. 1 BR 600
2 BR 864
Avg. 1,325 - - -
2 BR
3 BR
Baron Strategic Avg. 548 $469 $.86 96%
Investment Fund Studio 288
IV, Ltd. 1 BR 576
2 BR 864
Baron Strategic Avg. 532 $463 $.87 89%
Investment Fund V, Studio 288
Ltd. 1 BR 576
2 BR 864
Avg. 540 $443 $.82 98%
Studio 288
1 BR 576
2 BR 864
Baron Strategic Avg. 541 $527 $.98 93%
Investment Fund Studio 288
VIII, Ltd. 1 BR/1B 576
2 BR/1B 864
2 BR/2B 864
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area
Partnership GP of interest) Location Completed No. of Units Acres (Sq. Ft.)*
- ----------- -- ------------ -------- --------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2 BR/1B 4
2 BR/2B 1
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, Capital Apartments (1) Florida Studio 16
Ltd. 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 Capital Apartments Florida Studio 6
VI, 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 Capital Apartments Florida Studio 6
IX, Ltd. XLII, Inc. (Phase II) (3) 1 BR 26
2 BR 1
</TABLE>
<TABLE>
<CAPTION>
Physical
6/30/99 Occupancy
Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 6/30/99
- ----------- --------- ------------------------ -------
<S> <C> <C> <C> <C> <C>
2 BR/1B 864
2 BR/2B 864
Avg. 615 $433 $.70 92%
1 BR 576
2 BR 864
Avg. 1,325 - - -
2 BR
3 BR
Baron Strategic Avg. 540 $443 $.82 98%
Vulture Fund I, Studio 288
Ltd. 1 BR 576
2 BR 864
Brevard Mortgage Avg. 612 $412 $.67 83%
Program, Ltd. 1 BR 576
2 BR 864
Exchange Hybrid
Partnerships
- ------------
Baron Strategic Avg. 532 $463 $.87 89%
Investment Fund Studio 288
VI, Ltd. 1 BR 576
2 BR 864
Avg. 548 $469 $.86 96%
Studio 288
1 BR 576
2 BR 864
Avg. 601 $417 $.69 90%
Studio 288
1 BR 576
2 BR 864
Baron Strategic Avg. 532 $463 $.87 89%
Investment Fund Studio 288
IX, Ltd. 1 BR 576
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
Name of
Residential Approx.
Apartment Rentable
Property (and type Year Approx. Area
Partnership GP of interest) Location Completed No. of Units Acres (Sq. Ft.)*
- ----------- -- ------------ -------- --------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
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): 590 42.48 338,772
================================
</TABLE>
<TABLE>
<CAPTION>
Physical
6/30/99 Occupancy
Avg. Unit Size Average Rental Rates/Month As Of
Partnership (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 6/30/99
- ----------- --------- ------------------------ -------
<S> <C> <C> <C> <C> <C>
2 BR 864
Avg. 601 $417 $.69 90%
Studio 288
1 BR 576
2 BR 864
Avg. 1,325 - - -
Baron Strategic Avg. 601 $417 $.69 90%
Investment Fund X, Studio 288
Ltd. 1 BR 576
2 BR 864
Avg. 541 $527 $.98 93%
Studio 288
1 BR 576
2 BR/1B 864
2 BR/2B 864
Lamplight Court of Avg. 587 $397 $.68 88%
Bellefontaine Studio 288
Apartments, Ltd. 1 BR 576
2 BR 864
------------------------------------------------
569 $447 $.78 91%
================================================
</TABLE>
- ----------
* Includes only residential apartment units and excludes common areas.
(1) The Partnership's sole real estate assets consist of an undivided second
mortgage interest in the property or properties described in this table.
The second 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 second 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 second 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 second 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 second 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 second 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.
122
<PAGE>
Mortgage Information
Equity Property Interests
The table below sets forth certain information relating to the first mortgage
(and in one case, second 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 June 30,
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, the Operating
Partnership 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>
6/30/99 Annual
Principal Interest Debt Monthly Amortization
Partnership GP Property Location Balance Rate Payment Payment Term
- ----------- -- -------- -------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Baron Strategic Baron Capital Steeplechase Anderson, $1,260,000 Yrs. 1-2: $97,644 $8,138 30 years
Investment Fund XXXI, Inc. Apartments Indiana 7.25%
II, Ltd. Yrs. 3-4:
7.75%
Yrs. 5-10:
8.25%
Central Florida Baron Capital Laurel Oaks Deland, 1,588,191 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 1,427,797 8.56% 145,669 12,139 25 years
Income Fund, Ltd. II, Inc. Apartments Orange,
Florida
Florida Capital Baron Capital Forest Glen Daytona 1,771,768 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, 710,868 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. 2,684,155 9.55% 296,046 24,670 25 years
Income Fund IV, V, Inc. Apartments Petersburg, 8.00% 34,728 2,894 25 years
Ltd. Florida 352,238
(second
mortgage)
</TABLE>
<TABLE>
<CAPTION>
Balance
Maturity Due On
Partnership Date Maturity Lender
- ----------- ---- -------- ------
<S> <C> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Baron Strategic 10/1/06 $1,099,557 Crown Bank
Investment Fund
II, Ltd.
Central Florida 12/1/28 -0- Prudential Mortgage
Income Capital
Appreciation
Fund, Ltd.
Florida Capital 11/1/05 1,244,562 Column Financial, Inc.
Income Fund, Ltd.
Florida Capital 3/05 1,681,926 Prudential Mortgage
Income Fund II, Capital
Ltd.
Florida Capital 7/1/06 625,327 Huntington Mortgage Co.
Income Fund III,
Ltd.
Florida Capital 5/18/00 2,652,341 Republic Bank
Income Fund IV, 5/1/05 343,772 Glen Lake Arms
Ltd. Joint Venture
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
6/30/99 Annual
Principal Interest Debt Monthly Amortization
Partnership GP Property Location Balance Rate Payment Payment Term
- ----------- -- -------- -------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Florida Income Baron Capital Forest Glen III Daytona 885,884 7.01% 71,649 5,971 30 years
Advantage IV, Inc. Beach, FL
Fund I
</TABLE>
<TABLE>
<CAPTION>
Balance
Maturity Due On
Partnership Date Maturity Lender
- ----------- ---- -------- ------
<S> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Florida Income 3/05 817,310 Prudential Mortgage
Advantage Capital
Fund I
</TABLE>
<TABLE>
<CAPTION>
6/30/99 Annual
Principal Interest Debt Monthly Amortization
Partnership GP Property Location Balance Rate Payment Payment Term
- ----------- -- -------- -------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Florida Income Baron Capital Forest Glen Daytona 272,580 7.01% 19,337 1,611 30 years
Appreciation IV, Inc. Apartments Beach,
Fund I, Ltd. (Phase IV) Florida
Florida Income Baron Blossom Corners Orlando, 1,017,388 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 1,065,887 9.04% 111,132 9,261 30 years
Opportunity III, Inc. Apartments Beach,
Income Partners, Florida
Ltd.
GSU Stadium Baron Capital Stadium Club Statesboro, 1,712,134 7.87% 160,346 13,362 30 years
Student X, Inc. Apartments Georgia
Apartments, Ltd.
Midwest Income Baron Capital Brookwood Way Mansfield, 1,043,073 9.04% 108,612 9,051 25 years
Growth Fund VI, of Ohio III, Apartments Ohio
Ltd. Inc.
Realty Baron Capital Forest Glen Daytona 1,022,174 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, 1,596,966 7.75% 139,271 11,606 30 years
Investment Fund XXXI, Inc. Apartments Florida
VI, Ltd.
</TABLE>
<TABLE>
<CAPTION>
Balance
Maturity Due On
Partnership Date Maturity Lender
- ----------- ---- -------- ------
<S> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Florida Income 3/05 216,712 Prudential Mortgage
Appreciation Capital
Fund I, Ltd.
Florida Income 11/1/06 $882,430 Column Financial, Inc.
Growth Fund V,
Ltd.
Florida 11/1/06 984,430 Column Financial, Inc.
Opportunity
Income Partners,
Ltd.
GSU Stadium 10/1/05 1,615,458 GMAC
Student
Apartments, Ltd.
Midwest Income 12/1/06 890,263 Mellon Bank
Growth Fund VI,
Ltd.
Realty 3/05 981,813 Prudential Mortgage
Opportunity Capital
Income Fund
VIII, Ltd.
Exchange Hybrid
Partnerships
Baron Strategic 11/04 1,493,008 GMAC
Investment Fund
VI, Ltd.
</TABLE>
124
<PAGE>
<TABLE>
<CAPTION>
6/30/99 Annual
Principal Interest Debt Monthly Amortization
Partnership GP Property Location Balance Rate Payment Payment Term
- ----------- -- -------- -------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Baron Strategic Baron Capital Crystal Court Lakeland, 1,203,764 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, 1,203,764 7.50% 102,533 8,544 30 years
Investment Fund XLIV, Inc. Apartments Florida
X, Ltd. (Phase I)
Pineview Orlando, 1,596,966 7.75% 139,271 11,606 30 years
Apartments Florida
Lamplight Court Baron Capital Lamplight Court Bellefontaine 1,356,867 9.04% 135,660 11,305 25 years
of Bellefontaine IX, Inc. Ohio
Apts., Ltd.
----------- ---------------------
TOTAL
PROPERTIES: $20,971,734 $1,925,970 $160,496
=========== =====================
</TABLE>
<TABLE>
<CAPTION>
Balance
Maturity Due On
Partnership Date Maturity Lender
- ----------- ---- -------- ------
<S> <C> <C> <C>
Exchange
Equity
Partnerships
- ------------
Baron Strategic 11/04 1,126,207 GMAC
Investment Fund
IX, Ltd.
Baron Strategic 11/04 1,126,207 GMAC
Investment Fund
X, Ltd.
11/04 1,493,008 GMAC
Lamplight Court 11/1/06 1,158,349 Column Financial
of Bellefontaine
Apts., Ltd.
-----------
$17,813,465
===========
</TABLE>
125
<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 ofJune 30, 1999 and due at maturity, (v) the undivided interests of
other Exchange Partnerships in the second mortgage loans or the principal
balance as ofJune 30, 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 June 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.
126
<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 Blossom Corners
Debtor: Apartments II, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $977,645
6/30/99 principal balance
(accrued unpaid interest): $850,966 ($46,752)
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.
6/30/99 principal balance of
first
mortgage loan secured by $1,096,229; the loan matures in 3/02, has a
property and other terms: 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.
127
<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
6/30/99 principal balance of
Exchange Partnership's 100%
interest in loan (accrued
unpaid interest): $230,000 ($27,315)
Balance due at maturity: $230,000
6/30/99 aggregate principal balance of other second mortgage loans secured by
property and owned by other Exchange Partnerships (accrued unpaid
interest ): $341,500 ($20,132)
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
6/30/99 principal balance of
first
mortgage loan secured by $1,021,362; approved maximum $2,000,000; the
property and other terms: 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 $5,623 and
$14,509), respectively. The lending parties
have agreed to share the benefits of the
second mortgage on a pari passu basis.
128
<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
6/30/99 principal balance
(accrued unpaid interest): $1,364,549 ($199,576)
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.
6/30/99 principal balance of
first
mortgage loan secured by $1,582,377; the loan matures in 3/08, has a
property and other terms: 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.
129
<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
6/30/99 principal balance
(accrued unpaid interest): $21,000 ($3,102)
Balance due at maturity: $21,000
6/30/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $143,500 ($20,089)
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 6/30/99
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 $9,967)
and $75,500 (accrued unpaid interest of
$10,122), 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.
130
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
6/30/99 principal balance of
first
mortgage loan secured by
property (12.8% of amount) $587,146 ($75,155); the loan matures in
and other terms: 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 $474,703
and
a 100% interest in one loan:
6/30/99 principal balance
(accrued unpaid interest): $474,703 ($33,148)
Balance due at maturity: $474,703
6/30/99 principal balance of
other
Exchange Partnership's
undivided
73.7% in three loans and a 100% $1,243,847 ($112,259) interest in one loan
(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 6/30/99 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 $134,759); 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)
131
<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.
6/30/99 principal balance of
first
mortgage loan secured by
property (26.3% of amount) $1,286,406 ($338,325); the loan matures in
and other terms: 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
6/30/99 principal balance
(accrued unpaid interest): $1,031,801 (-0-)
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 $335,000
amortization provisions: 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
132
<PAGE>
Baron Strategic Investment Fund V, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
6/30/99 principal balance of
first $1,022,417; the loan matures in 1/05, has a
mortgage loan secured by balance due at maturity of $932,217, bears
property and other terms: 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.
133
<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:
6/30/99 principal balance
(accrued unpaid interest): $206,260 ($2,406)
Balance due at maturity: $206,260
6/30/99 principal balance of
other
Exchange Partnership's
undivided $155,787 ($5,972)
42% in loans (accrued unpaid
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 6/30/99 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
$5,972); 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
134
<PAGE>
Baron Strategic Investment Fund VIII, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
6/30/99 principal balance of
first $699,359 ($405,628); the loan matures in
mortgage loan secured by 11/04, has a balance due at maturity of
property (58% of amount) and $655,856, bears interest at a fixed annual
other terms: 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
6/30/99 principal balance
(accrued unpaid interest ): $969,268 ($60,704)
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.
6/30/99 principal balance of
first
mortgage loan secured by $1,022,255; the loan matures in 11/04, has a
property and other terms: 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.
135
<PAGE>
Baron Strategic Investment Fund VIII, Ltd. (cont'd)
(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
6/30/99 principal balance
(accrued unpaid interest): $98,000 ($5,623)
Balance due at maturity: $98,000
6/30/99 aggregate principal
balance of other second
mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid $473,500 ($41,824)
interest):
Appraised replacement cost new
of property (under $9,376,039
development):
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
6/30/99 principal balance of
first
mortgage loan secured by $1,021,362; approved maximum $2,000,000; the
property and other terms: 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
$27,315 and $14,509), respectively. The
lending parties have agreed to share the
benefits of the second mortgage on a pari
passu basis.
136
<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
6/30/99 principal balance
(accrued unpaid interest): $1,243,847 ($112,259)
Balance due at maturity: $1,243,847
6/30/99 principal balance of
other
Exchange Partnership's
undivided 26.3% in three
loans and 100% interest in $474,703 ($33,148)
one loan (accrued unpaid
interest):
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 6/30/99 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 $33,148); 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
137
<PAGE>
Baron Strategic Vulture Fund I, Ltd.
(cont'd)
Prepayment provisions: Prepayable without penalty.
6/30/99 principal balance of
first $1,286,406 ($948,081); the loan matures in
mortgage loan secured by 4/08, has a balance due at maturity of
property (73.7% of amount) $1,122,800, bears interest at the fixed
and other terms: 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.
138
<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
6/30/99 principal balance
(accrued unpaid interest): $1,048,861 ($112,115)
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.
6/30/99 principal balance of
first
mortgage loan secured by $944,722; the loan matures in 7/01, has a
property and other terms: 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.
139
<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 $68,000
in loan:
6/30/99 principal balance
(accrued unpaid interest): $68,000 ($9,767)
Balance due at maturity: $68,000
6/30/99 principal balance of
other
second mortgage loans secured by
the property and owned by other
Exchange Partnerships $96,500 ($13,224)
(accrued unpaid interest):
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 6/30/99
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 $3,102) and $75,500
(accrued unpaid interest of $10,122),
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)
140
<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.
6/30/99 principal balance of
first
mortgage loan secured by $587,146 ($242,491); the loan matures in
property (41.3% of amount) 2/03, has a balance due at maturity of
and other terms: $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
6/30/99 principal balance
(accrued unpaid interest): $248,353 ($11,196)
Balance due at maturity: $248,353
6/30/99 principal balance of
other Exchange Partnerships'
undivided 80% in loan
(accrued unpaid interest): $993,414 ($45,728)
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, 6/30/99 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
$14,230) and $682,972 (accrued unpaid
interest of $31,498), 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)
141
<PAGE>
Baron Strategic Investment Fund VI, Ltd. (cont'd)
(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.
6/30/99 principal balance of $967,012 ($193,402); the loan matures in
first 5/05, has a balance due at maturity of
mortgage loan secured by $822,063, bears interest at the fixed annual
property (20% of amount) and rate of 8.31%, has annual and monthly debt
other terms: 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"):
6/30/99 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 ($56,670)
6/30/99 principal balance of
Baron Fund IV's second
mortgage loans secured by
property
(accrued unpaid interest ): $1,364,549 ($199,576)
Appraised replacement cost new
of property: $3,554,776
Appraised value of property -
income approach: $2,281,000
6/30/99 principal balance of
first mortgage loan $1,582,377; the loan matures in 3/08, has a
secured by property: 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.
142
<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
6/30/99 principal balance
(accrued unpaid interest): $75,500 ($10,122)
Balance due at maturity: $75,500
6/30/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
Interest): $89,000 ($13,069)
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 6/30/99
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 $3,102) and $68,000
(accrued unpaid interest of $9,967),
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
amortizationprovisions: Fixed interest rate of 12%; requires
payments of interest only until maturity.
Maturity date: 3/03
Annual interest payable: $9,060
143
<PAGE>
Baron Strategic Investment Fund IX, Ltd.
(cont'd)
Monthly interest payable: $755
Prepayment provisions: Prepayable without penalty.
6/30/99 principal balance of
first
mortgage loan secured by
property (45.9% of amount) $587,146 ($269,500); the loan matures in
and other items: 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
loans: $310,442
6/30/99 principal balance
(accrued unpaid interest): $310,442 ($14,230)
Balance due at maturity: $310,442
6/30/99 principal balance of
other
Exchange Partnerships'
undivided 75% interest in
loans (accrued unpaid
interest): $931,325 ($42,694)
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, 6/30/99 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
$11,196) and $682,972 (accrued unpaid
interest of $31,498), 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)
144
<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.
6/30/99 principal balance of
first $967,012 ($241,753); the loan matures in
mortgage loan secured by 5/05, has a balance due at maturity of
property (25% of amount) and $822,063, bears interest at the fixed annual
other terms: 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
6/30/99 principal balance
(accrued unpaid interest): $243,500 ($14,509))
Balance due at maturity: $243,500
6/30/99 aggregate principal
balance of other second mortgage
loans secured by property and
owned by other Exchange
Partnerships (accrued unpaid
interest): $328,000 ($32,938)
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
6/30/99 principal balance of
first
mortgage loan secured by $1,021,362; approved maximum $2,000,000; the
property and other items: 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.
145
<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 $27,315
and $5,623), respectively. The lending
parties have agreed to share the benefits of
the second mortgage on a pari passu basis.
146
<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
6/30/99 principal balance
(accrued unpaid interest): $149,361 ($5,972)
Balance due at maturity: $149,361
6/30/99 principal balance of
other
Exchange Partnership's
undivided 58% in loans (accrued $206,260 ($5,306)
unpaid interest):
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 6/30/99 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
$2,406); 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.
147
<PAGE>
Baron Strategic Investment Fund X, Ltd.
(cont'd)
6/30/99 principal balance of
first
mortgage loan secured by
property (42% of amount) and $699,359 ($293,731); the loan matures in
other terms: 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
6/30/99 principal balance
(accrued unpaid interest): $682,972 ($31,498)
Balance due at maturity: $682,972
6/30/99 principal balance of
other
Exchange Partnerships'
undivided 45% in loan (accrued $558,795 ($25,426)
unpaid interest):
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, 6/30/99 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 $11,196$5,607) and $310,442,
(accrued unpaid interest of $14,230),
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)
148
<PAGE>
Baron Strategic Investment Fund X, Ltd.
(cont'd)
Monthly interest payable: $5,122
Prepayment provisions: Prepayable without penalty.
6/30/99 principal balance of
first $967,012 ($531,857); the loan matures in
mortgage loan secured by 5/05, has a balance due at maturity of
property (55% of amount) $822,063, bears interest at the fixed annual
and other items: 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.
149
<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
unitsandlocation): Lamplight Court Apartments (80 units)
Bellefontaine, Ohio
Debtor: Independence Village, Ltd.
Original principal amount of
Exchange Partnership's 100%
interest in loans: $678,302
6/30/99 principal balance
(accrued unpaid interest): $678,302 ($135,713)
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.
6/30/99 principal balance of
first
mortgage loan secured by $1,358,436; the loan matures in 11/06, has a
property and other terms: 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.
150
<PAGE>
Property Description
The Exchange Properties are primarily garden style, one and two-story
residential apartment dwellings which range in size from eight units to 144
units. The Trust believes that the Exchange Properties generally occupy
strategic locations in growing sub-markets. The average unit size for properties
is 635 square feet, with 26% of the units having two or more bedrooms. A
majority of the units have washer/dryer connections and walk-in closets. The
Exchange Equity Partnerships and Exchange Hybrid Partnerships have improved the
attractiveness of the Exchange Properties in which they own an equity interest
by investing in extensive landscaping and rehabilitating certain units. Other
features frequently included in certain Exchange Properties are swimming pools,
playgrounds, volley ball courts, fitness centers and community rooms.
The Operating Partnership does not intend to acquire an interest in any
property which requires major maintenance unless (i) sufficient amounts have
been reserved to complete such maintenance and, in connection with the
acquisition, the Operating Partnership will receive the benefit of such reserves
or (ii) the acquisition price for the property interest reflects the cost of
required major maintenance items and the Operating Partnership has the ability
to fund such maintenance from its resources. Following the Exchange Offering,
the Operating Partnership intends to review each of the properties in which it
acquires an interest to determine the costs and benefits of undertaking any
capital improvements which may increase the property's profitability. The
Operating Partnership does not intend to undertake any capital improvement in
respect of a property unless the investment is projected to result in a rate of
return of 20% or more on the investment.
Lease Agreements
The Exchange Partnerships use a variety of lease forms to comply with
applicable state and local laws and customs. At some properties, the Exchange
Partnerships use leases provided or recommended by state or local apartment
associations. At other properties, the Exchange Partnerships use a standard
company lease modified if necessary to comply with local law or custom. The term
of a lease varies with local market conditions; however, one-year leases are
most common. Generally, the leases provide that unless the parties agree in
writing to a renewal, the tenancy will convert at the end of a lease term to a
month-to-month tenancy, subject to the terms and conditions of the lease, unless
either party gives the other party at least 30 days' prior notice of
termination. All leases are terminable by the Exchange Partnerships for
nonpayment of rent, violation of property rules and regulations, or other
specified defaults.
Competition
In general, there are numerous other residential apartment properties
located in close proximity to each of the Exchange Properties. The number of
units available in any target metropolitan market could have a material effect
on a property's capacity to rent units and on the rents charged. In addition, in
many of the Trust's proposed sub-markets, institutional investors and owners and
developers of residential apartment properties compete for the acquisition and
leasing of properties. Many of these persons have substantial resources and
experience. See "RISK FACTORS - Competition."
Insurance
The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) believes
that all of the Exchange Properties are adequately insured; however, an
uninsured loss could result in loss of capital investment and anticipated
profits. See "RISK FACTORS - Property Losses May Not be Insurable."
Property Management
In June 1998, the Exchange Partnerships and other real estate partnerships
managed by affiliates of the Managing Shareholder entered into an agreement to
terminate property management agreements with the prior property manager. Since
the transaction, the Exchange Partnerships and other partnerships have managed
the properties in which they have an interest and shared property management
expenses. The Exchange Properties and other properties in which the Trust and
the Operating Partnership acquire an interest will be similarly managed. During
1997, the Exchange Equity Partnerships paid a total of approximately $190,313 in
property management fees and $50,700 in accounting fees. In 1998 the Exchange
Equity Partnerships paid a total of approximately $209,947 in property
management fees and $50,700 in accounting fees. Upon completion of
the Exchange Offering it is anticipated (but not assured) that the large number
of residential units to be owned by the Operating Partnership will provide the
Exchange Partnership with a lower operating cost per residential unit, and as a
consequence, increase operating performance.
151
<PAGE>
BARON CAPITAL TRUST
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended (February 3,
---------------- 1998) to
June 30, June 30, December 31,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 512,133 $155,316 $ 358,949
Other income 79,409 31,663 37,935
--------- ----------- -----------
591,542 186,979 396,884
--------- ----------- -----------
Costs and Expenses:
Equity in net loss of unconsolidated partnership 29,093 -- 20,360
Property taxes 41,276 11,011 34,496
Depreciation 72,907 15,513 80,296
Interest 144,491 50,217 164,333
Other operating expenses 1,202,218 522,955 1,774,459
----------- --------- -----------
1,489,985 599,696 2,073,944
----------- --------- -----------
Loss Before Minority Interest (898,443) (412,717) (1,677,060)
Minority Interest of Unitholders in Net Loss of Operating Partnership -- 72,073 100,000
------------- --------- -----------
Net Income (Loss) $(898,443) $(340,644) $(1,577,060)
------------- --------- -----------
------------- --------- -----------
Net Income (Loss) per Common Share $ (1.58) $ (1.68) $ (7.41)
Weighted Average Number of Shares Outstanding 568,635 202,764 212,731
BALANCE SHEET DATA:
Cash 145,964 861,886 177,299
Total assets at book value 8,408,259 3,126,639 7,702,305
Total liabilities 4,987,763 1,516,831 4,897,423
Shareholders' equity 3,420,496 1,609,808 2,804,882
Number of shares 644,696 203,123 463,650
OTHER DATA:
Distributions per share 0.29 -- 0.34
Distributions 167,596 -- 72,159
Distributions representing return of capital 167,596 -- 72,159
Net increase (decrease) in cash (31,335) 861,886 177,299
Net cash provided by (used in) operating activities (581,331) (234,411) (1,408,715)
Ratio of earnings to fixed charges (5.22) (7.22) (9.21)
Dollar amount of the deficiency in the ratio of earnings to fixed charges 898,443 412,717 1,677,060
Book value 3,420,496 1,609,808 2,804,882
Book value per share 5.31 7.93 6.05
Total assets at the value assigned for purposes of the roll-up transaction 12,428,763 8,957,831 12,338,423
Per share value assigned for purposes of the roll-up transaction 19 44 27
</TABLE>
152
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended (February 3,
---------------- 1998) to
June 30, June 30, December 31,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross Rents $ 512,133 $ -- $ 358,949
Other Income 79,140 329 36,604
--------- ----------- ------------
591,273 329 395,553
Costs and Expenses:
Equity in net loss of unconsolidated partnership 29,093 -- 20,360
Property taxes 41,276 -- 34,496
Depreciation 72,907 -- 80,296
Interest 144,491 -- 164,333
Other operating expenses 949,189 383,701 1,204,938
--------- ------------ -----------
1,236,956 383,701 1,504,423
----------- ------------ -----------
Net Income (Loss) $ (645,683) $ (383,372) $(1,108,870)
------------ ------------ -----------
------------ ------------ -----------
Net Income (Loss) per Partnership Unit $ (0.36) $ (0.32) $ (0.77)
Weighted Average Partnership Units Outstanding 1,807,344 1,215,760 1,437,610
BALANCE SHEET DATA:
Cash 97,454 419,279 77,724
Total assets at book value 8,394,269 1,646,750 7,799,524
Total liabilities 4,984,582 301,333 4,753,154
General and limited partners' equity 3,409,687 1,345,417 3,046,370
Partnership units 1,865,511 1,392,974 1,682,636
OTHER DATA:
Distributions per partnership unit -- -- --
Distributions 65,000 -- --
Distributions representing return of capital 65,000 -- --
Net increase (decrease) in cash 19,730 419,279 77,724
Net cash provided by (used in) operating activities (262,862) (284,213) (955,156)
Ratio of earnings to fixed charges (3) N/A (6)
Dollar amount of the deficiency in the ratio of earnings to fixed charges 645,683 N/A 1,108,870
Book value 3,409,687 1,345,417 3,046,370
Book value per unit 1.83 0.97 1.81
Total assets at the value assigned for purposes of the roll-up transaction 12,425,582 7,742,333 12,194,154
Per unit value assigned for purposes of the roll-up transaction 7 6 7
</TABLE>
153
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (October 1,
---------------- December 31, 1996) to
June 30, June 30, ------------ December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliates $ 50,536 $ 45,228 $ 93,797 $ 55,694 $ --
Other 6 410 493 3,423 109
--------- --------- -------- -------- -----------
50,542 45,638 94,290 59,117 109
--------- --------- -------- -------- -----------
Costs and Expenses:
Administrative fees to general partner 6,000 6,000 12,000 12,000 2,000
General and administrative 2,673 6,516 7,512 5,117 126
--------- --------- -------- -------- -----------
8,673 12,516 19,512 17,117 2,126
--------- --------- -------- -------- -----------
Net Income (Loss) $ 41,869 $ 33,122 $ 74,778 $ 42,000 $ (2,017)
--------- --------- -------- -------- -----------
--------- --------- -------- -------- -----------
Net Income (Loss) per Partnership Unit $ 17.45 $ 13.80 $ 31.16 $ 32.43 $ (9.17)
Weighted Average Partnership Units Outstanding 2,400 2,400 2,400 1,295 220
BALANCE SHEET DATA:
Cash 485 31,865 52 112,521 87,683
Total assets at book value 864,762 889,237 876,893 929,115 87,683
Total liabilities 13,000 1,000 7,000 14,000 2,000
General and limited partners' equity 851,762 888,237 869,893 915,115 85,683
Partnership units 2,400 2,400 2,400 2,400 220
OTHER DATA:
Distributions per partnership unit 25 25 50 26 --
Distributions 60,000 60,000 120,000 62,868 --
Distributions representing return of capital 18,131 26,878 45,222 20,868 --
Net increase(decrease) in cash 433 (80,656) (112,469) 24,838 87,683
Net cash provided by (used in) operating activities 58,896 42,483 70,670 (1,694) (17)
Ratio of earnings to fixed charges N/A N/A N/A N/A N/A
Book value 851,762 888,237 869,893 915,115 85,683
Book value per unit 355 370 362 381 389
Total assets at the value assigned for purposes of 1,278,000 1,266,000 1,272,000 1,279,000 *
the roll-up transaction
Per unit value assigned for purposes of 533 528 530 533 *
the roll-up transaction
</TABLE>
*No information regarding fair value was available prior to 1997
154
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended (February 25,
---------------- Year Ended 1997) to
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliates $ 48,194 $ 50,469 $ 100,741 $ 38,892
Other 3 286 762 1,708
---------- ---------- ------------- ------------
48,197 50,755 101,503 40,600
---------- ---------- ------------- ------------
Costs and Expenses:
Administrative fees to general partner 6,000 6,000 12,000 10,000
General and administrative 2,471 11,406 19,873 4,453
---------- ---------- ------------- ------------
8,471 17,406 31,873 14,453
---------- ---------- ------------- ------------
Net Income (Loss) $ 39,726 $ 33,349 $ 69,630 $ 26,147
---------- ---------- ------------- ------------
---------- ---------- ------------- ------------
Net Income (Loss) per Partnership Unit $ 16.55 $ 14.51 $ 29.64 $ 11.38
Weighted Average Partnership Units Outstanding 2,400 2,298 2,349 2,298
BALANCE SHEET DATA:
Cash 134 11,574 50 84,615
Total assets at book value 889,989 877,783 857,803 874,252
Total liabilities 13,000 1,000 7,000 12,854
General and limited partners' equity 876,989 876,783 850,803 861,398
Partnership units 2,400 2,298 2,400 2,298
OTHER DATA:
Distributions per partnership unit 6 25 49 13
Distributions 13,540 58,524 118,524 30,450
Distributions representing return of capital -- 25,175 48,894 4,303
Net increase(decrease) in cash 84 73,041 (84,565) 84,615
Net cash provided by (used in) operating activities 13,465 21,325 65,083 (2,745)
Ratio of earnings to fixed charges N/A N/A N/A N/A
Book value 876,989 876,783 850,803 861,398
Book value per unit 365 382 355 375
Total assets at the value assigned for purposes of 1,271,000 1,259,000 1,265,000 1,270,854
the roll-up transaction
Per unit value assigned for purposes of the 530 548 527 553
roll-up transaction
</TABLE>
155
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended (June 26,
---------------- Year Ended 1997) to
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliates $ 6,706 $ 7,613 $ 14,525 $ 7,622
Interest income from non-affiliates 6,774 5,879 12,765 -
Other 8 9,502 9,668 2,116
---------- ---------- ---------- ------------
13,488 22,994 36,958 9,738
---------- ---------- ---------- ------------
Costs and Expenses:
Equity in net losses of affiliates 14,300 18,496 36,990 15,330
Interest expense 19,836 17,271 37,436 -
Administrative fees to general partner 6,000 6,000 12,000 6,000
General and administrative 3,497 9,012 17,609 4,237
---------- ---------- ---------- ------------
43,633 50,779 104,035 25,567
---------- ---------- ---------- ------------
Net Income (Loss) $(30,145) $(27,785) $ (67,077) $ (15,829)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Net Income (Loss) per Partnership Unit $ (12.56) $ (12.32) $ (28.81) $ (7.02)
Weighted Average Partnership Units Outstanding 2,400 2,256 2,329 2,256
BALANCE SHEET DATA:
Cash 1,960 60,115 4,584 171,989
Total assets at book value 1,129,263 1,227,007 1,153,880 916,281
Total liabilities 472,664 420,664 446,829 85,708
General and limited partners' equity 656,599 806,343 707,051 830,573
Partnership units 2,400 2,256 2,400 2,256
OTHER DATA:
Distributions per partnership unit 8 23 47 6
Distributions 20,307 52,615 112,615 13,428
Distributions representing return of capital 20,307 52,615 112,615 13,428
Net increase(decrease) in cash (2,624) (111,874) (167,405) 171,989
Net cash provided by (used in) operating activities 3,058 (84,430) (89,173) (2,121)
Ratio of earnings to fixed charges (1) (1) (1) N/A
Dollar amount of the deficiency in the ratio of
earnings to fixed charges 30,145 27,785 67,077 N/A
Book value 656,599 806,343 707,051 830,573
Book value per unit 274 357 295 368
Total assets at the value assigned for purposes of 1,754,664 1,702,664 1,728,829 1,367,708
the roll-up transaction
Per unit value assigned for purposes of 731 755 720 606
the roll-up transaction
</TABLE>
156
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended (June 2,
---------------- Year Ended 1997) to
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equity in net income of affiliates $ 2,000 $ -- $ -- $ 4,207
Interest income from affiliate 22,451 11,603 37,686 392
Other 3 6,178 3,654 676
--------- --------- ------------ ------------
24,454 17,781 41,340 5,275
--------- --------- ------------ ------------
Costs and Expenses:
Equity in net losses of affiliates -- 21,813 38,251 --
Administrative fees to general partner 6,000 6,000 12,000 7,000
General and administrative 1,447 4,521 9,856 4,533
--------- --------- ------------ ------------
7,447 32,334 60,107 11,533
--------- --------- ------------ ------------
Net Income (Loss) $ 17,007 $(14,553) $ (18,767) $ (6,258)
--------- --------- ------------ ------------
--------- --------- ------------ ------------
Net Income (Loss) per Partnership Unit $ 7.09 $ (11.68) $ (10.27) $ (5.02)
Weighted Average Partnership Units Outstanding 2,400 1,246 1,828 1,246
BALANCE SHEET DATA:
Cash 537 44,128 140 195,984
Total assets at book value 823,622 876,228 819,115 511,078
Total liabilities 13,500 1,500 7,500 49,435
General and limited partners' equity 810,122 874,728 811,615 461,643
Partnership units 2,400 1,246 2,400 1,246
OTHER DATA:
Distributions per partnership unit 8 23 37 3
Distributions 18,500 28,872 87,771 3,589
Distributions representing return of capital 1,493 28,872 87,771 3,589
Net increase(decrease) in cash 397 (151,856) (195,844) 196,984
Net cash provided by (used in) operating activities 6,906 (57,994) (60,537) (3,857)
Ratio of earnings to fixed charges N/A N/A N/A N/A
Book value 810,122 874,728 811,615 461,643
Book value per unit 338 702 338 371
Total assets at the value assigned for purposes of 1,264,500 1,252,500 1,258,500 1,300,435
the roll-up transaction
Per unit value assigned for purposes of the 527 1,005 524 1,044
roll-up transaction
</TABLE>
157
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended
---------------- Year Ended December 31,
June 30, June 30, -----------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliate $35,438 $36,647 $73,533 $72,300 $82,092
Other -- 34 35 909 --
------- ------- -------- -------- ---------
35,438 36,681 73,568 73,209 82,092
------- ------- -------- -------- ---------
Costs and Expenses:
Administrative fees to general partner 4,500 4,500 9,000 9,000 9,000
General and administrative 2,887 3,176 3,554 2,119 13,939
------- ------- -------- -------- ---------
7,387 7,676 12,554 11,119 22,939
------- ------- -------- -------- ---------
Net Income (Loss) $28,051 $29,005 $61,014 $62,090 $59,153
------- ------- -------- -------- ---------
------- ------- -------- -------- ---------
Net Income (Loss) per Partnership Unit $ 48.78 $ 50.44 $ 106.11 $107.98 $102.87
Weighted Average Partnership Units Outstanding 575 575 575 575 575
BALANCE SHEET DATA:
Cash 525 246 5,412 25,387 92,996
Total assets at book value 583,837 571,178 579,036 564,672 551,890
Total liabilities 34,350 24,250 28,850 18,000 9,809
General and limited partners' equity 549,487 546,928 550,186 546,672 542,081
Partnership units 575 575 575 575 575
OTHER DATA:
Distributions per partnership unit 50 50 100 100 60
Distributions 28,750 28,749 57,500 57,500 34,572
Distributions representing return of capital 699 -- -- -- --
Net increase(decrease) in cash (4,887) (25,141) (19,975) (67,610) 92,997
Net cash provided by (used in) operating activities 23,863 3,608 37,525 14,890 60,068
Ratio of earnings to fixed charges N/A N/A N/A N/A N/A
Book value 549,487 546,928 550,186 546,672 542,081
Book value per unit 956 951 957 951 943
Total assets at the value assigned for purposes of 659,350 649,250 653,850 643,000 *
the roll-up transaction
Per unit data for value assigned for purposes of 1,147 1,129 1,137 1,118 *
the roll-up transaction
</TABLE>
*No information regarding fair value was available prior to 1997
Note: Date initially organized--November 14, 1995; date of commencement of
operations--January 1, 1996.
158
<PAGE>
LAMPLIGHT COURT OF BELLAFONTAINE APARTMENTS, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (February 16,
---------------- December 31, 1996) to
June 30, June 30, ------------ December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliate $ 30,936 $ 33,111 $ 66,772 $ 63,188 $ 29,345
Other 81 151 158 1,973 -
--------- --------- --------- -------- ---------
31,017 33,262 66,930 65,61 29,345
--------- --------- --------- -------- ---------
Costs and Expenses:
Administrative fees to general partner 3,000 3,000 6,000 6,000 4,500
General and administrative 2,958 5,275 5,350 1,262 231
--------- --------- --------- -------- ---------
5,958 8,275 11,350 7,262 4,731
--------- --------- --------- -------- ---------
Net Income (Loss) $ 25,059 $ 24,987 $ 55,580 $ 57,899 $ 24,614
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
Net Income (Loss) per Partnership Unit $35.80 $35.70 $79.40 $82.71 $ 35.16
Weighted Average Partnership Units Outstanding 700 700 700 700 700
BALANCE SHEET DATA:
Cash 25 7,669 2 50,793 128,973
Total assets at book value 591,534 573,882 572,475 586,895 598,521
Total liabilities 13,500 7,500 10,500 10,500 10,500
General and limited partners' equity 578,034 566,382 561,975 576,395 588,021
Partnership units 700 700 700 700 700
OTHER DATA:
Distributions per partnership unit 13 50 100 99 24
Distributions 9,000 35,000 70,000 69,525 16,593
Distributions representing return of capital -- 10,013 14,420 11,626 --
Net increase(decrease) in cash 23 (43,124) (50,791) (78,181) 128,973
Net cash provided by (used in) operating activities 9,023 (8,124) 19,209 8,710 6,502
Ratio of earnings to fixed charges N/A N/A N/A N/A N/A
Book value 578,034 566,382 561,975 76,395 588,021
Book value per unit 826 809 803 823 840
Total assets at the value assigned for purposes of 795,500 789,500 792,500 792,500 N/A
the roll-up transaction
Per unit value assigned for purposes of the 1,136 1,128 1,132 1,132 N/A
roll-up transaction
</TABLE>
159
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (October 1,
---------------- December 31, 1996) to
June 30, June 30, ------------ December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliate $ 82,669 $ 82,212 $ 166,018 $ 128,047 $ --
Other 3 338 342 1,573 --
---------- ---------- ---------- --------- -------------
82,672 82,550 166,360 129,620 --
---------- ---------- ---------- --------- -------------
Costs and Expenses:
Interest expense 19,473 20,915 40,388 67,699 --
Administrative fees to general partner 6,000 6,000 12,000 12,000 2,000
General and administrative 1,396 10,710 10,925 5,181 513
---------- ---------- ---------- --------- -------------
26,869 37,625 63,313 84,880 2,513
---------- ---------- ---------- --------- -------------
Net Income (Loss) $ 55,803 $ 44,925 $ 103,047 $ 44,740 $ (2,513)
---------- ---------- ---------- --------- -------------
---------- ---------- ---------- --------- -------------
Net Income (Loss) per Partnership Unit $ 27.90 $ 26.14 $ 55.47 $ 47.66 $ (13.96)
Weighted Average Partnership Units Outstanding 2,000 1,719 1,858 939 180
BALANCE SHEET DATA:
Cash 209 3,052 853 98,946 72,087
Total assets at book value 1,195,644 1,105,773 1,139,368 1,108,055 72,087
Total liabilities 348,710 297,764 323,237 415,549 2,000
General and limited partners' equity 846,934 808,009 816,131 692,506 70,087
Partnership units 2,000 1,719 2,000 1,719 180
OTHER DATA:
Distributions per partnership unit 13 24 46 16 --
Distributions 25,000 42,013 92,013 27,130 --
Distributions representing return of capital -- -- -- -- --
Net increase(decrease) in cash (644) (95,895) (98,094) 26,860 72,087
Net cash provided by (used in) operating activities 24,356 (27,144) 28,345 38,064 (513)
Ratio of earnings to fixed charges 4 3 4 2 --
Book value 846,934 808,009 816,131 692,506 70,087
Book value per unit 423 470 408 403 389
Total assets at the value assigned for purposes of 1,388,710 1,337,764 1,363,237 1,455,549 *
the roll-up transaction
Per unit value assigned for purposes of the 694 778 682 847 *
roll-up transaction
</TABLE>
*No information regarding fair value was available prior to 1997
160
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (April 9,
-------------------------- December 31, 1996) to
June 30, June 30, ------------------------- December 31,
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliate $ 52,153 $ 53,289 $ 108,204 $ 82,471 $ 3,748
Other 96 56 447 1,581 --
----------- ----------- ----------- ----------- -----------
52,249 53,345 108,651 84,052 3,748
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Interest expense 3,660 2,731 6,451 -- --
Administrative fees to general partner 3,000 3,000 6,000 6,000 4,000
General and administrative 3,046 1,790 10,445 8,246 509
----------- ----------- ----------- ----------- -----------
9,706 7,521 22,896 14,246 4,509
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 42,543 $ 45,824 $ 85,755 $ 69,806 $ (761)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit $ 23.64 $ 25.46 $ 47.64 $ 38.78 $ (0.42)
Weighted Average Partnership Units Outstanding 1,800 1,800 1,800 1,800 1,800
BALANCE SHEET DATA:
Cash 4,390 49,303 6,039 1,204 190,277
Total assets at book value 740,097 734,243 735,894 683,188 680,277
Total liabilities 90,611 77,231 83,951 27,000 4,000
General and limited partners equity 649,486 657,012 651,943 656,188 676,277
Partnership units 1,800 1,800 1,800 1,800 1,800
OTHER DATA:
Distributions per partnership unit 25 25 50 50 8
Distributions 45,000 45,000 90,000 89,895 13,962
Distributions representing return of capital 2,457 -- 4,245 20,089 13,962
Net increase(decrease) in cash (1,649) 48,099 4,835 (189,073) 190,277
Net cash provided by (used in) operating activities 43,351 48,599 50,335 20,335 3,239
Ratio of earnings to fixed charges 13 18 14 N/A N/A
Book value 649,486 657,012 651,943 656,188 676,277
Book value per unit 361 365 362 365 376
Total assets at the value assigned for purposes of 1,080,611 1,067,231 1,073,951 1,017,000 *
the roll-up transaction
Per unit value assigned for purposes of the 600 593 597 565 *
roll-up transaction
</TABLE>
*No information regarding fair value was available prior to 1997
161
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (October 30,
-------------------------- December 31, 1996) to
June 30, June 30, ------------------------- December 31,
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equity in net income of affiliate $ -- $ 9,960 $ 4,590 $ -- $ --
Interest income from affiliate 23,520 24,594 46,302 67,699 400
Interest income from non-affiliate 2,463 -- 4,382 -- --
Other 2 620 644 4,638 --
----------- ----------- ----------- ----------- -----------
25,985 35,174 55,918 72,337 400
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Equity in net losses of affiliates 21,800 -- -- 26,181 --
Administrative fees to general partner 6,000 6,000 12,000 12,000 1,000
General and administrative 1,046 3,976 5,023 5,974 219
----------- ----------- ----------- ----------- -----------
28,846 9,976 17,023 44,155 1,219
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (2,861) $ 25,198 $ 38,895 $ 28,182 $ (819)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit $ (1.19) $ 10.50 $ 16.21 $ 16.36 $ (0.77)
Weighted Average Partnership Units Outstanding 2,400 2,400 2,400 1,723 1,064
BALANCE SHEET DATA:
Cash 215 1,391 334 184,446 450,731
Total assets at book value 846,750 860,608 861,011 880,360 450,731
Total liabilities 79,756 27,050 73,756 12,000 1,000
General and limited partners equity 766,994 833,558 787,255 868,360 449,731
Partnership units 2,400 2,400 2,400 2,400 1,064
OTHER DATA:
Distributions per partnership unit 7 25 50 35 --
Distributions 17,400 60,000 120,000 85,003 --
Distributions representing return of capital 17,400 34,802 81,105 56,821 --
Net increase(decrease) in cash (119) (183,181) (184,238) (266,159) 450,731
Net cash provided by (used in) operating activities (819) 2,016 1,959 64,181 181
Ratio of earnings to fixed charges N/A N/A N/A N/A N/A
Book value 766,994 833,558 787,255 868,360 449,731
Book value per unit 320 347 328 362 423
Total assets at the value assigned for purposes of 1,332,756 1,280,050 1,326,756 1,265,000 *
the roll-up transaction
Per unit value assigned for purposes of the
roll-up transaction 555 533 553 527 *
</TABLE>
*No information regarding fair value was available prior to 1997
162
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (April 24,
-------------------------- December 31, 1996) to
June 30, June 30, ------------------------- December 31,
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Interest income from affiliate $ 42,676 $ 52,861 $ 105,368 $ 76,981 $ 2,479
Other 15 235 365 1,906 --
----------- ----------- ----------- ----------- -----------
42,691 53,096 105,733 78,887 2,479
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Administrative fees to general partner 3,000 3,000 6,000 6,000 4,822
General and administrative 2,635 6,682 23,981 10,745 779
----------- ----------- ----------- ----------- -----------
5,635 9,682 29,981 16,745 5,601
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 37,056 $ 43,414 $ 75,752 $ 62,142 $ (3,122)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit $ 15.44 $ 18.09 $ 31.56 $ 25.89 $ (1.30)
Weighted Average Partnership Units Outstanding 2,400 2,400 2,400 2,400 2,400
BALANCE SHEET DATA:
Cash 7,033 28,323 7,653 39,440 452,982
Total assets at book value 892,946 873,052 884,890 869,638 915,482
Total liabilities 9,000 6,500 6,000 9,500 4,822
General and limited partners' equity 883,946 866,552 878,890 860,138 910,660
Partnership units 2,400 2,400 2,400 2,400 2,400
OTHER DATA:
Distributions per partnership unit 13 15 24 47 4
Distributions 32,000 37,000 57,000 112,664 8,884
Distributions representing return of capital -- -- -- 50,522 8,884
Net increase(decrease) in cash (620) (11,117) (31,787) (413,542) 452,982
Net cash provided by (used in) operating activities 31,380 24,292 3,622 52,161 1,700
Ratio of earnings to fixed charges N/A N/A N/A N/A N/A
Book value 883,946 866,552 878,890 860,138 910,660
Book value per unit 368 361 366 358 379
Total assets at the value assigned for purposes of 1,336,000 1,333,500 1,333,000 1,336,500 *
the roll-up transaction
Per unit value assigned for purpose
of the roll-up transaction 557 556 555 557 *
</TABLE>
*No information regarding fair value was available prior to 1997
163
<PAGE>
BARON STRATEGIC INVESTMENT FUND II, LTD. (STEEPLECHASE)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended Year Ended October 1,
------------------------- December 31, 1996 to
June 30, June 30, ------------------------ December 31,
1999 1998 1998 1997 1996
----------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 146,691 $ 139,664 $ 297,880 $ 234,305 $ 49,296
Other 31,054 11,237 23,059 10,733 2,368
----------- ----------- ----------- ----------- -----------
177,745 150,901 320,939 245,038 51,664
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 15,156 14,380 40,586 38,982 --
Depreciation 28,944 27,000 54,183 50,261 7,628
Interest expense 48,895 45,469 91,982 93,448 --
Selling, general and administrative expense 89,979 110,092 224,713 241,094 33,524
----------- ----------- ----------- ----------- -----------
182,974 196,941 411,464 423,785 41,152
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (5,229) $ (46,040) $ (90,525) $ (178,747) $ 10,512
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit $ (3) $ (29) $ (57) $ (112) $ 7
Weighted Average Partnership Units Outstanding 1,600 1,600 1,600 1,600 1,600
BALANCE SHEET DATA:
Cash 42,677 11,417 24,610 9,024 124,297
Total assets at book value 1,920,726 2,014,046 1,947,815 1,976,792 2,085,784
Total liabilities 1,427,460 1,461,463 1,445,320 1,360,169 1,283,637
General and limited partners' equity 493,266 552,583 502,495 612,623 802,147
Partnership units 1,600 1,600 1,600 1,600 1,600
OTHER DATA:
Distributions per partnership unit 3 9 12 48 2
Distributions 4,000 14,000 19,603 76,600 2,943
Distributions representing return of capital 4,000 14,000 19,603 76,600 --
Net increase (decrease) in cash 18,067 2,393 15,586 (115,273) 124,297
Net cash provided by (used in) operating activities 22,067 48,151 55,458 120,301 (350,915)
Ratio of earnings to fixed charges 0.89 (0.01) 0.02 (0.91) --
Dollar amount of the deficiency in the ratio of
earnings to fixed charges 5,229 46,040 90,525 178,747 N/A
Book value 493,266 552,583 502,495 612,623 802,147
Book value per unit 308 345 314 383 501
Total assets at the value assigned for purposes
of the roll-up transaction 2,251,460 2,285,463 2,269,320 2,188,169 *
Per unit value assigned for purposes
of the roll-up transaction 1,407 1,428 1,418 1,368 *
</TABLE>
*No information regarding fair value was available prior to 1997
164
<PAGE>
MIDWEST INCOME GROWTH FUND VI, LTD. (BROOKWOOD WAY)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended Year Ended November
-------------------------- December 31, 1996 to
June 30, June 30, -------------------------- December 31,
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 128,531 $ 127,618 $ 275,189 $ 248,950 $ 98,226
Other 12,218 7,051 8,015 7,988 153
----------- ----------- ----------- ----------- -----------
140,749 134,669 283,204 256,938 98,379
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 9,771 10,132 19,556 23,323 1,577
Depreciation and amortization 27,412 27,000 55,246 54,823 17,563
Interest expense 53,841 48,925 102,287 106,664 28,631
Selling, general and administrative expense 69,884 56,412 133,455 159,565 27,958
----------- ----------- ----------- ----------- -----------
160,908 142,469 310,544 344,375 75,729
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (20,159) $ (7,800) $ (27,340) $ (87,437) $ 22,650
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit $ (34) $ (13) $ (46) $ (146) $ 38
Weighted Average Partnership Units Outstanding 600 600 600 600 600
BALANCE SHEET DATA:
Cash 48,813 20,680 31,921 53,550 90,611
Total assets at book value 1,835,116 2,162,998 1,890,232 2,168,340 2,249,187
Total liabilities 1,728,825 1,985,748 1,748,022 1,968,290 1,932,084
General and limited partners' equity 106,291 177,250 142,210 200,050 317,103
Partnership units 600 600 600 600 600
OTHER DATA:
Distributions per partnership unit 27 25 50 50 9
Distributions 16,400 15,000 30,000 29,799 5,547
Distributions representing return of capital 16,400 15,000 30,000 29,799 --
Net increase (decrease) in cash 16,891 (32,870) (21,629) (36,291) 90,611
Net cash provided by (used in) operating activities 40,255 (316,475) 53,948 (33,648) 291,166
Ratio of earnings to fixed charges 0.63 0.84 0.73 0.18 1.79
Dollar amount of the deficiency in the ratio of
earnings to fixed charges 20,159 7,800 27,340 87,437 N/A
Book value 106,291 177,250 142,210 200,050 317,103
Book value per unit 177 295 237 333 529
Total assets at the value assigned for purposes
of the roll-up transaction 2,109,825 2,366,748 2,129,022 2,349,290 *
Per unit value assigned for purposes
of the roll-up transaction 3,516 3,945 3,548 3,915 *
</TABLE>
*No information regarding fair value was available prior to 1997
165
<PAGE>
CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD. (LAUREL OAKS)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 30, June 30,
1999 1998
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 151,593 $ 132,992
Other 15,436 4,281
----------- -----------
167,029 137,273
Costs and Expenses:
Real estate taxes 14,510 14,598
Depreciation and amortization 39,011 38,000
Interest expense 34,102 60,174
Selling, general and administrative expense 72,911 49,525
----------- -----------
160,534 162,175
----------- -----------
Net Income (Loss) $ 6,495 $ (24,902)
----------- -----------
----------- -----------
Net Income (Loss) per Partnership Unit $ 3 $ (12)
Weighted Average Partnership Units Outstanding 2,100 2,100
BALANCE SHEET DATA:
Cash 77,434 --
Total assets at book value 2,154,586 2,106,414
Total liabilities 1,930,555 1,800,129
General and limited partners' equity 224,031 306,285
Partnership units 2,100 2,100
OTHER DATA:
Distributions per partnership unit 24 --
Distributions 50,372 --
Distributions representing return of capital 43,877 --
Net increase (decrease) in cash 37,509 (7,336)
Net cash provided by (used in) operating activities 48,735 29,749
Ratio of earnings to fixed charges 1.19 0.59
Dollar amount of the deficiency in the ratio of
earnings to fixed charges N/A 24,902
Book value 224,031 306,285
Book value per unit 107 146
Total assets at the value assigned for purposes of
the roll-up transaction 3,290,555 3,160,129
Per unit value assigned for purposes of the
the roll-up transaction 1,567 1,505
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 282,024 $ 221,070 $ 244,496 $ 275,805 $ 268,555
Other 10,963 7,510 -- -- --
----------- ----------- ----------- ----------- -----------
292,987 228,580 244,496 275,805 268,555
Costs and Expenses:
Real estate taxes
Depreciation and amortization 29,794 39,682 38,502 103,471 44,126
Interest expense 77,137 73,125 72,668 73,915 72,998
Selling, general and administrative expense 117,215 124,413 124,291 110,703 76,166
130,120 125,996 90,828 145,299 60,052
----------- ----------- ----------- ----------- -----------
354,266 363,216 326,289 433,388 253,342
Net Income (Loss) ----------- ----------- ----------- ----------- -----------
$ (61,279) $ (134,636) $ (81,793) $ (157,583) $ 15,213
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit
Weighted Average Partnership Units Outstanding
$ (29) $ (64) $ (39) $ (77) $ 8
BALANCE SHEET DATA: 2,100 2,100 2,100 2,051 2,003
Cash
Total assets at book value
Total liabilities 39,925 6,253 13,360 8,547 222,033
General and limited partners' equity 2,195,822 2,095,270 2,143,382 2,255,942 2,477,039
Partnership units 1,927,914 1,764,083 1,572,559 1,498,326 1,457,709
267,908 331,187 570,823 757,616 1,019,330
OTHER DATA: 2,100 2,100 2,100 2,100 2,003
Distributions per partnership unit
Distributions
Distributions representing return of capital 14 50 50 50 31
Net increase (decrease) in cash 29,463 105,000 105,000 104,131 62,200
Net cash provided by (used in) operating activities 29,463 105,000 105,000 104,131 46,987
Ratio of earnings to fixed charges 33,672 (7,107) 4,813 (213,486) 222,033
Dollar amount of the deficiency in the ratio of (136,776) 281,428 274,376 68,997 (1,969)
earnings to fixed charges 0.48 (0.08) 0.34 (0.42) 1.20
Book value
Book value per unit 61,279 134,636 81,793 157,583 N/A
Total assets at the value assigned for purposes of 267,908 331,187 570,823 757,616 1,019,330
the roll-up transaction 128 158 272 361 509
Per unit value assigned for purposes of the
the roll-up transaction 3,287,914 3,124,083 * * *
1,566 1,488 * * *
</TABLE>
*No information regarding fair value was available prior to 1997
Note: Date of purchase December 29, 1993
166
<PAGE>
FLORIDA CAPITAL INCOME FUND III, LTD. (BRIDGEPOINT)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended
-------------------------- Year Ended December 31,
June 30, June 30, -----------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 116,277 $ 118,416 $ 237,872 $ 212,608 $ 228,451
Other 28,395 1,978 13,760 6,605 7,884
----------- ----------- ----------- ----------- -----------
144,672 120,394 251,632 219,213 236,335
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 9,368 8,685 20,183 21,208 20,128
Depreciation and amortization 18,445 25,000 51,411 36,344 59,378
Interest expense 33,979 31,402 68,575 69,345 68,759
Selling, general and administrative expense 62,242 58,902 124,450 116,383 90,780
----------- ----------- ----------- ----------- -----------
124,034 123,989 264,619 243,280 239,045
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 20,638 $ (3,595) $ (12,987) $ (24,067) $ (2,710)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit $ 13 $ (2) $ (8) $ (15) $ (2)
Weighted Average Partnership Units Outstanding 1,600 1,600 1,600 1,600 1,600
BALANCE SHEET DATA:
Cash 45,960 1,867 7,447 3,415 43,260
Total assets at book value 1,322,251 1,357,120 1,336,340 1,346,684 1,430,654
Total liabilities 766,478 787,989 780,001 759,958 739,861
General and limited partners' equity 555,773 569,131 556,339 586,726 690,793
Partnership units 1,600 1,600 1,600 1,600 1,600
OTHER DATA:
Distributions per partnership unit 13 9 11 50 50
Distributions 21,204 14,000 17,000 80,000 79,867
Distributions representing return of capital 566 14,000 17,000 80,000 79,867
Net increase (decrease) in cash 38,513 (1,548) 4,032 (39,845) (73,552)
Net cash provided by (used in) operating activities 37,000 13,617 50,666 72,059 (7,312)
Ratio of earnings to fixed charges 1.61 0.89 0.81 0.65 0.96
Dollar amount of the deficiency in the ratio of
earnings to fixed charges N/A 3,595 12,987 24,067 2,710
Book value 555,773 569,131 556,339 586,726 690,793
Book value per unit 347 356 348 367 432
Total assets at the value assigned for purposes
of the roll-up transaction 1,702,478 1,723,989 1,716,001 1,695,958 *
Per unit value assigned for purposes
of the roll-up transaction 1,064 1,077 1,073 1,060 *
</TABLE>
<TABLE>
<CAPTION>
July 17,
1995 to
December 31,
1995
------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 101,528
Other 5,097
-----------
106,625
-----------
Costs and Expenses:
Real estate taxes 11,641
Depreciation and amortization 15,234
Interest expense 28,173
Selling, general and administrative expense 57,698
-----------
112,746
-----------
Net Income (Loss) $ (6,121)
-----------
-----------
Net Income (Loss) per Partnership Unit $ (4)
Weighted Average Partnership Units Outstanding 1,600
BALANCE SHEET DATA:
Cash 116,812
Total assets at book value 1,487,418
Total liabilities 714,048
General and limited partners' equity 773,370
Partnership units 1,600
OTHER DATA:
Distributions per partnership unit 213
Distributions 340,482
Distributions representing return of capital 340,482
Net increase (decrease) in cash 116,812
Net cash provided by (used in) operating activit (98,268)
Ratio of earnings to fixed charges 0.78
Dollar amount of the deficiency in the ratio of
earnings to fixed charges 6,121
Book value 773,370
Book value per unit 483
Total assets at the value assigned for purposes
of the roll-up transaction *
Per unit value assigned for purposes
of the roll-up transaction *
</TABLE>
* No information regarding fair value was available prior to 1997
167
<PAGE>
FLORIDA CAPITAL INCOME FUND II, LTD. (FOREST GLEN I)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended
-------------------------- Year Ended December 31,
June 30, June 30, -----------------------------------------------
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 183,738 $ 174,095 $ 362,118 $ 319,763 $ 319,640 $ 341,760
Other income 10,802 4,172 16,098 7,968 16,406 13,851
Distribution supplement - related party -- -- -- -- -- 3,084
---------- ----------- ----------- ----------- ----------- -----------
194,540 178,267 378,216 327,731 336,046 358,695
---------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 19,697 20,727 80,878 46,535 42,196 65,763
Depreciation and amortization 13,500 40,000 79,839 79,077 78,505 76,341
Interest expense 62,533 85,336 168,581 147,139 130,820 105,222
Selling, general and administrative expense 64,649 82,030 194,522 196,970 121,194 150,037
---------- ----------- ----------- ----------- ----------- -----------
160,379 228,093 523,820 469,721 372,715 397,363
---------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 34,161 $ (49,826) $ (145,604) $ (141,990) $ (36,669)$ (38,668)
---------- ----------- ----------- ----------- ----------- -----------
---------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) per Partnership Unit $ 19 $ (27) $ (79) $ (77) $ (20)$ (30)
Weighted Average Partnership Units Outstanding 1,840 1,840 1,840 1,840 1,840 1,288
BALANCE SHEET DATA:
Cash 58,909 18,926 27,047 31,605 88,148 161,167
Total assets at book value 2,844,558 2,492,925 2,838,758 2,417,706 2,588,391 2,697,886
Total liabilities 2,346,076 1,931,014 2,378,147 1,788,168 1,816,863 1,789,689
General and limited partners' equity 498,482 561,911 460,611 629,538 771,528 908,197
Partnership units 1,840 1,840 1,840 1,840 1,840 1,840
OTHER DATA:
Distributions per partnership unit -- 10 13 11 54 44
Distributions -- 17,800 23,323 21,009 100,000 81,627
Distributions representing return of capital -- 17,800 23,323 21,009 100,000 81,627
Net increase (decrease) in cash 31,862 (12,679) (4,558) (56,543) (73,019) 153,495
Net cash provided by (used in) operating activities (39,156) (438,250) (379,258) 115,931 116,384 49,862
Ratio of earnings to fixed charges 1.55 0.42 0.14 0.03 0.72 0.63
Dollar amount of the deficiency in the ratio of
earnings to fixed charges N/A 49,826 145,604 141,990 36,669 38,668
Book value 498,482 561,911 460,611 629,538 771,528 908,197
Book value per unit 271 305 250 342 419 494
Total assets at the value assigned for purposes of
the roll-up transaction 3,900,076 3,485,014 3,932,147 3,342,168 * *
Per unit value assigned for purposes of the
the roll-up transaction 2,120 1,894 2,137 1,816 * *
</TABLE>
<TABLE>
<CAPTION>
July 17,
1995 to
December 31,
1994
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 207,854
Other income 10,076
Distribution supplement - related party 1,983
-----------
219,913
-----------
Costs and Expenses:
Real estate taxes 26,164
Depreciation and amortization 38,775
Interest expense 59,481
Selling, general and administrative expense 64,865
-----------
189,285
-----------
Net Income (Loss) $ 30,628
-----------
-----------
Net Income (Loss) per Partnership Unit $ 191
Weighted Average Partnership Units Outstanding 160
BALANCE SHEET DATA:
Cash 7,672
Total assets at book value 1,264,924
Total liabilities 1,156,749
General and limited partners' equity 108,175
Partnership units 160
OTHER DATA:
Distributions per partnership unit 465
Distributions 74,452
Distributions representing return of capital 43,824
Net increase (decrease) in cash 7,672
Net cash provided by (used in) operating activities 381,392
Ratio of earnings to fixed charges 1.51
Dollar amount of the deficiency in the ratio of
earnings to fixed charges N/A
Book value 108,175
Book value per unit 676
Total assets at the value assigned for purposes of
the roll-up transaction *
Per unit value assigned for purposes of the
the roll-up transaction *
</TABLE>
*No information regarding fair value was available prior to 1997
168
<PAGE>
FLORIDA INCOME OPPORTUNITY PARTNERS, LTD. (CAMELLIA COURT)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended March 6,
---------------- Year Ended December 31, 1995 to
June 30, June 30, ------------------------------ December 31,
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 128,581 $ 130,515 $ 266,911 $ 213,718 $ 255,025 $ 200,135
Other income 38,281 8,400 23,575 16,516 31,694 7,071
Distribution supplement--
related party -- -- -- -- -- 9,634
----------- ----------- ----------- ----------- ----------- -----------
166,862 138,915 290,486 230,234 286,719 216,840
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 14,705 14,840 29,656 27,748 28,782 13,251
Depreciation and amortization 22,035 17,300 44,584 37,427 37,606 19,396
Interest expense 48,156 54,452 98,619 98,851 78,273 68,829
Selling, general and
administrative expense 70,905 72,652 181,002 142,287 150,308 109,155
----------- ----------- ----------- ----------- ----------- -----------
155,801 159,244 353,861 306,313 294,969 210,631
----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 11,061 $ (20,329) $ (63,375) $ (76,079) $ (8,250) $ 6,209
=========== =========== =========== =========== =========== ===========
Net Income (Loss) per Partnership
Unit $ 14 $ (25) $ (79) $ (95) $ (10) $ 8
Weighted Average Partnership Units
Outstanding 800 800 800 800 800 800
BALANCE SHEET DATA:
Cash 64,215 4,968 11,704 94,279 244,426 79,466
Total assets at book value 1,618,704 1,699,868 1,614,443 1,718,483 1,883,968 1,761,073
Total liabilities 1,204,039 1,204,968 1,196,769 1,157,434 1,166,840 958,254
General and limited partners' equity 414,665 494,900 417,674 561,049 717,128 802,819
Partnership units 800 800 800 800 800 800
OTHER DATA:
Distributions per partnership unit 18 67 100 100 97 503
Distributions 14,071 53,300 80,000 80,000 77,441 402,024
Distributions representing return
of capital 3,010 53,300 80,000 80,000 77,441 395,815
Net increase (decrease) in cash 52,511 (89,311) (82,575) (150,147) 164,960 79,466
Net cash provided by (used in)
operating activities 48,998 (28,704) 113,362 48,904 100,028 (196,228)
Ratio of earnings to fixed charges 1.23 0.63 0.36 0.23 0.89 1.09
Dollar amount of the deficiency
in the ratio of earnings to fixed
charges N/A 20,329 63,375 76,079 8,250 N/A
Book value 414,665 494,900 417,674 561,049 717,128 802,819
Book value per unit 518 619 522 701 896 1,004
Total assets at the value assigned
for purposes of the roll-up
transaction 2,045,039 2,045,968 2,037,769 1,998,434 * *
Per unit value assigned
for purposes of the roll-up
transaction 2,556 2,557 2,547 2,498 * *
</TABLE>
* No information regarding fair value was available prior to 1997
169
<PAGE>
FLORIDA CAPITAL INCOME FUND IV, LTD. (GLEN LAKES)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended May 18,
---------------- Year Ended December 31, 1995 to
June 30, June 30, ----------------------------- December 31,
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 221,108 $ 425,264 $ 703,744 $ 745,649 $ 710,623 $ 462,914
Other income 47,994 491 26,875 22,536 51,621 6,535
----------- ----------- ----------- ----------- ----------- -----------
269,102 425,755 730,619 768,185 762,244 469,449
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 49,515 33,246 99,589 112,859 97,434 54,900
Depreciation and amortization 64,282 57,442 133,841 132,061 126,990 35,306
Interest expense 213,202 128,357 305,278 310,602 312,704 225,598
Selling, general and
administrative expense 277,184 337,721 669,643 307,330 359,957 227,276
----------- ----------- ----------- ----------- ----------- -----------
604,183 556,766 1,208,351 862,852 897,085 543,080
----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (335,081) $ (131,011) $ (477,732) $ (94,667) $ (134,841) $ (73,631)
=========== =========== =========== =========== =========== ===========
Net Income (Loss) per
Partnership Unit $ (92) $ (36) $ (131) $ (26) $ (55) $ (124)
Weighted Average Partnership
Units Outstanding 3,640 3,640 3,640 3,640 2,440 594
BALANCE SHEET DATA:
Cash 101,439 -- 25,623 40,685 66,912 200,724
Total assets at book value 4,664,880 4,810,854 4,668,333 4,720,943 4,874,537 4,618,001
Total liabilities 4,437,681 3,847,518 4,097,818 3,535,696 3,414,290 3,409,674
General and limited partners'
equity 227,199 963,336 570,515 1,185,247 1,460,247 1,208,327
Partnership units 3,640 3,640 3,640 3,640 3,640 594
OTHER DATA:
Distributions per partnership
unit 40 25 45 50 125 148
Distributions 144,500 91,000 162,236 180,333 453,300 361,676
Distributions representing
return of capital 144,500 91,000 162,236 180,333 453,300 361,676
Net increase (decrease) in cash 75,816 (68,774) (15,062) (26,227) (133,812) 200,724
Net cash provided by (used in)
operating activities 389,258 135,607 728,949 286,972 (27,331) (166,403)
Ratio of earnings to fixed charges (0.57) (0.02) (0.56) 0.70 0.57 0.67
Dollar amount of the deficiency
in the ratio of earnings to
fixed charges 335,081 131,011 477,732 94,667 134,841 73,631
Book value 227,199 963,336 570,515 1,185,247 1,460,247 1,208,327
Book value per unit 62 265 157 326 401 495
Total assets at the value assigned
for purposes of the roll-up
transaction 6,912,681 6,322,518 6,572,818 6,010,696 * *
Per unit value assigned
for purposes of the roll-up
transaction 1,899 1,737 1,806 1,651 * *
</TABLE>
* No information regarding fair value was available prior to 1997
170
<PAGE>
FLORIDA INCOME GROWTH FUND V, LTD. (BLOSSOM CORNERS I)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended July 7,
------------------ Year Ended December 31, 1995 to
June 30, June 30, ------------------------------ December 31,
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 155,449 $ 170,439 $ 338,755 $ 273,596 $ 278,590 $ 121,917
Other income 31,695 8,375 14,260 20,987 26,698 5,806
Distribution supplement--
related party -- -- -- 48,350 -- --
----------- ----------- ----------- ----------- ----------- -----------
187,144 178,814 353,015 342,933 305,288 127,723
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 13,856 14,242 26,951 29,260 29,660 19,300
Depreciation and amortization 26,255 25,000 52,937 51,055 38,623 13,164
Interest expense 45,917 51,977 93,253 94,358 79,488 34,249
Selling, general and
administrative expense 83,044 69,124 174,458 173,793 203,479 81,896
----------- ----------- ----------- ----------- ----------- -----------
169,072 160,343 347,599 348,466 351,250 148,609
----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 18,072 $ 18,471 $ 5,416 $ (5,533) $ (45,962) $ (20,886)
=========== =========== =========== =========== =========== ===========
Net Income (Loss) per
Partnership Unit $ 8 $ 8 $ 2 $ (2) $ (24) $ (29)
Weighted Average Partnership
Units Outstanding 2,300 2,300 2,300 2,300 1,911 722
BALANCE SHEET DATA:
Cash 113,879 4,861 19,123 19,801 83,944 44,011
Total assets at book value 1,899,879 1,991,794 1,954,470 1,982,810 2,103,717 1,316,799
Total liabilities 1,072,478 1,120,031 1,098,762 1,093,518 1,093,904 950,485
General and limited partners'
equity 827,401 871,763 855,708 889,292 1,009,813 366,314
Partnership units 2,300 2,300 2,300 2,300 2,300 722
OTHER DATA:
Distributions per partnership
unit 27 16 27 50 447 316
Distributions 61,434 36,000 62,861 114,988 1,028,354 227,992
Distributions representing
return of capital 43,362 17,529 57,445 114,988 1,028,354 227,992
Net increase (decrease) in cash 94,756 (14,940) (678) (64,143) 39,933 44,011
Net cash provided by (used in)
operating activities 108,651 (14,961) 67,708 68,104 (173,772) (4,310)
Ratio of earnings to fixed charges 1.39 1.36 1.06 0.94 0.42 0.39
Dollar amount of the deficiency
in the ratio of earnings to
fixed charges N/A N/A N/A 5,533 45,962 20,886
Book value 827,401 871,763 855,708 889,292 1,009,813 366,314
Book value per unit 360 379 372 387 439 507
Total assets at the value
assigned for purposes of the
roll-up transaction 2,382,478 2,430,031 2,408,762 2,403,518 * *
Per unit value assigned
for purposes of the roll-up
transaction 1,036 1,057 1,047 1,045 * *
</TABLE>
* No information regarding fair value was available prior to 1997
171
<PAGE>
GSU STADIUM STUDENT APARTMENTS, LTD. (STADIUM CLUB)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------ Year Ended December 31, 1995 to
June 30, June 30, ------------------------------ December 31,
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 209,804 $ 222,799 $ 397,831 $ 458,687 $ 427,920 $ 185,347
Other income 13,383 11,908 44,049 27,710 21,810 10,432
----------- ----------- ----------- ----------- ----------- -----------
223,187 234,707 441,880 486,397 449,730 195,779
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 10,384 7,370 22,959 34,901 36,854 13,319
Depreciation and amortization 32,568 34,500 68,760 65,135 64,786 30,740
Interest expense 67,703 71,200 138,585 146,120 122,433 51,600
Selling, general and administrative
expense 88,960 134,613 317,702 262,400 238,623 97,261
----------- ----------- ----------- ----------- ----------- -----------
199,615 247,683 548,006 508,556 462,696 192,920
----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 23,572 $ (12,976) $ (106,126) $ (22,159) $ (12,966) $ 2,859
=========== =========== =========== =========== =========== ===========
Net Income (Loss) per Partnership Unit $ 12 $ (6) $ (53) $ (11) $ (7) $ 2
Weighted Average Partnership Units
Outstanding 2,000 2,000 2,000 2,000 1,946 1,212
BALANCE SHEET DATA:
Cash 43,471 9,053 24,416 102,093 50,854 127,847
Total assets at book value 2,391,980 2,446,943 2,436,857 2,534,860 2,450,668 2,178,018
Total liabilities 1,915,004 1,856,878 1,958,497 1,855,193 1,545,737 1,566,159
General and limited partners' equity 476,976 590,065 478,360 679,667 904,931 611,859
Partnership units 2,000 2,000 2,000 2,000 2,000 1,212
OTHER DATA:
Distributions per partnership unit 12 38 48 102 187 318
Distributions 24,956 76,628 95,181 203,105 373,962 386,000
Distributions representing return
of capital 1,384 76,628 95,181 203,105 373,962 383,141
Net increase (decrease) in cash 19,055 (93,040) (77,677) 51,239 (76,993) 127,847
Net cash provided by (used in)
operating activities 5,862 22,483 195,017 4,917 (56,826) (46,665)
Ratio of earnings to fixed charges 1.35 0.82 0.23 0.85 0.89 1.06
Dollar amount of the deficiency in
the ratio of earnings to fixed
charges N/A 12,976 106,126 22,159 12,966 N/A
Book value 476,976 590,065 478,360 679,667 904,931 611,859
Book value per unit 238 295 239 340 452 505
Total assets at the value assigned
for purposes of the roll-up
transaction 2,967,004 2,908,878 3,010,497 2,907,193 * *
Per unit value assigned
for purposes of the roll-up
transaction 1,484 1,454 1,505 1,454 * *
</TABLE>
* No information regarding fair value was available prior to 1997
172
<PAGE>
FLORIDA INCOME APPRECIATION FUND, LTD. (FOREST GLEN IV)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended Eight Months
-------------------- Year Ended December 31, Ended
June 30, June 30, -------------------------------------- December 31,
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 28,263 $ 21,851 $ 53,558 $ 56,139 $ 57,348 $ 57,207 $ 146,805
Other income 3,410 1,415 3,081 2,437 2,565 52,120 6,125
Distribution supplement--
related party -- -- -- -- -- 8,944 4,673
--------- --------- --------- --------- --------- --------- ----------
31,673 23,266 56,639 58,576 59,913 118,271 157,603
--------- --------- --------- --------- --------- --------- ----------
Costs and Expenses:
Real estate taxes 3,064 3,179 6,452 7,163 6,025 9,229 21,386
Depreciation and amortization 8,000 8,100 16,421 16,264 16,172 10,878 28,045
Interest expense 9,727 9,648 20,825 17,697 15,897 17,438 43,450
Selling, general and administrative
expense 11,944 12,671 35,407 25,039 20,392 36,604 42,684
--------- --------- --------- --------- --------- --------- ----------
32,735 33,598 79,105 66,163 58,486 74,149 135,565
--------- --------- --------- --------- --------- --------- ----------
Net Income (Loss) $ (1,062) $ (10,332) $ (22,466) $ (7,587) $ 1,427 $ 44,122 $ 22,038
========= ========= ========= ========= ========= ========= ==========
Net Income (Loss) per Partnership
Unit $ (5) $ (50) $ (110) $ (37) $ 7 $ 215 $ 108
Weighted Average Partnership Units
Outstanding 205 205 205 205 205 205 205
BALANCE SHEET DATA:
Cash 11,486 10,048 11,129 3,354 1,429 2,777 7,494
Total assets at book value 508,569 476,916 542,789 465,588 480,382 493,097 1,070,761
Total liabilities 383,994 333,484 415,480 308,611 315,818 310,582 849,857
General and limited partners' equity 124,575 143,432 127,309 156,977 164,564 182,515 220,904
Partnership units 205 205 205 205 205 205 205
OTHER DATA:
Distributions per partnership unit 8 16 35 57 95 403 930
Distributions 1,672 3,200 7,202 11,622 19,378 82,531 190,616
Distributions representing return of
capital 1,672 3,200 7,202 11,622 17,951 38,409 168,578
Net increase (decrease) in cash 357 6,694 7,775 1,925 (1,347) (4,717) 7,494
Net cash provided by (used in)
operating activities (7,292) (80,154) (1,266) 14,313 25,002 (73,062) 146,249
Ratio of earnings to fixed charges 0.89 (0.07) (0.08) 0.57 1.09 3.53 1.51
Dollar amount of the deficiency in the
ratio of earnings to fixed charges 1,062 10,332 22,466 7,587 N/A N/A N/A
Book value 124,575 143,432 127,309 156,977 164,564 182,515 220,904
Book value per unit 608 700 621 766 803 890 1,078
Total assets at the value assigned for
purposes of the roll-up transaction 637,994 587,484 669,480 562,611 * * *
Per unit value assigned for
purposes of the roll-up transaction 3,112 2,866 3,266 2,744 * * *
</TABLE>
* No information regarding fair value was available prior to 1997
173
<PAGE>
REALTY OPPORTUNITY INCOME FUND VIII (FOREST GLEN II)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended Ten Months
------------------ Year Ended December 31, Ended
June 30, June 30, ------------------------------------------ December 31,
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 97,192 $ 98,206 $ 204,746 $ 159,093 $ 241,274 $ 210,809 $ 169,015
Other income 4,294 2,788 6,773 6,252 18,809 5,757 4,208
Distribution supplement--
related party -- -- -- -- -- 37,068 39,905
---------- ---------- ---------- ---------- ---------- ---------- ----------
101,486 100,994 211,519 165,345 260,083 253,634 213,128
---------- ---------- ---------- ---------- ---------- ---------- ----------
Costs and Expenses:
Real estate taxes 11,380 11,973 22,881 26,872 22,359 26,555 21,531
Depreciation and amortization 25,500 19,000 56,625 56,180 55,941 55,265 39,625
Interest expense 36,130 35,431 76,857 57,242 59,048 57,517 49,158
Selling, general and
administrative expense 43,446 41,058 91,937 83,976 126,669 72,180 58,555
---------- ---------- ---------- ---------- ---------- ---------- ----------
116,456 107,462 248,300 224,270 264,017 211,517 168,869
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ (14,970) $ (6,468) $ (36,781) $ (58,925) $ (3,934) $ 42,117 $ 44,259
========== ========== ========== ========== ========== ========== ==========
Net Income (Loss) per
Partnership Unit $ (16) $ (7) $ (39) $ (62) $ (4) $ 45 $ 47
Weighted Average Partnership
Units Outstanding 944 944 944 944 944 944 944
BALANCE SHEET DATA:
Cash 33,434 26,544 15,286 3,825 2,108 5,364 300
Total assets at book value 1,858,745 1,857,132 1,870,254 1,607,051 1,672,883 1,716,742 1,738,435
Total liabilities 1,163,440 1,118,411 1,173,843 856,862 863,769 822,890 792,300
General and limited partners'
equity 695,305 738,721 696,411 750,189 809,114 893,852 946,135
Partnership units 944 944 944 944 944 944 944
OTHER DATA:
Distributions per partnership
unit 21 5 18 13 86 100 879
Distributions 20,000 5,000 16,997 12,450 80,804 94,843 829,467
Distributions representing
return of capital 34,970 5,000 16,997 12,450 80,804 52,726 785,208
Net increase (decrease) in cash 18,148 22,719 11,461 1,717 (3,256) 5,064 300
Net cash provided by (used in)
operating activities (14,469) (234,625) (202,138) 78,748 106,447 93,177 (53,404)
Ratio of earnings to
fixed charges 0.59 0.82 0.52 (0.03) 0.93 1.73 1.90
Dollar amount of the deficiency
in the ratio of earnings to
fixed charges 14,970 6,468 36,781 58,925 3,934 N/A
Book value 695,305 738,721 696,411 750,189 809,114 893,852 946,135
Book value per unit 737 783 738 795 857 947 1,002
Total assets at the value
assigned for purposes of the
roll-up transaction 2,150,440 2,105,411 2,160,843 1,843,862 * * *
Per unit value assigned
for purposes of the
roll-up transaction 2,278 2,230 2,289 1,953 * * *
</TABLE>
* No information regarding fair value was available prior to 1997
174
<PAGE>
FLORIDA INCOME ADVANTAGE FUND, LTD. (FOREST GLEN III)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended Ten Months
------------------ Year Ended December 31, Ended
June 30, June 30, ----------------------------------------- December 31,
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 91,461 $ 86,953 $ 176,122 $ 170,175 $ 180,548 $ 160,409 $ 145,483
Other income 8,010 4,626 11,808 7,031 5,721 5,084 5,627
Distribution supplement--
related party -- -- -- -- -- 47,756 44,027
---------- ---------- ---------- ---------- ---------- ---------- ----------
99,471 91,579 187,930 177,206 186,269 213,249 195,137
---------- ---------- ---------- ---------- ---------- ---------- ----------
Costs and Expenses:
Real estate taxes 17,742 12,254 24,960 23,130 18,480 25,909 20,907
Depreciation and amortization 25,000 25,000 51,200 70,922 50,446 49,641 34,709
Interest expense 30,572 31,567 66,620 55,728 49,964 46,216 42,439
Selling, general and
administrative expense 40,200 37,544 94,338 66,174 56,749 63,571 43,338
---------- ---------- ---------- ---------- ---------- ---------- ----------
113,514 106,365 237,118 215,954 175,639 185,337 141,393
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ (14,043) $ (14,786) $ (49,188) $ (38,748) $ 10,630 $ 27,912 $ 53,744
========== ========== ========== ========== ========== ========== ==========
Net Income (Loss) per
Partnership Unit $ (15) $ (16) $ (52) $ (41) $ 11 $ 30 $ 57
Weighted Average Partnership
Units Outstanding 940 940 940 940 940 940 940
BALANCE SHEET DATA:
Cash 35,008 13,530 12,225 14,337 5,394 5,322 5,158
Total assets at book value 1,675,891 1,614,815 1,657,565 1,453,235 1,524,799 1,554,020 1,573,261
Total liabilities 962,545 883,054 964,104 681,632 714,448 671,808 624,961
General and limited partners'
equity 713,346 731,761 693,461 771,603 810,351 882,212 948,300
Partnership units 940 940 940 940 940 940 940
OTHER DATA:
Distributions per partnership
unit 36 27 31 13 88 101 48
Distributions 33,959 25,059 28,954 12,662 82,491 94,537 45,444
Distributions representing
return of capital 33,959 25,059 28,954 12,662 71,861 66,625 --
Net increase(decrease) in cash 22,783 (807) (2,112) 8,943 74 164 5,158
Net cash provided by (used in)
operating activities (9,510) (189,316) (180,246) 62,817 97,924 96,071 (59,118)
Ratio of earnings to fixed charges 0.54 0.53 0.26 0.30 1.21 1.60 2.27
Dollar amount of the deficiency
in the ratio of earnings to
fixed charges 14,043 14,786 49,188 38,748 N/A N/A N/A
Book value 713,346 731,761 693,461 771,603 810,351 882,212 948,300
Book value per unit 759 778 738 821 862 939 1,009
Total assets at the value
assigned for purposes of the
roll-up transaction 1,969,545 1,890,054 1,971,104 1,688,632 * * *
Per unit value assigned
for purposes of the
roll-up transaction 2,095 2,011 2,097 1,796 * * *
</TABLE>
* No information regarding fair value was available prior to 1997
175
<PAGE>
FLORIDA CAPITAL INCOME FUND, LTD. (EAGLE LAKE)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Six Months Ended
------------------ Year Ended December 31,
June 30, June 30, --------------------------------------------------------
1999 1998 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gross rents $ 198,042 $ 188,913 $ 382,121 $ 346,154 $ 348,348 $ 364,501
Other income 16,326 9,396 25,123 21,065 32,140 12,794
Distribution supplement--
related party -- -- -- -- -- 3,670
----------- ----------- ----------- ----------- ----------- -----------
214,368 198,309 407,244 367,219 380,488 380,965
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Real estate taxes 22,254 20,718 43,754 41,615 41,319 39,104
Depreciation and
amortization 32,201 30,000 65,047 64,402 63,327 57,033
Interest expense 61,321 71,054 127,820 152,753 159,163 157,757
Selling, general and
administrative expense 62,326 96,554 219,587 158,027 150,160 230,348
----------- ----------- ----------- ----------- ----------- -----------
178,102 218,326 456,208 416,797 413,969 484,242
----------- ----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 36,266 $ (20,017) $ (48,964) $ (49,578) $ (33,481) $ (103,277)
========== =========== =========== =========== =========== ===========
Net Income (Loss) per
Partnership Unit $ 22 $ (12) $ (30) $ (31) $ (23) $ (227)
Weighted Average Partnership
Units Outstanding 1,614 1,614 1,614 1,614 1,427 455
BALANCE SHEET DATA:
Cash 80,051 -- 13,187 84 4,686 61,818
Total assets at book value 2,242,019 2,312,785 2,228,394 2,277,757 2,326,523 2,423,161
Total liabilities 1,849,372 1,939,245 1,886,801 1,872,200 1,790,688 1,773,145
General and limited
partners' equity 392,647 373,540 341,593 405,557 535,835 650,016
Partnership units 1,614 1,614 1,614 1,614 1,614 455
OTHER DATA:
Distributions per
partnership unit 13 7 9 50 50 963
Distributions 21,000 12,000 15,000 80,700 80,700 438,352
Distributions representing
return of capital -- 12,000 15,000 80,700 80,700 438,352
Net increase (decrease)
in cash 66,864 (23,846) 13,103 (4,602) (57,132) 61,818
Net cash provided by
(used in) operating activities 11,089 (14,263) 114,757 165,090 116,405 (180,635)
Ratio of earnings to
fixed charges 1.59 0.72 0.62 0.68 0.79 0.35
Dollar amount of the deficiency
in the ratio of earnings to
fixed charges N/A 20,017 48,964 49,578 33,481 103,277
Book value 392,647 373,540 341,593 405,557 535,835 650,016
Book value per unit 243 231 212 251 332 1,429
Total assets at the value
assigned for purposes of the
roll-up transaction 2,773,372 2,863,245 2,810,801 2,796,200 * *
Per unit value assigned for
purposes of the roll-up
transaction 1,718 1,774 1,742 1,732 * *
</TABLE>
* No information regarding fair value was available prior to 1997
Note: Date of acquisition--July 12, 1994
176
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Plan of Operation
The Trust and the Operating Partnership (which conducts all of the Trust's
real estate operations and holds title to all of its real estate assets and of
which the Trust is the sole general partner and a limited partner) commenced
operations in February 1998. Since June 1998, the Operating Partnership has
applied net proceeds of the Trust's Cash Offering to acquire property interests.
In June 1998, the Operating Partnership acquired beneficial ownership of a
67-unit residential apartment property located in Kissimmee, Florida known as
the Heatherwood Apartments - Phase I. The purchase price for the acquisition was
$830,000. In July 1998, the Operating Partnership acquired beneficial ownership
of an 80-unit residential apartment property located in Lakeland, Florida known
as the Crystal Court Apartments - Phase II. The purchase price for the
acquisition was $704,000.
In July 1998, the Operating Partnership also acquired a limited
partnership interest (less than 4% in each case) in 13 real estate limited
partnerships, including certain of the Exchange Partnerships, managed by
affiliates of Mr. McGrath (a founder and Chief Executive Officer of the Trust
and the Operating Partnership) in consideration of a capital contribution
ranging from $2,900 to $83,300 in each such partnership (aggregate amount
approximately $341,000). These various partnerships will be accounted for on the
cost method since their respective ownership interests represent less than 20%
of the equity ownership therein. In addition, the partnerships will periodically
assess the realizable value of these investments in order to ascertain that
there has been no impairment in their recorded value.
In September 1998, the Operating Partnership acquired beneficial ownership
of a 50-unit residential apartment property located in New Smyrna Beach, Florida
known as the Riverwalk Apartments. The purchase price for the acquisition was
$700,000.. In September 1998, the Trust entered into an agreement to acquire two
luxury residential apartment properties (total 652 units) in Louisville and
Burlington, Kentucky upon the completion of construction for an aggregate
purchase price in the range of approximately $41,000,000 to $43,000,000. In
connection therewith, the Trust agreed to co-guarantee (along with Mr. McGrath),
for a period of 60 days (plus any extensions which may be granted), up to
$3,000,000 of the development portion of long-term construction loans to be made
by an institutional lender to three development companies controlled by Mr.
McGrath in connection with the development and construction of the two
residential apartment properties and a shopping center in Burlington, Kentucky.
Between October 1998, and June 1999 the Operating Partnership acquired an
approximately 40% limited partnership interest in a limited partnership which is
the owner and developer of a 168-unit residential apartment property under
construction in Alexandria, Kentucky known as Alexandria Apartments. The
aggregate purchase price for the acquired partnership interest was $1,285,000.
An affiliate of Mr. McGrath sold the partnership interest to the Operating
Partnership and also serves as the limited partnership's managing general
partner. One hundred twelve of the 168 residential units (approximately 67%)
have been completed and are in the rent-up stage.
The property interests acquired by Operating Partnership to date are
described in further detail above at "INITIAL REAL ESTATE INVESTMENTS."
The Trust and the Operating Partnership intend to continue to acquire
similar property interests using proceeds from the Trust's Cash Offering,
securities of the Trust and the Operating Partnership, including Units
registered in connection with the Exchange Offering, and available operating
cash flow and financing from other sources.
177
<PAGE>
The operating results of the Trust and the Operating Partnership will
depend primarily upon income from the residential apartment properties in which
they directly or indirectly acquire an equity or Subordinated Mortgage Interest.
Operating results in respect of equity interests will be substantially
influenced by the demand for and supply of residential apartment units in their
primary market and sub-markets, and operating expense levels. Operating results
in respect of mortgage and other debt interests will depend upon interest
income, including, in certain cases, participation interest, whose payment will
depend upon the operating performance, sale or refinancing of the underlying
properties. The operating results of the Trust and the Operating Partnership
will also depend upon the pace and price at which they can acquire and improve
additional property interests.
The target metropolitan markets and sub-markets have benefited in recent
periods from demographic trends (including population and job growth) which
increase the demand for residential apartment units, while financing constraints
(specifically, reduced availability of development capital) have limited new
construction to levels significantly below construction activity in prior years.
Consequently, rental rates for residential apartment units have increased at or
above the inflation rate for the last two years and are expected to continue to
experience such increases for the next 18 months based on market statistics made
available to management of the Trust in terms of occupancy rates, supply,
demographic factors, job growth rates and recent rental trends. Expense levels
also influence operating results, and rental expenses (other than real estate
taxes) for residential apartment properties have generally increased at
approximately the rate of inflation for the past three years and are expected to
increase at the rate of inflation for the next 18 months.
The Trust believes that known trends, events or uncertainties which will
or are reasonably likely to affect the short-term and long-term liquidity and
current and future prospects of the Trust and the Operating Partnership include
the performance of the economy and the building of new apartment communities.
Although the Trust cannot reliably predict the effects of these trends, events
and uncertainties on the property investments of the Trust and the Operating
Partnership as a whole, some of the reasonably anticipated effects might include
downward pressure on rental rates and occupancy levels.
Generally, there are no seasonal aspects of the operations of the Trust or
the Operating Partnership which might have a material effect on their financial
condition or results of operation. However, for the last 36 months, one 60-unit
student housing property owned by one of the Exchange Partnerships involved in
the Exchange Offering has had an average occupancy rate of 93% for nine months
of the year and 40% for the remaining three months of the year.
The Trust and the Operating Partnership have the ability to satisfy their
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 Trust and the Operating
Partnership intend to investigate making an additional public or private
offering of Common Shares and/or Units within the 12-month period following the
commencement of the Exchange Offering.
The Trust and the Operating Partnership expect no material change in the
number of employees over the next 12 months.
See also "THE EXCHANGE OFFERING," "THE TRUST AND THE OPERATING
PARTNERSHIP," "INVESTMENT OBJECTIVES AND POLICIES" and "INITIAL REAL ESTATE
INVESTMENTS."
Year 2000
The computer systems of the Trust and the Operating Partnership have been
tested for year 2000 problems and the Trust and the Operating Partnership
believe that such systems are year 2000 compatible. It is possible, however,
that certain computer systems or software products of their suppliers may
experience year 2000 problems and that such problems could adversely affect
them. The Trust and the Operating Partnership are in the process of inquiring as
to the progress of its principal suppliers in identifying and addressing
problems that their computer systems will face in correctly processing date
information as the year 2000 approaches. However, there can be no assurance that
the Trust and the Operating Partnership will identify the future date-handling
problems of their suppliers in advance of the occurrence of such problems, or
that such parties will be able to successfully remedy any problems that are
discovered. With respect to their own computer systems, the Trust and the
Operating Partnership intend to upgrade their principal operating computer
software to the most recent available revision sold by their software supplier,
which the supplier has represented to be year 2000 compliant. The Trust and the
Operating Partnership believe that such upgrade will identify and solve those
year 2000 problems that could affect their
178
<PAGE>
operating software and can be accomplished before the year 2000 at a reasonable
cost. The failure to identify and solve all year 2000 problems affecting their
business could have an adverse effect on the business, financial condition and
results of operations of the Trust and the Operating Partnership. See "Risk
Factors - Possible "Year 2000" Problems."
FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of material tax considerations that may be
relevant to prospective holders of Operating Partnership Units and Trust Common
Shares, based upon the Code, administrative regulations promulgated or proposed
by the Treasury Department (the "Regulations"), judicial decisions and rulings
of the Internal Revenue Service (the "IRS" or the "Service"), all of which are
subject to change (collectively the "Tax Laws"). Subsequent changes in such
authorities may cause the tax consequences to vary substantially from the
consequences described below.
Because many of the federal income tax consequences of an investment in
the Partnership will vary from one Unitholder to another, this summary does not
discuss all of the provisions of the Code that might be applicable to a
particular Unitholder. The discussion below focuses on Unitholders who are
individual citizens or residents of the United States and has only limited
application to corporations, estates, trusts, non-resident aliens or other
Unitholders subject to specialized tax treatment (such as tax-exempt
institutions, foreign persons, individual retirement accounts, REITs or mutual
funds). Unitholders should also be aware that the IRS may not agree with all of
the conclusions stated herein, and that no ruling will be requested from the
IRS. Moreover, changes in the Tax Laws after the date of this prospectus may
alter the tax consequences to a Unitholder of an investment in the Partnership.
Finally, various provisions of the Code contain a number of ambiguities, which
will be resolved only by future legislative, administrative or court action.
This summary is not intended as a substitute for individual tax planning.
Neither the Trust as General Partner of the Operating Partnership ("General
Partner"), the Operating Partnership nor any of their counsel or consultants
assumes any responsibility for the tax consequences of this transaction to any
Unitholder. Each prospective Unitholder is urged to consult with his own tax
advisor with respect to the federal, state, local and foreign tax consequences
arising from his or her acquisition, ownership or disposition of Operating
Partnership Units and Trust Common Shares.
CLASSIFICATION AS A PARTNERSHIP
No ruling has been or will be sought from the IRS as to the status of the
Operating Partnership as a partnership for federal income tax purposes. Instead,
the Operating Partnership has obtained and relied on the opinion of special tax
counsel that, based upon the Code, the Regulations thereunder, published revenue
rulings and court decisions, the Operating Partnership will be classified as a
partnership for federal income tax purposes.
In rendering its opinion, Tax Counsel has relied on the following factual
representations made by the Partnership and the General Partner:
o The Operating Partnership has not elected, and will not elect, to be
treated as an association taxable as a corporation or corporation;
o The Operating Partnership has been and will continue to be operated
in accordance with (i) all applicable partnership statutes, (ii) the
Agreement of Limited Partnership of the Operating Partnership, and
(iii) the description in this Prospectus;
o At least 22% in value of all of the assets of the Operating
Partnership shall always consist of assets other than those
described in Section 351(e)(1) of the Code; and
o The Operating Partnership will be operated so as to avoid treatment
as a publicly-traded partnership as set forth in Section 7704 of the
Code and applicable Regulations thereunder.
Under Section 7704 of the Code, certain "publicly-traded" partnerships are
treated as corporations for federal tax purposes. A partnership is a
publicly-traded partnership when interests in the partnership are traded on
179
<PAGE>
an established securities market or are readily tradeable on a secondary market
or the substantial equivalent thereof. Under Code Section 7704(c), a
publicly-traded partnership will nevertheless be treated as a partnership for
tax purposes if 90% or more of its gross income for the taxable year and each
preceding taxable year beginning after December 31, 1987, during which the
partnership (or any predecessor) was in existence, consists of passive-type
income, such as interest, dividends, real property rents and gain from the sale
or other disposition of real property, and the partnership would not be
described as a regulated investment company under Code Section 851(a).
Under Regulation Section 1.7704-1, interests in a partnership are
generally considered readily tradable on a secondary market or the substantial
equivalent thereof if (a) such interests are regularly quoted by any person,
such as a broker or dealer, making a market in the interests, (b) any person
makes available to the public bid or offer quotes with respect to such interests
and stands ready to effect buy or sell transactions at the quoted prices for
itself or on behalf of others, (c) the holder of an interest has a readily
available, regular and on-going opportunity to dispose of his interest through a
public means of obtaining or providing information of offers to buy, sell or
exchange such interests, or (d) prospective buyers and sellers have the
opportunity to buy, sell or exchange interests in a time frame and with the
regularity and continuity that the existence of a secondary market would
provide.
The Operating Partnership and the General Partner have represented to
special tax counsel that the Units of the Operating Partnership will not be
traded on an established securities market and will not be readily tradable on a
secondary market (or the substantial equivalent thereof) within the meaning of
the Regulations. Additionally, the Operating Partnership and the General Partner
have further represented that, at all times throughout the existence of the
Operating Partnership, at least 90% or more of the Operating Partnership's gross
income will consist of passive-type income, and the Operating Partnership will
not be described as a regulated investment company under Code Section 851(a).
Special tax counsel has relied on such representations in rendering its opinion
that the Operating Partnership will be classified as a partnership for federal
income tax purposes.
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to the Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum federal rate of 35%. In addition, any distribution made to
a Unitholder would be treated as either taxable dividend income at a rate
currently ranging to a maximum federal rate of 39.6% (to the extent of the
Operating Partnership's current or accumulated earnings and profits) or (in the
absence of earnings and profits) a non-taxable return of capital (to the extent
of the Unitholder's tax basis in his or her Units) or taxable capital gain
(after the Unitholder's tax basis in the Units has been reduced to zero).
Accordingly, treatment of the Operating Partnership as an association taxable as
a corporation would result in a material reduction in a Unitholder's cash flow
and after-tax return and thus would likely result in a substantial reduction of
the value of the Units.
THE DISCUSSION BELOW IS BASED ON THE ASSUMPTION THAT THE OPERATING
PARTNERSHIP WILL BE CLASSIFIED AS A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES.
EXCHANGE OF EXCHANGE PARTNERSHIP UNITS FOR OPERATING PARTNERSHIP UNITS
In general, a contribution by an owner ("Exchange Limited Partner") of a
partnership interest ("Exchange Partnership Units") to the Operating Partnership
in exchange for Units of the Operating Partnership (the "Exchange") will not
result in the recognition of taxable gain at the time of the Exchange. There is
an exception to this general rule if the Exchange Limited Partner receives in
connection with the Exchange a cash distribution (or a deemed cash distribution
resulting from relief from liabilities) that exceeds such Exchange Limited
Partner's aggregate adjusted basis in his or her Exchange Partnership Units at
the time of the Exchange and other exceptions to nonrecognition of gain
described in the immediately succeeding paragraph. Special tax counsel is unable
to issue an opinion as to whether or not a particular Exchange Limited Partner
will defer recognition of gain upon the Exchange due to the number of factors
that must be considered with respect to each Exchange Limited Partner. Whether a
particular Exchange Limited Partner will receive a deemed cash distribution
attributable to relief from liabilities in connection with the Exchange that
exceeds his or her adjusted basis in his or her Exchange Partnership Units at
the time of the Exchange will depend on a number of variables, including such
Exchange Limited Partner's adjusted tax basis in his or her partnership interest
at such time, the assets that the Exchange Limited Partner originally
contributed to the partnership in exchange for such Exchange Partnership Units,
the indebtedness, if any, of the partnership in which the Exchange Limited
Partner owns an interest (the "Exchange Partnership") at the time of the
Exchange, the tax basis of any such contributed assets in the hands of the
Exchange Partnership at the time of the Exchange, the Exchange Limited Partner's
share of the "unrealized gain" with respect to the Exchange
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Partnership's assets at the time of the Exchange, and the extent to which the
Exchange Limited Partner includes in his or her basis for his or her Exchange
Partnership Units a share of the Exchange Partnership's recourse liabilities by
reason of indemnification or "deficit restoration" obligations that will be
eliminated by reason of the Exchange.
Section 721(a) of the Code provides the general rule that "no gain or loss
shall be recognized to a partnership or to any of its partners in the case of a
contribution of property to the partnership in exchange for an interest in the
partnership." In addition, Section 731 of the Code provides that a distribution
of "money" by a partnership to a partner will not result in gain recognition
except to the extent that any "money" distributed exceeds the adjusted basis of
such partner's interest in the partnership immediately before the distribution.
The nonrecognition rules of Section 721 and Section 731 ordinarily apply even
when the transferred property is subject to liabilities (so long as the
assumption of such liabilities does not result in a deemed distribution of
"money" to the partner in excess of the partner's basis in the assets
contributed to the partnership). Accordingly, Section 721 and Section 731 may
apply to prevent the recognition of gain by either an Exchange Partnership or an
Exchange Limited Partner in connection with the Exchange. However, there are
several exceptions to the availability of nonrecognition treatment under Section
721 and Section 731 of the Code, including the following:
1. Any decrease in a partner's liabilities, if not offset by a
corresponding increase in the partner's share of other partnership
liabilities, could cause the partner to recognize taxable gain as a
result of the partner being deemed to have received a cash
distribution from the partnership in excess of the partner's
pre-distribution tax basis in the partnership interest. This
recognition of gain could occur even if the decrease arose in
connection with a contribution or distribution that would otherwise
qualify for tax-free treatment under Section 721 or Section 731 of
the Code. A decrease in a partner's share of partnership liabilities
(and the resulting deemed cash distribution) also might occur upon a
repayment of part or all of such liabilities following the exchange.
2. A contribution of property that is treated in whole or in part as a
"disguised sale" of the contributed property under the Code.
3. A distribution of "marketable securities" under Section 731(c) of
the Code.
4. Recapture under Section 465(e) of the Code.
5. A contribution of an appreciated asset to a partnership which would
be treated as an investment company (within the meaning of Section
351) if the partnership were incorporated.
The foregoing exceptions are discussed in greater detail below.
RELIEF FROM LIABILITIES/DEEMED CASH DISTRIBUTION
If an Exchange Limited Partner is deemed to receive a cash distribution as
a result of such Exchange Limited Partner's relief from its allocable share of
liabilities of an Exchange Partnership in connection with the Exchange, then
such Exchange Limited Partner will recognize taxable gain, but only to the
extent that the deemed cash distribution exceeds such Exchange Limited Partner's
adjusted tax basis in his or her Exchange Partnership Units immediately prior to
the Exchange. Whether the deemed cash distribution results in a taxable gain
depends upon a number of circumstances that can be determined only with full
knowledge of the specific details of each particular exchange.
Under the applicable provisions of the Code, partners in a partnership
include their share of the partnership's liabilities, determined in accordance
with Regulations under Section 752 of the Code, in determining the basis of
their partnership interests. Partners also include in the basis of their
partnership interests the adjusted tax basis of any capital contributions that
they have actually made to the partnership and their allocable share of all
partnership income and gains, and they reduce their basis by the amount of all
distributions that they received from the partnership and their allocable share
of all partnership losses. For purposes of these rules, if a partner's share of
the partnership's liabilities is reduced for any reason, the partner is deemed
to have received a cash distribution equal to the amount of such reduction.
In the case of the Exchange, these rules will be applied by reference to
the Exchange Limited Partner's share of the liabilities of the Exchange
Partnership immediately before the Exchange and that Exchange Limited Partner's
share of liabilities as a Unitholder in the Operating Partnership immediately
after the Exchange. Although
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the Code is not clear on whether netting of debt relief and debt assumption is
possible in the case of a contribution of a partnership interest to a
partnership, Section 1.752-1(f) of the Regulations indicates that netting is
permissible. Thus, an Exchange Limited Partner will offset his or her share of
the liabilities of the Operating Partnership against the elimination of such
Exchange Limited Partner's share of liabilities of the Exchange Partnership in
determining the amount of the deemed cash distribution to such Exchange Limited
Partner. If an Exchange Limited Partner, however, is deemed under these rules to
receive a cash distribution in an amount in excess of the basis immediately
prior to the Exchange of the Exchange Limited Partner's Exchange Partnership
Units, the Exchange Limited Partner may recognize taxable gain.
Under Section 752 of the Code and the Regulations thereunder, a partner's
share of partnership liabilities includes the partner's share of recourse
liabilities plus the partner's share of partnership nonrecourse liabilities.
These rules for sharing partnership liabilities are complex and their
application will vary among potential Exchange Limited Partners.
EACH POTENTIAL EXCHANGE LIMITED PARTNER IS URGED TO CONSULT WITH SUCH
PERSON'S OWN TAX ADVISOR CONCERNING THE EFFECT OF THE EXCHANGE ON PARTNERSHIP
LIABILITY SHARING (AND POTENTIAL GAIN RECOGNITION) FOR THAT PARTICULAR POTENTIAL
EXCHANGE LIMITED PARTNER. IT IS ESSENTIAL IN ASSESSING THE POTENTIAL IMPACT
RESULTING FROM A DEEMED RELIEF FROM LIABILITIES THAT EACH EXCHANGE LIMITED
PARTNER IN AN EXCHANGE PARTNERSHIP CONSULT WITH AND RELY SOLELY ON HIS OR HER
OWN TAX ADVISOR AS TO HIS OR HER PARTICULAR CIRCUMSTANCES.
DISGUISED SALE REGULATIONS
The Exchange will be taxable to an Exchange Limited Partner to the extent
that it is treated as a "disguised sale" of all or a portion of the Exchange
Limited Partner's Exchange Partnership Units under the Code or the Regulations.
Section 707 of the Code and the Regulations thereunder (the "Disguised Sale
Regulations") generally provide that, unless one of certain prescribed
exceptions is applicable, a partner's contribution of property to a partnership
and a contemporaneous transfer of money or other consideration from the
partnership (other than an interest in the partnership, such as the Operating
Partnership) to the partner will be treated as a sale, in whole or in part, of
such property by the partner to the partnership. The Disguised Sale Regulations
further provide that transfers of monies or other consideration between a
partnership and a partner that are made within two years of each other are
presumed to be a sale unless the facts and circumstances clearly establish that
either the transfers do not constitute a sale or an exception to disguised sale
treatment applies.
1. Effect of Assumption of Liabilities Under the Disguised Sale
Regulations . For purposes of these rules, certain reductions in a partner's
share of liabilities are treated as a transfer of money or other property from
the partnership to the partner which may give rise to a disguised sale, even if
that reduction would not otherwise result in a taxable deemed cash distribution
in excess of the partner's basis. Furthermore, the method of computing the
existence and amount of any reduction in a partner's share of liabilities under
the Disguised Sale Regulations is different from, and generally more onerous
than, the method applied under the rules discussed above under the heading
"Relief From Liabilities/Deemed Cash Distribution." However, if a transfer of
property by a partner to a partnership is not otherwise treated to any extent as
part of a disguised sale, any reduction in the partner's share of "qualified
liabilities" (discussed below) is not treated as part of a disguised sale.
Moreover, even if the transfer otherwise constitutes a disguised sale to some
extent, the amount of the reduction in the partner's share of liabilities
treated as part of the sale proceeds may in some cases be computed under a more
favorable method in the case of "qualified liabilities" than in the case of
other liabilities.
For purposes of the Disguised Sale Regulations, a "qualified liability" in
connection with a transfer of property to a partnership includes (i) any
liability incurred more than two years prior to the earlier of the date the
partner agrees in writing to transfer the property or the date the partner
transfers the property, so long as the liability has encumbered the transferred
property throughout the two-year period; (ii) a liability that was not incurred
in anticipation of the transfer of the property to a partnership, but that was
incurred by the partner within the two-year period prior to the earlier of the
date the partner agrees in writing to transfer the property or the date the
partner transfers the property to a partnership and that has encumbered the
transferred property since it was incurred; (iii) a liability that is traceable
under the Treasury Regulations to capital expenditures with respect to property
contributed to the partnership; and (iv) a liability that was incurred in the
ordinary course of the trade or business in which property transferred to the
partnership was used or held, but only if all the assets related to that trade
or business are
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transferred to the partnership, other than assets that are not material to a
continuation of the trade or business. However, a recourse liability is not a
qualified liability unless the amount of the liability does not exceed the fair
market value of the transferred property (less any other liabilities that are
senior in priority and encumber such property or any qualified liabilities
described in (iii) or (iv), above) at the time of transfer. A liability incurred
within two years of the transfer is presumed to be incurred in anticipation of
the transfer unless the facts and circumstances clearly establish that the
liability was not incurred in anticipation of the transfer. However, when
contributed property is borrowed against, pledged as collateral for a loan, or
otherwise refinanced, and the proceeds of the loan are distributed to the
contributing partner, there is no disguised sale to the extent that the proceeds
are attributable to indebtedness properly allocable to the contributing partner
under the rules of Section 752 of the Code and the partner retains substantive
liability for the repayment of the loan. Finally, if a partner treats a
liability described in (i) or (ii) above as a "qualified liability" because the
facts clearly establish that it was not incurred in anticipation of the
transfer, such treatment must be disclosed to the IRS in the manner set forth in
the Disguised Sale Regulations.
Special tax counsel does not have adequate information, and is therefore
unable to determine, whether or not any liabilities of a particular Exchange
Partnership assumed by the Operating Partnership in the Exchange fall into one
of the four categories of "qualified liabilities" described above. Thus, special
tax counsel is unable to render an opinion with regard to that matter. In any
event, certain liabilities of each Exchange Partnership may be qualified
liabilities solely by reason of exception (i) or (ii) in the preceding
paragraph, and thus, the Exchange Partnership and former Exchange Limited
Partner may be required to make disclosure with respect to those liabilities in
their tax returns for the year in which the Exchange occurs.
2. Effect of Cash Distributions Under the Disguised Sale Regulations .
Cash distributions from a partnership to a partner may be treated as a transfer
of property for purposes of the "disguised sale" rules. An exception applies,
however, to distributions of "operating cash flow," as such term is defined in
the Disguised Sale Regulations. Operating cash flow distributions are presumed
not to be a part of a sale of property to a partnership unless the facts and
circumstances clearly establish that the distribution of operating cash flow is
part of a sale. The General Partner and the Operating Partnership do not intend
to make any distribution of cash from the Operating Partnership to the Exchange
Limited Partners of the Exchange Partnership Units upon exchange of such
interests to the Operating Partnership. The Operating Partnership believes that
its periodic distributions of cash to Exchange Limited Partners will qualify as
distributions of "operating cash flow" under the Disguised Sale Regulations.
3. Effect of Right to Convert to a Share of the Trust. The Regulations
provide that the Section 731 nonrecognition provision regarding distribution of
property by a partnership does not apply where property is contributed to a
partnership and, within a short period, other property is distributed to the
contributing partner. The existence of the right by each Unitholder to exchange
his or her Units of the Operating Partnership for Common Shares of Beneficial
Interest of the Trust (the "Conversion Right") might be considered to be "other
property" received by the Exchange Limited Partners in connection with the
Exchange that will cause some portion of the Exchange to be considered to be a
disguised sale. Special tax counsel is not able to issue an opinion as to
whether the conversion right received by the Exchange Limited Partners will be
treated as "other property." Additionally, otherwise "qualified liabilities"
could also be taxable if the Conversion Right is treated as other property (see
"Effect of Disguised Sale Characterization" immediately below).
4. Effect of Disguised Sale Characterization . In any case in which a
transfer of Exchange Partnership Units to the Operating Partnership is found to
be a "disguised sale," all or a substantial portion of the gain represented by
the excess of the fair market value of the Units received by each Exchange
Limited Partner over the tax basis of the Exchange Limited Partner's Exchange
Partnership Units would be recognized by the Exchange Limited Partner. If a
transfer of property to a partnership and one or more transfers of money or
other consideration (including the assumption or taking subject to a liability)
by the partnership to that partner are treated as a disguised sale, then the
transfers will be treated as a sale of property, in whole or in part, to the
partnership by the partner acting in a capacity other than as a member of a
partnership, rather than as a contribution under Section 721 of the Code and a
partnership distribution. A transfer that is treated as a sale is treated as a
sale for all purposes of the Code and the sale is considered to take place on
the date that, under general principles of federal tax law, the partnership is
considered to become the owner of the property.
If a transfer of property by a partner to a partnership is treated as part
of a sale without regard to the partnership's assumption of or taking subject to
a qualified liability in connection with the transfer of property, the
partnership's assumption of or taking subject to that liability is treated as a
transfer of consideration made pursuant to a sale of such property to the
partnership only to the extent of the lesser of: (1) the amount of consideration
that the partnership would be treated as transferring to the partner if the
liability were not a qualified liability, or (2) the
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amount obtained by multiplying the amount of the qualified liability by the
partner's net equity percentage with respect to that property. A partner's net
equity percentage with respect to an item of property is generally the amount of
consideration received by such partner (other than relief from "qualified
liabilities") divided by the partner's net equity in the property sold, as
calculated under the Disguised Sale Regulations.
SECTION 465(E) RECAPTURE
In general, the "at-risk" rules of Section 465 of the Code limit the use
of losses, (see "Tax Treatment of Partners Who Hold Operating Partnership Units
After the Exchange" below and "Limitations on Deductibility of Losses; Treatment
of Passive Activities and Portfolio Income," below). Under Section 465(e) of the
Code, a taxpayer may be required to include in gross income (i.e., to
"recapture") losses previously allowed to the taxpayer with respect to an
"activity," if the amount for which the taxpayer is "at risk" in the activity is
less than zero at the close of the taxable year.
The identification of a taxpayer's activities for purposes of the at-risk
rules and the determination of a taxpayer's amount at risk in an activity are
complex and uncertain. However, as a general matter a taxpayer's amount at risk
in an activity is increased by the taxpayer's income, and reduced by the
taxpayer's losses, from the activity. Therefore, any income taken into account
by an Exchange Limited Partner as a result of a deemed cash distribution or
disguised sale treatment is likely to reduce the extent to which Section 465(e)
of the Code would apply to that Exchange Limited Partner.
Nevertheless, it is possible that the consummation of the Exchange or the
repayment of certain "qualified nonrecourse financing" (as defined in Section
465(b)(6) of the Code) of the Operating Partnership or an Exchange Partnership
at the time of or following the Exchange, singularly or in combination, could
cause a former Exchange Limited Partner 's amount at risk in an activity to be
reduced below zero and could, therefore, cause an income inclusion to the former
Holder under Section 465(e) of the Code. In this regard, the definition of
"qualified nonrecourse financing" is different from, and in certain material
respects more restrictive than, the definition of "nonrecourse liabilities" that
are taken into account under Section 752 of the Code. Hence, it is possible that
a partner can incur a reduction in his or her share of "qualified nonrecourse
financing" that causes the partner to recognize income under Section 465(e) of
the Code even though the partner has a sufficient share of "nonrecourse
liabilities" under Section 752 of the Code so that the partner would not be
deemed to have received a deemed cash distribution in excess of his or her basis
in his or her partnership interest (and thus recognized gain as a result
thereof).
TRANSFER TO AN INVESTMENT COMPANY
The Operating Partnership and the General Partner intend that, throughout
the term of the Operating Partnership, at least 22% of the total value of all
assets of the Operating Partnership will consist of assets other than those
described in Section 351(e)(1) of the Code and the Regulations thereunder
("Liquid Assets").
Section 721(a) of the Code provides the general rule that "no gain or loss
shall be recognized to a partnership or to any of its partners in the case of a
contribution of property to the partnership in exchange for an interest in the
partnership." Section 721(b) of the Code, however, provides that gain (but not
loss) must be recognized in the case of a "transfer of property to a partnership
which would be treated as an investment company (within the meaning of Section
351) if the partnership were incorporated."
Pursuant to Section 1.351-1(c)(1) of the Regulations, as applied to
partnerships, a transfer of property to a partnership will be considered to be a
transfer to an investment company if (a) the transfer results, directly or
indirectly, in diversification of the transferors' interests, and (b) more than
80% of the value of the partnership's assets are held for investment and are
readily marketable stocks or securities or interests in regulated investment
companies or real estate investment trusts (the "not-more-than-80%-of-assets"
test).
Section 351(e)(1) of the Code provides that the determination of whether a
company is an investment company is made: (a) by taking into account all stocks
and securities held by the company; and (b) by treating as stock and securities
- - (i) money, (ii) stocks and other equity interests in a corporation, evidences
of indebtedness, options, forward or future contracts, notional principal
contracts and derivatives, (iii) any foreign currency, (iv) any interest in a
real estate investment trust, a common trust fund, a regulated investment
company, a publicly-traded partnership (as defined in Section 7704(b)) or any
other equity interest (other than in a corporation) which pursuant to its terms
or any other arrangement is readily convertible into, or exchangeable for, any
asset described in clauses
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(i) through (iv) or clause (v) or clause (viii), (v) except to the extent
provided in the Regulations, any interest in a precious metal, unless such metal
is used or held in the active conduct of a trade or business after the
contribution, (vi) except as otherwise provided in the Regulations, interests in
any entity if substantially all of the assets of such entity consist (directly
or indirectly) of any assets described in any of the preceding clauses or clause
(viii), (vii) to the extent provided in the Regulations, any interest in any
entity not described in clause (vi), but only to the extent of the value of such
interest that is attributable to assets listed in clauses (i) through (v) or
clause (viii), or (viii) any other assets specified in the Regulations. Assets
not covered by Section 351(e)(1) are hereinafter referred to as "Liquid Assets."
Although "money" is treated as a stock or security (see clause (i) above),
Regulation Section 1.351-1(c)(2) provides that "[T]he determination of whether a
corporation is an investment company shall ordinarily be made by reference to
the circumstances in existence immediately after the transfer in question.
However, where circumstances change thereafter pursuant to a plan in existence
at the time of the transfer, this determination shall be made by reference to
the later circumstances." The 1997 Taxpayer Relief Act Senate Committee Report
states that although cash is counted as a tainted asset for purposes of the
not-more-than-80%-of-assets test, the preceding Regulation should be applied so
that if, as a part of a plan, cash is used to purchase assets that are not
treated as stock or securities, then the investment company determination is
made after the asset purchase.
Based on the preceding, cash owned by the Operating Partnership will be
considered "stock and securities" (and therefore not a Liquid Asset) unless the
Operating Partnership has a written plan in existence at the time that the cash
is obtained to use the cash to purchase assets other than those listed in Code
Section 351(e)(1) and the Operating Partnership does in fact use the cash for
such purpose.
Additionally, the Exchange Partnership Units that are contributed to the
Operating Partnership will be considered "stock and securities" since they are
exchangeable for shares of the Trust, which is a real estate investment trust
(see clause (iv) above).
Although the Exchange of Exchange Partnership Units to the Operating
Partnership will result in a diversification of an Exchange Limited Partner's
interests, the Operating Partnership will not meet the other test that, if
otherwise satisfied, would result in the Operating Partnership being classified
as an "investment company." Based on the plans and intentions of the Operating
Partnership and the General Partner, upon the transfer of a partnership interest
to the Operating Partnership, at least 22% of the value of the Operating
Partnership's assets will consist of Liquid Assets. Consequently, at the time of
contribution of a partnership interest to the Operating Partnership, not more
than 80% of the Operating Partnership's assets will consist of assets that are
not Liquid Assets.
If the Operating Partnership is considered an investment company, the
Exchange of existing partnership interests in exchange for Units of the
Operating Partnership will be currently taxable.
WITHHOLDING
If any gain is recognized in connection with the Exchange by an Exchange
Limited Partner who is not considered a U.S. resident for tax purposes,
withholding (in an amount equal to 10% of the "amount realized" by such Exchange
Limited Partner, which would include both the value of the Operating Partnership
Units received and such Exchange Limited Partner's share of the liabilities of
the Exchange Partnership, as determined for federal income tax purposes) may be
required. Alternatively, if gain were recognized by the Exchange Partnership,
the non-U.S. Unitholder could be subject to withholding at the current rate of
35% on his share of the gain. As a condition to the receipt of Operating
Partnership Units in the Exchange, each Exchange Limited Partner who does not
want to be subject to such withholding will have to provide to the Operating
Partnership either a certification, made under penalties of perjury, that he or
she is a United States citizen or resident (or if an entity, an entity organized
under the laws of the United States) or, alternatively, a notice of
nonrecognition treatment with respect to the Exchange in a form reasonably
acceptable to the Operating Partnership.
TAX TREATMENT OF UNITHOLDERS WHO HOLD OPERATING PARTNERSHIP UNITS AFTER THE
EXCHANGE
INCOME AND DEDUCTIONS IN GENERAL . Each Unitholder will be required to
report on his or her income tax return his or her allocable share of income,
gains, losses, deductions and credits of the Operating Partnership. Such items
must be included on the Unitholder's federal income tax return without regard to
whether the Operating Partnership makes a distribution of cash to such
Unitholder. No federal income tax will be payable by
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the Operating Partnership so long as it qualifies as a partnership for federal
income tax purposes (see "Classification as a Partnership").
TREATMENT OF PARTNERSHIP DISTRIBUTIONS . Distributions of money by the
Operating Partnership to a Unitholder (including for these purposes decreases in
a Unitholder's share of Partnership liabilities) generally will not be taxable
to such Unitholder for federal income tax purposes to the extent of such
Unitholder's aggregate basis in his or her Operating Partnership Units
immediately prior to the distribution. Distributions of money in excess of such
basis generally will be considered to be gain in the amount of such excess, a
portion of which may be taxed as ordinary income. Any reduction in a
Unitholder's share of the Operating Partnership's non-recourse liabilities,
whether through repayment, refinancing with recourse liabilities, refinancing
with non-recourse liabilities secured by the other assets, or otherwise, may be
treated as a distribution of money to such Unitholder. An issuance of additional
Operating Partnership Units by the Operating Partnership without a corresponding
increase in debt may decrease each existing Unitholder's share of non-recourse
liabilities of the Operating Partnership and, thus, will result in a
corresponding deemed distribution of money.
INITIAL BASIS OF OPERATING PARTNERSHIP UNITS . In general, an Exchange
Limited Partner who acquires Operating Partnership Units in the exchange will
have an initial tax basis in such Operating Partnership Units ("Initial Basis")
equal to the aggregate basis in his or her interest in his or her Exchange
Partnership, adjusted to reflect the effects of the Exchange (that is, reduced
to reflect any deemed distributions resulting from a reduction in the former
holder's share of liabilities and increased to reflect any gain required to be
recognized in connection with the Exchange).
As a result of the decreases in each Unitholder's share of Partnership
non-recourse liabilities that may result from the consummation of the Exchange
(see "Tax Consequences of the Exchange - Relief from Liabilities/Deemed Cash
Distribution"), each Exchange Limited Partner who receives Operating Partnership
Units may have an Initial Basis in his or her Operating Partnership Units that
is significantly lower than the basis in his or her interest in his or her
Exchange Partnership immediately prior to the Exchange. Because of this
reduction in basis, distributions of cash and deemed distributions resulting
from a reduction of a Unitholder's share of Partnership non-recourse liabilities
may be taxable to an Exchange Limited Partner sooner than if such basis
reduction had not occurred. Such basis reduction also would affect the
Unitholder's ability to deduct its share of any Partnership tax losses. For the
effects on an Exchange Limited Partner of a reduction in basis that may result
from the Exchange, see "See Exchange of Exchange Partnership Units for Operating
Partnership Units -- Relief from Liabilities/Deemed Cash Distribution" and
"Treatment of Partnership Distributions," above and -- "Limitations on
Deductibility of Losses; Treatment of Passive Activities and Portfolio Income,"
below.
Each former Exchange Limited Partner's Initial Basis in his or her
Operating Partnership Units will generally be increased by (a) his or her share
of Operating Partnership taxable income and Operating Partnership exempt income
and, (b) his or her share of increases in non-recourse liabilities incurred by
the Operating Partnership, if any. Generally, each former Exchange Limited
Partner's Initial Basis in his or her Operating Partnership Units will be
decreased (but not below zero) by (i) his or her share of Partnership
distributions, (ii) his or her share of decreases in liabilities of the
Operating Partnership, including any decrease in the Exchange Limited Partner's
share of non-recourse liabilities of the Operating Partnership (see "Exchange of
Exchange Partnership Units for Operating Partnership Units - Relief from
Liabilities/Deemed Cash Distribution"), (iii) his or her share of any losses of
the Operating Partnership, and (iv) his or her share of non-deductible
expenditures of the Operating Partnership that are not chargeable to capital
account.
ALLOCATIONS OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTIONS . The
Agreement of Limited Partnership of the Operating Partnership (the "Partnership
Agreement") provides that, if the Operating Partnership operates at a net loss,
net losses shall be allocated to the Unitholders in proportion to their
respective percentage ownership interests in the Operating Partnership, provided
that net losses that would have the effect of creating a deficit balance in a
limited partner's capital account (as specially adjusted for such purpose)
("Excess Loss") will be reallocated to the General Partner. The Partnership
Agreement also provides that, if the Operating Partnership operates at a net
profit, net income will first be allocated to the General Partner to the extent
of Excess Losses with respect to which the General Partner has not previously
been allocated net income, and any remaining net income shall be allocated to
the Unitholders in proportion to their respective percentage ownership interests
in the Operating Partnership. Notwithstanding the preceding, the Partnership
Agreement permits the General Partner to issue additional Units to the General
Partner and to third parties whereby such Units may have special rights,
preferences and designations, including with regard to allocations of net income
and net losses, that are senior to the rights of the other Unitholders
("Preferred Units"). Net income and net loss of the Operating
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Partnership for the taxable year of liquidation of the Operating Partnership is
to be allocated first to eliminate negative balances in each Unitholder's
capital account and then, to the extent possible, in a manner such that the
capital accounts of the Unitholders immediately prior to final liquidating
distributions are equal to the amount which would have been distributable to
Unitholders as set forth in the Partnership Agreement.
EFFECT OF THE EXCHANGE ON DEPRECIATION . The Exchange may adversely affect
the computation of depreciation deductions with respect to assets of each
Exchange Partnership. Pursuant to Code Section 708(b)(1)(B), a partnership will
be considered to have been terminated if within a twelve month period, there is
a sale or exchange of 50% or more of the interests in partnership capital and
profits. As a result of the exchange of one or more interests of an Exchange
Partnership, an Exchange Partnership may "terminate" under Section 708(b)(1)(B)
of the Code. Section 168(i)(7) of the Code provides, in effect, that when a
partnership terminates under Section 708(b)(1)(B) of the Code, the partnership
must begin new depreciation periods for its property. As a result, if there is a
tax termination of an Exchange Partnership, the remaining basis of the assets of
the Exchange Partnership will be depreciated over the period that would apply if
those assets were newly acquired by the such terminated Exchange Partnership in
a purchase transaction.
TAX ALLOCATIONS WITH RESPECT TO BOOK-TAX DIFFERENCE ON CONTRIBUTED
PROPERTIES. Pursuant to Section 704(c) of the Code, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership must be allocated for federal income tax purposes
in a manner such that the contributor is charged with, or benefits from, the
unrealized gain or unrealized loss associated with the property at the time of
contribution. The amount of such unrealized gain or unrealized loss is generally
equal to the difference between the fair market value of the contributed
property at the time of contribution and the adjusted tax basis of such property
at the time of contribution (referred to as "Book-Tax Difference"). These rules
will apply with respect to the contribution of Exchange Partnership Units to the
Operating Partnership in the Exchange.
The Partnership Agreement requires allocations of income, gain, losses and
deductions attributable to the properties as to which there Book-Tax Difference
be made in a manner that is consistent with Section 704(c) of the Code. The
Partnership Agreement authorizes the General Partner to elect any method
prescribed by the Regulations to be used by the Operating Partnership for
allocation of items affected by Section 704(c) of the Code. As a result of
Section 704(c), in general, a contributor of Exchange Partnership Units will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain until such time that the Book-Tax Difference
is reduced to zero. In addition, depending on the method of allocation that is
selected, the contributor could be allocated items of income for tax purposes to
offset depreciation which is allocated to other partners in excess of
depreciation otherwise permitted to be allocated to other partners by the
ceiling rule of the Regulations. This would tend to eliminate the Book-Tax
Difference.
DISSOLUTION OF PARTNERSHIP . In the event of the dissolution of the
Operating Partnership, a distribution of Partnership property (other than money)
will not result in taxable gain to a Unitholder (except to the extent provided
in Sections 737, 704(c)(1)(B) and 731(c) of the Code). A Unitholder will hold
such distributed property with a basis equal to the adjusted basis of such
Operating Partnership Units, reduced by any money distributed in liquidation.
Further, the liquidation of the Operating Partnership will be taxable to a
holder of Operating Partnership Units to the extent that any money distributed
in liquidation (including any money deemed distributed as a result of relief
from liabilities) exceeds such holder's tax basis in his or her Operating
Partnership Units.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES; TREATMENT OF PASSIVE ACTIVITIES
AND PORTFOLIO INCOME . The passive loss limitations generally provide that
individuals, estates, trusts and closely held corporations and personal service
corporations can deduct losses from passive activities (generally, activities in
which the taxpayer does not materially participate), only to the extent that
such losses are not in excess of the taxpayer's income from passive activities
or investments. If the partnership were to be classified as a publicly traded
partnership under the Code (see "Classification as a Partnership" above), any
losses or deductions allocable to a holder of Operating Partnership Units could
be used only against gains or income of the Operating Partnership and could not
be used to offset passive income from other passive activities. Similarly, any
Partnership income or gain allocable to a holder of Operating Partnership Units
could not be offset with losses from other passive activities of such holder.
In addition to the foregoing limitations, a holder of Operating
Partnership Units may not deduct from taxable income its share of Partnership
losses, if any, to the extent that such losses exceed the lesser of (i) the
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adjusted tax basis of his or her Operating Partnership Units at the end of the
Operating Partnership's taxable year in which the loss occurs, and (ii) the
amount for which such holder is considered "at risk" at the end of that year. In
general, a holder of Operating Partnership Units will initially be "at risk" to
the extent of his or her basis in his or her Units (unless the Unitholder
borrowed amounts on a non-recourse basis to acquire such interest), including
for such purposes only such Unitholder's share of the Operating Partnership's
liabilities, as determined under Section 752 of the Code, that are considered
"qualified non-recourse financing" for purposes of the "at risk" rules. After
consummation of the Exchange, in general, a Unitholder's at-risk amount will
increase or decrease as the adjusted basis in his or her Operating Partnership
Units increases or decreases. Losses disallowed to a Unitholder as a result of
these rules can be carried forward and may be allowable to such holder to the
extent that his or her adjusted basis or at-risk amount (whichever was the
limiting factor) is increased in a subsequent year. The at-risk rules apply to
an individual partner, an individual shareholder of a corporate partner that is
an S corporation and a corporate partner if 50% or more of the value of stock of
such corporate partner is owned directly or indirectly by five or fewer
individuals at any time during the last half of the taxable year.
SECTION 754 ELECTION . The General Partner has the authority, in its sole
and absolute discretion, to determine whether to make any available election
pursuant to the Code including, without limitation, an election under Section
754 of the Code. Once made, a Section 754 Election is irrevocable without the
consent of the IRS. If made, the Section 754 Election would generally permit a
purchaser of Operating Partnership Units to adjust his or her share of the basis
in the Operating Partnership's properties ("Inside Basis") pursuant to Section
743(b) of the Code to fair market value (as reflected by the value of
consideration paid for the Operating Partnership Units), as if such purchaser
had acquired a direct interest in the Operating Partnership's Assets. The
Section 743(b) adjustment is attributed solely to a purchaser of Operating
Partnership Units and is not added to the basis of Partnership's assets
associated with all of the Operating Partnership's Unitholders.
A Section 754 Election is advantageous if the transferee's tax basis in
his or her interest is higher than such interest's share of the aggregate tax
basis to the partnership of the partnership's assets immediately prior to the
transfer. In such a case, as a result of the election, the transferee would have
a higher tax basis in his or her share of the partnership's assets for purposes
of calculating, among other items, his or her depreciation and depletion
deductions and his or her share of any gain or loss on a sale of the
partnership's assets. Conversely, a Section 754 Election is disadvantageous if
the transferee's tax basis in such interest is lower than such interest's share
of the aggregate tax basis of the partnership's assets immediately prior to the
transfer. Thus, the fair market value of the interests may be affected either
favorably or adversely by the election.
DISPOSITION OF OPERATING PARTNERSHIP UNITS BY UNITHOLDERS. If a
Partnership Unit is sold or otherwise disposed of, the determination of gain or
loss from the sale or other disposition will be based on the difference between
the amount realized and the tax basis for such Partnership Unit. Upon the sale
of a Partnership Unit, the "amount realized" will be measured by the sum of the
cash and fair market value of other property received for the Operating
Partnership Unit plus the portion of the Operating Partnership's liabilities
considered allocable to the Operating Partnership Unit sold. Similarly, upon a
gift of a Partnership Unit, a Unitholder will be deemed to have realized an
amount with respect to the portion of the Operating Partnership's nonrecourse
liabilities considered allocable to such Partnership Unit. To the extent that
the sum of the amount of cash or property received and the allocable share of
the Operating Partnership's liabilities exceeds the holder's basis for the
Operating Partnership Unit disposed of, such Unitholder will recognize gain. The
tax liability resulting from such gain could exceed the amount of cash received
from such disposition.
To the extent that the amount realized upon the sale of the Operating
Partnership Unit attributable to a Unitholder's share of "unrealized
receivables" or inventory items (if any) of the Operating Partnership exceeds
the basis attributable to those assets, such excess will be treated as ordinary
income. Unrealized receivables include, to the extent not previously includable
in Partnership income, any rights to payment for services rendered or to be
rendered. Unrealized receivables also include amounts that would be subject to
recapture as ordinary income if the Operating Partnership had sold its assets at
their fair market value at the time of the transfer of a Partnership Unit, such
as "depreciation recapture" under Sections 1245 and 1250 of the Code.
TAX TREATMENT OF CONVERSION RIGHT . If a Unitholder exercises his or her
right to exchange his or her Operating Partnership Units for Common Shares of
the Trust, or if upon a Unitholder's election to convert, the Trust satisfies
the Unitholder's conversion right by paying cash for the Unitholder's Operating
Partnership Units, such transaction will be a fully taxable sale with respect to
the Unitholder. As a result, the Unitholder will be treated as realizing an
amount equal to the amount of the cash or the value of the Common Shares
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received upon the conversion plus the amount of liabilities of the Operating
Partnership considered allocable to the redeemed Operating Partnership Units at
the time of the redemption.
CONSTRUCTIVE TERMINATION . A partnership, will be considered to have been
terminated for tax purposes if there is a sale or exchange of 50% or more of the
total interests in partnership capital and profits within a twelve-month period.
Under existing Regulations, a termination of a partnership will result in a
deemed transfer by a partnership of its assets to a new partnership in exchange
for an interest in a new partnership followed by a deemed distribution of
interests in the new partnership to the partners of the terminated partnership
in liquidation of the partnership. Under the 1997 Taxpayer Relief Act, if a
partnership is permitted to elect and does elect to be treated as a large
partnership, it will not terminate by reason of the sale or exchange of
interests in the partnership. A termination of the partnership will result in
the closing of the partnership's taxable year for all partners. In the case of a
partner reporting on a taxable year other than a fiscal year ending December 31,
the closing of the partnership's taxable year may result in more than twelve
months' taxable income or loss of the partnership being includable in the
partner's taxable income for year of termination. New tax elections by the
partnership, including a new election under Section 754 of the Code, would be
required to be made subsequent to a termination if such an election continues to
be desired, and a termination could result in a deferral of partnership
deductions for depreciation. A termination could also result in penalties if the
partnership were unable to determine that the termination had occurred.
Moreover, a termination might either accelerate the application of or subject
the partnership to, any tax legislation enacted prior to the termination.
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Ownership of Units by employee benefit plans, other tax exempt
organizations, non-resident aliens, foreign corporations, other foreign persons
and regulated investment companies raise issues unique to such persons and, as
described below, may have substantially adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax (including IRAs and other retirement plans) are subject to federal
income tax on unrelated business taxable income. Much of the taxable income
derived by such an organization from the ownership of a Unit will be unrelated
business taxable income and thus will be taxable to such a Unitholder.
Non-resident aliens and foreign corporations, trusts or estates which hold
Units will be considered to be engaged in business in the United States on
account of ownership of Units. As a consequence, they will be required to file
federal tax returns in respect of their share of Partnership income, gain, loss
or deduction and pay federal income tax at regular rates on any net income or
gain. Generally, a partnership is required to pay a withholding tax on the
portion of the partnership's income which is effectively connected with the
conduct of a United States trade or business and which is allocable to the
foreign partners, regardless of whether any actual distributions have been made
to such partners. However, under rules applicable to publicly-traded
partnerships, a partnership must withhold on actual cash distributions made
quarterly to foreign Unitholders. Each foreign Unitholder must obtain a taxpayer
identification number from the IRS and submit that number to the transfer agent
of the Operating Partnership in order to obtain credit for the taxes withheld.
Any change in applicable law may require the Operating Partnership to change
these procedures.
Because a foreign corporation which owns Units will be treated as engaged
in a United States trade or business, such a corporation may be subject to
United States branch profits tax at a rate of 30% in addition to regular federal
income tax on its allocable share of the Operating Partnership's income and gain
(as adjusted for changes in the foreign corporation's "United States net
equity") which is effectively connected with the conduct of a United States
trade or business. That tax may be reduced or eliminated by an income tax treaty
between the United States and the country with respect to which a foreign
corporate Unitholder is a qualified resident. In addition, such a Unitholder is
subject to special information reporting requirements under Section 6038C of the
Code.
Under a ruling of the IRS, a foreign Unitholder who sells or otherwise
disposes of Units will be subject to federal income tax on gain realized on the
disposition of such Unit to the extent that such gain is effectively connected
with the United States trade or business of the foreign Unitholder.
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PARTNERSHIP INCOME TAX INFORMATION RETURNS AND PARTNERSHIP AUDIT PROCEDURES
The General Partner on behalf of the Operating Partnership will use
reasonable efforts to furnish the Unitholders with the tax information
reasonably required by Unitholders for federal and state income tax reporting
purposes within 90 days after the close of each Partnership taxable year.
The federal income tax information returns filed by the Operating
Partnership may be audited by the Service. The Code contains partnership audit
procedures governing the manner in which the Service audit adjustments of
partnership items are resolved. The Operating Partnership may be able to elect
the simplified pass-through system for audits that was enacted as part of the
1997 Taxpayer Relief Act. Such election is available to partnerships that have
100 or more partners and meet certain other requirements set forth in the
Taxpayer Relief Act.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of Partnership items of income,
gain, loss, deduction and credit is determined at the partnership level in a
unified partnership proceeding, rather than in separate proceedings with each
partner. The Code provides for one partner to be designated as the "Tax Matters
Partner" for these purposes. The Partnership Agreement appoints the General
Partner as the Tax Matters Partner for the Operating Partnership.
The Tax Matters Partner is authorized, but not required, to take certain
actions on behalf of the Operating Partnership and the Unitholders and can
extend the statute of limitations for assessment of tax deficiencies against
Unitholders with respect to Partnership items. The Tax Matters Partner will make
a reasonable effort to keep each Unitholder informed of administrative and
judicial tax proceedings with respect to Partnership's items to the extent
required pursuant to Regulations issued under Section 6223 of the Code. The Tax
Matters Partner is authorized to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Unitholder for income
tax purposes, and in the settlement agreement the Tax Matters Partner may
expressly state that such agreement shall bind all Unitholders, provided,
however, that such settlement agreement shall not bind any Unitholder (a) who
(within the time prescribed pursuant to the Code and Regulations) files a
statement with the IRS providing that the Tax Matters Partner shall not have the
authority to enter into a settlement agreement on behalf of such Unitholder or
(b) who is a "notice partner" (as defined in Section 6231 of the Code) or a
member of a "notice group" (as defined in Section 6223(b)(2) of the Code).
The Unitholders will generally be required to treat Operating Partnership
items on their federal income tax returns in a manner consistent with the
treatment of the items on the Operating Partnership information return. In
general, that consistency requirement is waived if the Unitholder files a
statement with the IRS identifying the inconsistency. Failure to satisfy the
consistency requirement, if not waived, will result in an adjustment to conform
the treatment of the item by the Unitholder to the treatment on the Operating
Partnership return. Even if the consistency requirement is waived, adjustments
to the Unitholder's tax liability with respect to the Operating Partnership
items may result from an audit of the Operating Partnership's or the
Unitholder's tax return. Intentional or negligent disregard of the consistency
requirement may subject a Unitholder to substantial penalties. In addition, an
audit of the Operating Partnership return may also lead to an audit of an
individual Unitholder's tax return and such audit could result in adjustment of
non-partnership items.
A partner in an electing large partnership must report all partnership
items consistently with their treatment on the partnership return. An
inconsistency cannot be excused by notifying the IRS of the differing treatment.
Unitholders who fail to report partnership items consistently with their
treatment on the partnership return are subject to accuracy-related and fraud
penalties.
REGISTRATION AS A TAX SHELTER
The Code requires that "tax shelters" be registered with the Secretary of
the Treasury. The Temporary Regulations interpreting the tax shelter
registration provisions of the Code are extremely broad. It is arguable that the
Operating Partnership is not subject to the registration requirement on the
basis that it will not constitute a tax shelter.
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ACTIVITIES ENGAGED IN FOR PROFIT
Under Section 183 of the Code, certain expenses (other than for real
estate taxes and interests) from activities not engaged in for profit are
allowed as deductions only to the extent of income from the activity and then
only to the extent such expenses, together with other itemized deductions exceed
two percent (2%) of the taxpayer's adjusted gross income. Section 183 generally
applies to activities that are not conducted as a business or in a business-like
manner, activities that have significant recreational aspects with little or no
profits, or activities where the primary source of investment return is through
tax deductions and credits.
The limitation of Section 183 may not be applicable if, based on the facts
and circumstances of the particular situation, it is determined that a member's
investment in the Operating Partnership and the Operating Partnership's business
constitutes transactions and activities "entered into for profit." The fact that
the possibility of ultimately obtaining profits is uncertain, standing alone,
does not appear to be sufficient grounds for the denial of losses under Section
183. The General Partner and the Operating Partnership intend that the Operating
Partnership's principal objective is to earn a profit. Based on such
representation and on the nature and extent of the activities to be undertaken
by the Operating Partnership, the General Partner and the Operating Partnership
believe that it is not likely that Section 183 could be successfully applied to
limit deductions claimed by the Operating Partnership. However, because of the
inherently factual nature of the inquiry, there can be no certainty that the IRS
will not attempt to challenge a Unitholder's deductions under Section 183 or
that any such challenge would not be successful.
With respect to Partnership activities, the profit objective test is to be
applied at the Operating Partnership level. However, the test may be applied at
the partner level to determine whether the partner acquired his or her interest
in an anticipation of profit. Accordingly, no assurance can be given that the
profit objective principles may not be applied in the future to disallow
deductions taken by one or more of the partners with respect to their interest
in the Operating Partnership. No investor should become a partner unless his
objective is to secure an economic profit from his investment in the Operating
Partnership, determined without regard to tax benefits, which may be received.
ORGANIZATIONAL AND SYNDICATION FEES
Section 709 of the Code provides that organizational fees are not deducted
currently but may be amortized over a period of not less than 60 months after a
partnership begins doing business. If a partnership is liquidated before the end
of the 60-month period, the remaining organizational expenditures are deductible
as losses at that time. Organizational fees and expenses are those expenditures
that are (i) incidental to the creation of a partnership, (ii) chargeable to the
capital account, (iii) of a character that, if expended incidental to the
creation of a partnership having an ascertainable life, would be amortized over
such life.
Section 709 also disallows a current deduction for syndication fees. Further,
such fees are not eligible for the 60-month amortization period for
organizational expenses noted above. Syndication fees are expenses connected
with the promotion of the sale of units or interests in a partnership and may
include such items as some professional fees, selling expenses, and printing
costs.
There can be no assurance that the IRS will not attempt to reclassify certain
expenditures that are deducted or amortized by the Operating Partnership as
syndication costs.
ANTI-ABUSE REGULATIONS
Pursuant to Section 1.701-2 of the Regulations regarding certain "abusive"
transactions involving partnerships, if a partnership is formed or availed of in
connection with a transaction "with a principal purpose of substantially
reducing the present value of the partners' aggregate federal tax liability in a
manner that is inconsistent with the intent" of the partnership provisions of
the Code, the Service has the authority to recast the transaction so as to
achieve tax results consistent with the intent of the partnership provisions,
taking into account all of the facts and circumstances. Example (4) of
Regulations Section 1.701-2(d) discusses a newly-formed REIT that acts as a
general partner of a partnership to which other partnerships make contributions
of appreciated property. The example concludes that the facts as presented
therein do not present an abusive situation for purposes of Code Section 701.
Although Example (4) provides a helpful analogy to the Operating Partnership and
the Trust, there is no assurance that the IRS would reach the same conclusions
in this case as in Example (4).
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ALTERNATIVE MINIMUM TAX ON ITEMS OF TAX PREFERENCE
The Code contains different sets of minimum tax rules applicable to
corporate and non-corporate taxpayers. The Operating Partnership will not be
subject to the alternative minimum tax, but the Unitholders are required to take
into account on their own tax returns their respective shares of the Operating
Partnership's tax preference items and adjustments in order to compute
alternative minimum taxable income. SINCE THE IMPACT OF THE ALTERNATIVE MINIMUM
TAX DEPENDS ON EACH UNITHOLDER'S PARTICULAR SITUATION, OFFEREES WHO ARE HOLDERS
OF EXCHANGE PARTNERSHIP UNITS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE APPLICABILITY OF THE ALTERNATIVE MINIMUM TAX
STATE AND LOCAL TAXES
In addition to the federal income aspects described above, an Offeree
should consider the potential state and local tax consequences of owning
Operating Partnership Units. Tax returns may be required and tax liability may
be imposed both in the state or local jurisdictions where a Unitholder resides
and in each state or local jurisdiction in which the Operating Partnership has
assets or otherwise does business. Thus, persons holding Operating Partnership
Units either directly or through one or more partnerships or limited liability
companies, may be subject to state and local taxation in a number of
jurisdictions in which the Operating Partnership directly or indirectly holds
real property and would be required to file periodic tax returns in those
jurisdictions. The Operating Partnership anticipates providing the Unitholders
with information reasonably necessary to permit them to satisfy state and local
return filing requirements. To the extent that a Unitholder pays income tax with
respect to the Operating Partnership to a state where he or she is not a
resident (or the Operating Partnership is required to pay such tax on behalf of
the Unitholder), the Unitholder may be entitled, in whole or in part, to a
deduction or credit against income tax that otherwise would be owed to his or
her state of residence with respect to the same income. An Offeree should
consult with his or her personal tax advisor with respect to the state and local
income tax implications for such Offeree of owning Operating Partnership Units.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO THE INVESTOR OF AN INVESTMENT
IN THE OPERATING PARTNERSHIP AND IN COMMON SHARES OF THE TRUST, INCLUDING TAX
CONSEQUENCES TO THE INVESTOR UPON THE EXCHANGE OF HIS OR HER EXCHANGE
PARTNERSHIP UNITS FOR UNITS OF THE OPERATING PARTNERSHIP AND ANY SUBSEQUENT
EXCHANGE OF UNITS FOR COMMON SHARES.
INCOME TAX CONSIDERATIONS WITH RESPECT TO THE TRUST
The General Partner (sometimes hereinafter referred to as the "Trust")
intends to operate in a manner that permits it to satisfy the requirements for
taxation as a REIT under the applicable provisions of the Code. No assurance can
be given, however, that such requirements will be met. The following is a
summary of the federal income tax considerations for the Trust and its
Shareholders with respect to the treatment of the Trust as a REIT. Since these
provisions are highly technical and complex, each prospective purchaser of the
Trust's Common Shares is urged to consult his own tax advisor with respect to
the federal, state, local, foreign and other tax consequences of the purchase,
ownership and disposition of the Common Shares. The Trust has not obtained, and
does not intend to request, a ruling from the IRS that it will be treated as a
REIT. Instead, the Trust has obtained and relied upon the opinion of its special
tax counsel that, based on the organization and proposed operation of the Trust
and based on certain other assumptions and factual representations, it will
qualify as a REIT commencing with its taxable year ending December 31, 1998. The
opinion is not binding on the IRS or any court.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the 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 the 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, the 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.
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The Managing Shareholder of the Trust currently expects that the Trust
will operate in a manner that permits it to elect, and that it properly has
elected, REIT status for the taxable year ending December 31, 1998, and in each
taxable year thereafter. There can be no assurance, however, that this
expectation will be fulfilled, since qualification as a REIT depends on the
Trust continuing to satisfy numerous ownership, asset, income and distribution
tests described below, which in turn will be dependent in part on the Trust's
operating results.
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
Shareholder 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
federal income tax laws.
TAXATION OF THE TRUST
General. In any year in which the 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. The Trust may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
Notwithstanding its qualifications as a REIT, the Trust may also be
subject to taxation in certain other circumstances. If the 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 the Trust's
profitability. The Trust will also be subject to a tax of 100% on net income
from any "prohibited transaction" as described below, and if the 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 the 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, the Trust would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. If the 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 the 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 the 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 the Trust (or the 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) the 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. The Trust may elect to retain rather than distribute its
net long-term capital gains. The effect of such election is that (i) the Trust
is required to pay the tax on such gains within 30 days after the close of the
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 the Trust, and
(iii) the tax basis of a Shareholder's beneficial interest in the Trust would be
increased by the amount of undistributed long-term capital gains (less the
amount of capital gains tax paid by the 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 the Trust's taxable
year or mailed with its annual report to the taxable year. The Trust may also be
subject to the corporate alternative minimum tax, as well as tax in certain
situations not presently contemplated. The 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, the Trust must meet, among others, the
following requirements:
Stock Ownership Tests . The 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 the 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
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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 the Trust for which a REIT election is made.
In order to ensure compliance with the foregoing stock ownership tests,
the 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 the Trust must
maintain records which disclose the actual ownership of its outstanding Shares.
In fulfilling its obligations to maintain records, the 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 the Trust complies with the Treasury
Regulations for ascertaining its actual ownership and did not know, or exercised
reasonable diligence which 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 the 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 the Trust's records. A
Shareholder failing or refusing to comply with the 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 Declaration of Trust
for the Trust provides restrictions regarding the transfer of its Shares that
are intended to assist the Trust in continuing to satisfy the stock ownership
requirements.
Asset Tests . At the close of each quarter of the Trust's taxable year,
the 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 the 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 the 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 the 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 the 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 the Trust's total assets or (ii) 10% of the
outstanding voting securities of any one such issuer. The 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 the Trust's gross income which must be satisfied for
each taxable year. For purposes of these tests, if the Trust invests in one or
more partnerships, the 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 the 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 the 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 the 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 the Trust, or an owner of 10% or more of the
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 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
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or percentages of receipts or sales. Finally, for rents received to
qualify as rents from real property, the Trust generally must not operate
or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom the Trust derives no
income, except that the "independent contractor" requirement does not
apply to the extent that the services provided by the 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 the 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 the 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 the 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 the Trust's gross income
for the taxable year must be derived from the above-described qualifying
income, and from dividends, interest 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 the 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 the 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. The Trust and the Managing Shareholder intend that
neither the Trust nor the Operating Partnership will enter into
transactions for the sale of dealer property.
The 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 the Trust's
interest in a partnership, generally will also constitute qualifying
income. The 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 the Trust failing either the 75% or 95%
gross income test.
Even if the 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) the
Trust's failure to comply was due to reasonable cause and not to willful
neglect; (ii) the Trust reports 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, the 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 the Trust's profitability.
Annual Distribution Requirements. In order to qualify as a REIT, the 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
the 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 the 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 the 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. The Trust may elect to retain rather than
distribute its net long-term capital gains. The effect of such election is that
(i) the Trust is required to pay the tax on such gains within 30 days after the
close of the 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 the
Trust, and (iii) the tax basis of a
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Shareholder's beneficial interest in the Trust would be increased by the amount
of undistributed long-term capital gains (less the amount of capital gains tax
paid by the 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 the Trust's taxable year or mailed with
its annual report for the taxable year.
The Trust intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the preceding paragraph. In this
regard, the Declaration authorizes the Managing Shareholder of the Trust to take
such steps as may be necessary to cause any partnership in which the Trust may
own an interest to distribute to its partners an amount sufficient to permit the
Trust to meet these distribution requirements. It is possible that the 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 the 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, the 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, there can be
no assurance that such borrowing would be available at such time.
If the Trust fails to meet the 95% distribution requirement as a result of
an adjustment to the Trust's tax return by the Internal Revenue Service (the
"Service"), the Trust may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
Failure to Qualify . If the Trust fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the 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 the Trust fails to qualify as a REIT will not be deductible by the Trust,
nor generally will they 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. The Trust's failure to qualify as a REIT could
substantially reduce the cash available for distribution. Unless entitled to
relief under specific statutory provisions, the 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 THE TRUST'S INVESTMENT IN THE OPERATING PARTNERSHIP
An increase in the 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 the Trust provided that an
amount equal to such income is distributed by the Trust to its Shareholders.
Moreover, for purposes of the REIT asset tests, the Trust will include its
proportionate share of assets held by a partnership.
Entity Classification. The 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) (see
"Classification as a Partnership" above). 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 the
Trust's assets and items of gross income would change, which would preclude the
Trust from satisfying the REIT asset tests and the REIT gross income tests,
which in turn would prevent the Trust from qualifying as a REIT.
Tax Allocations with Respect to Trust Properties. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. See "Tax Treatment of Unitholders Who Hold Operating
Partnership Units After the Exchange -- Tax Allocations With Respect to Book-Tax
Difference on Contributed Properties."
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Sale of Trust Properties. The 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 the 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 the Trust's investment objectives. Based
upon the Trust's investment objectives, the Trust believes that overall,
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 the Trust qualifies
as a REIT, distributions made to the 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 the 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 the 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 capital assets). In
addition, any dividend declared by the 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 the Trust and received by the Shareholder
on December 31 of such year, provided that the dividend is actually paid by the
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 the Trust. Federal income tax rules may also require that
certain minimum tax adjustments and preferences be apportioned to Shareholders.
The Trust may elect to retain and pay income tax on any net long-term
capital gain, in which case domestic Shareholders of the 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 the Trust on such retained capital gains and an increase in its basis in
the stock of the Trust in an amount equal to the difference between the
undistributed long-term capital gains and the amount of tax paid by the Trust.
In general, domestic Shareholders will realize capital gain or loss 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 Shareholder 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 the 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
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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 . The 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 the 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 qualification for exemption from backup withholding
and the procedure for obtaining such an exemption. The Trust may be required to
withhold a portion of capital gain distributions made to any Shareholders who
fail to certify their non-foreign status to the 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 REIT (a "pension-held
REIT"), based upon such ruling and the statutory framework of the Code,
distributions by the 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 the 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. The 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). The 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 the Trust's current anticipation that the Trust will
qualify as a domestically controlled REIT, because the Common Shares will be
freely tradable by Shareholders, no assurance can be given that the Trust will
continue to so qualify.
Distributions of cash generated by the 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 the Trust the required form evidencing such lower rate, or (ii) the
foreign Shareholder files an IRS Form 4224 with the 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 the Trust are subject to income and
withholding taxes pursuant to the Foreign Investment in 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 exemption. The Trust is required by applicable Treasury Regulations
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to withhold 35% of any distribution to a foreign person that could be designated
by the 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 the Trust should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investments in
the Trust.
OTHER TAX CONSIDERATIONS
Possible Legislative or Other Actions Affecting Tax Consequences.
Prospective Shareholders and Unitholders should recognize that the present
federal income tax treatment of investment in the Trust and the Operating
Partnership 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. No
assurance can be given 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 the Trust and the Operating Partnership. .
State and Local Taxes . The Trust and its Shareholders and the Operating
Partnership and its Unitholders 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 the Trust and its Shareholders and
the Operating Partnership and its Unitholders, may not conform to the federal
income tax consequences discussed above. Consequently, prospective Shareholders
and Unitholders should consult their own tax advisors regarding the effect of
state and local tax laws on an investment in Common Shares and Units.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES AND UNITS 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 THE OPERATING PARTNERSHIP AGREEMENT
Unitholders of the Operating Partnership, including without limitation,
Offerees who accept the Exchange Offering, will have the rights and obligations
of Unitholders under the Operating Partnership Agreement. The material
provisions of the Operating Partnership Agreement are described above at "THE
TRUST AND THE OPERATING PARTNERSHIP - The Operating Partnership" and below at
"COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES." The Declaration of Trust also
contains certain additional limitations on the Trust's activities which will
affect the operation of the Operating Partnership. See "SUMMARY OF THE
DECLARATION OF TRUST - Control of Operations" below and Section 1.9 of the
Declaration of Trust.
SUMMARY OF DECLARATION OF TRUST
Shareholders of the Trust will have the rights and obligations under the
Declaration of Trust for the Trust (the "Declaration of Trust" or the
"Declaration"). The Declaration also contains certain additional limitations on
the Trust's activities which will affect the operation of the Operating
Partnership. The following briefly summarizes material provisions of the
Declaration not described elsewhere in this Prospectus and is qualified in its
entirety by express reference to the provisions of the agreement. The Trust will
deliver a copy of the Declaration to each requesting Offeree without charge.
Term
The term of the 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 then outstanding to dissolve the
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Trust; (c) the sale of all or substantially all of the Trust's Property, (d) the
withdrawal of the Offering by the Managing Shareholder prior to the Termination
Date of the Cash Offering, and (e) the occurrence of any other event which, by
law, would require the Trust to terminate. Upon dissolution, the Managing
Shareholder or a liquidity receiver or trustee selected by the Managing
Shareholder or the Investors will liquidate the Trust's assets. (See Recitals
and Article 9 of the Declaration.)
Control of Operations
The Managing Shareholder (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 the Trust and the Operating
Partnership, subject to general supervision and review by the Independent
Trustees and the Managing Shareholder acting together as the Board of the Trust
and to prior approval authority of the Board and/or the Independent Trustees in
respect of certain actions. The Declaration requires that a majority of the
Board of the Trust be comprised of Independent Trustees not affiliated with the
Managing Shareholder or its affiliates. The Managing Shareholder will be
obligated to devote to the Trust such time as may be reasonably necessary to
conduct the Trust's business. The Investors will have no participation in or
control over the management of the Trust or the Operating Partnership, except
the right to propose and vote on certain matters under the Declaration of Trust.
The Managing Shareholder and the other members of the Board, including the
Independent Trustees, are obligated to manage the Trust in the best interest of
its Partners. (See "FIDUCIARY RESPONSIBILITY" above and Article 7 of the
Declaration.)
The following discussion describes certain actions of the Trust and the
Operating Partnership, 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 the Trust and the
Operating Partnership. (See Section 1.9 of the Declaration.)
o At, or prior to, the initial meeting of the Board of the Trust, the
Declaration and the Operating Partnership 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 Declaration.)
o The Board must establish written policies on investments and any borrowing
to be made by the Trust and Operating Partnership and monitor the
administrative procedures, investment operations and performance of the
Trust, the Operating Partnership and the Managing Shareholder to ensure
that such policies are being carried out. (See Section 1.9(c) of the
Declaration.)
o The Board must evaluate the performance of the Managing Shareholder
(wholly owned and controlled, along with the Corporate General Partner of
each Exchange Partnership, by Mr. McGrath) (and any successor advisor of
the Trust) prior to entering into or renewing a management agreement
relating to the administration and management of the 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 the Cash 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 the Managing Shareholder (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
the Managing Shareholder (or any successor advisor) possesses sufficient
qualifications to perform the advisory function for the Trust and justify
the compensation provided for in the applicable management agreement. (See
Section 1.9(d) of the Declaration.)
o The Independent Trustees must determine, at least annually, that the total
fees and expenses of the Trust and the Operating Partnership are
reasonable in light of their investment performance, their net assets,
their net income, and the fees and expenses of other comparable
unaffiliated REITs. (See Section 1.9(f) of the Declaration.)
o The Independent Trustees must determine that organizational and offering
expenses payable by the Trust and the Operating Partnership in connection
with the formation of the Trust and the Operating Partnership 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 Declaration.)
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o The Independent Trustees must determine that the total amount of any
acquisition fee and expenses payable by the Trust or the Operating
Partnership 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 the Trust or the Operating
Partnership, 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 the Trust and the
Operating Partnership. (See Section 1.9(h) of the Declaration.)
o The Independent Trustees have the fiduciary responsibility of limiting the
total operating expenses (less certain items described below) of each of
the Trust and the Operating Partnership 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 the Trust or the Operating Partnership
incurs operating expenses in excess of such amount, the Trust or the
Operating Partnership, 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, the Managing Shareholder must reimburse the Trust or the
Operating Partnership, as applicable, at the end of such fiscal year the
amount by which the total operating expenses paid or incurred by the Trust
or the Operating Partnership 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 the Trust's Shares and the Operating Partnership's 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 (e) 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 Declaration.)
o A majority of the Independent Trustees must determine that any real estate
commission paid to the Managing Shareholder (wholly owned and controlled,
along with the Corporate General Partner of each Exchange Partnership, by
Mr. McGrath), a Trustee, any other member of the Board or any of their
respective affiliates in connection with the resale of any Trust or
Operating Partnership 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 Declaration.)
o The Independent Trustees must determine, at least annually, that the
compensation which the Trust contracts to pay to the Managing Shareholder
(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 the Managing
Shareholder (and any successor advisor) and the compensation payable to it
by the Trust to determine that the terms and conditions of the contract
are being carried out. (See Section 1.9(k) of the Declaration.)
o Neither the Trust nor the Operating Partnership may purchase property or
any equity interest in any entity owning one or more properties from the
Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath), a
Trustee, any other member of the Board, 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 the Trust and
the Operating Partnership and that the purchase price to the Trust or the
Operating Partnership, 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 the Trust or the Operating
Partnership is in excess of such cost, that substantial justification for
such excess exists and such excess is
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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
Declaration.)
o Neither the Managing Shareholder, any Trustee, any other member of the
Board nor any of their respective affiliates may acquire or lease any
assets from the Trust or the Operating Partnership 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 the Trust and the Operating Partnership. (See Section 1.9(m)
of the Declaration.)
o No loans may be made by the Trust or the Operating Partnership to the
Managing Shareholder, a Trustee, any other member of the Board or any of
their respective affiliates except as provided below or to any wholly
owned subsidiary of the Trust or the Operating Partnership. (See Section
1.9(n) of the Declaration.)
o Neither the Trust nor the Operating Partnership may borrow money from or
invest in joint ventures with the Managing Shareholder, a Trustee, any
other member of the Board 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 the Trust and the Operating Partnership than such
transactions between unaffiliated parties under the same circumstances.
(See Section 1.9(o) of the Declaration.)
o Neither the Trust nor the Operating Partnership 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 Declaration.)
o The Independent Trustees must review the investment policies of the Trust
at least annually to determine that the policies being followed by the
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 Declaration.)
o In the event that the Trust or the Operating Partnership and one or more
other investment programs sponsored by the Managing Shareholder or an
Affiliate of the Managing Shareholder (wholly owned and controlled, along
with the Corporate General Partner of each Exchange Partnership, by Mr.
McGrath) seek to acquire 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 the Trust or the Operating Partnership, as applicable,
and such other programs in order to determine that such method is applied
fairly to the Trust and the Operating Partnership. (See Section 1.9(s) of
the Declaration.)
o Any other transaction not described in this section between the Trust or
the Operating Partnership and the Managing Shareholder, a Trustee, any
other member of the Board 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 the Trust and the Operating
Partnership and on terms and conditions no less favorable to the Trust and
the Operating Partnership than those available from unaffiliated parties.
(See Section 1.9(t) of the Declaration.)
o The purchase price payable for property to be acquired by the Trust and
the Operating Partnership 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 the
Trust or the Operating Partnership proposes to acquire property from the
Managing Shareholder, a Trustee, any other member of the Board 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 Declaration.)
o In connection with a proposed Roll-up (as defined below) involving the
assets of the Trust or the Operating Partnership, 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)
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accepting the securities of the Roll-up entity (i.e., the entity surviving
the Roll-up) or (ii) either (x) remaining as Shareholders in the Trust or
Unitholders in the Operating Partnership, 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 the Trust or
the Operating Partnership, as applicable. The Trust is prohibited from
participating in certain types of Roll-ups specified in the Declaration.
Generally, a "Roll-up" is a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Trust or
the Operating Partnership and the issuance of securities of a Roll-up
entity. (See Section 1.9(v) of the Declaration.)
o The aggregate borrowings of each of the Trust and the Operating
Partnership, 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 the Trust, along with an explanation of the
justification of such excess. (See Section 1.9(w) of the Declaration.)
o Neither the Trust nor the Operating Partnership 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 Declaration.)
o Neither the Trust nor the Operating Partnership may invest in commodities
or commodity future contracts, excluding future contracts used solely for
hedging purposes in connection with the Trust's or the Operating
Partnership's ordinary business of investing in real estate assets and
mortgages. (See Section 1.9(y) of the Declaration.)
o Neither the Trust nor the Operating Partnership 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 the Managing Shareholder (wholly
owned and controlled, along with the Corporate General Partner of each
Exchange Partnership, by Mr. McGrath), a Trustee, any other member of the
Board or any of their respective affiliates, the appraisal must be
obtained from a qualified independent appraiser. The appraisal must be
maintained in the 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, the Trust or the Operating Partnership, 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. The
Trust and the Operating Partnership 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 the Trust or the Operating Partnership,
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 the Managing
Shareholder, Trustees, any other members of the Board or any of their
respective affiliates. (See Section 1.9(z) of the Declaration.)
o The Trust and the Operating Partnership may not issue options or warrants
to purchase Shares or Units to the Managing Shareholder, the Trustees, any
other member of the Board or any of their respective affiliates except on
the same terms as such options or warrants are sold to the general public.
The Trust and the Operating Partnership may issue options or warrants to
persons not so connected with the Trust or the Operating Partnership 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 the Managing Shareholder, the Trustees, any other member of
the Board or any of their respective affiliates must not exceed an amount
equal to 10% of the outstanding Common Shares or other securities of the
Trust or of the Units or other securities of the Operating Partnership on
the date of grant of any options or warrants. (See Section 1.9(cc) of the
Declaration.)
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o The payment by the Trust and the Operating Partnership 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
Declaration.)
Liability and Indemnification
Neither the Managing Shareholder (wholly owned and controlled, along with
the Corporate General Partner of each Exchange Partnership, by Mr. McGrath), the
Trustees, any other members of the Board nor any of their respective affiliates
are liable to the Trust or to any Shareholder for any loss suffered by the 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 the Trust's best
interest and such course of conduct was within the scope of the Declaration and
did not constitute negligence or misconduct in the case of a person who is not
an Independent Trustee, or gross negligence or willful misconduct, in the case
of any such person who is an Independent Trustee. (See Section 3.5 of the
Declaration.)
The Trust will indemnify the Managing Shareholder, the Independent
Trustees, any other member of the Board and each of their respective affiliates,
officers, directors, shareholders, partners, agents and employees (provided such
persons act within the scope of the Declaration) against any loss, liability or
damage (including costs of litigation and attorneys' fees) incurred by such
person arising out of or incidental to the Cash Offering and the management of
the Trust's affairs within the scope of the 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 of 1933, as amended (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 Declaration of
Trust. 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 Declaration.)
Assuming compliance with the Declaration and applicable formative and
qualifying requirements in Delaware and any other jurisdiction in which the
Trust conducts its business, a Shareholder will not be personally liable under
Delaware law for any obligations of the Trust, except for indemnification
liabilities arising from any misrepresentation made by him in the Investor
Subscription Documents submitted to the Trust in connection with the acquisition
of Common Shares in the Cash Offering. The Trust will, to the extent
practicable, endeavor to limit the liability of the Shareholders in each
jurisdiction in which the Trust operates. (See Section 3.4 of the 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. The Trust will make all equity
investments in properties through the Operating Partnership, a Delaware limited
partnership, which provides the Trust limited liability. Therefore, regardless
of the local treatment of business trusts, the Trust believes that the
Shareholders will not be subject to personal liability for property liabilities
and that with regard to the operation of the 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. The Trust is not aware of any case where such environmental
liabilities were imposed on non-management participants in a business trust. See
"THE TRUST AND THE OPERATING PARTNERSHIP - Regulations."
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The Delaware Act does not contain any provision imposing liability on a
Shareholder for participation in the control of the 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 the Trust is or would be rendered
insolvent to return those distributions under equitable principles enforced by
courts. Under Delaware decisions, a trust 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 Declaration has been signed by the Corporate
Trustee, and the Managing Shareholder was the formative beneficial interest
holder of the Trust.
Distributions
The Trust made quarterly pro rata distributions to its Shareholders
commencing November 1998. Additional distributions were made in March and May
1999. The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders, generally within 45 to 60 days
after the end of each calendar quarter. In order to maintain its qualification
as a REIT under the Code, the 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. For
taxable years beginning after August 5, 1997, the 1997 Act (1) expands the class
of excess noncash items that are excluded from the distribution requirement to
include income from the cancellation of indebtedness and (2) extends the
treatment of original issue discount and coupon interest as excess noncash items
to REITs, like the Trust, that use an accrual method of accounting. Under
certain circumstances, the 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 Declaration.)
The Board of the Trust is expected to adopt a distribution reinvestment
program. Upon the adoption of the plan, the Trust will provide material
information to Shareholders regarding the plan and the effect of reinvesting
distributions from the Trust, including the tax consequences thereof. The Trust
will provide Shareholders updated information at least annually. (See Section
2.8 of the Declaration.)
Quarterly and Annual Reports
The Trust will provide each Shareholder with quarterly and annual reports
as described below at "REPORTS TO UNITHOLDERS AND SHAREHOLDERS." (See also
Section 5.3 of the Declaration.)
Accounting
The accounting period of the Trust will end on December 31 of each year.
The Trust will utilize the accrual method of accounting for the Trust's
operations on the basis used in preparing the Trust's federal income tax returns
with such adjustments as may be in the Trust's best interest. (See Section 5.1
of the Declaration.)
Books and Records; Tax Information
The Trust will keep appropriate records relating to its activities. All
books, records and files of the Trust will be kept at its principal offices at
Cincinnati, Ohio or Wilmington, Delaware. An independent certified public
accounting firm will prepare the Trust's federal income tax returns as soon as
practicable after the conclusion of each year. The 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 Declaration to obtain other
information about the 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 Declaration.)
Governing Law
All provisions of the 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 Declaration.)
Amendments and Voting Rights
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The Managing Shareholder (wholly owned and controlled, along with the
Corporate General Partner of each Exchange Partnership, by Mr. McGrath) may
amend the Declaration without notice to or approval of the Shareholders for the
following purposes: to maintain the federal income tax status of the Trust as a
REIT (unless the Managing Shareholder determines that it is in the best
interests of the Shareholders to disqualify the 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 Declaration.)
Other amendments to the Declaration may be proposed either by the Managing
Shareholder 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 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 Declaration.) Other voting rights of
Shareholders are described below at " - Meeting and Voting Rights."
Dissolution of Trust
The term of the 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 the Trust's Property, (d) the withdrawal of
the Cash Offering by the Managing Shareholder (wholly owned and controlled,
along with the Corporate General Partner of each Exchange Partnership, by Mr.
McGrath) prior to the Termination Date of the offering, or (e) any other event
requiring dissolution by law. The 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
the Managing Shareholder) or (ii) if there is no remaining Managing Shareholder
or its affiliates, a majority in interest of the Shareholders, elects to
continue the Trust. The Managing Shareholder (or in the absence thereof, a
liquidating trustee chosen by the Shareholders) will liquidate the Trust's
assets if it is not continued. (See Article 8 of the Declaration.)
Removal and Resignation of the Managing Shareholder
The holders of at least 10% of the Common Shares may propose the removal
of the Managing Shareholder, either by calling a meeting or soliciting consents
in accordance with the terms of the Declaration. Removal of the Managing
Shareholder (wholly owned and controlled, along with the Corporate General
Partner of each Exchange Partnership, by Mr. McGrath) requires either the
affirmative vote of a majority of the Common Shares (excluding Common Shares
held by the Managing Shareholder 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 Declaration.)
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. Upon the termination of the Trust Management
Agreement, the Managing Shareholder must cooperate with the 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 Declaration and Article VI of the Trust Management Agreement.)
Transferability of Shareholders' Interests
The Common Shares are freely transferable by the Shareholders, subject to
certain restrictions on transfer which the Managing Shareholder deems necessary
to comply with the REIT provisions of the Code. (See Section 2.5 and Article 2A
of the 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 the Trust and
with the conflicts of interest policies of the Trust and the Operating
Partnership (see "INVESTMENT OBJECTIVES AND POLICIES-Trust Policies with Respect
to Certain Activities-Conflict of Interest Policies" above), the Managing
Shareholder and each Shareholder may engage in whatever activities they choose,
whether or not such activities are competitive with the
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Trust, without any obligation to offer any interest in such activities to the
Trust or to any other Shareholders. (See Sections 6.2 and 7.9 of the
Declaration.)
Power of Attorney
In the Declaration, the Shareholders acknowledge that the Managing
Shareholder has been granted an irrevocable power of attorney to execute and
file (i) all amendments, alterations or changes in the Declaration of the Trust
which comply with the terms of the Declaration; (ii) all other instruments which
the Managing Shareholder believes to be in the best interest of the Trust to
file; (iii) all certificates or other instruments necessary to qualify or
maintain the Trust as a REIT or as a business trust in which the Shareholders
have limited liability in the jurisdictions where the Trust may conduct
business; and (iv) all instruments necessary to effect a dissolution,
termination, liquidation, cancellation or continuation of the Trust when such
dissolution, termination, liquidation, cancellation or continuation is called
for under the Declaration. (See Section 9.3 of the Declaration.)
Meetings and Voting Rights
The Trust will conduct an annual meeting of Shareholders at which all
members of the Board (including all Independent Trustees) (except where the
Managing Shareholder and a Majority 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 the 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 the Managing Shareholder, a majority of the Independent
Trustees, any officer of the Trust, or Shareholders who hold 10% or more of the
Common Shares then outstanding, for any matter on which such Shareholders may
vote. The 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 the 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 the Trust.
(3) Dissolve or liquidate the Trust, other than before its initial
investment in property.
(4) Amend the Declaration; provided, however, the Declaration may be
amended by the Managing Shareholder without notice or approval of the
Shareholders for the following purposes: (i) to maintain the federal income tax
status of the Trust (unless the Managing Shareholder 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 the 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 Declaration.)
In addition to any other actions of the Trust requiring the approval of
Shareholders under the 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
Declaration, terminate the Trust, and elect and/or remove one or more members of
the Board. (See Section 6.6(b) of the Declaration.)
Additional Offerings of Shares
There will be no mandatory assessments of Shareholders in respect of the
Common Shares or any additional Shares the Trust may issue in the future. To the
extent that the Board desires to obtain additional capital, the Trust may raise
such capital through additional public and private equity offerings, debt
financing, retention of cash flow (subject to satisfying the Trust's
distribution requirements under the REIT rules) or a combination of these
methods. The Trust may determine to issue securities senior to the Common
Shares, including Preferred Shares, debt securities, or Units of limited
partnership interest in the Operating Partnership (either of which may be
convertible into Common Shares or be accompanied by warrants to purchase Common
Shares). The 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 the Operating Partnership in which it will
conduct all of its real estate operations. (See Article 2 of the Declaration.)
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The proceeds from any borrowings by the Trust may be used to pay
distributions, to provide working capital, to purchase additional interests in
the Operating Partnership, to refinance existing indebtedness or to finance
acquisitions or capital improvements of new properties or property interests.
(See Section 1.8(a) of the 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, the Managing Shareholder 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 the Trust
may invest. (See Sections 1.2(a) and 5.5 of the Declaration.)
REPORTS TO UNITHOLDERS AND SHAREHOLDERS
Operating Partnership Unitholders
Within 120 days after the close of each partnership year, the Operating
Partnership is required to mail to each Limited Partner, an annual report
containing financial statements of the Operating Partnership presented in
accordance with generally accepted accounting principles ("GAAP") and audited by
a nationally recognized firm of qualified independent public accountants. Within
60 days after the close of each quarter (except the last quarter), the Operating
Partnership is required to mail to each Limited Partner a report containing
unaudited financial statements of the Operating Partnership. The Operating
Partnership is required to use all reasonable efforts to furnish to Limited
Partners, within 90 days after the close of each taxable year, the tax
information reasonably required by the Limited Partners for federal and state
income tax reporting purposes.
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of 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, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units 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 of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
Each Limited Partner is entitled, upon written request and at his expense,
to obtain a copy of the following from the Operating Partnership: (i) most
recent annual and quarterly reports filed with the Commission by the Trust under
the Exchange Act (defined below), (ii) the Operating Partnership's federal,
state and local income tax returns for each year, (iii) a current list of the
name and address of each Unitholder, (iv) the Operating Partnership Agreement,
the Certificate of Limited Partnership of the Operating Partnership filed in the
State of Delaware and all amendments thereto, and (v) information relating to
the amount of cash and other consideration contributed by each Limited Partner
and the date each Limited Partner became a partner of the Operating Partnership.
Trust Shareholders
The Trust will keep each Shareholder currently advised as to activities of
the 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 the Managing Shareholder in conformity with generally
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 Declaration.)
Within 120 days after the end of each fiscal year following the completion
of the Cash Offering, the Trust is required to prepare and mail to each
Shareholder as of a record date determined by the Managing Shareholder, an
annual report which includes the following:
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(1) Financial statements prepared in accordance with generally accepted
accounting principles which are audited and reported on by the 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 the Managing Shareholder and any of its affiliates during the
period by the Trust and including fees or charges paid to them by third parties
doing business with the Trust;
(4) The total operating expenses (as defined in Section 1.9(i) of the
Declaration), stated as a percentage of the book amount of the 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 the Trust, the Managing
Shareholder, the Trustees, any other members of the Board and any of their
respective affiliates occurring in the year for which the annual report is made.
(See Section 5.3(b) of the Declaration.)
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of 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, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units 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 of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
The Common Shares being sold in the Cash Offering have been registered
under the Securities Act of 1933, as amended (the "Securities Act"). As of the
date of this Prospectus, the Trust has not registered the Common Shares under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or listed
them on any securities exchange. The Trust will apply for listing on a national
stock exchange of the Common Shares being offered in the Cash Offering and
Common Shares into which Units being offered in the Exchange Offering are
exchangeable. However, there can be no assurance whether the Trust will qualify
for such listing on any stock exchange and, if so, of the timing of the
effectiveness of any such listing.
Although Common Shares acquired by Investors in the Cash Offering and
Common Shares acquired by Unitholders in exchange for Units will be freely
tradable securities, there can be no assurance that an active trading market
will be established or maintained for the Common Shares. The 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-KSB or Form 8-K current
reports) under the Exchange Act in 1999 and for any subsequent fiscal year in
which it has more than 300 Shareholders or it is otherwise required by
applicable law to do so. The Trust is expected to have at least 300 Shareholders
after the completion of the Cash Offering and accordingly would be required to
file such reports on a continuing basis.
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES
The rights and obligations of the Corporate General Partner (wholly owned
and controlled, along with the Managing Shareholder of the Trust, by Mr.
McGrath) and Exchange Limited Partners in respect of each Exchange Partnership
are governed by the agreement of limited partnership of the partnership
(collectively, the "Exchange Partnership Agreements" and individually, an
"Exchange Partnership Agreement"). The rights and obligations under the various
Exchange Partnership Agreements described below are identical except as stated.
Exchange Limited Partners are urged to review the Exchange Partnership Agreement
pertaining to their investment which was
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attached as Exhibit A to the Private Placement Memorandum they received in
connection with their original purchase of Exchange Partnership Units in such
partnership's private offering.
Upon their acceptance of the Exchange Offering, Exchange Limited Partners
of Participating Exchange Partnerships (i.e., Exchange Partnerships whose
limited partners holding at least 90% of the limited partnership interests
therein elect to accept the Exchange Offering assuming the offering is complete)
will become limited partners in the Operating Partnership and have rights set
forth under the Operating Partnership Agreement as described below. See also
"THE TRUST AND THE OPERATING PARTNERSHIP- The Operating Partnership." Exchange
Limited Partners of Participating Exchange Partnerships who accept the Exchange
Offer and thereby receive Operating Partnership Units will entitled to exchange
all or a portion of such units for an equivalent number of Common Shares of the
Trust at any time and from time to time, subject to the Trust's right to cash
out any holder of Units who requests an exchange (at a price equal to the
average of the daily market price for the 10 consecutive trading days
immediately preceding the date the Trust receives the exchange notice, or, in
the absence of a public trading market, at a price determined in good faith by
the Trust) and subject to certain other restrictions described above at "THE
EXCHANGE OFFERING." Holders of Trust Common Shares will have the rights set
forth under the Declaration of Trust for the Trust which are summarized above at
"SUMMARY OF DECLARATION OF TRUST" and below. The Declaration of Trust also
contains certain additional limitations on the Trust's activities which will
affect the operation of the Trust and the Operating Partnership. See "SUMMARY OF
THE DECLARATION OF TRUST - Control of Operations" and Section 1.9 of the
Declaration of Trust.
The rights of limited partners in the Participating Exchange Partnerships
differ in many respects from the rights they will have as limited partners in
the Operating Partnership if they accept the Exchange Offering and the rights
they will have if they exercise their right to exchange Operating Partnership
Units for an equivalent number of Trust Common Shares. The following discussion
compares the material provisions of each type of security but does not purport
to be a complete statement of such provisions under Florida and Delaware limited
partnership law, as applicable, Delaware business trust law, the Exchange
Partnership Agreements, the Operating Partnership Agreement and the Declaration
of Trust of the Trust or a comprehensive comparison of the rights of holders of
Exchange Partnership Units, the holders of Operating Partnership Units and
holders of Trust Common Shares under such agreements or laws. This summary is
qualified in its entirety by reference to such agreements and laws.
Following the Exchange Offering, each Non-participating Limited Partner
(i.e., each limited partner in a Participating Exchange Partnership who elects
not to accept the Exchange Offering) will retain his existing interest in his
Exchange Partnership. The Non-participating Limited Partners will retain all of
their economic and voting rights, rights to receive reports and substantially
all other rights as set forth in the Exchange Partnership Agreement pertaining
to their Exchange Partnership. As described in further detail in this Prospectus
at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS," the partnership agreement of each
Participating Exchange Partnership which has one or more Non-participating
Limited Partners following the Exchange Offering will be amended so that such
partners will be entitled to vote as a class in respect of all matters as to
which limited partners are entitled to vote under the partnership agreement
prior to the completion of the Exchange Offering, with certain exceptions. In
addition, the Trust and the Operating Partnership have agreed that in respect of
certain proposed actions, the Participating Exchange Partnership must obtain the
prior approval of Non-participating Limited Partners holding a majority of the
limited partnership interests held by all Non-participating Limited Partners in
the partnership. For example, the partnership may not sell its existing property
interest, acquire any additional property interests or cease to exist without
such approval. The partnership agreement, as amended, will continue in full
force and effect after the completion of the offering as long as any
Non-participating Limited Partners remain limited partners of the Exchange
Partnership. See the Prospectus at "THE EXCHANGE OFFERING."
Set forth below under the applicable category is a summary of the specific
Exchange Partnership Agreement amendments that will be effected in respect of
each Participating Exchange Partnership which has one or more Non-participating
Limited Partners immediately following the completion of the Exchange Offering
as to such partnership.
Issuance of Additional Securities
Exchange Partnerships: Under the Exchange Partnership Agreements, the interests
of the partners are comprised of general partner interests and limited partner
interests only. Except as described in the next paragraph, all of the Exchange
Partnerships may issue securities in addition to those issued in connection with
their respective private offering of limited partnership interests, as described
below in this paragraph. Additional partnership interests may
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be sold by each such Exchange Partnership in the future if the Corporate General
Partner thereof (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) determines it to be in the best
interest of the partnership to commit additional funds to its property and that
such funds should not be financed from the partnership's earnings or through
additional indebtedness.
The partnership agreement provisions of three of the Exchange Partnerships
(Florida Income Advantage Fund I, Ltd., Florida Income Appreciation Fund I,
Ltd., and Realty Opportunity Income Fund VIII, Ltd.) permit the issuance of
additional securities only if such issuance is approved by the general partner
of, and the limited partners holding at least a majority of the limited
partnership interests in, the respective partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be authorized to admit any additional persons as
limited partners other than pursuant to provisions of the agreement, including
those described above, which set forth procedures for admission or pertain to
transfers of limited partnership interests. In addition, as a result of such
amendments, the Corporate General Partner of each Participating Exchange
Partnership (other than the three partnerships excepted above) will continue to
have discretion to issue additional units of limited partnership interest of the
same class as units held by the limited partners of the partnership and to
determine the terms of such issuance, provided, however, that the majority
approval of Non-participating Limited Partners voting as a class is required to
approve such issuance in advance where the selling price for such shares is not
less than the approximate market value of the units. See below at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Under the Operating Partnership Agreement, the initial
interests of the partners are comprised of the General Partner interest held by
the Trust and Operating Partnership Units of limited partnership interest to be
held by the Trust, the Original Investors and the recipients of Operating
Partnership Units in connection with the Exchange Offering. The Trust, as
General Partner of the Operating Partnership, is authorized to cause the
Operating Partnership to issue additional partnership interests in the Operating
Partnership for any purpose of the Operating Partnership at any time to the
partners in the Operating Partnership or to other persons for such consideration
and on such terms and conditions as may be established by the Trust in its sole
and absolute discretion, provided, however, the Operating Partnership may not
issue redeemable equity securities (other than Units which by their terms are
exchangeable into Common Shares). The Trust may cause the Operating Partnership
to issue additional interests in the Operating Partnership in one or more
classes, or one or more series of any such classes, with such designations,
preferences and relative rights, powers and duties senior to interests of
Operating Partnership Limited Partners, subject to Delaware business trust law.
Since Units are exchangeable by Unitholders (other than the Trust) into an
equivalent number of Common Shares of the Trust, the maximum number of Units
that may be issued by the Operating Partnership is limited to the number of
authorized Shares of the Trust, which is 25,000,000.
The Trust: The Trust has authority to issue an aggregate of 25,000,000 Shares.
The Managing Shareholder is authorized to issue from the authorized but unissued
Shares of the Trust, additional Common Shares as well as Preferred Shares in one
or more series and to establish from time to time the number of Preferred Shares
to be included in each such series and to fix the designations and any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the shares of each series, provided, however, (i) the Managing
Shareholder will be authorized to issue Preferred Shares only upon approval of
either Shareholders of the Trust holding a majority of the then outstanding
Shares entitled to vote upon such matter or a majority of the disinterested
Independent Trustees, (ii) the voting rights for each Preferred Share that is
issued may not exceed one vote per share, and (iii) the Trust may not issue
redeemable equity securities. If the Trust issues additional securities in the
future, (x) the Trust must cause the Operating Partnership to issue to the
Trust, interests in the Operating Partnership which represent economic interests
in the Operating Partnership which are substantially similar to such additional
securities and (y) the Trust must contribute to the Operating Partnership the
net proceeds from, or the property received in consideration for, the issuance
of any such additional securities and from the exercise of rights contained in
such additional securities.
In addition, upon the exercise of an option granted by the Trust for Trust
Common Shares pursuant to an employee stock option plan, the Trust must cause
the Operating Partnership to issue to the Trust one Operating Partnership Unit
for each Trust Common Share acquired upon such exercise and the Trust must
contribute to the Operating Partnership the net proceeds received from such
exercise. The Operating Partnership will also issue
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Operating Partnership Units to employees of the Operating Partnership or any
subsidiary of the Operating Partnership upon the exercise by any such employees
of an option to acquire Operating Partnership Units granted by the Operating
Partnership pursuant to an employee stock option plan.
The Trust will also issue Trust Common Shares on a one-for-one basis to
holders of Operating Partnership Units who exercise their rights to exchange
their Operating Partnership Units for an identical number of Trust Common
Shares, subject to certain exceptions described at "THE EXCHANGE OFFERING."
Term of Existence
Exchange Partnerships: The term of each Exchange Partnership terminates on
December 31 of the year of the twenty-ninth to thirty-second anniversary of its
formation, as the case may be, unless terminated earlier by law or under the
provisions of the respective Exchange Partnership Agreement, including (i) the
determination of a majority in interest of limited partners to dissolve the
partnership, (ii) actions affecting the activities of the Corporate General
Partner (including, among other things, resignation or dissolution) unless a
majority in interest of the limited partners vote to continue the partnership
and appoint a successor general partner, and (iii) the sale of all or
substantially all of the property of the partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to cease to exist.
In addition, as a result of such amendments, following the Exchange
Offering, the partnership may be dissolved by the vote of at least a majority of
the outstanding limited partnership interests in the partnership, but only with
the approval of Non-participating Limited Partners holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. Furthermore, the partnership will be dissolved if the last remaining
general partner of the partnership (each of the Exchange Partnerships currently
has only one general partner) ceases to act as general partner, unless the
limited partners of the partnership (including the Operating Partnership and
Non-participating Limited Partners) holding at least a majority of the then
outstanding units of the partnership elect to continue the partnership and elect
a new general partner and such continuation, election of such general partner(s)
and the amount, type and purchase price of any interest in the partnership such
successor general partner(s) may acquire in connection therewith have been
approved in advance by Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners. See below at "AMENDMENTS TO PARTNERSHIP
AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED
PARTNERS."
Operating Partnership: The term of the Operating Partnership terminates on
December 31, 2098 unless terminated earlier by law or under the provisions of
the Operating Partnership Agreement, including (i) the withdrawal of the Trust
as General Partner, unless a majority in interest vote to continue the Operating
Partnership and appoint a successor general partner, (ii) the General Partner's
election to dissolve the Operating Partnership with the approval of Limited
Partners holding a majority in interest of the Operating Partnership Units, (ii)
the sale of all or substantially all of the properties of the Operating
Partnership, (iv) the merger of the Operating Partnership with or into another
entity, (v) the bankruptcy or insolvency of the Trust, and (vi) the commencement
of any proceedings against the Trust seeking its reorganization, liquidation,
dissolution or similar relief or the involuntary appointment of a trustee to
receive or liquidate the Trust or any substantial portion of its properties and
such proceeding or appointment has not been dismissed, vacated or stayed within
a specified period of time.
The Trust: The term of the Trust terminates on December 31, 2098 unless
terminated earlier (i) by law, (ii) the determination of the holders of at least
a majority of the Trust Shares then outstanding to dissolve the Trust, (iii) the
sale of all or substantially all of the Trust's property or (iv) the withdrawal
of the Cash Offering by the Managing Shareholder of the Trust prior to the
termination date of the Cash Offering.
Management Control
Exchange Partnerships: Subject to the rights of limited partners in the Exchange
Partnerships set forth in the Exchange Partnership Agreements which are
described below at "Meetings and Voting Rights," the Corporate General Partner
of each partnership has full exclusive and complete discretion in management and
control of the partnership.
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As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, any amendment of any agreement
entered into between any Participating Exchange Partnership and any affiliates
of the Corporate General Partner following the Exchange Offering (other than any
agreement described in the offering documents relating to the original private
offering of the partnership) will require the approval of Non-participating
Limited Partners of the partnership holding a majority of the then outstanding
units of the partnership held by all Non-participating Limited Partners. See
below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE
PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Subject to the rights of Operating Partnership Limited
Partners set forth in the Operating Partnership Agreement which are set forth
below at "Meetings and Voting Rights," the Trust, as General Partner of the
Operating Partnership, has all management powers over the business and affairs
of the Operating Partnership. As described immediately below, the Managing
Shareholder of the Trust has day to day management control over the Operating
Partnership and the Trust.
The Trust: Subject to the rights of Shareholders set forth in the Declaration of
Trust, the Managing Shareholder of the Trust has full exclusive and complete
discretion in the day to day management and control of the Trust and the
Operating Partnership, subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder of the Trust acting together
as the Board of the Trust and subject to the prior approval of the Board and the
Independent Trustees in respect of certain activities of the Trust and the
Operating Partnership. See "SUMMARY OF DECLARATION OF TRUST - Control of
Operations" and Section 1.9 of the Declaration of Trust.
Economic Interest
Exchange Partnerships: In private offerings commenced between 1994 and 1997,
Exchange Limited Partners acquired Exchange Partnership Units in one or more
Exchange Partnerships in return for capital contributions. Each Exchange
Partnership maintains a capital account for each of its partners to which it
allocates the partner's share of all items of partnership income, gain, expense,
loss, deduction and credit determined in accordance with the Internal Revenue
Code of 1986, as amended, and regulations issued thereunder. Except as described
in the next paragraph below, the partnership agreement provisions of all of the
Exchange Partnerships relating to the allocation of taxable income and loss
among the general partner and the limited partners are substantially the same.
Such provisions are described below in this paragraph. Under the respective
Exchange Partnership Agreement, after giving effect to certain technical special
allocation provisions, (i) taxable income is allocable 100% to the Corporate
General Partner until the profit allocated plus the cumulative profit allocable
to the Corporate General Partner for prior fiscal periods during which a profit
was earned by the partnership equal the cumulative amounts distributable to the
Corporate General Partner and the balance, if any, is allocated to the Exchange
Limited Partners and (ii) taxable losses are allocable 99% to the Exchange
Limited Partners and 1% to the Corporate General Partner, provided, however,
that losses are not allocable to any Exchange Limited Partner to the extent that
such allocation would cause such Exchange Limited Partner to have an adjusted
capital account deficit at the end of the taxable year (which excess losses are
allocable to the Corporate General Partner). Each limited partner in an Exchange
Partnership owns an interest in the entire limited partnership interests in the
partnership in proportion to his respective ownership of units.
Described below are the partnership agreement provisions of three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
relating to the allocation of taxable income and loss. Assuming that all
distributions (including distributions required under the special distribution
provisions of the Code) required to be made have been made, taxable income
attributable to operations is allocable first to those partners who have deficit
balances in their capital accounts, in proportion to such deficit balances,
until the capital accounts have been restored to zero; and then 90% to the
limited partners and 10% to the general partner. Taxable losses attributable to
operations are allocable 90% to the limited partners and 10% to the general
partner. Taxable gain attributable to the sale of partnership property is
allocable first to those partners who have deficit balances in their capital
accounts, in proportion to those deficit balances, until the capital accounts
are restored to zero, and then in accordance with the partners' capital
accounts. Taxable losses attributable to the sale of partnership property are
allocable among the partners in proportion to the positive or negative balances
of their respective capital accounts; provided, however that, in the event that
some partners have positive capital account balances and other partners have
negative capital account balances, then such losses will be allocated first to
those partners who have positive capital account balances in proportion to such
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positive balances until the capital account balances of such partners have been
reduced to zero, and then 90% to the limited partners and 10% to the general
partner.
Each Exchange Partnership is required to distribute at least quarterly
distributable cash flow (defined as all cash received by the partnership from
any source, other than capital contributions, loan proceeds and proceeds from
the sale or refinancing of property, less operating expenses, principal and
interest payments on indebtedness, capital expenditures, general partner fees
and reasonable cash reserves). Each Exchange Limited Partner has a preferential
interest over the Corporate General Partner in respect of his partnership's
distributable cash flow and net proceeds from the sale or refinancing of
property owned by the partnership. The interests of the Exchange Limited
Partners and the Corporate General Partner in a particular Exchange Partnership
in such distributable cash flow and net sale or refinancing proceeds are set
forth in Exhibit I to the Prospectus Supplement delivered to each Exchange
Limited Partner in the partnership. Schedule B to this Prospectus contains a
table for each Exchange Partnership which summarizes on a partnership by
partnership basis such allocations.
The Corporate General Partner of each Participating Exchange Partnership
has agreed to waive all fees that may be earned by it, including without
limitation administrative fees, investments fees and real estate commissions.
The Corporate General Partner of each Participating Exchange Partnership has
also agreed to assign to the Operating Partnership all of its back-end economic
interests in each such partnership.
Upon the liquidation and dissolution of an Exchange Partnership, and after
payment of or the creation of reserves for the payment of partnership
liabilities, the proceeds of the sale or other disposition of the partnership's
remaining property will be distributed to the limited partners and the Corporate
General Partner in proportion to their respective capital accounts in the
partnership.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to sell its existing property interest,
acquire any additional property interests, cease to exist, or modify the rights
of limited partners to receive 100% of the quarterly cash distributions and net
proceeds from the sale or refinancing of the partnership's property until they
have received the preferred amount specified in the respective Exchange
Partnership Agreement. See below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Each limited partner in a real estate limited partnership
who agrees to sell his limited partnership interest to the Operating Partnership
in an exchange transaction, including each Exchange Limited Partner in a
Participating Exchange Partnership who accepts the Exchange Offering, will
exchange such limited partnership interests for a number of Operating
Partnership Units based upon, among other considerations, the seller's
proportionate share of the valuation determined for the Participating Exchange
Partnership or such other limited partnership.
The Operating Partnership will maintain for each partner in the Operating
Partnership a capital account to which will be allocated the partner's share of
all items of partnership income, gain, expense, loss, deduction and credit
determined in accordance with the Internal Revenue Code of 1986, as amended, and
regulations issued thereunder. After giving effect to certain technical special
allocation provisions, (i) taxable income is allocable 100% to the General
Partner to the extent that, on a cumulative basis, net losses previously
allocated to the General Partner exceed net income previously allocated to the
General Partner, and the balance is allocable to Limited Partners and the
General Partner in proportion to their respective ownership of Operating
Partnership Units, and (ii) net losses are allocable to the Limited Partners and
the General Partner in proportion to their respective ownership of Operating
Partnership Units, provided, however, that net losses are not allocable to any
Limited Partner to the extent that such allocation would cause such Limited
Partner to have an adjusted capital account deficit at the end of such taxable
year (which excess losses are allocable to the General Partner).
The Operating Partnership is required to distribute at least quarterly all
available cash flow of the Operating Partnership (defined as (i) all cash
revenues received by the Operating Partnership from any source, other than
capital contributions to the Operating Partnership, and cash flow treated as net
capital gains under the Code, plus (ii) the amount of any reduction in reserves
of the Operating Partnership). Such distributions are to be made in the
following priority: (x) first to holders of any class of partnership interest
having a preference over Operating Partnership Units (no such preferred class
exists as of the date of this Prospectus or is currently anticipated to be
issued by the management of the Operating Partnership) and (y) thereafter, to
holders of Operating Partnership
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Units. Each holder of Operating Partnership Units, including the Trust and each
recipient of Operating Partnership Units in the Exchange Offering, will receive
a share of such distributions in proportion to his respective ownership of
Operating Partnership Units.
Upon liquidation of the Operating Partnership, the Limited Partners and
the General Partner are entitled to receive a share of the net liquidation
proceeds of the Operating Partnership (remaining after payment of, or the
creation of a reasonable reserve for, all of the partnership's liabilities and
obligations) in proportion to their respective capital account balances.
The Trust: Holders of Trust Common Shares will acquire such shares (i) in
connection with the Cash Offering or any subsequent public or private offering
of Trust Common Shares that may be made by the Trust, (ii) upon the exercise of
their right to exchange Operating Partnership Units for an equivalent number of
Trust Common Shares, or (iii) upon their exercise of options or their receipt of
Trust Common Shares under any stock option plan or employee bonus plan that may
be adopted by the Board of the Trust.
As discussed above under "Issuance of Additional Securities," the Trust is
authorized to issue Shares in addition to the Trust Common Shares offered in the
Cash Offering and Trust Common Shares to be issued in connection with the
exchange of Operating Partnership Units.
The Managing Shareholder has full discretion as to the timing and amount
of distributions to be made by the Trust, provided, however, the Managing
Shareholder is required to endeavor to declare and make distributions as
required for the Trust to quality as a REIT under the Code so long as the
Managing Shareholder believes it is in the best interest of the Trust to
continue to so qualify. As of the date of this Prospectus, the Trust intends to
make quarterly distributions of available funds, if any to its Shareholders.
Shareholders will be entitled to receive any such distributions on a pro rata
basis for each outstanding class of Shares taking into account the relative
rights of priority of each class entitled to receive distributions. No preferred
class which has a priority over Common Shares exists as of the date of this
Prospectus or is currently anticipated by the management of the Trust to be
issued.
Upon liquidation of the Trust, the Shareholders are entitled to receive
the net liquidation proceeds (remaining after payment of, or the creation of a
reasonable reserve for, all of the Trust's liabilities and obligations) on a pro
rata basis for each class of Shares taking into account the relative rights of
priority of each class
Property Investments and Anticipated Holding Period
Exchange Partnerships: Each of the Exchange Partnerships was formed to acquire
and now owns an interest in one or more residential apartment properties
described at "DESCRIPTION OF EXCHANGE PARTNERSHIPS" and "PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER," in Exhibits A and B to this Prospectus and
in the Prospectus Supplement accompanying this Prospectus prepared for each
particular Exchange Partnership and delivered to each Exchange Limited Partner
in such partnership. The anticipated holding periods of the respective
properties in which the Exchange Partnerships own a direct or indirect interest
were not stated in the original private placement offering materials, although
the offering materials in respect of certain of the Exchange Partnerships
indicated that the Corporate General Partner intended to list the property
interests on the market for sale within two to five years following the private
offering.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, without the majority approval
of the Non-participating Limited Partners of the partnership voting as a class,
the partnership will not be permitted to sell all or substantially all of its
existing property interest, acquire any additional property interests or cease
to exist. See below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING
EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership and the Trust: The Operating Partnership and the Trust
have been formed to acquire a diversified portfolio of equity and debt interests
in residential apartment properties, including without limitation property
interests owned by the Exchange Partnerships and other real estate limited
partnerships which are managed by affiliates of the Managing Shareholder of the
Trust. The Operating Partnership will use net cash proceeds from the Trust's
Cash Offering and from any future public or private offering of securities that
may be made by the Trust or the Operating Partnership, together with unissued
securities of the Trust or the Operating Partnership and available cash flow and
other financing sources, to acquire property interests. The Operating
Partnership intends to issue up to $25,000,000 of registered Operating
Partnership Units in connection with the Exchange Offering. The
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first candidates targeted for acquisition in the Exchange Offering are property
interests in 26 Exchange Properties described in this Prospectus at "INITIAL
REAL ESTATE INVESTMENTS" and at Exhibit B. The Trust and the Operating
Partnership contemplate acquiring assets for long-term ownership, and in any
given case, for a minimum of four years.
Restrictions on Transfers of Securities
Exchange Partnerships: Under each Exchange Partnership Agreement, no limited
partner of the respective Exchange Partnership may sell or transfer his interest
in the partnership unless the Corporate General Partner of the partnership
consents to such sale or transfer and certain other conditions are fulfilled.
Operating Partnership: Each Operating Partnership Limited Partner may sell or
transfer his Operating Partnership Units without the prior written consent of
the Trust (acting as General Partner of the Operating Partnership) except where,
in the opinion of legal counsel to the Operating Partnership, such transfer
would require the filing of a registration statement under the Act or would
otherwise violate applicable federal or state securities laws.
The Trust: The Trust Common Shares are freely transferable by Shareholders
subject to certain restrictions on transfer which the Managing Shareholder deems
necessary to comply with the REIT provisions of the Code. Such restrictions are
described at "CAPITAL STOCK OF THE TRUST - Restrictions on Ownership and
Transfers." The restrictions may have the effect of making an attempted takeover
of the Trust more difficult for an acquiror. See "RISK FACTORS -Limits on
Ownership and Transfers of Common Shares and Units which may Delay or Prevent a
Takeover Offering a Premium Price."
Tax Status
Exchange Partnerships: The Exchange Partnerships were designed to be classified
and treated as partnerships for federal income tax purposes. As partnerships,
the Exchange Partnerships are not subject to federal income tax. Instead, each
limited partner in an Exchange Partnership is required to report annually on his
personal income tax return his allocable share of the partnership's income,
gain, loss, deductions, credits and items of tax preference regardless of
whether any distribution of cash or property is made by the partnership to
limited partners during any given year. A distribution from an Exchange
Partnership, including a distribution in final liquidation, results in the
recognition of income by each limited partner to the extent that any cash
distributed exceeds his adjusted tax basis in his Existing Partnership Units at
that time.
Each Offeree should review the "TAX ASPECTS" section of the original
private placement memorandum pertaining to his investment in his Exchange
Partnership. Generally, a limited partner who sells or transfers his Exchange
Partnership Units will realize gain or loss equal to the difference between the
amount realized on the sale or transfer and the adjusted basis of the units
disposed of. However, the Exchange Offering has been designed to afford Exchange
Limited Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to exchange the
Units received in the offering for an equivalent number of Common Shares of
Trust. The exchange into Common Shares may be made at any time at the sole
discretion of each Exchange Limited Partner, subject to certain limitations
described in this Prospectus at "THE EXCHANGE OFFERING." The estimated deferred
taxable gain of each Exchange Limited Partner who elects to participate in the
Exchange Offering is set forth in Exhibit A to the Prospectus Supplement of the
Exchange Partnership of which he is a limited partner and in the Exhibit B table
pertaining to such Exchange Partnership.
Operating Partnership: The Operating Partnership has been designed to be
classified and treated as a partnership for federal income tax purposes. The tax
consequences of an investment in the Operating Partnership are identical to
those described immediately above under " - Exchange Partnerships."
The Trust: In any year in which the Trust qualifies as a real estate investment
trust ("REIT"), in general it will not be subject to federal income tax on that
portion of its REIT taxable income or gain which is distributed to Shareholders.
The Trust may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed in any given year. As long as the
Trust qualifies as a REIT, distributions made to the Trust's taxable domestic
non-tax-exempt Shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken 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 the
Trust's actual net capital gain for the taxable year) without regard to the
period for which the Shareholder has held his Trust Common Shares.
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In general, any loss upon a sale or exchange of Trust Common Shares by a
Shareholder who has held such shares for six months or less will be treated as a
long-term capital loss, to the extent of distributions from the Trust required
to be treated by such Shareholder as long-term capital gains. A more detailed
description of the foregoing tax considerations and those applying to tax-exempt
and foreign Shareholders is set forth above at "FEDERAL INCOME TAX
CONSIDERATIONS." The federal income tax treatment of REITs and shareholders of a
REIT are complex and should be reviewed with each Offeree's tax advisor.
Pre-emptive Rights
Exchange Partnerships, Operating Partnership and the Trust: Holders of Exchange
Partnership Units, holders of Operating Partnership Units and holders of Trust
Common Shares have no conversion, redemption, preemptive or exchange rights to
subscribe to any securities issued by the Exchange Partnership, the Operating
Partnership or the Trust in the future, except in two instances as follows.
First, if the Corporate General Partner of an Exchange Partnership determines
that it is necessary or in the best interest of the partnership to commit
additional funds to its property and that such funds should not be financed from
the partnership's earnings or through additional indebtedness, the Corporate
General Partner intends whenever possible to give limited partners the first
opportunity for a limited time to purchase any additional units that may be
offered by the partnership. Second, holders of Operating Partnership Units are
entitled to exchange such units into an equivalent number of Trust Common Shares
at any time and from time to time, subject to certain conditions described at
"THE EXCHANGE OFFERING."
Managing Entity Removal and Resignation Rights
Exchange Partnerships: Except as described in the next paragraph, the
partnership agreement provisions of all of the Exchange Partnerships relating to
the removal or resignation of the Corporate General Partner are substantially
the same. These provisions are described below in this paragraph. Limited
partners holding at least a majority of the outstanding Exchange Partnership
Units of such Exchange Partnerships have the right to remove the Corporate
General Partner of the partnership if they determine that it is not performing
its powers, duties and obligations in the best interests of the partnership
(unless any officer or affiliate of the general partner would continue to have
personal liability for any debts of the partnership). The Corporate General
Partner may resign by delivering written notice to the limited partners,
provided, however, such resignation will be effective not less than 90 days
after notice thereof is delivered to the limited partners only if the limited
partners owning at least a majority of the Exchange Partnership Units then
outstanding have consented to such resignation.
Described below are the partnership agreement provisions of three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
relating to the removal of their respective general partner. The general partner
of each of these partnerships may be removed on the condition that (i) the
limited partners holding at least a majority of the limited partnership
interests in the respective partnership vote to remove the general partner and
provide notice thereof to the general partner and (ii) the removed general
partner receives a written release from the partnership and all of the limited
partners which releases the general partner from any claims by them in respect
of the partnership. In addition, following removal, a removed general partner is
entitled to retain its economic interest in the partnership unless the
partnership acquires such interest at a price determined by applying an 8%
capitalization rate to the projected net operating income of the partnership
during the year of removal minus major maintenance expenditures.
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Operating Partnership: The Trust may not be removed as General Partner of the
Operating Partnership by the Limited Partners with or without cause. The Trust
may not transfer any of its general partnership interest or withdraw as General
Partner except in certain limited circumstances.
The Trust: The holders of at least 10% of the outstanding Trust Common Shares
may propose the removal of the Managing Shareholder, an Independent Trustee or
any other member of the Board of the Trust either by calling a meeting or
soliciting consents in accordance with the terms of the Declaration. Removal of
any of the foregoing requires either the affirmative vote of a majority of the
outstanding Trust Common Shares (excluding Trust Common Shares held by the
Managing Shareholder, Independent Trustee or other member of the Board which is
the subject of the vote or by its affiliates) or the affirmative vote of a
majority of the disinterested Independent Trustees.
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. The holders of at least a majority of the outstanding
Trust Common Shares, at a meeting called for such purpose in accordance with the
terms and conditions of the Declaration, may also terminate the Trust Management
Agreement.
Any member of the Board may resign by giving notice to the Trust, and may
be removed (i) for cause by the action of at least two-thirds of the remaining
members of the Board or (ii) with or without cause by action of the holders of
at least a majority of the then outstanding Shares entitled to vote thereon.
Reporting Rights
Exchange Partnerships: Each limited partner of an Exchange Partnership is
entitled to receive annual financial statements relating to the partnership,
including a balance sheet and related statements of income and retained earnings
and changes in financial position. On the written request of limited partners
holding at least 20% of the outstanding limited partnership interests in an
Exchange Partnership, the statements must be audited by an independent public
accountant and presented in accordance with generally accepted accounting
principles ("GAAP"). Exchange Limited Partners also have the right to obtain
other information about their respective partnerships and receive a list of
names and addresses of the partners of the partnership for proper partnership
purposes. Within 90 days after the close of each year, each Exchange Partnership
is required to provide each limited partner therein with data necessary to
report his distributive share of partnership income, deductions and credits for
federal income tax purposes.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, Non-participating Limited
Partners of a Participating Exchange Partnership holding a majority of the then
outstanding units of the partnership held by all Non-participating Limited
Partners may require that the annual financial statements required to be
delivered by the partnership to limited partners be audited. See below at
"AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Within 120 days after the close of each partnership year,
the Operating Partnership is required to mail to each Limited Partner, an annual
report containing financial statements of the Operating Partnership presented in
accordance with GAAP and audited by a nationally recognized firm of qualified
independent public accountants. Within 60 days after the close of each quarter
(except the last quarter), the
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Operating Partnership is required to mail to each Limited Partner a report
containing unaudited financial statements of the Operating Partnership. The
Operating Partnership is required to use all reasonable efforts to furnish to
Limited Partners, within 90 days after the close of each taxable year, the tax
information reasonably required by the Limited Partners for federal and state
income tax reporting purposes.
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of 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, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units 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 of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess. . Each Limited Partner is entitled,
upon written request and at his expense, to obtain for proper partnership
purposes a copy of the following from the Operating Partnership: (i) most recent
annual and quarterly reports filed with the Commission by the Trust under the
1934 Act, (ii) the Operating Partnership's federal, state and local income tax
returns for each year, (iii) a current list of the name and address of each
Unitholder, (iv) the Operating Partnership Agreement, the Certificate of Limited
Partnership of the Operating Partnership filed in the State of Delaware and all
amendments thereto, and (v) information relating to the amount of cash and other
consideration contributed by each Limited Partner and the date each Limited
Partner became a partner of the Operating Partnership.
The Trust: The Trust is required to keep each Shareholder currently
advised as to activities of the Trust by reports furnished at least quarterly.
Each quarterly report is required to contain a condensed statement of "cash flow
from operations" for the year to date as determined by the Managing Shareholder.
Within 120 days after the close of each fiscal year following completion of the
Cash Offering, the Trust is required to prepare and mail to each Shareholder an
annual report which includes the following: (i) audited financial statements
prepared in accordance with GAAP by the Trust's independent certified public
accountants; (ii) the ratio of the costs of raising capital during the period to
the capital raised; (iii) the aggregate amount of advisory fees and other fees
paid to the Managing Shareholder and its affiliates; (iv) the total operating
expenses stated as a percentage of the book amount of the Trust's investments
and as a percentage of its net income; (v) a report from the Independent
Trustees that the policies being followed by the Trust are in the best interests
of its Shareholders and the basis for such determination and; (vi) full
disclosure of all material terms, factors, and circumstances surrounding any and
all transactions involving the Trust, the Managing Shareholder, the Trustees,
any other members of the Board and any of their respective affiliates occurring
during the year.
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of 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, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units 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 of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
In addition, the Trust is also required to deliver to its Shareholders
periodic reports required to be delivered under the 1934 Act (i.e, Form 10-KSB
or Form 10-K annual reports, Form 10-QSB or Form 10-Q quarterly reports, and
Form 8-KSB or Form 8-K current reports) for the fiscal year in which the Trust's
Securities Act registration statement becomes effective and thereafter if either
(i) the Trust registers the Trust Common Shares under the 1934 Act and qualifies
for the listing of such shares on a stock exchange, (ii) the Trust has more than
300 Shareholders, or (iii) the Trust is otherwise required to do so by the
applicable exchange or applicable law.
The Trust is required to use its reasonable best efforts to obtain tax and
accounting information required for federal income tax returns as soon as
possible after the conclusion of each year and to cause the resulting
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information to be delivered to the Shareholders as soon as possible after
receipt from the accounting firm responsible for preparing such reports.
Shareholders have the right under the terms of the Declaration to obtain other
information about the Trust and may, at their expense, obtain a list of the
names and addresses of the Shareholders. See "SUMMARY OF DECLARATION OF TRUST
Quarterly and Annual Reports" and " - Books and Records; Tax Information."
Assessments
Exchange Partnerships, Operating Partnership and the Trust: No future
assessments may be required of holders of limited partnership interests in an
Exchange Partnership, holders of Operating Partnership Units or holders of Trust
Common Shares.
Amendments of Governing Agreements
Exchange Partnerships: The amendment of the partnership agreement pertaining to
each Exchange Partnership requires the consent of the holders of at least a
majority of the outstanding limited partnership interests in the partnership
except that (i) the Corporate General Partner may amend the agreement in respect
of certain specified matters which will not adversely affect limited partners,
and (ii) any amendment may not without a limited partner's consent increase his
liability or change the capital contribution required from him, his economic
interest, rights on dissolution or any voting rights.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, except in certain
circumstances, the partnership agreement of the partnership may be amended only
with the approval of both (i) limited partners holding at least a majority of
the outstanding limited partnership interests in the partnership and (ii)
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. See below at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING
EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
Operating Partnership: Amendments to the Operating Partnership Agreement may be
proposed by the Trust (as General Partner) or by holders of at least 25% of the
outstanding Operating Partnership Units. Except in the cases described below,
the consent of holders of at least a majority of the outstanding Operating
Partnership Units is required for amendments to the Operating Partnership
Agreement. The Trust may amend the Operating Partnership Agreement without the
consent of any Limited Partners for the following purposes: (i) to add to the
obligations of the Trust in its capacity as General Partner of the Trust or to
surrender for the benefit of Limited Partners any right or power granted to the
Trust or any of its affiliates, (ii) to set forth the rights, powers, duties and
preferences of the holders of any additional interests in the Operating
Partnership which may be issued in the future, (iii) to satisfy any requirements
contained in an order, ruling or regulation of any federal or state agency or
contained in any federal or state law and (iv) for certain other specified
matters of an inconsequential nature and not materially adversely affecting the
Limited Partners.
The Operating Partnership Agreement may not be amended, without a Limited
Partner's consent, to convert his partnership interest into a general partner's
interest; modify his limited liability; alter his rights to receive
distributions or allocations of partnership income, gains, loss and deductions;
cause the dissolution of the Operating Partnership prior to the time provided
for in the Operating Partnership Agreement; amend the amendment provision of the
Operating Partnership Agreement described in this paragraph; or amend Article VI
of the Operating Partnership Agreement or any definition used therein which
would have the effect of causing the allocations in Article VI to fail to comply
with the requirements of Section 514(c)(9)(E) of the Code.
The consent of all Limited Partners of the Operating Partnership is also
required to alter the restrictions on the Trust's authority set forth in Section
7.3 of the Operating Partnership Agreement. In addition, the consent of the
holders of at least two-thirds of the outstanding Operating Partnership Units is
required to amend any of the following sections of the Operating Partnership
Agreement: (i) Section 4.2(a) (pertaining to the Trust's authority, without the
approval of any Limited Partner, to cause the Operating Partnership to issue
additional partnership interests in the Operating Partnership in the future);
(ii) the second sentence of Section 7.1(a) (which provides that the Trust may
not be removed as General Partner of the Operating Partnership by the Limited
Partners); (iii) Section 7.5 (pertaining to limitations on the outside
activities of the Trust); (iv) Section 7.6 (pertaining to contracts among the
Operating Partnership, the Trust and any of their respective affiliates or
subsidiaries);
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(v) Section 7.8 (pertaining to limitations on the liability of the Trust as
General Partner of the Operating Partnership); (vi) Section 11.2 (pertaining to
limitations on the Trust's right to transfer its interest in the Operating
Partnership): (vii) Section 13.1(c) (which provides that the Operating
Partnership may be terminated prior to December 31, 2098 with the consent of the
holders of at least a majority of the outstanding Operating Partnership Units);
(viii) Section 14.1(d) (which provides for super-majority voting requirements
described herein; or (ix) Section 14.2 (pertaining to meetings of Limited
Partners).
The Trust: The Managing Shareholder of the Trust may amend the Declaration
without approval of the Shareholders to maintain the federal income tax status
of the Trust as a REIT (unless the Managing Shareholder determines that it is in
the best interests of the Shareholders to discontinue the Trust's REIT status
and holders of at least a majority of the Trust Common Shares approve such
determination), and to comply with law.
Other amendments to the Declaration may be proposed either by the Managing
Shareholder or holders of at least 10% of the outstanding Trust Common Shares,
either by calling a meeting of the Shareholders or by soliciting written
consents. 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.
Liability and Indemnification
Exchange Partnerships: Except as described in the paragraph following the next
paragraph, the partnership agreement provisions of all of the Exchange
Partnerships relating to liability and indemnification of the general partners
and limited partners are substantially the same. These provisions are described
below in this paragraph and the next paragraph. The Corporate General Partner of
each Exchange Partnership is generally liable for all liabilities and
obligations of the partnership to the extent such obligations are not paid by
the partnership and are not by their terms limited to recourse against specific
property. Each limited partner of an Exchange Partnership is generally not
liable for the liabilities and obligations of the partnership.
Each Exchange Partnership is required to indemnify its Corporate General
Partner, each of the Corporate General Partner's affiliates, and each of their
respective officers, directors, shareholders, partners, agents and employees
(provided such indemnified persons have acted within the scope of the applicable
partnership agreement) against any loss, liability or damage incurred by such
indemnified person arising out of the partnership's private offering of limited
partnership interests and the management of the partnership's affairs within the
scope of the partnership agreement, unless such indemnified person's negligence
or intentional or criminal wrongdoing is involved; provided, however, such
indemnification will not be made with respect to any liability imposed by
judgment arising out of any violation of federal or state securities laws
associated with such offering. No indemnified person is liable to his Exchange
Partnership or to any partner thereof for any loss suffered by the Exchange
Partnership which arises out of any action or inaction of such person if such
person, in good faith, determined that such course of conduct was in the best
interests of the Exchange Partnership and within the scope of the applicable
partnership agreement and did not constitute the negligence or intentional or
criminal wrongdoing of such person.
The liability and indemnification provisions relating to three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.) are
substantially similar to the provisions described in the two immediately
preceding paragraphs except that only the general partner (and not its
affiliates) is covered by such provisions.
Operating Partnership: The Trust, as General Partner of the Operating
Partnership, is generally liable for all obligations of the Operating
Partnership to the extent such obligations are not paid by the Operating
Partnership and are not by their terms limited to recourse against specific
property. The Limited Partners (other than the Trust in its capacity as General
Partner thereof) have no responsibility for the liabilities or obligations of
the Operating Partnership.
The Trust has no liability for monetary damages to the Operating
Partnership or any partners or assignees for losses sustained or liabilities
incurred as a result of errors in judgment for any act or omission, unless (i)
the Trust actually received an improper benefit in money, property or services
(in which case, such liability shall be for the amount of the benefit actually
received), or (ii) the Trust's action or inaction was the result of active and
deliberate dishonesty and was material to the cause of action being adjudicated.
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The Operating Partnership is required to indemnify the Trust, officers of
the Operating Partnership and trustees, officers and members of the Board of the
Trust and any other persons the Trust may designate, against any and all losses,
claims, damages, liabilities, expenses, judgments, fines, settlements, and other
amounts arising from any claims, demands, actions, suits or proceedings that
relate to the operations of the Operating Partnership in which any such
indemnified person may be involved, or threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
indemnified person was material to the matter giving rise to the proceeding and
either was committed in bad faith, or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper personal
benefit; or (iii) in the case of any criminal proceeding, the indemnified person
had reasonable cause to believe that the act or omission was unlawful.
The Trust: Neither the Managing Shareholder, the Trustees, any other members of
the Board or any of their respective affiliates nor any Shareholders of the
Trust are liable for the liabilities and obligations of the Trust to third
parties. In addition, such persons are not liable to the Trust or to any
Shareholder for any loss suffered by the Trust which arises out of any action or
inaction of such person, if such person, in good faith, determined that such
course of conduct was in the Trust's best interest and within the scope of the
Declaration and did not constitute negligence or misconduct, in the case of any
such person who is not an Independent Trustee, or gross negligence or wrongful
misconduct, in the case of any such person who is an Independent Trustee.
The Trust is required to indemnify the Managing Shareholder, the Trustees,
other members of the Board and their respective affiliates, and each of their
respective officers, directors, shareholders, partners, agents and employees
(provided such persons have acted within the scope of the Declaration) against
any loss, liability or damage incurred by such person arising out of the Cash
Offering and the management of the Trust's affairs within the scope of the
Declaration, unless such person's negligence or intentional or criminal
wrongdoing is involved. However, such persons will not be indemnified for
liabilities arising under the Securities Act, except under certain limited
circumstances. See "SUMMARY OF DECLARATION OF TRUST - Liability and
Indemnification."
Compensation of Managing Persons and Affiliates
Exchange Partnerships: The allocation between the limited partners and Corporate
General Partner of each particular Exchange Partnership of distributable cash
flow and net proceeds from the sale or refinancing of property is described in
Exhibit I to the Prospectus Supplement pertaining to that partnership. Exhibit B
to this Prospectus contains such information as to each of the Exchange
Partnerships. The allocation of net liquidation proceeds among the partners is
described above at " - Economic Interest." The Corporate General Partner or an
affiliate of each of the Exchange Partnerships (except Baron Strategic
Investment Fund II, Ltd.) is also entitled to earn a real estate commission for
its efforts leading to a sale of any partnership property or any property
securing a Subordinated Mortgage Loan provided or acquired by the partnership.
The commission in respect of all such Exchange Partnerships (except Florida
Income Advantage Fund I, Ltd., Florida Income Appreciation Fund I, Ltd., and
Realty Opportunity Income Fund VIII, Ltd.) may be in an amount equal to 50% of
any commissions paid to an outside broker on the sale, but in no event greater
than 3% of the sales proceeds. The Corporate General Partners of such three
Exchange Partnerships and their affiliates may earn a real estate commission of
up to 6% of the sale price, if permitted under applicable law. The payment of
any real estate commission earned as described above is subordinated to the
preferred return of the limited partners of such partnerships.
Each of the Exchange Partnerships pays their general partner a monthly
administrative fee of $500, except Central Florida Income Appreciation Fund,
Ltd. and Brevard Mortgage Program, Ltd., which pay a monthly administrative fee
of $750, and Baron Strategic Investment Fund IV, Ltd., Baron Strategic
Investment Fund V, Ltd., Baron Strategic Investment Fund VI, Ltd., Baron
Strategic Investment Fund VIII, Ltd., Baron Strategic Investment Fund IX, Ltd.,
Baron Strategic Investment Fund X, Ltd., Florida Capital Income Fund IV, Ltd.,
and GSU Stadium Student Apartments, Ltd., which pay a monthly administrative fee
of $1,000.
The Corporate General Partner of each Participating Exchange Partnership
has agreed to waive all fees payable to it by the partnership following the
Exchange Offering, including without limitation annual administrative fees,
acquisition fees and real estate commissions, and to assign to the Operating
Partnership all back-end economic interests attributable to the Corporate
General Partnership's general partner interest in the partnership. Accordingly,
the Exchange Partnership Agreement of each Participating Exchange Partnership
will be amended following the Exchange Offering to delete the payment of the
foregoing fees.
Operating Partnership: The Trust is not entitled to receive any compensation for
services performed in its capacity as General Partner of the Operating
Partnership. The Trust, however, is entitled to be reimbursed on a monthly basis
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for expenses incurred on behalf of the Operating Partnership. The Trust will use
net proceeds of the Cash Offering to acquire Operating Partnership Units, and as
the owner of such units will have the same economic rights as other holders of
Operating Partnership Units on a per unit basis, except that the Trust may not
elect to exchange Units held for an equivalent number of Trust Common Shares.
The allocation of net liquidation proceeds among the partners of the Operating
Partnership is described above at " - Economic Interest."
The Trust: The table included in this Prospectus at "COMPENSATION OF MANAGING
PERSONS AND AFFILIATES - The Trust" describes all reimbursement payments that
may be received by the Managing Shareholder and its affiliates for expenses
incurred in connection with the preparation of the prospectus for the Cash
Offering, the Cash Offering, the operation of the Trust and the acquisition and
disposition of the Trust's property. No compensation for consulting services may
be paid to the Independent Trustees or other members of the Board without prior
approval of the Compensation Committee of the Board.
Meetings and Voting Rights
Exchange Partnerships: Meetings of the partners of each Exchange Partnership may
be called at any time, either by the Corporate General Partner or by limited
partners holding at least 25% of the outstanding Exchange Partnership Units, for
any matter on which limited partners may vote. The following actions require the
affirmative vote of limited partners holding at least a majority of the
outstanding Exchange Partnership Units in respect of an Exchange Partnership:
(a) reforming the partnership to replace the Corporate General Partner; (b)
acceptance of the resignation of the Corporate General Partner; (c) revising any
contract between the Exchange Partnership and any affiliate of the Corporate
General Partner; (d) removal of the Corporate General Partner; (e) dissolution
of the Exchange Partnership prior to the expiration of its term except as
otherwise provided in the applicable partnership agreement or as required by
law; (f) removal and replacement of the party appointed to supervise a
liquidation of the partnership's assets upon its dissolution; (g) the sale of
all or substantially all of the partnership's property; and (h) amending the
partnership agreement as described above at " - Amendments of Governing
Agreements."
The consent of all limited partners is required for the following actions
by each Exchange Partnership: (a) contravening the respective partnership
agreement or certificate of limited partnership; (b) actions making it
impossible to carry on the ordinary course of business of the partnership; (c)
confession of a judgment in excess of 20% of the partnership's assets; and (d)
allowing the Corporate General Partner to possess partnership assets for other
than a partnership purpose.
As a result of certain amendments to be made to the partnership agreement
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering, the Corporate General Partner
of the partnership or Non-participating Limited Partners holding a majority of
the then outstanding units held by all Non-participating Limited Partners in the
partnership, may call a meeting of the partnership to act on any matter upon
which the limited partners of the partnership are permitted to act. In addition,
the approval of Non-participating Limited Partners of the partnership holding a
majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners will be required to replace the Corporate
General Partner in its capacity as liquidating trustee or receiver or the
receiver or trustee appointed by the general partner in connection with the
liquidation of the partnership. See below at "AMENDMENTS TO PARTNERSHIP
AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED
PARTNERS."
Operating Partnership: Meetings of the partners of the Operating Partnership may
be called by the Trust (as General Partner) and by Limited Partners holding at
least 25% of the outstanding Operating Partnership Units. The consent of Limited
Partners holding at least a majority of the outstanding Operating Partnership
Units is required for action by the Limited Partners, except where otherwise
provided in the Operating Partnership Agreement as described below. Voting by
the Limited Partners may be conducted at a meeting of the partners or without a
meeting by written consent. Limited Partners are entitled to vote on proposed
amendments to the Operating Partnership Agreement as described above at "
Amendments of Governing Agreements."
The following actions of the Operating Partnership require the consent of
all Limited Partners of the Operating Partnership: (a) any action that would
make it impossible to carry on the ordinary business of the Operating
Partnership; (b) the possession of partnership property, or the assignment of
any right in specific partnership property, for other than a partnership
purpose, except as otherwise provided in the Operating Partnership Agreement;
(c) the admission of any new partner to the Operating Partnership, except as
otherwise provided in the Operating Partnership Agreement; or (d) any action
that would subject a limited partner to liability as a general
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partner in any jurisdiction or any other liability, except as provided in the
Operating Partnership Agreement or under the Delaware Act.
In addition, the consent of the Limited Partners holding at least a
majority of the outstanding Operating Partnership Units is required to approve
the Trust's election to dissolve the Operating Partnership prior to the
termination of its term as specified in the Operating Partnership Agreement.
Limited Partners holding a majority of the outstanding Operating Partnership
Units are also entitled, in the absence of any general partner of the Operating
Partnership, to elect a liquidator to oversee the winding up and dissolution of
the Operating Partnership and to perform a full accounting of the Operating
Partnership's liabilities and properties.
The Trust: The Trust is required to conduct an annual meeting of Shareholders at
which all members of the Board (including all Independent Trustees) (except
where the Managing Shareholder and Shareholders holding at least a majority of
the outstanding Trust Shares entitled to vote on such matter approve staggered
elections for such positions, in which case only the class of the Board up for
election) will be elected or reelected and any other proper business may be
conducted. Each Trust Common Share entitles the holder to one vote on all
matters requiring a vote of Shareholders, including the election of members of
the Board. Special meetings of the Shareholders may be called at any time,
either by the Managing Shareholder, a majority of the Independent Trustees, any
officer of the Trust, or Shareholders holding at least 10% of the outstanding
Trust Common Shares, for any matter on which such Shareholders may vote. The
Trust may not take any of the following actions without approval of Shareholders
holding at least a majority of the Shares entitled to vote: (a) amendment of the
Declaration (except as otherwise specified in the Declaration and except for
amendments which do not adversely affect the rights, preferences and privileges
of Shareholders, including amendments to provisions relating to qualifications
of the Trustees and members of the Board, fiduciary duty, liability and
indemnification, conflicts of interest, investment policies or investment
restrictions), (b) the sale, exchange, lease, mortgage, pledge or transfer of
all or substantially all of the Trust's assets if not in the ordinary course of
operation of the Trust or in connection with liquidation and dissolution; (c)
the merger or reorganization of the Trust; and (d) the dissolution or
liquidation of the Trust following its initial property investments.
In addition, Shareholders holding at least a majority of Shares entitled
to vote 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 Declaration of Trust, terminate the Trust, and elect and/or remove one or
more members of the Board.
Accounting Method and Period
Exchange Partnerships, Operating Partnership and the Trust: The accounting
period of the Exchange Partnerships, the Operating Partnership and the Trust
will end on December 31 of each year. Each of them utilize the accrual method of
accounting for their operations.
CAPITAL STOCK OF THE TRUST
General
The Declaration of Trust authorizes the 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,
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; provided, however, the Trust may not issue redeemable equity
securities. Prior to the Cash Offering, there were no Shares outstanding. The
Trust is offering for sale up to 2,500,000 Common Shares in the Cash Offering.
If the Exchange Offering is completed as contemplated, Offerees would receive up
to 2,500,000 Units in the Operating Partnership which would be exchangeable into
2,500,000 additional Common Shares.
The following description summarizes all 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 the Managing Shareholder
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out of funds legally available therefor. Shareholders will be entitled to
receive any distributions declared by the Managing Shareholder 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 the Trust in the future. In the event of a
liquidation, dissolution or winding up of the affairs of the Trust, the
Shareholders are entitled to share ratably in the assets of the 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 Cash Offering and 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 the
Operating Partnership Units being offered and Exchange Partnership Units
tendered by Offerees who elect to accept the offering. See "THE EXCHANGE
OFFERING - The Exchange Agent." ASTTC will also hold in an escrow account the
Units acquired by the Original Investors in connection with the formation of the
Trust and the Operating Partnership as described at "THE TRUST AND THE OPERATING
PARTNERSHIP - Formation Transactions."
Restrictions on Ownership and Transfer
The Trust's Declaration of Trust contains certain restrictions on the
number of Shares of the Trust that individual Shareholders may own. For the
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 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 the Trust expects
to qualify as a REIT, the Declaration of Trust contains restrictions on the
acquisition of Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration of Trust, 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% (the "Ownership
Limit") of the Trust's Shares. The Managing Shareholder (upon receipt of a
ruling from the Internal Revenue Service (the "Service") or an opinion of
counsel or other evidence satisfactory to the Managing Shareholder and upon such
other conditions as the Managing Shareholder may require) may in its discretion
waive the Ownership Limit depending on 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 Declaration of
Trust) on any Shareholders relating to transfer of their Shares. See Section
2A.12 of the Declaration of Trust. As a condition of such exemption, the
intended transferee must give written notice to the 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. The Managing Shareholder (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
the 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 the 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 the Managing Shareholder determines, which determination must be
approved by the Shareholders, that it is no longer in the best interests of the
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 the 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 the 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
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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 the 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 the Managing
Shareholder of the 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 the Trust that
such Shares have been transferred in violation of the provisions of the Trust's
Declaration shall be repaid to the 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 the Trust, to have acted as an
agent on behalf of the Trust in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Trust.
All certificates representing Shares will bear a legend referring to the
restrictions described above.
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 the Trust must give a written notice to
the Trust by January 31 of each year. In addition, each Shareholder shall upon
demand be required to disclose to the Trust in writing such information with
respect to the direct, indirect and constructive ownership of Shares as the
Managing Shareholder 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 the Operating
Partnership on a pro forma basis, assuming the completion of the sale of the
maximum number of 2,500,000 Common Shares being offered in the Cash Offering
(______ shares have been sold as of the date of this Prospectus). As described
above at "THE TRUST AND THE OPERATING PARTNERSHIP - The Operating Partnership,"
the Trust will contribute net proceeds from its Cash Offering in exchange for a
number of Units equivalent to the number of Common Shares sold by the Trust in
the Cash Offering. The subscription price for each Common Share being offered in
the Cash 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 the Cash
Offering. The capitalization of the Operating Partnership set forth below does
not take into account any proposed acquisitions of property interests by the
Operating Partnership in exchange for Units registered in connection with the
Exchange Offering and the subsequent exchange by Unitholders of such Units for
Common Shares. The Operating Partnership will not receive any cash proceeds from
the Exchange Offering. The Original Investors provided initial capitalization of
the Operating Partnership in the amount of $100,000. See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions."
Maximum Common Shares
Sold in Cash Offering (2,500,000)
Capital Contribution by the Trust: $21,500,000
Capital Contribution by Original Investors: 100,000
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Total Capitalization $21,600,000
TERMS OF THE CASH OFFERING
The Trust is offering in the Cash Offering a maximum of 2,500,000 Common
Shares of beneficial interest in the Trust at $10.00 per Common Share
($25,000,000 in the aggregate). See "CAPITAL STOCK OF THE TRUST" and
"CAPITALIZATION." As of the date of this Prospectus, the Trust has sold _______
Common Shares in the Cash Offering (gross proceeds of $_________). All offering
proceeds received by the Trust have been released from the escrow account with
American Stock Transfer & Trust Company since the Trust has fulfilled the
$500,000 minimum gross proceeds escrow condition.
All of the Common Shares to be issued or sold by the Trust in the Cash
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 REIT status under the Code for federal income tax purposes. See
above at "THE TRUST AND THE OPERATING PARTNERSHIP - Ownership of the Trust and
the Operating Partnership" for a description of the ownership of the Common
Shares being offered hereby and the Units of limited partnership interest in the
Operating Partnership on a pro forma basis, assuming that all or a portion of
the Common Shares being offered in the Cash Offering are sold and the Exchange
Offering is completed in whole or in part.
After payment of commissions and reimbursable expenses related to the Cash
Offering, the Trust is required to contribute the remaining funds to the
Operating Partnership to be used to fund investments or to pay expenses other
than those associated with the Cash Offering, as determined by the Trust in its
discretion. See "THE TRUST AND THE OPERATING PARTNERSHIP - The Operating
Partnership."
The Common Shares will be offered and sold in the Cash Offering on a
non-exclusive best efforts basis through Sigma Financial Corporation (the
"Dealer Manager"), a Michigan corporation which is a member of the National
Association of Securities Dealers, Inc. ("NASD") and registered as a
broker-dealer with the Securities and Exchange Commission and with the
appropriate authority of each state where offers of the Common Shares will be
made. Sigma Financial Corporation, which is not affiliated with the Managing
Shareholder 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 the Managing Shareholder and is expected
to act as dealer manager in certain future programs sponsored by affiliates of
the Managing Shareholder. The Dealer Manager may select other NASD member firms
as co-manager or selected broker-dealers to participate in the Cash 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 the Dealer
Manager and will participate in the sale of Common Shares in connection with the
Cash Offering.
The Dealer Manager and participating broker-dealers have entered into an
Underwriting Agreement with the Trust pursuant to Appendix F of the Rules of
Fair Practice of the NASD. The Dealer Manager 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. The Dealer Manager may reallocate a
portion or all of its commission. The Trust reserves the right to waive the
payment of all or a part of a commission by one or more investors in the Cash
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, the Trust will exercise such waiver right on a
case by case basis according to the facts and circumstances involved.
In addition, the Dealer Manager 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
Cash Offering by the Dealer Manager 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 the Trust include such securities as
well as any Common Shares underlying any unexercised portion of the Warrant in
any registration statement that the Trust determines to file under the
Securities Act. Such registration would be at the 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.
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Pursuant to the Underwriting Agreement, the Dealer Manager 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. The Trust and the Dealer Manager have agreed to indemnify
each other against or to contribute to losses arising out of certain
liabilities, including liabilities arising under the Securities Act. The 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.
The Trust will reimburse the Managing Shareholder for distribution, due
diligence and organizational expenses incurred in connection with the formation
of the Trust and the Operating Partnership and with the Cash Offering, in an
amount not to exceed 1% of the aggregate subscription price paid for Common
Shares in the Cash Offering. To the extent the distribution, due diligence and
organizational expenses exceed 1% of gross proceeds of the Cash Offering, those
expenses will not be reimbursed. The Trust will also reimburse the Managing
Shareholder for legal, accounting and consulting fees and printing, filing,
recording, postage and other miscellaneous expenses incurred in connection with
the Cash Offering, in an amount not to exceed 1% of the aggregate subscription
price paid for Common Shares in the Cash Offering. Any such expenses of the
Managing Shareholder in excess of 1% of the aggregate subscription price paid
for Common Shares in the Cash Offering will be paid by the Managing Shareholder.
Such reimbursements will be payable out of the net proceeds of the Cash
Offering.
In addition, the Trust will reimburse the Managing Shareholder for
expenses incurred prior to and during the Cash Offering for investigating and
evaluating investment opportunities for the Trust and the Operating Partnership
and assisting them in effecting their investments, in an amount not to exceed 4%
of the aggregate subscription price paid for Common Shares in the Cash Offering.
Such reimbursements will be payable from available net proceeds of the Cash
Offering or as cash flow permits as determined by the Board of the Trust.
The termination date of the Cash Offering (the "Termination Date") is
scheduled to be November 30, 1999 or an earlier date determined by the Managing
Shareholder as specified below. The Managing Shareholder may in its sole
discretion terminate the Cash Offering at any time before the scheduled
Termination Date.
The Managing Shareholder will have the right to withdraw the Offering of
Common Shares at any time prior to the Termination Date, in which case the Trust
will be immediately dissolved at the expense of the Managing Shareholder and all
subscription funds will be returned promptly to the subscribers. If the Managing
Shareholder withdraws the Offering, any person that has received fees or other
payments from the proceeds of the Cash Offering will be required to return such
fees or payments to the Trust upon the demand of the Managing Shareholder.
The Common Shares being sold in the Cash Offering have been registered
under the Securities Act of 1933, as amended (the "Securities Act"). The Trust
has not yet registered the Common Shares under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or applied for their listing on any
securities exchange. The Trust intends to apply for listing on a national stock
exchange of the Common Shares being offered in the Cash Offering and of the
Common Shares into which Units to be offered in the Exchange Offering are
exchangeable. However, there can be no assurance whether the Trust will qualify
for such listing on any stock exchange and, if so, of the timing of the
effectiveness of any such listing.
The eligibility for listing or quotation privileges in respect of a
particular national securities exchange or over-the-counter market is based on
several factors, including without limitation the number of shareholders and
market makers, the bid price of the issuer's security, the number and market
value of outstanding securities owned by non-affiliates of the issuer, total
assets of the issuer, and the amount of shareholders' equity in the issuer.
Although the Common Shares acquired by purchasers in the Cash Offering will be
freely tradable securities, there can be no assurance that an active trading
market will be established or maintained for the Common Shares. The 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 during 1999 and in any subsequent fiscal year in which it has
more than 300 Shareholders or it is otherwise required by applicable law to do
so. The Trust is expected to have at least 300 Shareholders after the completion
of the Cash Offering and accordingly would be required to file such reports on a
continuing basis.
AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING
LIMITED PARTNERS
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Following the completion of the Exchange Offering, each limited partner in
a Participating Exchange Partnership (as defined below) who elects not to accept
the Exchange Offering (individually, a "Non-participating Limited Partner" and
collectively, the "Non-participating Limited Partners") will retain his existing
interest in the partnership. The Non-participating Limited Partners will retain
all of their economic and voting rights, rights to receive reports and other
rights as set forth in their respective partnership agreement. See "COMPARISON
OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS
AND TRUST COMMON SHARES." Although Non-participating Limited Partners in any
particular Participating Exchange Partnership together will hold no more than
10% of the limited partnership interest in the partnership, they will have
significant influence over certain activities of the partnership and the
Operating Partnership by virtue of certain partnership agreement amendments in
their favor which will be effected upon completion of the Exchange Offering. For
purposes of this Prospectus, the term "Participating Exchange Partnership,"
which will apply only if the Exchange Offering is completed in part or in full,
refers to each Exchange Partnership whose limited partners holding at least 90%
of all limited partnership interests therein elect to accept the Exchange
Offering, and the term "Participating Exchange Partnerships" refers to all such
partnerships as a group.
The purpose of the amendments is to permit Non-participating Limited
Partners in Participating Exchange Partnerships the opportunity to vote as a
class whether to approve certain actions which the Operating Partnership might
otherwise unilaterally cause a Participating Exchange Partnership to take by
exercising the Operating Partnership's voting rights in its capacity as a
majority holder of limited partnership interests in the partnership following
the Exchange Offering.
The partnership agreement of each Participating Exchange Partnership which
has one or more Non-participating Limited Partners following the Exchange
Offering will be amended so that such partners will be entitled to vote as a
class in respect of all matters as to which limited partners are entitled to
vote under the partnership agreement prior to the completion of the Exchange
Offering, with certain exceptions. In addition, the Trust and the Operating
Partnership have agreed that in respect of certain proposed actions, the
Participating Exchange Partnership must obtain the prior approval of
Non-participating Limited Partners holding a majority of the limited partnership
interests held by all Non-participating Limited Partners in the partnership. For
example, the partnership may not sell its existing property interest, acquire
any additional property interests or cease to exist without such approval.
As a condition of the admission of the Operating Partnership as a limited
partner to each Participating Exchange Partnership (by virtue of the completion
of exchanges in connection with the Exchange Offering), the Trust and the
Operating Partnership have agreed to amend the agreement of limited partnership
of each Participating Exchange Partnership (individually, the "Exchange
Partnership Agreement," and collectively, the "Exchange Partnership Agreements")
in the manner described below, and not to cause the further amendment of the
Exchange Partnership Agreement, as long as any Non-Participating Limited Partner
remains a limited partner in the partnership, without the prior approval of
either (i) all Non-Participating Limited Partners, if unanimous approval is
required under the Exchange Partnership Agreement prior to the Exchange
Offering, or (ii) Non-participating Limited Partners holding at least a majority
of the limited partnership interests held by all Non-participating Limited
Partners in the partnership, if the approval of a majority interest is required
under the Exchange Partnership Agreement prior to the Exchange Offering. The
Exchange Partnership Agreements, as amended, will define these special rights as
granted to all limited partners in the respective Participating Exchange
Partnerships other than the Trust, the Operating Partnership and any of their
respective affiliates.
Set forth below are the specific Exchange Partnership Agreement amendments
that will be effected in respect of each Participating Exchange Partnership
which has one or more Non-participating Limited Partners immediately following
the completion of the Exchange Offering as to such partnership. For illustration
purposes, the section numbers set forth below refer to the Agreement of Limited
Partnership of GSU Stadium Student Apartments, Ltd., one of the Exchange
Partnerships whose limited partners are being offered the opportunity to
participate in the Exchange Offering. Section numbers may vary among the various
Exchange Partnership Agreements, and corresponding amendments will be made to
the corresponding sections of the partnership agreements of other applicable
Participating Exchange Partnerships.
1. The Exchange Partnership Agreement will be amended by adding the
following provision as Section 16.08 thereof:
"16.08 Certain Actions Requiring Approval of Unaffiliated Limited
Partners
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Without the prior approval of Limited Partners (other than Baron
Capital Trust, Baron Capital Properties, L.P. or any of their
respective affiliates) holding at least a majority of the Units
then outstanding which are held by all such Limited Partners:
(i) The Partnership will not cease to exist; will continue to
own the same property interest it owned prior to the completion of
the offering of Baron Capital Properties, L.P. to Limited Partners
to issue limited partnership interests therein in exchange for Units
in the Partnership; and will not acquire any additional property
interests or sell any property interests;
(ii) The Partnership will not reinvest its Distributable Cash
[defined in the respective Exchange Partnership Agreements to
include all cash received by the Partnership from any source, other
than capital contributions, loan proceeds and proceeds from the sale
or refinancing of property, less operating expenses, principal and
interest payments on indebtedness, capital expenditures, general
partner fees and reasonable cash reserves], but rather will continue
to distribute such cash to the Limited Partners in the Partnership
in accordance with Section 10.02 of this Agreement at least
quarterly within 30 days following the end of each fiscal quarter.
(iii) The Partnership will not reinvest net proceeds from the
sale or refinancing of the Partnership's Property, but rather will
distribute such proceeds to the Limited Partners in the Partnership
in accordance with Section 10.03 of this Agreement following
repayment of all indebtedness secured by such property."
As a result of this amendment, following the Exchange Offering, without
the majority approval of the Non-participating Limited Partners of the
respective Participating Exchange Partnership voting as a class, the partnership
will not be permitted to sell its existing property interest, acquire any
additional property interests, cease to exist, or modify the right of limited
partners to continue to receive 100% (or 99%, in one case) of the quarterly cash
distributions and net proceeds from the sale or refinancing of the partnership's
property until they have received the preferred amount specified in the
respective Exchange Partnership Agreement.
2. Section 12.03 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"Except for admission of Limited Partners to the Partnership in the
manner provided in this Article XII and Article XI, no one may
subsequently be admitted to the Partnership as a Limited Partner
except upon amendment of this Agreement executed and acknowledged by
the General Partner and Limited Partners (other than Baron Capital
Trust, Baron Capital Properties, L.P. or any of their respective
affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners."
As a result of this amendment, following the Exchange Offering, without
the majority approval of the Non-participating Limited Partners of the
respective Participating Exchange Partnership voting as a class, the partnership
may not admit any additional persons as limited partnerships other than pursuant
to Article XII (which sets forth procedures for admission) and Article XI
(pertaining to transfers of limited partnership interests).
3. Section 12.05(c) of the Exchange Partnership Agreement will be deleted
and the following substituted therefor:
"(c) The General Partner may cause the Partnership to issue
additional Units of the same class as the Units initially offered to
Investors in any number to such persons and on such terms as the
General Partner may determine, provided, however, the Partnership
will either sell those additional Units (i) for a price at least
equal to the net asset value per Unit of the Partnership or (ii) for
a price not less than the approximate market value of the Units,
provided that Limited Partners (other than Baron Capital Trust,
Baron Capital Properties, L.P. or any of their respective
affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners have
approved the sale in advance."
As a result of this amendment, the Corporate General Partner of each
Participating Exchange Partnership with one or more Non-participating Limited
Partners following the Exchange Offering, continues to have discretion
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to issue additional units of limited partnership interest of the same class as
units held by the limited partners of the partnership and to determine the terms
of such issuance, provided, however, that the majority approval of
Non-participating Limited Partners voting as a class is required to approve such
issuance in advance where the selling price for such shares is not less than the
approximate market value of the units.
4. Section 15.02 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"If at any time the last remaining General Partner retires, resigns,
is removed or fails or ceases for any other reason to act as the
General Partner of the Partnership, the Limited Partners may, by a
vote of Limited Partners holding at least a majority of the Units
then outstanding under Section 22.03 within 90 days following such
occurrence, elect 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, provided, however, such
continuation and election of a successor General Partner(s) may only
be effected with the consent of Limited Partners (other than Baron
Capital Trust, Baron Capital Properties, L.P. or any of their
respective affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners. In case the
Partnership is continued under the terms and conditions of this
Section 15.02, the successor General Partner(s) will be permitted to
purchase an interest in the Partnership only in an amount, of a type
and at a purchase price consented to by Limited Partners (other than
Baron Capital Trust, Baron Capital Properties, L.P. or any of their
respective affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners."
As a result of this amendment, if the last remaining general partner of
any Participating Exchange Partnership with one or more Non-participating
Limited Partners following the Exchange Offering (each of the Exchange
Partnerships currently has only one general partner) ceases to act as general
partner, the limited partners of the partnership (including the Operating
Partnership and Non-participating Limited Partners) holding at least a majority
of the then outstanding units of the partnership may elect to continue the
partnership and elect one or more new general partners as long as the same has
been approved in advance by Non-participating Limited Partners of the
partnership holding a majority of the then outstanding units of the partnership
held by all Non-participating Limited Partners. In addition, if the partnership
is continued under the circumstances described above, the new general partner(s)
will be permitted to purchase an interest in the partnership only on terms and
conditions approved by a majority vote of the Non-participating Limited Partners
voting as a class.
5. Section 15.03 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"The General Partner may announce its intention to retire or resign
its position by written notice mailed or delivered to each of the
Limited Partners not less than 90 days prior to the effective date
of such proposed retirement or resignation. Such retirement or
resignation will become effective upon the date specified in such
notification but only if Limited Partners (other than Baron Capital
Trust, Baron Capital Properties, L.P. or any of their respective
affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners consent in
writing to said retirement or resignation. In the event of the
retirement or resignation of the General Partner, its interest in
the Partnership, as General Partner, will be automatically converted
into a Limited Partner interest except that it will be entitled to
the same allocations of income, gain, expense, loss, deduction and
credit and the same distributions to which it would otherwise have
been entitled, provided, however, it will not then be entitled to
any uncollected fees payable by the Partnership to the extent not
accrued before the date of resignation or retirement. The
reformation or reorganization of the General Partner, should the
General Partner at any time be a corporation or partnership, will
not in and of itself constitute the retirement or resignation of the
General Partner for purposes of this Section 15.03."
As a result of this amendment, the Corporate General Partner of each
Participating Exchange Partnership with one or more Non-participating Limited
Partners following the Exchange Offering may retire or resign only with the
approval of Non-participating Limited Partners of the partnership holding a
majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners.
6. Section 15.05(d) of the Exchange Partnership Agreement will be deleted
and the following substituted therefor:
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"Any contract referred to in subsection (c) above [i.e., agreements
entered into between the Partnership and any affiliates of the
General Partner (other than any agreements described in the offering
documents relating to the original private offering of the
Partnership)] will require the approval of Limited Partners (other
than Baron Capital Trust, Baron Capital Properties, L.P. or any of
their respective affiliates) holding at least a majority of the
Units then outstanding which are held by all such Limited Partners,
exercising their voting rights pursuant to Section 22.03 below,
before it may be amended."
As a result of this amendment, any amendment of any agreement entered into
between any Participating Exchange Partnership and any affiliates of the
Corporate General Partner following the Exchange Offering (other than any
agreement described in the offering documents relating to the original private
offering of the partnership) will require the approval of Non-participating
Limited Partners of the partnership holding a majority of the then outstanding
units of the partnership held by all Non-participating Limited Partners.
7. Section 16.07 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"The General Partner will list the Partnership's Property for sale
with a nationally recognized real estate broker no later than June
30, 2004 and at least every 18 months thereafter until the property
is sold, at a price to be determined by the General Partner. The
affirmative vote of Limited Partners (other than Baron Capital
Trust, Baron Capital Properties, L.P. or any of their respective
affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners shall be
required to effect a sale of all or substantially all of the
Partnership's Property."
As a result of this amendment, following the Exchange Offering, a
Participating Exchange Partnership with one or more Non-participating Limited
Partners may sell all or substantially all of its property only with the prior
approval of Non-participating Limited Partners of the partnership holding a
majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners. In addition, the Participating Exchange
Partnership will list its property for sale no later than June 30, 2004 and at
least every 18 months thereafter until the property is sold.
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8. Section 19.02 of the Exchange Partnership Agreement will be deleted and
the following substituted therefor:
"Within 90 days after the end of each Fiscal Year of the
Partnership, the General Partner will prepare and furnish to each of
the Partners a statement showing net income or loss of the
Partnership for Federal income tax purposes and the share thereof
allocable to each Partner and any additional information required
under Section 15.05(c). Each Limited Partner will be provided
annually with financial statements, including a balance sheet and
related statements of income and retained earnings and changes in
financial position. On the written request of Limited Partners
(other than Baron Capital Trust, Baron Capital Properties, L.P. or
any of their respective affiliates) holding at least a majority of
the Units then outstanding which are held by all such Limited
Partners, the General Partner will, at the Partnership's request and
expense, have such financial statements audited by an independent
public accountant in accordance with generally acceptable auditing
standards and will promptly send a copy of such audited statements
and report of the accountant to each Limited Partner."
As a result of this amendment, following the Exchange Offering,
Non-participating Limited Partners of a Participating Exchange Partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners may require that the annual financial
statements required to be delivered by the partnership to limited partners be
audited.
9. The first sentence of Section 20.01 of the Exchange Partnership
Agreement will be deleted and the following substituted therefor:
"The occurrence of any one of the following events will cause the
dissolution of the Partnership:
(1) The expiration of the term of this Agreement.
(2) The vote of Limited Partners holding at least a majority
of the Units then outstanding to dissolve the
Partnership, and in addition the consent to such
dissolution of Limited Partners (other than Baron
Capital Trust, Baron Capital Properties, L.P. or any of
their respective affiliates) holding at least a majority
of the Units then outstanding which are held by all such
Limited Partners.
(3) The death, resignation, retirement, dissolution,
removal, bankruptcy, adjudication of insolvency, or
adjudication of insanity or incompetency of the last
remaining General Partner then in office and the refusal
of any successor General Partner to replace it, unless
Limited Partners holding at least a majority of the
Units then outstanding, as provided in Section 15.02 of
this Agreement, 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 and in addition Limited Partners (other than
Baron Capital Trust, Baron Capital Properties, L.P. or
any of their respective affiliates) holding at least a
majority of the Units then outstanding which are held by
all such Limited Partners consent to such continuation,
election of such General Partner(s) and the amount, type
and purchase price of any interest in the Partnership
such successor General Partner(s) may acquire in
connection therewith.
(4) The sale of all or substantially all of the
Partnership's Property.
(5) The occurrence of any other event which, by law, would
require the Partnership to be dissolved."
As a result of this amendment, following the Exchange Offering, a
Participating Exchange Partnership with one or more Non-participating Limited
Partners may be dissolved by the vote of at least a majority of the outstanding
limited partnership interests in the partnership, but only with the approval of
Non-participating Limited Partners holding a majority of the then outstanding
units of the partnership held by all Non-participating Limited Partners. In
addition, the partnership will be dissolved if the last remaining general
partner of the partnership (each of the Exchange Partnerships currently has only
one general partner) ceases to act as general partner, unless the limited
partners of the partnership (including the Operating Partnership and
Non-participating Limited Partners) holding at least a majority of the then
outstanding units of the partnership elect to continue the partnership and elect
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a new general partner and such continuation, election of such general partner(s)
and the amount, type and purchase price of any interest in the partnership such
successor general partner(s) may acquire in connection therewith have been
approved in advance by Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners.
10. The third sentence of the second paragraph of Section 20.02 of the
Exchange Partnership Agreement will be deleted and the following substituted
therefor:
"The Limited Partners may, by exercising their voting rights under
Section 22.03, appoint such a liquidating receiver or trustee to
replace the General Partner or the receiver or trustee appointed by
the General Partner for the purpose of liquidating the assets of the
Partnership, provided, however, such appointment must be consented
to by Limited Partners (other than Baron Capital Trust, Baron
Capital Properties, L.P. or any of their respective affiliates)
holding at least a majority of the Units then outstanding which are
held by all such Limited Partners; any such appointment by the
Limited Partners will supersede the designation herein of the
General Partner or such receiver or trustee appointed by the General
Partner."
Prior to the Exchange Offering, limited partners of each Exchange
Partnership, by a vote of at least a majority of the outstanding limited
partnership interests in the partnership, had the right to appoint a liquidating
receiver or trustee to replace the Corporate General Partner or the receiver or
trustee appointed by the general partner in connection with the liquidation of
the partnership. As a result of this amendment, in respect of each Participating
Exchange Partnership with one or more Non-participating Limited Partners
following the Exchange Offering, such replacement also requires the approval of
Non-participating Limited Partners of the partnership holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners.
11. Section 21.01 of the Exchange Partnership Agreement will be deleted
and the following substituted therefor:
"No alterations, modifications, amendments or changes of this
Agreement will be effective or binding upon the parties unless the
same have been adopted by Limited Partners exercising their voting
rights pursuant to Section 22.03 and the same has been consented to
by Limited Partners (other than Baron Capital Trust, Baron Capital
Properties, L.P. or any of their respective affiliates) holding at
least a majority of the Units then outstanding which are held by all
such Limited Partners, except (i) with respect to one or more
amendments admitting Limited Partners, which may be effected in the
manner provided in Article XII of this Agreement, (ii) that no
Partner's duties or liabilities may be increased and no Partner's
interest in the capital, profits, Distributable Cash or Net Proceeds
of the Partnership or voting rights may be reduced, without his
written consent; and (iii) that this Agreement may be amended by the
General Partner without notice to or the approval of the Limited
Partners, from time to time for the following purposes: (1) to cure
any ambiguity, formal defect or omission or to correct or supplement
any provision herein that may be inconsistent with any other
provision contained herein or in the Memorandum or to effect any
amendment without notice to or approval by Limited Partners, as
specified in other provisions of this Agreement; (2) to make such
other changes or provisions in regard to matters or questions
arising under this Agreement that will not materially and adversely
affect the interest of any Limited Partner; (3) to otherwise
equitably resolve issues arising under the Memorandum or this
Agreement so long as similarly situated Limited Partners are not
treated differently; (4) to maintain the federal tax status of the
Partnership and any of its Limited Partners (so long as no Limited
Partner's liability is materially increased without his consent) or
as provided in Section 10.4(c); and (5) to comply with law."
As a result of this amendment, following the Exchange Offering and except
in certain circumstances specified in Section 21.01, the partnership agreement
of a Participating Exchange Partnership with one or more Non-participating
Limited Partners may be amended only with the approval of both (i) limited
partners holding at least a majority of the outstanding limited partnership
interests in the partnership and (ii) Non-participating Limited Partners of the
partnership holding a majority of the then outstanding units of the partnership
held by all Non-participating Limited Partners.
12. The first sentence of Section 22.02 of the Exchange Partnership
Agreement will be deleted and the following substituted therefor:
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"The General Partner, or Limited Partners (other than Baron Capital
Trust, Baron Capital Properties, L.P. or any of their respective
affiliates) holding at least a majority of the Units then
outstanding which are held by all such Limited Partners, may convene
a meeting of the Partnership for any matter on which the Partners
may vote as provided in this Agreement."
As a result of this amendment, following the Exchange Offering in respect
of each Participating Exchange Partnership with one or more Non-participating
Limited Partners, the Corporate General Partner or Non-participating Limited
Partners holding a majority of the then outstanding units held by all
Non-participating Limited Partners in the partnership, may call a meeting of the
partnership to act on any matter upon which the limited partners of the
partnership are permitted to act.
13. The Corporate General Partner of each Exchange Partnership is a
single-purpose corporation whose stock is owned entirely by Gregory K. McGrath,
a founder of the Trust and the Operating Partnership. In connection with the
formation of the Trust and the Operating Partnership, Mr. McGrath agreed to
waive fees payable under the Exchange Partnership Agreement to the Corporate
General Partner of each Participating Exchange Partnership following the
Exchange Offering. The fees to be waived include, without limitation, annual
administrative fees, any real estate commission that might be earned in
connection with the sale of a partnership's property and any fees to cover
distribution, due diligence and organizational expenses and legal, accounting,
filing, recording and other miscellaneous expenses in connection with additional
sales of units of limited partnership interest pursuant to Section 12.05 of the
Exchange Partnership Agreement. Moreover, since all the Exchange Partnerships
assumed the property management function in respect of their properties in June
1998, no affiliate of any Corporate General Partner will earn a fee for
performing property management services. Accordingly, the Exchange Partnership
Agreements will be amended to delete the payment of the foregoing fees. For
example, Sections 15.04(a)(i) (offering costs relating to future offerings of
limited partnership interests), 15.04(a)(ii) (property management fee),
15.04(a)(iii) (real estate commissions), 15.04(b) (acquisition fee), and
15.04(c) (administrative fee) will be deleted.
As a result of the partnership agreement amendments described above,
Non-participating Limited Partners in each Participating Exchange Partnership
will have the ability to veto certain actions of the partnership which might be
in the best interest of the partnership, the Operating Partnership, the Trust or
the holders of securities of the Trust and the Operating Partnership. There can
be no assurance that Non-participating Limited Partners will not use such voting
power in a manner which may have an adverse effect on the operations of the
Trust or the Operating Partnership. See "RISK FACTORS - Non-participating
Exchange Limited Partners in Participating Exchange Partnerships Will Have
Significant Influence over Certain Actions of the Partnerships."
As described above at "THE EXCHANGE OFFERING," in respect of each
Participating Exchange Partnership, Mr. McGrath (the sole stockholder, director
and executive officer of the Corporate General Partner of each such partnership)
will provide a management proxy to the Board of the Trust or the Operating
Partnership will acquire from Mr. McGrath for a nominal amount the outstanding
common stock of the Corporate General Partner.
OTHER INFORMATION
General
The Operating Partnership and the Trust undertake to make available to
each Offeree or his representative, or both, during the course of the Exchange
Offering and prior to the Offeree's acceptance of the Exchange Offering, the
opportunity to ask questions of and receive answers from the Operating
Partnership, the Trust or any person acting on their respective behalf relating
to the terms and conditions of the Exchange Offering and the Cash Offering and
to obtain any additional information necessary to verify the accuracy of
information made available to such Offeree.
Prior to making an investment decision respecting the Exchange Offering,
each Offeree should carefully review and consider this entire Prospectus and all
Exhibits hereto. Offerees are urged to make arrangements with the Trust to
inspect any books, records, contracts, or instruments referred to in this
Prospectus and other data relating thereto. The Trust is available to discuss
with Offerees any matter set forth in this Prospectus or any other matter
relating to the Units and the Common Shares into which they are exchangeable,
subject to certain conditions, so that Offerees and their advisors, if any, may
have available to them all information, financial and otherwise, necessary to
formulate a well-informed investment decision.
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Authorized Sales Material
Sales material may be used in connection with the Exchange Offering only
when accompanied or preceded by the delivery of this Prospectus. Only sales
material that indicates that it is distributed by the Trust, the Operating
Partnership or the Managing Shareholder may be distributed to Offerees.
Currently, the Operating Partnership intends to distribute to Offerees the
following in addition to this Prospectus and the pertinent Prospectus
Supplement: (i) a letter transmitting this Prospectus and any amendments or
supplements thereto which summarizes the Exchange Offering and instructs the
Offeree how to proceed if he wishes to accept the offering and (ii) possibly a
sales brochure or other written or graphic communications depicting certain
information regarding the Operating Partnership, the Trust, the Managing
Shareholder and the residential real estate industry. All such additional sales
material will be signed by or otherwise identified as authorized by the Trust,
the Operating Partnership or the Managing Shareholder. Any other sales material
or information has not been authorized for use by the Trust, the Operating
Partnership or the Managing Shareholder and must be disregarded by Offerees.
In certain jurisdictions, some or all of this sales material may not be
distributed pursuant to securities law requirements, and in all jurisdictions,
the Exchange Offering is made only by this Prospectus, the pertinent Prospectus
Supplement and accompanying materials.
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 the Exchange Offering and Offerees must review this
Prospectus and supplements carefully for a complete description of the Exchange
Offering. Authorized sales material should not be considered to be the basis for
the Exchange Offering of Units or an Offeree's decision to accept the Exchange
Offering. 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 herein are (i) the audited consolidated balance sheet of the
Trust and the Operating Partnership and the audited balance sheet of the
Managing Shareholder as of December 31, 1998 and their respective statements of
operations, statements of shareholders' equity and statements of cash flows for
the twelve-month period ending December 31, 1998 and such unaudited statements
as of and for the six-month period ended June 30, 1999.
As described below, this Prospectus sets forth certain financial
statements relating to the 23 Exchange Partnerships involved in the Exchange
Offering. Set forth herein 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 the six months ended June 30, 1999
(unaudited). 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.
Also set forth in the Prospectus are 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 six months ended June 30,
1999 (unaudited).
Also set forth in the Prospectus are the consolidated pro forma balance
sheet as of December 31, 1998 and consolidated statement of operations for the
twelve-month period ended December 31, 1998, and six months endedJune 30, 1999,
for the Trust and the Operating Partnership, giving effect to the acquisition by
the Operating Partnership 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 consolidated financial statements for the two
entities have also been included.
Set forth in this Prospectus is the combined statement of estimated
taxable operating results and cash available from operations (unaudited) for the
Operating Partnership for the four Acquired Properties already beneficially
owned by the Operating Partnership and for the 23 Exchange Partnerships involved
in the
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Exchange Offering. The statement is based on the most recent 12-month period
ended June 30, 1999 and assumes that the Operating Partnership 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 does not purport to forecast actual operating results for any
period in the future.
The foregoing statements should be reviewed by the Offerees prior to
making a decision whether or not to accept the Exchange Offering. See above at
"INITIAL REAL ESTATE INVESTMENTS - The Exchange Properties" and " - Acquired
Properties."
LITIGATION
There are no pending legal proceedings to which the Trust, the Operating
Partnership or the Managing Shareholder is a party which are material to the
operations of the Trust and the Operating Partnership, and the Trust and the
Managing Shareholder have no knowledge that any such legal proceedings are
contemplated or threatened by any third party.
EXPERTS
The audited financial statements of the Trust, the Operating
Partnership and the Managing Shareholder 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 have been included herein and in the Registration Statement in reliance
upon the reports of Elroy D. Miedema, 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 Mortgage
Partnerships and four Exchange Hybrid Partnerships for the year ended December
31, 1998 and 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 the Operating Partnership to issue Units offered hereby
is being passed upon for the Trust by Dennis P. Spates, Esq., New York, N.Y.,
counsel to the Trust. Copies of the draft opinion letter of counsel as to the
Operating Partnership's authority to issue the Units may be obtained by writing
to the Trust.
Manatt, Phelps & Phillips, LLP has passed on certain tax matters as
described under "FEDERAL INCOME TAX CONSIDERATIONS." The tax opinion is not
included as an appendix to this Prospectus, but has been filed with the
Commission as an exhibit to the Operating Partnership's registration statement.
Upon receipt of a written request made to Sharon Studt at Baron Capital
Properties, L.P., 7826 Cooper Road, Cincinnati, Ohio 45242, by an Offeree or his
representative who has been so designated in writing, the Operating Partnership
will transmit promptly a copy of the tax opinion, without charge. Counsel to the
Trust and the Managing Shareholder 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 the Trust has been limited to matters
specifically addressed to it. No Offeree should assume that counsel to the Trust
has in any manner investigated the merits of an investment in the Units or the
Common Shares into which the Units are exchangeable, subject to certain
conditions, 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 the Trust has relied upon the
representations and statements of (i) the Trust and the Managing Shareholder as
to facts regarding the Operating Partnership, the Trust and the Managing
Shareholder and their
237
<PAGE>
respective affiliates and their proposed activities and (ii) the Corporate
General Partners as to facts regarding the Exchange Partnerships and their
respective affiliates. Counsel to the Trust has not independently verified such
representations and statements.
EXPENSES OF THE EXCHANGE OFFERING
All legal, accounting, due diligence and other expenses incurred by each
of the Exchange Partnerships and the Operating Partnership incident to the
Exchange Offering will be paid by the party incurring such expense, except that
all of the expenses incurred in connection with the preparation, filing,
printing and distributing of the Registration Statement and the Prospectus, and
completion of the transactions described therein (estimated to be approximately
$683,000) will be paid by the Operating Partnership out of the net proceeds of
the Trust's Cash Offering and net available cash flow. No special fees or
commissions have been or will be paid to the Managing Shareholder, any Corporate
General Partner of an Exchange Partnership, or any of their respective
affiliates, in connection with the Exchange Offer. As of the date of this
Prospectus, in connection with the Exchange Offering, each Exchange Partnership
has paid or will pay out of available cash flow an estimated amount in the range
of $10,000 to $24,000 of expenses for professional fees. The Exchange
Partnerships are not expected to incur any significant additional expenses
related to the offering.
Set forth below is an itemized list of all expenses incurred or estimated
to be incurred in connection with the Exchange Offering and the persons
responsible for paying such expenses:
<TABLE>
<CAPTION>
Actual Amount
Type of Expense To Date or Estimate Party Responsible for Paying
- --------------- ------------------- ----------------------------
<S> <C> <C>
Commission Registration Filing Fees $ 7,576 Operating Partnership
State Registration Filing Fees $ 50,000 (est.) Operating Partnership
Legal Fees, including preparation of offering
documents, opinions and state registration filings $ 600,000 (est.) Operating Partnership
Printing, Mailing and Solicitation Expenses $ 25,000 (est.) Operating Partnership
---------------------
Total $ 682,576 (est.)
</TABLE>
The Operating Partnership may elect to reimburse brokers, fiduciaries,
custodians and other nominees for reasonable out-of-pocket expenses incurred in
sending this Prospectus and other materials to, and obtaining instructions
relating to such materials from, Offerees. Any broker-dealer who assists the
Operating Partnership in consummating the Exchange Offering with individual
Offerees who accept the offering will be paid a commission equal to a number of
unregistered Common Shares of the Trust having a value equal to 5% of the
initial value assigned to the Operating Partnership Units exchanged in the
particular transactions.
ADDITIONAL INFORMATION
Prior to the commencement of the Cash Offering and the Exchange Offering,
neither the Trust nor the Operating Partnership was a reporting company under
the Securities Exchange Act of 1934, as amended. The Operating Partnership has
filed with the Commission a Registration Statement (of which this Prospectus is
a part) on Form S-4 under the Securities Act with respect to the Operating
Partnership Units being offered in this Exchange Offering. The Trust has filed
with the Securities and Exchange Commission (the "Commission") a Registration
Statement (of which a separate Prospectus is a part) on Form SB-2 under the
Securities Act with respect to the Common Shares offered in the Cash Offering.
The prospectuses do not contain all the information set forth in the respective
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in the
prospectuses 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 respective Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules hereto and to the prospectus being used in the
Cash Offering. For further information regarding the Operating Partnership and
the Units being offered hereby and the Trust and the Common Shares being offered
in the Cash Offering, reference is hereby made to the respective Registration
Statement and such exhibits and schedules.
238
<PAGE>
The Registration Statements and exhibits and schedules forming a part
thereof filed by the Operating Partnership and the 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.
At the Commission's Public Reference Room, the public may also read and
copy any materials filed with the Commission by the Trust and the Operating
Partnership. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also
maintains an Internet site (address: http://www.sec.gov.) that contains reports,
proxy and information statements, and other information regarding issuers, such
as the Trust and the Operating Partnership, which file electronically with the
Commission.
The Trust and the Operating Partnership will furnish their Shareholders
and Unitholders 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.
GLOSSARY
Whenever used in this Prospectus, the following terms shall have the
meanings set forth below, unless the context indicates otherwise. The singular
shall include the plural and the masculine gender shall include the feminine,
and vice versa, as the context requires. In addition, the term "person" and its
pronouns "he," "she," "him," and "her" 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.
"Acquired Properties" refers to four residential apartment properties
referred to as Alexandria Apartments, Crystal Court Apartments - Phase II,
Heatherwood Apartments - Phase I and Riverwalk Apartments which are located in
Cincinnati, Ohio and Lakeland, Kissimmee and New Smyrna, Florida, respectively.
Between June 1998 and May 1999, the Operating Partnership acquired beneficial
interests in the properties. See "INITIAL REAL ESTATE INVESTMENTS - The Acquired
Properties."
"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 the Trust.
"Baron Properties" means Baron Capital Properties, Inc., a Delaware
corporation which is the initial Corporate Trustee of the Trust, with its
principal place of business located at 1105 North Market Street, Wilmington,
Delaware 19899.
"Board" refers to the Managing Shareholder and the Independent Trustees,
acting together as the initial Board of the Trust in accordance with the terms
of the Declaration, and their successors in such capacity.
239
<PAGE>
"Business Day" means a day other than a Saturday, Sunday or other day in
which commercial banks in New York City are authorized or required by law to
close.
"Cash Offering" refers to the offering by the Trust to the public of
2,500,000 Common Shares in the Trust for a purchase price of $10.00 per share
pursuant to the Trust's Prospectus dated June 11, 1999, and as it may be further
amended or supplemented from time to time.
"Certificate" means the Certificate of Limited Partnership of the
Partnership, 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.
"Commission" means the Securities and Exchange Commission.
"Common Share" means a beneficial interest in the Trust designated as a
Common Share by the Trust in accordance with Sections 1.6 and 2.1 of the
Declaration of Trust.
"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 such corporate general partners, which are controlled by Gregory
K. McGrath, one of the founders of the Trust and the Operating Partnership, are
referred to herein collectively as the "Corporate General Partners."
"Corporate Trustee" means Baron Capital Properties, Inc., a Delaware
corporation which is the trustee of the Trust under the Declaration, and its
successors. The Corporate Trustee acts as legal holder of the Trust Property,
subject to the terms of the 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 the Managing Shareholder to
be the dealer manager of the Cash Offering.
"Declaration" or "Declaration of Trust" means the Amended and Restated
Declaration of Trust for the Trust made as of August 11, 1998, which establishes
the Trust and the rights and obligations of the Managing Shareholder, the
Trustees, other members of the Board of the Trust and the Shareholders.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
as amended.
"Election Form" refers to the election form accompanying this Prospectus
which Offerees are required to complete, sign and date and then return to the
Exchange Agent to indicate whether they elect to accept or decline the Exchange
Offering.
"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 Agent" refers to American Stock Transfer & Trust Company, New
York, New York, which will act as agent for the Operating Partnership for the
purpose of receiving tenders of certificates representing Exchange Partnership
Units, Election Forms and related documents, and as agent for tendering Exchange
Limited Partners for the purpose of receiving certificates representing Exchange
Partnership Units, Election Forms and related documents and transmitting
Operating Partnership Units to validly tendered Exchange Limited Partners.
"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. Such partnerships are collectively
referred to as the "Exchange Equity Partnerships." See "THE EXCHANGE OFFERING."
240
<PAGE>
"Exchange Hybrid Partnership" refers to each of the 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 (and in one case, unsecured debt interests).
Such partnerships are collectively referred to as the "Exchange Hybrid
Partnerships." See "THE EXCHANGE OFFERING."
"Exchange Limited Partners" refers to the individual limited partners to
which the Operating Partnership will make the Exchange Offering in connection
with the initial transactions thereunder, including the limited partners in 23
Exchange Partnerships described herein. See "THE EXCHANGE OFFERING."
"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 (and in one case, unsecured debt interests).
Such partnerships are collectively referred to as the "Exchange Mortgage
Partnerships." See "THE EXCHANGE OFFERING."
"Exchange Offering" refers to the exchange offering, being made pursuant
to this Prospectus, under which the Operating Partnership will offer to issue
registered Units in exchange for limited partnership interests in real estate
limited partnerships which directly or indirectly own equity and/or debt
interests in residential apartment properties. See "SUMMARY OF THE TRUST AND THE
OPERATING PARTNERSHIP" and "THE EXCHANGE OFFERING."
"Exchange Partnerships" refers to the 23 real estate limited partnerships
(each referred to herein as either an Exchange Equity Partnership, Exchange
Hybrid Partnership or Exchange Mortgage Partnership - see definitions of such
terms) whose limited partners will be offered the opportunity by the Operating
Partnership to exchange their limited partnership interests in such partnerships
for Operating Partnership Units. Each Exchange Partnership directly or
indirectly owns an equity and/or debt interest in one or more residential
apartment properties and is managed by a Corporate General Partner which is an
Affiliate of the Managing Shareholder. In the Exchange Offering, the Operating
Partnership will acquire beneficial ownership of all or a substantial majority
of the underlying property interests of each Participating Exchange Partnership.
See "INITIAL REAL ESTATE INVESTMENTS."
"Exchange Properties" refers to the 26 residential apartment properties in
which Exchange Partnerships directly or indirectly own an equity and/or debt
interest. In the Exchange Offering, the Operating Partnership will offer to
acquire a direct or indirect equity or debt interest in the Exchange Properties
by acquiring limited partnership interests in each Participating Exchange
Partnership which currently owns such interests. See "THE EXCHANGE OFFERING" and
"INITIAL REAL ESTATE INVESTMENTS."
"Expiration Date" means 5:00 p.m., New York City time, on the date
specified in the Election Form by which Offerees are required to tender their
Exchange Partnership Units if they elect to accept the Exchange Offering, unless
the Exchange Offering is extended by the Operating Partnership (in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offering is extended).
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Subordinated Mortgages on a particular property.
"First Mortgage Loan" means a Mortgage Loan secured or collateralized by a
First Mortgage.
"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. The first Fiscal Year of
the Trust and the Operating Partnership may begin after January 1 and
consequently have a duration of less than 12 months. The last Fiscal Year of the
Trust and the Operating Partnership may end before December 31 and consequently
have a duration of less than 12 months.
"General Partner" refers to the Trust and any successor in its capacity as
general partner of the Operating Partnership.
241
<PAGE>
"Independent Trustee" means a Trustee of the Trust who meets certain
qualifications described herein at "MANAGEMENT - The Board of the Trust and
Trustees - Independent Trustees" and who becomes an Independent Trustee of the
Trust under the terms of the Declaration and serves on the Board of the Trust.
See Section 7.5 of Declaration of Trust. All Independent Trustees are referred
to herein collectively as the "Independent Trustees."
"IRAs" means individual retirement accounts.
"IRS" or "Service" means the Internal Revenue Service.
"Junior Mortgage" refers to a Mortgage which (i) has the same priority or
precedence over charges or encumbrances upon real property as that required for
a First Mortgage except that it is subject to the priority of one or more
Mortgages and (ii) must be satisfied before such other charges or liens (other
than prior Mortgages) are entitled to participate in the proceeds of any sale.
"Junior Mortgage Loan" refers to a Mortgage Loan secured or collateralized
by a Junior Mortgage.
"Limited Partner" or "Unitholder" means an owner of Units in the Operating
Partnership (which will initially include the Trust and Offerees who accept the
Exchange Offering). All Limited Partners and Unitholders are referred to herein
collectively as the "Limited Partners" or "Unitholders."
"Managing Shareholder" refers to Baron Advisors, Inc. or such substitute
or different Managing Shareholder as may subsequently be admitted to the Trust
pursuant to the terms of the Declaration of Trust, which will have all of the
powers and obligations of the Managing Shareholder to operate the Trust as
described in this Prospectus.
"Managing Person" means any of the following: (a) Trust or Operating
Partnership officers, agents, or affiliates; the Managing Shareholder; a
Trustee; any other member of the Board; affiliates of the Managing Shareholder,
a Trustee and any other member of the Board and (b) any directors, officers or
agents of any organizations named in (a) above when acting for the Managing
Shareholder, a Trustee, any other member of the Board or any of their respective
affiliates on behalf of the Trust or the Operating Partnership.
"Mortgage" refers to a mortgage, deed of trust or other security interest
in real property or in rights or interests in real property.
"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.
"1997 Act" refers to the Taxpayer Relief Bill of 1997.
"Non-participating Limited Partners", which term applies only if the
Exchange Offering is completed (see "THE EXCHANGE OFFERING"), refers to limited
partners in each Participating Exchange Partnership who elect not to accept the
Exchange Offering and instead retain their interest in the partnership on
substantially the same terms and conditions as their original investment in the
partnership.
"Offerees" refers to limited partners of Exchange Partnerships who are
being offered the opportunity to exchange their Exchange Limited Units for
Operating Partnership Units in the Exchange Offering. See "THE EXCHANGE
OFFERING."
"Operating Partnership" means Baron Capital Properties, L.P., a Delaware
limited partnership which is the issuer of Units being offered in connection
with the Exchange Offering and of which the Trust is the General Partner and a
limited partner. The Trust's interests in residential apartment properties to be
acquired will be held and real estate operations will be conducted by the
Operating Partnership.
"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.
"Operating Partnership Property" means all property owned or acquired by
the Operating Partnership.
242
<PAGE>
"Operating Partnership Units" or "Units" refer to units of limited
partnership interest in the Operating Partnership, including those which it is
offering to issue in the Exchange Offering.
"Original Investors" refers to Gregory K. McGrath and Robert S. Geiger,
the founders of the Trust and the Operating Partnership. See "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions."
"Participating Exchange Partnership", which term applies only if the
Exchange Offering is completed (see "THE EXCHANGE OFFERING"), refers to each
Exchange Partnership whose Exchange Limited Partners holding at least 90% of the
limited partnership interests therein elect to accept the Exchange Offering. The
Operating Partnership will not complete the Exchange Offering in respect of any
particular Exchange Partnership unless limited partners holding at least 90% of
the limited partnership interests in the partnership affirmatively elect to
accept the offering. The offering will not be completed as to any Exchange
Partnership whatsoever unless a sufficient number of Offerees accept the
offering such that the offering involves the issuance of Operating Partnership
Units with an initial value of at least $6,000,000. All Participating Exchange
Partnerships are referred to herein collectively as "Participating Exchange
Partnerships."
"Partners" refers collectively to the General Partner and Limited Partners
of the Operating Partnership.
"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 the
Trust) as the Managing Shareholder may designate under Section 2.1(c) of the
Declaration of Trust for sale or issuance subsequent to completion of the Cash
Offering.
"Property" means all real or personal property owned or acquired by the
Trust and the Operating Partnership, which is expected to include but not be
limited to (i) the land, buildings and improvements comprising one or more
residential apartment properties in which the Trust and the Operating
Partnership may make an equity investment, and (ii) their respective rights in
connection with Mortgage Loans they may provide or acquire which are secured by
Mortgages on the land, buildings and improvements comprising residential
apartment properties. See "INVESTMENT OBJECTIVES AND POLICIES."
"Prospectus" means this Prospectus of the Operating Partnership dated
____________, 1999, 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 Junior 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.
"Share" means a beneficial interest in the Trust which is either a Common
Share or a Preferred Share authorized for issuance and designated as such by the
Managing Shareholder in accordance with the Declaration of Trust.
"Shareholder" means an owner of Shares in the Trust.
243
<PAGE>
"Subordinated Mortgage" refers to a Mortgage which (i) has the same
priority or precedence over charges or encumbrances upon real property as that
required for a First Mortgage except that it is subject to the priority of one
or more Mortgages and (ii) must be satisfied before such other charges or liens
(other than prior Mortgages) are entitled to participate in the proceeds of any
sale.
"Subordinated Mortgage Loan" refers to a Mortgage Loan secured or
collateralized by a Subordinated Mortgage.
"Trust" means Baron Capital Trust, a Delaware business trust created by
the Corporate Trustee and having a principal office at 7826 Cooper Road,
Cincinnati, Ohio 45242. The Trust is the General Partner and a limited partner
of the Operating Partnership and the issuer of the Common Shares being offered
in the Cash Offering.
"Transmittal Letter" refers to the transmittal letter accompanying this
Prospectus containing certain information relating to the Exchange Offering
which the Corporate General Partner of each Exchange Partnership delivered to
its Exchange Limited Partners.
"Trustee" means a person serving as a Corporate Trustee or an Independent
Trustee of the Trust. All Trustees are referred to herein collectively as the
"Trustees."
"Trust Management Agreement" means the Trust Management Agreement dated as
of May 15, 1998, as amended August 11, 1998, between the Trust and the Managing
Shareholder, under which the Managing Shareholder will perform certain
management, administrative services and investment advisory services for the
Trust.
"Trust Property" means all property owned or acquired by the Trust or on
its behalf as part of the trust estate established under the Declaration of
Trust.
"Unitholder" or "Limited Partner" means an owner of Units in the Operating
Partnership (which will initially include the Trust and Offerees of
Participating Exchange Partnerships who accept the Exchange Offering). All
Unitholders and Limited Partners are referred to herein collectively as the
"Unitholders" or "Limited Partners."
"Units" or "Operating Partnership Units" refer to units of limited
partnership interest in the Operating Partnership which it is offering to issue
in the Exchange Offering.
244
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE OF AFFILIATES
OF
MANAGING SHAREHOLDER
<PAGE>
Exhibit A
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
Florida Income Advantage Realty Opportunity Income Appreciation Fund I, Ltd.
Fund I, Ltd. (Baron Fund VIII, Ltd. (Baron (Baron Capital IV, Inc.,
Capital IV, Inc., general Capital IV, Inc., general general partner)
partner) 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%)
Cash reserve accounts: 0 0 0
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 846,000(1) 925,600(1) 184,500(1)
partners: (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 Baron First Time Home Buyer Clearwater First Time
Fund V, Ltd. (Baron Capital Mortgage Fund IV, Ltd. (Baron Homebuyer Program, Ltd.
XXIX, Inc., general partner) Capital XXVIII, Inc., general (Baron Capital XVI, Inc.,
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 425,000(2) 430,000(3) 672,500(2)
partners: (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>
Florida Income Growth Fund Lamplight Court of Baron Strategic Vulture
V, Ltd. (Baron Capital XI, Bellefontaine Apartments, Fund I, Inc. (Baron
Inc., general partner) Ltd. (Baron Capital IX, Inc., Capital XXVI, Inc.,
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%) (10%)
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 825,500(4) 580,000(5) 601,000(6)
partners: (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 Investment Baron Strategic
Fund, Ltd. (Baron Capital Fund II, Ltd. (Baron Capital Investment Fund VI, Inc.
XXXII, Inc., general XXXI, Inc., general partner) (Baron Capital XXXI,
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 796,000(6) 524,000(4) 806,000(13)
partners: (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 Tampa Capital Income Fund, Florida Capital Income
Fund, Ltd. (Baron Capital Ltd. (Baron Capital I, Inc., Fund II, Ltd. (Baron
II, Inc., general partner) general partner) Capital IV, Inc., general
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 656,300(4) 589,500(7) 548,000(1)
partners: (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 Florida Capital Income Fund Florida Tax Credit Fund,
Partners, Ltd. (Baron III, Ltd. (Baron Capital VII, Ltd. (Baron Capital VI,
Capital III, Inc., general Inc., general partner) Inc., general partner)
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 543,000(7) 549,000(7) 546,000(4)
partners: (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 Florida Capital Income Fund Brevard Mortgage Program,
Apartments, Ltd. (Baron IV, Ltd. (Baron Capital V, Ltd. (Baron Capital XII,
Capital X, Inc., general Inc., general partner) Inc., general partner)
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 690,000(4) 1,212,800(7) 450,000(8)
partners: (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 455,000(3) 450,000(2) 450,000(3)
partners: (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 Development Fund IX, Baron Income Property Baron Mortgage
Ltd. (Baron Capital XLII, Mortgage Fund VI, Ltd. (Baron Development Fund VII Ltd.
Inc., general partner) Capital XXIX, Inc., general (Baron Capital XXXVII,
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 678,000(3) 645,000(8) 585,000(8)
partners: (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 Baron Mortgage Development Baron Mortgage
Fund X, Ltd. (Baron Capital Fund XI, Ltd. (Baron Capital Development Fund XVIII LP
XLIII, Inc., general XXXIII, Inc., general partner) (Baron Capital LXV, Inc.,
partner) 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 678,000(2) 678,000(2) 668,000(8)
partners: (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 Baron Strategic Investment Baron Mortgage
Fund V, Ltd. (Baron Capital Fund VII, Ltd. (Baron Capital Development Fund XV,
XL, Inc., general partner) XLI, Inc., general partner) Ltd. (Baron Capital
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 818,000(10) 1,253,000(10) 575,000(8)
partners: (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 Baron Strategic Investment Baron Mortgage
Fund X, Ltd. (Baron Capital Fund VIII, Ltd. (Baron Development Fund XIV,
LXIV, Inc., general partner) Capital XLIV, Inc., general Ltd. (Baron Capital
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 916,000(11) 784,000(10) 840,000(8)
partners: (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 Baron Strategic
Ltd. (Baron Capital XXXIV, Fund IV, Ltd. (Baron Capital Investment Fund IX, Ltd.
Inc., general partner) XVII, Inc., general partner) (Baron Capital 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 259,000(7) 690,000(8) 674,000(12)
partners: (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. VI, Ltd. (Baron Capital of
(Baron Capital of Florida, Ohio III, Inc., general
Inc., general partner) 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 725,000(7) 219,000(7)
partners: (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 June 30, 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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 161,887 $ 132,702 $ 47,117
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $ 45,343 $ 53,209 $ 25,329
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 $ 1,000,000
Amount paid to Baron Advisors Affiliates from proceeds of offering:
Selling commissions and
due diligence and legal
expenses: $ 90,700 $ 115,000 $ 110,800
Acquisition fees: $ 60,000 $ 136,500 $ 71,000
Dollar amount of cash generated (deficiency) by program from operations from its
inception through June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 123,921 $ 147,631 $ 144,426
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $ 69,780 $ 47,729 $ 66,135
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 137,144 $ 182,400 $ 36,554
Dollar amount paid Baron
Advisors Affiliates from
Operations:
Property Management
And Administrative Fees: $ 57,135 $ 37,745 $ 50,135
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 199,607 $ (465,877) $ 129,129
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 $ 95,997 $ 65,689
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 209,055 $ 183,493 $ 247,429
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 173,360 $ 175,504 $ 162,845
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 96,898 $ 74,403 $ 152,203
Dollar amount paid Baron
Advisors Affiliates from
Operations:
Property Management
and Administrative Fees: $ 47,216 $ 36,282 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 June 30, 1999
before deducting payments to
Baron Advisors Affiliates: $ 121,217 $ (11,807) $ 138,836
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 178,366 $ 190,612 $ 170,346
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, L.P.
-----------------------------------------------------------------------------------------
<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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 187,223 $ 180,936 $ 131,448
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 Mortgage Development
Baron Strategic Investment Baron Strategic Investment Fund XV, Ltd.
Fund V, Ltd. Fund VII, 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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 144,351 $ 82,238 $ 112,909
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 51,969 $ 105,254 $ 177,506
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ 137,833 $ 41,609 $ 54,749
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 June 30, 1999 before deducting payments to
Baron Advisors Affiliates: $ (94,501) $ 120,150
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0
Property Management
and Administrative Fees: $ 64,966 $ 46,641
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 -
6/30/99 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 192,761 $ 399,818 $ 346,154 $ 348,348
Other: 21,607 7,423 21,065 32,140
Less:
Operating Expenses: (82,824) (245,900) (182,429) (169,938)
Interest Expenses: (61,321) (127,820) (158,727) (159,163)
Depreciation and Amortization: (38,544) (77,088) (64,402) (63,327)
Other: Major Maintenance: (586) (16,233) (19,712) 0
Net Income (Loss) - Tax Basis: 31,093 (59,800) (58,051) (11,940)
Cash generated from operations: 69,637 9,865 (14,714) 19,247
Less: Cash distributions: 21,000 10,000 80,700 80,700
Cash generated after cash distributions: 27,030 (35) (95,414) (61,453)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 39 (74) (72) (15)
Cash distributions to investors: 26 12 100 100
Annualized cash on cash
yield to investors: 6% 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 1998, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $18,350.
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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 81,738 $ 177,807 $ 170,175 $ 180,549
Other: 8,012 8,548 7,031 5,721
Less:
Operating Expenses: (47,574) (119,750) (79,292) (73,049)
Interest Expenses: (30,571) (56,304) (49,070) (49,964)
Depreciation and Amortization: (8,000) (70,922) (70,922) (50,446)
Other: Major Maintenance: (3,183) 0 (18,353) 0
Net Income (Loss) - Tax Basis: 422 (60,621) (40,431) 12,811
Cash generated from operations: 410 1,753 23,460 57,536
Less: Cash distributions: 5,000 20,900 0 82,500
Cash generated after cash distributions: (4,590) (19,147) 23,460 (24,964)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1 (64) (43) 14
Cash distributions to investors: 5 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 1998, 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-2
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Realty Opportunity Income Fund VIII, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 96,329 204,670 $ 159,093 $ 181,587
Other: 5,157 7,233 6,252 3,616
Less:
Operating Expenses: (46,362) (130,635) (93,216) (89,343)
Interest Expenses: (36,130) (66,541) (60,222) (59,048)
Depreciation and (9,500) (56,180) (56,180) (55,941)
Amortization: (3,820) (22,613) (21,967) 0
Other: Major Maintenance:
Net Income (Loss) - Tax Basis: 5,674 (64,066) (66,240) (19,129)
Cash generated from operations: 10,017 (15,119) (16,312) 33,196
Less: Cash distributions: 1,000 16,000 0 80,800
Cash generated after cash distributions: 9,017 (31,119) (16,312) (47,604)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 6 (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 1998, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $5,000.
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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 28,263 $ 52,759 $ 56,139 $ 57,348
Other: 3,410 3,851 2,437 2,565
Less:
Operating Expenses: (15,711) (48,541) (26,488) (26,417)
Interest Expenses: (9,727) (17,915) (17,843) (15,898)
Depreciation and Amortization: (4,510) (16,264) (16,264) (16,172)
Other: Major Maintenance: (113) (7,895) (6,317) 0
Net Income (Loss) - Tax Basis: 1,612 (34,005) (8,336) 1,426
Cash generated from operations: 2,712 (21,592) 5,491 15,033
Less: Cash distributions: 1,000 8,160 0 19,375
Cash generated after cash distributions: 1,712 (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: 5 40 0 95
Annualized cash on cash
yield to investors: 1% 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 1998, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $5,000.
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.
1996 1995
------------------------
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%
- -------------------------------------------------------------------------------
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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 177,917 $ 360,482 $ 379,763 $ 319,640
Other: 16,623 13,259 7,968 16,405
Less:
Operating Expenses: (74,531) (172,182) (158,953) (154,720)
Interest Expenses: (62,533) (116,663) (149,908) (130,820)
Depreciation and Amortization: (15,250) (79,077) (79,077) (78,505)
Other: Major Maintenance: (3,927) (42,542) (86,899) 0
Net Income (Loss) - Tax Basis: 38,299 (36,723) (87,106) (28,000)
Cash generated from operations: 36,926 29,095 (15,997) 34,100
Less: Cash distributions: 10,000 25,369 0 92,000
Cash generated after cash distributions: 26,926 3,726 (15,997) (57,900)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 42 (40) (95) (30)
Cash distributions to investors: 11 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 1998, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $9,000.
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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 146,902 $ 264,267 $ 218,018 $ 311,719
Other: 19,960 25,858 0 0
Less:
Operating Expenses: (72,558) (204,938) (153,765) (149,572)
Interest Expenses: (48,156) (98,620) (98,851) (78,273)
Depreciation and Amortization: (24,207) (48,414) (44,069) (47,371)
Other: Major Maintenance: (3,384) (15,068) (22,392) 0
Net Income (Loss) - Tax Basis: 18,557 (76,555) (101,059) 36,503
Cash generated from operations: 22,804 (53,999) (56,990) 83,874
Less: Cash distributions: 20,000 80,000 80,000 77,441
Cash generated after cash distributions: 2,804 (133,999) (136,990) 6,433
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 23 (96) (126) 46
Cash distributions to investors: 25 100 100 97
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 1998, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $8,000.
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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 124,532 $ 237,292 $ 212,608 $ 228,451
Other: 20,140 14,340 6,605 7,884
Less:
Operating Expenses: (64,982) (151,710) (116,044) (112,640)
Interest Expenses: (33,979) (68,574) (69,345) (68,759)
Depreciation and Amortization: (19,295) (38,590) (36,890) (37,979)
Other: Major Maintenance: (1,631) (7,490) (13,630) 0
Net Income (Loss) - Tax Basis: 24,785 (14,732) (16,696) 16,957
Cash generated from operations: 23,940 9,518 13,589 47,052
Less: Cash distributions: 4,000 11,790 80,000 79,867
Cash generated after cash distributions: 19,940 (2,272) (66,411) (32,815)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 31 (18) (21) 10
Cash distributions to investors: 5 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 1998, 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-8
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Tax Credit Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 132,561 $ 275,306 $ 282,587 $ 266,240
Other: 11,635 19,220 0 0
Less:
Operating Expenses: (87,620) (192,793) (191,445) (172,489)
Interest Expenses: (27,076) (66,429) (67,422) (69,122)
Depreciation and Amortization: (20,932) (51,408) (51,408) (47,236)
Other: Major Maintenance: (17,552) (19,681) (28,357) (20,067)
Net Income (Loss) - Tax Basis: (8,984) (35,786) (56,045) (42,674)
Cash generated from operations: 313 (3,598) (4,637) 4,562
Less: Cash distributions: 6,260 9,390 0 25,194
Cash generated after cash distributions: (5,947) (12,988) (4,637) (20,632)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (14) (57) (90) (68)
Cash distributions to investors: 10 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 1998, the difference between net income (loss) determined on a tax basis and
net income (loss) determined on a GAAP basis was approximately $18,000.
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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 23,912 $ 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: 23,880 59,960 69,567 46,296
Cash generated from operations: 23,880 59,960 69,567 46,296
Less: Cash distributions: 26,367 60,000 60,000 45,536
Cash generated after cash distributions: (2,487) (40) 9,567 760
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 48 119 139 93
Cash distributions to investors: 53 120 120 91
Annualized cash on cash
yield to investors: 11% 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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 240,889 $ 703,101 $ 745,649 $ 695,308
Other: 28,213 26,874 22,536 60,265
Less:
Operating Expenses: (305,511) (744,965) (469,088) (435,005)
Interest Expenses: (213,201) (305,281) (310,603) (312,704)
Depreciation and Amortization: (64,282) (138,503) (132,061) (137,316)
Other: Major Maintenance: (25,303) (45,464) (36,903) 0
Net Income (Loss) - Tax Basis: (339,195) (504,238) (180,470) (129,452)
Cash generated from operations: (303,126) (392,609) (70,945) (52,401)
Less: Cash distributions: 0 96,506 180,233 149,240
Cash generated after cash distributions: (303,126) (489,115) (251,178) (201,641)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (186) (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 1998, 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-11
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
GSU Stadium Student Apartments, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 212,733 $ 420,783 $ 458,687 $ 427,919
Other: 10,454 21,097 27,710 21,809
Less:
Operating Expenses: (90,028) (312,009) (242,603) (212,984)
Interest Expenses: (67,703) (141,387) (146,120) (122,433)
Depreciation and Amortization: (38,687) (77,378) (65,135) (66,830)
Other: Major Maintenance: (555) (25,003) (35,113) (54,112)
Net Income (Loss) - Tax Basis: 26,214 (113,897) (2,574) (6,631)
Cash generated from operations: 52,447 (57,616) 34,851 38,390
Less: Cash distributions: 10,000 74,828 203,105(1) 84,961
Cash generated after cash distributions: 42,447 (132,444) (168,254) (46,571)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 26 (114) (3) (7)
Cash distributions to investors: 10 75 203 85
Annualized cash on cash
yield to investors: 2% 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 1998, 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.
(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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: 35,438 73,533 $ 64,380 $ 73,267
Other: 0 35 0 0
Less:
Operating Expenses: (7,386) (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: 28,052 60,979 62,261 72,393
Cash generated from operations: 28,052 60,979 62,261 72,393
Less: Cash distributions: 14,375 57,500 57,500 34,572
Cash generated after cash distributions: 13,677 3,479 4,761 37,821
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 49 106 108 126
Cash distributions to investors: 25 100 100 60
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. 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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 30,005 $ 59,631 $ 69,051 $ 41,748
Other: 0 0 45 0
Less:
Operating Expenses: (73) (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: 29,932 59,268 68,158 41,137
Cash generated from operations: 29,932 59,268 68,113 41,137
Less: Cash distributions: 30,000 60,710 60,300 42,619
Cash generated after cash distributions: (68) (1,442) 7,813 (1,482)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 119 136 82
Cash distributions to investors: 60 121 121 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 -
6/30/99 1998 1997 1996
-------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 45,000 $ 90,250 $ 88,149 $ 46,999
Other: 0 0 0 0
Less:
Operating Expenses: (49) (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: 44,951 90,124 88,017 46,906
Cash generated from operations: 44,951 90,124 88,017 46,906
Less: Cash distributions: 44,400 90,000 90,000 43,377
Cash generated after cash distributions: 551 124 (1,983) 3,529
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 120 117 62
Cash distributions to investors: 59 120 120 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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 30,003 $ 60,016 $ 70,425 $ 29,006
Other: 0 0 0 0
Less:
Operating Expenses: (69) (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: 29,934 59,679 70,110 28,598
Cash generated from operations: 29,934 59,679 70,110 28,598
Less: Cash distributions: 30,000 60,000 60,000 27,846
Cash generated after cash distributions: (66) (321) 10,110 752
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 119 140 57
Cash distributions to investors: 60 120 120 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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 30,000 $ 55,000 $ 75,400 $ 26,198
Other: 0 0 0 0
Less:
Operating Expenses: (64) (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: 29,936 54,796 74,687 25,953
Cash generated from operations: 29,936 54,796 74,687 25,953
Less: Cash distributions: 30,000 60,000 60,000 25,140
Cash generated after cash distributions: (64) (5,204) 14,687 813
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 110 149 52
Cash distributions to investors: 60 120 120 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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 30,003 $ 60,061 $ 74,020 $ 14,529
Other: 0 0 0 0
Less:
Operating Expenses: (71) (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: 29,932 59,867 73,856 14,152
Cash generated from operations: 29,932 59,867 73,856 14,152
Less: Cash distributions: 30,000 60,000 60,000 13,900
Cash generated after cash distributions: (68) (133) 13,856 252
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 120 147 28
Cash distributions to investors: 60 120 120 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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 176,835 $ 333,761 $ 273,596 $ 278,590
Other: 10,309 20,828 20,987 26,698
Less:
Operating Expenses: (70,994) (178,425) (163,172) (172,943)
Interest Expenses: (45,917) (93,696) (94,358) (98,805)
Depreciation and Amortization: (35,250) (70,494) (52,504) (56,381)
Other: Major Maintenance: (7,941) (21,970) (16,416) (27,704)
Net Income (Loss) - Tax Basis: 27,042 (9,996) (31,867) (45,963)
Cash generated from operations: 51,983 39,670 (350) (20,862)
Less: Cash distributions: 22,000 48,608 114,988 77,039
Cash generated after cash distributions: 29,983 (8,938) (115,338) (97,901)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 24 (9) (28) (40)
Cash distributions to investors: 19 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 1998, 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-19
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Lamplight Court of Bellefontaine Apartments, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 30,936 $ 20,500 $(12,535) $(37,785)
Other: 80 158 9,973 733
Less:
Operating Expenses: (5,958) (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: 25,058 9,309 (3,824) (37,283)
Cash generated from operations: 24,978 9,309 8,711 502
Less: Cash distributions: 7,000 60,100 69,525 16,593
Cash generated after cash distributions: 17,978 (50,791) (60,814) (16,091)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 36 13 (5) (1)
Cash distributions to investors: 10 86 100 24
Annualized cash on cash
yield to investors: 2% 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 1998, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $12,000.
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-20
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Vulture Fund I, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 52,249 $ 108,204 $ 78,996 $ 3,731
Other: 0 447 0 0
Less:
Operating Expenses: (9,706) (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: 42,543 85,755 62,291 3,267
Cash generated from operations: 42,543 85,308 62,291 3,267
Less: Cash distributions: 22,500 90,000 89,894 14,044
Cash generated after cash distributions: 20,043 (4,692) (27,603) (10,777)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 47 95 69 4
Cash distributions to investors: 25 100 100 16
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. 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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 42,691 $ 105,368 $ 61,000 $ 2,479
Other: 0 365 1,906 0
Less:
Operating Expenses: (5,635) (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: 37,056 75,752 37,221 2,076
Cash generated from operations: 37,056 75,752 35,315 2,076
Less: Cash distributions: 27,700 56,700 112,664 8,884
Cash generated after cash distributions: 9,356 19,052 (77,349) (6,808)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 31 63 31 2
Cash distributions to investors: 23 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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 156,399 $ 280,018 $ 261,513 $ 79,630
Other: 21,346 21,085 53,534 1,666
Less:
Operating Expenses: (94,444) (243,709) (205,243) (60,041)
Interest Expenses: (48,895) (91,982) (92,514) 0
Depreciation and Amortization: (28,944) (57,889) (38,465) (7,552)
Other: Major Maintenance: (1,662) (19,766) (70,103) 0
Net Income (Loss) - Tax Basis: 3,800 (112,243) (91,278) 13,703
Cash generated from operations: 11,398 (75,439) (52,813) 21,255
Less: Cash distributions: 2,000 13,600 79,601 2,942
Cash generated after cash distributions: 9,398 (89,039) (132,414) 18,313
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 5 (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 1998, the
difference between net income (loss) determined on a tax basis and net income
(loss) determined on a GAAP basis was approximately $8,000.
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-23
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 25,985 $ 91,973 $ 67,699 $ 400
Other: 0 644 4,500 0
Less:
Operating Expenses: (7,046) (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: 18,939 75,594 49,725 182
Cash generated from operations: 18,939 75,594 49,725 182
Less: Cash distributions: 17,100 95,000 85,003 0
Cash generated after cash distributions: 1,839 (19,406) (39,778) 182
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 16 63 41 0
Cash distributions to investors: 14 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 1998, 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-24
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Development Fund IX, Ltd.
1/1/99 -
6/30/99 1998 1997
-------------------------------------
Gross Revenues: $ 48,005 $ 96,138 $ 69,804
Other: 0 0 749
Less:
Operating Expenses: (74) (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: 47,931 95,928 59,319
Cash generated from operations: 47,931 95,928 58,570
Less: Cash distributions: 48,000 95,970 58,397
Cash generated after cash distributions: (69) (42) 173
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 120 56
Cash distributions to investors: 60 120 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%
- -------------------------------------------------------------------------------
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-25
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Income Property Mortgage Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 45,000 $ 90,100 $ 66,807 $ 5,740
Other: 0 35 389 85
Less:
Operating Expenses: (70) (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: 44,930 89,931 65,717 5,565
Cash generated from operations: 44,930 89,931 65,328 5,480
Less: Cash distributions: 45,000 90,000 65,250 6,334
Cash generated after cash distributions: (70) (69) 78 (854)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 120 80 7
Cash distributions to investors: 60 120 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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 42,003 $ 84,200 $ 66,692 $ 10,012
Other: 0 33 542 2
Less:
Operating Expenses: (88) (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: 41,915 83,947 65,531 (65)
Cash generated from operations: 41,915 83,947 65,531 (67)
Less: Cash distributions: 42,000 84,000 65,075 27
Cash generated after cash distributions: (85) (53) 456 (94)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 120 93 (2)
Cash distributions to investors: 60 120 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 -
6/30/99 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 48,130 $ 86,600 $ 77,526 $ 9,998
Other: 0 31 1,789 23
Less:
Operating Expenses: (76) (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: 48,054 86,409 78,731 (12)
Cash generated from operations: 48,054 86,409 76,942 (35)
Less: Cash distributions: 47,700 95,826 76,878 200
Cash generated after cash distributions: 354 (9,417) 64 (235)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 108 79 (13)
Cash distributions to investors: 60 120 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.
1/1/99 -
6/30/99 1998 1997
-------------------------------------
Gross Revenues: $ 48,052 $ 95,855 $ 61,200
Other: 0 23 0
Less:
Operating Expenses: (71) (184) 0
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 47,981 95,694 61,200
Cash generated from operations: 47,981 95,694 61,200
Less: Cash distributions: 48,000 96,000 61,109
Cash generated after cash distributions: (19) (306) 91
Tax and distribution data per $1,000 60 120 0
invested: 60 120 76
Federal taxable income (loss):
Cash distributions to investors: 12% 12% 12%
Annualized cash on cash
yield to investors:
Amount (in percentage terms) remaining
invested in program property at the
end of last year reported in table: 100% 100% 100%
- -----------------------------------------------------------------------------
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.
1/1/99 -
6/30/99 1998 1997
----------------------------------
Gross Revenues: $ 48,053 $ 81,226 $ 46,473
Other: 0 68 759
Less:
Operating Expenses: (75) (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: 47,978 81,061 26,953
Cash generated from operations: 47,978 81,061 26,194
Less: Cash distributions: 48,000 96,000 26,135
Cash generated after cash distributions: (22) (14,939) 59
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 101 17
Cash distributions to investors: 60 120 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%
- --------------------------------------------------------------------------------
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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 50,542 $ 93,797 $ 69,423 $ 10,145
Other: 0 493 0 109
Less:
Operating Expenses: (8,673) (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: 41,869 74,778 64,306 129
Cash generated from operations: 41,869 74,285 64,306 20
Less: Cash distributions: 30,000 120,000 62,868 0
Cash generated after cash distributions: 11,869 (45,715) 1,438 20
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 35 62 54 1
Cash distributions to investors: 25 100 53 0
Annualized cash on cash
yield to investors: 5% 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 -
6/30/99 1998 1997
---------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 12,803 $ 168,784 $ 3,050
Other: 0 0 0
Less:
Operating Expenses: (154) (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: 12,649 133,182 (10,556)
Cash generated from operations: 12,649 133,182 (10,556)
Less: Cash distributions: 43,576 189,283 77,208
Cash generated after cash distributions: (30,927) (56,101) (87,764)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 7 70 (6)
Cash distributions to investors: 23 100 41
Annualized cash on cash
yield to investors: 3% 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 -
6/30/99 1998 1997
-------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 82,672 $ 166,018 $ 22,431
Other: 0 342 0
Less:
Operating Expenses: (26,869) (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: 55,803 103,047 5,250
Cash generated from operations: 55,803 102,705 5,250
Less: Cash distributions: 10,000 92,000 27,130
Cash generated after cash distributions: 45,803 10,705 (21,880)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 55 103 5
Cash distributions to investors: 10 92 27
Annualized cash on cash
yield to investors: 1% 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 -
6/30/99 1998 1997
-------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 60,005 $ 103,353 $ 44,419
Other: 0 232 631
Less:
Operating Expenses: (62) (204) (274)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 59,943 103,381 44,776
Cash generated from operations: 59,943 103,381 44,145
Less: Cash distributions: 60,000 119,281 44,070
Cash generated after cash distributions: (57) (15,900) 75
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 103 21
Cash distributions to investors: 60 119 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.
1/1/99 -
6/30/99 1998 1997
------------------------------------
Gross Revenues: ($ 812) $ 78,605 $ 7,264
Other: 0 0
Less:
Operating Expenses: (29,333) (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: (30,145) 11,560 (2,973)
Cash generated from operations: (30,145) 11,560 (2,973)
Less: Cash distributions: 38,840 112,615 13,428
Cash generated after cash distributions: (68,985) (101,055) (16,401)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (25) 10 (2)
Cash distributions to investors: 32 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%
- --------------------------------------------------------------------------------
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 1998, the
difference between net income (loss) on a tax basis and net income (loss) on a
GAAP basis was approximately $11,000.
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-35
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XV, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997
-------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 42,053 $ 79,771 $ 12,669
Other: 0 90 190
Less:
Operating Expenses: (90) (330) (300)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 41,963 79,441 12,559
Cash generated from operations: 41,963 79,441 12,369
Less: Cash distributions: 42,000 81,643 12,362
Cash generated after cash distributions: (37) (2,202) 7
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 60 113 18
Cash distributions to investors: 60 117 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 -
6/30/99 1998 1997
--------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 48,197 $ 101,503 $ 38,892
Other: 0 0 1,708
Less:
Operating Expenses: (11,471) (31,873) (14,453)
Interest Expenses: 0 0 0
Depreciation and Amortization: 0 0 0
Other: Major Maintenance: 0 0 0
Net Income (Loss) - Tax Basis: 36,726 69,630 26,147
Cash generated from operations: 36,726 69,630 24,439
Less: Cash distributions: 25,100 92,430 30,450
Cash generated after cash distributions: 11,626 (22,800) (6,011)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 31 58 22
Cash distributions to investors: 21 77 25
Annualized cash on cash
yield to investors: 2% 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 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 92,693 179,855 $ 151,372 $ 193,970
Other: 0 0 0 0
Less:
Operating Expenses: (58,657) (136,148) (114,363) (121,850)
Interest Expenses: (22,175) (41,463) (41,317) (38,995)
Depreciation and Amortization: (7,941) (15,884) (25,780) (25,565)
Other: Major Maintenance: (6,439) (3,394) (6,265) (8,135)
Net Income (Loss) - Tax Basis: (2,519) (17,034) (36,353) (575)
Cash generated from operations: 5,422 (1,150) (10,573) 24,990
Less: Cash distributions: 1,550 2,940 2,780 34
Cash generated after cash distributions: 3,872 (4,090) (13,353) 24,956
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (4) (55) (117) (2)
Cash distributions to investors: 3 9 9 0
Annualized cash on cash
yield to investors: 1% 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 1998, 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-38
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund IX, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997
-------------------------------------
<S> <C> <C> <C>
Gross Revenues: $ 24,453 $ 48,637 $ 676
Other: 0 0 0
Less:
Operating Expenses: (7,447) (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: 17,006 26,781 (3,767)
Cash generated from operations: 17,006 26,781 (3,767)
Less: Cash distributions: 9,500 87,770 3,589
Cash generated after cash distributions: 7,506 (60,989) (7,356)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 14 22 (3)
Cash distributions to investors: 8 73 3
Annualized cash on cash
yield to investors: 2% 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. For 1998, the
difference between net income (loss) on a tax basis and net income (loss) on a
GAAP basis was approximately $8,000.
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-39
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Central Florida Income Appreciation Fund, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 156,804 $ 279,732 $ 228,623 $ 244,496
Other: 10,225 9,255 0 0
Less:
Operating Expenses: (70,253) (158,039) (112,911) (127,984)
Interest Expenses: (34,102) (117,214) (134,746) (124,291)
Depreciation and Amortization: (39,010) (78,023) (76,023) (74,942)
Other: Major Maintenance: (4,744) (33,907) (19,500) (1,346)
Net Income (Loss) - Tax Basis: 18,920 (98,196) (114,557) (84,067)
Cash generated from operations: 47,705 (29,428) (38,534) (9,125)
Less: Cash distributions: 26,000 4,114 0 105,000
Cash generated after cash distributions: 21,705 (33,542) (38,534) (114,125)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18 (94) (109) (80)
Cash distributions to investors: 25 4 0 100
Annualized cash on cash
yield to investors: 5% 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 1998, 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-40
<PAGE>
TABLE III:
OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Midwest Income Growth Fund VI, Ltd.
<TABLE>
<CAPTION>
1/1/99 -
6/30/99 1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues: $ 131,160 $ 273,157 $ 257,567 $ 98,226
Other: 9,589 (953) 0 0
Less:
Operating Expenses: (54,070) (139,926) (84,233) (28,556)
Interest Expenses: (53,841) (98,286) (106,684) (28,631)
Depreciation and Amortization: (29,675) (59,349) (54,823) (17,563)
Other: Major Maintenance: (8,665) 0 (61,985) 0
Net Income (Loss) - Tax Basis: (5,502) (25,357) (50,158) 23,476
Cash generated from operations: 14,584 34,945 4,665 41,039
Less: Cash distributions: 4,000 30,000 29,799 5,547
Cash generated after cash distributions: 10,584 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: 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. 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 1998, 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.
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 June 30, 1999,
(v) physical occupancy of each property as of June 30, 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 June 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 estimated
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 June30, 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> <C>
6/30 99 OCCUPANCY %: 95% ESTIMATED APPRAISED PARTNERSHIP VALUE: $2,195,000
1998 AVG. MONTHLY 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
6/30/99 BALANCE: $1,017,388 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 114 Units
valued at $10 per Unit (or $1,140)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $118
Long Term Capital Gain (assuming 20% rate): $ 61
- --------------------------------------------------------------------------------
(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 $379-399
- --------------------------------------------------------------------------------
1 BR 37 576 $459
- --------------------------------------------------------------------------------
2 BR 5 864 $599-609
- --------------------------------------------------------------------------------
Total 48 27,360
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
6/30/99 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
6/30/99 BALANCE: $710,868 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 117 Units
valued at $10 per Unit (or $1,170)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $ 236
Long Term Capital Gain (assuming 20% rate): $ 121
- --------------------------------------------------------------------------------
(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> <C>
6/30/99 OCCUPANCY %: 94% 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
6/30/99 BALANCE: $1,043,073 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 127 Units
valued at $10 per Unit (or $1,270)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $429
Long Term Capital Gain (assuming 20% rate): $220
- --------------------------------------------------------------------------------
(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> <C>
6/30/99 OCCUPANCY %: 93% 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
6/30/99 BALANCE: $1,065,887 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 105 Units
valued at $10 per Unit (or $1,050)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $254
Long Term Capital Gain (assuming 20% rate): $130
- --------------------------------------------------------------------------------
(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> <C>
6/30/99 OCCUPANCY %: 96% 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
6/30/99 BALANCE: $1,427,797 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 115 Units
valued at $10 per Unit (or $1,150)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $312
Long Term Capital Gain (assuming 20% rate): $160
- --------------------------------------------------------------------------------
(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 phases)
300 Forest Glen 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
- --------------------------------------------------------------------------------
2 BR 28 1,075 $619-649
- --------------------------------------------------------------------------------
3 BR 24 1,358 $719
- --------------------------------------------------------------------------------
Total 52 62,692
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
6/30/99 OCCUPANCY %: 94% 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
6/30/99 BALANCE: $1,771,769 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 169 Units
valued at $10 per Unit (or $1,690)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $464
Long Term Capital Gain (assuming 20% rate): $238
- --------------------------------------------------------------------------------
(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 phases)
300 Forest Glen 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
- --------------------------------------------------------------------------------
2 BR 23 1,075 $619-649
- --------------------------------------------------------------------------------
3 BR 7 1,358 $719
- --------------------------------------------------------------------------------
Total 30 34,231
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
6/30/99 OCCUPANCY %: 90% 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
6/30/99 BALANCE: $1,022,174 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 105 Units
valued at $10 per Unit (or $1,050)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $128
Long Term Capital Gain (assuming 20% rate): $ 66
- --------------------------------------------------------------------------------
(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 phases)
300 Forest Glen 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
- --------------------------------------------------------------------------------
2 BR 19 1,075 $619-649
- --------------------------------------------------------------------------------
3 BR 7 1,358 $719
- --------------------------------------------------------------------------------
Total 26 29,931
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
6/30/99 OCCUPANCY %: 88% 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
6/30/99 BALANCE: $ 885,884 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 107 Units
valued at $10 per Unit (or $1,070)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $129
Long Term Capital Gain (assuming 20% rate): $ 66
- --------------------------------------------------------------------------------
(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 phases)
300 Forest Glen 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
- --------------------------------------------------------------------------------
2 BR 6 1,075 $619-649
- --------------------------------------------------------------------------------
3 BR 2 1,358 $719
- --------------------------------------------------------------------------------
Total 8 9,166
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
6/30/99 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
6/30/99 BALANCE: $ 272,580 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 124 Units
valued at $10 per Unit (or $1,240)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $434
Long Term Capital Gain (assuming 20% rate): $222
- --------------------------------------------------------------------------------
(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> <C>
6/30/99 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:
Republic Bank
1301 Sixth Avenue West
Bradenton, Florida 34205
INITIAL PRINCIPAL BALANCE: $2,812,500
6/30/99 BALANCE: $2,677,690
BALANCE DUE AT MATURITY: $2,652,341
MATURITY DATE: 5/18/00
ANNUAL DEBT SERVICE: $ 293,700
MONTHLY PAYMENT: $ 24,475
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 9.55% and amortizes on a 25-year basis.
PREPAYMENT PROVISIONS: Prepayable without penalty
SECOND MORTGAGE HOLDER AND ADDRESS:
Glen Lake Arms Joint Venture
10490 Gandy Boulevard North, Suite 2E
St. Petersburg, Florida 33702
INITIAL PRINCIPAL BALANCE: $375,000
6/30/99 BALANCE: $352,238
BALANCE DUE AT MATURITY: $343,772
MATURITY DATE: 5/01/05
ANNUAL DEBT SERVICE: $ 34,728
MONTHLY PAYMENT: $ 2,894
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest
rate of 8.0% and amortizes on a 25-year basis
PREPAYMENT PROVISIONS: Prepayable 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 136 Units
valued at $10 per Unit (or $1,360)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $336
Long Term Capital Gain (assuming 20% rate): $172
- --------------------------------------------------------------------------------
(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> <C>
6/30/99 OCCUPANCY %: 98% 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
6/30/99 BALANCE: $1,591,271 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 130 Units
valued at $10 per Unit (or $1,300)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $405
Long Term Capital Gain (assuming 20% rate): $208
- --------------------------------------------------------------------------------
(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> <C>
6/30/99 OCCUPANCY % (out of session): 33% 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
6/30/99 BALANCE: $1,712,134 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 117 Units
valued at $10 per Unit (or $1,170)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $262
Long Term Capital Gain (assuming 20% rate): $135
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
Total 72 47,280
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
6/30/99 OCCUPANCY %: 92% 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
6/30/99 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 103 Units
valued at $10 per Unit (or $1,030)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $271
Long Term Capital Gain (assuming 20% rate): $139
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. AVERAGE MONTHLY
APPROX. RENTABLE RENTAL RATE
UNIT TYPE NUMBER AREA PER UNIT (Sq. Ft.)
- --------------------------------------------------------------------------------
Studio 16 300 $419
- --------------------------------------------------------------------------------
1 BR 45 600 $499
- --------------------------------------------------------------------------------
2 BR 7 864 $650
- --------------------------------------------------------------------------------
Total 68 38,100
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 90% 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> <C> <C>
DEBTOR: Blossom Corners Apartments II, Ltd. PARTNERSHIP'S UNDIVIDED INTEREST IN SECOND
(affiliate of Managing Shareholder) MORTGAGE NOTES: 100%
AGGREG. ORIGINAL PRINCIPAL BALANCE: $977,645 AGGREG. ANNUAL DEBT SERVICE: $62,552
AGGREG. 6/30/99 BALANCE: $850,966 (plus participation interest)
AGGREG. BALANCE DUE AT MATURITY: $850,966 AGGREG. MONTHLY PAYMENT: $ 5,213
AGGREG. ACCRUED UNPAID INTEREST: $ 46,752 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
6/30/99 BALANCE: $1,096,229 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 6/30/99 is
$27,315. 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 $5,623 and $14,509), 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
8050 Hosbrook Road, Suite 408
Cincinnati, Ohio 45236
ORIGINAL PRINCIPAL BALANCE: $2,000,000
maximum approved
6/30/99 BALANCE: $1,021,362
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
REPAYMENT SECURED BY:
First Mortgage on Lake Sycamore Property
CURRENT ANNUAL DEBT SERVICE: $89,369
CURRENT MONTHLY PAYMENT: $ 7,447
MATURITY DATE: 11/01
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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 111 Units
valued at $10 per Unit (or $1,110)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $90
Long Term Capital Gain (assuming 20% rate): $46
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 96% 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:
Country Square Apartments, Ltd.
(affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,372,237
AGGREG. 6/30/99 BALANCE: $1,364,549
AGGREG. BALANCE DUE AT MATURITY: $1,364,549
AGGREG. ACCRUED UNPAID INTEREST: $ 199,576
PARTNERSHIP'S UNDIVIDED % INTEREST IN
SECOND MORTGAGE NOTES:
100%
AGGREG. ANNUAL DEBT SERVICE: $163,746
AGGREG. MONTHLY PAYMENT: $ 13,645
MATURITY DATE: 4/08
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
6/30/99 BALANCE: $1,582,377 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.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 104 Units
valued at $10 per Unit (or $1,040)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $82
Long Term Capital Gain (assuming 20% rate): $42
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 89% 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.
(affiliate of Managing Shareholder)
ORIGINAL PRINCIPAL BALANCE: $21,000
6/30/99 BALANCE: $21,000
BALANCE DUE AT MATURITY: $21,000
ACCRUED UNPAID INTEREST: $ 3,102
PARTNERSHIP'S UNDIVIDED INTEREST IN SECOND
MORTGAGE NOTE: 100%
ANNUAL DEBT SERVICE: $2,520
MONTHLY PAYMENT: $ 210
MATURITY DATE: 3/03
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 6/30/99 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 $9,967) and $75,500 (accrued
unpaid interest of $10,122), 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
St. Petersburg, Florida 33733-8009 Property
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
6/30/99 BALANCE: $587,146 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30//99 OCCUPANCY %: 98% 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.
(affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $474,703
AGGREG. 6/30/99 BALANCE: $474,703
AGGREG. BALANCE DUE AT MATURITY: $474,703
AGGREG. ACCRUED UNPAID INTEREST: $ 33,148
PARTNERSHIP'S UNDIVIDED 26.3% in three
% INTEREST IN SECOND MORTGAGE NOTES: loans and 100%
in one loan
AGGREG. ANNUAL DEBT SERVICE: $41,238
(plus any participation interest)
AGGREG. MONTHLY PAYMENT: $ 3,437
MATURITY DATE: 4/07
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 6/30/99 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 $134,759); 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
6/30/99 BALANCE: $1,286,406 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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.
(affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,036,450
AGGREG. 6/30/99 BALANCE: $1,031,801
AGGREG. BALANCE DUE AT MATURITY: $1,031,801
AGGREG. ACCRUED UNPAID INTEREST: $ -0-
PARTNERSHIP'S UNDIVIDED INTEREST IN SECOND
MORTGAGE NOTES: 100%
AGGREG. ANNUAL DEBT SERVICE: $53,995
(plus any participation
interest)
AGGREG. MONTHLY PAYMENT: $ 4,500
MATURITY DATE: 10/07
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
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,307,000 ANNUAL DEBT SERVICE: $174,020
6/30/99 BALANCE: $1,022,417 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 105 Units
valued at $10 per Unit (or $1,050)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $73
Long Term Capital Gain (assuming 20% rate): $38
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
2 BR/2 Bath 1 864 $625
- --------------------------------------------------------------------------------
Total 41 22,176
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 93% 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.
(an affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $206,260
AGGREG. 6/30/99 BALANCE: $206,260
AGGREG. BALANCE DUE AT MATURITY: $206,260
AGGREG. ACCRUED UNPAID INTEREST: $ 2,406
PARTNERSHIP'S UNDIVIDED
% INTEREST IN LOANS: 58%
AGGREG. ANNUAL DEBT SERVICE: $13,408
(plus any participation interest)
AGGREG. MONTHLY PAYMENT: $ 1,117
AGGREG. MATURITY DATE: 10/04
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 6/30/99 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 $5,972); 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 6/30/99 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
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $710,000 ANNUAL DEBT SERVICE: $61,038
6/30/99 BALANCE: $699,359 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 92% 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.
(an affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $969,268
AGGREG. 6/30/99 BALANCE: $969,268
AGGREG. BALANCE DUE AT MATURITY: $969,268
AGGREG. ACCRUED UNPAID INTEREST: $ 60,704
PARTNERSHIP'S UNDIVIDED % INTEREST IN
SECOND MORTGAGE NOTES: 100%
AGGREG. ANNUAL DEBT SERVICE: $77,088
(plus any participation interest)
AGGREG. MONTHLY PAYMENT: $6,424
MATURITY DATE: 10/07
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
Horsham, Pennsylvania 19044-0809 Property
ORIGINAL PRINCIPAL BALANCE: $1,307,000 ANNUAL DEBT SERVICE: $89,150
6/30/99 BALANCE: $1,022,255 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 6/30/99 is $5,623.
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
$27,315 and $14,509), 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
8050 Hosbrook Road, Suite 408
Cincinnati, Ohio 45236
ORIGINAL PRINCIPAL BALANCE: $2,000,000
maximum approved
6/30/99 BALANCE: $1,021,362
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
REPAYMENT SECURED BY:
First Mortgage on Lake Sycamore Property
CURRENT ANNUAL DEBT SERVICE: $89,369
CURRENT MONTHLY PAYMENT: $ 7,447
MATURITY DATE: 11/01
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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 105 Units
valued at $10 per Unit (or $1,050)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $73
Long Term Capital Gain (assuming 20% rate): $37
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 98% 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.
(an affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,243,847
AGGREG. 6/30/99 BALANCE: $1,243,847
AGGREG. BALANCE DUE AT MATURITY: $1,243,847
AGGREG. ACCRUED UNPAID INTEREST: $ 112,259
PARTNERSHIP'S UNDIVIDED 73.7% in three
% INTEREST IN SECOND MORTGAGE NOTES: loans and 100%
in one loan
AGGREG. ANNUAL DEBT SERVICE: $105,149
(plus participation interest)
AGGREG. MONTHLY PAYMENT: $ 8,762
MATURITY DATE: 4/07
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 6/30/99 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
$33,148); 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
6/30/99 BALANCE: $1,286,406 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 110 Units
valued at $10 per Unit (or $1,100)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $175
Long Term Capital Gain (assuming 20% rate): $ 90
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 83% 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.
(affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $1,048,861
AGGREG. 6/30/99 BALANCE: $1,048,861
AGGREG. BALANCE DUE AT MATURITY: $1,048,861
AGGREG. ACCRUED UNPAID INTEREST: $ 112,115
PARTNERSHIP'S UNDIVIDED % INTEREST IN
SECOND MORTGAGE NOTES: 100%
AGGREG. ANNUAL DEBT SERVICE: $71,861
(plus any participation interest)
AGGREG. MONTHLY PAYMENT: $ 5,988
MATURITY DATE: 10/07
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
6/30/99 BALANCE: $ 944,722 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.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 109 Units
valued at $10 per Unit (or $1,090)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $210
Long Term Capital Gain (assuming 20% rate): $108
- --------------------------------------------------------------------------------
(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 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 92% 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
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
6/30/99 BALANCE: $1,596,966 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:
APPROX. AVERAGE MONTHLY
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 89% 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.
(affiliate of Managing Shareholder)
ORIGINAL PRINCIPAL BALANCE: $68,000
6/30/99 BALANCE: $68,000
BALANCE DUE AT MATURITY: $68,000
ACCRUED UNPAID INTEREST: $ 9,767
PARTNERSHIP'S UNDIVIDED
% INTEREST IN SECOND MORTGAGE NOTE: 100%
ANNUAL DEBT SERVICE: $8,160
MONTHLY PAYMENT: $ 680
MATURITY DATE: 3/03
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 6/30/99 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 $3,102) and $75,500 (accrued unpaid interest of
$10,122), 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
6/30/99 BALANCE: $587,146 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 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 90% 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.
ORIGINAL PRINCIPAL BALANCE: $248,353
6/30/99 BALANCE: $248,353
BALANCE DUE AT MATURITY: $248,353
ACCRUED UNPAID INTEREST: $ 11,196
PARTNERSHIP'S UNDIVIDED INTEREST IN SECOND
MORTGAGE LOANS: 20%
ANNUAL DEBT SERVICE: $22,353
MONTHLY PAYMENT: $ 1,863
MATURITY DATE: 1/07
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, 6/30/99 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 $14,203)
and $682,972 (accrued unpaid interest of $31,498), 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
6/30/99 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 $56,670) 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
Square 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 96% 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.
(affiliate of Managing Shareholder)
ORIGINAL PRINCIPAL BALANCE: $1,372,237
6/30/99 BALANCE: $1,364,549
BALANCE DUE AT MATURITY: $1,364,549
ACCRUED UNPAID INTEREST: $ 199,576
BARON FUND IV'S UNDIVIDED % INTEREST IN SECOND
MORTGAGE LOANS: 100%
ANNUAL DEBT SERVICE: $163,746
MONTHLY PAYMENT: $ 13,645
MATURITY DATE: 4/08
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
6/30/99 BALANCE: $1,582,377 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 107 Units
valued at $10 per Unit (or $1,070)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $95
Long Term Capital Gain (assuming 20% rate): $49
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------
6/30/99 OCCUPANCY %: 96% 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
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
6/30/99 BALANCE: $1,203,764 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY % 89% 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.
(affiliate of Managing Shareholder)
ORIGINAL PRINCIPAL BALANCE: $75,500
6/30/99 BALANCE: $75,500
BALANCE DUE AT MATURITY: $75,500
ACCRUED UNPAID INTEREST: $10,122
PARTNERSHIP'S UNDIVIDED % INTEREST IN SECOND
MORTGAGE NOTE: 100%
ANNUAL DEBT SERVICE: $9,060
MONTHLY PAYMENT: $ 755
MATURITY DATE: 3/03
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 6/30/99 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 $3,102) and $68,000 (accrued unpaid interest of
$9,967), 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
St. Petersburg, Florida 33733-8009 Property
ORIGINAL PRINCIPAL BALANCE: $605,000 ANNUAL DEBT SERVICE: $56,153
6/30/99 BALANCE: $587,146 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 90% 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.
ORIGINAL PRINCIPAL BALANCE: $310,442
6/30/99 BALANCE: $310,442
BALANCE DUE AT MATURITY: $310,442
ACCRUED UNPAID INTEREST: $ 14,230
PARTNERSHIP'S UNDIVIDED % INTEREST IN SECOND
MORTGAGE LOANS: 25%
ANNUAL DEBT SERVICE: $27,940
(plus any participation interest)
MONTHLY PAYMENT: $ 2,328
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, 6/30/99 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 $11,196)
and $682,972 (accrued unpaid interest of $31,498), 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
6/30/99 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 6/30/99 is
$14,509. 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
$27,315 and $5,623), 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
8050 Hosbrook Road, Suite 408
Cincinnati, Ohio 45236
ORIGINAL PRINCIPAL BALANCE: $2,000,000
maximum approved
6/30/99 BALANCE: $1,021,362
EXPECTED BALANCE
DUE AT MATURITY: $2,000,000
REPAYMENT SECURED BY:
First Mortgage on Lake Sycamore Property
CURRENT ANNUAL DEBT SERVICE: $89,369
CURRENT MONTHLY PAYMENT: $ 7,447
MATURITY DATE: 11/01
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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 104 Units
valued at $10 per Unit (or $1,040)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $88
Long Term Capital Gain (assuming 20% rate): $45
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 96% 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
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
6/30/99 BALANCE: $1,203,764 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 92% 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
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
6/30/99 BALANCE: $1,596,966 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
2 BR/2 Bath 1 864 $625
- --------------------------------------------------------------------------------
Total 41 22,176
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 93% 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.
(an affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $149,361
AGGREG. 6/30/99 BALANCE: $149,361
AGGREG. BALANCE DUE AT MATURITY: $149,361
AGGREG. ACCRUED UNPAID INTEREST: $ 5,972
PARTNERSHIP'S UNDIVIDED
% INTEREST IN LOANS: 42%
AGGREG. ANNUAL DEBT SERVICE: $9,710
(plus any participation interest)
AGGREG. MONTHLY PAYMENT: $ 809
AGGREG. MATURITY DATE: 10/04
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 6/30/99 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 $2,406); 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 6/30/99 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
6/30/99 BALANCE: $699,359 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:
- --------------------------------------------------------------------------------
APPROX. RENTABLE APPROX. 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
- --------------------------------------------------------------------------------
6/30/99 OCCUPANCY %: 90% 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.
ORIGINAL PRINCIPAL BALANCE: $682,972
6/30/99 BALANCE: $682,972
BALANCE DUE AT MATURITY: $682,972
ACCRUED UNPAID INTEREST: $ 31,498
PARTNERSHIP'S UNDIVIDED % INTEREST IN
SECOND MORTGAGE LOANS: 55%
ANNUAL DEBT SERVICE:
(plus any participation interest) $61,467
MONTHLY PAYMENT: $ 5,122
MATURITY DATE: 1/07
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, 6/30/99 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
$11,196) and $310,442 (accrued unpaid interest of $14,230), 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
6/30/99 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%.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 107 Units
valued at $10 per Unit (or $1,070)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $144
Long Term Capital Gain (assuming 20% rate): $ 74
- --------------------------------------------------------------------------------
(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 RENTABLE APPROXIMATE
AREA PER UNIT (Sq. Ft.) AVERAGE MONTHLY
UNIT TYPE NUMBER 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> <C>
6/30/99 OCCUPANCY %: 88% 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
6/30/99 BALANCE: $1,358,436 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:
DEBTOR: Independence Village, Ltd.
(affiliate of Managing Shareholder)
AGGREG. ORIGINAL PRINCIPAL BALANCE: $678,302
AGGREG. 6/30/99 BALANCE: $678,302
AGGREG. BALANCE DUE AT MATURITY: $678,302
AGGREG. ACCRUED UNPAID INTEREST $135,713
PARTNERSHIP'S UNDIVIDED % INTEREST IN
SECOND MORTGAGE NOTES: 100%
AGGREG. ANNUAL DEBT SERVICE: $60,634
AGGREG. MONTHLY PAYMENT: $ 5,053
MATURITY DATE: 12/06
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.
- --------------------------------------------------------------------------------
NUMBER OF OPERATING PARTNERSHIP UNITS OFFERED IN EXCHANGE OFFERING
(per $1,000 of Investors' original investment): 112 Units
valued at $10 per Unit (or $1,120)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ESTIMATED DEFERRED CAPITAL GAIN TAX LIABILITY FROM EXCHANGE OFFERING
(per $1,000 of Investors' original investment):
Short Term Capital Gain (assuming 39% rate): $214
Long Term Capital Gain (assuming 20% rate): $110
- --------------------------------------------------------------------------------
(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 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
EXCHANGE PROPERTY APPRAISAL VALUE TABLE
<PAGE>
EXHIBIT C
EXCHANGE PROPERTY APPRAISAL VALUES
<TABLE>
<CAPTION>
Replace-
EXCHANGE EQUITY PARTNERSHIPS Appraised Date of Cost Income Market ment Cost
(Equity Property Interest) Value Appraisal Approach Approach Approach New
----- --------- -------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Baron Strategic Investment Fund II, Ltd.
Steeplechase Apts $1,690,000 8/98 N/A $1,700,000 $1,675,000 N/A
Central Florida Income Appreciation Fund, Ltd.
Laurel Oaks, formerly Grove Hamlet, Apts $2,881,000 9/98 N/A N/A $2,881,000 N/A
Florida Capital Income Fund, Ltd.
Eagle Lake Apts $2,530,000 1/98 $2,511,000 $2,421,000 $2,531,000 $3,960,803
Florida Capital Income Fund II, Ltd.
Forest Glen Apts. - Phase I $2,990,820 10/97 $3,122,813 $2,954,615 $3,016,915
Florida Capital Income Fund III, Ltd.
Bridge Point Apts. - Phase II $1,610,000 2/98 $1,608,000 $1,672,000 $1,545,000 $2,219,035
Florida Capital Income Fund IV, Ltd.
Glen Lake Apts $5,550,000 3/98 $5,544,000 $5,726,000 $5,364,000 $7,346,055
933,079 3/98 933,079 933,079 933,079 N/A
---------- ---------- ---------- ----------
$6,483,079 $6,477,079 $6,659,079 $6,297,079
Florida Income Advantage Fund I, Ltd.
Forest Glen Apts. - Phase III $1,940,339 10/97 $2,081,892 $1,969,760 $2,011,294
Florida Income Appreciation Fund I, Ltd.
Forest Glen Apts. - Phase IV $ 471,679 10/97 $ 480,437 $ 454,560 $ 464,145
Florida Income Growth Fund V, Ltd.
Blossom Corners Apts. - Phase I $2,195,000 1/98 $2,195,000 $2,244,000 $2,144,000 $3,576,239
Florida Opportunity Income Partners, Ltd.
Camellia Court Apts $1,833,000 8/98 $1,828,000 $1,832,000 $1,827,000 $2,849,389
GSU Stadium Student Apartments, Ltd.
Stadium Club Apts $2,800,000 8/97 $2,762,000 $2,749,000 $2,907,000 $3,501,561
<CAPTION>
EXCHANGE EQUITY PARTNERSHIPS
(Equity Property Interest) Appraiser
---------
<S> <C>
Baron Strategic Investment Fund II, Ltd.
Steeplechase Apts Strickland & Wright
Central Florida Income Appreciation Fund, Ltd.
Laurel Oaks, formerly Grove Hamlet, Apts Dennis J. Voyt
Florida Capital Income Fund, Ltd.
Eagle Lake Apts Consortium Appraisal,
Inc.
Florida Capital Income Fund II, Ltd.
Forest Glen Apts. - Phase I Richards Appraisal
Service, Inc.
Florida Capital Income Fund III, Ltd.
Bridge Point Apts. - Phase II Consortium Appraisal,
Inc.
Florida Capital Income Fund IV, Ltd.
Glen Lake Apts Consortium Appraisal,
Inc. (real property)
Allied Appraisal
Services, Inc.
(furniture and
equipment)
Florida Income Advantage Fund I, Ltd.
Forest Glen Apts. - Phase III Richards Appraisal
Service, Inc.
Florida Income Appreciation Fund I, Ltd.
Forest Glen Apts. - Phase IV Richards Appraisal
Service, Inc.
Florida Income Growth Fund V, Ltd.
Blossom Corners Apts. - Phase I Consortium Appraisal,
Inc.
Florida Opportunity Income Partners, Ltd.
Camellia Court Apts Consortium Appraisal,
Inc.
GSU Stadium Student Apartments, Ltd.
Stadium Club Apts Consortium Appraisal
and Consulting
Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Replace-
EXCHANGE EQUITY PARTNERSHIPS Appraised Date of Cost Income Market ment Cost
(Equity Property Interest) Value Appraisal Approach Approach Approach New
----- --------- -------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Midwest Income Growth Fund VI, Ltd.
Brookwood Way Apts $1,780,000 9/98 $1,766,000 $1,829,000 $1,700,000 $2,913,496
Realty Opportunity Income Fund VIII, Ltd.
Forest Glen Apts. - Phase II $2,173,162 11/97 $2,322,111 $2,197,040 $2,243,367
<CAPTION>
EXCHANGE EQUITY PARTNERSHIPS
(Equity Property Interest) Appraiser
---------
<S> <C>
Midwest Income Growth Fund VI, Ltd.
Brookwood Way Apts Consortium Appraisal
and Consulting
Services, Inc.
Realty Opportunity Income Fund VIII, Ltd.
Forest Glen Apts. - Phase II Richards Appraisal
Service, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE MORTGAGE PARTNERSHIPS Appraised Date of Cost Income Market
(Property Securing Mortgages) Value Appraisal Approach Approach Approach
----- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Baron Strategic Investment Fund, Ltd.
Blossom Corners Apts. - Phase II $ 2,250,000 1/98 $ 2,239,000 $ 2,322,000 $ 2,160,000
The Villas at Lake Sycamore $14,312,000(1) 7/98 N/A N/A $14,312,000(1)
Baron Strategic Investment Fund IV, Ltd.
Country Square Apts. - Phase I $ 2,185,000 1/98 $ 2,185,000 $ 2,281,000 $ 2,090,000
Baron Strategic Investment Fund V, Ltd.
Candlewood Apts. - Phase II $ 925,000 1/98 $ 926,000 $ 922,000 $ 932,000
Curiosity Creek Apts. - Phase I $ 2,425,000 3/98 $ 2,426,000 $ 2,552,000 $ 2,297,000
Sunrise Apts. - Phase I $ 1,510,000 7/97(3) $ 1,361,500 $ 1,424,000 $ 1,591,000
Baron Strategic Investment Fund VIII, Ltd.
Heatherwood Apts. - Phase II $ 1,285,000 6/97(3) $ 1,188,000 $ 1,259,000 $ 1,312,000
Longwood Apts. - Phase I $ 1,820,000 7/97(3) $ 1,664,000 $ 1,788,000 $ 1,844,000
The Villas at Lake Sycamore $14,312,000(1) 7/98 N/A N/A $14,312,000(1)
Baron Strategic Vulture Fund I, Ltd.
Curiosity Creek Apts. - Phase I $ 2,425,000 3/98 $ 2,426,000 $ 2,552,000 $ 2,297,000
Brevard Mortgage Program, Ltd.
Meadowdale Apts $ 1,717,000 8/98 $ 1,636,000 $ 1,629,000 $ 1,643,000
<CAPTION>
Replace-
EXCHANGE MORTGAGE PARTNERSHIPS Ment Cost
(Property Securing Mortgages) New Appraiser
--- ---------
<S> <C> <C>
Baron Strategic Investment Fund, Ltd.
Blossom Corners Apts. - Phase II $ 3,390,187 Consortium Appraisal,
The Villas at Lake Sycamore $ 9,376,039(2) Inc.
Strickland & Wright
Baron Strategic Investment Fund IV, Ltd.
Country Square Apts. - Phase I $ 3,554,776 Consortium Appraisal,
Inc.
Baron Strategic Investment Fund V, Ltd.
Candlewood Apts. - Phase II $ 1,590,447 Consortium Appraisal,
Curiosity Creek Apts. - Phase I $ 3,941,164 Inc.
Sunrise Apts. - Phase I $ 2,700,611 Consortium Appraisal,
Inc.
Consortium Appraisal,
Inc.
Baron Strategic Investment Fund VIII, Ltd.
Heatherwood Apts. - Phase II $ 1,862,475 Consortium Appraisal,
Longwood Apts. - Phase I $ 2,666,862 Inc.
The Villas at Lake Sycamore $ 9,376,039(2) Consortium Appraisal,
Inc.
Strickland & Wright
Baron Strategic Vulture Fund I, Ltd.
Curiosity Creek Apts. - Phase I $ 3,941,164 Consortium Appraisal,
Inc.
Brevard Mortgage Program, Ltd.
Meadowdale Apts $ 3,094,043 Consortium Appraisal,
Inc.
</TABLE>
- -----------------
(1) Upon completion; $1,080,000 as is.
(2) Estimated construction cost.
(3) Revised in March 1998.
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE HYBRID PARTNERSHIPS
(Equity Property Interest/ Appraised Date of Cost Income Market
Property Securing Mortgages) Value Appraisal Approach Approach Approach
----- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Baron Strategic Investment Fund VI, Ltd.
Candlewood Apts. - Phase II $ 925,000 1/98 $ 926,000 $ 922,000 $ 932,000
Country Square Apts. - Phase I $ 2,185,000 1/98 $ 2,185,000 $ 2,281,000 $ 2,090,000
Garden Terrace Apts. - Phase III $ 1,850,000 5/98 $ 1,835,000 $ 1,782,000 $ 1,901,000
Pineview Apts $ 2,848,000 6/97(3) $ 2,533,000 $ 2,498,000 $ 2,572,000
Baron Strategic Investment Fund IX, Ltd.
Candlewood Apts. - Phase II $ 925,000 6/98 $ 926,000 $ 922,000 $ 932,000
Crystal Court Apts. - Phase I $ 2,040,000 6/98 $ 2,040,000 $ 2,034,000 $ 2,046,000
Garden Terrace Apts. - Phase III $ 1,850,000 5/98 $ 1,835,000 $ 1,782,000 $ 1,901,000
The Villas at Lake Sycamore $14,312,000(1) 7/98 N/A N/A $14,312,000(1)
Baron Strategic Investment Fund X, Ltd.
Crystal Court Apts. - Phase I $ 2,040,000 6/98 $ 2,040,000 $ 2,034,000 $ 2,046,000
Garden Terrace Apts. - Phase III $ 1,850,000 5/98 $ 1,835,000 $ 1,782,000 $ 1,901,000
Heatherwood Apts. - Phase II $ 1,285,000 3/98 $ 1,188,000 $ 1,259,000 $ 1,312,000
Pineview Apts $ 2,848,000 6/97(3) $ 2,533,000 $ 2,498,000 $ 2,572,000
Lamplight Court of Bellefontaine Apartments, Ltd.
Lamplight Court Apts. $ 2,183,000 9/98 $ 2,295,000 $ 2,214,000 $ 2,111,000
<CAPTION>
EXCHANGE HYBRID PARTNERSHIPS Replace-
(Equity Property Interest/ ment Cost
Property Securing Mortgages) New Appraiser
--- ---------
Baron Strategic Investment Fund VI, Ltd.
Candlewood Apts. - Phase II $ 1,590,447 Consortium Appraisal,
Country Square Apts. - Phase I $ 3,554,776 Inc.
Garden Terrace Apts. - Phase III $ 4,297,897 Consortium Appraisal,
Pineview Apts $ 4,284,608 Inc.
Consortium Appraisal,
Inc.
Consortium Appraisal,
Inc.
Baron Strategic Investment Fund IX, Ltd.
Candlewood Apts. - Phase II $ 1,590,447 Consortium Appraisal,
Crystal Court Apts. - Phase I $ 3,482,928 Inc.
Garden Terrace Apts. - Phase III $ 4,297,897 Consortium Appraisal,
The Villas at Lake Sycamore $ 9,376,039(2) Inc.
Consortium Appraisal,
Inc.
Strickland & Wright
Baron Strategic Investment Fund X, Ltd.
Crystal Court Apts. - Phase I $ 3,482,928 Consortium Appraisal,
Garden Terrace Apts. - Phase III $ 4,297,897 Inc.
Heatherwood Apts. - Phase II $ 1,862,475 Consortium Appraisal,
Pineview Apts $ 4,284,608 Inc.
Consortium Appraisal,
Inc.
Consortium Appraisal,
Inc.
Lamplight Court of Bellefontaine Apartments, Ltd.
Lamplight Court Apts. $ 3,727,599 Consortium Appraisal and
Consulting Services, Inc.
</TABLE>
- ---------------------------
(1) Upon completion; $1,080,000 as is.
(2) Estimated construction cost.
(3) Revised in March 1998.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
HISTORICAL FINANCIAL STATEMENTS OF THE
OPERATING PARTNERSHIP, THE TRUST AND BARON ADVISORS, INC.
Baron Capital Properties, Inc...................................................................................... F-1 to F-25
Baron Capital Trust................................................................................................ F-26 to F-67
Baron Advisors, Inc................................................................................................ F-68 to F-77
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION OF THE OPERATING PARTNERSHIP AND THE TRUST
Baron Capital Properties, L.P. - June 30, 1999..................................................................... P-1 to P-30
Baron Capital Properties, L.P. - December 31, 1998................................................................. P-31 to P-52
Baron Capital Trust - June 30, 1999................................................................................ P-53 to P-83
Baron Capital Trust - December 31, 1998............................................................................ P-84 to P-105
Baron Capital Trust and Baron Capital Properties, L.P. - Allocation of Purchase Price over Book Value.............. P-106 to P-110
HISTORICAL FINANCIAL STATEMENTS OF THE EXCHANGE PROPERTIES,
EXCHANGE PARTNERSHIPS AND ACQUIRED PROPERTIES
EXCHANGE MORTGAGE PARTNERSHIPS AND
EXCHANGE HYBRID PARTNERSHIPS
Baron Strategic Investment Fund IV, Ltd.......................................................................... E-1 to E-13
Baron Strategic Investment Fund V, Ltd. ......................................................................... E-14 to E-28
Baron Strategic Investment Fund VIII, Ltd. ...................................................................... E-29 to E-42
Baron Strategic Investment Fund, Ltd. ........................................................................... E-43 to E-55
Baron Strategic Investment Fund X, Ltd. ......................................................................... E-56 to E-70
Brevard Mortgage Program, Ltd. .................................................................................. E-71 to E-83
Baron Strategic Vulture Fund I, Ltd. ............................................................................ E-84 to E-96
Baron Strategic Investment Fund VI, Ltd. ........................................................................ E-97 to E-111
Baron Strategic Investment Fund IX, Ltd. ........................................................................ E-112 to E-126
Lamplight Court of Bellefontaine Apartments, Ltd................................................................. E-127 to E-139
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EXCHANGE EQUITY PROPERTIES
Blossom Corners Apartments - Phase I............................................................................. E-140 to E-142
Bridgepoint Apartments........................................................................................... E-143 to E-145
Brookwood Way Apartments......................................................................................... E-146 to E-148
Camellia Court Apartments........................................................................................ E-149 to E-151
Eagle Lake Apartments............................................................................................ E-152 to E-154
Forest Glen Apartments - Phase I................................................................................. E-155 to E-158
Forest Glen Apartments - Phase II................................................................................ E-159 to E-162
Forest Glen Apartments - Phase III............................................................................... E-163 to E-166
Forest Glen Apartments - Phase IV................................................................................ E-167 to E-170
Glen Lake Arms Apartments........................................................................................ E-171 to E-173
Laurel Oaks Apartments (formerly Grove Hamlet Apartments)...................................................... E-174 to E-176
Stadium Club Apartments.......................................................................................... E-177 to E-179
Steeplechase Apartments.......................................................................................... E-180 to E-182
ACQUIRED PROPERTIES
Crystal Court Apartments - Phase II.............................................................................. E-183 to E-186
Heatherwood Apartments - Phase I................................................................................. E-187 to E-190
Riverwalk Apartments............................................................................................. E-191 to E-194
COMBINED STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS OF ACQUIRED PROPERTIES
AND EXCHANGE PARTNERSHIPS AND CASH AVAILABLE FROM OPERATIONS E-195
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BARON CAPITAL PROPERTIES, L.P.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-1
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-4
Statements of Operations F-5
Statements of Partners' Capital F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8-F-25
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Baron Capital Properties, L.P.
Cincinnati, Ohio
We have audited the accompanying consolidated balance sheet of Baron Capital
Properties, L.P. (the "Partnership") as of December 31, 1998 and the related
consolidated statements of operations, partners' capital and cash flows from
inception (February 3, 1998) to December 31, 1998. These consolidated financial
statements are the responsibility of the Partnership'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 Properties, L.P. 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
F-3
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
<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 1,319,534 1,246,627
-------------- --------------
6,048,254 6,121,161
Investments in Partnerships 1,538,877 709,970
Cash and Cash Equivalents 97,454 77,724
Restricted Cash 158,545 45,379
Reimbursed Administrative Expenses Receivable, Affiliates 116,595 155,071
Other Receivables 43,911 79,712
Due from Affiliate - 239,164
Advances to Affiliates - 10,750
Other Property and Equipment 148,682 168,982
Other Assets 241,951 191,611
-------------- --------------
$ 8,394,269 $ 7,799,524
-------------- --------------
-------------- --------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 4,291,076 $ 4,039,718
Notes payable 120,000 375,000
Accounts payable and accrued liabilities 480,026 244,116
Capital lease obligation 55,984 55,984
Security deposits 37,496 38,336
-------------- --------------
Total liabilities 4,984,582 4,753,154
-------------- --------------
Commitments, Contingencies and Other Matters - -
Partners' Capital:
General partner; issued and outstanding, 18,655 and 16,826 partnership units (15,576) (9,119)
Limited partners; issued and outstanding, 1,846,856 and 1,665,810
partnership units, of which 1,202,160 units are subject to escrow restrictions 3,425,263 3,055,489
-------------- --------------
Total partners' capital 3,409,687 3,046,370
-------------- --------------
$ 8,394,269 $ 7,799,524
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From
Inception
Six Months Ended (February 3,
June 30, 1998) to
----------------------------- December 31,
1999 1998 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Property:
Rental $ 512,133 $ - $ 358,949
Equity in net loss of unconsolidated partnership (29,093) - (20,360)
Other 78,372 - 35,155
Interest income 768 329 1,449
------------ ------------ ------------
562,180 329 375,193
------------ ------------ ------------
Real Estate Expenses:
Depreciation 72,907 - 80,296
Interest 144,491 - 164,333
Repairs and maintenance 37,726 - 86,349
Personnel 57,471 - 53,860
Property taxes 41,276 - 34,496
Property insurance 10,718 - 20,477
Utilities 29,601 - 27,299
Other 131,570 - 138,905
------------ ------------ ------------
525,760 - 606,015
------------ ------------ ------------
Administrative Expenses:
Personnel, including officer's compensation 369,372 224,638 718,715
Management, investment and administrative 77,504 - -
Professional services 167,159 34,885 37,687
Other 68,068 124,178 121,646
------------ ------------ ------------
682,103 383,701 878,048
------------ ------------ ------------
Total expenses 1,207,863 383,701 1,484,063
------------ ------------ ------------
Net Loss $ (645,683) $ (383,372) $ (1,108,870)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Partner Limited Partners
------------------------ ------------------------
Units Amount Units Amount Total
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
From Inception (February 3, 1998) to December 31, 1998:
Initial limited partners contribution - $ - 1,202,160 $ 100,000 $ 100,000
Capital contributions - Trust 16,826 - 463,650 3,858,240 3,858,240
Net loss - (11,089) - (1,097,781) (1,108,870)
Credit for officer's compensation - 1,970 - 195,030 197,000
---------- ---------- ---------- ----------- -----------
Partners' Capital, December 31, 1998 16,826 (9,119) 1,665,810 3,055,489 3,046,370
Six Months Ended June 30, 1999 (Unaudited):
Capital contributions - Trust 1,829 - 181,046 1,074,000 1,074,000
Net loss - (6,457) - (639,226) (645,683)
Distributions paid - - - (65,000) (65,000)
---------- ---------- ---------- ----------- -----------
Partners' Capital, June 30, 1999 (Unaudited) 18,655 $ (15,576) 1,846,856 $ 3,425,263 $ 3,409,687
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Inception
Six Months Ended (February 3,
June 30, 1998) to
----------------------------- December 31,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
(Unaudited)
Cash Flows from Operating Activities:
Net loss $ (645,683) $ (383,372) $ (1,108,870)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 29,093 - 20,360
Provision for officer's compensation - 98,000 197,000
Depreciation 94,721 - 80,296
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables 35,801 (20,592) (79,712)
Reimbursed administrative expenses receivable 38,476 (38,856) (155,071)
Other assets (51,102) (69,767) (191,611)
Increase (decrease) in:
Accounts payable and accrued liabilities 236,672 111,765 244,116
Security deposits (840) 13,017 38,336
Other - 5,592 -
------------ ------------ ------------
Net cash used in operating activities (262,862) (284,213) (955,156)
------------ ------------ ------------
Cash Flows from Investing Activities:
Acquisitions of rental apartments - (782,218) (1,559,162)
Investments in partnerships (885,000) - (741,280)
Cash distributions from partnerships 27,000 - 10,950
Purchases of other property and equipment (1,514) (40,420) (117,771)
Advances to affiliates - - (249,914)
Repayment of advances to affiliates 249,914 - -
Increase in restricted cash (113,166) (56,210) (45,379)
------------ ------------ ------------
Net cash used in investing activities (722,766) (878,848) (2,702,556)
------------ ------------ ------------
Cash Flows from Financing Activities:
Partners' capital contributions 1,074,000 1,532,240 3,858,240
Distributions paid (65,000) - -
Initial capital contributions - 50,100 100,000
Payment on note payable (275,000) - (200,000)
Proceeds from mortgage financing 273,499 - -
Payments on mortgages payable (22,141) - (19,019)
Payments on capital lease obligation - - (3,785)
Other 20,000 - -
------------ ------------ ------------
Net cash provided by financing activities 1,005,358 1,582,340 3,735,436
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 19,730 419,279 77,724
Cash and Cash Equivalents, Beginning 77,724 - -
------------ ------------ ------------
Cash and Cash Equivalents, Ending $ 97,454 $ 419,279 $ 77,724
------------ ------------ ------------
------------ ------------ ------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 144,491 $ - $ 164,333
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Baron Capital Properties, L.P. (the "Partnership"), a Delaware
limited partnership, is the operating partner of Baron Capital
Trust (the "Trust"). Together with the Trust, the Partnership
constitutes a real estate company which has been organized to
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. The Partnership with the Trust intends 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 its assets.
In its proposed exchange offering, the Partnership intends to issue
up to 2,500,000 units of limited partnership interest ("Units") in
exchange for limited partnership interests owned by limited
partners in real estate limited partnerships which own direct or
indirect equity or debt interests in residential apartment
properties. Holders of Units will have the right, exercisable at
any time following the offering, to exchange all or a portion of
their units into an equivalent number of Common Shares of
beneficial interest in the Trust.
The Trust, as General Partner of the Partnership, is authorized to
cause the Partnership to issue additional limited partnership
interests in the Partnership for any purpose of the Partnership at
any time to such persons and on such terms and conditions as may be
determined by the Trust in its sole and absolute discretion. Since
Units are exchangeable by Unitholders into an equivalent number of
Common Shares of the Trust, the maximum number of Units that may be
issued by the Partnership is limited to the number of authorized
shares of the Trust, which is 25,000,000, less shares issued by the
Trust directly, excluding Common Shares issued in exchanges of
Units for Common Shares.
In exchange for a cash capital contribution and other consideration
paid to the Partnership, in 1998, the founders, Gregory K. McGrath
and Robert S. Geiger (the "Original Investors"), were issued an
amount of units which are exchangeable (subject to certain escrow
restrictions) for a total of 19% of the Common Shares of the Trust
(up to 1,202,160 Common Shares) outstanding after the completion of
the exchange offering and the cash public offering to be made by
the Trust, on a fully diluted basis assuming that all then
outstanding Units (other than those owned by the Trust) have been
exchanged into an equivalent number of Common Shares.
The Partnership commenced operations on February 3, 1998, at which
time it received an initial limited partnership capital
contribution.
See Note 2 for a summary of the Agreement of Limited Partnership.
F-8
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of the Partnership and the following limited partnerships
in which the Partnership is the controlling limited partner:
Limited Partnership Percent of Partnership Interest
------------------- -------------------------------
Heatherwood Kissimmee, Ltd. 99%
Crystal Court Apartments II, Ltd. 91
Riverwalk Enterprises, Ltd. 99
The provisions of the limited partnership agreements of the limited
partnerships described above provide, among other things, that
limited partners holding over 50% of the total partnership interest
have the right to remove the general partner. Inasmuch as the
Partnership owns from 91% to 99% of the partnership interest in the
above limited partnerships, the Partnership believes that the
substance of these partnership arrangements is that the Partnership
is in control and, accordingly, has consolidated the financial
statements of these limited partnerships in the accompanying
consolidated financial statements.
The minority interests owned by the general partners are not
considered material and have been included with accrued liabilities
in the accompanying consolidated financial statements; such
minority interests aggregated approximately $800 at December 31,
1998 and $1,400 at June 30, 1999 (unaudited). The minority interest
in the net income (loss) of these partnerships was not considered
material and has been included with other administrative expenses
in the accompanying consolidated financial statements; the minority
interest in net income (loss) aggregated approximately $(1,800) for
the period ended December 31, 1998 and $600 for the six months
ended June 30, 1999 (unaudited).
All significant intercompany transactions and balances have been
eliminated in consolidation.
UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of and for the six months
ended June 30, 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.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Partnership to
concentrations of credit risk are comprised of cash and
receivables.
F-9
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATIONS OF CREDIT RISK (Continued)
CASH
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 high quality
financial institutions, which the Partnership believes limits
these risks.
REIMBURSED ADMINISTRATIVE EXPENSES AND OTHER RECEIVABLES
Receivables are comprised mainly of (a) administrative expense
reimbursements due from a number of other partnerships that
are related to the Operating Partnership (see Note 9) and
(b) monthly rents due. The 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 the
estimated useful lives of the properties as follows:
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years)
----------------
<S> <C>
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
</TABLE>
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.
F-10
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INVESTMENTS IN PARTNERSHIPS
The Partnership accounts for its investments in limited
partnerships in which it is deemed not to have the controlling
interest, but has more than a minor limited partnership interest,
utilizing the equity method of accounting. The Partnership's
investment in Alexandria Development, L.P., which represents a
12.3% interest at December 31, 1998 and a 40% interest at June 30,
1999, is accounted for using the equity method (see Note 4).
Investments in partnerships in which the Partnership's interest is
so minor that the Partnership has virtually no influence over
partnership operating and financial policies are accounted for
utilizing the cost method. The investments in certain other limited
partnerships as of December 31, 1998 and June 30, 1999, which
represent less than a 4% partnership interest in each case, are
accounted for on the cost method (see Note 4). The Partnership
periodically assesses the estimated realizable value of these
investments in order to ascertain that there has been no impairment
in their recorded value.
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 Partnership
considers all investments purchased with an original maturity of
three months or less to be cash equivalents. For purposes of
presentation of the statement of cash flows, the Partnership has
also included restricted cash with cash and cash equivalents.
CAPITAL RESERVE
In connection with the acquisition of the investment properties, as
required by the lending institutions, the Partnership has
established a capital reserve account, which is to be used for
significant improvements to the property.
LOAN COSTS
The Partnership has capitalized those costs incurred with obtaining
financing on the investment properties. Such costs (included with
other assets) are being amortized over six years, the remaining
term of the financing.
F-11
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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 consolidated financial statements do not reflect a
provision for income taxes.
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
June 30, 1999 and 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 Partnership adopted
these new accounting standards in 1998, and their adoption had no
effect on the Partnership's financial statements and disclosures.
F-12
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
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 Partnership has not entered into derivatives
contracts to hedge existing risks or for speculative purposes.
Accordingly, the Partnership does not expect adoption of the new
standard on January 1, 2000 to affect its financial statements.
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 in
1998.
TERM
The Partnership will continue through December 31, 2098, unless
sooner terminated by law or under certain provisions of the
Agreement.
GENERAL PARTNER
A number of Partnership units held by the General Partner equal to
1% of the outstanding Partnership units shall at all times be
deemed to be General Partner units and shall constitute the General
Partnership interest and the remaining Partnership units held by
the General Partner shall be deemed to be Limited Partner units and
shall constitute a portion of the Limited Partnership Interest.
The General Partner has been allocated 16,826 and 18,655 General
Partner units as of December 31, 1998 and June 30, 1999,
respectively, to adjust the General Partnership interest to 1% of
the total outstanding Partnership units.
F-13
<PAGE>
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
DISTRIBUTIONS
CASH DISTRIBUTIONS
The General Partner shall distribute not less frequently than
quarterly an amount equal to 100% of distributable cash
generated by the Partnership during such quarter to the Partners
who are Partners on the Partnership Record Date with respect to
such quarter (i) first, with respect to any class of partnership
interest, (ii) thereafter, in accordance with their respective
percentage interest on such Partnership Record Date.
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
After giving effect to the special allocations set forth in the
Partnership Agreement, net income shall be allocated (i) first,
to the general partner to the extent that, on a cumulative
basis, net losses previously allocated to the general partner
exceed net income previously allocated to the general partner,
and (ii) thereafter, to the partners in accordance with their
respective percentage interests.
LOSSES
After giving effect to certain allocations set forth in the
Partnership Agreement, net losses shall be allocated to the
Partners in accordance with their respective percentage
interest; provided, however, that net losses shall not be
allocated to any limited partner to the extent that such
allocation would cause such limited partner to have an adjusted
capital account deficit at the end of such taxable year. All net
losses in excess of the limitations set forth in the preceding
sentence shall be allocated to the general partner.
DISSOLUTION
The Partnership will be dissolved upon (a) the expiration of the
term of the Agreement; (b) withdrawal of the general partner,
unless, within 90 days after the withdrawal a majority interest of
all the remaining partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of
the date of withdrawal, of a substitute general partner; (c) the
election to dissolve the Partnership made by the general partner
with the consent of a majority of the percentage interest of the
limited partners; (d) entry of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware Revised
Uniform Limited Partnership Act (the "Act"), (e) the sale or
disposition of all or substantially all of the Partnership's
property; (f) the merger or other combination of the Partnership
with or into another entity; (g) bankruptcy or insolvency of
general partner; and (h) the occurrence of any other event
which, by law, would require the Partnership to be dissolved.
F-14
<PAGE>
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (Continued)
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 payment and discharge of
all of the Partnership's debts and liabilities to 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 capital accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
NOTE 3. RENTAL APARTMENTS
HEATHERWOOD APARTMENTS
On June 30, 1998, the Partnership acquired the entire limited
partnership interest, representing a 99% 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 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 June 30, 1999 and December 31, 1998 was $1,233,780 and
$1,238,755, respectively.
CRYSTAL COURT APARTMENTS
On July 31, 1998, the Partnership acquired the entire limited
partnership interest, representing a 91% 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 June 30, 1999 and
December 31, 1998 was $1,471,706 and $1,477,797, respectively.
F-15
<PAGE>
NOTE 3. RENTAL APARTMENTS (Continued)
RIVERWALK APARTMENTS
On September 1, 1998, the Partnership acquired the entire limited
partnership interest, representing a 99% 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. During the six months ended June 30,
1999, an additional $273,500 was borrowed on the first mortgage
under the same terms as the original mortgage. The principal
balance outstanding as of June 30, 1999 and December 31, 1998 was
$1,585,590 and $1,323,166, respectively.
In connection with the purchase of the Riverwalk Property, the
Partnership 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 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 1%
of the original loan amount or $5,750. As of June 30, 1999 and
December 31, 1998, the principal balance outstanding was $100,000
and $375,000, respectively.
During the six months ended June 30, 1999, the Partnership
exercised another option to extend the note to September 1, 1999
for an extension fee of 1% of the outstanding loan amount or
$3,750.
NOTE 4. INVESTMENTS IN PARTNERSHIPS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Alexandria Property $ 1,197,597 $ 368,690
Other Limited Partnership Interests 341,280 341,280
----------- -----------
$ 1,538,877 $ 709,970
----------- -----------
----------- -----------
</TABLE>
F-16
<PAGE>
NOTE 4. INVESTMENTS IN PARTNERSHIPS (Continued)
ALEXANDRIA APARTMENTS
On October 14, 1998, the Partnership acquired an approximate 12%
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
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 Partnership sold the partnership interest
in the Alexandria Property to the Partnership and also serves as
the managing general partner of the Alexandria Property. During the
construction stage of the apartment property, the 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.
During the six months ended June 30, 1999, the Partnership
exercised its option to purchase an additional eighteen (18) units
of limited partnership interest for $885,000, thereby increasing
its ownership interest to approximately 40%.
The following is an analysis of the investment in the Alexandria
Property:
<TABLE>
<CAPTION>
From
Inception
Six Months (February 3,
Ended 1998) to
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Balance, beginning $ 368,690 $ -
Investments 885,000 400,000
Distributions (27,000) (10,950)
Equity in net income (loss) (29,093) (20,360)
----------- -----------
Balance, ending $ 1,197,597 $ 368,690
----------- -----------
----------- -----------
</TABLE>
The following is a summary of the financial position and results of
operations of the Alexandria Property:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Financial Position:
Rental apartments $ 3,247,758 $ 2,790,402
Construction in progress 7,275,923 6,497,912
Other assets 448,507 1,446,086
----------- -----------
Total assets $10,972,188 $10,734,400
----------- -----------
----------- -----------
</TABLE>
F-17
<PAGE>
NOTE 4. INVESTMENTS IN PARTNERSHIPS (Continued)
ALEXANDRIA APARTMENTS (Continued)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
(Unaudited)
Mortgage payable $ 7,689,749 $ 7,750,000
Other liabilities 2,651,243 2,366,369
----------- -----------
Total liabilities 10,340,992 10,116,369
Partners' Capital 631,196 618,031
----------- -----------
$10,972,188 $10,734,400
Results of Operations:
Rental income $ 145,702 $ 85,971
Other income 22,043 266,685
Costs and expenses (241,397) (518,186)
----------- -----------
Net loss $ (73,652) $ (165,530)
----------- -----------
</TABLE>
OTHER LIMITED PARTNERSHIP INTERESTS
In July 1998, the Partnership also was admitted as a limited
partner in 13 real estate limited partnerships managed by
affiliates of the Managing Shareholder. The 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 Partnership was approximately
$341,000. The percentage interest acquired by the Partnership (less
than 4% in each case) was calculated at fair market value. In each
instance, the 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 5. OTHER PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Furniture and equipment $ 112,272 $ 112,272
Computer equipment and software 46,280 44,455
Leasehold improvements 20,502 20,813
----------- -----------
179,054 177,540
Less accumulated depreciation 30,372 8,558
----------- -----------
$ 148,682 $ 168,982
----------- -----------
----------- -----------
</TABLE>
F-18
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 6. MORTGAGES PAYABLE
<TABLE>
<CAPTION>
Balance at Balance at
Original Maturity Interest June 30, December 31,
Property Amount Date Rate 1999 1998
-------- ------ ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Heatherwood Apartments $1,250,000 12/31/2004 7.625% $1,233,780 $1,238,755
Crystal Court Apartments 1,494,000 10/31/2004 7.5 1,471,706 1,477,797
Riverwalk Apartments 1,400,000 10/31/2004 8.75 1,585,590 1,323,166
---------- ---------- ----------
Total mortgage note payables $4,139,000 $4,291,076 $4,039,718
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
All mortgage notes payable are collateralized by the underlying
properties described in Note 3 above.
The aggregate maturities of mortgages payable for each of the five
years subsequent to December 31, 1998 are as follows:
<TABLE>
<S> <C>
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
----------
----------
</TABLE>
NOTE 7. CAPITAL LEASE OBLIGATION
During 1998, the 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:
<TABLE>
<S> <C>
Year Ending December 31:
1999 $ 14,942
2000 14,942
2001 14,942
2002 11,158
----------
Total minimum lease payments $ 55,984
----------
----------
</TABLE>
F-19
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. COMMITMENTS AND CONTINGENCIES
OFFICERS' COMPENSATION
A founder of the Trust and the Partnership serves as Chief
Executive Officer of the Trust, the Partnership and the managing
shareholder of the Trust. He has agreed to serve as Chief Executive
Officer for the first year in exchange for compensation in the form
of common shares or units of the Trust 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 Partnership. During 1998, no common shares of
the Trust or units of the Partnership were issued to the Chief
Executive Officer as compensation. However, in order to reflect all
appropriate administrative expenses of the Partnership, a provision
of $197,000 has been made in the accompanying financial statement
for the estimated fair value of the services rendered by the Chief
Executive Officer for 1998. This amount has been charged to
compensation expense for 1998, with a corresponding credit to
partners' capital. This estimate of the fair value of such services
was determined by management based upon an analysis of compensation
paid to chief executive officers of a number of comparable real
estate investment trusts during 1998. After the first year of
operations, compensation and benefits for the Chief Executive
Officer will be determined annually by the Executive Compensation
Committee of the Board of the Trust. During the six months ended
June 30, 1999, $109,000 has been accrued for the chief executive
officer's compensation and included with accounts payable and
accrued liabilities.
The other founder of the Trust and Partnership serves as the Chief
Operating Officer of the Trust, the Partnership and the managing
shareholder of the Trust. 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 Partnership.
OPERATING LEASES
During 1998, the Partnership executed an operating lease for its
office facilities. The lease, which expires in June 15, 2003,
requires monthly payments of $5,000. The 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:
<TABLE>
<S> <C>
Year ending December 31:
1999 $ 60,000
2000 60,000
2001 60,000
2002 60,000
2003 30,000
----------
Total $ 270,000
----------
----------
</TABLE>
Rent Expense was approximately $24,000 for 1998.
F-20
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. RELATED PARTY TRANSACTIONS
INTERCOMPANY LINE
The Partnership has an intercompany line with the Trust, its
general partner. During 1998, the Partnership loaned $239,168 to
the Trust, which remained outstanding as of December 31, 1998.
During the six months ended June 30, 1999, the intercompany line
was paid in full by the Trust. The intercompany loan is due on
demand and is non-interest bearing.
TRANSACTIONS WITH AFFILIATED ENTITIES
During 1998, the Partnership paid approximately $12,000 to an
affiliated corporation for computers being used by the Partnership.
REIMBURSED ADMINISTRATIVE EXPENSES
The Partnership shares certain administrative expenses with a
number of other partnerships that are related to the Operating
Partnership by means of a common person who is the sole stockholder
and officer of the general partner of these partnerships and an
officer of the general partner of the Operating Partnership. These
administrative expenses are allocated as described below, and the
allocated expenses are reimbursed to the Partnership by these other
partnerships. The allocation of the costs was determined based upon
an analysis of those administrative costs directly associated with
or reasonably allocated to the activities of each entity. Personnel
costs were allocated based upon estimates of the time devoted by
individual employees to each entity's activities on a monthly
basis. Other administrative costs were allocated on a direct basis
to the extent practicable, and the balance on a pro rata basis. In
the opinion of management, the method used to allocate costs to all
of the entities was considered to be reasonable under the
circumstances.
During 1998 and for the six months ended June 30, 1999, the
Partnership was reimbursed approximately $496,000 and $454,000,
respectively, for administrative expenses, which has been presented
as a reduction of the specific related category of administrative
expenses in the accompanying financial statements.
ADVANCES
From time to time, the Partnership advances funds to affiliates.
These advances do not accrue interest and are due on demand. As of
December 31, 1998, the Partnership had advanced $10,750 to two
affiliates. These advances were paid in full by the affiliates
during the six months ended June 30, 1999.
F-21
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. PARTNERS CAPITAL
PARTNERS' CAPITAL CONTRIBUTIONS
During 1998, the Partnership issued 463,650 units of limited
partner interest to the Trust at $8.32 per unit based upon net
proceeds of $3,858,240. During the six months ended June 30, 1999,
181,046 units of limited partner interest were issued to the Trust
at $5.93 per unit based upon net proceeds of $1,074,000.
In addition, the Partnership issued to the Trust 16,826 general
partner units during 1998 and 1,829 general partner units during
the six months ended June 30, 1999 as an allocation to adjust the
general partner interest to 1% of the total outstanding Partnership
units (see Note 2). This issuance has been treated as an allocation
of the capital contributions by the Trust, and no value has been
ascribed to these general partner units for accounting purposes.
EXCHANGE OFFERING
The 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 who are affiliated with one of the founders of the
Partnership, who is the sole stockholder and director of the
Managing Shareholder of the Partnership. 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 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.
F-22
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. PARTNERS CAPITAL (Continued)
EXCHANGE OFFERING (Continued)
As its initial investment targets in the Exchange Offering, the
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
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.
PARTNERSHIP LIMITED PARTNERSHIP UNITS
In connection with the formation of the Trust and the Partnership,
the Original Investors each subscribed for 601,080 limited
partnership units of the 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 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 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 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.
F-23
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. PARTNERS CAPITAL (Continued)
PARTNERSHIP LIMITED PARTNERSHIP UNITS (Continued)
The fair value of the units issued to the Original Investors
amounted to $100,000, based upon a determination made by the
Independent Trustees of the Trust as of the date of subscription
for these units (February 3, 1998). The determination of the fair
value took into consideration that (a) at the time of the
subscription for the units, the Trust and the Partnership were
development stage companies, with no cash or other significant
tangible assets, operating history or revenue and no certainty of
successful offerings or future operations; the founders had at risk
their initial capital contributions plus certain additional
unreimbursed advances to cover certain offering and operating
expenses; the founders have significant experience and developed
know-how critical to the success of the Trust and the Partnership;
and the founders' units are subject to significant transfer
restrictions. The Partnership has accounted for the units as being
issued and outstanding, but subject to escrow restrictions, in the
accompanying consolidated financial statements, and has included
the units as outstanding in determining the weighted average shares
outstanding for purposes of calculating net loss per share on an
as-converted basis. Because the release of the units from escrow is
not dependent upon the achievement of any specified level of
profits, the release of the units from escrow is not considered to
be compensatory and, accordingly, no accounting measurement will be
given to the release of the units from escrow.
Under the subscription agreement, the Original Investors agreed to
waive future administrative fees for managing Participating
Exchange Partnerships; agreed to assign to the 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 Partnership, caused the Exchange Partnerships to cancel the
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 Partnership invest.
After the exchange with the limited partners and assignment of
economic rights of the general partner, the Partnership will
control the Participating Exchange Partnerships by virtue of its
ownership of at least 90% of the limited partnership interests,
which will provide the Partnership the ability to remove the
general partner under the provisions of the limited partnership
agreements that limited partners holding over 50% of total
partnership interest have the right to remove the general partner.
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.
F-24
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 11. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
During 1998, the Partnership acquired three rental apartment properties
through the assumption of mortgage payables and a note payable, as
follows:
<TABLE>
<S> <C>
Mortgages payable $4,058,737
Note payable 575,000
----------
$4,633,737
----------
----------
</TABLE>
Also, the Partnership acquired furniture and equipment in 1998 by
means of capital lease financing in the amount of $59,769.
F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BARON CAPITAL TRUST
FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-26
<PAGE>
BARON CAPITAL TRUST
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-28
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-29
Statement of Operations F-30
Statement of Shareholders' Equity F-31
Statement of Cash Flows F-32
Notes to Financial Statements F-33-F-49
</TABLE>
F-27
<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
F-28
<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 709,970
Cash and Cash Equivalents 177,299
Restricted Cash 66,199
Reimbursed Administrative Expenses Receivable, Affiliates 155,071
Other Receivables 80,112
Advances to Affiliates 10,750
Other Property and Equipment 168,982
Other Assets 212,761
----------
$7,702,305
----------
----------
</TABLE>
<TABLE>
<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 4,454,101
Deficit (1,577,060)
Distributions (72,159)
-----------
Total shareholders' equity 2,804,882
-----------
$ 7,702,305
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Revenues:
Property:
Rental $ 358,949
Other 35,155
Equity in net loss of unconsolidated partnership (20,360)
Interest income 2,780
-----------
376,524
-----------
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, including officer's compensation 718,715
Management, investment and administrative fees, Managing Shareholder 324,213
Professional services 129,011
Other 275,630
-----------
1,447,569
-----------
Total expenses 2,053,584
-----------
Loss Before Minority Interest (1,677,060)
Minority Interest of Unitholders in Net Loss of Operating Partnership 100,000
-----------
Net Loss $(1,577,060)
-----------
-----------
Net Loss Per Common Share $ (7.41)
-----------
-----------
Weighted Average Number of Common Shares Outstanding 212,731
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Shares of
Beneficial Interest
-------------------
Shares Amount Deficit Distributions Total
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Initial Capital Contributions:
Managing Shareholder 10 $ 100 $ - $ - $ 100
Proceeds from Sale of Common Shares of
Beneficial Interest, Net of Offering Costs 463,640 4,257,001 - - 4,257,001
Distributions Paid - - - (72,159) (72,159)
Credit for Officer's Compensation - 197,000 - - 197,000
Net Loss - - (1,577,060) - (1,577,060)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 1998 463,650 $ 4,454,101 $ (1,577,060) $ (72,159) $ 2,804,882
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-31
<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 $(1,577,060)
Adjustments to reconcile net loss to
net cash used by operating activities:
Provision for officer's compensation 197,000
Minority interest of unitholders in net loss of Operating Partnership (100,000)
Depreciation 80,296
Equity in net loss of unconsolidated partnership 20,360
Increase in operating assets and liabilities:
Other receivables (80,112)
Reimbursed adiministrative expenses receivable (155,071)
Other assets (221,611)
Accounts payable and accrued liabilities 388,385
Security deposits 38,336
Other 762
-----------
Net cash used by operating activities (1,408,715)
-----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments (1,559,162)
Investment in partnerships (741,280)
Cash distributions from partnerships 10,950
Purchases of other property and equipment (117,771)
Increase in restricted cash (66,199)
Advances to affiliates (10,750)
-----------
Net cash used in investing activities (2,484,212)
-----------
Cash Flows from Financing Activities:
Proceeds from sale of common shares of beneficial interest 4,265,089
Distributions 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 177,299
Cash and Cash Equivalents, Beginning -
-----------
Cash and Cash Equivalents, Ending $ 177,299
-----------
-----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for mortgage and other interest $ 164,333
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-32
<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
consolidated accounts of the Trust and the Operating Partnership.
The Trust is the general partner of the Operating Partnership and
owns approximately 81% of the limited partner units of the
Operating Partnership. The consolidated accounts of the Operating
Partnership include the accounts of three limited partnerships in
which the Operating Partnership is the controlling limited partner,
by virtue of its right to remove the general partner due to its
majority ownership percentage in those limited partnerships.
All significant intercompany transactions and balances have been
eliminated in consolidation.
The minority interest of unitholders in the Operating Partnership
represents the 1,202,160 limited partnership units owned by the
Original Investors of the Operating Partnership (see Note 9), and
is stated at the amount of the capital contribution by them to the
Operating Partnership ($100,000), reduced by their proportionate
share of the net loss of the Operating Partnership limited to the
$100,000 contribution. During 1998, the proportionate share of the
net loss of the Operating Partnership allocated to the minority
unitholders was $100,000 with
F-33
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
BASIS OF PRESENTATION (Continued)
the excess of approximately $71,000 being charged to the
majority unitholders. As of December 31, 1998, the 1,202,160
Operating Partnership limited partnership units issued to the
Original Investors are subject to escrow restrictions and
108,757 units are convertible into common shares of the Trust
(see Note 9).
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.
REIMBURSED ADMINISTRATIVE EXPENSES AND OTHER RECEIVABLES
Receivables are comprised mainly of (a)
administrative expense reimbursements due from a
number of other partnerships that are related to the
Operating Partnership (see Note 8) and (b) 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 the
estimated useful lives of the properties as follows:
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years)
-------------
<S> <C>
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
</TABLE>
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
F-34
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION (Continued)
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, through the Operating Partnership, accounts for its
investments in limited partnerships in which it is deemed not to
have the controlling interest, but has more than a minor limited
partnership interest, utilizing the equity method of accounting.
The Operating Partnership's investment in Alexandria
Development, L.P., which represents a 12.3% interest at December
31, 1998, is accounted for using the equity method (see Note 3).
Investments in partnerships in which the Operating Partnership's
interest is so minor that the Partnership has virtually no
influence over partnership operating and financial policies are
accounted for utilizing the cost method. These investments
generally represent less than 5% of the partnership interest
(see Note 3). The Trust periodically assesses the estimated
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 six years, the
remaining term of the financing.
F-35
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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.
F-36
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
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, representing a 99% 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 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.
CRYSTAL COURT APARTMENTS
On July 31, 1998, the Operating Partnership acquired the entire
limited partnership interest, representing a 91% 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.
F-37
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. RENTAL APARTMENTS (Continued)
RIVERWALK APARTMENTS
On September 1, 1998, the Operating Partnership acquired the
entire limited partnership interest, representing a 99%
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.
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 1% 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 and
additional extensions to September 1, 1999 for an extension fee
of 1% of the outstanding loan amount or $3,750 for the June
extension and additional fees for the September extension.
NOTE 3. INVESTMENTS IN PARTNERSHIPS
<TABLE>
<S> <C>
Alexandria Property $368,690
Other Limited Partnership Interests 341,280
--------
$709,970
--------
--------
</TABLE>
ALEXANDRIA APARTMENTS
On October 14, 1998, the Operating Partnership acquired an
approximate 12% 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,
F-38
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 3. INVESTMENTS IN PARTNERSHIPS (Continued)
ALEXANDRIA APARTMENTS (Continued)
1999. An affiliate of the Trust 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 eighteen (18)
units of limited partnership interest for $885,000, thereby
increasing its ownership interest to approximately 40%.
The following is an analysis of the investment in the Alexandria
Property from inception (February 3, 1998) to December 31,1998:
<TABLE>
<S> <C>
Balance, beginning $ -
Investments 400,000
Distributions (10,950)
Equity in net loss (20,360)
--------
Balance, ending $368,690
--------
--------
</TABLE>
The following is a summary of the financial position and results
of operations of the Alexandria Property as of and for the
period ended December 31, 1998:
<TABLE>
<S> <C>
Financial Position:
Rental apartments $ 2,790,402
Construction in progress 6,497,912
Other assets 1,446,086
------------
Total assets $ 10,734,400
------------
------------
Mortgage payable $ 7,750,000
Other liabilities 2,366,369
------------
Total liabilities 10,116,369
Partners' Capital 618,031
$ 10,734,400
------------
------------
Results of Operations:
Rental income $ 85,971
Other income 266,685
Costs and expenses (518,186)
------------
Net loss $ (165,530)
------------
------------
</TABLE>
F-39
<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 Shareholder. 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
<TABLE>
<S> <C>
Furniture and equipment $112,272
Computer equipment and software 44,455
Leasehold improvements 20,813
--------
177,540
Less accumulated depreciation 8,558
--------
$168,982
--------
--------
</TABLE>
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:
<TABLE>
<CAPTION>
Principal
---------
<S> <C>
Year ending December 31:
1999 $ 50,544
2000 54,799
2001 59,415
2002 64,420
2003 69,872
Thereafter (2004) 3,740,668
----------
$4,039,718
----------
</TABLE>
F-40
<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:
<TABLE>
<S> <C>
Year Ending December 31:
1999 $14,942
2000 14,942
2001 14,942
2002 11,158
-------
Total minimum lease payments $55,984
-------
-------
</TABLE>
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
F-41
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. COMMITMENTS AND CONTINGENCIES (Continued)
CONTRACT TO PURCHASE ADDITIONAL PROPERTIES (Continued)
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 were not repaid prior to the
expiration of the guarantee, it would 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.
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. During 1998, no common shares of the Trust or
units of the Operating Partnership were issued to the Chief
Executive Officer as compensation. However, in order to reflect
all appropriate administrative expenses of the Partnership, a
provision of $197,000 has made in the accompanying financial
statement for the estimated fair value of the services rendered
by the Chief Executive Officer for 1998. This amount has been
charged to compensation expense for 1998, with a corresponding
credit to partners' capital. This estimate of the fair value of
such services was determined by management based upon an
analysis of compensation paid to chief executive officers of a
number of comparable real estate investment trusts during 1998.
After the first year of operations, compensation and benefits
for the Chief Executive Officer will be determined annually by
the Executive Compensation Committee of the Board of 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.
F-42
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. COMMITMENTS AND CONTINGENCIES (Continued)
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:
<TABLE>
<S> <C>
Year ending December 31:
1999 $ 60,000
2000 60,000
2001 60,000
2002 60,000
2003 30,000
--------
Total $270,000
--------
--------
</TABLE>
Rent expense was approximately $24,000 for 1998.
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.
F-43
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. RELATED PARTY TRANSACTIONS (Continued)
TRUST MANAGEMENT AGREEMENT (Continued)
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.
REIMBURSED ADMINISTRATIVE EXPENSES
The Partnership shares certain administrative expenses with a
number of other partnerships that are related to the Operating
Partnership by means of a common person who is the sole
stockholder and officer of the general partner of these
partnerships and an officer of the general partner of the
Operating Partnership. These administrative expenses are
allocated as described below, and the allocated expenses are
reimbursed to the Partnership by these other partnerships. The
allocation of the costs was determined based upon an analysis of
those administrative costs directly associated with or
reasonably allocated to the activities of each entity. Personnel
costs were allocated based upon estimates of the time devoted by
individual employees to each entity's activities on a monthly
basis. Other administrative costs were allocated on a direct
basis to the extent practicable, and the balance on a pro rata
basis. In the opinion of management, the method used to allocate
costs to all of the entities was considered to be reasonable
under the circumstances.
F-44
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. RELATED PARTY TRANSACTIONS (Continued)
REIMBURSED ADMINISTRATIVE EXPENSES (Continued)
During 1998 the Partnership was reimbursed approximately
$496,000 for administrative expenses, which has been presented
as a reduction of the specific related category of
administrative expenses in the accompanying financial
statements.
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 who 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-45
<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 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
F-46
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. SHAREHOLDERS' EQUITY (Continued)
OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS (Continued)
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.
The fair value of the units issued to the Original Investors
amounted to $100,000, based upon a determination made by the
Independent Trustees of the Trust as of the date of subscription
for these units (February 3, 1998). The determination of the
fair value took into consideration that (a) at the time of the
subscription for the units, the Trust and the Partnership were
development stage companies, with no cash or other significant
tangible assets, operating history or revenue and no certainty
of successful offerings or future operations; the founders had
at risk their initial capital contributions plus certain
additional unreimbursed advances to cover certain offering and
operating expenses; the founders have significant experience and
developed know-how critical to the success of the Trust and the
Partnership; and the founders' units are subject to significant
transfer restrictions. The Partnership has accounted for the
units as being issued and outstanding, but subject to escrow
restrictions, in the accompanying consolidated financial
statements, and has included the units as outstanding in
determining the weighted average shares outstanding for purposes
of calculating net loss per partnership unit in the accompanying
consolidated financial statements. Because the release of the
units from escrow is not dependent upon the achievement of any
specified level of profits, the release of the units from escrow
is not considered to be compensatory and, accordingly, no
accounting measurement will be given to the release of the units
from escrow.
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.
F-47
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. SHAREHOLDERS' EQUITY (Continued)
OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS (Continued)
After the exchange with the limited partners and assignment of
economic rights of the general partner, the Operating
Partnership will control the Participating Exchange Partnerships
by virtue of its ownership of at least 90% of the limited
partnership interests, which will provide the Operating
Partnership the ability to remove the general partner under the
provisions of the limited partnership agreements that limited
partners holding over 50% of total partnership interest have the
right to remove the general partner.
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.
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:
<TABLE>
<CAPTION>
Weighted
Average Loss
Net Loss Shares Per Share
----------- ----------- -----------
<S> <C> <C> <C>
1998 $(1,577,060) 212,731 $(7.41)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Assuming that the Original Investors had exchanged their limited
partnership units for an equivalent net amount of 49,900 Common
Shares, the net loss per share on an as-converted basis would
have been $6.00 per share.
F-48
<PAGE>
BARON CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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:
<TABLE>
<S> <C>
Mortgages payable $4,058,737
Note payable 575,000
----------
$4,633,737
----------
----------
</TABLE>
Also, the Operating Partnership acquired furniture and equipment
in 1998 by means of capital lease financing in the amount of
$59,769.
F-49
<PAGE>
U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 / /
F-50
<PAGE>
The purpose of this Form 10-QSB/A is to amend in its entirety Part I - Financial
Information Item 1 Financial Statements contained in Form 10-QSB for the
quarterly period ended June 30, 1999 filed by Baron Capital Trust on August 12,
1999 with the Commission under Commission file number 333-35063.
F-51
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BARON CAPITAL TRUST
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND JUNE 30, 1999
DECEMBER 31, 1998 JUNE 30, 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) (1,319,534)
----------- -----------
6,121,161 6,048,254
Investments in Partnerships 709,970 1,538,877
Cash and Cash Equivalents 177,299 145,964
Restricted Cash 66,199 158,545
Reimbursed Administrative Expenses Receivable, Affiliates 155,071 116,595
Other Receivables 80,112 (872)
Advances to Affiliates 10,750 0
Other Property and Equipment 168,982 157,241
Other Assets 212,761 243,655
------- -------
871,174 821,128
------- -------
$7,702,305 $8,408,259
--------- ---------
LIABILITIES AND SHAREHOLDERS EQUITY
Liabilities:
Mortgages Payable $4,039,718 $4,291,076
Note Payable 375,000 120,000
Accounts Payable and Accrued Liabilities including
$15,573 due to the Managing Shareholder 388,385 483,207
Capital Lease Obligation 55,984 55,984
Security Deposits 38,336 37,496
------ ------
Total Liabilities 4,897,423 4,987,763
--------- ---------
Shareholder's Equity:
Common Shares of beneficial interest, no par value;
2,500,000 shares authorized, 644,696 shares issued
and outstanding $4,454,101 $6,135,754
Distribution to Owners (72,159) (239,755)
Deficit (1,577,060) (2,475,503)
----------- -----------
Total Shareholder's Equity 2,804,882 3,420,496
--------- ---------
Total Liabilities and Shareholder's Equity $7,702,305 $8,408,259
--------- ---------
</TABLE>
F-52
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED INCOME STATEMENT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
<TABLE>
<CAPTION>
3 MOS. ENDED 3 MOS. ENDED 6 MOS. ENDED 6 MOS. ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
<S> <C> <C> <C> <C>
REVENUES:
Property $78,475 $258,879 $155,316 $512,133
Rental 2,947 58,824 30,927 78,372
Equity in Net Loss of Unconsolidated Partnership 0 (25,667) 0 (29,093)
Other 694 654 736 1,037
--- --- --- ----
Total Revenues 82,115 292,690 186,979 562,449
------ ------- ------- -------
Real Estate Expenses:
Depreciation 9,500 36,453 15,513 72,907
Interest 25,501 80,526 50,217 144,491
Repairs and Maintenance 7,072 18,176 11,598 37,727
Personnel 13,336 27,814 29,265 57,471
Property Taxes 5,505 20,680 11,011 41,276
Property Insurance 5,105 3,513 5,769 10,718
Utilities 11,809 16,714 18,367 29,601
Other 11,358 86,528 24,637 131,570
------ ------ ------ ------
Total Real Estate Expenses 89,186 290,403 166,378 525,760
------ ------- ------- -------
Administrative Expenses:
Personnel 131,036 217,211 199,091 369,372
Management, Investment, and Administrative 111,587 60,516 135,919 194,511
Professional Services 94,337 122,670 98,121 265,065
Other 177 13,775 188 106,185
--- ------ --- -------
Total Administrative Expenses 337,136 414,172 433,319 935,133
------- -------- -------- -------
Total Expenses 426,322 704,575 599,696 1,460,893
Loss Before Minority Interest (344,207) (411,886) (412,717) (898,443)
Minority Interest of Unitholders in Net Loss of
Operating Partnership 54,095 0 72,073 0
------ - ------ -
Net Loss ($290,112) ($411,886) ($340,644) ($898,443)
-------- -------- -------- --------
Net Loss Per Common Share ($1.43) ($0.67) ($1.68) ($1.58)
</TABLE>
F-53
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss ($340,645) ($898,443)
Adjustments to Reconcile Net Loss to Net Cash Used by
Operating Activities:
Provision for Officer Compensation 98,000 0
Minority Interest of Unitholders in Net Loss
of Operating Partnership (72,073) 0
Depreciation and Amortization 0 94,721
Equity in Net Loss of Unconsolidated Partnership 0 29,093
(Increase) decrease in Operating Assets
Reimbused administrative expenses receivable (38,856) 38,476
Other Recievables (20,592) 80,984
Advances to Affiliates 0 10,750
Other Assets (138,183) (30,894)
Increase (decrease) in Operating Liabilities
Accounts Payable and Accrued Liabilities 259,329 94,822
Security Deposits 13,017 (840)
Other 5,592 0
----- -
Net Cash Used by Operating Activities (234,411) (581,331)
--------- ---------
Cash Flows from Investing Activities
Acquisition of Rental Property (782,218) 0
Investment in Partnerships 0 (885,000)
Cash Distributions from Partnerships 0 27,000
Other Property and Equipment (40,420) (10,073)
Increase in Restricted Cash 0 (92,346)
- --------
Net Cash Used in Investing Activities (822,638) (960,419)
--------- ---------
Cash flows from Financing Activities:
Proceeds from the Sale of Common Shares 1,868,835 1,681,653
Distributions Paid 0 (167,596)
Initial Capital Contributions 50,100 0
Proceeds from Mortgage Financing 0 273,499
Payments on Mortgages Payable 0 (22,141)
Payments on Notes Payable 0 (275,000)
Other 0 20,000
- ------
Net Cash Provided by Financing Activities 1,918,935 1,510,415
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 861,886 (31,335)
Cash and Cash Equivalents, Beginning 0 177,299
- -------
Cash and Cash Equivalents, Ending $861,886 $145,964
-------- -------
-------- -------
</TABLE>
F-54
<PAGE>
BARON CAPITAL TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
JUNE 30, 1999
<TABLE>
<CAPTION>
Common Shares
of Beneficial Interest
Total
Shares Amount Distributions Deficit
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 463,650 $4,454,101 (72,159) (1,577,060) 2,804,882
PROCEEDS FROM SALE OF
COMMON SHARES OF BENEFICIAL
INTEREST 181,046 1,681,653 1,681,653
DISTRIBUTIONS PAID (167,596) (167,596)
NET LOSS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 1999 (898,443) (898,443)
----------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 644,696 $6,135,754 ($239,755) ($2,475,503) $3,420,496
------- --------- -------- ---------- ---------
------- --------- -------- ---------- ---------
</TABLE>
F-55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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, 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
consolidated accounts of the Trust and the Operating Partnership. The
Trust is the general partner of the Operating Partnership and owns
approximately 81% of the limited partner units of the Operating
Partnership. The consolidated accounts of the Operating Partnership
include the accounts of three limited partnerships in which the
Operating Partnership is the controlling limited partner, by virtue of
its right to remove the general partner due to its ownership percent of
the total partnership interest in those limited partnerships.
All significant inter-company transactions and balances have been
eliminated in consolidation.
F-56
<PAGE>
BASIS OF PRESENTATION (CONTINUED)
The minority interest of unitholders in the Operating Partnership
represents the 1,202,160 limited partnership units owned by the
Original Investors of the Operating Partnership, and is stated at the
amount of the capital contribution by them to the Operating Partnership
($100,000), reduced by their proportionate share of the net loss of the
Operating Partnership. As of December 31, 1998, the 1,202,160 Operating
Partnership limited partnership units issued to the Original Investors
are subject to escrow restrictions and 108,757 units are convertible
into common shares of the Trust.
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.
REIMBURSED ADMINISTRATIVE EXPENSES AND OTHER RECEIVABLES
Receivables are comprised mainly of (a) administrative expense
reimbursements due from a number of other partnerships that are
related to the Operating Partnership and (b) monthly rents due. The
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 the estimated
useful lives of the properties as follows:
<TABLE>
<CAPTION>
Estimated Useful
Lives (Years)
-------------
<S> <C>
Building 30
Leasehold improvements 10
Furniture and fixtures 7
Computer equipment and software 3-5
</TABLE>
F-57
<PAGE>
REAL ESTATE RENTAL PROPERTIES AND DEPRECIATION (CONTINUED)
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, through the Operating Partnership, accounts for its
investments in limited Partnerships in which it is deemed not to have
the controlling interest, but has more than a minor limited partnership
interest, utilizing the equity method of accounting. The Operating
Partnership's investment in Alexandria Development, L.P., which
represents a 12.3% interest at December 31, 1998, is accounted for
using the equity method.
Investments in partnerships in which the Operating Partnership's
interest is so minor that the Partnership has virtually no influence
over partnership operating and financial policies are accounted for
utilizing the cost method. These investments generally represent less
than 5% of the partnership interest. The investments in certain other
limited partnerships as of December 31, 1998, which represent less than
a 4% partnership interest in each case, are accounted for on the cost
method. The Trust periodically assesses the estimated realizable value
of these investments in order to ascertain that there has been no
impairment in their recorded value.
As of June 30, 1999 the Operating Partnership owned 25.7 units of
limited partnership interest for which it paid $1,285,000.
F-58
<PAGE>
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 six years, the remaining term of the
financing.
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
F-59
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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 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.
F-60
<PAGE>
ALEXANDRIA APARTMENTS (CONTINUED)
As of June 30, 1999 the Operating Partnership owned 25.7 units of
limited partnership interest for which it paid $1,285,000.
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
F-61
<PAGE>
CONTRACT TO PURCHASE ADDITIONAL PROPERTIES (CONTINUED)
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 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 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
F-62
<PAGE>
EXCHANGE OFFERING (CONTINUED)
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 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.
F-63
<PAGE>
OPERATING PARTNERSHIP LIMITED PARTNERSHIP UNITS (CONTINUED)
The fair value of the units issued to the Original Investors amounted
to $100,000, based upon a determination made by the Independent
Trustees of the Trust as of the date of subscription for these units
(February 3, 1998). The determination of the fair value took into
consideration that (a) at the time of the subscription for the units,
the Trust and the Partnership were development stage companies, with no
cash or other significant tangible assets, operating history or revenue
and no certainty of successful offerings or future operations; the
founders had at risk their initial capital contributions plus certain
additional unreimbursed advances to cover certain offering and
operating expenses; the founders have significant experience and
developed know-how critical to the success of the Trust and the
Partnership; and the founders' units are subject to significant
transfer restrictions. The Partnership has accounted for the units as
being issued and outstanding, but subject to escrow restrictions, in
the accompanying consolidated financial statements, and has included
the units as outstanding in determining the weighted average shares
outstanding for purposes of calculating net loss per partnership unit
in the accompanying consolidated financial statements. Because the
release of the units from escrow is not dependent upon the achievement
of any specified level of profits, the release of the units from escrow
is not considered to be compensatory and, accordingly, no accounting
measurement will be given to the release of the units from escrow.
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.
After the exchange with the limited partners and assignment of economic
rights of the general partner, the Operating Partnership will control
the Participating Exchange Partnerships by virtue of its ownership of
at least 90% of the limited partnership interests, which will provide
the Operating Partnership the ability to remove the general partner
under the provisions of the limited partnership agreements that limited
partners holding over 50% of total partnership interest have the right
to remove the general partner.
Based upon the total Common Shares outstanding as of June 30, 1999, the
Original Investors would be entitled to exchange their limited
partnership units for a net amount of 144,452 (three months ended June
30, 1999) or 133,486 (six months ended June 30, 1999) 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).
F-64
<PAGE>
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 June 30, 1999.
The components used in calculating basic net loss per share are as
follows:
<TABLE>
<CAPTION>
Weighted
Average Loss
Net Loss Shares Per Share
-------- ------ ---------
<S> <C> <C> <C>
Three months ended
June 30, 1999 $(411,886) 615,821 $( .67)
--------- ------- ------
--------- ------- ------
Six months ended
June 30, 1999 $(898,443) 569,074 $(1.58)
--------- ------- ------
--------- ------- ------
</TABLE>
Assuming that the Original Investors had exchanged their limited
partnership units for an equivalent net amount of 144,452 (for the
three months ended June 30, 1999) or 133,486 (for the six months ended
June 30, 1999) Common Shares, the net loss per share on an as-converted
basis would have been .54 (for the three months ended June 30, 1999)
and 1.28 (for the six months ended June 30, 1999) per share.
F-65
<PAGE>
BARON CAPITAL TRUST
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BARON
CAPITAL TRUST FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
5-02 (1) cash and cash items 304,509
5-02 (2) marketable securities 0
5-02 (3)(a)(1) notes and accounts receivable 115,723
5-02 (4) allowances for doubtful accounts 0
5-02 (6) inventory 0
5-02 (9) total current assets 420,232
5-02 (13) property, plant and equipment at cost 7,525,029
5-02 (14) accumulated depreciation (1,319,534)
5-02 (17) other assets (primarily investments in partnerships) 1,782,532
5-02 (18) total assets 8,408,259
5-02 (21) total current liabilities 576,687
5-02 (22) bonds, mortgages and similar debt 4,411,076
5-02 (28) preferred stock - mandatory redemption 0
5-02 (29) preferred stock - no mandatory redemption 0
5-02 (30) common stock 6,135,754
5-02 (31) other stockholders equity (2,715,258)
5-02 (32) total liabilities and stockholders equity 8,408,259
5-03 (b)(1)(a) net sales of tangible products 0
5-03 (b)(1)(a) total revenues 562,449
5-03 (b)(2)(a) cost of tangible goods sold 0
5-03 (b)(2)(a) total costs and expenses applicable to sales and revenues 525,760
5-03 (b)(3) other costs and expenses 935,133
5-03 (b)(5) provision for doubtful accounts and notes 0
5-03 (b)(7) non-operating income 0
5-03 (b)(8) interest and amortization of debt discount 0
5-03 (b)(10) income before taxes and other items (898,443)
5-03 (b)(11) income tax expense 0
5-03 (b)(14) income / loss from continuing operations 0
5-03 (b)(15) discontinued operations 0
5-03 (b)(17) extraordinary items 0
5-03 (b)(18) cumulative effect - changes in accounting principles 0
5-03 (b)(19) net income or loss (898,443)
5-03 (b)(20) earnings per share - primary (2)
5-03 (b)(20) earnings per share - fully diluted (2)
</TABLE>
F-66
<PAGE>
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.
September 17, 1999 BARON CAPITAL TRUST
By: /s/ Gregory K. McGrath
---------------------------------
Gregory K. McGrath
Chief Executive Officer
By: /s/ Mark L. Wilson
-----------------------------------
Mark L. Wilson
Chief Financial Officer
F-67
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BARON ADVISORS, INC.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
F-68
<PAGE>
BARON ADVISORS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-70
FINANCIAL STATEMENTS
Balance Sheet F-71
Statement of Income and Retained Earnings F-72
Statement of Cash Flows F-73
Notes to Financial Statements F-74-F-77
</TABLE>
F-69
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 13, 1999
F-70
<PAGE>
BARON ADVISORS, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 9,227 $ 587
Due from the Trust 15,673 136,941
--------- ---------
$ 24,900 $ 137,528
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable and accrued expenses $ 11,323 $ 11,022
--------- ---------
Total liabilities 11,323 11,022
--------- ---------
Commitments and Subsequent Events - -
Stockholder's Equity:
Common stock, $.10 par value; 1,000 shares
authorized; issued and outstanding 100 100
Retained earnings 13,477 126,406
--------- ---------
Total stockholder's equity 13,577 126,506
--------- ---------
$ 24,900 $ 137,528
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-71
<PAGE>
BARON ADVISORS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
From
Six Inception
Months (February 28,
Ended 1998) to
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Revenue $ 110,688 $ 324,213
---------- ---------
Operating Expenses:
Investment consulting services 66,643 131,040
Legal services 38,437 64,000
Filing fees 50 2,700
Other expenses 14,487 67
---------- ---------
Total operating expenses 119,617 197,807
---------- ---------
Net Income (Loss) (8,929) 126,406
Retained Earnings, Beginning 126,406 -
Distributions (104,000) -
----------- ----------
Retained Earnings, ending $ 13,477 $ 126,406
----------- ----------
----------- ----------
</TABLE>
See notes to financial statements.
F-72
<PAGE>
BARON ADVISORS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
From
Six Inception
Months (February 28,
Ended 1998) to
June 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (8,929) $ 126,406
Adjustments to reconcile net income to
net cash provided by operating activities:
(Increase) decrease in due from affiliate 121,269 (136,941)
Increase in accounts payable and accrued expenses 300 11,022
-------- --------
Net cash provided by operating activities 112,640 487
-------- --------
Cash Flows from Financing Activities:
Distributions (104,000) -
Proceeds from issuance of common stock - 100
--------- --------
Net cash provided by financing activities (104,000) 100
--------- --------
Net Increase in Cash 8,640 587
Cash, Beginning 587 -
--------- --------
Cash, Ending $ 9,227 $ 587
--------- --------
--------- --------
</TABLE>
See notes to financial statements.
F-73
<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.
F-74
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of and for the six months
ended June 30, 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.
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
F-75
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
Management Company in its sole discretion may elect to receive
payment for its service in the form of common shares with an
equivalent value.
F-76
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. RELATED PARTY TRANSACTION (Continued)
TRUST MANAGEMENT AGREEMENT (Continued)
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.
For the six months ended June 30, 1999, the Management Company
received $37,966 in reimbursed expenses and $72,705 in investment
fees from the Trust.
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.
F-77
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 1999
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial information
of Baron Capital Properties, L.P. (the "Company") has been prepared giving
effect by the Company to the acquisition of the Exchange Equity Partnerships,
Exchange Mortgage Partnerships and Exchange Hybrid Partnerships (collectively
the "Exchange Partnerships") as if the acquisition transaction had taken place
at February 3, 1998 (inception):
Pro Forma Consolidated Balance Sheet -- June 30, 1999
Pro Forma Consolidated Statement of Operations For the Six Months Ended
June 30, 1999
Pro Forma Consolidated Statement of Cash Flows For the Six Months Ended
June 30, 1999
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, pro forma adjustments to the assets have been made to
reflect the respective allocations of the estimated purchase prices. The
allocations were made based on valuations provided by the Company giving effect
to various economic and market factors.
The pro forma condensed consolidated financial information has been prepared
using four different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange Partnerships"
participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of "Exchange
Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the "Exchange
Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations
This presentation assumes that those "Exchange Partnerships" with the
lowest combined net cash provided by operations participate in the
offering.
The unaudited pro forma condensed consolidated financial information is not
necessarily indicative of the results of operations or the financial position
which would have been attained had the acquisitions actually been consummated at
the foregoing date or which may be attained in the future. The unaudited pro
forma condensed consolidated financial information should be read in conjunction
with the historical financial statements of Baron Capital Properties, L.P. and
the historical individual financial statements of each of the Exchange
Partnerships.
P-1
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties. Equity Hybrid
L.P. Partnerships Partnerships Sub-Total
---- ------------ ------------ ---------
<S> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $ 25,774,443 $ -- $ 33,142,231
Less accumulated depreciation (1,319,534) (3,160,869) -- (4,480,403)
Investments in real estate limited partnerships 1,538,877 -- 1,027,229 2,566,106
Cash and cash equivalents 97,454 756,776 15,516 869,746
Restricted cash 158,545 -- -- 158,545
Reimbursed administrative expenses receivable, affiliates 116,595 -- -- 116,595
Notes receivable from affiliates -- -- 5,392,024 5,392,024
Notes receivable from non-affiliates -- -- 800,000 800,000
Advances receivable from affiliates -- -- 398,827 398,827
Other receivables 43,911 -- 12,525 56,436
Other property and equipment 148,682 -- -- 148,682
Accrued interest receivable from non-affiliates -- -- 19,538 19,538
Accrued interest receivable from affiliates -- -- 892,787 892,787
Accounts receivable -- 79,754 -- 79,754
Deferred expenses, net -- 2,101,043 -- 2,101,043
Other assets 241,951 1,386,757 -- 1,628,708
------------ ------------ ------------ ------------
TOTAL $ 8,394,269 $ 26,937,904 $ 8,558,446 $ 43,890,619
------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 4,291,076 $ 17,221,553 $ -- $ 21,512,629
Notes payable 120,000 -- 659,638 779,638
Accounts payable and accrued liabilities 480,026 -- -- 480,026
Capital lease obligation 55,984 -- -- 55,984
Advances payable to affiliates -- 3,023,950 113,106 3,137,056
Accrued interest and payable -- 502,140 124,052 626,192
Accrued real estate taxes payable -- 203,047 -- 203,047
Administrative fees payable to general partner -- -- 190,893 190,893
Security deposits and prepaid rent 37,496 151,865 -- 189,361
Other liabilities -- 85,392 400 85,792
------------ ------------ ------------ ------------
Total Liabilities 4,984,582 21,187,947 1,088,089 27,260,618
------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General partner (15,576) (79,811) 5,689 (89,698)
Limited partners 3,425,263 5,829,768 7,464,668 16,719,699
------------ ------------ ------------ ------------
Total Partners' Capital 3,409,687 5,749,957 7,470,357 16,630,001
------------ ------------ ------------ ------------
TOTAL $ 8,394,269 $ 26,937,904 $ 8,558,446 $ 43,890,619
------------ ------------ ------------ ------------
PARTNERSHIP UNITS 1,865,511
------------
BOOK VALUE PER PARTNERSHIP UNIT $ 1.83
------------
<CAPTION>
Pro Forma Pro Forma
Adjustments Consolidated
----------- ------------
<S> <C> <C>
ASSETS:
Real estate $ 6,944,000 (a) $ 40,086,231
Less accumulated depreciation -- (4,480,403)
Investments in real estate limited partnerships -- 2,566,106
Cash and cash equivalents -- 869,746
Restricted cash -- 158,545
Reimbursed administrative expenses receivable, affiliates -- 116,595
Notes receivable from affiliates 4,137,000 (a) 9,253,024
(276,000) (b)
Notes receivable from non-affiliates -- 800,000
Advances receivable from affiliates -- 398,827
Other receivables -- 56,436
Other property and equipment -- 148,682
Accrued interest receivable from non-affiliates -- 19,538
Accrued interest receivable from affiliates -- 892,787
Accounts receivable -- 79,754
Deferred expenses, net -- 2,101,043
Other assets -- 1,628,708
------------ ------------
TOTAL $ 10,805,000 $ 54,695,619
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ -- $ 21,512,629
Notes payable -- 779,638
Accounts payable and accrued liabilities -- 480,026
Capital lease obligation -- 55,984
Advances payable to affiliates (276,000) (b) 2,861,056
Accrued interest and payable -- 626,192
Accrued real estate taxes payable -- 203,047
Administrative fees payable to general partner -- 190,893
Security deposits and prepaid rent -- 189,361
Other liabilities -- 85,792
------------ ------------
Total Liabilities (276,000) 26,984,618
------------ ------------
PARTNERS' CAPITAL:
General partner 80,000 (a) (9,698)
Limited partners 11,001,000 (a) 27,720,699
------------ ------------
Total Partners' Capital 11,081,000 27,711,001
------------ ------------
TOTAL $ 10,805,000 $ 54,695,619
------------ ------------
PARTNERSHIP UNITS 2,497,800 4,363,311
------------ ------------
BOOK VALUE PER PARTNERSHIP UNIT $ 6.35
------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-2
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Eagle Brookwood Laurel Bridge Forest Camellia
Steeplechase Lake Way Oaks Point Glen I Court
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 1,821,218 $ 2,240,099 $ 1,813,475 $ 2,269,579 $ 1,274,766 $ 2,463,306 $ 1,530,266
Less accumulated
depreciation (145,202) (281,365) (154,620) (415,733) (146,842) (316,632) (175,080)
Cash and cash
equivalents 42,677 80,051 48,813 77,434 45,960 58,909 64,215
Accounts receivable 4,602 2,518 1,930 2,739 2,081 548 2,489
Deferred expenses, net -- 41,326 123,350 188,763 149,087 241,025 173,967
Other assets 197,431 159,390 2,168 31,804 (2,801) 397,402 22,847
----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,835,116 $ 2,154,586 $ 1,322,251 $ 2,844,558 $ 1,618,704
----------- ----------- ----------- ----------- ----------- ----------- ------------
LIABILITIES AND
PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,254,307 $ 1,427,797 $ 1,283,082 $ 1,588,191 $ 710,881 $ 1,778,584 $ 1,065,887
Loans payable 75,460 392,427 394,069 300,080 32,000 528,863 112,000
Accrued interest and
payable 64,973 1,473 25,086 3,900 4,283 10,549 (3,377)
Accrued real estate
taxes payable 15,156 13,900 9,770 14,510 9,368 19,697 14,705
Security deposits and
prepaid rent 16,572 14,775 16,818 14,360 9,946 8,383 14,824
Other liabilities 992 (1,000) -- 9,514 -- -- --
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total Liabilities 1,427,460 1,849,372 1,728,825 1,930,555 766,478 2,346,076 1,204,039
----------- ----------- ----------- ----------- ----------- ----------- ------------
PARTNERS' CAPITAL:
General Partner (2,416) (1,588) (4,763) (55,185) 723 (6,175) (821)
Limited Partners 495,682 394,235 111,054 279,216 555,050 504,657 415,486
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total Partners'
Capital 493,266 392,647 106,291 224,031 555,773 498,482 414,665
----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,835,116 $ 2,154,586 $ 1,322,251 $ 2,844,558 $ 1,618,704
----------- ----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
Stadium Forest Forest Forest Blossom
Glen Lake Club Glen IV Glen II Glen III Corners I Total
----------- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 4,546,682 $ 2,247,944 $ 497,652 $ 1,713,856 $ 1,572,807 $ 1,782,793 $ 25,774,443
Less accumulated
depreciation (487,479) (258,364) (99,861) (247,182) (243,892) (188,617) (3,160,869)
Cash and cash
equivalents 101,439 43,471 11,486 33,434 35,008 113,879 756,776
Accounts receivable 40,919 32,997 (441) 315 685 (11,628) 79,754
Deferred expenses, net 369,767 302,051 29,243 133,392 133,635 215,437 2,101,043
Other assets 93,552 23,881 70,490 224,930 177,648 (11,985) 1,386,757
----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL $ 4,664,880 $ 2,391,980 $ 508,569 $ 1,858,745 $ 1,675,891 $ 1,899,879 $ 26,937,904
----------- ----------- ----------- ----------- ----------- ----------- ------------
LIABILITIES AND
PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 3,209,477 $ 1,712,134 $ 276,669 $ 1,027,626 $ 869,530 $ 1,017,388 $ 17,221,553
Loans payable 814,262 143,103 61,226 81,869 55,522 33,069 3,023,950
Accrued interest and
payable 310,364 24,250 11,482 33,476 15,681 -- 502,140
Accrued real estate
taxes payable 49,515 10,384 3,064 11,380 17,742 13,856 203,047
Security deposits and
prepaid rent 11,518 14,072 1,475 9,089 4,070 15,963 151,865
Other liabilities 42,545 11,061 30,078 -- -- (7,798) 85,392
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total Liabilities 4,437,681 1,915,004 383,994 1,163,440 962,545 1,072,478 21,187,947
----------- ----------- ----------- ----------- ----------- ----------- ------------
PARTNERS' CAPITAL:
General Partner (10,661) (476) (24) 542 702 331 (79,811)
Limited Partners 237,860 477,452 124,599 694,763 712,644 827,070 5,829,768
----------- ----------- ----------- ----------- ----------- ----------- ------------
Total Partners'
Capital 227,199 476,976 124,575 695,305 713,346 827,401 5,749,957
----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL $ 4,664,880 $ 2,391,980 $ 508,569 $ 1,858,745 $ 1,675,891 $ 1,899,879 $ 26,937,904
----------- ----------- ----------- ----------- ----------- ----------- ------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-3
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV VIII, BSIV X, BSIV IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate
limited partnerships $ -- $ -- $ 496,755 $ 244,965 $ -- $ --
Cash and cash equivalents 485 134 1,961 537 526 25
Notes receivable from affiliates 706,100 807,155 117,500 319,000 474,191 365,000
Notes receivable from non-affiliates -- -- 440,000 200,000 -- --
Advances receivable from affiliates 116,402 10,000 38,287 6,541 -- 93,302
Other receivables -- -- 9,394 3,131 -- --
Accrued interest receivable
from non-affiliates -- -- 19,538 -- -- --
Accrued interest receivable
from affiliates 41,775 72,700 5,829 49,448 109,121 133,207
----------- ----------- ----------- ----------- ----------- -----------
TOTAL $ 864,762 $ 889,989 $ 1,129,264 $ 823,622 $ 583,838 $ 591,534
=========== =========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS'
CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ -- $ -- $ 2,850 $ --
Note payable -- -- 400,000 -- -- --
Accrued interest payable -- -- 57,271 -- -- --
Administrative fees payable to
general partner 13,000 13,000 15,393 13,500 31,500 13,500
Other liabilities -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 13,000 13,000 472,664 13,500 34,350 13,500
----------- ----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner 488 487 (1,021) 116 1,877 341
Limited Partners 851,274 876,502 657,621 810,006 547,611 577,693
----------- ----------- ----------- ----------- ----------- -----------
Total Partners' Capital 851,762 876,989 656,600 810,122 549,488 578,034
----------- ----------- ----------- ----------- ----------- -----------
TOTAL $ 864,762 $ 889,989 $ 1,129,264 $ 823,622 $ 583,838 $ 591,534
=========== =========== =========== =========== =========== ===========
<CAPTION>
BSIV IV, BSVF I, BSIV VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate
limited partnerships $ -- $ -- $ 285,509 $ -- $ 1,027,229
Cash and cash equivalents 209 4,391 215 7,033 15,516
Notes receivable from affiliates 976,439 612,000 327,639 687,000 5,392,024
Notes receivable from non-affiliates -- -- 160,000 -- 800,000
Advances receivable from affiliates 19,500 14,513 135 100,147 398,827
Other receivables -- -- -- -- 12,525
Accrued interest receivable
from non-affiliates -- -- -- -- 19,538
Accrued interest receivable
from affiliates 199,496 109,194 73,252 98,765 892,787
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,195,644 $ 740,098 $ 846,750 $ 892,945 $ 8,558,446
=========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS'
CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ 61,500 $ 48,756 $ -- $ 113,106
Note payable 259,638 -- -- -- 659,638
Accrued interest payable 56,671 10,110 -- -- 124,052
Administrative fees payable to
general partner 32,000 19,000 31,000 9,000 190,893
Other liabilities 400 -- -- -- 400
----------- ----------- ----------- ----------- -----------
Total Liabilities 348,709 90,610 79,756 9,000 1,088,089
----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner 2,382 506 52 461 5,689
Limited Partners 844,553 648,982 766,942 883,484 7,464,668
----------- ----------- ----------- ----------- -----------
Total Partners' Capital 846,935 649,488 766,994 883,945 7,470,357
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,195,644 $ 740,098 $ 846,750 $ 892,945 $ 8,558,446
=========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P. Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 512,133 $ 1,856,730 $ -- $ 2,368,863 $ -- $ 2,368,863
Interest income from affiliates -- -- 395,279 395,279 -- 395,279
Interest income from non-affiliates 768 -- 9,237 10,005 -- 10,005
Equity in net income of affiliates -- -- 2,000 2,000 -- 2,000
Other income 78,372 261,298 217 339,887 -- 339,887
----------- ----------- ----------- ----------- ----------- -----------
Total revenue 591,273 2,118,028 406,733 3,116,034 -- 3,116,034
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's
compensation 369,372 230,044 -- 599,416 -- 599,416
Real estate taxes and insurance 51,994 248,185 -- 300,179 -- 300,179
Management , investment and
administrative fees, managing
shareholder and other operating
expenses 77,504 -- -- 77,504 -- 77,504
Professional services 167,159 -- -- 167,159 -- 167,159
Advisory fees -- -- -- -- -- --
Property management fees -- 156,165 -- 156,165 -- 156,165
Interest 144,491 746,078 -- 890,569 -- 890,569
Depreciation 72,907 363,153 -- 436,060 (361,000)(a) 536,060
461,000 (a)
Other operating expenses 189,800 523,035 10,189 723,024 -- 723,024
Major maintenance -- 65,514 -- 65,514 -- 65,514
Equity in net loss of affiliates 29,093 -- 36,100 65,193 -- 65,193
Interest expense to affiliate -- -- 42,969 42,969 -- 42,969
Administrative fees to general
partner -- -- 49,500 49,500 -- 49,500
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 1,102,320 2,332,174 138,758 3,573,252 100,000 3,673,252
----------- ----------- ----------- ----------- ----------- -----------
INCOME(LOSS) BEFORE ROLL-UP EXPENSES (511,047) (214,146) 267,975 (457,218) (100,000) (557,218)
ROLL-UP EXPENSES 134,636 26,133 13,867 174,636 -- 174,636
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (645,683) $ (240,279) $ 254,108 $ (631,854) $ (100,000) $ (731,854)
----------- ----------- ----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
PARTNERSHIP UNITS OUTSTANDING 1,802,522 2,497,800 (c) 4,300,322
----------- ----------- -----------
NET LOSS PER PARTNERSHIP UNIT - BASIC $ (0.36) $ (0.17)
----------- -----------
RATIO OF EARNINGS TO FIXED CHARGES 0.22
-----------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNINGS TO FIXED CHARGES $ 731,854
-----------
</TABLE>
See notes to unaudited pro forma condensed financial statements.
P-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Brookwood Laurel Forest Camellia Glen
Steeplechase Way Oaks Bridgepoint Glen I Court Lake
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 146,691 $ 128,531 $ 151,593 $ 116,277 $ 183,738 $ 128,581 $ 221,108
Other income 31,054 12,218 15,436 28,395 10,802 38,281 47,994
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue 177,745 140,749 167,029 144,672 194,540 166,862 269,102
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 26,024 12,540 15,432 8,695 13,601 15,302 65,522
Real estate taxes
and insurance 18,033 11,938 19,734 12,200 23,109 19,726 54,341
Property management
fees 12,276 11,422 13,063 10,404 14,009 11,709 19,018
Interest 48,895 53,841 34,102 33,979 62,533 48,156 213,202
Depreciation 28,944 27,412 39,011 18,445 13,500 22,035 64,282
Other operating
expenses 47,140 32,290 34,448 29,839 29,700 35,489 162,515
Major maintenance 1,662 8,665 4,744 1,631 3,927 3,384 25,303
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and
expenses 182,974 158,108 160,534 115,193 160,379 155,801 604,183
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES (5,229) (17,359) 6,495 29,479 34,161 11,061 (335,081)
ROLL-UP EXPENSES -- 2,800 -- 8,841 -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (5,229) $ (20,159) $ 6,495 $ 20,638 $ 34,161 $ 11,061 $ (335,081)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
Blossom Stadium Forest Forest Forest Eagle
Corners I Club Glen IV Glen II Glen III Lake Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 155,449 $ 209,804 $ 28,263 $ 97,192 $ 91,461 $ 198,042 $ 1,856,730
Other income 31,695 13,383 3,410 4,294 8,010 16,326 261,298
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue 187,144 223,187 31,673 101,486 99,471 214,368 2,118,028
----------- ----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 13,889 25,913 2,224 8,127 6,917 15,858 230,044
Real estate taxes
and insurance 15,921 13,762 3,590 13,349 14,442 28,040 248,185
Property management
fees 12,871 11,455 6,453 10,443 9,384 13,658 156,165
Interest 45,917 67,703 9,727 36,130 30,572 61,321 746,078
Depreciation 26,255 32,568 8,000 25,500 25,000 32,201 363,153
Other operating
expenses 37,983 47,659 2,628 19,087 24,016 20,241 523,035
Major maintenance 7,941 555 113 3,820 3,183 586 65,514
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and
expenses 160,777 199,615 32,735 116,456 113,514 171,905 2,332,174
----------- ----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES 26,367 23,572 (1,062) (14,970) (14,043) 42,463 (214,146)
ROLL-UP EXPENSES 8,295 -- -- -- -- 6,197 26,133
----------- ----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 18,072 $ 23,572 $ (1,062) $ (14,970) $ (14,043) $ 36,266 $ (240,279)
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-6
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV VIII, BSIV X, BSIV IX, BMP, LCOB, BSIV IV,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 50,536 $ 48,194 $ 6,706 $ 22,451 $ 35,438 $ 30,936 $ 82,669
Interest income from non-affiliates -- -- 6,774 -- -- -- --
Equity in net income of affiliates -- -- -- 2,000 -- -- --
Other 6 3 8 3 -- 81 3
-------- -------- -------- -------- -------- -------- --------
Total revenue 50,542 48,197 13,488 24,454 35,438 31,017 82,672
-------- -------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- 14,300 -- -- -- --
Interest expense to affiliate -- -- 19,836 -- -- -- 19,473
Administrative fees to general partner 6,000 6,000 6,000 6,000 4,500 3,000 6,000
General and administrative 900 900 900 1,447 900 900 1,396
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses 6,900 6,900 41,036 7,447 5,400 3,900 26,869
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 43,642 41,297 (27,548) 17,007 30,038 27,117 55,803
ROLL-UP EXPENSES 1,773 1,571 2,597 -- 1,987 2,058 --
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 41,869 $ 39,726 $(30,145) $ 17,007 $ 28,051 $ 25,059 $ 55,803
======== ======== ======== ======== ======== ======== ========
<CAPTION>
BSVF I, BSIV VI, BSIF,
Ltd. Ltd. Ltd. Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 52,153 $ 23,520 $ 42,676 $395,279
Interest income from non-affiliates -- 2,463 -- 9,237
Equity in net income of affiliates -- -- -- 2,000
Other 96 2 15 217
-------- -------- -------- --------
Total revenue 52,249 25,985 42,691 406,733
-------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- 21,800 -- 36,100
Interest expense to affiliate 3,660 -- -- 42,969
Administrative fees to general partner 3,000 6,000 3,000 49,500
General and administrative 900 1,046 900 10,189
-------- -------- -------- --------
Total costs and expenses 7,560 28,846 3,900 138,758
-------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 44,689 (2,861) 38,791 267,975
ROLL-UP EXPENSES 2,146 -- 1,735 13,867
-------- -------- -------- --------
NET INCOME (LOSS) $ 42,543 $ (2,861) $ 37,056 $254,108
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-7
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital
Properties, Exchange Pro Forma Pro Forma
L.P. Partnerships Sub-Total Adjustments Consolidated
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (645,683) $ 13,829 $ (631,854) $(100,000)(a) $ (731,854)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 72,907 363,153 436,060 100,000 (a) 536,060
Equity in (net incomes) net losses of affiliates 29,094 34,100 63,194 -- 63,194
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables 35,801 34,904 70,705 -- 70,705
Reimbursed administrative expenses receivable 38,476 49,500 87,976 -- 87,976
Other assets (51,102) 86,285 35,183 -- 35,183
Increase (decrease) in:
Accounts payable and accrued liabilities 236,672 (129,157) 107,515 -- 107,515
Other 20,973 392,610 413,583 -- 413,583
----------- ----------- ----------- --------- ----------
Net cash provided by operating activities (262,862) 845,224 582,362 -- 582,362
----------- ----------- ----------- --------- ----------
Cash Flows from Investing Activities:
Investments in partnerships (885,000) -- (885,000) -- (885,000)
Cash distributions from partnerships 27,000 44,716 71,716 -- 71,716
Purchases of other property and equipment (1,514) -- (1,514) -- (1,514)
Advances to non-affiliate -- (20,258) (20,258) -- (20,258)
Advances to affiliates -- (147,936) (147,936) -- (147,936)
Other -- 257,662 257,662 -- 257,662
Repayment of advances to affiliates 249,914 -- 249,914 -- 249,914
Increase in restricted cash (113,166) -- (113,166) -- (113,166)
----------- ----------- ----------- --------- ----------
Net cash used in investing activities (722,766) 134,184 (588,582) -- (588,582)
----------- ----------- ----------- --------- ----------
Cash Flows from Financing Activities:
Partners' capital contributions 1,074,000 290,998 1,364,998 -- 1,364,998
Distributions paid (65,000) (683,861) (748,861) -- (748,861)
Payment on note payable (275,000) -- (275,000) -- (275,000)
Proceeds from mortgage financing 273,499 -- 273,499 -- 273,499
Payments on mortgages payable (22,141) (103,015) (125,156) -- (125,156)
Other 20,000 -- 20,000 -- 20,000
----------- ----------- ----------- --------- ----------
Net cash provided by financing activities 1,005,358 (495,878) 509,480 -- 509,480
----------- ----------- ----------- --------- ----------
Net Increase in Cash and Cash Equivalents 19,730 483,530 503,260 -- 503,260
Cash and Cash Equivalents, Beginning 77,724 288,762 366,486 -- 366,486
----------- ----------- ----------- --------- ----------
Cash and Cash Equivalents, Ending $ 97,454 $ 772,292 $ 869,746 $ -- $ 869,746
=========== =========== =========== ========= ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-8
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties. Equity Hybrid Pro Forma Pro Forma
L.P. Partnerships Partnerships Sub-Total Adjustments Consolidated
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $ 6,874,194 $ -- $ 14,241,982 $ 1,632,000 (a) $ 15,873,982
Less accumulated depreciation (1,319,534) (725,488) -- (2,045,022) -- (2,045,022)
Investments in real estate limited
partnership 1,538,877 -- 496,755 2,035,632 -- 2,035,632
Cash and cash equivalents 97,454 196,323 6,377 300,154 -- 300,154
Restricted cash 158,545 -- -- 158,545 -- 158,545
Reimbursed administrative expenses
receivable, affiliates 116,595 -- -- 116,595 -- 116,595
Notes receivable from affiliates -- -- 1,094,500 1,094,500 1,271,000 (a) 2,089,500
(276,000)(b)
Notes receivable from non-affiliates -- -- 440,000 440,000 -- 440,000
Advances receivable from affiliates -- -- 146,102 146,102 -- 146,102
Other receivables 43,911 -- 9,394 53,305 -- 53,305
Other property and equipment 148,682 -- -- 148,682 -- 148,682
Accrued interest receivable from
non-affiliates -- -- 19,538 19,538 -- 19,538
Accrued interest receivable from
affiliates -- -- 248,230 248,230 -- 248,230
Accounts receivable -- 42,169 -- 42,169 -- 42,169
Deferred expenses, net -- 625,105 -- 625,105 -- 625,105
Other assets 241,951 241,358 -- 483,309 -- 483,309
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 8,394,269 $ 7,253,661 $ 2,460,896 $ 18,108,826 $ 2,627,000 $ 20,735,826
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 4,291,076 $ 4,743,209 $ -- $ 9,034,285 $ -- $ 9,034,285
Notes payable 120,000 -- 400,000 520,000 -- 520,000
Accounts payable and accrued
liabilities 480,026 -- -- 480,026 -- 480,026
Capital lease obligation 55,984 -- -- 55,984 -- 55,984
Advances payable to affiliates -- 362,563 61,500 424,063 (276,000)(b) 148,063
Accrued interest and payable -- 90,129 67,381 157,510 -- 157,510
Accrued real estate taxes payable -- 49,613 -- 49,613 -- 49,613
Administrative fees payable to
general partner -- -- 47,893 47,893 -- 47,893
Security deposits and prepaid rent 37,496 55,414 -- 92,910 -- 92,910
Other liabilities -- 12,053 -- 12,053 - 12,053
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 4,984,582 5,312,981 576,774 10,874,337 (276,000) 10,598,337
------------ ------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General partner (15,576) (2,990) (174) (18,740) 3,000 (a) (15,740)
Limited partners 3,425,263 1,943,670 1,884,296 7,253,229 2,900,000 (a) 10,153,229
------------ ------------ ------------ ------------ ------------ ------------
Total Partners' Capital 3,409,687 1,940,680 1,884,122 7,234,489 2,903,000 10,137,489
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 8,394,269 $ 7,253,661 $ 2,460,896 $ 18,108,826 $ 2,627,000 $ 20,735,826
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
PARTNERSHIP UNITS 1,865,511 670,700 2,536,211
------------ ------------ ------------
BOOK VALUE PER PARTNERSHIP UNIT $ 1.83 $ 4.00
------------ ------------
------------ ------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-9
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Bridge Camellia Stadium
Steeplechase Point Court Club Total
------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $1,821,218 $1,274,766 $1,530,266 $2,247,944 $6,874,194
Less accumulated depreciation (145,202) (146,842) (175,080) (258,364) (725,488)
Investments in partnership -- -- -- -- --
Cash and cash equivalent 42,677 45,960 64,215 43,471 196,323
Accounts receivable 4,602 2,081 2,489 32,997 42,169
Deferred expenses, net -- 149,087 173,967 302,051 625,105
Other assets 197,431 (2,801) 22,847 23,881 241,358
---------- ----------- ----------- ----------- ----------
TOTAL $1,920,726 $1,322,251 $1,618,704 $2,391,980 $7,253,661
========== =========== =========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $1,254,307 $ 710,881 $1,065,887 $1,712,134 $4,743,209
Loans payable 75,460 32,000 112,000 143,103 362,563
Accrued interest and payable 64,973 4,283 (3,377) 24,250 90,129
Accrued real estate taxes payable 15,156 9,368 14,705 10,384 49,613
Security deposits and prepaid rent 16,572 9,946 14,824 14,072 55,414
Other liabilities 992 -- -- 11,061 12,053
---------- ----------- ----------- ----------- ----------
Total liabilities 1,427,460 766,478 1,204,039 1,915,004 5,312,981
---------- ----------- ----------- ----------- ----------
PARTNERS' CAPITAL:
General Partner (2,416) 723 (821) (476) (2,990)
Limited Partners 495,682 555,050 415,486 477,452 1,943,670
---------- ----------- ----------- ----------- ----------
Total Partners' Capital 493,266 555,773 414,665 476,976 1,940,680
---------- ----------- ----------- ----------- ----------
TOTAL $1,920,726 $1,322,251 $1,618,704 $2,391,980 $7,253,661
========== =========== =========== =========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-10
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, LCOB, BSVF I,
Ltd. Ltd. Ltd. Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ 496,755 $ -- $ -- $ 496,755
Cash and cash equivalents 1,961 25 4,391 6,377
Notes receivable from affiliates 117,500 365,000 612,000 1,094,500
Notes receivable from non-affiliates 440,000 -- -- 440,000
Advances receivable from affiliates 38,287 93,302 14,513 146,102
Other receivables 9,394 -- -- 9,394
Accrued interest receivable from non-affiliates 19,538 -- -- 19,538
Accrued interest receivable from affiliates 5,829 133,207 109,194 248,230
----------- ----------- ----------- -----------
TOTAL $ 1,129,264 $ 591,534 $ 740,098 $ 2,460,896
=========== =========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ 61,500 $ 61,500
Note payable 400,000 -- -- 400,000
Accrued interest payable 57,271 -- 10,110 67,381
Administrative fees payable to general partner 15,393 13,500 19,000 47,893
Other liabilities -- -- -- --
----------- ----------- ----------- -----------
Total Liabilities 472,664 13,500 90,610 576,774
----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (1,021) 341 506 (174)
Limited Partners 657,621 577,693 648,982 1,884,296
----------- ----------- ----------- -----------
Total Partners' Capital 656,600 578,034 649,488 1,884,122
----------- ----------- ----------- -----------
TOTAL $ 1,129,264 $ 591,534 $ 740,098 $ 2,460,896
=========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-11
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P. Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 512,133 $ 601,353 $ -- $ 1,113,486 $ -- $ 1,113,486
Interest income from affiliates -- -- 89,795 89,795 -- 89,795
Interest income from non-affiliates 768 -- 6,774 7,542 -- 7,542
Other income 78,372 111,113 185 189,670 -- 189,670
----------- ---------- --------- ----------- ----------- -----------
Total revenue 591,273 712,466 96,754 1,400,493 -- 1,400,493
----------- ---------- --------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's
compensation 369,372 75,934 -- 445,306 -- 445,306
Real estate taxes and insurance 51,994 63,721 -- 115,715 -- 115,715
Management , investment and
administrative fees, managing
shareholder and other operating
expenses 77,504 -- -- 77,504 -- 77,504
Professional services 167,159 -- -- 167,159 -- 167,159
Advisory fees -- -- -- -- -- --
Property management fees -- 45,844 -- 45,844 -- 45,844
Interest 144,491 198,733 -- 343,224 -- 343,224
Depreciation 72,907 101,992 -- 174,899 (111,000)(a) 179,899
116,000(a)
Other operating expenses 189,800 160,127 2,700 352,627 -- 352,627
Major maintenance -- 7,232 -- 7,232 -- 7,232
Equity in net loss of affiliates 29,093 -- 14,300 43,393 -- 43,393
Interest expense to affiliate -- -- 23,496 23,496 -- 23,496
Administrative fees to general
partner -- -- 12,000 12,000 -- 12,000
----------- ---------- --------- ----------- ----------- -----------
Total costs and expenses 1,102,320 653,583 52,496 1,808,399 5,000 1,813,399
----------- ---------- --------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP
EXPENSES (511,047) 58,883 44,258 (407,906) 5,000 (412,906)
ROLL-UP EXPENSES 134,636 8,841 6,801 150,278 150,278
----------- ---------- --------- ----------- ----------- -----------
NET INCOME (LOSS) $ (645,683) $ 50,042 $ 37,457 $ (558,184) $ 5,000 $ (563,184)
=========== ========== ========= =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF PARTNERSHIP 1,802,522 670,700 (c) 2,473,222
=========== ========== ========= =========== =========== ===========
UNITS OUTSTANDING
NET LOSS PER PARTNERSHIP UNIT - BASIC $ (0.36) $ (0.23)
=========== ===========
RATIO OF EARNINGS TO FIXED CHARGES (0.54)
===========
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNINGS TO FIXED CHARGES $ 563,184
===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-12
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Camellia Stadium
Steeplechase Bridgepoint Court Club Total
------------ ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 146,691 $ 116,277 $ 128,581 $ 209,804 $ 601,353
Other income 31,054 28,395 38,281 13,383 111,113
--------- --------- --------- --------- ---------
Total revenue 177,745 144,672 166,862 223,187 712,466
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Personnel 26,024 8,695 15,302 25,913 75,934
Real estate taxes and insurance 18,033 12,200 19,726 13,762 63,721
Property management fees 12,276 10,404 11,709 11,455 45,844
Interest 48,895 33,979 48,156 67,703 198,733
Depreciation 28,944 18,445 22,035 32,568 101,992
Other operating expenses 47,140 29,839 35,489 47,659 160,127
Major maintenance 1,662 1,631 3,384 555 7,232
--------- --------- --------- --------- ---------
Total costs and expenses 182,974 115,193 155,801 199,615 653,583
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (5,229) 29,479 11,061 23,572 58,883
ROLL-UP EXPENSES -- 8,841 -- -- 8,841
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (5,229) $ 20,638 $ 11,061 $ 23,572 $ 50,042
========= ========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-13
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, LCOB, BSVF I,
Ltd. Ltd. Ltd. Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 6,706 $ 30,936 $ 52,153 $ 89,795
Interest income from non-affiliates 6,774 -- -- 6,774
Other 8 81 96 185
-------- -------- -------- --------
Total revenue 13,488 31,017 52,249 96,754
-------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates 14,300 -- -- 14,300
Interest expense to affiliate 19,836 -- 3,660 23,496
Administrative fees to general partner 6,000 3,000 3,000 12,000
General and administrative 900 900 900 2,700
-------- -------- -------- --------
Total costs and expenses 41,036 3,900 7,560 52,496
-------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (27,548) 27,117 44,689 44,258
ROLL-UP EXPENSES 2,597 2,058 2,146 6,801
-------- -------- -------- --------
NET INCOME (LOSS) $(30,145) $ 25,059 $ 42,543 $ 37,457
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-14
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties. Equity Hybrid Pro Forma Pro Forma
L.P. Partnerships Partnerships Sub-Total Adjustments Consolidated
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $ 12,469,893 $ -- $ 19,837,681 $ 2,901,000(a) $ 22,738,681
Less accumulated depreciation (1,319,534) (1,439,362) -- (2,758,896) -- (2,758,896)
Investments in real estate limited
partnerships 1,538,877 -- 496,755 2,035,632 -- 2,035,632
Cash and cash equivalents 97,454 425,261 13,895 536,610 -- 536,610
Restricted cash 158,545 -- -- 158,545 -- 158,545
Reimbursed administrative expenses
receivable, affiliates 116,595 -- -- 116,595 -- 116,595
Notes receivable from affiliates -- -- 2,487,600 2,487,600 2,251,000 (a) 4,462,600
(276,000)(b)
Notes receivable from non-affiliates -- -- 440,000 440,000 -- 440,000
Advances receivable from affiliates -- -- 362,651 362,651 -- 362,651
Other receivables 43,911 -- 9,394 53,305 -- 53,305
Other property and equipment 148,682 -- -- 148,682 -- 148,682
Accrued interest receivable from
non-affiliates -- -- 19,538 19,538 -- 19,538
Accrued interest receivable from
affiliates -- -- 388,770 388,770 -- 388,770
Accounts receivable -- 33,744 -- 33,744 -- 33,744
Deferred expenses, net -- 1,015,503 -- 1,015,503 -- 1,015,503
Other assets 241,951 566,411 -- 808,362 -- 808,362
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 8,394,269 $ 13,071,450 $ 4,218,603 $ 25,684,322 $ 4,876,000 $ 30,560,322
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 4,291,076 $ 8,057,924 $ -- $ 12,349,000 $ -- $ 12,349,000
Notes payable 120,000 -- 400,000 520,000 -- 520,000
Accounts payable and accrued
liabilities 480,026 -- -- 480,026 -- 480,026
Capital lease obligation 55,984 -- -- 55,984 -- 55,984
Advances payable to affiliates -- 843,581 61,500 905,081 (276,000)(b) 629,081
Accrued interest and payable -- 107,283 67,381 174,664 -- 174,664
Accrued real estate taxes payable -- 95,111 -- 95,111 -- 95,111
Administrative fees payable to
general partner -- -- 69,893 69,893 -- 69,893
Security deposits and prepaid rent 37,496 90,222 -- 127,718 -- 127,718
Other liabilities -- 3,255 -- 3,255 -- 3,255
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 4,984,582 9,197,376 598,774 14,780,732 (276,000) 14,504,732
------------ ------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General partner (15,576) (3,545) 775 (18,346) 3,000 (a) (15,346)
Limited partners 3,425,263 3,877,619 3,619,054 10,921,936 5,149,000 (a) 16,070,936
------------ ------------ ------------ ------------ ------------ ------------
Total Partners' Capital 3,409,687 3,874,074 3,619,829 10,903,590 5,152,000 16,055,590
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 8,394,269 $ 13,071,450 $ 4,218,603 $ 25,684,322 $ 4,876,000 $ 30,560,322
------------ ------------ ------------ ------------ ------------ ------------
PARTNERSHIP UNITS 1,865,511 1,254,000 3,119,511
------------ ------------ ------------
BOOK VALUE PER PARTNERSHIP UNIT $ 1.83 $ 5.15
------------ ------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-15
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Eagle Bridge Camellia
Steeplechase Lake Point Court
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Real estate $ 1,821,218 $ 2,240,099 $ 1,274,766 $ 1,530,266
Less accumulated depreciation (145,202) (281,365) (146,842) (175,080)
Cash and cash equivalents 42,677 80,051 45,960 64,215
Accounts receivable 4,602 2,518 2,081 2,489
Deferred expenses, net -- 41,326 149,087 173,967
Other assets 197,431 159,390 (2,801) 22,847
------------ ------------ ------------ ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,322,251 $ 1,618,704
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,254,307 $ 1,427,797 $ 710,881 $ 1,065,887
Loans payable 75,460 392,427 32,000 112,000
Accrued interest and payable 64,973 1,473 4,283 (3,377)
Accrued real estate taxes payable 15,156 13,900 9,368 14,705
Security deposits and prepaid rent 16,572 14,775 9,946 14,824
Other liabilities 992 (1,000) -- --
------------ ------------ ------------ ------------
1,427,460 1,849,372 766,478 1,204,039
------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General Partner (2,416) (1,588) 723 (821)
Limited Partners 495,682 394,235 555,050 415,486
------------ ------------ ------------ ------------
Total Partners' Capital 493,266 392,647 555,773 414,665
------------ ------------ ------------ ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,322,251 $ 1,618,704
============ ============ ============ ============
<CAPTION>
Stadium Forest Blossom
Club Glen III Corners I Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Real estate $ 2,247,944 $ 1,572,807 $ 1,782,793 $ 12,469,893
Less accumulated depreciation (258,364) (243,892) (188,617) (1,439,362)
Cash and cash equivalents 43,471 35,008 113,879 425,261
Accounts receivable 32,997 685 (11,628) 33,744
Deferred expenses, net 302,051 133,635 215,437 1,015,503
Other assets 23,881 177,648 (11,985) 566,411
------------ ------------ ------------ ------------
TOTAL $ 2,391,980 $ 1,675,891 $ 1,899,879 $ 13,071,450
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,712,134 $ 869,530 $ 1,017,388 $ 8,057,924
Loans payable 143,103 55,522 33,069 843,581
Accrued interest and payable 24,250 15,681 -- 107,283
Accrued real estate taxes payable 10,384 17,742 13,856 95,111
Security deposits and prepaid rent 14,072 4,070 15,963 90,222
Other liabilities 11,061 -- (7,798) 3,255
------------ ------------ ------------ ------------
1,915,004 962,545 1,072,478 9,197,376
------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General Partner (476) 702 331 (3,545)
Limited Partners 477,452 712,644 827,070 3,877,619
------------ ------------ ------------ ------------
Total Partners' Capital 476,976 713,346 827,401 3,874,074
------------ ------------ ------------ ------------
TOTAL $ 2,391,980 $ 1,675,891 $ 1,899,879 $ 13,071,450
============ ============ ============ ============
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-16
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV X, LCOB, BSVF I, BSIF,
Ltd. Ltd. Ltd. Ltd. Ltd. Total
---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ -- $ 496,755 $ -- $ -- $ -- $ 496,755
Cash and cash equivalents 485 1,961 25 4,391 7,033 13,895
Notes receivable from affiliates 706,100 117,500 365,000 612,000 687,000 2,487,600
Notes receivable from non-affiliates -- 440,000 -- -- -- 440,000
Advances receivable from affiliates 116,402 38,287 93,302 14,513 100,147 362,651
Other receivables -- 9,394 -- -- -- 9,394
Accrued interest receivable from non-affiliates -- 19,538 -- -- -- 19,538
Accrued interest receivable from affiliates 41,775 5,829 133,207 109,194 98,765 388,770
---------- ----------- ---------- ---------- ---------- -----------
TOTAL $ 864,762 $ 1,129,264 $ 591,534 $ 740,098 $ 892,945 $ 4,218,603
========== =========== ========== ========== ========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ -- $ 61,500 $ -- $ 61,500
Note payable -- 400,000 -- -- -- 400,000
Accrued interest payable -- 57,271 -- 10,110 -- 67,381
Administrative fees payable to general partner 13,000 15,393 13,500 19,000 9,000 69,893
Other liabilities -- -- -- -- -- --
---------- ----------- ---------- ---------- ---------- -----------
Total liabilities 13,000 472,664 13,500 90,610 9,000 598,774
---------- ----------- ---------- ---------- ---------- -----------
PARTNERS' CAPITAL:
General Partner 488 (1,021) 341 506 461 775
Limited Partners 851,274 657,621 577,693 648,982 883,484 3,619,054
---------- ----------- ---------- ---------- ---------- -----------
Total Partners' Capital 851,762 656,600 578,034 649,488 883,945 3,619,829
---------- ----------- ---------- ---------- ---------- -----------
TOTAL $ 864,762 $ 1,129,264 $ 591,534 $ 740,098 $ 892,945 $ 4,218,603
========== =========== ========== ========== ========== ===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-17
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P. Partnerships Partnerships Sub-Total Adjustments Consolidated
---------- ------------ ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 512,133 $ 1,046,305 $ -- $ 1,558,438 $ -- $ 1,558,438
Interest income from affiliates -- -- 183,007 183,007 -- 183,007
Interest income from non-affiliates 768 -- 6,774 7,542 -- 7,542
Other income 78,372 167,144 206 245,722 -- 245,722
---------- ----------- ---------- ----------- ----------- ------------
Total revenue 591,273 1,213,449 189,987 1,994,709 -- 1,994,709
---------- ----------- ---------- ----------- ----------- ------------
COSTS AND EXPENSES:
Personnel, including officer's
compensation 369,372 112,598 -- 481,970 -- 481,970
Real estate taxes and insurance 51,994 122,124 -- 174,118 -- 174,118
Management , investment and
administrative fees, managing
shareholder and other operating
expenses 77,504 -- -- 77,504 -- 77,504
Professional services 167,159 -- -- 167,159 -- 167,159
Advisory fees -- -- -- -- -- --
Property management fees -- 81,757 -- 81,757 -- 81,757
Interest 144,491 336,543 -- 481,034 -- 481,034
Depreciation 72,907 185,448 -- 258,355 (199,000)(a) 271,355
212,000 (a)
Other operating expenses 189,800 242,367 4,500 436,667 -- 436,667
Major maintenance -- 18,942 -- 18,942 -- 18,942
Equity in net loss of affiliates 29,093 -- 14,300 43,393 -- 43,393
Interest expense to affiliate -- -- 23,496 23,496 -- 23,496
Administrative fees to general partner -- -- 21,000 21,000 -- 21,000
---------- ----------- ---------- ----------- ----------- ------------
Total costs and expenses 1,102,320 1,099,779 63,296 2,265,395 13,000 2,278,395
---------- ----------- ---------- ----------- ----------- ------------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (511,047) 113,670 126,691 (270,686) (13,000) (283,686)
ROLL-UP EXPENSES 134,636 23,333 10,309 168,278 -- 168,278
---------- ----------- ---------- ----------- ----------- ------------
NET INCOME (LOSS) $ (645,683) $ 90,337 $ 116,382 $ (438,964) $ (13,000) $ (451,964)
========== =========== ========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF
PARTNERSHIP UNITS OUTSTANDING 1,802,522 1,254,000 (c) 3,056,522
========== =========== ===========
NET LOSS PER PARTNERSHIP UNIT - BASIC $ (0.36) $ (0.15)
========== ============
RATIO OF EARNINGS TO FIXED CHARGES 0.10
============
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNING TO FIXED CHARGES $ 451,964
============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-18
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Camellia Blossom Stadium Forest Eagle
Steeplechase Bridgepoint Court Corners I Club Glen III Lake Total
------------ ----------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 146,691 $ 116,277 $ 128,581 $ 155,449 $ 209,804 $ 91,461 $ 198,042 $1,046,305
Other income 31,054 28,395 38,281 31,695 13,383 8,010 16,326 167,144
--------- --------- --------- --------- --------- --------- --------- ----------
Total revenue 177,745 144,672 166,862 187,144 223,187 99,471 214,368 1,213,449
--------- --------- --------- --------- --------- --------- --------- ----------
COSTS AND EXPENSES:
Personnel 26,024 8,695 15,302 13,889 25,913 6,917 15,858 112,598
Real estate taxes and insurance 18,033 12,200 19,726 15,921 13,762 14,442 28,040 122,124
Property management fees 12,276 10,404 11,709 12,871 11,455 9,384 13,658 81,757
Interest 48,895 33,979 48,156 45,917 67,703 30,572 61,321 336,543
Depreciation 28,944 18,445 22,035 26,255 32,568 25,000 32,201 185,448
Other operating expenses 47,140 29,839 35,489 37,983 47,659 24,016 20,241 242,367
Major maintenance 1,662 1,631 3,384 7,941 555 3,183 586 18,942
--------- --------- --------- --------- --------- --------- --------- ----------
Total costs and expenses 182,974 115,193 155,801 160,777 199,615 113,514 171,905 1,099,779
--------- --------- --------- --------- --------- --------- --------- ----------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES (5,229) 29,479 11,061 26,367 23,572 (14,043) 42,463 113,670
ROLL-UP EXPENSES -- 8,841 -- 8,295 -- -- 6,197 23,333
--------- --------- --------- --------- --------- --------- --------- ----------
NET INCOME (LOSS) $ (5,229) $ 20,638 $ 11,061 $ 18,072 $ 23,572 $ (14,043) $ 36,266 $ 90,337
========= ========= ========= ========= ========= ========= ========= ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-19
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV X, LCOB, BSVF I, BSIF,
Ltd. Ltd. Ltd. Ltd. Ltd. Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 50,536 $ 6,706 $ 30,936 $ 52,153 $ 42,676 $183,007
Interest income from non-affiliates -- 6,774 -- -- -- 6,774
Other 6 8 81 96 15 206
-------- -------- -------- -------- -------- --------
Total revenue 50,542 13,488 31,017 52,249 42,691 189,987
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- 14,300 -- -- -- 14,300
Interest expense to affiliate -- 19,836 -- 3,660 -- 23,496
Administrative fees to general partner 6,000 6,000 3,000 3,000 3,000 21,000
General and administrative 900 900 900 900 900 4,500
-------- -------- -------- -------- -------- --------
Total costs and expenses 6,900 41,036 3,900 7,560 3,900 63,296
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 43,636 (27,548) 27,117 44,689 38,791 126,691
ROLL-UP EXPENSES 1,773 2,597 2,058 2,146 1,735 10,309
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 41,863 $(30,145) $ 25,059 $ 42,543 $ 37,056 $116,382
======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-20
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties. Equity Hybrid Pro Forma Pro Forma
L.P. Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $ 8,019,548 $ -- $15,387,336 $ 2,524,000(a) $17,911,336
Less accumulated depreciation (1,319,534) (1,223,439) -- (2,542,973) -- (2,542,973)
Investments in real estate
limited partnership 1,538,877 -- 741,720 2,280,597 -- 2,280,597
Cash and cash equivalents 97,454 204,785 2,498 304,737 -- 304,737
Restricted cash 158,545 -- -- 158,545 -- 158,545
Reimbursed administrative expenses
receivable, affiliates 116,595 -- -- 116,595 -- 116,595
Notes receivable from affiliates -- -- 436,500 436,500 1,048,000(a) 1,208,500
(276,000)(b)
Notes receivable from non-affiliates -- -- 640,000 640,000 -- 640,000
Advances receivable from affiliates -- -- 44,828 44,828 -- 44,828
Other receivables 43,911 -- 12,525 56,436 -- 56,436
Other property and equipment 148,682 -- -- 148,682 -- 148,682
Accrued interest receivable from
non-affiliates -- -- 19,538 19,538 -- 19,538
Accrued interest receivable from
affiliates -- -- 55,277 55,277 -- 55,277
Accounts receivable -- 4,287 -- 4,287 -- 4,287
Deferred expenses, net -- 696,815 -- 696,815 -- 696,815
Other assets 241,951 831,784 -- 1,073,735 -- 1,073,735
----------- ----------- --------- ----------- ----------- -----------
TOTAL $ 8,394,269 $ 8,533,780 $ 1,952,886 $18,880,935 $ 3,296,000 $22,176,935
----------- ----------- --------- ----------- ----------- -----------
----------- ----------- --------- ----------- ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 4,291,076 $ 5,263,931 $ -- $ 9,555,007 $ -- $ 9,555,007
Notes payable 120,000 -- 400,000 520,000 -- 520,000
Accounts payable and accrued
liabilities 480,026 -- -- 480,026 -- 480,026
Capital lease obligation 55,984 -- -- 55,984 -- 55,984
Advances payable to affiliates -- 966,334 -- 966,334 (276,000)(b) 690,334
Accrued interest and payable -- 63,606 57,271 120,877 -- 120,877
Accrued real estate taxes payable -- 63,329 -- 63,329 -- 63,329
Administrative fees payable to
general partner -- -- 28,893 28,893 -- 28,893
Security deposits and prepaid rent 37,496 35,902 -- 73,398 -- 73,398
Other liabilities -- 9,514 -- 9,514 -- 9,514
----------- ----------- --------- ----------- ----------- -----------
Total Liabilities 4,984,582 6,402,616 486,164 11,873,362 (276,000) 11,597,362
----------- ----------- --------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General partner (15,576) (60,116) (905) (76,597) 80,000(a) 3,403
Limited partners 3,425,263 2,191,280 1,467,627 7,084,170 3,492,000(a) 10,576,170
----------- ----------- --------- ----------- ----------- -----------
Total partners' capital 3,409,687 2,131,164 1,466,722 7,007,573 3,572,000 10,579,573
----------- ----------- --------- ----------- ----------- -----------
TOTAL $ 8,394,269 $ 8,533,780 $ 1,952,886 $18,880,935 $ 3,296,000 $22,176,935
----------- ----------- --------- ----------- ----------- -----------
----------- ----------- --------- ----------- ----------- -----------
PARTNERSHIP UNITS 1,865,511 744,100 2,609,611
----------- ----------- -----------
BOOK VALUE PER PARTNERSHIP UNIT $ 1.83 $ 4.05
----------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-21
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Laurel Forest Forest Forest
Oaks Glen I Glen II Glen III Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 2,269,579 $ 2,463,306 $ 1,713,856 $ 1,572,807 $ 8,019,548
Less accumulated depreciation (415,733) (316,632) (247,182) (243,892) (1,223,439)
Investments in partnership -- -- -- -- --
Cash and cash equivalents 77,434 58,909 33,434 35,008 204,785
Accounts receivable 2,739 548 315 685 4,287
Deferred expenses, net 188,763 241,025 133,392 133,635 696,815
Other assets 31,804 397,402 224,930 177,648 831,784
----------- ----------- ----------- ----------- -----------
TOTAL $ 2,154,586 $ 2,844,558 $ 1,858,745 $ 1,675,891 $ 8,533,780
=========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,588,191 $ 1,778,584 $ 1,027,626 $ 869,530 $ 5,263,931
Loans payable 300,080 528,863 81,869 55,522 966,334
Accrued interest and payable 3,900 10,549 33,476 15,681 63,606
Accrued real estate taxes payable 14,510 19,697 11,380 17,742 63,329
Security deposits and prepaid rent 14,360 8,383 9,089 4,070 35,902
Other liabilities 9,514 -- -- -- 9,514
----------- ----------- ----------- ----------- -----------
Total liabilities 1,930,555 2,346,076 1,163,440 962,545 6,402,616
----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (55,185) (6,175) 542 702 (60,116)
Limited Partners 279,216 504,657 694,763 712,644 2,191,280
----------- ----------- ----------- ----------- -----------
Total partners' capital 224,031 498,482 695,305 713,346 2,131,164
----------- ----------- ----------- ----------- -----------
TOTAL $ 2,154,586 $ 2,844,558 $ 1,858,745 $ 1,675,891 $ 8,533,780
=========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-22
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, BSIV IX,
Ltd. Ltd. Total
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ 496,755 $ 244,965 $ 741,720
Cash and cash equivalent 1,961 537 2,498
Notes receivable from affiliates 117,500 319,000 436,500
Notes receivable from non-affiliates 440,000 200,000 640,000
Advances receivable from affiliates 38,287 6,541 44,828
Other receivables 9,394 3,131 12,525
Accrued interest receivable from non-affiliates 19,538 -- 19,538
Accrued interest receivable from affiliates 5,829 49,448 55,277
----------- ----------- -----------
TOTAL $ 1,129,264 $ 823,622 $ 1,952,886
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Note payable $ 400,000 $ -- $ 400,000
Accrued interest payable 57,271 -- 57,271
Administrative fees payable to general partner 15,393 13,500 28,893
Other liabilities -- -- --
----------- ----------- -----------
Total Liabilities 472,664 13,500 486,164
----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (1,021) 116 (905)
Limited Partners 657,621 810,006 1,467,627
----------- ----------- -----------
Total Partners' Capital 656,600 810,122 1,466,722
----------- ----------- -----------
TOTAL $ 1,129,264 $ 823,622 $ 1,952,886
=========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-23
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------
Exchange
Mortgage
Partnerships
Baron and
Capital Exchange Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P. Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 512,133 $ 523,984 $ -- $ 1,036,117 $ -- $ 1,036,117
Interest income from
affiliates -- -- 29,157 29,157 -- 29,157
Interest income from
non-affiliates 768 -- 6,774 7,542 -- 7,542
Equity in net income
of affiliates -- -- 2,000 2,000 -- 2,000
Other income 78,372 38,542 11 116,925 -- 116,925
----------- ----------- --------- ----------- --------- -----------
Total revenue 591,273 562,526 37,942 1,191,741 -- 1,191,741
----------- ----------- --------- ----------- --------- -----------
COSTS AND EXPENSES:
Personnel, including
officer's compensation 369,372 44,077 -- 413,449 -- 413,449
Real estate taxes and
insurance 51,994 70,634 -- 122,628 -- 122,628
Management , investment
and administrative fees,
managing shareholder and
other operating expenses 77,504 -- -- 77,504 -- 77,504
Professional services 167,159 -- -- 167,159 -- 167,159
Advisory fees -- -- -- -- -- --
Property management fees -- 46,899 -- 46,899 -- 46,899
Interest 144,491 163,337 -- 307,828 -- 307,828
Depreciation 72,907 103,011 -- 175,918 (72,000)(a) 259,918
156,000(a)
Other operating expenses 189,800 107,251 2,347 299,398 -- 299,398
Major maintenance -- 15,674 -- 15,674 -- 15,674
Equity in net loss
of affiliates 29,093 -- 14,300 43,393 -- 43,393
Interest expense to
affiliate -- -- 19,836 19,836 -- 19,836
Administrative fees to
general partner -- -- 12,000 12,000 -- 12,000
----------- ----------- --------- ----------- --------- -----------
Total costs and expenses 1,102,320 550,883 48,483 1,701,686 84,000 1,785,686
----------- ----------- --------- ----------- --------- -----------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES (511,047) 11,643 (10,541) (509,945) (84,000) (593,945)
ROLL-UP EXPENSES 134,636 -- 2,597 137,233 -- 137,233
----------- ----------- --------- ----------- ----------- -----------
NET INCOME (LOSS) $ (645,683) $ 11,643 $ (13,138) $ (647,178) $ (84,000) $ (731,178)
=========== =========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF PARTNERSHIP UNITS
OUTSTANDING 1,802,522 744,100(c) 2,546,622
=========== =========== ===========
NET LOSS PER PARTNERSHIP
UNIT -- BASIC $ (0.36) $ (0.29)
=========== ===========
RATIO OF EARNINGS TO
FIXED CHARGES (1.23)
===========
DOLLAR AMOUNT OF THE
DEFICIENCY IN THE RATIO
OF EARNINGS TO FIXED CHARGES $ 731,178
===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-24
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Laurel Forest Forest Forest
Oaks Glen I Glen II Glen III Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 151,593 $ 183,738 $ 97,192 $ 91,461 $ 523,984
Other income 15,436 10,802 4,294 8,010 38,542
--------- --------- --------- --------- ---------
Total revenue 167,029 194,540 101,486 99,471 562,526
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Personnel 15,432 13,601 8,127 6,917 44,077
Real estate taxes and insurance 19,734 23,109 13,349 14,442 70,634
Property management fees 13,063 14,009 10,443 9,384 46,899
Interest 34,102 62,533 36,130 30,572 163,337
Depreciation 39,011 13,500 25,500 25,000 103,011
Other operating expenses 34,448 29,700 19,087 24,016 107,251
Major maintenance 4,744 3,927 3,820 3,183 15,674
--------- --------- --------- --------- ---------
Total costs and expenses 160,534 160,379 116,456 113,514 550,883
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 6,495 34,161 (14,970) (14,043) 11,643
ROLL-UP EXPENSES -- -- -- -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 6,495 $ 34,161 $ (14,970) $ (14,043) $ 11,643
========= ========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-25
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, BSIV IX,
Ltd. Ltd. Total
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 6,706 $ 22,451 $ 29,157
Interest income from non-affiliates 6,774 -- 6,774
Equity in net income of affiliates -- 2,000 2,000
Other 8 3 11
-------- -------- --------
Total revenue 13,488 24,454 37,942
-------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates 14,300 -- 14,300
Interest expense to affiliate 19,836 -- 19,836
Administrative fees to general partner 6,000 6,000 12,000
General and administrative 900 1,447 2,347
-------- -------- --------
Total costs and expenses 41,036 7,447 48,483
-------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (27,548) 17,007 (10,541)
ROLL-UP EXPENSES 2,597 -- 2,597
-------- -------- --------
NET INCOME (LOSS) $(30,145) $ 17,007 $(13,138)
======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-26
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital
Properties, Exchange Pro Forma Pro Forma
L.P. Partnerships Sub-Total Adjustments Consolidated
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (645,683) $ (1,495) $ (647,178) $ (84,000) $ (731,178)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 29,094 12,300 41,394 -- 41,394
Depreciation 72,907 103,011 175,918 84,000 259,918
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables 35,801 4,151 39,952 -- 39,952
Reimbursed administrative expenses receivable 38,476 (5,795) 32,681 -- 32,681
Other assets (51,102) (75,074) (126,176) -- (126,176)
Increase (decrease) in:
Accounts payable and accrued liabilities 236,672 (72,352) 164,320 -- 164,320
Other 20,973 75,462 96,435 -- 96,435
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (262,862) 40,208 (222,654) -- (222,654)
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Investments in partnerships (885,000) -- (885,000) -- (885,000)
Cash distributions from partnerships 27,000 26,616 53,616 -- 53,616
Purchases of other property and equipment (1,514) -- (1,514) -- (1,514)
Other -- 103,599 103,599 -- 103,599
Repayment of advances to affiliates 249,914 -- 249,914 -- 249,914
Increase in restricted cash (113,166) -- (113,166) -- (113,166)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (722,766) 130,215 (592,551) -- (592,551)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions 1,074,000 105,458 1,179,458 -- 1,179,458
Distributions paid (65,000) (143,138) (208,138) -- (208,138)
Payment on note payable (275,000) -- (275,000) -- (275,000)
Proceeds from mortgage financing 273,499 -- 273,499 -- 273,499
Payments on mortgages payable (22,141) (24,667) (46,808) -- (46,808)
Other 20,000 -- 20,000 -- 20,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 1,005,358 (62,347) 943,011 -- 943,011
----------- ----------- ----------- ----------- -----------
Net Increase in Cash and Cash Equivalents 19,730 108,076 127,806 -- 127,806
Cash and Cash Equivalents, Beginning 77,724 99,207 176,931 -- 176,931
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 97,454 $ 207,283 $ 304,737 $ -- $ 304,737
=========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-27
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 1999
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Baron Capital Properties, L.P. (the "Company") was organized in 1997
and commenced operations in 1998. The Company was organized to acquire
equity interests in residential apartment properties located in the
United States and to provide or acquire mortgage loans secured by such
types of property. The Company conducts the real estate operations and
holds all direct or indirect property interests acquired. The
unaudited pro forma condensed consolidated financial information
represents the acquisition of the Exchange Partnerships, which will be
accounted for under the purchase method of accounting. The Company has
estimated the adjustments required to allocate the aggregate purchase
price over the recorded book value of these partnerships. Such
allocations are subject to final determinations based on valuations
provided by the Company and other evaluations of fair value as if the
acquisitions had taken place on February 3, 1998. Therefore, the
allocations reflected in the unaudited pro forma condensed
consolidated financial information may differ from the amounts
ultimately determined. Differences between the amounts included herein
and the final allocations are not expected to have a material effect
on the unaudited pro forma financial statements.
The pro forma condensed consolidated financial information has been
prepared using four different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange
Partnerships" participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of
"Exchange Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the
"Exchange Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations
This presentation assumes that those "Exchange Partnerships" with
the lowest combined net cash provided by operations participate
in the offering.
For purposes of the Minimum Offering and Mid-Case Offering pro forma
information, the participating Exchange Partnerships have been
selected on an arbitrary basis. The actual selection of participating
Exchange Partnerships may differ from actual results if the offering
is less than 100%.
P-28
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
JUNE 30, 1999
(UNAUDITED)
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS
(a) Allocation of purchase price over book value of recorded
partnership assets based upon estimates of fair values
(valuations obtained by the Company) for limited partners and
general partners. The fair value of the general partner interest
is anticipated to be only a nominal amount with respect to each
Exchange Partnership.
Pro forma depreciation adjustment for the six months ended June
30, 1999 was based upon assets recorded at fair value at the
beginning of each period; primarily based upon 30 year asset
lives. The purchase was recorded at fair value as of February 3,
1998.
(b) Elimination of inter-company notes and advances. These amounts
have not been eliminated on the historical condensed balance
sheet of individual Exchange Mortgage and Exchange Hybrid
Partnerships as they are considered to be immaterial; however
these balances have been eliminated on the unaudited pro forma
condensed consolidated balance sheet.
(c) Pro forma weighted average units computation assuming that the
Exchange Transaction had been consummated as of February 3, 1998
(assuming units outstanding for entire period). The units issued
in the Exchange Transaction have been computed on the basis of
the estimated fair value of the partners' capital of the Exchange
Partnerships divided by $10 per unit.
<TABLE>
<CAPTION>
Maximum Minimum Mid-Case Lowest
------- ------- -------- ------
<S> <C> <C> <C> <C>
Units issued in connection
with Exchange Transaction 2,497,800 670,700 1,254,000 744,100
Weighted average units -- other 1,802,522 1,802,522 1,802,522 1,802,522
--------- --------- --------- ---------
Total 4,300,322 2,473,222 3,056,522 2,546,622
========= ========= ========= =========
</TABLE>
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ASSUMING PARTIAL
PARTICIPATION
The following table represents the effects on the pro forma condensed
consolidated financial information of the minority interests retained
if only 90% of the partnership units were to elect to participate in
the roll-up transaction. The maximum allowed retained minority
interest in each participating entity is 10%.
P-29
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
JUNE 30, 1999
(UNAUDITED)
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ASSUMING PARTIAL
PARTICIPATION (Continued)
<TABLE>
<CAPTION>
Lowest
Combined
Net Cash
Provided
Maximum By
Offering Operations
------------ ------------
Balance Sheet
June 30, 1999
-------------
<S> <C> <C>
Total assets $ 54,695,619 $ 22,176,935
============ ============
Total liabilities $ 26,984,618 $ 11,597,362
Minority interest 2,430,000 715,000
Partners' capital 25,281,001 9,864,573
------------ ------------
$ 54,695,619 $ 22,176,935
============ ============
Partnership units 4,113,531 2,535,201
============ ============
Book value per partnership unit $ 6.15 $ 3.89
============ ============
Statement of Operations
Six Months Ended June 30, 1999
------------------------------
Income (loss) before minority interest $ (731,854) $ (731,179)
Minority interest 73,000 73,000
------------ ------------
Net income (loss) $ (658,854) $ (658,179)
============ ============
Weighted average units used to compute
basic net loss per unit 4,050,542 2,472,212
============ ============
Basic net loss per unit $ (0.16) $ (0.27)
============ ============
</TABLE>
P-30
<PAGE>
BARON CAPITAL PROPERITIES, L.P.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 1998
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial information
of Baron Capital Properties, L.P. (the "Company") has been prepared giving
effect by the Company to the acquisition of the Exchange Equity Partnerships,
Exchange Mortgage Partnerships and Exchange Hybrid Partnerships (collectively
the "Exchange Partnerships") as if the acquisition transaction had taken place
at February 3, 1998 (inception):
Pro Forma Consolidated Statement of Operations from Inception (February 3,
1998) to December 31, 1998
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, pro forma adjustments to the assets have been made to
reflect the respective allocations of the estimated purchase prices. The
allocations were made based on valuations provided by the Company giving effect
to various economic and market factors.
The pro forma consolidated financial information has been prepared using four
different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange Partnerships"
participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of "Exchange
Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the "Exchange
Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations This presentation
assumes that those "Exchange Partnerships" with the lowest combined net
cash provided by operations participate in the offering.
The unaudited pro forma condensed consolidated financial information is not
necessarily indicative of the results of operations which would have been
attained had the acquisitions actually been consummated at the date of inception
or which may be attained in the future. The unaudited pro forma condensed
consolidated financial information should be read in conjunction with the
historical financial statements of Baron Capital Properties, L.P. and the
historical individual financial statements of each of the Exchange Partnerships.
P-31
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Baron Partnerships
Capital Exchange and Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P Partnerships Partnerships Sub-Total Adjustments Consolidated
---------- ------------ ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 826,646 $ 3,608,236 $ -- $ 4,434,882 $ -- $ 4,434,882
Interest income from affiliates -- -- 752,770 752,770 -- 752,770
Equity in net income of affiliates -- -- 4,162 4,162 -- 4,162
Other interest income 2,277 -- 15,025 17,301 -- 17,301
Other income 24,267 206,244 -- 230,511 -- 230,511
--------- --------- ------- --------- ------- ---------
Total revenue 853,190 3,814,480 771,956 5,439,627 -- 5,439,627
--------- --------- ------- --------- ------- ---------
COSTS AND EXPENSES:
Personnel, including officer's compensation 825,852 568,819 -- 1,394,671 -- 1,394,671
Real estate taxes and insurance 116,353 448,780 -- 565,133 -- 565,133
Management , investment and administrative fees, --
managing shareholder and other operating expenses 388,971 -- -- 388,971 -- 388,971
Property management fees 17,080 279,068 -- 296,147 -- 296,147
Interest 348,885 1,285,041 -- 1,633,926 -- 1,633,926
Depreciation 189,629 905,599 -- 1,095,227 (906,000)(a) 1,026,227
837,000 (a)
Other operating expenses -- 1,183,360 14,010 1,197,370 -- 1,197,370
Major maintenance 108,234 53,432 -- 161,666 -- 161,666
Equity in net loss of affiliates -- -- 68,232 68,232 -- 68,232
Interest expense to affiliate -- -- 76,425 76,425 -- 76,425
Administrative fees to general partner -- -- 90,485 90,485 -- 90,485
--------- --------- ------- --------- ------- ---------
Total costs and expenses 1,995,002 4,724,098 249,152 6,968,253 (69,000) 6,899,253
--------- --------- ------- --------- ------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,141,812) (909,618) 522,804 (1,528,626) 69,000 (1,459,626)
ROLL-UP EXPENSES 26,874 117,512 89,487 233,873 -- 233,873
--------- --------- ------- --------- ------- ---------
NET INCOME (LOSS) $(1,168,686) $(1,027,130) $ 433,317 $(1,762,499) $ 69,000 $(1,693,499)
--------- --------- ------- --------- ------- ---------
--------- --------- ------- --------- ------- ---------
WEIGHTED AVERAGE NUMBER OF PARTNERSHIP
UNITS OUTSTANDING 1,407,201 2,497,800(b) 3,905,001
--------- --------- ---------
--------- --------- ---------
NET LOSS PER UNIT - BASIC $ (0.83) $ (0.43)
----------- ---------
----------- ---------
RATIO OF EARNINGS TO FIXED CHARGES 0.05
----
----
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNINGS TO FIXED CHARGES $ 1,625,267
-----------
-----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-32
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
--------------- ---------------------------------------
Baron
Capital
Properties, Heatherwood Crystal
L.P. I Riverwalk Court II Total
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ 267,302 $ 301,856 $ 257,488 $ 826,646
Interest income 930 -- -- 1,347 2,277
Other income -- 10,209 10,917 3,141 24,267
----------- ----------- ----------- ----------- -----------
Total revenue 930 277,511 312,773 261,976 853,190
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance -- 34,885 45,197 36,271 116,353
Property management fees -- 8,343 -- 8,737 17,080
Interest 29,913 90,489 107,382 121,101 348,885
Depreciation 9,308 44,263 70,787 65,270 189,629
Major maintenance -- 25,426 22,423 60,385 108,234
Other operating expenses 199,927 74,201 88,588 26,254 388,971
----------- ----------- ----------- ----------- -----------
Total costs and expenses 957,863 328,766 364,952 343,421 1,995,002
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (956,933) (51,255) (52,179) (81,445) (1,141,812)
ROLL-UP EXPENSES 26,874 -- -- -- 26,874
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (983,807) $ (51,255) $ (52,179) $ (81,445) $(1,168,686)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-33
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
-----------------------------------------------------------------------------------------
Brookwood Laurel Forest Camellia
Steeplechase Way Oaks Bridgepoint Glen I Court
------------ --- ---- ----------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 270,132 $249,555 $ 255,753 $215,714 $328,386 $ 242,048
Other income 20,911 7,268 9,942 12,478 14,590 21,379
--------- -------- --------- -------- --------- ---------
Total revenue 291,043 256,823 265,695 228,192 342,976 263,427
--------- -------- --------- -------- --------- ---------
COSTS AND EXPENSES:
Personnel 54,568 27,948 36,580 17,374 49,635 31,926
Real estate taxes and insurance 33,861 20,531 28,884 22,602 42,239 35,957
Property management fees 20,965 19,918 21,987 18,783 23,408 20,372
Interest 83,414 92,759 106,296 62,186 105,797 89,433
Depreciation 49,136 54,399 72,474 35,717 184,353 44,934
Other operating expenses 104,684 30,778 43,463 76,467 56,084 84,957
Major maintenance 24,986 817 - - - -
--------- -------- --------- -------- --------- ---------
Total costs and expenses 371,614 247,150 309,684 233,129 461,516 307,579
--------- -------- --------- -------- --------- ---------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES (80,571) 9,673 (43,989) (4,937) (118,539) (44,152)
ROLL-UP EXPENSES 11,978 11,426 11,581 7,204 5,164 13,315
--------- -------- --------- -------- --------- ---------
NET INCOME (LOSS) $ (92,549) $ (1,753) $ (55,570) $(12,141) $(123,704) $ (57,467)
--------- -------- --------- -------- --------- ---------
--------- -------- --------- -------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Pro Forma (1)
---------------------------------------------------------------------------------------------
Glen Blossom Stadium Forest Forest Forest
Lake Corners I Club Glen IV Glen II Glen III Eagle Lake Total
---- --------- -------- ------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $638,190 $ 307,200 $ 360,773 $48,569 $ 185,674 $ 159,716 $346,526 $3,608,236
Other income 24,371 12,932 39,946 2,794 6,142 10,708 22,783 206,244
--------- --------- --------- ------- --------- --------- -------- ----------
Total revenue 662,561 320,132 400,719 51,363 191,816 170,424 369,309 3,814,480
--------- --------- --------- ------- --------- --------- -------- ----------
COSTS AND EXPENSES:
Personnel 156,433 39,883 70,712 5,524 18,549 16,007 43,680 568,819
Real estate taxes and insurance 101,437 29,650 28,529 6,678 24,571 23,340 50,501 448,780
Property management fees 16,186 24,813 40,309 7,881 15,641 14,440 34,366 279,068
Interest 288,407 84,968 128,218 16,246 60,344 51,059 115,913 1,285,041
Depreciation 130,738 63,927 82,397 15,321 53,323 48,383 70,496 905,599
Other operating expenses 392,311 66,086 130,290 13,140 48,739 46,027 90,335 1,183,360
Major maintenance - 19,923 - - - 7,705 - 53,432
--------- --------- --------- ------- --------- --------- -------- ----------
Total costs and expenses 1,085,512 329,250 480,455 64,790 221,167 206,962 405,291 4,724,098
--------- --------- --------- ------- --------- --------- -------- ----------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES (422,951) (9,118) (79,736) (13,427) (29,351) (36,538) (35,982) (909,618)
ROLL-UP EXPENSES 7,403 5,500 16,505 6,945 4,001 8,067 8,423 117,512
--------- --------- --------- ------- --------- --------- -------- ----------
NET INCOME (LOSS) $(430,354) $ (14,618) $ (96,241) $(20,372) $ (33,352) $ (44,604) $(44,405) $(1,027,130)
--------- --------- --------- ------- --------- --------- -------- ----------
--------- --------- --------- ------- --------- --------- -------- ----------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-34
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
-----------------------------------------------------------------------------------------
BSIF V, BSIF VIII, BSIF X, BSIF IX, BMP, LCOB, BSIF IV,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 85,060 $ 91,357 $24,748 $34,176 $ 66,683 $ 60,552 $ 150,553
Equity in net income of affiliates - - - - - - -
Other 447 691 8,767 3,314 32 143 310
-------- -------- -------- -------- -------- -------- -------
Total revenue 85,507 92,048 33,515 37,490 66,715 60,695 150,863
-------- -------- -------- -------- -------- -------- -------
COSTS AND EXPENSES:
General and administrative 1,812 1,026 - 290 - 1,182 6,957
Equity in net loss of affiliates - - 33,544 34,688 - - -
Interest expense to affiliate - - 33,949 - - - 36,626
Administrative fees to general partner 11,000 11,000 11,000 11,000 8,162 5,441 11,000
-------- -------- -------- -------- -------- -------- -------
Total costs and expenses 12,812 12,026 78,493 45,978 8,162 6,623 54,583
-------- -------- -------- -------- -------- -------- -------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 72,695 80,022 (44,978) (8,489) 58,553 54,072 96,280
ROLL-UP EXPENSES 5,000 16,996 15,969 8,648 3,223 3,670 2,950
-------- -------- -------- -------- -------- -------- -------
NET INCOME (LOSS) $ 67,695 $ 63,026 $(60,947) $(17,137) $ 55,330 $ 50,402 $93,330
-------- -------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
Pro Forma (1)
------------------------------------
BSVF I, BSIF VI, BSIF,
Ltd. Ltd. Ltd. Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 98,125 $ 45,963 $ 95,553 $ 752,770
Equity in net income of affiliates - 4,162 - 4,162
Other 405 584 331 15,025
-------- -------- -------- ---------
Total revenue 98,530 50,709 95,884 771,956
-------- -------- -------- ---------
COSTS AND EXPENSES:
General and administrative 22 2,721 - 14,010
Equity in net loss of affiliates - - - 68,232
Interest expense to affiliate 5,850 - - 76,425
Administrative fees to general partner 5,441 11,000 5,441 90,485
-------- -------- -------- ---------
Total costs and expenses 11,313 13,721 5,441 249,152
-------- -------- -------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 87,217 36,988 90,443 522,804
ROLL-UP EXPENSES 9,450 1,834 21,747 89,487
-------- -------- -------- ---------
NET INCOME (LOSS) $ 77,767 $ 35,154 $ 68,696 $ 433,317
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-35
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER, 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital
Properties, Exchange Pro Forma Pro Forma
L.P. Partnerships Sub-Total Adjsutments Consolidated
---- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,168,686) $(593,813) $(1,762,499) $ 69,000 $ (1,693,499)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 20,360 70,651 91,011 - 91,011
Provision for officer's compensation 197,000 - 197,000 - 197,000
Depreciation 189,629 905,599 1,095,228 (69,000) 1,026,228
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables (79,712) (2,068) (81,780) - (81,780)
Reimbursed administrative expenses receivable (155,071) 29,393 (125,678) - (125,678)
Other assets (131,794) (1,076,206) (1,208,000) - (1,208,000)
Increase (decrease) in:
Accounts payable and accrued liabilities 244,116 290,501 534,617 - 534,617
Other (70,997) 568,228 497,231 - 497,231
----------- --------- ----------- -------- ------------
Net cash used in operating activities (955,155) 192,285 (762,870) - (762,870)
----------- --------- ----------- -------- ------------
Cash Flows from Investing Activities:
Acquisitions of rental apartments (1,559,162) (356,353) (1,915,515) - (1,915,515)
Investments in partnerships (741,280) 27,000 (714,280) - (714,280)
Investment in notes receivable from affiliates - (1,247,063) (1,247,063) - (1,247,063)
Investment in notes receivable from non-affilates - (360,000) (360,000) - (360,000)
Cash distributions from partnerships 10,950 - 10,950 - 10,950
Purchases of other property and equipment (117,771) - (117,771) - (117,771)
Advances to non-affiliate - (46,778) (46,778) - (46,778)
Advances to affiliates (249,914) (365,924) (615,838) - (615,838)
Repayment of advances to affiliates - 472,638 472,638 - 472,638
Increase in restricted cash (45,379) - (45,379) - (45,379)
----------- --------- ----------- -------- ------------
Net cash used in investing activities (2,702,556) (1,876,480) (4,579,036) - (4,579,036)
----------- --------- ----------- -------- ------------
Cash Flows from Financing Activities:
Partners' capital contributions 3,958,240 1,198,294 5,156,534 - 5,156,534
Distribution paid - (1,484,292) (1,484,292) - (1,484,292)
Payment on note payable (200,000) - (200,000) - (200,000)
Proceeds from mortgage financing (19,019) 1,345,134 1,326,115 - 1,326,115
Payments on capital lease obligation (3,785) - (3,785) - (3,785)
Other - (433,936) (433,936) - (433,936)
----------- --------- ----------- -------- ------------
Net cash provided by financing activities 3,735,436 625,200 4,360,636 - 4,360,636
----------- --------- ----------- -------- ------------
Net (Decrease) in Cash and Cash Equivalents 77,725 (1,058,995) (981,270) - (981,270)
Cash and Cash Equivalents, Beginning - 1,347,757 1,347,757 - 1,347,757
----------- --------- ----------- -------- ------------
Cash and Cash Equivalents, Ending $ 77,725 $ 288,762 $ 366,487 $ - $ 366,487
----------- --------- ----------- -------- ------------
----------- --------- ----------- -------- ------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-36
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Baron Partnerships
Capital Exchange and Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P Partnerships Partnerships Sub-Total Adjustments Consolidated
---- ------------ ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 826,646 $ 1,088,667 $ -- $ 1,915,313 $ -- $ 1,915,313
Interest income from affiliates -- -- 183,425 183,425 -- 183,425
Other interest income 2,277 -- 9,315 11,592 -- 11,592
Other income 24,267 94,714 -- 118,981 -- 118,981
------------ ------------ --------- --------- -------- ----------
Total Revenue 853,190 1,183,381 192,740 2,229,311 -- 2,229,311
------------ ------------ --------- --------- -------- ----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 825,852 174,580 -- 1,000,432 -- 1,000,432
Real estate taxes and insurance 116,353 120,949 -- 237,302 -- 237,302
Management , investment and administrative fees,
managing shareholder and other operating expense 388,970 -- -- 388,970 -- 388,970
Property management fees 17,080 100,429 -- 117,509 -- 117,509
Interest 348,885 363,251 -- 712,136 -- 712,136
Depreciation 189,628 212,184 -- 401,812 (212,000)(a) 400,812
211,000 (a)
Other operating expenses -- 396,398 1,204 397,602 -- 397,602
Major maintenance 108,234 24,986 -- 133,220 -- 133,220
Equity in net loss of affiliates -- -- 33,544 33,544 -- 33,544
Interest expense to affiliate -- -- 39,799 39,799 -- 39,799
Administrative fees to general partner -- -- 21,882 21,882 -- 21,882
------------ ------------ --------- --------- -------- ----------
Total costs and expenses 1,995,002 1,392,777 96,429 3,484,208 (1,000) 3,483,208
------------ ------------ --------- --------- -------- ----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,141,812) (209,396) 96,311 (1,254,897) (1,000) (1,253,897)
ROLL-UP EXPENSES 26,874 49,002 29,089 104,965 -- 104,965
------------ ------------ --------- --------- -------- ----------
NET INCOME (L0SS) $(1,168,686) $ (258,398) $ 67,222 $(1,359,862) $ (1,000) $(1,358,862)
------------ ------------ --------- --------- -------- ----------
------------ ------------ --------- --------- -------- ----------
WEIGHTED AVERAGE NUMBER OF PARTNERSHIP
UNITS OUTSTANDING 1,407,201 670,700 (b) 2,077,901
------------ -------- ----------
------------ -------- ----------
NET LOSS PER UNIT - BASIC $ (0.83) $ (0.65)
------------ ----------
------------ ----------
RATIO OF EARNING TO FIXED
CHARGES (0.81)
------------
------------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNINGS TO FIXED CHARGES $ 1,358,862
------------
------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-37
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
---------- --------------------------------------
Baron
Capital
Properties, Heatherwood Crystal
L.P. I Riverwalk Court II Total
----- -- --------- -------- ------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ - $ 267,302 $ 301,856 $ 257,488 $ 826,646
Interest income 930 - - 1,347 2,277
Other income - 10,209 10,917 3,141 24,267
--------- --------- --------- --------- ---------
Total revenue 930 277,511 312,773 261,976 853,190
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Personnel, including officer's compensation 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance - 34,885 45,197 36,271 116,353
Property management fees - 8,343 - 8,737 17,080
Interest 29,913 90,489 107,382 121,101 348,885
Depreciation 9,308 44,263 70,787 65,270 189,628
Major maintenance - 25,426 22,423 60,385 108,234
Other operating expenses 199,927 74,201 88,588 26,254 388,970
--------- --------- --------- --------- ---------
Total costs and expenses 957,863 328,766 364,952 343,421 1,995,002
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (956,933) (51,255) (52,179) (81,445) (1,141,812)
ROLL-UP EXPENSES 26,874 - - - 26,874
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $(983,807) $ (51,255) $ (52,179) $ (81,445) $(1,168,686)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-38
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
------------------------------------------------------
Camellia Stadium
Steeplechase Bridgepoint Court Club Total
------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 270,132 $215,714 $ 242,048 $ 360,773 $ 1,088,667
Other income 20,911 12,478 21,379 39,946 94,714
--------- --------- --------- --------- ---------
Total revenue 291,043 228,192 263,427 400,719 1,183,381
--------- --------- --------- --------- ---------
Total revenue
COSTS AND EXPENSES:
Personnel 54,568 17,374 31,926 70,712 174,580
Real estate taxes and insurance 33,861 22,602 35,957 28,529 120,949
Property management fees 20,965 18,783 20,372 40,309 100,429
Interest 83,414 62,186 89,433 128,218 363,251
Depreciation 49,136 35,717 44,934 82,397 212,184
Other operating expenses 104,684 76,467 84,957 130,290 396,398
Major maintenance 24,986 - - - 24,986
--------- --------- --------- --------- ---------
Total costs and expenses 371,614 233,129 307,579 480,455 1,392,777
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (80,571) (4,937) (44,152) (79,736) (209,396)
ROLL-UP EXPENSES 11,978 7,204 13,315 16,505 49,002
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (92,549) $(12,141) $ (57,467) $ (96,241) $(258,398)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-39
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
-----------------------------
BSIF X, LCOB, BSVF I,
Ltd Ltd. Ltd. Total
---- ----- ----- -------
<S> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 24,748 $ 60,552 $ 98,125 $183,425
Other 8,767 143 405 9,315
--------- -------- --------- ---------
Total revenue 33,515 60,695 98,530 192,740
--------- -------- --------- ---------
COSTS AND EXPENSES:
General and administrative -- 1,182 22 1,204
Equity in net loss of affiliates 33,544 -- -- 33,544
Interest expense to affiliate 33,949 -- 5,850 39,799
Administrative fees to general partner 11,000 5,441 5,441 21,882
--------- -------- --------- ---------
Total costs and expenses 78,493 6,623 11,313 96,429
--------- -------- --------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (44,978) 54,072 87,217 96,311
ROLL-UP EXPENSES 15,969 3,670 9,450 29,089
--------- -------- --------- ---------
NET INCOME (LOSS) $(60,947) $ 50,402 $ 77,767 $ 67,222
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-40
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Baron Partnerships
Capital Exchange and Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P Partnerships Partnerships Sub-Total Adjustments Consolidated
----- ------------ ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 826,646 $ 1,902,109 $ -- $ 2,728,755 $ -- $ 2,728,755
Interest income from affiliates -- -- 364,038 364,038 -- 364,038
Other interest income 2,277 -- 10,093 12,370 -- 12,370
Other income 24,267 141,137 -- 165,404 -- 165,404
--------- ---------- --------- ----------- ---------- ----------
Total revenue 853,190 2,043,246 374,131 3,270,567 -- 3,270,567
--------- ---------- --------- ----------- ---------- ----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 825,852 274,150 -- 1,100,002 -- 1,100,002
Real estate taxes and insurance 116,353 224,440 -- 340,793 -- 340,793
Management , investment and administrative fees,
managing shareholder and other operating expenses 388,970 -- -- 388,970 -- 388,970
Property management fees 17,080 174,048 -- 191,128 -- 191,128
Interest 348,885 615,191 -- 964,076 -- 964,076
Depreciation 189,628 394,990 -- 584,618 (395,000)(a) 573,618
384,000 (a)
Other operating expenses -- 598,306 3,016 601,322 -- 601,322
Major maintenance 108,234 52,614 -- 160,848 -- 160,848
Equity in net loss of affiliates -- -- 33,544 33,544 -- 33,544
Interest expense to affiliate -- -- 39,799 39,799 -- 39,799
Administrative fees to general partner -- -- 38,323 38,323 -- 38,323
--------- ---------- --------- ----------- ---------- ----------
Total costs and expenses 1,995,002 2,333,739 114,682 4,443,423 (11,000) 4,432,423
--------- ---------- --------- ----------- ---------- ----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,141,812) (290,493) 259,449 (1,172,856) (11,000) (1,161,856)
ROLL-UP EXPENSES 26,874 70,992 55,836 153,702 -- 153,702
--------- ---------- --------- ----------- ---------- ----------
NET INCOME (LOSS) $(1,168,686) $ (361,485) $ 203,613 $(1,326,558) $ (11,000) $(1,315,558)
--------- ---------- --------- ----------- ---------- ----------
--------- ---------- --------- ----------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF PARTNERSHIP
UNITS OUTSTANDING 1,407,201 1,254,000(b) 2,661,201
--------- ------------ ---------
--------- ------------ ---------
NET LOSS PER UNIT - BASIC $ (0.83) $ (0.49)
--------- ---------
--------- ---------
RATIO OF EARNINGS TO FIXED
CHARGES (0.31)
--------
--------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNINGS TO FIXED CHARGES $ 1,315,558
----------
----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-41
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
----------- ----------------------------------------
Baron
Capital
Properties, Heatherwood Crystal
L.P I Riverwalk Court II Total
--- - --------- -------- ------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ 267,302 $301,856 $257,488 $ 826,646
Interest income 930 -- -- 1,347 2,277
Other income -- 10,209 10,917 3,141 24,267
------------ ------------ --------- --------- ---------
Total revenue 930 277,511 312,773 261,976 853,190
------------ ------------ --------- --------- ---------
COSTS AND EXPENSES:
Personnel, including officer's compensation 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance -- 34,885 45,197 36,271 116,353
Property management fees -- 8,343 -- 8,737 17,080
Interest 29,913 90,489 107,382 121,101 348,885
Depreciation 9,308 44,263 70,787 65,270 189,628
Major Maintenance -- 25,426 22,423 60,385 108,234
Other operating expenses 199,927 74,201 88,588 26,254 388,970
------------ ------------ --------- --------- ---------
Total costs and expenses 957,863 328,766 364,952 343,421 1,995,002
------------ ------------ --------- --------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (956,933) (51,255) (52,179) (81,445) (1,141,812)
ROLL-UP EXPENSES 26,874 -- -- -- 26,874
------------ ------------ --------- --------- ---------
NET INCOME (LOSS) $ (983,807) $ (51,255) $ (52,179) $ (81,445) $(1,168,686)
------------ ------------ --------- --------- ---------
------------ ------------ --------- --------- ---------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-42
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
---------------------------------------------------------------------------------
Camellia Blossom Forest Stadium
Steeplechase Bridgepoint Court Corners I Glen III Club Eagle Lake Total
------------ ----------- ----- --------- -------- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 270,132 $215,714 $ 242,048 $ 307,200 $ 159,716 $ 360,773 $346,526 $ 1,902,109
Other income 20,911 12,478 21,379 12,932 10,708 39,946 22,783 141,137
--------- -------- --------- --------- --------- --------- -------- -----------
Total revenue 291,043 228,192 263,427 320,132 170,424 400,719 369,309 2,043,246
--------- -------- --------- --------- --------- --------- -------- -----------
COSTS AND EXPENSES:
Personnel 54,568 17,374 31,926 39,883 16,007 70,712 43,680 274,150
Real estate taxes and insurance 33,861 22,602 35,957 29,650 23,340 28,529 50,501 224,440
Property management fees 20,965 18,783 20,372 24,813 14,440 40,309 34,366 174,048
Interest 83,414 62,186 89,433 84,968 51,059 128,218 115,913 615,191
Depreciation 49,136 35,717 44,934 63,927 48,383 82,397 70,496 394,990
Other operating expenses 104,684 76,467 84,957 66,086 45,487 130,290 90,335 598,306
Major maintenance 24,986 - - 19,923 7,705 - - 52,614
--------- -------- --------- --------- --------- --------- -------- -----------
Total costs and expenses 371,614 233,129 307,579 329,250 206,421 480,455 405,291 2,333,739
--------- -------- --------- --------- --------- --------- -------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (80,571) (4,937) (44,152) (9,118) (35,997) (79,736) (35,982) (290,493)
ROLL-UP EXPENSES 11,978 7,204 13,315 5,500 8,067 16,505 8,423 70,992
--------- -------- --------- --------- --------- --------- -------- -----------
NET INCOME (LOSS) $ (92,549) $ (12,141) $ (57,467) $ (14,618) $ (44,064) $ (96,241) $ (44,405) $ (361,485)
--------- -------- --------- --------- --------- --------- -------- -----------
--------- -------- --------- --------- --------- --------- -------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-43
<PAGE>
BARON CAPITAL PROPERTES, L.P.
ASSUMING MID-CASE OFFERING
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
--------------------------------------------------------
BSIF V, BSIF X, LCOB, BSVF I, BSIF,
Ltd. Ltd. Ltd. Ltd. Ltd. Total
-------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 85,060 $24,748 $ 60,552 $ 98,125 $ 95,553 $ 364,038
Other 447 8,767 143 405 331 10,093
-------- ------- -------- -------- -------- ---------
Total revenue 85,507 33,515 60,695 98,530 95,884 374,131
-------- ------- -------- -------- -------- ---------
COSTS AND EXPENSES:
General and administrative 1,812 - 1,182 22 - 3,016
Equity in net loss of affiliates - 33,544 - - - 33,544
Interest expense to affiliate - 33,949 - 5,850 - 39,799
Administrative fees to general partner 11,000 11,000 5,441 5,441 5,441 38,323
-------- ------- -------- -------- -------- ---------
Total costs and expenses 12,812 78,493 6,623 11,313 5,441 114,682
-------- ------- -------- -------- -------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 72,695 (44,978) 54,072 87,217 90,443 259,449
ROLL-UP EXPENSES 5,000 15,969 3,670 9,450 21,747 55,836
-------- ------- -------- -------- -------- ---------
NET INCOME (LOSS) $ 67,695 $(60,947) $ 50,402 $ 77,767 $ 68,696 $ 203,613
-------- ------- -------- -------- -------- ---------
-------- ------- -------- -------- -------- ---------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-44
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Baron Partnerships
Capital Exchange and Exchange
Properties, Equity Hybrid Pro Forma Pro Forma
L.P Partnerships Partnerships Sub-Total Adjustments Consolidated
--- ------------ ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 826,646 $ 929,530 $ -- $ 1,756,176 $ -- $ 1,756,176
Interest income from affiliates -- -- 58,923 58,923 -- 58,923
Other interest income 2,277 -- 12,080 14,357 -- 14,357
Equity in net income of affiliates -- -- -- -- -- --
Other income 24,267 41,382 -- 65,649 -- 65,649
---------- ---------- --------- ----------- --------- -------------
Total revenue 853,190 970,912 71,003 1,895,105 -- 1,895,105
---------- ---------- --------- ----------- --------- -------------
COSTS AND EXPENSES:
Personnel, including officer's compensation 825,852 120,771 -- 946,622 -- 946,622
Real estate taxes and insurance 116,353 119,035 -- 235,387 -- 235,387
Management , investment and administrative
fees, managing shareholder and other
operating expenses 388,971 -- -- 388,971 -- 388,971
Property management fees 17,080 75,475 -- 92,555 -- 92,555
Interest 348,885 323,496 33,949 706,330 -- 706,330
Depreciation 189,629 358,533 -- 548,162 (358,000) (a) 474,162
284,000 (a)
Other operating expenses -- 194,313 290 194,603 -- 194,603
Major maintenance 108,234 7,705 -- 115,940 -- 115,940
Equity in net loss of affiliates -- -- 68,232 68,232 -- 68,232
Administrative fees to general partner -- -- 22,000 22,000 -- 22,000
---------- ---------- --------- ----------- --------- -------------
Total costs and expenses 1,995,002 1,199,328 124,471 3,318,802 (74,000) 3,244,802
---------- ---------- --------- ----------- --------- -------------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,141,812) (228,417) (53,468) (1,423,697) (74,000) (1,349,697)
ROLL-UP EXPENSES 26,874 28,813 24,617 80,304 -- 80,304
---------- ---------- --------- ----------- --------- -------------
NET INCOME (LOSS) $(1,168,686) $(257,230) $(78,085) $(1,504,001) $ (74,000) $ (1,430,001)
---------- ---------- --------- ----------- --------- -------------
---------- ---------- --------- ----------- --------- -------------
WEIGHTED AVERAGE NUMBER OF PARTNERSHIP
UNITS OUTSTANDING 1,407,201 744,100 (b) 2,151,301
---------- --------- -------------
---------- --------- -------------
NET LOSS PER UNIT - BASIC $ (0.83) $ (0.66)
---------- -------------
---------- -------------
RATIO OF EARNINGS TO FIXED
CHARGES (1.02)
-------------
-------------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNINGS TO FIXED CHARGES $ 1,430,001
-------------
-------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-45
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
--------------- ----------------------------------------------
Baron
Capital
Properties, Heatherwood Crystal
L.P. I Riverwalk Court II Total
---- - --------- -------- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ 267,302 $ 301,856 $ 257,488 $ 826,646
Interest income 930 -- -- 1,347 2,277
Other income -- 10,209 10,917 3,141 24,267
----------- ----------- ----------- ----------- -----------
Total revenue 930 277,511 312,773 261,976 853,190
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance -- 34,885 45,197 36,271 116,353
Property management fees -- 8,343 -- 8,737 17,080
Interest 29,913 90,489 107,382 121,101 348,885
Depreciation 9,308 44,263 70,787 65,270 189,629
Major maintenance -- 25,426 22,423 60,385 108,234
Other operating expenses 199,927 74,201 88,588 26,254 388,971
----------- ----------- ----------- ----------- -----------
Total costs and expenses 957,863 328,766 364,952 343,421 1,995,002
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES $ (956,933) $ (51,255) $ (52,179) $ (81,445) $(1,141,812)
ROLL-UP EXPENSES 26,874 -- -- -- 26,874
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (983,807) $ (51,255) $ (52,179) $ (81,445) $(1,168,686)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-46
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------
Laurel Forest Forest Forest
Oaks Glen I Glen II Glen III Total
---- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 255,753 $ 328,386 $ 185,674 $ 159,716 $ 929,530
Other income 9,942 14,590 6,142 10,708 41,382
----------- ----------- ----------- ----------- -----------
Total revenue 265,695 342,976 191,816 170,424 970,912
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 36,580 49,635 18,549 16,007 120,771
Real estate taxes and insurance 28,884 42,239 24,571 23,340 119,035
Property management fees 21,987 23,408 15,641 14,440 75,475
Interest 106,296 105,797 60,344 51,059 323,496
Depreciation 72,474 184,353 53,323 48,383 358,533
Other operating expenses 43,463 56,084 48,739 46,027 194,313
Major maintenance -- -- -- 7,705 7,705
----------- ----------- ----------- ----------- -----------
Total costs and expenses 309,684 461,516 221,167 206,961 1,199,328
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES $ (43,989) $ (118,540) $ (29,351) $ (36,537) $ (228,417)
ROLL-UP EXPENSES 11,581 5,164 4,001 8,067 28,813
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (55,570) $ (123,704) $ (33,352) $ (44,604) $ (257,230)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-47
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------
BSIF X, BSIF IX,
Ltd. Ltd. Total
---- ---- -----
<S> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 24,747 $ 34,176 $ 58,923
Other 8,767 3,313 12,080
-------- -------- --------
Total revenue 33,514 37,488 71,003
-------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates 33,544 34,688 68,232
Interest expense to affiliate 33,949 -- 33,949
Administrative fees to general partner 11,000 11,000 22,000
General and administrative -- 290 290
-------- -------- --------
Total costs and expenses 78,493 45,978 124,471
-------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (44,979) (8,490) (53,468)
ROLL-UP EXPENSES 15,969 8,648 24,617
-------- -------- --------
NET INCOME (LOSS) $(60,948) $(17,138) $(78,085)
-------- -------- --------
-------- -------- --------
</TABLE>
(1) Results of operations presented as if Baron Capital Properties, L.P.
owned each entity for the period from inception (February 3, 1998) to
December 31, 1998. Historical results for the year ended December 31,
1998 have been reduced on a pro rata basis to reflect the estimated
operating results for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-48
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital
Properties Exchange Pro Forma Pro Forma
L.P Partnerships Sub-Total Adjustments Consolidated
--- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,168,686) $ (335,315) $(1,504,001) $ 74,000 $(1,430,001)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 20,360 75,241 95,601 -- 95,601
Provision for officer's compensation 197,000 -- 197,000 -- 197,000
Depreciation 189,629 358,533 548,162 (74,000) 474,162
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables (79,712) 1,295 (78,417) -- (78,417)
Reimbursed administrative expenses receivable (155,071) 3,893 (151,178) -- (151,178)
Other assets (131,794) (1,113,399) (1,245,193) -- (1,245,193)
Increase (decrease) in:
Accounts payable and accrued liabilities 244,116 (75,114) 169,002 -- 169,002
Other (70,997) (86,082) (157,079) -- (157,079)
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (955,155) (1,170,948) (2,126,103) -- (2,126,103)
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments (1,559,162) (128,742) (1,687,904) -- (1,687,904)
Investments in partnerships (741,280) -- (741,280) -- (741,280)
Investment in notes receivable from affiliates -- (904,046) (904,046) -- (904,046)
Investment in notes receivable from non-affiliates -- (200,000) (200,000) -- (200,000)
Cash distributions from partnerships 10,950 -- 10,950 -- 10,950
Purchases of other property and equipment (117,771) -- (117,771) -- (117,771)
Advances to non-affiliate -- (42,396) (42,396) -- (42,396)
Advances to affiliates (249,914) (3,372) (253,286) -- (253,286)
Repayment of notes receivable from affiliates -- 160,000 160,000 -- 160,000
Repayment of advances to affiliates -- 18,213 18,213 -- 18,213
Increase in restricted cash (45,379) -- (45,379) -- (45,379)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (2,702,556) (1,100,343) (3,802,899) -- (3,802,899)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions 3,958,240 957,591 4,915,831 -- 4,915,831
Distributions paid -- (270,172) (270,172) -- (270,172)
Payment on note payable (200,000) (200,000) -- (200,000)
Proceeds from mortgage financing -- 1,519,580 1,519,580 -- 1,519,580
Payments on capital lease obligation (3,785) (3,785) -- (3,785)
Other (19,019) (260,495) (279,514) -- (279,514)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 3,735,436 1,946,504 5,681,940 -- 5,681,940
----------- ----------- ----------- ----------- -----------
Net Decrease in Cash and Cash Equivalents 77,725 (324,787) (247,062) -- (247,062)
Cash and Cash Equivalents, Beginning -- 423,993 423,993 -- 423,993
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 77,725 $ 99,206 $ 176,931 $ -- $ 176,931
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-49
<PAGE>
BARON CAPITAL PROPERITIES, L.P.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 1998
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Baron Capital Properties, L.P. (the "Company") was organized in 1997
and commenced operations in 1998. The Company has been organized to
acquire equity interests in residential apartment properties located in
the United States and to provide or acquire mortgage loans secured by
such types of property. The Company conducts all of the real estate
operations and holds all direct or indirect property interests
acquired. During 1998, the Company acquired three limited partnerships.
Each of the limited partnerships' results of operations has been
presented as if the partnerships were owned for the period form
inception (February 3, 1998) to December 31, 1998. The unaudited pro
forma condensed consolidated financial information represents the
acquisition of the Exchange Partnerships which will be accounted for
under the purchase method of accounting. The Company has estimated the
adjustments required to allocate the aggregate purchase price over the
recorded book value of these partnerships. Such allocations are subject
to final determinations based on valuations provided by the Company and
other evaluations of fair value as if the acquisitions were effective
as of February 3, 1998. Therefore, the allocations reflected in the
unaudited pro forma condensed consolidated financial information may
differ from the amounts ultimately determined. Differences between the
amounts included herein and the final allocations are not expected to
have a material effect on the unaudited pro forma financial statements.
The pro forma consolidated financial information has been prepared
using four different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange
Partnerships" participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of
"Exchange Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the
"Exchange Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations
This presentation assumes that those "Exchange Partnerships"
with the lowest combined net cash provided by operations
participate in the offering.
For purposes of the Minimum Offering and Mid-Case Offering pro forma
information, the participating Exchange Partnerships have been selected
on an arbitrary basis. The actual selection of participating Exchange
Partnerships may differ from actual results if the offering is less
than 100%.
P-50
<PAGE>
BARON CAPITAL PROPERITIES, L.P.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
DECEMBER 31, 1998
(UNAUDITED)
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS
(a) Pro forma depreciation adjustment for the period ended December 31,
1998 is based upon assets recorded at fair value at February 3, 1998:
primarily based upon 30 year asset lives.
(b) Pro forma weighted average units computation assuming that the
Exchange Transaction had been consummated as of February 3, 1998
(assuming units outstanding for entire period). The units issued in the
Exchange Transaction have been computed on the basis of the estimated
fair value of the partners' capital of the Exchange Partnerships divided
by $10 per unit.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MAXIMUM MINIMUM MID-CASE LOWEST
--------- --------- --------- ---------
Unit issued in connection with Exchange
Transaction 2,497,800 670,700 1,254,000 744,100
Weighted units - other 1,407,201 1,407,201 1,407,201 1,407,201
--------- --------- --------- ---------
Total 3,905,001 2,077,901 2,661,201 2,151,301
========= ========= ========= =========
</TABLE>
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ASSUMING PARTIAL
PARTICIPATION
The following table represents the effects on the pro forma condensed
consolidated financial information of the minority interests retained
if only 90% of the partnership units were to elect to participate in
the roll-up transaction. The maximum allowed retained minority interest
in each participating entity is 10%.
P-51
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
DECEMBER 31, 1998
(UNAUDITED)
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ASSUMING PARTIAL
PARTICIPATION (Continued)
<TABLE>
<CAPTION>
Lowest
Combined
Net Cash
Provided
Maximum By
Offering Operations
-------- ----------
Statement of Operations
Inception (February 3, 1998) to December 31, 1998
-------------------------------------------------
<S> <C> <C>
Income (loss) before minority interest $(1,574,302) $(1,317,391)
Minority interest 157,000 132,000
----------- -----------
Net income (loss) $(1,417,302) $(1,185,391)
========== ==========
Weighted average units used to compute
basic net loss per unit 3,655,221 2,076,891
========= =========
Basic net loss per unit $ (0.39) $ (0.57)
============ ============
</TABLE>
P-52
<PAGE>
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 1999
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial information
of Baron Capital Trust (the "Trust") has been prepared giving effect by the
Trust to the acquisition of the Exchange Equity Partnerships, Exchange Mortgage
Partnerships and Exchange Hybrid Partnerships (collectively the "Exchange
Partnerships") as if the acquisition transaction had taken place at February 3,
1998 (inception).
Pro Forma Consolidated Balance Sheet - June 30, 1999
Pro Forma Consolidated Statement of Operations for the Six Months Ended
June 30, 1999
Pro Forma Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 1999
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, pro forma adjustments to the assets have been made to
reflect the respective allocations of the estimated purchase prices. The
allocations were made based on valuations provided by the Company giving effect
to various economic and market factors.
The pro forma condensed consolidated financial information has been prepared
using four different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange Partnerships"
participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of "Exchange
Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the "Exchange
Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations
This presentation assumes that those "Exchange Partnerships" with the
lowest combined net cash provided by operations participate in the
offering.
The unaudited pro forma condensed consolidated financial information is not
necessarily indicative of the results of operations or the financial position
which would have been attained had the acquisitions actually been consummated at
either of the foregoing dates or which may be attained in the future. The
unaudited pro forma condensed consolidated financial information should be read
in conjunction with the historical financial statements of Baron Capital Trust
and the historical individual financial statements of each of the Exchange
Partnerships.
P-53
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
------------ ------------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $ 25,774,443 $ -- $ 33,142,231 $ 6,944,000 (a) $ 40,086,231
Less accumulated depreciation (1,319,534) (3,160,869) -- (4,480,403) -- (4,480,403)
Investments in real estate
limited partnership 1,538,877 -- 1,027,229 2,566,106 -- 2,566,106
Cash and cash equivalents 145,964 756,776 15,516 918,256 -- 918,256
Restricted cash 158,545 -- -- 158,545 -- 158,545
Reimbursed administrative
expenses receivable, affiliates 116,595 -- -- 116,595 -- 116,595
Notes receivable from affiliates -- -- 5,392,024 5,392,024 4,137,000 (a) 9,253,024
(276,000)(b)
Notes receivable from
non-affiliates -- -- 800,000 800,000 -- 800,000
Advances receivable from
affiliates -- -- 398,827 398,827 -- 398,827
Other receivables (872) -- 12,525 11,653 -- 11,653
Other property and equipment 157,241 -- -- 157,241 -- 157,241
Accrued interest receivable
from non-affiliates -- -- 19,538 19,538 -- 19,538
Accrued interest receivable
from affiliates -- -- 892,787 892,787 -- 892,787
Accounts receivable -- 79,754 -- 79,754 -- 79,754
Deferred expenses, net -- 2,101,043 -- 2,101,043 -- 2,101,043
Other assets 243,655 1,386,757 -- 1,630,412 -- 1,630,412
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 8,408,259 $ 26,937,904 $ 8,558,446 $ 43,904,609 $ 10,805,000 $ 54,709,609
------------ ------------ ------------ ------------ ------------ ------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgages payable $ 4,291,076 $ 17,221,553 $ -- $ 21,512,629 $ -- $ 21,512,629
Notes payable 120,000 -- 659,638 779,638 -- 779,638
Accounts payable and
accrued liabilities 483,207 -- -- 483,207 -- 483,207
Capital lease obligation 55,984 -- -- 55,984 -- 55,984
Advances payable to
affiliates -- 3,023,950 113,106 3,137,056 (276,000)(b) 2,861,056
Accrued interest and payable -- 502,140 124,052 626,192 -- 626,192
Accrued real estate
taxes payable -- 203,047 -- 203,047 -- 203,047
Administrative fees payable
to general partner -- -- 190,893 190,893 -- 190,893
Security deposits and
prepaid rent 37,496 151,865 -- 189,361 -- 189,361
Other liabilities -- 85,392 400 85,792 -- 85,792
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities 4,987,763 21,187,947 1,088,089 27,263,799 (276,000) 26,987,799
------------ ------------ ------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY:
Common shares of beneficial
interest, no par value 6,135,754 -- -- 6,135,754 24,301,314 (d) 30,437,068
Distributions (239,755) -- -- (239,755) -- (239,755)
Deficit (2,475,503) -- -- (2,475,503) -- (2,475,503)
General partner -- (79,811) 5,689 (74,122) 80,000 (a)
(5,878)(d) --
Limited partners -- 5,829,768 7,464,668 13,294,436 11,001,000 (a)
-- -- -- -- (24,295,436)(d) --
------------ ------------ ------------ ------------ ------------ ------------
Total shareholders' equity 3,420,496 5,749,957 7,470,357 16,640,810 11,081,000 27,721,810
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 8,408,259 $ 26,937,904 $ 8,558,446 $ 43,904,609 $ 10,805,000 $ 54,709,609
============ ============ ============ ============ ============ ============
COMMON SHARES OF BENEFICIAL
INTEREST 644,696 2,497,800 (c) 3,142,496
============ ============ ============
BOOK VALUE PER COMMON SHARE
OF BENEFICIAL INTEREST $ 5.31 $ 8.82
============ ============
</TABLE>
See notes to unaudited proforma condensed consolidated financial information.
P-54
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
EXCHANGE EQUITY PARTNERSHIPS
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Eagle Brookwood Laurel Bridge
Steeplechase Lake Way Oaks Point
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 1,821,218 $ 2,240,099 $ 1,813,475 $ 2,269,579 $ 1,274,766
Less accumulated depreciation (145,202) (281,365) (154,620) (415,733) (146,842)
Investments in partnership -- -- -- -- --
Cash and cash equivalents 42,677 80,051 48,813 77,434 45,960
Accounts receivable 4,602 2,518 1,930 2,739 2,081
Deferred expenses, net -- 41,326 123,350 188,763 149,087
Other assets 197,431 159,390 2,168 31,804 (2,801)
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,835,116 $ 2,154,586 $ 1,322,251
------------ ------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,254,307 $ 1,427,797 $ 1,283,082 $ 1,588,191 $ 710,881
Loans payable 75,460 392,427 394,069 300,080 32,000
Accrued interest and payable 64,973 1,473 25,086 3,900 4,283
Accrued real estate taxes payable 15,156 13,900 9,770 14,510 9,368
Security deposits and prepaid rent 16,572 14,775 16,818 14,360 9,946
Other liabilities 992 (1,000) -- 9,514 --
------------ ------------ ------------ ------------ ------------
Total Liabilities 1,427,460 1,849,372 1,728,825 1,930,555 766,478
------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General Partner (2,416) (1,588) (4,763) (55,185) 723
Limited Partners 495,682 394,235 111,054 279,216 555,050
------------ ------------ ------------ ------------ ------------
Total Partners' Capital 493,266 392,647 106,291 224,031 555,773
------------ ------------ ------------ ------------ ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,835,116 $ 2,154,586 $ 1,322,251
------------ ------------ ------------ ------------ ------------
<CAPTION>
Forest Camellia Stadium Forest
Glen I Court Glen Lake Club Glen IV
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 2,463,306 $ 1,530,266 $ 4,546,682 $ 2,247,944 $ 497,652
Less accumulated depreciation (316,632) (175,080) (487,479) (258,364) (99,861)
Investments in partnership -- -- -- -- --
Cash and cash equivalents 58,909 64,215 101,439 43,471 11,486
Accounts receivable 548 2,489 40,919 32,997 (441)
Deferred expenses, net 241,025 173,967 369,767 302,051 29,243
Other assets 397,402 22,847 93,552 23,881 70,490
------------ ------------ ------------ ------------ ------------
TOTAL $ 2,844,558 $ 1,618,704 $ 4,664,880 $ 2,391,980 $ 508,569
------------ ------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,778,584 $ 1,065,887 $ 3,209,477 $ 1,712,134 $ 276,669
Loans payable 528,863 112,000 814,262 143,103 61,226
Accrued interest and payable 10,549 (3,377) 310,364 24,250 11,482
Accrued real estate taxes payable 19,697 14,705 49,515 10,384 3,064
Security deposits and prepaid rent 8,383 14,824 11,518 14,072 1,475
Other liabilities -- -- 42,545 11,061 30,078
------------ ------------ ------------ ------------ ------------
Total Liabilities 2,346,076 1,204,039 4,437,681 1,915,004 383,994
------------ ------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General Partner (6,175) (821) (10,661) (476) (24)
Limited Partners 504,657 415,486 237,860 477,452 124,599
------------ ------------ ------------ ------------ ------------
Total Partners' Capital 498,482 414,665 227,199 476,976 124,575
------------ ------------ ------------ ------------ ------------
TOTAL $ 2,844,558 $ 1,618,704 $ 4,664,880 $ 2,391,980 $ 508,569
------------ ------------ ------------ ------------ ------------
<CAPTION>
Forest Forest Blossom
Glen II Glen III Corners I Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Real estate $ 1,713,856 $ 1,572,807 $ 1,782,793 $ 25,774,443
Less accumulated depreciation (247,182) (243,892) (188,617) (3,160,869)
Investments in partnership -- -- -- --
Cash and cash equivalents 33,434 35,008 113,879 756,776
Accounts receivable 315 685 (11,628) 79,754
Deferred expenses, net 133,392 133,635 215,437 2,101,043
Other assets 224,930 177,648 (11,985) 1,386,757
------------ ------------ ------------ ------------
TOTAL $ 1,858,745 $ 1,675,891 $ 1,899,879 $ 26,937,904
------------ ------------ ------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,027,626 $ 869,530 $ 1,017,388 $ 17,221,553
Loans payable 81,869 55,522 33,069 3,023,950
Accrued interest and payable 33,476 15,681 -- 502,140
Accrued real estate taxes payable 11,380 17,742 13,856 203,047
Security deposits and prepaid rent 9,089 4,070 15,963 151,865
Other liabilities -- -- (7,798) 85,392
------------ ------------ ------------ ------------
Total Liabilities 1,163,440 962,545 1,072,478 21,187,947
------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General Partner 542 702 331 (79,811)
Limited Partners 694,763 712,644 827,070 5,829,768
------------ ------------ ------------ ------------
Total Partners' Capital 695,305 713,346 827,401 5,749,957
------------ ------------ ------------ ------------
TOTAL $ 1,858,745 $ 1,675,891 $ 1,899,879 $ 26,937,904
------------ ------------ ------------ ------------
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-55
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV VIII, BSIV X, BSIV IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ -- $ -- $ 496,755 $ 244,965 $ -- $ --
Cash and cash equivalents 485 134 1,961 537 526 25
Notes receivable from affiliates 706,100 807,155 117,500 319,000 474,191 365,000
Notes receivable from non-affiliates -- -- 440,000 200,000 -- --
Advances receivable from affiliates 116,402 10,000 38,287 6,541 -- 93,302
Other receivables -- -- 9,394 3,131 -- --
Accrued interest receivable from non-affiliates -- -- 19,538 -- -- --
Accrued interest receivable from affiliates 41,775 72,700 5,829 49,448 109,121 133,207
---------- ---------- ----------- ---------- ---------- -----------
TOTAL $ 864,762 $ 889,989 $ 1,129,264 $ 823,622 $ 583,838 $ 591,534
========== ========== =========== ========== ========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ -- $ -- $ 2,850 $ --
Note payable -- -- 400,000 -- -- --
Accrued interest payable -- -- 57,271 -- -- --
Administrative fees payable to general partner 13,000 13,000 15,393 13,500 31,500 13,500
Other liabilities -- -- -- -- -- --
---------- ---------- ----------- ---------- ---------- -----------
Total Liabilities 13,000 13,000 472,664 13,500 34,350 13,500
---------- ---------- ----------- ---------- ---------- -----------
PARTNERS' CAPITAL:
General Partner 488 487 (1,021) 116 1,877 341
Limited Partners 851,274 876,502 657,621 810,006 547,611 577,693
---------- ---------- ----------- ---------- ---------- -----------
Total Partners' Capital 851,762 876,989 656,600 810,122 549,488 578,034
---------- ---------- ----------- ---------- ---------- -----------
TOTAL $ 864,762 $ 889,989 $ 1,129,264 $ 823,622 $ 583,838 $ 591,534
========== ========== =========== ========== ========== ===========
<CAPTION>
BSIV IV, BSVF I, BSIV VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ -- $ -- $ 285,509 $ -- $ 1,027,229
Cash and cash equivalents 209 4,391 215 7,033 15,516
Notes receivable from affiliates 976,439 612,000 327,639 687,000 5,392,024
Notes receivable from non-affiliates -- -- 160,000 -- 800,000
Advances receivable from affiliates 19,500 14,513 135 100,147 398,827
Other receivables -- -- -- -- 12,525
Accrued interest receivable from non-affiliates -- -- -- -- 19,538
Accrued interest receivable from affiliates 199,496 109,194 73,252 98,765 892,787
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,195,644 $ 740,098 $ 846,750 $ 892,945 $ 8,558,446
=========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ 61,500 $ 48,756 $ -- $ 113,106
Note payable 259,638 -- -- -- 659,638
Accrued interest payable 56,671 10,110 -- -- 124,052
Administrative fees payable to general partner 32,000 19,000 31,000 9,000 190,893
Other liabilities 400 -- -- -- 400
----------- ----------- ----------- ----------- -----------
Total Liabilities 348,709 90,610 79,756 9,000 1,088,089
----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner 2,382 506 52 461 5,689
Limited Partners 844,553 648,982 766,942 883,484 7,464,668
----------- ----------- ----------- ----------- -----------
Total Partners' Capital 846,935 649,488 766,994 883,945 7,470,357
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,195,644 $ 740,098 $ 846,750 $ 892,945 $ 8,558,446
=========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-56
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capita Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 512,133 $ 1,856,730 $ -- $ 2,368,863 $ -- $ 2,368,863
Interest income from affiliates -- -- 395,288 395,288 -- 395,288
Interest income from non-affiliates -- 9,237 9,237 -- 9,237
Other interest income 1,037 -- -- 1,037 -- 1,037
Equity in net income of affiliates -- -- 2,000 2,000 -- 2,000
Other income 78,372 261,298 208 339,878 -- 339,878
----------- ----------- ----------- ----------- ----------- -----------
Total revenue 591,542 2,118,028 406,733 3,116,303 -- 3,116,303
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's
compensation 369,372 230,044 -- 599,416 -- 599,416
Real estate taxes and insurance 51,994 248,185 -- 300,179 -- 300,179
Management , investment and
administrative fees, managing
shareholder and other operating
expenses 144,511 -- -- 144,511 -- 144,511
Professional services 331,323 -- -- 331,323 -- 331,323
Advisory fees -- -- -- -- -- --
Property management fees -- 156,165 -- 156,165 -- 156,165
Interest 144,491 746,078 -- 890,569 -- 890,569
Depreciation 72,907 363,153 -- 436,060 (361,000)(a) 536,060
461,000 (a)
Other operating expenses 308,567 523,035 10,188 841,790 -- 841,790
Reimbursed expenses -- -- -- -- -- --
Major maintenance 37,727 65,514 -- 103,241 -- 103,241
Equity in net loss of affiliates 29,093 -- 36,100 65,193 -- 65,193
Interest expense to affiliate -- -- 42,969 42,969 -- 42,969
Administrative fees to general partner -- -- 49,499 49,499 -- 49,499
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 1,489,985 2,332,174 138,756 3,960,915 100,000 4,060,915
----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST (898,443) (214,146) 267,977 (844,612) (100,000) (944,612)
MINORITY INTEREST OF UNITHOLDERS IN
NET LOSS OF OPERATING PARTNERSHIP -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (898,443) (214,146) 267,977 (844,612) (100,000) (944,612)
ROLL-UP EXPENSES -- 26,133 13,867 40,000 -- 40,000
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME(LOSS) $ (898,443) $ (240,279) $ 254,110 $ (884,612) $ (100,000) $ (984,612)
=========== =========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES
OUTSTANDING 569,074 2,497,800(c) 3,066,874
=========== =========== ===========
NET LOSS PER SHARE - BASIC $ (1.58) $ (0.32)
=========== ===========
RATIO OF EARNINGS TO FIXED CHARGES (0.05)
===========
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATIO OF EARNINGS TO FIXED CHARGES $ 984,612
===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-57
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Brookwood Laurel Forest Camellia Glen
Steeplechase Way Oaks Bridgepoint Glen I Court Lake
---------- ----------- --------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 146,691 $ 128,531 $ 151,593 $ 116,277 $ 183,738 $ 128,581 $ 221,108
Other income 31,054 12,218 15,436 28,395 10,802 38,281 47,994
---------- ----------- --------- --------- ---------- ----------- -----------
Total Revenue 177,745 140,749 167,029 144,672 194,540 166,862 269,102
---------- ----------- --------- --------- ---------- ----------- -----------
COSTS AND EXPENSES:
Personnel 26,024 12,540 15,432 8,695 13,601 15,302 65,522
Real estate taxes and insurance 18,033 11,938 19,734 12,200 23,109 19,726 54,341
Property management fees 12,276 11,422 13,063 10,404 14,009 11,709 19,018
Interest 48,895 53,841 34,102 33,979 62,533 48,156 213,202
Depreciation and amortization 28,944 27,412 39,011 18,445 13,500 22,035 64,282
Other operating expenses 47,140 32,290 34,448 29,839 29,700 35,489 162,515
Major maintenance 1,662 8,665 4,744 1,631 3,927 3,384 25,303
---------- ----------- --------- --------- ---------- ----------- -----------
Total costs and expenses 182,974 158,108 160,534 115,193 160,379 155,801 604,183
---------- ----------- --------- --------- ---------- ----------- -----------
INCOME (LOSS) BEFORE (5,229) (17,359) 6,495 29,479 34,161 11,061 (335,081)
ROLL-UP EXPENSES
ROLL-UP EXPENSES -- 2,800 -- 8,841 -- -- --
---------- ----------- --------- --------- ---------- ----------- -----------
NET INCOME (LOSS) $ (5,229) $ (20,159) $ 6,495 $ 20,638 $ 34,161 $ 11,061 $ (335,081)
========== ========== ========= ========= ========== =========== ===========
<CAPTION>
Blossom Stadium Forest Forest Forest Eagle
Corners I Club Glen IV Glen II Glen III Lake Total
---------- ---------- --------- --------- ---------- ----------- -----------
REVENUE:
Rental income $ 155,449 $ 209,804 $ 28,263 $ 97,192 $ 91,461 $ 198,042 $ 1,856,730
Other income 31,695 13,383 3,410 4,294 8,010 16,326 261,298
---------- ---------- --------- --------- ---------- ----------- -----------
Total Revenue 187,144 223,187 31,673 101,486 99,471 214,368 2,118,028
---------- ---------- --------- --------- ---------- ----------- -----------
COSTS AND EXPENSES:
Personnel 13,889 25,913 2,224 8,127 6,917 15,858 230,044
Real estate taxes and insurance 15,921 13,762 3,590 13,349 14,442 28,040 248,185
Property management fees 12,871 11,455 6,453 10,443 9,384 13,658 156,165
Interest 45,917 67,703 9,727 36,130 30,572 61,321 746,078
Depreciation and amortization 26,255 32,568 8,000 25,500 25,000 32,201 363,153
Other operating expenses 37,983 47,659 2,628 19,087 24,016 20,241 523,035
Major maintenance 7,941 555 113 3,820 3,183 586 65,514
---------- ---------- --------- --------- ---------- ----------- -----------
Total costs and expenses 160,777 199,615 32,735 116,456 113,514 171,905 2,332,174
---------- ---------- --------- --------- ---------- ----------- -----------
INCOME (LOSS) BEFORE 26,367 23,572 (1,062) (14,970) (14,043) 42,463 (214,146)
ROLL-UP EXPENSES
ROLL-UP EXPENSES 8,295 -- -- -- -- 6,197 26,133
---------- ---------- --------- --------- ---------- ----------- -----------
NET INCOME (LOSS) $ 18,072 $ 23,572 $ (1,062) $ (14,970) $ (14,043) $ 36,266 $ (240,279)
========== ========== ========= ========= ========== =========== ===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-58
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV VIII, BSIV X, BSIV IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 50,542 $ 48,197 $ 6,706 $ 22,451 $ 35,438 $ 30,936
Interest income from non-affiliates -- -- 6,774 -- -- --
Equity in net income of affiliates -- -- -- 2,000 -- --
Other -- -- 8 3 -- 81
-------- -------- -------- -------- -------- --------
50,542 48,197 13,488 24,454 35,438 31,017
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- 14,300 -- -- --
Interest expense to affiliate -- -- 19,836 -- -- --
Administrative fees to general partner 6,000 6,000 6,000 6,000 4,500 3,000
General and administrative 900 900 900 1,447 900 900
-------- -------- -------- -------- -------- --------
6,900 6,900 41,036 7,446 5,400 3,899
-------- -------- -------- -------- -------- --------
Income (Loss) Before Roll-up Expenses 43,642 41,297 (27,548) 17,008 30,038 27,118
Roll-up Expenses 1,773 1,571 2,597 -- 1,987 2,058
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 41,869 $ 39,726 $(30,145) $ 17,008 $ 28,051 $ 25,060
======== ======== ======== ======== ======== ========
<CAPTION>
BSIV IV, BSVF I, BSIV VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 82,669 $ 52,153 $ 23,520 $ 42,676 $395,288
Interest income from non-affiliates -- -- 2,463 -- 9,237
Equity in net income of affiliates -- -- -- -- 2,000
Other 3 96 2 15 208
-------- -------- -------- -------- --------
82,672 52,249 25,985 42,691 406,733
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- 21,800 -- 36,100
Interest expense to affiliate 19,473 3,660 -- -- 42,969
Administrative fees to general partner 6,000 3,000 6,000 3,000 49,499
General and administrative 1,396 900 1,046 900 10,188
-------- -------- -------- -------- --------
26,869 7,560 28,846 3,900 138,756
-------- -------- -------- -------- --------
Income (Loss) Before Roll-up Expenses 55,803 44,689 (2,861) 38,791 267,977
Roll-up Expenses -- 2,146 -- 1,735 13,867
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 55,803 $ 42,543 $ (2,861) $ 37,056 $254,110
======== ======== ======== ======== ========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-59
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital Exchange Pro Forma Pro Forma
Trust Partnerships Sub-Total Adjustments Consolidated
----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (898,443) $ 13,831 $ (884,612) $ (100,000) $ (984,612)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Equity in net loss of unconsolidated partnership 29,093 34,100 63,193 -- 63,193
Depreciation 72,907 363,153 436,060 100,000 536,060
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables 80,984 34,904 115,888 -- 115,888
Reimbursed administrative expenses receivable 38,476 49,500 87,976 -- 87,976
Other assets (30,894) 86,285 55,391 -- 55,391
Increase (decrease) in:
Accounts payable and accrued liabilities 94,822 (129,157) (34,335) -- (34,335)
Other 20,974 392,608 413,582 -- 413,582
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities (592,081) 845,224 253,143 -- 253,143
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Investments in partnerships (885,000) -- (885,000) -- (885,000)
Cash distributions from partnerships -- 44,716 44,716 -- 44,716
Purchases of other property and equipment (10,073) -- (10,073) -- (10,073)
Advances to non-affiliate -- (20,258) (20,258) -- (20,258)
Advances to affiliates -- (147,936) (147,936) -- (147,936)
Other -- 257,662 257,662 -- 257,662
Repayment of advances to affiliates 37,750 -- 37,750 -- 37,750
Increase in restricted cash (92,346) -- (92,346) -- (92,346)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (949,669) 134,184 (815,485) -- (815,485)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions -- 290,998 290,998 -- 290,998
Distributions paid (167,596) (683,861) (851,457) -- (851,457)
Proceeds from sale of common shares of
beneficial interest 1,681,653 -- 1,681,653 -- 1,681,653
Payment on note payable (275,000) -- (275,000) -- (275,000)
Proceeds from mortgage financing 273,499 -- 273,499 -- 273,499
Payments on mortgages payable (22,141) (103,015) (125,156) -- (125,156)
Other 20,000 -- 20,000 -- 20,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 1,510,415 (495,878) 1,014,537 -- 1,014,537
----------- ----------- ----------- ----------- -----------
Net Increase in Cash and Cash Equivalents (31,335) 483,530 452,195 -- 452,195
Cash and Cash Equivalents, Beginning 177,299 288,762 466,061 -- 466,061
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 145,964 $ 772,292 $ 918,256 $ -- $ 918,256
=========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-60
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
------------ ----------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $ 6,874,194 $ -- $ 14,241,982 $ 1,632,000(a) $15,873,982
Less accumulated depreciation (1,319,534) (725,488) -- (2,045,022) -- (2,045,022)
Investments in real estate limited
partnership 1,538,877 -- 496,755 2,035,632 -- 2,035,632
Cash and cash equivalents 145,964 196,323 6,377 348,664 -- 348,664
Restricted cash 158,545 -- -- 158,545 -- 158,545
Reimbursed administrative expenses
receivable, affiliates 116,595 -- -- 116,595 -- 116,595
Notes receivable from affiliates -- -- 1,094,500 1,094,500 1,271,000 (a) 2,089,500
(276,000)(b)
Notes receivable from non-affiliates -- -- 440,000 440,000 -- 440,000
Advances receivable from affiliates -- -- 146,102 146,102 -- 146,102
Other receivables (872) -- 9,394 8,522 -- 8,522
Other property and equipment 157,241 -- -- 157,241 -- 157,241
Accrued interest receivable from
non-affiliates -- -- 19,538 19,538 -- 19,538
Accrued interest receivable from
affiliates -- -- 248,230 248,230 -- 248,230
Accounts receivable -- 42,169 -- 42,169 -- 42,169
Deferred expenses, net -- 625,105 -- 625,105 -- 625,105
Other assets 243,655 241,358 -- 485,013 -- 485,013
------------ ----------- --------- ------------ ----------- -----------
TOTAL $ 8,408,259 $ 7,253,661 $ 2,460,896 $ 18,122,816 $ 2,627,000 $20,749,816
============ =========== =========== ============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgages payable $ 4,291,076 $ 4,743,209 $ -- $ 9,034,285 $ -- $ 9,034,285
Notes payable 120,000 -- 400,000 520,000 -- 520,000
Accounts payable and accrued
liabilities 483,207 -- -- 483,207 -- 483,207
Capital lease obligation 55,984 -- -- 55,984 -- 55,984
Advances payable to affiliates -- 362,563 61,500 424,063 (276,000)(b) 148,063
Accrued interest and payable -- 90,129 67,381 157,510 -- 157,510
Accrued real estate taxes payable -- 49,613 -- 49,613 -- 49,613
Administrative fees payable to
general partner -- -- 47,893 47,893 -- 47,893
Security deposits and prepaid rent 37,496 55,414 -- 92,910 -- 92,910
Other liabilities -- 12,053 -- 12,053 -- 12,053
------------ ----------- --------- ------------ ----------- -----------
Total Liabilities 4,987,763 5,312,981 576,774 10,877,518 (276,000) 10,601,518
------------ ----------- --------- ------------ ----------- -----------
SHAREHOLDERS' EQUITY:
Common shares of beneficial
interest, no par value 6,135,754 -- -- 6,135,754 6,727,802 12,863,556
Distributions (239,755) -- -- (239,755) -- (239,755)
Deficit (2,475,503) -- -- (2,475,503) -- (2,475,503)
General partner -- (2,990) (174) (3,164) 3,000 (a)
164 (d) --
Limited partners -- 1,943,670 1,884,296 3,827,966 2,900,000 (a)
Limited partners -- -- -- -- (6,727,966)(d) --
------------ ----------- --------- ------------ ----------- -----------
Total Shareholders' Equity 3,420,496 1,940,680 1,884,122 7,245,298 2,903,000 10,148,298
------------ ----------- --------- ------------ ----------- -----------
TOTAL $ 8,408,259 $ 7,253,661 $ 2,460,896 $ 18,122,816 $ 2,627,000 $ 20,749,816
============ =========== =========== ============ ============ ============
COMMON SHARES OF BENEFICIAL INTEREST 644,696 670,700 1,315,396
============ ============ ============
BOOK VALUE PER COMMON SHARE OF
BENEFICIAL INTEREST $ 5.31 $ 7.72
============ ============
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-61
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
EXCHANGE EQUITY PARTNERSHIPS
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Bridge Camellia Stadium
Steeplechase Point Court Club Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 1,821,218 $ 1,274,766 $ 1,530,266 $ 2,247,944 $ 6,874,194
Less accumulated depreciation (145,202) (146,842) (175,080) (258,364) (725,488)
Cash and cash equivalents 42,677 45,960 64,215 43,471 196,323
Accounts receivable 4,602 2,081 2,489 32,997 42,169
Deferred expenses, net -- 149,087 173,967 302,051 625,105
Other assets 197,431 (2,801) 22,847 23,881 241,358
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,920,726 $ 1,322,251 $ 1,618,704 $ 2,391,980 $ 7,253,661
=========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,254,307 $ 710,881 $ 1,065,887 $ 1,712,134 $ 4,743,209
Loans payable 75,460 32,000 112,000 143,103 362,563
Accrued interest and payable 64,973 4,283 (3,377) 24,250 90,129
Accrued real estate taxes payable 15,156 9,368 14,705 10,384 49,613
Security deposits and prepaid rent 16,572 9,946 14,824 14,072 55,414
Other liabilities 992 -- -- 11,061 12,053
----------- ----------- ----------- ----------- -----------
Total Liabilities 1,427,460 766,478 1,204,039 1,915,004 5,312,981
----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (2,416) 723 (821) (476) (2,990)
Limited Partners 495,682 555,050 415,486 477,452 1,943,670
----------- ----------- ----------- ----------- -----------
Total Partners' Capital 493,266 555,773 414,665 476,976 1,940,680
----------- ----------- ----------- ----------- -----------
TOTAL $ 1,920,726 $ 1,322,251 $ 1,618,704 $ 2,391,980 $ 7,253,661
=========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-62
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, LCOB, BSVF I,
Ltd. Ltd. Ltd. Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ 496,755 $ -- $ -- $ 496,755
Cash and cash equivalents 1,961 25 4,391 6,377
Notes receivable from affiliates 117,500 365,000 612,000 1,094,500
Notes receivable from non-affiliates 440,000 -- -- 440,000
Advances receivable from affiliates 38,287 93,302 14,513 146,102
Other receivables 9,394 -- -- 9,394
Accrued interest receivable from non-affiliates 19,538 -- -- 19,538
Accrued interest receivable from affiliates 5,829 133,207 109,194 248,230
----------- ----------- ----------- -----------
TOTAL $ 1,129,264 $ 591,534 $ 740,098 $ 2,460,896
=========== =========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ 61,500 $ 61,500
Note Payable 400,000 -- -- 400,000
Accrued interest payable 57,271 -- 10,110 67,381
Administrative fees payable to general partner 15,393 13,500 19,000 47,893
Other liabilities -- -- -- --
----------- ----------- ----------- -----------
Total Liabilities 472,664 13,500 90,610 576,774
----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (1,021) 341 506 (174)
Limited Partners 657,621 577,693 648,982 1,884,296
----------- ----------- ----------- -----------
Total Partners' Capital 656,600 578,034 649,488 1,884,122
----------- ----------- ----------- -----------
TOTAL $ 1,129,264 $ 591,534 $ 740,098 $ 2,460,896
=========== =========== =========== ===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-63
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ----------- ----------- ----------- --------- -----------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Rental income $ 512,133 $ 601,353 $ -- $ 1,113,486 $ -- $ 1,113,486
Interest income from affiliates -- -- 89,795 89,795 -- 89,795
Interest income from non-affiliates -- -- 6,774
Other interest income 1,037 -- -- 1,037 -- 1,037
Equity in net income of affiliates -- -- -- -- -- --
Other income 78,372 111,113 185 189,670 -- 189,670
----------- ----------- ----------- ----------- --------- -----------
Total revenue 591,542 712,466 96,754 1,393,988 -- 1,393,988
----------- ----------- ----------- ----------- --------- -----------
COSTS AND EXPENSES:
Personnel, including officer's
compensation 369,372 75,934 -- 445,306 -- 445,306
Real estate taxes and insurance 51,994 63,721 -- 115,715 -- 115,715
Management , investment and
administrative fees, managing
shareholder and other operating
expenses 144,511 -- -- 144,511 -- 144,511
Professional services 331,323 -- -- 331,323 -- 331,323
Advisory fees -- -- -- -- -- --
Property management fees -- 45,844 -- 45,844 -- 45,844
Interest 144,491 198,733 -- 343,224 -- 343,224
Depreciation 72,907 101,992 -- 174,899 (111,000)(a) 179,899
116,000 (a)
Other operating expenses 308,567 160,127 2,700 471,394 -- 471,394
Major maintenance 37,727 7,232 -- 44,959 -- 44,959
Equity in net loss of affiliates 29,093 -- 14,300 43,393 -- 43,393
Interest expense to affiliate -- -- 23,496 23,496 -- 23,496
Administrative fees to general
partner -- -- 12,000 12,000 -- 12,000
----------- ----------- ----------- ----------- --------- -----------
Total costs and expenses 1,489,985 653,583 52,496 2,196,064 5,000 2,201,064
----------- ----------- ----------- ----------- --------- -----------
LOSS BEFORE MINORITY INTEREST (898,443) 58,883 44,258 (802,076) (5,000) (807,076)
MINORITY INTEREST OF UNITHOLDERS
IN NET LOSS OF OPERATING
PARTNERSHIP -- -- -- -- -- --
----------- ----------- ----------- ----------- --------- -----------
INCOME (LOSS) BEFORE ROLL-UP
EXPENSES (898,443) 58,883 44,258 (802,076) (5,000) (807,076)
ROLL-UP EXPENSES -- 8,841 6,801 15,642 -- 15,642
----------- ----------- ----------- ----------- --------- -----------
NET INCOME (LOSS) $ (898,443) $ 50,042 $ 37,457 $ (817,718) $ (5,000) $ (822,718)
=========== =========== =========== =========== ========= ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 569,074 670,700 (c) 1,239,774
=========== ========= ===========
NET LOSS PER SHARE - BASIC $ (1.58) $ (0.66)
=========== ===========
RATIO OF EARNINGS TO FIXED CHARGES (1.24)
===========
DOLLAR AMOUNT OF THE DEFICIENCY
IN THE RATIO OF EARNINGS TO
FIXED CHARGES $ 822,718
===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-64
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Camellia Stadium
Steeplechase Bridgepoint Court Club Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 146,691 $ 116,277 $ 128,581 $ 209,804 $ 601,353
Other income 31,054 28,395 38,281 13,383 111,113
--------- --------- --------- --------- ---------
Total revenue 177,745 144,672 166,862 223,187 712,466
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Personnel 26,024 8,695 15,302 25,913 75,934
Real estate taxes and insurance 18,033 12,200 19,726 13,762 63,721
Property management fees 12,276 10,404 11,709 11,455 45,844
Interest 48,895 33,979 48,156 67,703 198,733
Depreciation 28,944 18,445 22,035 32,568 101,992
Other operating expenses 47,140 29,839 35,489 47,659 160,127
Major maintenance 1,662 1,631 3,384 555 7,232
--------- --------- --------- --------- ---------
Total costs and expenses 182,974 115,193 155,801 199,615 653,583
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE (5,229) 29,479 11,061 23,572 58,883
ROLL-UP EXPENSES
ROLL-UP EXPENSES -- 8,841 -- -- 8,841
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (5,229) $ 20,638 $ 11,061 $ 23,572 $ 50,042
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to unaudited proforma condensed consolidated financial information.
P-65
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, LCOB, BSVF I,
Ltd. Ltd. Ltd. Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 6,706 $ 30,936 $ 52,153 $ 89,795
Interest income from non-affiliates 6,774 -- -- 6,774
Other 8 81 96 185
-------- -------- -------- --------
13,488 31,017 52,249 96,754
-------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates 14,300 -- -- 14,300
Interest expense to affiliate 19,836 -- 3,660 23,496
Administrative fees to general partner 6,000 3,000 3,000 12,000
General and administrative 900 900 900 2,700
-------- -------- -------- --------
41,036 3,900 7,560 52,496
-------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (27,548) 27,117 44,689 44,258
ROLL-UP EXPENSES 2,597 2,058 2,146 6,801
-------- -------- -------- --------
NET INCOME (LOSS) $(30,145) $ 25,059 $ 42,543 $ 37,457
======== ======== ======== ========
</TABLE>
See notes to unaudited proforma condensed consolidated financial information.
P-66
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
------------ ----------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $12,469,893 $ -- $19,837,681 $ 2,901,000 (a) $ 22,738,681
Less accumulated depreciation (1,319,534) (1,439,362) -- (2,758,896) -- (2,758,896)
Investments in real estate
limited partnership 1,538,877 -- 496,755 2,035,632 -- 2,035,632
Cash and cash equivalents 145,964 425,261 13,895 585,120 -- 585,120
Restricted cash 158,545 -- -- 158,545 -- 158,545
Reimbursed administrative
expenses receivable, affiliates 116,595 -- -- 116,595 -- 116,595
Notes receivable from affiliates -- -- 2,487,600 2,487,600 2,251,000 (a) 4,462,600
(276,000)(b)
Notes receivable from non-affiliates -- -- 440,000 440,000 -- 440,000
Advances receivable from affiliates -- -- 362,651 362,651 -- 362,651
Other receivables (872) -- 9,394 8,522 -- 8,522
Other property and equipment 157,241 -- -- 157,241 -- 157,241
Accrued interest receivable from
non-affiliates -- -- 19,538 19,538 -- 19,538
Accrued interest receivable from
affiliates -- -- 388,770 388,770 -- 388,770
Accounts receivable -- 33,744 -- 33,744 -- 33,744
Deferred expenses, net -- 1,015,503 -- 1,015,503 -- 1,015,503
Other assets 243,655 566,411 -- 810,066 -- 810,066
------------ ----------- --------- ----------- ------------ ------------
TOTAL $ 8,408,259 $13,071,450 $ 4,218,603 $25,698,312 $ 4,876,000 $ 30,574,312
------------ ----------- --------- ----------- ------------ ------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
LIABILITIES:
Mortgages payable $ 4,291,076 $ 8,057,924 $ -- $12,349,000 $ -- $ 12,349,000
Notes payable 120,000 -- 400,000 520,000 -- 520,000
Accounts payable and accrued
liabilities 483,207 -- -- 483,207 -- 483,207
Capital lease obligation 55,984 -- -- 55,984 -- 55,984
Advances payable to affiliates -- 843,581 61,500 905,081 (276,000)(b) 629,081
Accrued interest and payable -- 107,283 67,381 174,664 -- 174,664
Accrued real estate taxes payable -- 95,111 -- 95,111 -- 95,111
Administrative fees payable to
general partner -- -- 69,893 69,893 -- 69,893
Security deposits and prepaid rent 37,496 90,222 -- 127,718 -- 127,718
Other liabilities -- 3,255 -- 3,255 -- 3,255
------------ ----------- --------- ----------- ------------ ------------
Total Liabilities 4,987,763 9,197,376 598,774 14,783,913 (276,000) 14,507,913
------------ ----------- --------- ----------- ------------ ------------
SHAREHOLDERS' EQUITY:
Common shares of beneficial
interest, no par value 6,135,754 -- -- 6,135,754 12,645,903 (d) 18,781,657
Distributions (239,755) -- -- (239,755) -- (239,755)
Deficit (2,475,503) -- -- (2,475,503) -- (2,475,503)
General partner -- (3,545) 775 (2,770) 3,000 (a)
(230)(d) --
Limited partners -- 3,877,619 3,619,054 7,496,673 5,149,000 (a)
-- -- -- -- (12,645,673)(d) --
------------ ----------- --------- ----------- ------------ ------------
Total Shareholders' Equity 3,420,496 3,874,074 3,619,829 10,914,399 5,152,000 16,066,399
------------ ----------- --------- ----------- ------------ ------------
TOTAL $ 8,408,259 $13,071,450 $ 4,218,603 $25,698,312 $ 4,876,000 $ 30,574,312
============ =========== =========== =========== ============ ============
COMMON SHARES OF BENEFICIAL
INTEREST 644,696 1,254,000 1,898,696
============ ============ ============
BOOK VALUE PER COMMON SHARE OF
BENEFICIAL INTEREST $ 5.31 $ 8.46
============ ============
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-67
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
EXCHANGE EQUITY PARTNERSHIPS
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Eagle Bridge Camellia
Steeplechase Lake Point Court
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Real estate $ 1,821,218 $ 2,240,099 $ 1,274,766 $ 1,530,266
Less accumulated depreciation (145,202) (281,365) (146,842) (175,080)
Cash and cash equivalents 42,677 80,051 45,960 64,215
Accounts receivable 4,602 2,518 2,081 2,489
Deferred expenses, net -- 41,326 149,087 173,967
Other assets 197,431 159,390 (2,801) 22,847
------------ ------------ ------------ ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,322,251 $ 1,618,704
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,254,307 $ 1,427,797 $ 710,881 $ 1,065,887
Loans payable 75,460 392,427 32,000 112,000
Accrued interest and payable 64,973 1,473 4,283 (3,377)
Accrued real estate taxes payable 15,156 13,900 9,368 14,705
Security deposits and prepaid rent 16,572 14,775 9,946 14,824
Other liabilities 992 (1,000) -- --
------------ ------------ ------------ ------------
Total Liabilities 1,427,460 1,849,372 766,478 1,204,039
------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General Partner (2,416) (1,588) 723 (821)
Limited Partners 495,682 394,235 555,050 415,486
------------ ------------ ------------ ------------
Total Partners' Capital 493,266 392,647 555,773 414,665
------------ ------------ ------------ ------------
TOTAL $ 1,920,726 $ 2,242,019 $ 1,322,251 $ 1,618,704
============ ============ ============ ============
<CAPTION>
Stadium Forest Blossom
Club Glen III Corners I Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Real estate $ 2,247,944 $ 1,572,807 $ 1,782,793 $ 12,469,893
Less accumulated depreciation (258,364) (243,892) (188,617) (1,439,362)
Cash and cash equivalents 43,471 35,008 113,879 425,261
Accounts receivable 32,997 685 (11,628) 33,744
Deferred expenses, net 302,051 133,635 215,437 1,015,503
Other assets 23,881 177,648 (11,985) 566,411
------------ ------------ ------------ ------------
TOTAL $ 2,391,980 $ 1,675,891 $ 1,899,879 $ 13,071,450
============ ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,712,134 $ 869,530 $ 1,017,388 $ 8,057,924
Loans payable 143,103 55,522 33,069 843,581
Accrued interest and payable 24,250 15,681 -- 107,283
Accrued real estate taxes payable 10,384 17,742 13,856 95,111
Security deposits and prepaid rent 14,072 4,070 15,963 90,222
Other liabilities 11,061 -- (7,798) 3,255
------------ ------------ ------------ ------------
Total Liabilities 1,915,004 962,545 1,072,478 9,197,376
------------ ------------ ------------ ------------
PARTNERS' CAPITAL:
General Partner (476) 702 331 (3,545)
Limited Partners 477,452 712,644 827,070 3,877,619
------------ ------------ ------------ ------------
Total Partners' Capital 476,976 713,346 827,401 3,874,074
------------ ------------ ------------ ------------
TOTAL $ 2,391,980 $ 1,675,891 $ 1,899,879 $ 13,071,450
============ ============ ============ ============
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-68
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV X, LCOB, BSVF I, BSIF,
Ltd. Ltd. Ltd. Ltd. Ltd. Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in real estate
limited partnership $ -- $ 496,755 $ -- $ -- $ -- $ 496,755
Cash and cash equivalents 485 1,961 25 4,391 7,033 13,895
Notes receivable from
affiliates 706,100 117,500 365,000 612,000 687,000 2,487,600
Notes receivable from
non-affiliates -- 440,000 -- -- -- 440,000
Advances receivable from
affiliates 116,402 38,287 93,302 14,513 100,147 362,651
Other receivables -- 9,394 -- -- -- 9,394
Accrued interest receivable
from non-affiliates -- 19,538 -- -- -- 19,538
Accrued interest receivable
from affiliates 41,775 5,829 133,207 109,194 98,765 388,770
----------- ----------- ----------- ----------- ----------- -----------
TOTAL $ 864,762 $ 1,129,264 $ 591,534 $ 740,098 $ 892,945 $ 4,218,603
=========== =========== =========== =========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advances payable to affiliates $ -- $ -- $ -- $ 61,500 $ -- $ 61,500
Note payable -- 400,000 -- -- -- 400,000
Accrued interest payable -- 57,271 -- 10,110 -- 67,381
Administrative fees payable
to general partner 13,000 15,393 13,500 19,000 9,000 69,893
Other liabilities -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total Liabilities 13,000 472,664 13,500 90,610 9,000 598,774
----------- ----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner 488 (1,021) 341 506 461 775
Limited Partners 851,274 657,621 577,693 648,982 883,484 3,619,054
----------- ----------- ----------- ----------- ----------- -----------
Total Partners' Capital 851,762 656,600 578,034 649,488 883,945 3,619,829
----------- ----------- ----------- ----------- ----------- -----------
TOTAL $ 864,762 $ 1,129,264 $ 591,534 $ 740,098 $ 892,945 $ 4,218,603
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-69
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
apital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 512,133 $ 1,046,305 $ -- $ 1,558,438 $ -- $ 1,558,438
Interest income from affiliates -- -- 183,007 183,007 -- 183,007
Other interest income 1,037 -- 6,744 7,811 -- 7,811
Other income 78,372 167,144 206 245,722 -- 245,722
----------- ----------- ----------- ----------- ----------- ------------
Total revenue 591,542 1,213,449 189,987 1,994,978 -- 1,994,978
----------- ----------- ----------- ----------- ----------- ------------
COSTS AND EXPENSES:
Personnel, including officer's
compensation 369,372 112,598 -- 481,970 -- 481,970
Real estate taxes and insurance 51,994 122,124 -- 174,118 -- 174,118
Management , investment and
administrative fees, managing
shareholder and other operating
expenses 144,511 -- -- 144,511 -- 144,511
Professional services 331,323 -- -- 331,323 -- 331,323
Property management fees -- 81,757 -- 81,757 -- 81,757
Interest 144,491 336,543 -- 481,034 -- 481,034
Depreciation 72,907 185,448 -- 258,355 (199,000)(a) 271,355
212,000 (a)
Other operating expenses 308,567 242,367 4,500 555,434 -- 555,434
Major maintenance 37,727 18,942 -- 56,669 -- 56,669
Equity in net loss of affiliates 29,093 -- 14,300 43,393 -- 43,393
Interest expense to affiliate -- -- 23,496 23,496 -- 23,496
Administrative fees to general
partner -- -- 21,000 21,000 -- 21,000
----------- ----------- ----------- ----------- ----------- ------------
Total costs and expenses 1,489,985 1,099,779 63,296 2,653,060 13,000 2,666,060
----------- ----------- ----------- ----------- ----------- ------------
LOSS BEFORE MINORITY INTEREST (898,443) 113,670 126,691 (658,082) (13,000) (671,082)
MINORITY INTEREST OF UNITHOLDERS
IN NET LOSS OF OPERATING
PARTNERSHIP -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
INCOME (LOSS) BEFORE ROLL-UP
EXPENSES (898,443) 113,670 126,691 (658,082) (13,000) (671,082)
ROLL-UP EXPENSES -- 23,333 10,309 33,642 -- 33,642
NET INCOME (LOSS) $ (898,443) $ 90,337 $ 116,382 $ 691,724 $ (13,000) $ 704,724
----------- ----------- ----------- ----------- ----------- ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 569,074 1,254,000 (c) 1,823,074
----------- ----------- ------------
NET LOSS PER SHARE - BASIC $ (1.58) $ (0.39)
----------- ------------
RATIO OF EARNINGS TO FIXED
CHARGES (0.40)
------------
DOLLAR AMOUNT OF THE DEFICIENCY
IN THE RATIO OF EARNINGS TO
FIXED CHARGES $ 704,724
------------
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-70
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Camellia Blossom
Steeplechase Bridgepoint Court Corners I
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 146,691 $ 116,277 $ 128,581 $ 155,449
Other income 31,054 28,395 38,281 31,695
---------- ---------- ---------- ----------
Total revenue 177,745 144,672 166,862 187,144
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Personnel 26,024 8,695 15,302 13,889
Real estate taxes and insurance 18,033 12,200 19,726 15,921
Property management fees 12,276 10,404 11,709 12,871
Interest 48,895 33,979 48,156 45,917
Depreciation and amortization 28,944 18,445 22,035 26,255
Other operating expenses 47,140 29,839 35,489 37,983
Major maintenance 1,662 1,631 3,384 7,941
---------- ---------- ---------- ----------
Total costs and expenses 182,974 115,193 155,801 160,777
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE (5,229) 29,479 11,061 26,367
ROLL-UP EXPENSES
ROLL-UP EXPENSES -- 8,841 -- 8,295
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (5,229) $ 20,638 $ 11,061 $ 18,072
========== ========== ========== ==========
<CAPTION>
Stadium Forest Eagle
Club Glen III Lake Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 209,804 $ 91,461 $ 198,042 $1,046,305
Other income 13,383 8,010 16,326 167,144
---------- ---------- ---------- ----------
Total revenue 223,187 99,471 214,368 1,213,449
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Personnel 25,913 6,917 15,858 112,598
Real estate taxes and insurance 13,762 14,442 28,040 122,124
Property management fees 11,455 9,384 13,658 81,757
Interest 67,703 30,572 61,321 336,543
Depreciation and amortization 32,568 25,000 32,201 185,448
Other operating expenses 47,659 24,016 20,241 242,367
Major maintenance 555 3,183 586 18,942
---------- ---------- ---------- ----------
Total costs and expenses 199,615 113,514 171,905 1,099,779
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE 23,572 (14,043) 42,463 113,670
ROLL-UP EXPENSES
ROLL-UP EXPENSES -- -- 6,197 23,333
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 23,572 $ (14,043) $ 36,266 $ 90,337
========== ========== ========== ==========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-71
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV V, BSIV X, LCOB, BSVF I, BSIF,
Ltd. Ltd. Ltd. Ltd. Ltd. Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 50,536 $ 6,706 $ 30,936 $ 52,153 $ 42,676 $183,007
Interest income from non-affiliates -- 6,774 -- -- -- 6,774
Other 6 8 81 96 15 206
-------- -------- -------- -------- -------- --------
Total revenue 50,542 13,488 31,017 52,249 42,691 189,987
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- 14,300 -- -- -- 14,300
Interest expense to affiliate -- 19,836 -- 3,660 -- 23,496
Administrative fees to general partner 6,000 6,000 3,000 3,000 3,000 21,000
General and administrative 900 900 900 900 900 4,500
-------- -------- -------- -------- -------- --------
Total costs and expenses 6,900 41,036 3,900 7,560 3,900 63,296
-------- -------- -------- -------- -------- --------
INCOME(LOSS) BEFORE ROLL-UP EXPENSES 43,642 (27,548) 27,117 44,689 38,791 126,691
ROLL-UP EXPENSES 1,773 2,597 2,058 2,146 1,735 10,309
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 41,869 $(30,145) $ 25,059 $ 42,543 $ 37,056 $116,382
======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited profroma condensed consolidated financial information.
P-72
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 7,367,788 $ 8,019,548 $ -- $ 15,387,336 $ 2,524,000 (a) $17,911,336
Less accumulated depreciation (1,319,534) (1,223,439) -- (2,542,973) -- (2,542,973)
Investments in real estate limited
partnership 1,538,877 -- 741,720 2,280,597 -- 2,280,597
Cash and cash equivalents 145,964 204,785 2,498 353,247 -- 353,247
Restricted cash 158,545 -- -- 158,545 -- 158,545
Reimbursed administrative expenses
receivable, affiliates 116,595 -- -- 116,595 -- 116,595
Notes receivable from affiliates -- -- 436,500 436,500 1,048,000 (a) 1,208,500
(276,000)(b)
Notes receivable from non-affiliates -- -- 640,000 640,000 -- 640,000
Advances receivable from affiliates -- -- 44,828 44,828 -- 44,828
Other receivables (872) -- 12,525 11,653 -- 11,653
Other property and equipment 157,241 -- -- 157,241 -- 157,241
Accrued interest receivable from
non-affiliates -- -- 19,538 19,538 -- 19,538
Accrued interest receivable from
affiliates -- -- 55,277 55,277 -- 55,277
Accounts receivable -- 4,287 -- 4,287 -- 4,287
Deferred expenses, net -- 696,815 -- 696,815 -- 696,815
Other assets 243,655 831,784 -- 1,075,439 -- 1,075,439
------------ ------------ ------------ ------------ ------------ -----------
TOTAL $ 8,408,259 $ 8,533,780 $ 1,952,886 $ 18,894,925 $ 3,296,000 $22,190,925
============ ============ ============ ============ ============ ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
LIABILITIES:
Mortgages payable $ 4,291,076 $ 5,263,931 $ -- $ 9,555,007 $ -- $ 9,555,007
Notes payable 120,000 -- 400,000 520,000 -- 520,000
Accounts payable and accrued
liabilities 483,207 -- -- 483,207 -- 483,207
Capital lease obligation 55,984 -- -- 55,984 -- 55,984
Advances payable to affiliates -- 966,334 -- 966,334 (276,000)(b) 690,334
Accrued interest and payable -- 63,606 57,271 120,877 -- 120,877
Accrued real estate taxes payable -- 63,329 -- 63,329 -- 63,329
Administrative fees payable to
general partner -- -- 28,893 28,893 -- 28,893
Security deposits and prepaid rent 37,496 35,902 -- 73,398 -- 73,398
Other liabilities -- 9,514 -- 9,514 -- 9,514
------------ ------------ ------------ ------------ ------------ -----------
Total Liabilities 4,987,763 6,402,616 486,164 11,876,543 (276,000) 11,600,543
------------ ------------ ------------ ------------ ------------ -----------
SHAREHOLDERS' EQUITY
Common shares of beneficial
interest, no par value 6,135,754 -- -- 6,135,754 7,169,886 (d) 13,305,640
Distributions (239,755) -- -- (239,755) -- (239,755)
Deficit (2,475,503) -- -- (2,475,503) -- (2,475,503)
General partner -- (60,116) (905) (61,021) 80,000 (a)
(18,979)(d) --
Limited partners -- 2,191,280 1,467,627 3,658,907 3,492,000 (a)
-- -- -- -- (7,150,907)(d) --
------------ ------------ ------------ ------------ ------------ -----------
Total Shareholders' Equity 3,420,496 2,131,164 1,466,722 7,018,382 3,572,000 10,590,382
------------ ------------ ------------ ------------ ------------ -----------
TOTAL $ 8,408,259 $ 8,533,780 $ 1,952,886 $ 18,894,925 $ 3,296,000 $22,190,925
------------ ------------ ------------ ------------ ------------ -----------
------------ ------------ ------------ ------------ ------------ -----------
COMMON SHARES OF BENEFICIAL INTEREST 644,696 744,100 (c) 1,388,796
------------ ------------ -----------
BOOK VALUE PER COMMON SHARE $ 5.31 $ 7.63
------------ -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-73
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
EXCHANGE EQUITY PARTNERSHIPS
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Laurel Forest Forest Forest
Oaks Glen I Glen II Glen III Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate $ 2,269,579 $ 2,463,306 $ 1,713,856 $ 1,572,807 $ 8,019,548
Less accumulated depreciation (415,733) (316,632) (247,182) (243,892) (1,223,439)
Cash and cash equivalents 77,434 58,909 33,434 35,008 204,785
Accounts receivable 2,739 548 315 685 4,287
Deferred expenses, net 188,763 241,025 133,392 133,635 696,815
Other assets 31,804 397,402 224,930 177,648 831,784
----------- ----------- ----------- ----------- -----------
TOTAL $ 2,154,586 $ 2,844,558 $ 1,858,745 $ 1,675,891 $ 8,533,780
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Mortgages payable $ 1,588,191 $ 1,778,584 $ 1,027,626 $ 869,530 $ 5,263,931
Loans payable 300,080 528,863 81,869 55,522 966,334
Accrued interest and payable 3,900 10,549 33,476 15,681 63,606
Accrued real estate taxes payable 14,510 19,697 11,380 17,742 63,329
Security deposits and prepaid rent 14,360 8,383 9,089 4,070 35,902
Other liabilities 9,514 -- -- -- 9,514
----------- ----------- ----------- ----------- -----------
Total Liabilities 1,930,555 2,346,076 1,163,440 962,545 6,402,616
----------- ----------- ----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (55,185) (6,175) 542 702 (60,116)
Limited Partners 279,216 504,657 694,763 712,644 2,191,280
----------- ----------- ----------- ----------- -----------
Total Partners' Capital 224,031 498,482 695,305 713,346 2,131,164
----------- ----------- ----------- ----------- -----------
TOTAL $ 2,154,586 $ 2,844,558 $ 1,858,745 $ 1,675,891 $ 8,533,780
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-74
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, BSIV IX,
Ltd. Ltd. Total
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in real estate limited partnership $ 496,755 $ 244,965 $ 741,720
Cash and cash equivalents 1,961 537 2,498
Notes receivable from affiliates 117,500 319,000 436,500
Notes receivable from non-affiliates 440,000 200,000 640,000
Advances receivable from affiliates 38,287 6,541 44,828
Other receivables 9,394 3,131 12,525
Accrued interest receivable from non-affiliates 19,538 -- 19,538
Accrued interest receivable from affiliates 5,829 49,448 55,277
----------- ----------- -----------
TOTAL $ 1,129,264 $ 823,622 $ 1,952,886
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Note payable $ 400,000 $ -- $ 400,000
Accrued interest payable 57,271 -- 57,271
Administrative fees payable to general partner 15,393 13,500 28,893
----------- ----------- -----------
Total Liabilities 472,664 13,500 486,164
----------- ----------- -----------
PARTNERS' CAPITAL:
General Partner (1,021) 116 (905)
Limited Partners 657,621 810,006 1,467,627
----------- ----------- -----------
Total Partners' Capital 656,600 810,122 1,466,722
----------- ----------- -----------
TOTAL $ 1,129,264 $ 823,622 $ 1,952,886
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-75
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Partnerships
and
Baron Exchange Exchange
Capital Equity Hybrid
Trust Partnerships Partnerships Sub-Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 512,133 $ 523,984 $ -- $ 1,036,117
Interest income from affiliates -- -- 29,157 29,157
Other interest income 1,037 -- 6,774 7,811
Equity in net income of affiliates -- -- 2,000 2,000
Other income 78,372 38,542 11 116,925
----------- ----------- ----------- -----------
Total revenue 591,542 562,526 37,942 1,192,010
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 369,372 44,077 -- 413,449
Real estate taxes and insurance 51,994 70,634 -- 122,628
Management, investment and administrative fees,
managing shareholder and other operating expenses 144,511 -- -- 144,511
Professional services 331,323 -- -- 331,323
Property management fees -- 46,899 -- 46,899
Interest 144,491 163,337 -- 307,828
Depreciation 72,907 103,011 -- 175,918
Other operating expenses 308,567 107,251 2,347 418,165
Major maintenance 37,727 15,674 -- 53,401
Equity in net loss of affiliates 29,093 -- 14,300 43,393
Interest expense to affiliate -- -- 19,837 19,837
Administrative fees to general partner -- -- 12,000 12,000
----------- ----------- ----------- -----------
Total costs and expenses 1,489,985 550,883 48,483 2,089,351
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (898,443) 11,643 (10,541) (897,341)
MINORITY INTEREST OF UNITHOLDERS IN
NET LOSS OF OPERATING PARTNERSHIP -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (898,443) 11,643 (10,541) (897,341)
ROLL-UP EXPENSES -- -- 2,597 2,597
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (898,443) $ 11,643 $ (13,138) $ (899,938)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 569,074
-----------
-----------
NET LOSS PER SHARE - BASIC $ (1.58)
-----------
-----------
RATIO OF EARNINGS TO FIXED CHARGES
DOLLAR AMOUNT OF THE DEFICIENCY IN THE RATIO
OF EARNINGS TO FIXED CHARGES
<CAPTION>
Pro Forma Pro Forma
Adjustments Consolidated
------------- ------------
<S> <C> <C>
REVENUE:
Rental income $ -- $ 1,036,117
Interest income from affiliates -- 29,157
Other interest income -- 7,811
Equity in net income of affiliates -- 2,000
Other income -- 116,925
------------- ------------
Total revenue -- 1,192,010
------------- ------------
COSTS AND EXPENSES:
Personnel, including officer's compensation -- 413,449
Real estate taxes and insurance -- 122,628
Management, investment and administrative fees,
managing shareholder and other operating expenses -- 144,511
Professional services -- 331,323
Property management fees -- 46,899
Interest -- 307,828
Depreciation (72,000)(a) 259,918
156,000(a)
Other operating expenses -- 418,165
Major maintenance -- 53,401
Equity in net loss of affiliates -- 43,393
Interest expense to affiliate -- 19,837
Administrative fees to general partner -- 12,000
------------- ------------
Total costs and expenses 84,000 2,173,351
------------- ------------
LOSS BEFORE MINORITY INTEREST (84,000) (981,341)
MINORITY INTEREST OF UNITHOLDERS IN
NET LOSS OF OPERATING PARTNERSHIP -- --
------------- ------------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (84,000) (981,341)
ROLL-UP EXPENSES -- 2,597
------------- ------------
NET INCOME (LOSS) $ (84,000) $ (983,938)
------------- ------------
------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 744,100 (c) 1,313,174
------------- ------------
------------- ------------
NET LOSS PER SHARE - BASIC $ (0.75)
------------
------------
RATIO OF EARNINGS TO FIXED CHARGES (2.00)
------------
------------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE RATIO
OF EARNINGS TO FIXED CHARGES $ 983,938
------------
------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-76
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
EXCHANGE EQUITY PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Laurel Forest Forest Forest
Oaks Glen I Glen II Glen III Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 151,593 $ 183,738 $ 97,192 $ 91,461 $ 523,984
Other income 15,436 10,802 4,294 8,010 38,542
--------- --------- --------- --------- ---------
Total revenue 167,029 194,540 101,486 99,471 562,526
--------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Personnel 15,432 13,601 8,127 6,917 44,077
Real estate taxes and insurance 19,734 23,109 13,349 14,442 70,634
Property management fees 13,063 14,009 10,443 9,384 46,899
Interest 34,102 62,533 36,130 30,572 163,337
Depreciation 39,011 13,500 25,500 25,000 103,011
Other operating expenses 34,448 29,700 19,087 24,016 107,251
Major maintenance 4,744 3,927 3,820 3,183 15,674
--------- --------- --------- --------- ---------
Total costs and expenses 160,534 160,379 116,456 113,514 550,883
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 6,495 34,161 (14,970) (14,043) 11,643
ROLL-UP EXPENSES -- -- -- -- --
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 6,495 $ 34,161 $ (14,970) $ (14,043) $ 11,643
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-77
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
EXCHANGE MORTGAGE PARTNERSHIPS AND EXCHANGE HYBRID PARTNERSHIPS
HISTORICAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
BSIV X, BSIV IX,
Ltd. Ltd. Total
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 6,706 $ 22,451 $ 29,157
Interest income from non-affiliates 6,774 -- 6,774
Equity in net income of affiliates -- 2,000 2,000
Other 8 3 11
-------- -------- --------
Total revenue 13,488 24,454 37,942
-------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates 14,300 -- 14,300
Interest expense to affiliate 19,837 -- 19,837
Administrative fees to general partner 6,000 6,000 12,000
General and administrative 900 1,447 2,347
-------- -------- --------
Total coats and expenses 41,037 7,446 48,483
-------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (27,549) 17,008 (10,541)
ROLL-UP EXPENSES 2,597 -- 2,597
-------- -------- --------
NET INCOME (LOSS) $(30,146) $ 17,008 $(13,138)
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-78
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital Exchange Pro Forma Pro Forma
Trust Partnerships Sub-Total Adjustments Consolidated
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (898,443) $ (1,495) $ (899,938) $ (84,000) $ (983,938)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 29,093 12,300 41,393 -- 41,393
Depreciation 72,907 103,011 175,918 84,000 259,918
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables 80,984 4,150 85,134 -- 85,134
Reimbursed administrative expenses receivable 38,476 12,000 50,476 -- 50,476
Other assets (9,080) (92,868) (101,948) -- (101,948)
Increase (decrease) in:
Accounts payable and accrued liabilities 94,822 (72,352) 22,470 -- 22,470
Other (840) 75,461 74,621 -- 74,621
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (592,081) 40,207 (551,874) -- (551,874)
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Other -- 103,600 103,600 -- 103,600
Investments in partnerships (885,000) -- (885,000) -- (885,000)
Cash distributions from partnerships -- 26,616 26,616 -- 26,616
Purchases of other property and equipment (10,073) -- (10,073) -- (10,073)
Advances to non-affiliate -- -- -- -- --
Advances to affiliates -- -- -- -- --
Repayment of notes receivable from affiliates -- -- -- -- --
Repayment of advances to affiliates 37,750 -- 37,750 -- 37,750
Increase in restricted cash (92,346) -- (92,346) -- (92,346)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (949,669) 130,216 (819,453) -- (819,453)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions -- 105,458 105,458 -- 105,458
Distributions paid (167,596) (143,138) (310,734) -- (310,734)
Proceeds from sale of common shares of beneficial interest 1,681,653 -- 1,681,653 -- 1,681,653
Payment on note payable (275,000) -- (275,000) -- (275,000)
Proceeds from mortgage financing 273,499 -- 273,499 -- 273,499
Payments on mortgages payable (22,141) (24,667) (46,808) -- (46,808)
Other 20,000 -- 20,000 -- 20,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 1,510,415 (62,347) 1,448,068 -- 1,448,068
----------- ----------- ----------- ----------- -----------
Net Increase in Cash and Cash Equivalents (31,335) 108,076 76,741 -- 76,741
Cash and Cash Equivalents, Beginning 177,299 99,207 276,506 -- 276,506
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 145,964 $ 207,283 $ 353,247 $ -- $ 353,247
=========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-79
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
JUNE 30, 1999
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Baron Capital Trust (the "Company") was organized in 1997 and commenced
operations in 1998. The Company and Baron Capital Properties, L.P. (the
"Operating Partnership") will acquire equity interests in residential
apartment properties located in the United States and to provide or
acquire mortgage loans secured by such types of property. The Operating
Partnership conducts all of the Company's real estate operations and
holds all direct or indirect property interests acquired. The Company,
as its sole general partner, will control the activities of the
Operating Partnership. The unaudited pro forma condensed consolidated
financial information represents the acquisition of the Exchange
Partnerships, which will be accounted for under the purchase method of
accounting. The Company has estimated the adjustments required to
allocate the aggregate purchase price over the recorded book value of
these partnerships. Such allocations are subject to final determinations
based on valuations provided by the Company and other evaluations of
fair value as if the acquisitions had taken place on February 3, 1998.
Therefore, the allocations reflected in the unaudited pro forma
condensed consolidated financial information may differ from the amounts
ultimately determined. Differences between the amounts included herein
and the final allocations are not expected to have a material effect on
the unaudited pro forma financial statements.
The pro forma condensed consolidated financial information has been
prepared using four different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange Partnerships"
participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of "Exchange
Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the
"Exchange Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations
This presentation assumes that those "Exchange Partnerships" with
the lowest combined net cash provided by operations participate in
the offering.
For purposes of the Minimum Offering and Mid-Case Offering pro forma
information, the participating Exchange Partnerships have been selected
on an arbitrary basis. The actual selection of participating Exchange
Partnerships may differ from actual results if the offering is less than
100%.
P-80
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
JUNE 30, 1999
(UNAUDITED)
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS
(a) Allocation of purchase price over book value of recorded partnership
assets based upon estimates of fair values (valuations obtained by
the Company) for limited partners and general partners. The fair
value of the general partner interest is anticipated to be only a
nominal amount with respect to each Exchange Partnership.
Pro forma depreciation adjustment for the six months ended June 30,
1999 was based upon assets recorded at fair value at the beginning
of each period; primarily based upon 30 year asset lives. The
purchase was recorded at fair value as of February 3, 1998.
(b) Elimination of inter-company notes and advances. These amounts have
not been eliminated on the historical condensed balance sheet of
individual Exchange Mortgage and Exchange Hybrid Partnerships as
they are considered to be immaterial; however these balances have
been eliminated on the unaudited pro forma condensed consolidated
balance sheet.
(c) Pro forma weighted average shares computation assuming that the
Exchange Transaction had been consummated as of February 3, 1998
(assuming shares outstanding for entire period). The shares issued
in the Exchange Transaction have been computed on the basis of the
estimated fair value of the partners' capital of the Exchange
Partnerships divided by $10 per unit.
<TABLE>
<CAPTION>
Maximum Minimum Mid-Case Lowest
------- ------- -------- ------
<S> <C> <C> <C> <C>
Shares issued in connection with
Exchange Transaction 2,497,800 670,700 1,254,000 744,100
Weighted shares - Other 569,074 569,074 569,074 569,074
--------- --------- --------- ---------
Total 3,066,874 1,239,774 1,823,074 1,313,174
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
P-81
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
JUNE 30, 1999
(UNAUDITED)
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ASSUMING PARTIAL
PARTICIPATION
The following table represents the effects on the condensed consolidated
financial information of the minority interests retained if only 90% of
the partnership units were to elect to participate in the roll-up
transaction. The maximum allowed retained minority interest in each
participating entity is 10%.
<TABLE>
<CAPTION>
Lowest
Combined
Net Cash
Provided
Balance Sheet Maximum By
June 30, 1999 Offering Operations
------------- -------- ----------
<S> <C> <C>
Total assets $ 54,709,609 $ 22,190,925
------------ ------------
------------ ------------
Total liabilities $ 29,402,799 $ 12,283,543
Minority interest 2,415,000 683,000
Shareholders' equity 25,306,810 9,907,382
------------ ------------
$ 54,709,609 $ 22,190,925
------------ ------------
------------ ------------
Common shares of beneficial interest 2,892,716 1,314,386
------------ ------------
------------ ------------
Book value per common share $ 8.75 $ 7.54
------------ ------------
------------ ------------
Statement of Operations
Six Months Ended June 30, 1999
------------------------------
Income (loss) before minority interest $ (980,954) $ (983,938)
Minority interest 98,000 98,000
------------ ------------
Net income (loss) $ (882,954) $ (885,938)
------------ ------------
------------ ------------
Weighted average common shares used to compute basic
net loss per unit 2,844,770 1,266,440
------------ ------------
------------ ------------
Basic net loss per share $ (0.31) $ (0.70)
------------ ------------
------------ ------------
</TABLE>
P-82
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
JUNE 30, 1999
(UNAUDITED)
NOTE 4. NET LOSS PER SHARE
The net loss per share presented in the accompanying pro forma condensed
consolidated financial information was computed on the basis of weighted
average shares outstanding and exchange shares, and excludes the
conversion of limited partnership units held by the Original Investors
into common shares of the Trust. Assuming that the Original Investors
exchanged their limited partnership units for an equivalent number of
common shares (limited to 19% of the then outstanding common shares) the
net loss per share on an as-converted basis would have been as follows:
<TABLE>
<CAPTION>
Assuming Assuming Assuming Assuming
Maximum Minimum Mid-Case Lowest
Offering Offering Offering Offering
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average shares-historical
(investors) 569,074 569,074 569,074 569,074
Exchange Offering 2,497,800 670,700 1,254,000 744,100
---------- ---------- ---------- ----------
Weighted average shares - pro forma 3,066,874 1,239,774 1,823,074 1,313,174
Proforma shares to Original Investors upon exchange of limited
partnership units for equivalent number of common
shares 719,390 290,811 427,635 308,018
---------- ---------- ---------- ----------
Weighted average shares on an as-
converted basis 3,786,264 1,530,585 2,250,709 1,621,192
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share on an as-converted
basis $ (.26) $ (.54) $ (.31) $ (.61)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
P-83
<PAGE>
BARON CAPITAL TRUST
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 1998
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial
information of Baron Capital Trust (the "Trust") has been prepared giving
effect by the Trust to the acquisition of the Exchange Equity Partnerships,
Exchange Mortgage Partnerships and Exchange Hybrid Partnerships (collectively
the "Exchange Partnerships") as if the acquisition transaction had taken
place at February 3, 1998 (inception).
Pro Forma Consolidated Statement of Operations from Inception
(February 3, 1998) to December 31, 1998
The acquisitions have been accounted for under the purchase method of
accounting. Accordingly, pro forma adjustments to the assets have been made
to reflect the respective allocations of the estimated purchase prices. The
allocations were made based on valuations provided by the Company giving
effect to various economic and market factors.
The pro forma condensed consolidated financial information has been prepared
using four different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange Partnerships"
participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of "Exchange
Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the "Exchange
Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations
This presentation assumes that those "Exchange Partnerships" with the
lowest combined net cash provided by operations participate in the offering.
The unaudited pro forma condensed consolidated financial information is not
necessarily indicative of the results of operations which would have been
attained had the acquisitions actually been consummated at either of the
foregoing dates or which may be attained in the future. The unaudited pro
forma condensed consolidated financial information should be read in
conjunction with the historical financial statements of Baron Capital Trust
and the historical individual financial statements of each of the Exchange
Partnerships.
P-84
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Partnerships
Baron Exchange and Exchange
Capital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
----------- ----------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 826,646 $ 3,608,236 $ -- $4,434,882 $ -- $ 4,434,882
Interest income from affiliates -- -- 752,769 752,769 -- 752,769
Other interest income 3,608 -- 15,025 18,632 -- 18,632
Equity in net income of affiliates -- -- 4,162 4,162 -- 4,162
Other income 24,267 206,244 -- 230,511 -- 230,511
----------- ----------- ----------- ---------- ----------- ------------
Total Revenue 854,521 3,814,480 771,956 5,440,957 -- 5,440,957
----------- ----------- ----------- ---------- ----------- ------------
COSTS AND EXPENSES:
Personnel, including officers'
compensation 825,852 568,819 -- 1,394,671 -- 1,394,671
Real estate taxes and insurance 116,353 448,780 -- 565,133 -- 565,133
Management , investment and
administrative fees, --
managing shareholder and other
operating expenses 958,492 -- -- 958,492 -- 958,492
Property management fees 17,080 279,068 -- 296,147 -- 296,147
Interest 348,885 1,285,041 -- 1,633,926 -- 1,633,926
Depreciation 189,629 905,599 -- 1,095,227 (906,000)(a) 1,026,227
837,000 (a)
Other operating expenses -- 1,183,360 18,949 1,202,310 -- 1,202,310
Major maintenance 108,234 53,432 -- 161,666 -- 161,666
Equity in net loss of affiliates -- -- 68,232 68,232 -- 68,232
Interest expense to affiliate -- -- 76,425 76,425 -- 76,425
Administrative fees to
general partner -- -- 85,546 85,546 -- 85,546
----------- ----------- ----------- ---------- ----------- ------------
Total costs and expenses 2,564,523 4,724,099 249,152 7,537,774 (69,000) 7,468,774
----------- ----------- ----------- ---------- ----------- ------------
LOSS BEFORE MINORITY INTEREST (1,710,002) (909,618) 522,804 (2,096,817) (69,000) (2,027,817)
MINORITY INTEREST OF UNITHOLDERS IN
NET LOSS OF OPERATING PARTNERSHIP 100,000 -- -- 100,000 -- 100,000
----------- ----------- ----------- ---------- ----------- ------------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,610,002) (909,618) 522,804 (1,996,817) (69,000) (1,927,817)
ROLL-UP EXPENSES 26,874 117,512 89,487 233,873 -- 233,873
----------- ----------- ----------- ---------- ----------- ------------
NET INCOME (LOSS) $(1,636,876) $(1,027,130) $ 433,317 $(2,230,690) $ (69,000) $(2,161,690)
----------- ----------- ----------- ---------- ----------- ------------
----------- ----------- ----------- ---------- ----------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 212,731 2,497,800(b) 2,710,531
----------- ----------- ------------
----------- ----------- ------------
ET LOSS PER SHARE - BASIC $ (7.69) $ (0.80)
----------- -----------
----------- -----------
RATIO OF EARNINGS TO FIXED CHARGES (0.26)
-----------
-----------
DOLLAR AMOUNT OF THE DEFICIENCY IN
THE RATIO OF EARNINGS TO FIXED CHARGES $ 2,161,690
-----------
-----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-85
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
-------------------------- -----------------------------------------------------
Baron
Baron Capital
Capital Properties, Heatherwood Crystal
Trust L.P. I Riverwalk Court II Total
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ -- $ 267,302 $ 301,856 $ 257,488 $ 826,646
Interest income 1,331 930 -- -- 1,347 3,608
Other income -- -- 10,209 10,917 3,141 24,267
--------- --------- ----------- ----------- ----------- -----------
Total revenue 1,331 930 277,511 312,773 261,976 854,521
--------- --------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation -- 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance -- -- 34,885 45,197 36,271 116,353
Property management fees -- -- 8,343 -- 8,737 17,080
Interest -- 29,913 90,489 107,382 121,101 348,885
Depreciation -- 9,308 44,263 70,787 65,270 189,629
Major maintenance -- -- 25,426 22,423 60,385 108,234
Other operating expenses 569,521 199,927 74,201 88,588 26,254 958,492
--------- --------- ----------- ----------- ----------- -----------
Total costs and expenses 569,521 957,863 328,766 364,952 343,421 2,564,523
--------- --------- ----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (568,190) (956,933) (51,255) (52,179) (81,445) (1,710,002)
MINORITY INTEREST OF UNITHOLDERS IN NET LOSS
OF OPERATING PARTNERSHIP 100,000 -- -- -- -- 100,000
--------- --------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (468,190) (956,933) (51,255) (52,179) (81,445) (1,610,002)
ROLL-UP EXPENSES -- 26,874 -- -- -- 26,874
--------- --------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (468,190) $ (983,807) $ (51,255) $ (52,179) $ (81,445) $(1,636,876)
--------- --------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each entity
for the period from inception (February 3, 1998) to December 31, 1998.
Historical results for the year ended December 31, 1998 have been reduced
on a pro rata basis to reflect the estimated operating results for the
period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-86
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
------------------------------------------------------
Brookwood Laurel
Steeplechase Way Oaks Bridgepoint
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 270,132 $ 249,555 $ 255,753 $ 215,714
Other income 20,911 7,268 9,942 12,478
----------- ----------- ----------- -----------
Total revenue 291,043 256,823 265,695 228,192
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 54,568 27,948 36,580 17,374
Real estate taxes
and insurance 33,861 20,531 28,884 22,602
Property management fees 20,965 19,918 21,987 18,783
Interest 83,414 92,759 106,296 62,186
Depreciation 49,136 54,399 72,474 35,717
Other operating expenses 104,684 30,778 43,463 76,467
Major maintenance 24,986 817 -- --
----------- ----------- ----------- -----------
Total costs and
expenses 371,614 247,150 309,684 233,129
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE (80,571) 9,673 (43,989) (4,937)
ROLL-UP EXPENSES
ROLL-UP EXPENSES 11,978 11,426 11,581 7,204
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (92,549) $ (1,753) $ (55,570) $ (12,141)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
Pro Forma (1)
---------------------------------------------------------------------------------
Forest Camellia Glen Blossom Stadium Forest
Glen I Court Lake Corners I Club Glen IV
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 328,386 $ 242,048 $ 638,190 $ 307,200 $ 360,773 $ 48,569
Other income 14,590 21,379 24,371 12,932 39,946 2,794
----------- ----------- ----------- ----------- ----------- -----------
Total revenue 342,976 263,427 662,561 320,132 400,719 51,363
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 49,635 31,926 156,433 39,883 70,712 5,524
Real estate taxes
and insurance 42,239 35,957 101,437 29,650 28,529 6,678
Property management fees 23,408 20,372 16,186 24,813 40,309 7,881
Interest 105,797 89,433 288,407 84,968 128,218 16,246
Depreciation 184,353 44,934 130,738 63,927 82,397 15,321
Other operating expenses 56,084 84,957 392,311 66,086 130,290 13,140
Major maintenance -- -- -- 19,923 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total costs and
expenses 461,516 307,579 1,085,512 329,250 480,455 64,790
----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE (118,539) (44,152) (422,951) (9,118) (79,736) (13,427)
ROLL-UP EXPENSES
ROLL-UP EXPENSES 5,164 13,315 7,403 5,500 16,505 6,945
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (123,704) $ (57,467) $ (430,354) $ (14,618) $ (96,241) $ (20,372)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
Pro Forma (1)
-----------------------------------------------------
Forest Forest
Glen II Glen III Eagle Lake Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 185,674 $ 159,716 $ 346,526 $ 3,608,236
Other income 6,142 10,708 22,783 206,244
----------- ----------- ----------- -----------
Total revenue 191,816 170,424 369,309 3,814,480
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 18,549 16,007 43,680 568,819
Real estate taxes
and insurance 24,571 23,340 50,501 448,780
Property management fees 15,641 14,440 34,366 279,068
Interest 60,344 51,059 115,913 1,285,041
Depreciation 53,323 48,383 70,496 905,599
Other operating expenses 48,739 46,027 90,335 1,183,360
Major maintenance -- 7,705 -- 53,432
----------- ----------- ----------- -----------
Total costs and
expenses 221,167 206,962 405,291 4,724,099
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE (29,351) (36,538) (35,982) (909,618)
ROLL-UP EXPENSES
ROLL-UP EXPENSES 4,001 8,067 8,423 117,512
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (33,352) $ (44,604) $ (44,405) $(1,027,130)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each entity
for the period from inception (February 3, 1998) to December 31, 1998.
Historical results for the year ended December 31, 1998 have been reduced
on a pro rata basis to reflect the estimated operating results for the
period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-87
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
--------------------------------------------------------------
BSIF V, BSIF VIII, BSIF X, BSIF IX, BMP, LCOB,
Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 85,060 $ 91,357 $ 24,748 $ 34,176 $ 66,683 $ 60,552
Equity in net income of affiliates -- -- -- -- -- --
Other 447 691 8,767 3,314 32 143
-------- -------- -------- -------- -------- --------
Total revenue 85,507 92,048 33,515 37,490 66,715 60,695
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- 33,544 34,688 -- --
Interest expense to affiliate -- -- 33,949 -- -- --
Administrative fees to general partner 11,000 11,000 11,000 11,000 3,223 5,441
General and administrative 1,812 1,026 -- 290 4,939 1,182
-------- -------- -------- -------- -------- --------
Total costs and expenses 12,812 12,026 78,493 45,978 8,162 6,623
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 72,695 80,022 (44,977) (8,488) 58,553 54,072
ROLL-UP EXPENSES 5,000 16,996 15,969 8,648 3,223 3,670
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS) $ 67,695 $ 63,026 $(60,946) $(17,136) $ 55,330 $ 50,402
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
<CAPTION>
Pro Forma (1)
------------------------------------------------
BSIF IV, BSVF I, BSIF VI, BSIF,
Ltd. Ltd. Ltd. Ltd. Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $150,553 $ 98,125 $ 45,963 $ 95,553 $752,769
Equity in net income of affiliates -- -- 4,162 -- 4,162
Other 310 405 584 331 15,025
-------- -------- -------- -------- --------
Total revenue 150,863 98,530 50,709 95,884 771,956
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- -- -- -- 68,232
Interest expense to affiliate 36,626 5,850 -- -- 76,425
Administrative fees to general partner 11,000 5,441 11,000 5,441 85,546
General and administrative 6,957 22 2,721 0 18,949
-------- -------- -------- -------- --------
Total costs and expenses 54,583 11,313 13,721 5,441 249,152
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 96,280 87,217 36,988 90,443 522,804
ROLL-UP EXPENSES 2,950 9,450 1,834 21,747 89,487
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 93,330 $ 77,767 $ 35,154 $ 68,696 $433,317
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each entity
for the period from inception (February 3, 1998) to December 31, 1998.
Historical results for the year ended December 31, 1998 have been reduced
on a pro rata basis to reflect the estimated operating results for the
period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-88
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
PROFORMA CONSOLIDATED STATEMENTS OF CASH FLOWS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital Exchange Pro Forma Pro Forma
Trust Partnerships Sub-Total Adjustment Consolidated
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,636,876) $ (593,814) $(2,230,690) $ 69,000 $(2,161,690)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 20,360 70,651 91,011 -- 91,011
Provision for officer's compensation 197,000 -- 197,000 -- 197,000
Minority Interest (100,000) -- (100,000) -- (100,000)
Depreciation 189,629 905,598 1,095,227 (69,000) 1,026,227
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables (80,112) (2,068) (82,180) -- (82,180)
Reimbursed administrative expenses receivable (155,071) 29,393 (125,678) -- (125,678)
Other assets (271,128) (1,076,206) (1,347,334) -- (1,347,334)
Increase (decrease) in:
Accounts payable and accrued liabilities 388,385 290,501 678,886 -- 678,886
Other 39,098 568,228 607,326 -- 607,326
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (1,408,715) 192,283 (1,216,432) -- (1,216,432)
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments (1,559,162) (356,353) (1,915,515) -- (1,915,515)
Investments in partnerships (741,280) 27,000 (714,280) -- (714,280)
Investment in notes receivable from affiliates -- (1,247,063) (1,247,063) -- (1,247,063)
Investment in notes receivable from non-affiliates -- (360,000) (360,000) -- (360,000)
Cash distributions from partnerships 10,950 -- 10,950 -- 10,950
Purchases of other property and equipment (117,771) -- (117,771) -- (117,771)
Advances to non-affiliate -- (46,778) (46,778) -- (46,778)
Advances to affiliates -- (365,924) (365,924) -- (365,924)
Repayment of advances to affiliates (10,750) 472,638 461,888 -- 461,888
Increase in restricted cash (66,199) -- (66,199) -- (66,199)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (2,484,212) (1,876,480) (4,360,692) -- (4,360,692)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions 100,100 1,198,294 1,298,394 -- 1,298,394
Distributions paid (72,159) (1,484,292) (1,556,451) -- (1,556,451)
Proceeds from sale of common shares of beneficial interest 4,265,089 -- 4,265,089 -- 4,265,089
Payment on note payable (200,000) -- (200,000) -- (200,000)
Proceeds from mortgage financing -- 1,345,134 1,345,134 -- 1,345,134
Payments on mortgages payable (19,019) -- (19,019) -- (19,019)
Payments on capital lease obligation (3,785) -- (3,785) -- (3,785)
Other -- (433,934) (433,934) -- (433,934)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities 4,070,226 625,202 4,695,428 -- 4,695,428
----------- ----------- ----------- ----------- -----------
Net Decrease in Cash and Cash Equivalents 177,299 (1,058,995) (881,696) -- (881,696)
Cash and Cash Equivalents, Beginning -- 1,347,757 1,347,757 -- 1,347,757
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, Ending $ 177,299 $ 288,762 $ 466,061 $ -- $ 466,061
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-89
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Exchange
Mortgage
Partnerships
Baron Exchange and Exchange
Capital Equity Hybrid Pro Forma Pro Forma
Trust Partnerships Partnerships Sub-Total Adjustments Consolidated
----- ------------------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 826,646 $ 1,088,667 $ -- $ 1,915,313 $ -- $ 1,915,313
Interest income from affiliates -- -- 183,425 183,425 -- 183,425
Other interest income 3,608 -- 9,315 12,923 -- 12,923
Other income 24,267 94,714 -- 118,981 -- 118,981
----------- ----------- -------- ----------- --------- -----------
Total revenue 854,521 1,183,381 192,740 2,230,642 -- 2,230,642
----------- ----------- -------- ----------- --------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 825,852 174,580 -- 1,000,432 -- 1,000,432
Real estate taxes and insurance 116,353 120,949 -- 237,302 -- 237,302
Management , investment and administrative fees,
managing shareholder and other operating expenses 958,491 -- -- 958,491 -- 958,491
Property management fees 17,080 100,429 -- 117,509 -- 117,509
Interest 348,885 363,251 -- 712,136 -- 712,136
Depreciation 189,628 212,184 -- 401,812 (212,000)(a) 400,812
211,000(a)
Other operating expenses -- 396,398 1,204 397,602 -- 397,602
Major maintenance 108,234 24,986 -- 133,220 -- 133,220
Equity in net loss of affiliates -- -- 33,544 33,544 -- 33,544
Interest expense to affiliate -- -- 39,799 39,799 -- 39,799
Administrative fees to general partner -- -- 21,882 21,882 -- 21,882
----------- ----------- -------- ----------- --------- -----------
Total costs and expenses 2,564,523 1,392,777 96,429 4,053,729 (1,000) 4,052,729
----------- ----------- -------- ----------- --------- -----------
LOSS BEFORE MINORITY INTEREST (1,710,002) (209,396) 96,311 (1,823,087) 1,000 (1,822,087)
MINORITY INTEREST OF UNITHOLDERS IN NET
LOSS OF OPERATING PARTNERSHIP 100,000 -- -- 100,000 -- 100,000
----------- ----------- -------- ----------- --------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,610,002) (209,396) 96,311 (1,723,087) 1,000 (1,722,087)
ROLL-UP EXPENSES 26,874 49,002 29,089 104,965 -- 104,965
----------- ----------- -------- ----------- --------- -----------
NET INCOME (LOSS) $(1,636,876) $ (258,398) $ 67,222 $(1,828,052) $ 1,000 $(1,827,052)
----------- ----------- -------- ----------- --------- -----------
----------- ----------- -------- ----------- --------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 212,731 670,700(b) 883,431
----------- --------- -----------
----------- --------- -----------
NET LOSS PER SHARE - BASIC $ (7.69) $ (2.07)
----------- -----------
----------- -----------
RATIO OF EARNINGS TO FIXED CHARGES (1.43)
-----------
-----------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE RATIO OF
EARNINGS TO FIXED CHARGES $ 1,827,052
-----------
-----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-90
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
------------------------- --------------------------------------
Baron
Baron Capital
Capital Properties, Heatherwood Crystal
Trust L.P. I Riverwalk Court II Total
----- ---- - --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ -- $ 267,302 $ 301,856 $ 257,488 $ 826,646
Interest income 1,331 930 -- -- 1,347 3,608
Other income -- -- 10,209 10,917 3,141 24,267
--------- --------- --------- --------- --------- -----------
Total revenue 1,331 930 277,511 312,773 261,976 854,521
--------- --------- --------- --------- --------- -----------
COSTS AND EXPENSES:
Personnel, including officers' compensation -- 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance -- -- 34,885 45,197 36,271 116,353
Property management fees -- -- 8,343 -- 8,737 17,080
Interest -- 29,913 90,489 107,382 121,101 348,885
Depreciation -- 9,308 44,263 70,787 65,270 189,628
Major maintenance -- -- 25,426 22,423 60,385 108,234
Other operating expenses 569,521 199,927 74,201 88,588 26,254 958,491
--------- --------- --------- --------- --------- -----------
Total costs and expenses 569,521 957,863 328,766 364,952 343,421 2,564,523
--------- --------- --------- --------- --------- -----------
NET INCOME (LOSS) BEFORE MINORITY INTEREST (568,190) (956,933) (51,255) (52,179) (81,445) (1,710,002)
MINORITY INTEREST OF UNITHOLDERS IN NET LOSS
OF OPERATING PARTNERSHIP 100,000 -- -- -- -- 100,000
--------- --------- --------- --------- --------- -----------
NET INCOME (LOSS) BEFORE ROLL-UP EXPENSES (468,190) (956,933) (51,255) (52,179) (81,445) (1,610,002)
ROLL-UP EXPENSES -- 26,874 -- -- -- 26,874
--------- --------- --------- --------- --------- -----------
NET INCOME (LOSS) $(468,190) $(983,807) $ (51,255) $ (52,179) $ (81,445) $(1,636,876)
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-91
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
----------------------------------------------------
Camellia Stadium
Steeplechase Bridgepoint Court Club Total
------------ ----------- ----- ---- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 270,132 $ 215,714 $ 242,048 $ 360,773 $ 1,088,667
Other income 20,911 12,478 21,379 39,946 94,714
--------- --------- --------- --------- -----------
Total revenue 291,043 228,192 263,427 400,719 1,183,381
--------- --------- --------- --------- -----------
COSTS AND EXPENSES:
Personnel 54,568 17,374 31,926 70,712 174,580
Real estate taxes and insurance 33,861 22,602 35,957 28,529 120,949
Property management fees 20,965 18,783 20,372 40,309 100,429
Interest 83,414 62,186 89,433 128,218 363,251
Depreciation 49,136 35,717 44,934 82,397 212,184
Other operating expenses 104,684 76,467 84,957 130,290 396,398
Major maintenance 24,986 -- -- -- 24,986
--------- --------- --------- --------- -----------
Total costs and expenses 371,614 233,129 307,579 480,455 1,392,777
--------- --------- --------- --------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (80,571) (4,937) (44,152) (79,736) (209,396)
ROLL-UP EXPENSES 11,978 7,204 13,315 16,505 49,002
--------- --------- --------- --------- -----------
NET INCOME (LOSS) $ (92,549) $ (12,141) $ (57,467) $ (96,241) $ (258,398)
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-92
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3,1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
-------------------------------
BSIF X, LCOB, BSVF I,
Ltd. Ltd. Ltd. Total
---- ---- ---- -----
<S> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 24,748 $60,552 $98,125 $183,425
Other 8,767 143 405 9,315
-------- ------- ------- --------
Total revenue 33,515 60,695 98,530 192,740
-------- ------- ------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates 33,544 -- -- 33,544
Interest expense to affiliate 33,949 -- 5,850 39,799
Administrative fees to general partner 11,000 5,441 5,441 21,882
General and administrative -- 1,182 22 1,204
-------- ------- ------- --------
Total costs and expenses 78,493 6,623 11,313 96,429
-------- ------- ------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (44,978) 54,072 87,217 96,311
ROLL-UP EXPENSES 15,969 3,670 9,450 29,089
-------- ------- ------- --------
NET INCOME (LOSS) $(60,947) $50,402 $77,767 $ 67,222
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-93
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
EXCHANGE
MORTGAGE
PARTNERSHIPS
BARON EXCHANGE AND EXCHANGE
CAPITAL EQUITY HYBRID PRO FORMA PRO FORMA
TRUST PARTNERSHIPS PARTNERSHIPS SUB-TOTAL ADJUSTMENTS CONSOLIDATED
----- ------------ ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 826,646 $ 1,902,109 $ -- $ 2,728,755 $ -- $ 2,728,755
Interest income from affiliates -- -- 364,038 364,038 -- 364,038
Other interest income 3,608 -- 10,093 13,701 -- 13,701
Other income 24,267 141,137 -- 165,404 -- 165,404
----------- ----------- ----------- ----------- ----------- -----------
Total revenue 854,521 2,043,246 374,131 3,271,898 -- 3,271,898
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 825,852 274,150 -- 1,100,002 -- 1,100,002
Real estate taxes and insurance 116,353 224,440 -- 340,793 -- 340,793
Management , investment and administrative
fees, managing shareholder and other
operating expenses 958,491 -- -- 958,491 -- 958,491
Property management fees 17,080 174,048 -- 191,128 -- 191,128
Interest 348,885 615,191 -- 964,076 -- 964,076
Depreciation 189,628 394,990 -- 584,618 395,000 (a) 595,618
(384,000) (a)
Other operating expenses -- 598,306 3,016 601,322 -- 601,322
Major maintenance 108,234 52,614 -- 160,848 -- 160,848
Equity in net loss of affiliates -- -- 33,544 33,544 -- 33,544
Interest expense to affiliate -- -- 39,799 39,799 -- 39,799
Administrative fees to general partner -- -- 38,323 38,323 -- 38,323
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 2,564,523 2,333,739 114,682 5,012,944 11,000 5,023,944
----------- ----------- ----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (1,710,002) (290,493) 259,449 (1,741,046) (11,000) (1,752,046)
MINORITY INTEREST OF UNITHOLDERS IN NET
LOSS OF OPERATING PARTNERSHIP 100,000 -- -- 100,000 -- 100,000
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,610,002) (290,493) 259,449 (1,641,046) (11,000) (1,652,046)
ROLL-UP EXPENSES 26,874 70,992 55,836 153,702 -- 153,702
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,636,876) $ (361,485) $ 203,613 $(1,794,748) $ (11,000) $(1,805,748)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 212,731 1,254,000 (b) 1,466,731
----------- ----------- -----------
----------- ----------- -----------
NET LOSS PER SHARE - BASIC $ (7.69) $ (1.23)
----------- -----------
----------- -----------
RATIO OF EARNINGS TO FIXED CHARGES (0.80)
-----------
-----------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE
RATION OF EARNINGS TO FIXED CHARGES $ 1,805,748
-----------
-----------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-94
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
----------------------------- --------------------------------------------
Baron
Baron Capital
Capital Properties, Heatherwood Crystal
Trust L.P. I Riverwalk Court II Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ -- $ 267,302 $ 301,856 $ 257,488 $ 826,646
Interest income 1,331 930 -- -- 1,347 3,608
Other income -- -- 10,209 10,917 3,141 24,267
----------- ----------- ----------- ----------- ----------- -----------
Total revenue 1,331 930 277,511 312,773 261,976 854,521
----------- ----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel -- 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance -- -- 34,885 45,197 36,271 116,353
Property management fees -- -- 8,343 -- 8,737 17,080
Interest -- 29,913 90,489 107,382 121,101 348,885
Depreciation -- 9,308 44,263 70,787 65,270 189,628
Major maintenance -- -- 25,426 22,423 60,385 108,234
Other operating expenses 569,521 199,927 74,201 88,588 26,254 958,491
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 569,521 957,863 328,766 364,952 343,421 2,564,523
----------- ----------- ----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (568,190) (956,933) (51,255) (52,179) (81,445) (1,710,002)
MINORITY INTEREST OF UNITHOLDERS
IN NET LOSS OF OPERATING PARTNERSHIP 100,000 -- -- -- -- 100,000
----------- ----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (468,190) (956,933) (51,255) (52,179) (81,445) (1,610,002)
ROLL-UP EXPENSES -- 26,874 -- -- -- 26,874
----------- ----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (468,190) $ (983,807) $ (51,255) $ (52,179) $ (81,445) $(1,636,876)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-95
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA (1)
--------------------------------------------------------
CAMELLIA BLOSSOM
STEEPLECHASE BRIDGEPOINT COURT CORNERS I
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 270,132 $ 215,714 $ 242,048 $ 307,200
Other income 20,911 12,478 21,379 12,932
----------- ----------- ----------- -----------
Total revenue 291,043 228,192 263,427 320,132
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 54,568 17,374 31,926 39,883
Real estate taxes and insurance 33,861 22,602 35,957 29,650
Property management fees 20,965 18,783 20,372 24,813
Interest 83,414 62,186 89,433 84,968
Depreciation 49,136 35,717 44,934 63,927
Other operating expenses 104,684 76,467 84,957 66,086
Major maintenance 24,986 -- -- 19,923
----------- ----------- ----------- -----------
Total costs and expenses 371,614 233,129 307,579 329,250
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES (80,571) (4,937) (44,152) (9,118)
NET INCOME (LOSS) 11,978 7,204 13,315 5,500
----------- ----------- ----------- -----------
$ (92,549) $ (12,141) $ (57,467) $ (14,618)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
PRO FORMA (1)
--------------------------------------------------------
FOREST STADIUM
GLEN III CLUB EAGLE LAKE TOTAL
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Rental income $ 159,716 $ 360,773 $ 346,526 $ 1,902,109
Other income 10,708 39,946 22,783 141,137
----------- ----------- ----------- -----------
Total revenue 170,424 400,719 369,309 2,043,246
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Personnel 16,007 70,712 43,680 274,150
Real estate taxes and insurance 23,340 28,529 50,501 224,440
Property management fees 14,440 40,309 34,366 174,048
Interest 51,059 128,218 115,913 615,191
Depreciation 48,383 82,397 70,496 394,990
Other operating expenses 45,487 130,290 90,335 598,306
Major maintenance 7,705 -- -- 52,614
----------- ----------- ----------- -----------
Total costs and expenses 206,421 480,455 405,291 2,333,739
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
ROLL-UP EXPENSES (35,997) (79,736) (35,982) (290,493)
NET INCOME (LOSS) 8,067 16,505 8,423 70,992
----------- ----------- ----------- -----------
$ (44,064) $ (96,241) $ (44,405) $ (361,485)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-96
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA (1)
------------------------------------------------------
BSIF V, BSIF X, LCOB, BSVF I, BSIF,
LTD. LTD. LTD. LTD. LTD. TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 85,060 $ 24,748 $ 60,552 $ 98,125 $ 95,553 $364,038
Other 447 8,767 143 405 331 10,093
-------- -------- -------- -------- -------- --------
Total revenue 85,507 33,515 60,695 98,530 95,884 374,131
-------- -------- -------- -------- -------- --------
COSTS AND EXPENSES:
Equity in net loss of affiliates -- 33,544 -- -- -- 33,544
Interest expense to affiliate -- 33,949 -- 5,850 -- 39,799
Administrative fees to general partner 11,000 11,000 5,441 5,441 5,441 38,323
General and administrative 1,812 -- 1,182 22 -- 3,016
-------- -------- -------- -------- -------- --------
Total costs and expenses 12,812 78,493 6,623 11,313 5,441 114,682
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES 72,695 (44,978) 54,072 87,217 90,443 259,449
ROLL-UP EXPENSES 5,000 15,969 3,670 9,450 21,747 55,836
-------- -------- -------- -------- -------- --------
NET INCOME $ 67,695 $(60,947) $ 50,402 $ 77,767 $ 68,696 $203,613
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
P-97
<PAGE>
BARON CAPITAL TRUST
ASSUMES LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
EXCHANGE
MORTGAGE
PARTNERSHIPS
BARON EXCHANGE AND EXCHANGE
CAPITAL EQUITY HYBRID
TRUST PARTNERSHIPS PARTNERSHIPS
----- ------------ ------------
<S> <C> <C> <C>
REVENUE:
Interest income from affiliates $ -- $ -- $ 58,924
Other interest income 3,608 -- 12,080
Rental income 826,646 929,530 --
Other income 24,267 41,382 --
----------- ----------- -----------
Total revenue 854,521 970,912 71,004
----------- ----------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 825,852 120,771 --
Real estate taxes and insurance 116,353 119,035 --
Management , investment and administrative fees,
managing shareholder and other operating expenses 958,491 -- --
Property management fees 17,080 75,475 --
Interest 348,885 323,496 --
Depreciation 189,628 358,533 --
Other operating expenses -- 194,313 290
Major maintenance 108,234 7,705 --
Equity in net loss of affiliates -- -- 68,232
Interest expense to affiliate -- -- 33,949
Administrative fees to general partner -- -- 22,000
----------- ----------- -----------
Total costs and expenses 2,564,523 1,199,328 124,471
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (1,710,002) (228,417) (53,467)
MINORITY INTEREST OF UNITHOLDERS IN NET LOSS OF OPERATING PARTNERSHIP 100,000 -- --
----------- ----------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,610,002) (228,417) (53,467)
ROLL-UP EXPENSES 26,874 28,813 24,617
----------- ----------- -----------
NET INCOME (LOSS) $(1,636,876) $ (257,230) $ (78,084)
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 212,731
-----------
-----------
NET LOSS PER SHARE - BASIC $ (7.69)
-----------
-----------
RATIO EARNINGS TO FIXED CHARGES
DOLLAR AMOUNT OF THE DEFICIENCY IN THE RATIO OF
EARNINGS TO FIXED CHARGES
<CAPTION>
PRO FORMA PRO FORMA
SUB-TOTAL ADJUSTMENTS CONSOLIDATED
--------- ----------- ------------
<S> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 58,924 $ -- $ 58,924
Other interest income 15,688 -- 15,688
Rental income 1,756,176 -- 1,756,176
Other income 65,649 -- 65,649
--------- ---------- -----------
Total revenue 1,896,437 -- 1,896,437
--------- ---------- -----------
COSTS AND EXPENSES:
Personnel, including officer's compensation 946,623 -- 946,623
Real estate taxes and insurance 235,388 -- 235,388
Management , investment and administrative fees,
managing shareholder and other operating expenses 958,491 -- 958,491
Property management fees 92,555 -- 92,555
Interest 672,381 -- 672,381
Depreciation 548,161 (358,000) (a) 474,161
284,000 (a)
Other operating expenses 194,603 -- 194,603
Major maintenance 115,939 -- 115,939
Equity in net loss of affiliates 68,232 -- 68,232
Interest expense to affiliate 33,949 -- 33,949
Administrative fees to general partner 22,000 -- 22,000
--------- ---------- -----------
Total costs and expenses 3,888,322 (74,000) 3,814,322
--------- ---------- -----------
LOSS BEFORE MINORITY INTEREST (1,991,886) 74,000 (1,917,886)
MINORITY INTEREST OF UNITHOLDERS IN NET LOSS OF OPERATING PARTNERSHIP 100,000 -- 100,000
--------- ---------- -----------
INCOME (LOSS) BEFORE ROLL-UP EXPENSES (1,891,886) 74,000 (1,817,886)
ROLL-UP EXPENSES 80,304 -- 80,304
--------- ---------- -----------
NET INCOME (LOSS) $(1,972,190) $ 74,000 $(1,898,190)
--------- ---------- -----------
--------- ---------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 744,100 (b) 956,831
---------- ------------
---------- ------------
NET LOSS PER SHARE - BASIC $ (1.98)
------------
------------
RATIO EARNINGS TO FIXED CHARGES
(1.77)
------------
------------
DOLLAR AMOUNT OF THE DEFICIENCY IN THE RATIO OF
EARNINGS TO FIXED CHARGES $ 1,898,190
------------
------------
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-98
<PAGE>
BARON CAPITAL TRUST
ASSUMES LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma (1)
----------------------- --------------------------------------
Baron
Baron Capital
Capital Properties, Heatherwood Crystal
Trust L.P. I Riverwalk Court II Total
----- ---- - --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ -- $ -- $ 267,302 $ 301,856 $ 257,488 $ 826,646
Interest income 1,331 930 -- -- 1,347 3,608
Other income -- -- 10,209 10,917 3,141 24,267
--------- --------- --------- --------- --------- -----------
Total revenue 1,331 930 277,511 312,773 261,976 854,521
--------- --------- --------- --------- --------- -----------
COSTS AND EXPENSES:
Personnel, including officer's salary -- 718,715 51,159 30,575 25,403 825,852
Real estate taxes and insurance -- -- 34,885 45,197 36,271 116,353
Property management fees -- -- 8,343 -- 8,737 17,080
Interest -- 29,913 90,489 107,382 121,101 348,885
Depreciation -- 9,308 44,263 70,787 65,270 189,628
Major maintenance -- -- 25,426 22,423 60,385 108,234
Other operating expenses 569,521 199,927 74,201 88,588 26,254 958,491
--------- --------- --------- --------- --------- -----------
Total costs and expenses 569,521 957,863 328,766 364,952 343,421 2,564,523
--------- --------- --------- --------- --------- -----------
LOSS BEFORE MINORITY INTEREST (568,190) (956,933) (51,255) (52,179) (81,445) (1,710,002)
MINORITY INTEREST OF UNITHOLDERS IN
NET LOSS OF OPERATING PARTNERSHIP 100,000 -- -- -- -- 100,000
--------- --------- --------- --------- --------- -----------
INCOME(LOSS) BEFORE ROLL-UP EXPENSES $(468,190) $(956,933) $ (51,255) $ (52,179) $ (81,445) $(1,610,002)
ROLL-UP EXPENSES -- 26,874 -- -- -- 26,874
--------- --------- --------- --------- --------- -----------
NET INCOME (LOSS) $(568,190) $(983,807) $ (51,255) $ (52,179) $ (81,445) $(1,636,876)
========= ========= ========= ========= ========= ===========
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-99
<PAGE>
BARON CAPITAL TRUST
ASSUMES LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE EQUITY PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
---------------------------------------------------
Laurel Forest Forest Forest
Oaks Glen I Glen II Glen III Total
---- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental income $ 255,753 $ 328,386 $ 185,674 $ 159,716 $ 929,530
Other income 9,942 14,590 6,142 10,708 41,382
--------- --------- --------- --------- -----------
Total revenue 265,695 342,976 191,816 170,424 970,912
--------- --------- --------- --------- -----------
COSTS AND EXPENSES:
Personnel 36,580 49,635 18,549 16,007 120,771
Real estate taxes and insurance 28,884 42,239 24,571 23,340 119,035
Property management fees 21,987 23,408 15,641 14,440 75,475
Interest 106,296 105,797 60,344 51,059 323,496
Depreciation 72,474 184,353 53,323 48,383 358,533
Other operating expenses 43,463 56,084 48,739 46,027 194,313
Major maintenance -- -- -- 7,705 7,705
--------- --------- --------- --------- -----------
Total costs and expenses 309,684 461,516 221,167 206,961 1,199,328
--------- --------- --------- --------- -----------
INCOME(LOSS) BEFORE ROLL-UP EXPENSES $ (43,989) $(118,540) $ (29,351) $ (36,537) $ (228,417)
ROLL-UP EXPENSES 11,581 5,164 4,001 8,067 28,813
--------- --------- --------- --------- -----------
NET INCOME (LOSS) $ (55,570) $(123,704) $ (33,352) $ (44,604) $ (257,230)
========= ========= ========= ========= ===========
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-100
<PAGE>
BARON CAPITAL TRUST
ASSUMES LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
EXCHANGE MORTGAGE PARTNERSHIP AND EXCHANGE HYBRID PARTNERSHIPS
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma (1)
----------------------
BSIF X, BSIF IX,
Ltd. Ltd. Total
---- ---- -----
<S> <C> <C> <C>
REVENUE:
Interest income from affiliates $ 24,748 $ 34,176 $ 58,924
Other 8,767 3,313 12,080
-------- -------- ---------
Total revenue 33,515 37,489 71,004
-------- -------- ---------
COSTS AND EXPENSES:
Equity in net loss of affiliates 33,544 34,688 68,232
Interest expense to affiliate 33,949 -- 33,949
Administrative fees to general partner 11,000 11,000 22,000
General and administrative -- 290 290
-------- -------- ---------
Total costs and expenses 78,493 45,978 124,471
-------- -------- ---------
INCOME(LOSS) BEFORE ROLL-UP EXPENSES (44,978) (8,489) (53,467)
ROLL-UP EXPENSES 15,969 8,648 24,617
-------- -------- ---------
NET INCOME(LOSS) $(60,947) $(17,137) $ (78,084)
======== ======== =========
</TABLE>
(1) Results of operations presented as if Baron Capital Trust owned each
entity for the period from inception (February 3, 1998) to December 31,
1998. Historical results for the year ended December 31, 1998 have been
reduced on a pro rata basis to reflect the estimated operating results
for the period February 3, 1998 to December 31, 1998.
See notes to unaudited pro forma condensed consolidated financial information.
P-101
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
PRO FORMA CONSOLIDATED STATEMENTS OF CASH FLOWS
INCEPTION (FEBRUARY 3, 1998) to DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Baron
Capital Exchange Pro Forma Pro Forma
Trust Partnerships Sub-Total Adjustments Consolidated
----- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,636,876) $ (335,315) $(1,972,191) $ 74,000 $(1,898,191)
Adjustments to reconcile net loss to
net cash used by operating activities:
Equity in net loss of unconsolidated partnership 20,360 75,241 95,601 -- 95,601
Provision for officer's compensation 197,000 -- 197,000 -- 197,000
Minority interest (100,000) -- (100,000) -- (100,000)
Depreciation 189,628 358,533 548,161 (74,000) 474,161
Changes in operating assets and liabilities:
(Increase) decrease in:
Other receivables (80,112) 1,295 (78,817) -- (78,817)
Reimbursed administrative expenses receivable (155,071) 3,893 (151,178) -- (151,178)
Other assets (271,128) (1,113,399) (1,384,527) -- (1,384,527)
Increase (decrease) in:
Accounts payable and accrued liabilities 388,385 (75,114) 313,271 -- 313,271
Other 39,098 (86,082) (46,984) -- (46,984)
----------- ----------- ----------- -------- -----------
Net cash used in operating activities (1,408,716) (1,170,948) (2,579,664) -- (2,579,664)
----------- ----------- ----------- -------- -----------
Cash Flows from Investing Activities:
Acquisitions of rental apartments (1,559,162) (128,742) (1,687,904) -- (1,687,904)
Investments in partnerships (741,280) -- (741,280) -- (741,280)
Investment in notes receivable from affiliates -- (904,046) (904,046) -- (904,046)
Investment in notes receivable from non-affilates -- (200,000) (200,000) -- (200,000)
Cash distributions from partnerships 10,950 -- 10,950 -- 10,950
Purchases of other property and equipment (117,771) -- (117,771) -- (117,771)
Advances to non-affiliate -- (42,396) (42,396) -- (42,396)
Advances to affiliates -- (3,372) (3,372) -- (3,372)
Repayment of Notes Recievable from Affiliates -- 160,000 160,000 -- 160,000
Repayment of advances to affiliates (10,750) 18,213 7,463 -- 7,463
Increase in restricted cash (66,199) -- (66,199) -- (66,199)
----------- ----------- ----------- -------- -----------
Net cash used in investing activities (2,484,212) (1,100,343) (3,584,555) -- (3,584,555)
----------- ----------- ----------- -------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions 100,100 957,591 1,057,691 -- 1,057,691
Distributions paid (72,159) (270,172) (342,331) -- (342,331)
Proceeds from sale of common shares of beneficial interest 4,265,089 -- 4,265,089 -- 4,265,089
Payment on note payable (200,000) -- (200,000) -- (200,000)
Proceeds from mortgage financing -- 1,519,580 1,519,580 -- 1,519,580
Payments on mortgages payable (19,019) -- (19,019) -- (19,019)
Payments on capital lease obligation (3,784) -- (3,784) -- (3,784)
Other -- (260,494) (260,494) -- (260,494)
----------- ----------- ----------- -------- -----------
Net cash provided by financing activities 4,070,227 1,946,505 6,016,732 -- 6,016,732
----------- ----------- ----------- -------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 177,299 (324,786) (147,487) -- (147,487)
Cash and Cash Equivalents, Beginning -- 423,993 423,993 -- 423,993
----------- ----------- ----------- -------- -----------
Cash and Cash Equivalents, Ending $ 177,299 $ 99,207 $ 276,506 $ -- $ 276,506
=========== =========== =========== ======== ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial information.
P-102
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
DECEMBER 31, 1998
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Baron Capital Trust (the "Company") was organized in 1997 and
commenced operations in 1998. The Company and Baron Capital
Properties, L.P. (the "Operating Partnership") will acquire equity
interests in residential apartment properties located in the United
States and to provide or acquire mortgage loans secured by such types
of property. The Operating Partnership conducts all of the Company's
real estate operations and holds all direct or indirect property
interests acquired. The Company, as its sole general partner, will
control the activities of the Operating Partnership. During 1998, the
Operating Partnership acquired three limited partnerships. Each of the
limited partnerships' results of operations has been presented as if
the partnerships were owned for the period from inception (February 3,
1998) to December 31, 1998. The unaudited pro forma condensed
consolidated financial information represents the acquisition of the
Exchange Partnerships, which will be accounted for under the purchase
method of accounting. The Company has estimated the adjustments
required to allocate the aggregate purchase price over the recorded
book value of these partnerships. Such allocations are subject to
final determinations based on valuations provided by the Company and
other evaluations of fair value as if the acquisitions were effective
as of February 3, 1998. Therefore, the allocations reflected in the
unaudited pro forma condensed consolidated financial information may
differ from the amounts ultimately determined. Differences between the
amounts included herein and the final allocations are not expected to
have a material effect on the unaudited pro forma financial
statements.
The pro forma consolidated financial information has been prepared
using four different levels of participation as follows:
1. Assuming Maximum Offering
This presentation assumes that 100% of the "Exchange
Partnerships" participate in the offering.
2. Assuming Minimum Offering
This presentation assumes that only the minimum number of
"Exchange Partnerships" participate in the offering.
3. Assuming Mid-Case Offering
This presentation assumes that approximately one-half of the
"Exchange Partnerships" participate in the offering.
4. Assuming Lowest Combined Net Cash Provided by Operations
This presentation assumes that those "Exchange Partnerships" with
the lowest combined net cash provided by operations participate
in the offering.
For purposes of the Minimum Offering and Mid-Case Offering pro forma
information, the participating Exchange Partnerships have been
selected on an arbitrary basis. The actual selection of participating
Exchange Partnerships may differ from actual results if the offering
is less than 100%.
P-103
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
DECEMBER 31, 1998
(UNAUDITED)
NOTE 2. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENT ADJUSTMENTS
(a) Pro forma depreciation adjustment for the period ended December
31, 1998 based upon assets at fair value at February 3, 1998:
primarily based upon 30 year asset lives.
(b) Pro forma weighted average shares computation assuming that the
Exchange Transaction had been consummated as of February 3, 1998
(assuming shares outstanding for entire period). The shares
issued in the Exchange Transaction have been computed on the
basis of the estimated fair value of the partners' capital of the
Exchange Partnerships divided by $10 per unit.
<TABLE>
<CAPTION>
Maximum Minimum Mid-Case Lowest
------- ------- -------- ------
<S> <C> <C> <C> <C>
Shares issued in connection with
Exchange Transaction 2,497,800 670,700 1,254,000 744,100
Weighted shares - Other 212,731 212,731 212,731 212,731
--------- --------- --------- ---------
Total 2,710,531 883,431 1,466,731 956,831
========= ========= ========= =========
</TABLE>
NOTE 3. PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA ASSUMING PARTIAL
PARTICIPATION
The following table represents the effects on the pro forma condensed
consolidated financial information of the minority interests retained
if only 90% of the partnership units were to elect to participate in
the roll-up transaction. The maximum allowed retained minority
interest in each participating entity is 10%.
<TABLE>
<CAPTION>
Lowest
Combined
Net Cash
Statement of Operations Maximum Provided By
Inception (February 3, 1998) To December 31, 1998 Offering Operations
------------------------------------------------- -------- ----------
<S> <C> <C>
Income (loss) before minority interest $(2,161,690) $(1,898,190)
Minority interest 216,000 190,000
----------- -----------
Net income (loss) $(1,945,690) $(1,708,190)
=========== ===========
Weighted average units used to compute
basic net loss per unit 2,460,751 882,421
=========== ===========
Basic net loss per unit $ (0.79) $ (1.94)
=========== ===========
</TABLE>
P-104
<PAGE>
BARON CAPITAL TRUST
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Continued)
DECEMBER 31, 1998
(UNAUDITED)
NOTE 4. NET LOSS PER SHARE
The net loss per share presented in the accompanying pro forma
condensed consolidated financial information was computed on the basis
of weighted average shares outstanding and exchange shares, and
excludes the conversion of limited partnership units held by the
Original Investors into common shares of the Trust. Assuming that the
Original Investors exchanged their limited partnership units for an
equivalent number of common shares (limited to 19% of the then
outstanding common shares) the net loss per share on an as-converted
basis would have been as follows:
<TABLE>
<CAPTION>
Maximum Minimum Mid-Case Lowest
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares-historical
(investors) 212,731 212,731 212,731 212,731
Exchange Offering 2,497,800 670,700 1,254,000 744,100
---------- ---------- ---------- ----------
Weighted average shares - pro forma 2,710,531 883,431 1,466,731 956,831
Proforma shares to Original Investors
upon exchange of limited partnership
units for equivalent number of
common shares 635,804 207,225 344,048 224,442
---------- ---------- ---------- ----------
Weighted average shares on an as
-converted basis 3,346,335 1,090,656 1,810,779 1,181,273
========== ========== ========== ==========
Net loss per share on an as-converted
basis $ (.65) $ (1.68) $ (1.00) $ (1.61)
========== ========== ========== ==========
</TABLE>
P-105
<PAGE>
BARON CAPITAL TRUST
AND
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
ALLOCATION OF PURCHASE PRICE OVER BOOK VALUE
FEBRUARY 3, 1998
<TABLE>
<CAPTION>
Purchase
Estimates Price
of Over
Book Fair Book
Value Value Value
----------- ----------- -----------
<S> <C> <C> <C>
Exchange Equity Partnerships
----------------------------
STEEPLECHASE $ 404,000 $ 824,000 $ 420,000
EAGLE LAKE 386,000 924,000 538,000
BROOKWOOD 170,000 381,000 211,000
LAUREL OAKS 324,000 1,360,000 1,036,000
BRIDGEPOINT 568,000 936,000 368,000
FOREST GLEN I 593,000 1,554,000 961,000
CAMELLIA 475,000 841,000 366,000
GLEN LAKE 1,003,000 2,475,000 1,472,000
STADIUM CLUB 574,000 1,052,000 478,000
FOREST GLEN IV 148,000 254,000 106,000
FOREST GLEN II 729,000 987,000 258,000
FOREST GLEN III 738,000 1,007,000 269,000
BLOSSOM CORNERS 849,000 1,310,000 461,000
----------- ----------- -----------
6,961,000 13,905,000 6,944,000
----------- ----------- -----------
Exchange Mortgage Partnerships
and Exchange Hybrid Partnerships
--------------------------------
BSIF V, Ltd. 802,000 1,265,000 463,000
BSIF VIII, Ltd. 788,000 1,258,000 470,000
BSIF X, Ltd. 697,000 1,282,000 585,000
BSIF IX, Ltd. 788,000 1,251,000 463,000
BMP, Ltd. 494,000 625,000 131,000
LCOB, Ltd. 512,000 782,000 270,000
BSIF IV, Ltd. 723,000 1,040,000 317,000
BSVF I, Ltd. 574,000 990,000 416,000
BSIF VI, Ltd. 748,000 1,253,000 505,000
BSIF, Ltd. 810,000 1,327,000 517,000
----------- ----------- -----------
6,936,000 11,073,000 4,137,000
----------- ----------- -----------
TOTAL $13,897,000 $24,978,000 $11,081,000
=========== =========== ===========
</TABLE>
Estimates of Fair Value represent actual purchase price for each partnership.
The purchase price was based on best estimate of fair value.
P-106
<PAGE>
BARON CAPITAL TRUST
AND
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
ALLOCATION OF PURCHASE PRICE OVER BOOK VALUE
FEBRUARY 3, 1998
<TABLE>
<CAPTION>
Purchase
Estimates Price
of Over
Book Fair Book
Exchange Equity Partnership Value Value Value
--------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
STEEPLECHASE $ 404,000 $ 824,000 $ 420,000
BRIDGEPOINT 568,000 936,000 368,000
CAMELLIA 475,000 841,000 366,000
STADIUM CLUB 574,000 1,052,000 478,000
---------- ---------- ----------
2,021,000 3,653,000 1,632,000
---------- ---------- ----------
Exchange Mortgage Partnerships
and Exchange Hybrid Partnerships
--------------------------------
BSIF X, Ltd. 697,000 1,282,000 585,000
LCOB, Ltd. 512,000 782,000 270,000
BSVF I, Ltd. 574,000 990,000 416,000
---------- ---------- ----------
1,783,000 3,054,000 1,271,000
---------- ---------- ----------
$3,804,000 $6,707,000 $2,903,000
========== ========== ==========
</TABLE>
Estimates of Fair Value represent actual purchase price for each partnership.
The purchase price was based on best estimate of fair value.
P-107
<PAGE>
BARON CAPITAL TRUST
AND
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
ALLOCATION OF PURCHASE PRICE OVER BOOK VALUE
FEBRUARY 3, 1998
<TABLE>
<CAPTION>
Purchase
Estimates Price
of Over
Book Fair Book
Exchange Equity Partnership Value Value Value
--------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
STEEPLECHASE $ 404,000 $ 824,000 $ 420,000
EAGLE LAKE 386,000 924,000 538,000
BRIDGEPOINT 568,000 936,000 368,000
CAMELLIA 475,000 841,000 366,000
STADIUM CLUB 574,000 1,052,000 478,000
FOREST GLEN III 738,000 1,007,000 269,000
BLOSSOM CORNERS 848,000 1,310,000 462,000
----------- ----------- -----------
3,993,000 6,894,000 2,901,000
----------- ----------- -----------
Exchange Mortgage Partnerships
and Exchange Hybrid Partnerships
--------------------------------
BSIF V, Ltd. 802,000 1,265,000 463,000
BSIF X, Ltd. 697,000 1,282,000 585,000
LCOB, Ltd. 512,000 782,000 270,000
BSVF I, Ltd. 574,000 990,000 416,000
BSIF, Ltd. 810,000 1,327,000 517,000
----------- ----------- -----------
3,395,000 5,646,000 2,251,000
----------- ----------- -----------
$ 7,388,000 $12,540,000 $ 5,152,000
=========== =========== ===========
</TABLE>
Estimates of Fair Value represent actual purchase price for each partnership.
The purchase price was based on best estimate of fair value.
P-108
<PAGE>
BARON CAPITAL TRUST
AND
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
ALLOCATION OF PURCHASE PRICE OVER BOOK VALUE
FEBRUARY 3, 1998
<TABLE>
<CAPTION>
Purchase
Estimates Price
of Over
Book Fair Book
Exchange Equity Partnership Value Value Value
--------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
LAUREL OAKS 324,000 1,360,000 1,036,000
FOREST GLEN I 593,000 1,554,000 961,000
FOREST GLEN II 729,000 987,000 258,000
FOREST GLEN III 738,000 1,007,000 269,000
---------- ---------- ----------
2,384,000 4,908,000 2,524,000
---------- ---------- ----------
Exchange Mortgage Partnerships
and Exchange Hybrid Partnerships
--------------------------------
BSIF X, Ltd. 697,000 1,282,000 585,000
BSIF IX, Ltd. 788,000 1,251,000 463,000
---------- ---------- ----------
1,485,000 2,533,000 1,048,000
---------- ---------- ----------
TOTAL $3,869,000 $7,441,000 $3,572,000
========== ========== ==========
</TABLE>
Estimates of Fair Value represent actual purchase price for each partnership.
The purchase price was based on best estimate of fair value.
P-109
<PAGE>
BARON CAPITAL TRUST
AND
BARON CAPITAL PROPERTIES, L.P.
ALLOCATION OF PURCHASE PRICE OVER BOOK VALUES
In the Exchange Offering, each Limited Partner in an Exchange Partnership will
be given the option to acquire Operating Partnership Units in exchange for all
limited partnership units held by the Limited Partner in the partnership. The
valuation of the partnership was determined by the Managing Shareholder as
follows:
1. With respect to each Exchange Equity Partnership and each Exchange Hybrid
Partnership (to the extent of their property interests), the value was
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 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.
2. With respect to each Exchange Mortgage Partnership and each Exchange Hybrid
Partnership (to the extent of their mortgage interests in properties and
other debt interests), the value was 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 (5) 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 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.
P-110
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BARON STRATEGIC INVESTMENT FUND IV, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-1
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-3
FINANCIAL STATEMENTS
Balance Sheets E-4
Statements of Operations E-5
Statements of Partners' Capital E-6
Statement of Cash Flows E-7
Notes to Financial Statements E-8 to E-13
</TABLE>
E-2
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-3
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 209 $ 853
Notes receivable from affiliate 976,439 976,439
Advances receivable from affiliates 19,500 19,500
Accrued interest receivable from affiliates 199,496 142,576
---------- ----------
$1,195,644 $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 32,000 26,000
Accrued interest payable to affiliate 56,671 37,198
---------- ----------
348,710 323,237
---------- ----------
Commitments and Other Matter -- --
Partners' Capital:
General partner 2,099 1,541
Limited partners 844,835 814,590
---------- ----------
846,934 816,131
---------- ----------
$1,195,644 $1,139,368
========== ==========
See notes to financial statements.
E-4
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $ 82,669 $166,018 $128,047
Other 3 342 1,573
-------- -------- --------
82,672 166,360 129,620
-------- -------- --------
Costs and Expenses:
Interest expense to affiliate 19,473 40,388 67,699
Administrative fees to general partner 6,000 12,000 12,000
General and administrative 1,396 10,925 5,181
-------- -------- --------
26,869 63,313 84,880
-------- -------- --------
Net Income $ 55,803 $103,047 $ 44,740
======== ======== ========
See notes to financial statements.
E-5
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (25,000) (25,000)
Net Income 558 55,245 55,803
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 2,099 $ 844,835 $ 846,934
========= ========= =========
</TABLE>
See notes to financial statements.
E-6
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 55,803 $ 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 (56,920) (121,718) (20,858)
Increase in administrative fees payable to general partner 6,000 12,000 12,000
Increase in interest due to affiliate 19,473 35,016 2,182
--------- --------- ---------
Net cash provided by operating activities 24,356 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 (25,000) (92,013) (27,130)
--------- --------- ---------
Net cash provided by (used in) financing activities (25,000) (118,751) 977,047
--------- --------- ---------
Net Increase (Decrease) in Cash (644) (98,094) 26,860
Cash, Beginning 853 98,947 72,087
--------- --------- ---------
Cash, Ending $ 209 $ 853 $ 98,947
========= ========= =========
Supplemental Disclosures:
Cash paid during the period for interest $ -- $ 5,372 $ 65,517
========= ========= =========
</TABLE>
See notes to financial statements.
E-7
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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,
E-8
<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.
E-9
<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.
E-10
<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 June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, 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 $154,576 $797,189 $102,780 (a)
Country Square 179,250 41,868 179,250 37,756 (b)
-------- -------- -------- --------
$976,439 $196,444 $976,439 $140,536
======== ======== ======== ========
</TABLE>
E-11
<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:
<TABLE>
<S> <C>
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 $1,582,000 and $1,590,000 as of June
30, 1999 and December 31, 1998, respectively. $1,192,987
Less discount 395,798
----------
Note receivable, net of discount $ 797,189
==========
</TABLE>
(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 June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
Accrued Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Baron Strategic Vulture Fund I, Ltd. $17,000 $3,052 $17,000 $2,040 (a)
Country Square 2,500 -- 2,500 -- (b)
------- ------ ------- ------
$19,500 $3,052 $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.
E-12
<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 June 30, 1999
and December 31, 1998. Interest expense to the affiliate amounted to
$19,474 for the six months ended June 30, 1999 and $40,388 and $67,699 for
1998 and 1997, respectively. Accrued interest of $56,671 and $37,198
remained unpaid as of June 30, 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
June 30, 1999 and December 31, 1998.
NOTE 7. OTHER MATTER
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-13
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND V, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-14
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-16
FINANCIAL STATEMENTS
Balance Sheets E-17
Statements of Operations E-18
Statements of Partners' Capital E-19
Statements of Cash Flows E-20
Notes to Financial Statements E-21 to E-28
E-15
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-16
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 485 $ 52
Notes receivable from affiliates 741,563 743,100
Advances receivable from affiliates 80,939 80,939
Accrued interest receivable from affiliates 41,775 52,802
-------- --------
$864,762 $876,893
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 13,000 $ 7,000
-------- --------
Commitments and Other Matter -- --
Partners' Capital
General partners 69 69
Limited partners 851,693 869,824
-------- --------
851,762 869,893
-------- --------
$864,762 $876,893
======== ========
See notes to financial statements.
E-17
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliates $50,536 $93,797 $55,694
Other 6 493 3,423
------- ------- -------
50,542 94,290 59,117
------- ------- -------
Cost and Expenses:
Administrative fees to general partner 6,000 12,000 12,000
General and administrative 2,673 7,512 5,117
------- ------- -------
8,673 19,512 17,117
------- ------- -------
Net Income $41,869 $74,778 $42,000
======= ======= =======
See notes to financial statements.
E-18
<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, 1997 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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (60,000) (60,000)
Net income -- 41,869 41,869
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 69 $ 851,693 $ 851,762
========= ========= =========
</TABLE>
See notes to financial statements.
E-19
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 41,869 $ 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 11,027 2,892 (55,694)
Increase (decrease) in administrative fees payable
to general partner 6,000 (7,000) 12,000
----------- ----------- -----------
Net cash provided by (used in) operating activities 58,896 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 notes receivable from affiliates 1,537 -- --
Collection of advance receivable from affiliates -- 43,700 --
----------- ----------- -----------
Net cash used in investing activities 1,537 (63,139) (760,900)
----------- ----------- -----------
Cash Flows from Financing Activities:
Partners' capital contributions -- -- 1,090,000
Syndication costs paid -- -- (239,700)
Distributions to limited partners (60,000) (120,000) (62,868)
----------- ----------- -----------
Net cash provided by (used in) financing activities (60,000) (120,000) 787,432
----------- ----------- -----------
Net Increase (Decrease) in Cash 433 (112,469) 24,838
Cash, Beginning 52 112,521 87,683
----------- ----------- -----------
Cash, Ending $ 485 $ 52 $ 112,521
=========== =========== ===========
Supplemental Information:
Non-cash transactions:
Reclassification of advances receivable to notes
receivable from affiliates $ -- $ 7,500 $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
E-20
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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
E-21
<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.
E-22
<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
E-23
<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 June 30, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sunrise Apartments, Ltd.("Sunrise") $502,463 $ -- $504,000 $ 24,588 a)
Curiosity Creek Apartments, Ltd.
("Curiosity Creek") 218,100 27,960 218,100 18,425 b)
Baron Strategic Investment Fund III,
Ltd. ("Candlewood II") 21,000 2,700 21,000 1,850 c)
-------- -------- -------- --------
$741,563 $ 30,660 $743,100 $ 44,863
======== ======== ======== ========
</TABLE>
E-24
<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.
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
<S> <C> <C>
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 $1,022,000 and $1,027,000 as of June
30, 1999 and December 31, 1998, respectively. $ 335,000 $ 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. 621,515 621,515
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 June 30, 1999 and December 31, 1998). 1,467 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 48,468
----------- -----------
1,006,450 1,006,450
Less discount 518,450 518,450
----------- -----------
Subtotal of notes receivable, net of discount 488,000 488,000
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. 14,463 16,000
----------- -----------
Total $ 502,463 $ 504,000
=========== ===========
</TABLE>
E-25
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
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.
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.
<TABLE>
<S> <C>
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 $1,286,000 and $1,293,000 as
of June 30, 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 June 30,
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
===========
</TABLE>
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 $587,000 and $595,000 as of June 30,
1999 and December 31, 1998, respectively, and is secured by an
E-26
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3. NOTES RECEIVABLE FROM AFFILIATES (Continued)
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
=======
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 June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
Advance Accrued Advance Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Curiosity Creek $36,439 $ 4,056 $36,439 $3,528
Baron Strategic Vulture Fund I, Ltd. 44,500 7,059 44,500 4,411
------- ------- ------- ------
Total $80,939 $11,115 $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.
E-27
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6. OTHER MATTER
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-28
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-29
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-31
FINANCIAL STATEMENTS
Balance Sheets E-32
Statements of Operations E-33
Statements of Partners' Capital E-34
Statements of Cash Flows E-35
Notes to Financial Statements E-36 to E-42
E-30
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-31
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
BALANCE SHEETS
June 30, December 31,
ASSETS 1999 1998
---- ----
(Unaudited)
Cash $ 134 $ 50
Notes receivable from affiliates 807,155 807,155
Advances receivable from affiliates 10,000 10,159
Accrued interest receivable from affiliates 72,700 40,439
-------- --------
$889,989 $857,803
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 13,000 $ 7,000
-------- --------
13,000 7,000
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 90 90
Limited partners 876,899 850,713
-------- --------
876,989 850,803
-------- --------
$889,989 $857,803
======== ========
See notes to financial statements.
E-32
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliates $ 48,194 $100,741 $ 38,892
Other 3 762 1,708
-------- -------- --------
48,197 101,503 40,600
-------- -------- --------
Costs and Expenses:
Administrative fees to general partner 6,000 12,000 10,000
General and administrative 2,471 19,873 4,453
-------- -------- --------
8,471 31,873 14,453
-------- -------- --------
Net Income $ 39,726 $ 69,630 $ 26,147
======== ======== ========
See notes to financial statements.
E-33
<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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (13,540) (13,540)
Net income -- 39,726 39,726
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 90 $ 876,899 $ 876,989
========= ========= =========
</TABLE>
See notes to financial statements.
E-34
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 39,726 $ 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 (32,261) (1,547) (38,892)
Increase (decrease) in administrative fees payable
to general partner 6,000 (3,000) 10,000
----------- ----------- -----------
Net cash provided by operating activities 13,465 65,083 (2,745)
----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in notes receivable from affiliates -- (104,159) (685,650)
Advances to affiliates -- (159) (65,095)
Collection on notes receivables and advances 159 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 (13,540) (118,524) (30,450)
----------- ----------- -----------
Net cash provided by (used in) financing activities (13,540) (83,079) 838,105
----------- ----------- -----------
Net Increase (Decrease) in Cash 84 (84,565) 84,615
Cash, Beginning 50 84,615 --
----------- ----------- -----------
Cash, Ending $ 134 $ 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.
E-35
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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
E-36
<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.
E-37
<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.
E-38
<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 June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, 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 $59,273 $577,429 $28,484 a)
Heatherwood Apartments II, Ltd.
("Heatherwood II") 152,726 700 152,726 3,785 b)
Burlington Development, L.P. ("Burlington") -- 7,765 -- 7,765 c)
Sycamore Real Estate Development,
Ltd. ("Sycamore") 77,000 4,962 77,000 405 d)
-------- ------- -------- -------
$807,155 $72,700 $807,155 $40,439
======== ======= ======== =======
</TABLE>
E-39
<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:
<TABLE>
<S> <C>
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 $1,022,000
and $1,027,000 as of June 30, 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 June 30, 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
========
</TABLE>
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.
E-40
<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:
<TABLE>
<S> <C>
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
$699,000 and $703,000 as of June 30, 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 June
30, 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
========
</TABLE>
(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 June 30, 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
=======
E-41
<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 June 30, 1999 and December 31, 1998 is comprised of the
following:
June 30, 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") 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-42
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-43
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-45
FINANCIAL STATEMENTS
Balance Sheets E-46
Statements of Operations E-47
Statements of Partners' Capital E-48
Statements of Cash Flows E-49
Notes to Financial Statements E-50 to E-55
E-44
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-45
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 7,033 $ 7,653
Notes receivable from affiliates 787,148 787,148
Accrued interest receivable from affiliates 98,765 90,089
-------- --------
$892,946 $884,890
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner 9,000 6,000
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 90 90
Limited partners 883,856 878,800
-------- --------
883,946 878,890
-------- --------
$892,946 $884,890
======== ========
See notes to financial statements.
E-46
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December
June 30, --------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $ 42,676 $105,368 $ 76,981
Other 15 365 1,906
-------- -------- --------
42,691 105,733 78,887
-------- -------- --------
Costs and Expenses:
General and administrative 2,635 23,981 10,745
Administrative fees to general partner 3,000 6,000 6,000
-------- -------- --------
5,635 29,981 16,745
-------- -------- --------
Net Income $ 37,056 $ 75,752 $ 62,142
======== ======== ========
See notes to financial statements.
E-47
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (32,000) (32,000)
Net income -- 37,056 37,056
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 90 $ 883,856 $ 883,946
========= ========= =========
</TABLE>
See notes to financial statements.
E-48
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December
June 30, --------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 37,056 $ 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 (8,676) (68,630) (15,981)
Increase (decrease) in administrative fees payable
to general partner 3,000 (3,500) 6,000
--------- --------- ---------
Net cash provided by operating activities 31,380 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 (32,000) (57,000) (112,664)
Syndication costs -- -- (6,800)
--------- --------- ---------
Net cash used in financing activities (32,000) (57,000) (119,464)
--------- --------- ---------
Net Decrease in Cash (620) (31,787) (413,542)
Cash, Beginning 7,653 39,440 452,982
--------- --------- ---------
Cash, Ending $ 7,033 $ 7,653 $ 39,440
========= ========= =========
Supplemental Disclosures:
Non-cash transactions:
Reclassification of advance to note receivable $ -- $ 249,739 $ --
========= ========= =========
</TABLE>
See notes to financial statements.
E-49
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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
E-50
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Notes Receivable from Affiliates (Continued)
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.
E-51
<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.
E-52
<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 June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, 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 $43,646 $557,148 $48,581 a)
Sycamore Real Estate Development, LP
("Sycamore") 230,000 27,220 230,000 13,609 b)
Falls Properties III, Ltd. ("Falls III") -- 27,899 -- 27,899 c)
-------- ------- -------- -------
$787,148 $98,765 $787,148 $90,089
======== ======= ======== =======
</TABLE>
E-53
<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:
<TABLE>
<S> <C>
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 $1,096,000 and
$1,104,000 as of June 30, 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 June 30, 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
========
</TABLE>
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.
E-54
<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 June 30, 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") 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-55
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND X, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-56
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-58
FINANCIAL STATEMENTS
Balance Sheets E-59
Statements of Operations E-60
Statements of Partners' Capital E-61
Statements of Cash Flows E-62
Notes to Financial Statements E-63 to E-70
E-57
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-58
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 1,960 $ 4,584
Investments in affiliates 496,755 525,680
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 5,829 5,670
Accrued interest receivable from non-affiliate 19,538 12,765
Other receivable 9,394 9,394
----------- -----------
$ 1,129,263 $ 1,153,880
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued interest payable $ 57,271 $ 37,436
Note payable 400,000 400,000
Administrative fees payable to general partner 15,393 9,393
----------- -----------
472,664 446,829
----------- -----------
Commitments and Other Matter -- --
Partners' Capital:
General partner (1,040) (739)
Limited partners 657,639 707,790
----------- -----------
656,599 707,051
----------- -----------
$ 1,129,263 $ 1,153,880
=========== ===========
See notes to financial statements.
E-59
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliates $ 6,706 14,525 7,622
Interest income from non-affiliates 6,774 12,765 --
Other 8 9,668 2,116
--------- --------- ---------
13,488 36,958 9,738
--------- --------- ---------
Costs and Expenses:
Equity in net losses of affiliates 14,300 36,990 15,330
Interest expense 19,836 37,436 --
Administrative fees to general partner 6,000 12,000 6,000
General and administrative 3,497 17,609 4,237
--------- --------- ---------
43,633 104,035 25,567
--------- --------- ---------
Net Loss $ (30,145) $ (67,077) $ (15,829)
========= ========= =========
</TABLE>
See notes to financial statements.
E-60
<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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (20,307) (20,307)
Net loss (301) (29,844) (30,145)
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ (1,040) $ 657,639 $ 656,599
========= ========= =========
</TABLE>
See notes to financial statements.
E-61
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (30,145) $ (67,077) $ (15,829)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net (income) loss of affiliates 14,300 36,990 15,330
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable from affiliate (159) 1,952 (7,622)
Increase in accrued interest receivable from non-affiliate (6,773) (12,765) --
Increase in other receivable -- (9,394) --
Increase in accrued interest payable 19,835 37,436 --
Increase in administrative fees payable to general partner 6,000 3,393 6,000
Decrease in accrued expenses -- (79,708) --
----------- ----------- -----------
Net cash provided by (used in) operating activities 3,058 (89,173) (2,121)
----------- ----------- -----------
Cash Flows from Investing Activities:
Investment in affiliates -- -- (578,000)
Partnership distributions received 14,625 -- --
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 14,625 (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 (20,307) (112,615) (13,428)
----------- ----------- -----------
Net cash provided by (used in) financing activities (20,307) 343,555 926,110
----------- ----------- -----------
Net Increase (Decrease) in Cash (2,624) (167,405) 171,989
Cash, Beginning 4,584 171,989 --
----------- ----------- -----------
Cash, Ending $ 1,960 $ 4,584 $ 171,989
=========== =========== ===========
Supplemental Disclosure:
Interest paid during the period $ -- $ -- $ --
=========== =========== ===========
</TABLE>
See notes to financial statements.
E-62
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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.
E-63
<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.
E-64
<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.
E-65
<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
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.
E-66
<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 June 30, 1999 and
December 31, 1998 and for the three months and year then ended,
respectively.
<TABLE>
<CAPTION>
Pineview Crystal Court
-------- -------------
June 30, December 31, June 30, December 31,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Financial position:
Rental apartments $ 2,009,024 $ 2,043,777 $ 1,627,620 $ 1,758,032
Other assets 243,760 177,459 136,315 102,453
----------- ----------- ----------- -----------
Total assets $ 2,252,784 $ 2,221,236 $ 1,763,935 $ 1,860,485
=========== =========== =========== ===========
Mortgage payable $ 1,595,722 $ 1,603,303 $ 1,202,781 $ 1,208,774
Other liabilities 176,989 30,901 89,133 75,078
----------- ----------- ----------- -----------
Total liabilities 1,772,711 1,634,204 1,291,914 1,283,852
Partners' capital 480,073 587,032 472,021 576,633
----------- ----------- ----------- -----------
$ 2,252,784 $ 2,221,236 $ 1,763,935 $ 1,860,485
=========== =========== =========== ===========
Results of operations:
Rental income $ 227,184 $ 471,979 $ 151,776 $ 274,036
Other income 18,100 77,106 11,665 20,948
Costs and expenses (287,143) (540,990) (158,980) (390,849)
----------- ----------- ----------- -----------
Net income (loss) $ (41,859) $ 8,095 $ 4,461 $ (95,865)
=========== =========== =========== ===========
</TABLE>
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.
<TABLE>
<S> <C>
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 $699,000 and $703,000 as of June
30, 1999 and December 31, 1998, respectively. $325,000
</TABLE>
E-67
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4. NOTES RECEIVABLE FROM AFFILIATE (Continued)
<TABLE>
<S> <C>
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
June 30, 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
========
</TABLE>
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:
<TABLE>
<S> <C>
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 June 30, 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 June 30, 1999
and December 31, 1998, respectively. 506,767
-----------
</TABLE>
E-68
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
<TABLE>
<S> <C>
1,241,767
Percentage purchased* 55%
-----------
682,972
Less discount 242,972
-----------
Notes receivable, net of discount $ 440,000
===========
</TABLE>
*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 June 30, 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:
<TABLE>
<S> <C>
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
========
</TABLE>
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.
E-69
<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") 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-70
<PAGE>
================================================================================
BREVARD MORTGAGE PROGRAM, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-71
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-73
FINANCIAL STATEMENTS
Balance Sheets E-74
Statements of Operations E-75
Statements of Partners' Capital E-76
Statements of Cash Flows E-77
Notes to Financial Statements E-78 to E-83
E-72
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
F-73
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 525 $ 5,412
Notes receivable from affiliate 474,191 474,191
Accrued interest receivable from affiliate 109,121 99,433
--------- ---------
$ 583,837 $ 579,036
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advances due to affiliate $ 2,850 $ 1,850
Administrative fees payable to general partner 31,500 27,000
--------- ---------
34,350 28,850
--------- ---------
Commitments and Other Matter -- --
Partners' Capital:
General partner 1,723 1,442
Limited partners 547,764 548,744
--------- ---------
549,487 550,186
--------- ---------
$ 583,837 $ 579,036
========= =========
See notes to financial statements.
E-74
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended
June 30, December 31,
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Revenues:
Interest income from affiliate $ 35,438 $ 73,533 $ 72,300
Other -- 35 909
--------- --------- ---------
35,438 73,568 73,209
--------- --------- ---------
Costs and Expenses:
Administrative fees to general partner 4,500 9,000 9,000
General and administrative 2,887 3,554 2,119
--------- --------- ---------
7,387 12,554 11,119
--------- --------- ---------
Net Income $ 28,051 $ 61,014 $ 62,090
========= ========= =========
</TABLE>
See notes to financial statements.
E-75
<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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (28,750) (28,750)
Net income 281 27,770 28,051
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 1,723 $ 547,764 $ 549,487
========= ========= =========
</TABLE>
See notes to financial statements.
E-76
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 28,051 $ 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 (9,688) (34,339) (56,200)
Increase in advances due to affiliate 1,000 1,850 --
Increase in administrative fees payable to general partner 4,500 9,000 9,000
--------- --------- ---------
Net cash provided by operating activities 23,863 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 (28,750) (57,500) (57,500)
--------- --------- ---------
Net cash used in financing activities (28,750) (57,500) (57,500)
--------- --------- ---------
Net Decrease in Cash (4,887) (19,975) (67,610)
Cash, Beginning 5,412 25,387 92,997
--------- --------- ---------
Cash, Ending $ 525 $ 5,412 $ 25,387
========= ========= =========
</TABLE>
See notes to financial statements.
E-77
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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,
E-78
<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.
E-79
<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.
E-80
<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 June 30, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
Notes Accrued Notes Accrued
Receivable Interest Receivable Interest
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Notes receivable, net of discount $450,000 $103,484 $450,000 $95,228 (a)
Advances 24,191 5,637 24,191 4,205 (b)
-------- --------- -------- -------
$474,191 $109,121 $474,191 $99,433
======== ======== ======== =======
</TABLE>
E-81
<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 $945,000 and $954,000 as of June 30,
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 June 30, 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.
E-82
<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") 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-83
<PAGE>
================================================================================
BARON STRATEGIC VULTURE FUND I, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-84
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-86
FINANCIAL STATEMENTS
Balance Sheets E-87
Statements of Operations E-88
Statements of Partners' Capital E-89
Statements of Cash Flows E-90
Notes to Financial Statements E-91 to E-96
E-85
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-86
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 4,390 $ 6,039
Notes receivable from affiliate 612,000 612,000
Advances receivable from affiliate 14,513 14,513
Accrued interest receivable from affiliate 109,194 103,342
-------- --------
$740,097 $735,894
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advances payable to affiliates $ 61,500 $ 61,500
Administrative fees payable to general partner 19,000 16,000
Accrued interest payable to affiliate 10,111 6,451
-------- --------
90,611 83,951
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 81 81
Limited partners 649,405 651,862
-------- --------
649,486 651,943
-------- --------
$740,097 $735,894
======== ========
See notes to financial statements.
E-87
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December
June 30, --------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $ 52,153 $108,204 $ 82,471
Other 96 447 1,581
-------- -------- --------
52,249 108,651 84,052
-------- -------- --------
Costs and Expenses:
General and administrative 3,046 10,445 8,246
Interest expense to affiliates 3,660 6,451 --
Administrative fees to general partner 3,000 6,000 6,000
-------- -------- --------
9,706 22,896 14,246
-------- -------- --------
Net Income $ 42,543 $ 85,755 $ 69,806
======== ======== ========
See notes to financial statements.
E-88
<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
Six Months Ended June 30, 1999 (Unaudited):
Distribution -- (45,000) (45,000)
Net Income -- 42,543 42,543
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 81 $ 649,405 $ 649,486
========= ========= =========
</TABLE>
See notes to financial statements.
E-89
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December
June 30, --------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 42,543 $ 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 (5,852) (47,871) (55,471)
Increase in accrued interest payable to affiliates 3,660 6,451 --
Increase in administrative fees payable to general partner 3,000 6,000 6,000
--------- --------- ---------
Net cash provided by operating activities 43,351 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 (45,000) (90,000) (89,895)
Advance from or notes due to affiliates -- 44,500 17,000
--------- --------- ---------
Net cash used in financing activities (45,000) (45,500) (72,895)
--------- --------- ---------
Net Increase (Decrease) in Cash (1,649) 4,835 (189,073)
Cash, Beginning 6,039 1,204 190,277
--------- --------- ---------
Cash, Ending $ 4,390 $ 6,039 $ 1,204
========= ========= =========
Supplemental Disclosures:
Interest paid during the year $ -- $ -- $ --
========= ========= =========
</TABLE>
See notes to financial statements.
E-90
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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,
E-91
<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.
E-92
<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;
E-93
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2. AGREEMENT OF LIMITED PARTNERSHIP (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 $1,286,000 and $1,293,000 as of
June 30, 1999 and December 31, 1998,
respectively. $ 807,560
E-94
<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 June 30,
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 $106,662 and $100,445 is due on the note receivable
as of June 30, 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 June 30, 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.
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
Advance Accrued Advance Accrued
Payable Interest Payable Interest
------- -------- ------- --------
<S> <C> <C> <C> <C>
Baron Strategic Investment Fund V, Ltd., $44,500 $ 7,059 $44,500 $4,411
Baron Strategic Vulture Fund I, Ltd. 17,000 3,052 17,000 2,040
------- ------- ------- ------
$61,500 $10,111 $61,500 $6,451
======= ======= ======= ======
</TABLE>
E-95
<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") 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-96
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND VI, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-97
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
TABLE OF CONTENTS
PAGE
------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-99
FINANCIAL STATEMENTS
Balance Sheets E-100
Statements of Operations E-101
Statements of Partners' Capital E-102
Statements of Cash Flows E-103
Notes to Financial Statements E-104 to E-111
E-98
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-99
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
(Unaudited)
ASSETS
Cash $ 215 $ 334
Investment in affiliate 285,509 325,409
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 66,407 43,112
Accrued interest receivable from non-affiliate 6,845 4,382
-------- --------
$846,750 $861,011
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Advance payable to affiliates $ 48,756 $ 48,756
Administrative fees payable to general partner 31,000 25,000
-------- --------
79,756 73,756
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 52 81
Limited partners 766,942 787,174
-------- --------
766,994 787,255
-------- --------
$846,750 $861,011
======== ========
See notes to financial statements.
E-100
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliate $ -- $ 4,590 $ --
Interest income from affiliates 23,520 46,302 67,699
Interest income from non-affiliate 2,463 4,382 --
Other 2 644 4,638
-------- -------- --------
25,985 55,918 72,337
-------- -------- --------
Costs and Expenses:
Equity in net loss of affiliate 21,800 -- 26,181
Administrative fees to general partner 6,000 12,000 12,000
General and administrative 1,046 5,023 5,974
-------- -------- --------
28,846 17,023 44,155
-------- -------- --------
Net Income (Loss) $ (2,861) $ 38,895 $ 28,182
======== ======== ========
See notes to financial statements.
E-101
<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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (17,400) (17,400)
Net loss (29) (2,832) (2,861)
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 52 $ 766,942 $ 766,994
========= ========= =========
</TABLE>
See notes to financial statements.
E-102
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (2,861) $ 38,895 $ 28,182
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Equity in net (income) loss of affiliate 21,800 (4,590) 26,181
Changes in operating assets and liabilities:
Increase in accrued interest receivable from non-affiliate (2,463) (4,382) --
Increase in accrued interest receivable from affiliates (23,295) (40,930) (2,182)
Increase in advance payable to affiliates -- 966 --
Increase in administrative fees payable to general partner 6,000 12,000 12,000
--------- --------- ---------
Net cash provided by (used in) operating activities (819) 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 affiliate 18,100 -- --
Advances to affiliates -- -- (2,570)
--------- --------- ---------
Net cash provided by (used in) investing activities 18,100 (108,372) (728,837)
--------- --------- ---------
Cash Flows from Financing Activities:
Partners' capital contributions -- -- 668,000
Syndication costs -- -- (192,550)
Distributions to limited partners (17,400) (120,000) (85,003)
Advances from affiliates -- 42,175 8,050
--------- --------- ---------
Net cash provided by (used in) financing activities (17,400) (77,825) 398,497
--------- --------- ---------
Net Increase (Decrease) in Cash (119) (184,238) (266,159)
Cash, Beginning 334 184,572 450,731
--------- --------- ---------
Cash, Ending $ 215 $ 334 $ 184,572
========= ========= =========
</TABLE>
See notes to financial statements.
E-103
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Baron Strategic Investment Fund VI, 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 six months
ended June 30, 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.
E-104
<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
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,
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.
E-105
<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:
E-106
<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)
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
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.
E-107
<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 June 30, 1999 and December 31, 1998 and for
the three months and year then ended, respectively.
Financial position: June 30, 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 June 30, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
June 30, 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 $56,671 $259,639 $37,198 (a)
Baron Strategic Investment Fund III,
Ltd. ("Candlewood II") 68,000 9,736 68,000 5,914 (b)
-------- ------- -------- -------
$327,630 $66,407 $327,630 $43,112
======== ======= ======== =======
</TABLE>
E-108
<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
six months ended June 30, 1999 and for the year
ended December 31, 1998 was $19,472 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 $587,000 and $595,000 as of June
30, 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 a balance of
approximately $967,000 and $967,500 as of June
30, 1999 and December 31, 1998, respectively. $ 735,000
E-109
<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 June
30, 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
June 30, 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.
E-110
<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") 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-111
<PAGE>
================================================================================
BARON STRATEGIC INVESTMENT FUND IX, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-112
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-114
FINANCIAL STATEMENTS
Balance Sheets E-115
Statements of Operations E-116
Statements of Partners' Capital E-117
Statements of Cash Flows E-118
Notes to Financial Statements E-119 to E-126
E-113
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-114
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 537 $ 140
Investment in affiliate 244,965 254,956
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 40,653 29,631
Accrued interest receivable from non-affiliate 8,795 5,716
Other receivable 3,131 3,131
--------- ---------
$ 823,622 $ 819,115
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 13,500 $ 7,500
--------- ---------
13,500 7,500
--------- ---------
Commitments and Other Matter -- --
Partners' Capital:
General partner 9 (161)
Limited partners 810,113 811,776
--------- ---------
810,122 811,615
--------- ---------
$ 823,622 $ 819,115
========= =========
See notes to financial statements.
E-115
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Equity in net income of affiliate $ 2,000 $ -- $ 4,207
Interest income from affiliate 22,451 37,686 392
Other 3 3,654 676
-------- -------- --------
24,454 41,340 5,275
-------- -------- --------
Costs and Expenses:
Equity in net loss of affiliate -- 38,251 --
Administrative fees to general partner 6,000 12,000 7,000
General and administrative 1,447 9,856 4,533
-------- -------- --------
7,447 60,107 11,533
-------- -------- --------
Net Income (Loss) $ 17,007 $(18,767) $ (6,258)
======== ======== ========
See notes to financial statements.
E-116
<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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (18,500) (18,500)
Net income 170 16,837 17,007
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 9 $ 810,113 $ 810,122
========= ========= =========
</TABLE>
See notes to financial statements.
E-117
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 17,007 $ (18,767) $ (6,258)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Equity in net loss (income) of affiliate (2,000) 38,251 (4,207)
Changes in operating assets and liabilities:
Increase in accrued interest receivable from affiliates (3,079) (5,324) (392)
Increase in accrued interest receivable from non-affiliate (11,022) (29,631) --
Increase in other receivable -- (3,131) --
Decrease in accrued syndication costs -- (42,435) --
Increase in administrative fees payable to general partner 6,000 500 7,000
--------- --------- ---------
Net cash provided by (used in) operating activities 6,906 (60,537) (3,857)
--------- --------- ---------
Cash Flows from Investing Activities:
Distribution from affiliates 11,991 -- --
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 11,991 (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 (18,500) (87,771) (3,589)
--------- --------- ---------
Net cash provided by (used in) financing activities (18,500) 368,739 510,336
--------- --------- ---------
Net Increase (Decrease) in Cash 397 (195,844) 195,984
Cash, Beginning 140 195,984 --
--------- --------- ---------
Cash, Ending $ 537 $ 140 $ 195,984
========= ========= =========
</TABLE>
See notes to financial statements.
E-118
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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
E-119
<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.
E-120
<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.
E-121
<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.
E-122
<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 June 30, 1999 and December 31, 1998 and
for the three months and year then ended, respectively.
June 30, December 31,
1999 1998
---- ----
(Unaudited)
Financial position:
Rental apartments $1,627,620 $1,758,032
Other assets 136,315 102,453
---------- ----------
Total assets $1,763,935 $1,860,485
========== ==========
Mortgage payable $1,202,781 $1,208,774
Other liabilities 89,133 75,078
---------- ----------
Total liabilities 1,291,914 1,283,852
Partners' capital 472,021 576,633
---------- ----------
$1,763,935 $1,860,485
========== ==========
Results of operations:
Revenues (including rental income
of $151,776 and $274,036,
respectively) $ 163,441 $ 294,984
Costs and expenses (158,980) (390,849)
---------- ----------
Net income (loss) $ 4,461 $ (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 June 30, 1999 and December 31,
1998:
<TABLE>
<CAPTION>
June 30, 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 $ 6,990 $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 9,766 75,500 6,123 (d)
-------- ------- -------- -------
$319,000 $40,142 $319,000 $29,509
======== ======= ======== =======
</TABLE>
E-123
<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
June 30, 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 $587,000 and $595,000 as of June
30, 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. 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
participation interest in an annual equal to 30%
of remaining available cash
E-124
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5. NOTES RECEIVABLE FROM NON-AFFILIATE (Continued)
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 June 30, 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 June
30, 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 June 30, 1999 and December 31, 1998 is
$6,541. Accrued interest of $511 and $122 was outstanding as of June 30,
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.
E-125
<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") 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 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 the liabilities assumed at
their fair value at the date of acquisition.
E-126
<PAGE>
================================================================================
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND DECEMBER 31, 1998
================================================================================
E-127
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS E-129
FINANCIAL STATEMENTS
Balance Sheets E-130
Statements of Operations E-131
Statements of Partners' Capital E-132
Statements of Cash Flows E-133
Notes to Financial Statements E-134 to E-139
E-128
<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.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
April 2, 1999
E-129
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
---- ----
ASSETS (Unaudited)
Cash $ 25 $ 2
Note receivable from affiliate 365,000 365,000
Advances receivable from affiliate 93,302 93,302
Accrued interest receivable from affiliate 133,207 114,171
-------- --------
$591,534 $572,475
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Administrative fees payable to general partner $ 13,500 $ 10,500
-------- --------
Commitments and Other Matter -- --
Partners' Capital:
General partner 90 90
Limited partners 577,944 561,885
-------- --------
578,034 561,975
-------- --------
$591,534 $572,475
======== ========
See notes to financial statements.
E-130
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF OPERATIONS
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
Revenues:
Interest income from affiliate $30,936 $66,772 $63,188
Other 81 158 1,973
------- ------- -------
31,017 66,930 65,161
------- ------- -------
Costs and Expenses:
Administrative fees to general partner 3,000 6,000 6,000
General and administrative 2,958 5,350 1,262
------- ------- -------
5,958 11,350 7,262
------- ------- -------
Net Income $25,059 $55,580 $57,899
======= ======= =======
See notes to financial statements.
E-131
<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
Six Months Ended June 30, 1999 (Unaudited):
Distributions -- (9,000) (9,000)
Net income -- 25,059 25,059
--------- --------- ---------
Partners' Capital, June 30, 1999 (Unaudited) $ 90 $ 577,944 $ 578,034
========= ========= =========
</TABLE>
See notes to financial statements.
E-132
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six
Months Year Ended
Ended December 31,
June 30, ------------
1999 1998 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 25,059 $ 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 (19,036) (36,371) (55,189)
Increase in administrative fees payable to the general partner 3,000 -- 6,000
--------- --------- ---------
Net cash provided by operating activities 9,023 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 (9,000) (70,000) (69,525)
--------- --------- ---------
Net cash used in financing activities (9,000) (70,000) (69,525)
--------- --------- ---------
Net Increase (Decrease) in Cash 23 (50,791) (78,181)
Cash, Beginning 2 50,793 128,974
--------- --------- ---------
Cash, Ending $ 25 $ 2 $ 50,793
========= ========= =========
</TABLE>
See notes to financial statements.
E-133
<PAGE>
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 six months
ended June 30, 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,
E-134
<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.
E-135
<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:
E-136
<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.
E-137
<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
$1,358,000 and $1,366,000 as of June 30, 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 $105,115 and $91,632 as of June 30,
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 June 30, 1999 and December 31, 1998. Interest income of
$5,552 was recognized during the six months ended June 30, 1999 and
$11,196 was recognized during the year ended December 31, 1998. Accrued
interest of $28,092 and $22,539 remained outstanding as of June 30, 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 June 30, 1999 and December 31,
1998 and for the six months and year then ended, respectively.
June 30, December 31,
1999 1998
---- ----
(Unaudited)
Financial position:
Rental apartments $ 1,684,293 $ 1,719,536
Other assets 69,236 121,589
----------- -----------
Total assets $ 1,753,529 $ 1,841,125
=========== ===========
Mortgage payable $ 1,356,928 $ 1,366,078
Other liabilities 896,352 894,922
----------- -----------
Total liabilities 2,253,280 2,261,000
Partners' deficiency (499,751) (419,875)
----------- -----------
$ 1,753,529 $ 1,841,125
=========== ===========
E-138
<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) $ 187,775 $ 365,274
Costs and expenses (207,348) (565,309)
--------- ---------
Net income (loss) $ (19,573) $(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") 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-139
<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
E-140
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 338,755 $ 273,596 $ 155,449 $ 170,439
Other income 14,260 20,987 31,695 8,375
--------- --------- --------- ---------
Total revenues 353,015 294,583 187,144 178,814
--------- --------- --------- ---------
Certain Expenses:
Personnel 43,980 38,493 13,889 18,691
Advertising and promotion 6,096 9,946 6,696 3,400
Utilities 15,748 23,989 14,043 12,747
Repairs and maintenance 30,216 30,808 12,394 12,508
Real estate taxes and insurance 32,696 33,224 15,921 14,739
Interest 93,696 94,358 45,917 51,977
Property management fees 27,362 20,039 12,871 13,009
Other operating expenses 7,978 6,673 (4,819) 6,490
--------- --------- --------- ---------
Total certain expenses 257,772 257,530 116,912 133,561
--------- --------- --------- ---------
Net Income (Loss) $ 95,243 $ 37,053 $ 70,232 $ 45,253
========= ========= ========= =========
General Partner (1%) $ 952 $ 371 $ 702 $ 453
========= ========= ========= =========
Limited Partners (99%) $ 94,291 $ 36,682 $ 69,530 $ 44,800
========= ========= ========= =========
</TABLE>
E-141
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 93
June 30, 1999 95
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-142
<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
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 the 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
E-143
<PAGE>
BRIDGEPOINT
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 237,872 $ 212,608 $ 116,277 $ 118,416
Other income 13,760 6,605 28,395 1,978
--------- --------- --------- ---------
Total revenues 251,632 219,213 144,672 120,394
--------- --------- --------- ---------
Certain Expenses:
Personnel 19,159 14,531 8,695 7,865
Advertising and promotion 7,226 5,783 5,256 4,498
Utilities 37,665 36,174 10,426 21,311
Repairs and maintenance 24,151 17,054 14,372 8,689
Real estate taxes and insurance 24,924 24,715 12,200 10,224
Interest 68,574 69,345 33,979 31,402
Property management fees 20,712 14,751 10,404 9,558
Other operating expenses 4,887 3,036 3,627 3,691
--------- --------- --------- ---------
Total certain expenses 207,298 185,389 98,959 97,238
--------- --------- --------- ---------
Net Income (Loss) $ 44,334 $ 33,824 $ 45,713 $ 23,156
========= ========= ========= =========
General Partner (1%) $ 443 $ 338 $ 457 $ 232
========= ========= ========= =========
Limited Partners (99%) $ 43,891 $ 33,486 $ 45,256 $ 22,924
========= ========= ========= =========
</TABLE>
E-144
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 94
June 30, 1999 94
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-145
<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
E-146
<PAGE>
BROOKWOOD WAY APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Rental income $ 275,189 $ 248,950 $ 128,531 $ 123,744
Other income 8,015 7,988 12,218 3,874
--------- --------- --------- ---------
Total revenues 283,204 256,938 140,749 127,618
--------- --------- --------- ---------
Certain Expenses:
Personnel 30,819 22,296 12,540 13,691
Advertising and promotion 7,016 6,998 7,061 4,031
Utilities 23,523 20,793 7,800 12,490
Repairs and maintenance 17,912 15,092 5,579 11,964
Real estate taxes and insurance 22,640 17,645 11,938 10,573
Interest 102,287 96,565 53,841 48,925
Property management fees 21,964 15,720 11,422 9,585
Other operating expenses 2,697 2,972 (2,270) 2,196
--------- --------- --------- ---------
Total certain expenses 228,858 198,081 107,911 113,455
--------- --------- --------- ---------
Net Income (Loss) $ 54,346 $ 58,857 $ 32,838 $ 14,163
========= ========= ========= =========
General Partner (1%) $ 543 $ 589 $ 328 $ 142
========= ========= ========= =========
Limited Partners (99%) $ 53,803 $ 58,268 $ 32,510 $ 14,021
========= ========= ========= =========
</TABLE>
E-147
<PAGE>
BROOKWOOD WAY APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 89.4
June 30, 1999 94
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-148
<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
E-149
<PAGE>
CAMELLIA COURT
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 266,911 $ 213,718 $ 128,581 $ 130,515
Other income 23,575 16,516 38,281 8,400
--------- --------- --------- ---------
Total revenues 290,486 230,234 166,862 138,915
--------- --------- --------- ---------
Certain Expenses:
Personnel 35,205 35,481 15,302 20,168
Advertising and promotion 5,350 9,056 6,441 4,137
Utilities 21,348 25,805 8,969 7,840
Repairs and maintenance 27,631 24,685 7,949 17,587
Real estate taxes and insurance 39,651 35,934 19,726 15,749
Interest 98,620 98,851 48,156 54,452
Property management fees 22,465 13,884 11,709 9,882
Other operating expenses 6,342 5,359 2,462 (452)
--------- --------- --------- ---------
Total certain expenses 256,612 249,055 120,714 129,363
--------- --------- --------- ---------
Net Income (Loss) $ 33,874 $ (18,821) $ 46,148 $ 9,552
========= ========= ========= =========
General Partner (1%) $ 339 $ (188) $ 461 $ 96
========= ========= ========= =========
Limited Partners (99%) $ 33,535 $ (18,633) $ 45,687 $ 9,456
========= ========= ========= =========
</TABLE>
E-150
<PAGE>
CAMELLIA COURT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 95
June 30, 1999 93
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-151
<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
E-152
<PAGE>
EAGLE LAKE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 382,121 $ 346,154 $ 198,042 $ 188,913
Other income 25,123 21,065 16,326 9,396
--------- --------- --------- ---------
Total revenues 407,244 367,219 214,368 198,309
--------- --------- --------- ---------
Certain Expenses:
Personnel 48,167 34,983 15,858 27,440
Advertising and promotion 11,495 9,811 3,416 6,549
Utilities 37,201 26,117 15,761 16,215
Repairs and maintenance 34,354 30,289 12,018 18,881
Real estate taxes and insurance 55,688 49,694 28,040 21,948
Interest 127,820 158,727 61,321 71,054
Property management fees 37,896 26,702 13,658 13,984
Other operating expenses 5,666 4,833 (5,927) (8,492)
--------- --------- --------- ---------
Total certain expenses 358,287 341,156 144,145 167,579
--------- --------- --------- ---------
Net Income (Loss) $ 48,957 $ 26,063 $ 70,223 $ 30,730
========= ========= ========= =========
General Partner (1%) $ 490 $ 261 $ 702 $ 307
========= ========= ========= =========
Limited Partners (99%) $ 48,467 $ 25,802 $ 69,521 $ 30,423
========= ========= ========= =========
</TABLE>
E-153
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 100
June 30, 1999 96
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-154
<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
E-155
<PAGE>
FOREST GLEN I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 362,118 $ 319,763 $ 183,738 $ 174,095
Other income 16,098 7,968 10,802 4,172
--------- --------- --------- ---------
Total revenues 378,216 327,731 194,540 178,267
--------- --------- --------- ---------
Certain Expenses:
Personnel 54,733 35,958 13,601 23,224
Advertising and promotion 6,580 7,548 3,768 3,556
Utilities 11,212 8,955 246 6,183
Repairs and maintenance 42,454 38,692 15,439 21,930
Real estate taxes and insurance 46,578 45,223 23,109 23,373
Interest 116,664 149,908 62,533 43,469
Property management fees 25,812 17,219 14,009 16,949
Other operating expenses 7,295 5,358 4,359 10,556
--------- --------- --------- ---------
Total certain expenses 311,328 308,861 137,064 149,240
--------- --------- --------- ---------
Net Income (Loss) $ 66,888 $ 18,870 $ 57,476 $ 29,027
========= ========= ========= =========
General Partner (1%) $ 669 $ 189 $ 575 $ 290
========= ========= ========= =========
Limited Partners (99%) $ 66,219 $ 18,681 $ 56,901 $ 28,737
========= ========= ========= =========
</TABLE>
E-156
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 98
June 30, 1999 94
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-157
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-158
<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
E-159
<PAGE>
FOREST GLEN II
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 204,746 $ 159,093 $ 97,192 $ 98,206
Other income 6,773 6,252 4,294 2,788
--------- --------- --------- ---------
Total revenues 211,519 165,345 101,486 100,994
--------- --------- --------- ---------
Certain Expenses:
Personnel 20,454 20,767 8,127 12,723
Advertising and promotion 3,860 4,802 1,990 2,113
Utilities 6,647 5,827 555 3,857
Repairs and maintenance 22,408 23,120 10,015 10,865
Real estate taxes and insurance 27,095 25,939 13,349 13,502
Interest 66,542 60,222 36,130 25,116
Property management fees 17,248 9,454 10,443 6,652
Other operating expenses 4,196 3,307 1,882 5,598
--------- --------- --------- ---------
Total certain expenses 168,450 153,438 82,491 80,426
--------- --------- --------- ---------
Net Income (Loss) $ 43,069 $ 11,907 $ 18,995 $ 20,568
========= ========= ========= =========
General Partner (1%) $ 431 $ 119 $ 190 $ 206
========= ========= ========= =========
Limited Partners (99%) $ 42,638 $ 11,788 $ 18,805 $ 20,362
========= ========= ========= =========
</TABLE>
E-160
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 96
June 30, 1999 90
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-161
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-162
<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
E-163
<PAGE>
FOREST GLEN III
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 176,122 $ 170,175 $ 91,461 $ 86,953
Other income 11,808 7,031 8,010 4,626
--------- --------- --------- ---------
Total revenues 187,930 177,206 99,471 91,579
--------- --------- --------- ---------
Certain Expenses:
Personnel 17,651 17,461 6,917 10,890
Advertising and promotion 3,233 4,557 1,795 1,755
Utilities 4,948 4,271 532 2,390
Repairs and maintenance 20,548 19,603 7,886 10,038
Real estate taxes and insurance 25,738 21,947 14,442 13,547
Interest 56,304 49,070 30,572 21,252
Property management fees 15,923 8,646 9,384 5,756
Other operating expenses 3,396 2,807 1,618 5,270
--------- --------- --------- ---------
Total certain expenses 147,741 128,362 73,146 70,898
--------- --------- --------- ---------
Net Income (Loss) $ 40,189 $ 48,844 $ 26,325 $ 20,681
========= ========= ========= =========
General Partner (1%) $ 402 $ 488 $ 263 $ 207
========= ========= ========= =========
Limited Partners (99%) $ 39,787 $ 48,356 $ 26,062 $ 20,474
========= ========= ========= =========
</TABLE>
E-164
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 92
June 30, 1999 88
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-165
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-166
<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
E-167
<PAGE>
FOREST GLEN IV
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 53,558 $ 56,139 $ 28,263 $ 21,851
Other income 3,081 2,437 3,410 1,415
--------- --------- --------- ---------
Total revenues 56,639 58,576 31,673 23,266
--------- --------- --------- ---------
Certain Expenses:
Personnel 6,091 5,132 2,224 3,282
Advertising and promotion 1,023 1,385 535 553
Utilities 1,503 1,494 71 891
Repairs and maintenance 5,887 6,346 2,138 3,015
Real estate taxes and insurance 7,364 6,985 3,590 3,589
Interest 17,915 17,843 9,727 6,762
Property management fees 8,690 3,987 6,453 2,140
Other operating expenses 1,702 1,159 700 1,656
--------- --------- --------- ---------
Total certain expenses 50,175 44,331 25,438 21,888
--------- --------- --------- ---------
Net Income (Loss) $ 6,464 $ 14,245 $ 6,235 $ 1,378
========= ========= ========= =========
General Partner (1%) $ 65 $ 142 $ 62 $ 14
========= ========= ========= =========
Limited Partners (99%) $ 6,399 $ 14,103 $ 6,173 $ 1,364
========= ========= ========= =========
</TABLE>
E-168
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 100
June 30, 1999 100
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-169
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 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 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 the liabilities assumed at their
fair value at the date of acquisition.
E-170
<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
E-171
<PAGE>
GLEN LAKE ARMS APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 703,744 $ 745,649 $ 221,108 $ 425,264
Other income 26,875 22,536 47,994 491
--------- --------- --------- ---------
Total revenues 730,619 768,185 269,102 425,755
--------- --------- --------- ---------
Certain Expenses:
Personnel 172,502 85,191 65,522 60,175
Advertising and promotion 39,137 20,726 14,017 12,548
Utilities 204,087 120,687 84,659 110,163
Repairs and maintenance 112,483 67,235 44,037 99,949
Real estate taxes and insurance 111,857 118,041 54,341 44,252
Interest 318,032 310,603 213,202 109,104
Property management fees 17,849 42,276 19,018 24,263
Other operating expenses 48,024 14,932 12,790 41,920
--------- --------- --------- ---------
Total certain expenses 1,023,971 779,691 507,586 502,374
--------- --------- --------- ---------
Net Income (Loss) $(293,352) $ (11,506) $(238,484) $ (76,620)
--------- --------- --------- ---------
--------- --------- --------- ---------
General Partner (1%) $ (2,934) $ (115) $ (2,385) $ (766)
--------- --------- --------- ---------
--------- --------- --------- ---------
Limited Partners (99%) $(290,418) $ (11,391) $(236,099) $ (75,853)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
E-172
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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.
March 31, 1999 65.1%
June 30, 1999 55.4
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-173
<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
E-174
<PAGE>
LAUREL OAKS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 282,024 $ 221,070 $ 151,593 $ 132,992
Other income 10,963 7,510 15,436 4,281
--------- --------- --------- ---------
Total revenues 292,987 228,580 167,029 137,273
--------- --------- --------- ---------
Certain Expenses:
Personnel 40,337 31,912 15,432 21,779
Advertising and promotion 1,377 1,530 6,197 953
Utilities 19,742 13,915 4,240 7,040
Repairs and maintenance 24,068 8,245 13,229 15,781
Real estate taxes and insurance 31,851 35,289 19,734 16,655
Interest 117,215 125,177 52,131 60,174
Property management fees 24,245 14,028 13,063 9,715
Other operating expenses 5,689 3,912 (1,642) 3,084
--------- --------- --------- ---------
Total certain expenses 264,524 234,008 122,384 135,181
--------- --------- --------- ---------
Net Income (Loss) $ 28,463 $ (5,428) $ 44,645 $ 2,092
--------- --------- --------- ---------
--------- --------- --------- ---------
General Partner (1%) $ 2,846 $ (543) $ 4,465 $ 209
--------- --------- --------- ---------
--------- --------- --------- ---------
Limited Partners (99%) $ 25,617 $ (4,885) $ 40,181 $ 1,883
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
E-175
<PAGE>
GROVE HAMLET APARTMENTS (LAUREL OAKS)
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 93
June 30, 1999 98
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-176
<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
E-177
<PAGE>
STADIUM CLUB APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 397,831 $ 458,687 $ 209,804 $ 222,799
Other income 44,049 27,710 13,383 11,908
--------- --------- --------- ---------
Total revenues 441,880 486,397 223,187 234,707
--------- --------- --------- ---------
Certain Expenses:
Personnel 77,976 72,107 25,913 30,104
Advertising and promotion 13,516 11,885 10,835 5,865
Utilities 61,990 49,370 14,502 32,541
Repairs and maintenance 32,542 31,966 11,605 15,615
Real estate taxes and insurance 31,459 36,528 13,762 10,064
Interest 141,388 146,120 67,703 70,532
Property management fees 44,449 25,469 11,455 27,212
Other operating expenses 21,161 15,278 1,956 23,661
--------- --------- --------- ---------
Total certain expenses 424,481 388,723 157,731 215,594
--------- --------- --------- ---------
Net Income (Loss) $ 17,399 $ 97,674 $ 65,456 $ 19,113
--------- --------- --------- ---------
--------- --------- --------- ---------
General Partner (1%) $ 174 $ 977 $ 655 $ 191
--------- --------- --------- ---------
--------- --------- --------- ---------
Limited Partners (99%) $ 17,225 $ 96,697 $ 64,801 $ 18,922
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
E-178
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 70
June 30, 1999 33 (school not in session)
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-179
<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
E-180
<PAGE>
STEEPLECHASE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
December 31, December 31, June 30, June 30,
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 297,880 $ 234,305 $ 146,691 $ 139,664
Other income 23,059 10,733 31,054 11,237
--------- --------- --------- ---------
Total revenues 320,939 245,038 177,745 150,901
--------- --------- --------- ---------
Certain Expenses:
Personnel 60,173 50,624 26,024 31,497
Advertising and promotion 3,036 11,417 5,413 2,320
Utilities 56,249 49,085 17,335 27,985
Repairs and maintenance 39,892 31,930 3,891 29,470
Real estate taxes and insurance 37,339 33,112 18,033 20,888
Interest 91,982 93,448 48,895 45,469
Property management fees 23,119 15,227 12,276 10,244
Other operating expenses 5,485 7,495 11,472 8,386
--------- --------- --------- ---------
Total certain expenses 317,275 292,338 143,339 176,259
--------- --------- --------- ---------
Net Income (Loss) $ 3,664 $ (47,300) $ 34,406 $ (25,358)
--------- --------- --------- ---------
--------- --------- --------- ---------
General Partner (1%) $ 37 $ (473) $ 344 $ (254)
--------- --------- --------- ---------
--------- --------- --------- ---------
Limited Partners (99%) $ 3,627 $ (46,827) $ 34,062 $ (25,104)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
E-181
<PAGE>
STEEPLECHASE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 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
March 31, 1999 86.1
June 30, 1999 91.6
Unaudited Financial Information
The accompanying financial information as of and for the six months
ended June 30, 1999 and 1998 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.
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.
E-182
<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
Crystal Court Apartments, Phase II, for the years ended December 31, 1996 and
1997. 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 S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) 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 Crystal Court Apartments, Phase II, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Fort Lauderdale, Florida
March 28, 1998
E-183
<PAGE>
CRYSTAL COURT II APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, June 30,
1997 1996 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 307,069 $ 295,906 $ 132,465
Other income 9,081 2,484 5,214
------------ ------------ -------------
Total revenues 316,150 298,390 137,679
------------ ------------ -------------
Certain Expenses:
Personnel 26,477 32,567 11,098
Advertising and promotion 1,755 3,136 1,419
Utilities 19,228 23,165 6,022
Repairs and maintenance 23,590 35,231 6,152
Real estate taxes and insurance 34,471 34,691 12,831
Interest 120,919 127,738 55,808
Property management fees 20,777 21,537 7,559
Other operating expenses 4,341 3,897 2,754
Total certain expenses 251,558 281,962 103,643
Net Income (Loss) $ 64,592 $ 16,428 $ 34,036
------------ ------------ -------------
------------ ------------ -------------
General Partner (1%) $ 646 $ 164 $ 340
------------ ------------ -------------
------------ ------------ -------------
Limited Partners (99%) $ 63,946 $ 16,264 $ 33,696
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
E-184
<PAGE>
CRYSTAL COURT APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION
Crystal Court Apartments, Phase II, consist of 80 units located in
Lakeland, Florida. Baron Capital Properties, L.P., acquired the
property on July 31, 1998.
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 Crystal Court
Apartments, phase II.
UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of and for the six months
ended June 30, 1998 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.
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.
E-185
<PAGE>
CRYSTAL COURT APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY MANAGEMENT
In exchange for services performed during 1997, 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.
E-186
<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
Heatherwood Apartments, Phase I, for the years ended December 31, 1996 and 1997.
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 S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) 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 Heatherwood Apartments, Phase I, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Fort Lauderdale, Florida
June 11, 1998
E-187
<PAGE>
HEATHERWOOD I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, June 30,
1997 1996 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 294,513 $ 284,886 $ 138,458
Other income 12,847 16,566 7,843
--------- --------- --------
Total revenues 307,360 301,452 146,301
--------- --------- --------
Certain Expenses:
Personnel 42,317 31,851 29,265
Advertising and promotion 4,243 4,942 3,625
Utilities 29,999 27,255 18,367
Repairs and maintenance 36,667 48,649 11,598
Real estate taxes and insurance 38,221 36,052 16,780
Interest 60,327 63,986 50,217
Property management fees 14,489 14,400 9,907
Other operating expenses 7,678 5,052 6,980
--------- --------- --------
Total certain expenses 233,941 232,187 146,739
--------- --------- --------
Net Income (Loss) $ 73,419 $ 69,265 $ (438)
--------- --------- --------
--------- --------- --------
General Partner (1%) $ 734 $ 693 $ (4)
--------- --------- --------
--------- --------- --------
Limited Partners (99%) $ 72,685 $ 68,572 $ (434)
--------- --------- --------
--------- --------- --------
</TABLE>
E-188
<PAGE>
HEATHERWOOD APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION
Heatherwood Apartments, phase I, consist of 67 units located in
Kissimmee, Florida. The property was acquired by Baron Capital
Properties, L.P. on June 30, 1998.
UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of and for the six months
ended June 30, 1998 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.
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 Heatherwood
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.
E-189
<PAGE>
HEATHERWOOD APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY MANAGEMENT
In exchange for services performed during 1997, 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.
E-190
<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
Riverwalk Apartments, for the years ended December 31, 1996 and 1997. 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 S-4 of
Baron Capital Properties, L.P., a Delaware limited partnership) 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 Riverwalk Apartments, for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
Elroy D. Miedema
Certified Public Accountant
Fort Lauderdale, Florida
August 6, 1998
E-191
<PAGE>
RIVERWALK APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, June 30,
1997 1996 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income $ 296,939 $ 302,218 $ 150,975
Other income 4,877 6,398 14,209
-------- -------- --------
Total revenues 301,816 308,616 165,184
-------- -------- --------
Certain Expenses:
Personnel 31,446 26,262 13,241
Advertising and promotion 3,465 2,586 2,138
Utilities 5,446 7,658 2,298
Repairs and maintenance 43,145 57,855 21,611
Real estate taxes and insurance 45,785 41,822 22,392
Interest 120,194 121,834 69,750
Property management fees 1,086 1,433 9,759
Other operating expenses 3,380 3,333 6,323
-------- -------- --------
Total certain expenses 253,947 262,783 147,512
-------- -------- --------
Net Income (Loss) $ 47,869 $ 45,833 $ 17,672
-------- -------- --------
-------- -------- --------
General Partner (1%) $ 479 $ 458 $ 177
-------- -------- --------
-------- -------- --------
Limited Partners (99%) $ 47,390 $ 45,375 $ 17,495
-------- -------- --------
-------- -------- --------
</TABLE>
E-192
<PAGE>
RIVERWALK APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION
Riverwalk Apartments consist of 50 two-bedroom units located in New
Smyrna Beach, Florida. Baron Capital Properties, L.P., acquired the
property on September 1, 1998.
UNAUDITED FINANCIAL INFORMATION
The accompanying financial information as of and for the six months
ended June 30, 1998 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.
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 Riverwalk 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.
E-193
<PAGE>
RIVERWALK APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE 1. DESCRIPTIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY MANAGEMENT
In exchange for services performed during 1997, 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 September
1, 1998, this property management agreement was terminated.
E-194
<PAGE>
Combined Statement of Estimated Taxable Operating Results
of Acquired Properties and Exchange Partnerships
and Cash Available from Operations
The following Combined Statement sets forth the estimated taxable
operating results and cash available from operations (unaudited) for the
12-month period ending June 30, 2000 for the Operating Partnership, the four
Acquired Properties already beneficially owned by the Operating Partnership
and the 23 Exchange Partnerships involved in the Exchange Offering. The
Combined Statement is based on the actual results of the Operating
Partnership, the Acquired Properties and the Exchange Partnerships for the
12-month period ended June 30, 1999 with certain adjustments made to reflect
actual changes in certain revenue and expense items which have occurred since
June 30, 1999. The net effect of such adjustments is an increase in Net
Income of $499,026 (or a 73.9% increase).
The Combined Statement assumes that the taxable operating results and
cash available from operations for the 12-month period ending June 30, 2000
will be the same as the taxable operating results and cash available from
operations for the 12-month period ended June 30, 1999 with the specified
adjustments. The Combined Statement also assumes that all of the Exchange
Limited Partners will elect to accept the Exchange Offering because
management believes that the benefits resulting from participating in the
offering substantially exceed possible negative factors. The statement does
not purport to forecast actual operating results for any period in the future.
<TABLE>
<CAPTION>
Acquired Exchange All Properties
Properties Properties Combined
---------- ---------- --------
<S> <C> <C> <C>
Revenue:
- --------
Rental Income $1,442,845 $4,364,929 $5,807,774
Interest Income 809,302 809,302
Equity in Net Income
Of Affiliates 18,560 18,560
Other Income 179,387 394,225 573,612
--------- --------- ---------
Total Revenue 1,662,232 5,587,016 7,209,248
Costs and Expenses:
- -------------------
Personnel 227,829 523,667 751,496
Real Estate Taxes/Insurance 134,713 503,617 638,330
Interest Expense 351,136 1,322,692 1,673,828
Depreciation/Amortization 232,212 995,778 1,227,990
Other Operating Expenses 327,441 956,434 1,283,875
Major Maintenance 135,855 323,526 459,381
Total Costs and Expenses 1,409,186 4,625,714 6,034,900
Estimated Taxable Income 213,046 961,302 1,174,348
------------------------------------------
------------------------------------------
Estimate of Cash Available
From Operations $ 445,258 $1,957,080 $2,402,338
------------------------------------------
------------------------------------------
</TABLE>
The adjustments include the following:
- "Rental Income" has been increased by $571,241 (or a 10.9%
increase) to reflect actual rental increases since June 30, 1999 on
certain Equity Properties.
- "Other Income" has been increased $21,353 (or a 3.9% increase) to
reflect the actual income increase in that amount since June 30,
1999 resulting from (i) the assessment of move out charges against
tenants, (ii) enhanced efforts to collect accrued unpaid rent from
former residents, and (iii) increased collection of miscellaneous
items such as application fees, pet fees and late charges.
- "Personnel Expense" has been increased by $24,062 (or a 3.3%
increase), primarily to reflect the Operating Partnership's actual
increased ownership interest in one of the Acquired Properties, the
Alexandria Apartments, since June 30, 1999. The increased interest
in the Alexandria Apartments has resulted in greated personnel
expenses being allocable to the Operating Partnership.
- "Real Estate Taxes and Insurance Expense" has been increased by
$7,381 (or a 1.2% increase) to reflect the actual increase in such
items due to the Operating Partnership's increased ownership
interest in the Alexandria Apartments.
- "Interest Expense" has been reduced by $129,764 (or a 7.2%
decrease) to reflect the actual reduced interest payable on (i)
gradually decreasing principal balances of self-amortizing first
mortgage loans secured by the Equity Properties and (ii) one
refinanced first mortgage loan.
- "Other Operating Expenses" has been increased by $191,888 (or a
17.6% increase), primarily to reflect actual increases in
advertising and utility expenses.
E-195
<PAGE>
BLOSSOM CORNERS I
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA INCOME GROWTH FUND V, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true
<PAGE>
worth or realizable value. There can be no assurance that the value of
property interests acquired will reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1999, but no listing has occurred to date.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in June 1995. In November 1995, Baron Capital XI, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) and an affiliate of the Managing
Shareholder, sponsored a private offering of 2,300 units of limited partner
interest in the Exchange Partnership at a purchase price of $500 per unit (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
all of the limited partnership interests in a limited partnership which holds a
fee simple interest in a 70-unit residential apartment property referred to as
the Blossom Corners Apartment Property (Phase I) located in Orlando, Florida.
The property is subject to mortgage and other indebtedness having a principal
balance at June 30, 1999 of approximately $1,017,387.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
ALL LP'S PER LP UNIT
-------- -----------
<S> <C> <C>
1996: $ 73,947 $ 32.15
1997: $113,987 $ 49.56
1998 $ 48,608 $ 21.13
6/30/99 $ 22,000 $ 9.57
-------- --------
Total $258,542 $112.41
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,310,347 131,035 Units ($1,310,350) 114 Units ($1,140) 5.25%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
- --------------------------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which
the Trust is currently offering Common Shares in its Cash Offering. As
described below at "The Exchange Offering," Unitholders, including recipients
of Units in the Exchange Offering, may exchange all or a portion of their
Units for an equivalent number of Common Shares at any time following the
completion of the offering.
4
<PAGE>
INTRODUCTION
The Trust and the Operating Partnership constitute an affiliated 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 mortgage loans secured by such types of property. The Trust is the sole
general partner of the Operating Partnership and thereby controls its
activities. The Trust will also contribute the net proceeds from its ongoing
public offering of Common Shares (the "Cash Offering") to acquire a limited
partnership interest in the Operating Partnership.
The Operating Partnership will conduct all of the Trust's real estate
operations and hold all of the Trust's real estate assets, including property
interests acquired. The Operating Partnership will use net proceeds from the
Cash Offering, Units it will issue in the Exchange Offering and other
transactions and available cash flow from operations to make real estate
investments and fund its operations.
This Supplement describes the Exchange Offering, the Cash Offering and
certain aspects of the business of the Exchange Partnership, the Operating
Partnership and the Trust and is a part of, and should be read in conjunction
with, the Prospectus.
Capitalized terms used in this Supplement and not otherwise defined
herein have the meanings ascribed to such terms in the Prospectus, provided that
the term "Exchange Partnership" shall refer to the partnership indicated on the
cover page hereof, and the term "Exchange Partnerships" shall refer collectively
to such partnership and the 22 other partnerships whose limited partners will be
offered the opportunity to participate in the initial transactions of the
Exchange Offering.
Each Limited Partner should carefully review this Supplement together
with the Prospectus. The effects of the Exchange Offering may be different for
limited partners in various other Exchange Partnerships. A separate supplement
has been prepared for limited partners in each of the other Exchange
Partnerships who are being offered the opportunity to participate in the
Exchange Offering.
Each Limited Partner in the Exchange Partnership will receive a copy of
this Supplement but unless specifically requested will not receive a copy of the
various other supplements which contain information concerning other Exchange
Partnerships, the Operating Partnership and the Trust and which have been
distributed to their limited partners. Upon receipt of a written request by any
Limited Partner or his representative who has been so designated in writing, the
Operating Partnership will promptly deliver, without charge, copies of other
supplements to be delivered to limited partners in other Exchange Partnerships.
Limited Partners may make such request in writing to the Operating Partnership
at its principal executive office at the following address: Baron Capital
Properties, L.P., 7826 Cooper Road, Cincinnati, Ohio 45242, telephone
513-984-5001. Such request should be made to the attention of Sharon Studt.
5
<PAGE>
THE EXCHANGE OFFERING
In the initial transactions of the Exchange Offering, the Operating
Partnership is offering to issue registered Units of the Operating Partnership
to each Limited Partner of the Exchange Partnership and each limited partner
(individually, an "Exchange Limited Partner" and collectively, the "Exchange
Limited Partners") in 22 other Exchange Partnerships in exchange for the limited
partnership interests held by such limited partners in such partnerships. The
Operating Partnership is investigating other investment opportunities to acquire
property interests with cash and/or Units in the Exchange Offering and other
transactions. Each of the Exchange Partnerships directly or indirectly owns all
or a portion of the equity interest in residential apartment property and/or one
or more subordinated mortgage interests secured by such type of property. The
Operating Partnership will acquire interests in particular properties by
acquiring from Exchange Limited Partners their units of limited partnership
interest in the respective partnership (the "Exchange Partnership Units").
The commencement of the Exchange Offering in respect of the Exchange
Partnership and the 22 other Exchange Partnerships was approved by the
Independent Trustees of the Trust, who together with the Managing Shareholder,
serve as the members of the Board of the Trust. The Managing Shareholder
abstained from voting since Gregory K. McGrath, the sole stockholder, director
and executive officer of the corporate general partner of each of the Exchange
Partnerships, is also one of the founders of the Trust and the Operating
Partnership, the sole stockholder and director of the Managing Shareholder, and
Chief Executive Officer of the Trust, the Operating Partnership and the Managing
Shareholder. Affiliates of Mr. McGrath are also the corporate general partners
of limited partnerships which are debtors under substantially all second
mortgage loans and other debt interests owned by certain of the Exchange
Partnerships, and in such capacity, Mr. McGrath holds an indirect minority
economic interest in such partnerships which is subordinated to the preferred
returns of their limited partners.
The General Partner of the Exchange Partnership recommends that each of
the Limited Partners elect to accept the Exchange Offering based on an analysis
of the benefits and disadvantages of the offering to the Limited Partners and
the Exchange Partnership and an analysis of possible alternative transactions.
The Operating Partnership will not complete the Exchange Offering in
respect of any of the particular Exchange Partnerships unless limited partners
holding at least 90% of the limited partnership interests in the partnership
affirmatively elect to accept the offering. In addition, the Operating
Partnership will not complete any transaction in the offering whatsoever unless
a sufficient number of Offerees accept the offering such that the offering
involves the issuance of Units with an initial assigned value of at least
$6,000,000. For the purposes of this Supplement, the term "Participating
Exchange Partnership," which applies only if the Exchange Offering is completed,
refers to each Exchange Partnership with limited partners holding at least 90%
of the limited partnership interest therein who elect to accept the offering.
The initial transactions of the Exchange Offering involve 26
targeted properties (individually, an "Exchange Property" and collectively,
the "Exchange Properties"). Certain of the Exchange Partnerships directly or
indirectly own equity interests in 16 Exchange 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 subordinated mortgage interests in 10 Exchange Properties,
which consist of an aggregate of 650 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, one
property is located in Georgia, one property in Indiana and three properties
in Ohio. The Exchange Properties are described in further detail in the
Prospectus at "Initial Real Estate Investments" and Exhibit B to the
Prospectus. Included in the Prospectus are the consolidated pro forma
balance sheet as of December 31, 1998 and consolidated statement of
operations for the twelve-month period ended December 31, 1998 and the six
months ended June 30, 1999 for the Trust and the Operating Partnership giving
effect to the Acquisition of 100% of the Exchange Partnerships.
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 single residential apartment property
or the entire limited partnership or other equity interest in a limited
partnership or other entity which owns fee simple title to a property. The sole
assets of each of six of the Exchange Partnerships (individually, an "Exchange
Mortgage Partnership" and collectively, the "Exchange
6
<PAGE>
Mortgage 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). Each of the
debtors of subordinated mortgage loans and other loans provided or acquired by
the Exchange Mortgage Partnerships and the Exchange Hybrid Partnerships is a
limited partnership which owns fee simple title to the property which secures
such mortgage loans. Affiliates of Mr. McGrath are the corporate general
partners of substantially all such debtor partnerships, and in such capacity Mr.
McGrath is entitled to share indirectly in cash distributions and net profits
(losses) in such partnerships in the range of 2% to 20% after the limited
partners therein have received a preferred return.
For purposes of the Exchange Offering, the 23 Exchange Partnerships
have been valued at $24,980,660. The value is based upon an appraisal performed
by qualified and licensed independent appraisal firms on each property in which
a respective partnership owns a direct or indirect equity or mortgage interest
and other considerations described below at "Valuation Methods." See also the
Prospectus at "The Exchange Offering - Exchange Property Appraisals." Each Unit
offered in the offering has been arbitrarily assigned an initial value of
$10.00, which is the price per share at which the Trust is currently offering
Common Shares in its Cash Offering. As described further herein, a Unitholder
may elect to exchange Units for an equivalent number of Common Shares, subject
to certain exceptions. If the Exchange Offering is fully completed in respect of
all 23 Exchange Partnerships (i.e.., all limited partners in the Exchange
Partnerships accept the offering), the partnership interests acquired will have
an aggregate purchase price of approximately $24,980,660, comprised of Units to
be issued. The partnership interests to be acquired with the balance of the
registered Units to be offered in the Exchange Offering have not yet been
finally determined.
In the Exchange Offering, each Limited Partner in the Exchange
Partnership has the option to acquire the number of Units per $1,000 of original
investment in the Exchange Partnership set forth on the inside cover of this
Supplement in exchange for all Exchange Partnership Units held by the Limited
Partner. A Limited Partner must exchange all of his or her Exchange Partnership
Units if he or she wishes to participate in the Exchange Offering; partial
exchanges by a Limited Partner will not be accepted. Limited Partners who accept
the Exchange Offering and thereby receive Units will be entitled to exchange all
or a portion of such units into an equivalent number of Common Shares of the
Trust at any time and from time to time, subject to certain restrictions
described in the Prospectus at "The Exchange Offering."
The Exchange Offering has been structured to permit each Limited
Partner, if desired, not to accept the offering and instead retain his or her
existing interest in the Exchange Partnership on terms substantially the same as
those of his or her original investment. The Exchange Partnership and each of
the other Exchange Partnerships will continue to own the same interest in the
same property it owned prior to completion of the offering. Upon the completion
of the offering and assuming the requisite number of Limited Partners accept the
offering, Limited Partners who elect not to accept the offering
("Non-participating Partners") and the Operating Partnership will constitute all
the limited partners of the Exchange Partnership. Non-participating Partners
will retain all of their existing economic and voting rights, rights to receive
reports and substantially all other rights as set forth under the partnership's
original agreement of limited partnership. As described in further detail in the
Prospectus at "Amendments to Partnership Agreements of Participating Exchange
Partnerships with Non-participating Limited Partners," assuming the Exchange
Partnership is a Participating Exchange Partnership (as defined above),
following the Exchange Offering, the original partnership agreement of the
partnership will be amended to require the prior approval (majority or
unanimous, as the case may be) of Non-participating Partners voting as a class
in respect of substantially all matters as to which Limited Partners are
entitled to vote under the partnership agreement prior to the completion of the
Exchange Offering. The partnership agreement, as amended, will continue in full
force and effect after the completion of the offering as long as any
Non-participating Partners remain limited partners of the Exchange Partnership.
See the Prospectus at "The Exchange Offering."
7
<PAGE>
THE CASH OFFERING
The Trust is currently offering on a best efforts basis a maximum of
2,500,000 Common Shares in the Cash Offering at a purchase price of $10.00 per
share. As of July 31, 1999, the Trust has sold 657,846 Common Shares in the Cash
Offering (representing gross proceeds of $6,578,463. The Trust will use all net
cash proceeds of the Cash Offering to acquire Units in the Operating
Partnership, which, in turn, will use such proceeds (i) to acquire real estate
investments, (ii) for capital improvements which may be required on properties
in which the Operating Partnership acquires an interest and (iii) for working
capital purposes. The Trust will apply for listing on a national stock exchange
of the Common Shares being offered in the Cash Offering and the Common Shares
into which Units issued in the Exchange Offering will be exchangeable. The Trust
will deliver at its own expense to each Limited Partner who requests in writing,
a copy of the Prospectus of the Trust relating to the Cash Offering and any
amendments and supplements thereto.
In June 1998, the Operating Partnership applied a portion of the net
proceeds from the Cash Offering to acquire the entire limited partnership
interest in Heatherwood Kissimmee, Ltd., a Florida limited partnership which
owns fee simple title to a 67-unit residential apartment property referred to as
Heatherwood Apartments - Phase I located in Kissimmee, Florida. The purchase
price paid was approximately $830,000. The property is subject to first
mortgage financing with a current principal balance of approximately
$1,239,000.
In July 1998, the Operating Partnership applied a portion of the net
proceeds from the Cash Offering to acquire the entire limited partnership
interest in Crystal Court Apartments II, Ltd., a Florida limited partnership
which owns fee simple title to an 80-unit residential apartment property
referred to as Crystal Court Apartments - Phase II located in Lakeland, Florida.
The purchase price paid was approximately $704,000. The property is subject to
first mortgage financing with a current principal balance of approximately
$1,471,705.
In July 1998, the Operating Partnership also made capital contributions
in the range of $2,900 to $83,300 (aggregate amount approximately $341,000) to
13 real estate partnerships managed by affiliates of the Managing Shareholder,
including certain of the Exchange Partnerships. In exchange, the Operating
Partnership received a limited partnership interest in such partnerships which
is subordinated to the priority economic return of the limited partners of the
respective partnership and is not eligible to participate in the Exchange
Offering.
In September 1998, the Operating Partnership applied a portion of the
net proceeds from the Cash Offering to acquire the entire limited partnership
interests in Riverwalk Enterprises, Ltd., a Florida limited partnership which
owns fee simple title to a 50-unit residential apartment property referred to as
Riverwalk Villas located in New Smyrna Beach, Florida. The purchase price paid
was approximately $700,000. The property is subject to first mortgage financing
with a current principal balance of approximately $1,585,589.
In September 1998, the Operating Partnership entered into an agreement
to acquire two luxury residential apartment properties (total 652 units) in
Louisville and Burlington, Kentucky upon the completion of construction for an
aggregate purchase price in the range of approximately $41,000,000 to
$43,000,000. The Louisville property is expected to be completed prior to the
end of 2000, and the Burlington property is expected to be completed by the end
of 2001. In connection with the transaction, the Operating Partnership agreed to
co-guarantee (along with Mr. McGrath), for a period of 60 days (plus any
extensions which may be granted), up to $3,000,000 of the development portion of
long-term construction loans to be made by an institutional lender to three
development companies controlled by Mr. McGrath in connection with the
development and construction of the two residential apartment properties and a
shopping center in Burlington, Kentucky. 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.
8
<PAGE>
In October 1998, the Operating Partnership applied a portion of the net
proceeds to acquire 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. One hundred twelve of the
168 residential units (approximately 67%) have been completed and are in the
rent-up stage. The Operating Partnership paid $400,000 for the initial acquired
partnership interest. Subsequently, the Operating Partnership acquired
additional limited partnership units for $885,000 and as of June 30, 1999 it
owns an approximately 40% limited partnership interest. The Operating
Partnership retains an option to acquire the remaining limited partnership
interests at the same price per percentage interest (for a total price of
approximately $3,250,000 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 the Operating Partnership and also serves as its
managing general partner. During the construction stage of the apartment
property, the Operating Partnership's 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.
Set forth in the Prospectus at "Initial Real Estate Investments" is
certain additional information, including a description of the foregoing
investments made by the Operating Partnership to date and first mortgage
financing to which property interests acquired are subject. Other than the
transactions described above, the Operating Partnership has not committed any of
the remaining net proceeds of the Cash Offering to any specific property
interests. The Operating Partnership continues to investigate other investment
opportunities to acquire property interests for cash and/or Units in the
Exchange Offering and other transactions, including but not limited to interests
held in additional properties by unaffiliated parties and by other limited
partnerships managed by affiliates of the Managing Shareholder (wholly owned and
controlled, along with the general partner of each of the Exchange Partnerships,
by Mr. McGrath).
Limited Partners will not have any vote in the selection of property
investments by the Operating Partnership after they accept the Exchange
Offering. Therefore, Limited Partners who elect to accept the Exchange Offering
may not have available any information on additional real estate investments to
be acquired with net proceeds of the Cash Offering, in the Exchange Offering or
other transactions, in which case they will be required to rely on management's
judgment regarding those acquisitions.
CERTAIN RISKS
Limited Partners considering whether to exchange their Exchange
Partnership Units for Operating Partnership Units in the Exchange Offering
should carefully consider all the various risks described in the Prospectus. See
the Prospectus at "Risk Factors." Such risk factors include, among others, the
risks described in the Prospectus under "Risk Factors - Arbitrary Offering
Price; No Separate Representation of Offerees; Terms of Exchange Offering May be
More Favorable to Original Investors than Offerees; Acceptance of Exchange
Offering Involves Exchange of Current Investment with Expected Limited Duration
for Investment in Operating Partnership with Unlimited Duration; Offerees May
Not Have Information Available to Evaluate Interests to be Acquired by the
Operating Partnership, Prior to Decision Whether to Accept the Exchange
Offering; Possible Adverse Influence of Original Investors; Conflicts of
Interest; Investors in Successful Exchange Properties Could Lose Advantage by
Combining with Less Successful Exchange Properties; Valuation of Mortgage
Interests to be Acquired May Exceed Actual Value; Several Factors Could Have
Possible Adverse Effects on Operation of Properties; Competition; Debt Service
Obligations Could Adversely Affect Cash Flow; Possible Adverse Effects as a
Result of Loss of Key Management; Uncertainty of Successful Completion of Cash
Offering and Exchange Offering; Limited Marketability of Units and Common
Shares; and Potential Adverse Tax Consequences."
The following is a summary of the material risk factors applicable to
the Exchange Offering and an investment in Units and Common Shares and the
proposed operations of the Trust and the Operating Partnership. For a more
detailed description of the risk factors relating to the Exchange Offering and
the proposed activities of the Trust and the Operating Partnership, including
those set forth below, see the Prospectus at "RISK FACTORS."
9
<PAGE>
- - ARBITRARY VALUATION OF UNITS - The valuation of $10.00 per Unit used in
the Exchange Offering is an arbitrary amount, and it is possible that
Common Shares of the Trust (into which the Units are exchangeable), if
listed on a national securities exchange, will trade at a lower price.
- - TERMS OF EXCHANGE OFFERING MAY BE MORE FAVORABLE TO ORIGINAL INVESTORS
THAN OFFEREES - The terms and conditions of the Exchange Offering, which
were determined by the Original Investors with no separate counsel or
Advisor for the Offerees, may be more favorable for the Original Investors
who formed the Trust and the Operating Partnership and affiliates of the
Original Investors than for Offerees. Offerees who acquire Operating
Partnership Units in the Exchange Offering will pay a higher price per
unit than the subscription price Gregory K. McGrath and Robert S. Geiger,
the Original Investors, paid for Operating Partnership Units in connection
with the formation of the Trust and the Operating Partnership. The
Original Investors subscribed for their Units in exchange for a $100,000
initial capitalization of the Operating Partnership, and such Units have
been deposited into a security escrow account for a period of six to nine
years, subject to earlier release under certain conditions. If the Trust's
Cash Offering and the Exchange Offering are completed in full, each
Original Investor would own 601,080 Units. In that case, the value of the
Units held by each Original Investor, calculated at the $10.00 initial
value assigned to each Unit to be issued in the Exchange Offering, would
then be $6,010,800 less a significant discount attributable to the
long-term escrow arrangement.
Mr. McGrath serves as Chief Executive Officer of the Trust and the
Operating Partnership. He received no compensation for the initial year of
operations, but received health benefits. Beginning in 1999, Mr. McGrath
will be entitled to receive compensation and benefits including without
limitation, health, disability and life insurance, determined by the
Executive Compensation Committee in exchange for his services. Mr. Geiger
has agreed to serve as the Chief Operating Officer of the Trust and the
Operating Partnership in exchange for an initial annual salary of $100,000
plus benefits. See "MANAGEMENT." Each Offeree is advised to seek
independent advice and counsel before deciding whether to accept the
Exchange Offering.
- - OFFEREES MAY NOT HAVE INFORMATION AVAILABLE ON OTHER PROPERTIES PRIOR TO
DECISION - If the Operating Partnership consummates investments in respect
of all 23 Exchange Partnerships initially targeted for investment in the
Exchange Offering, the partnership interests acquired will have a deemed
purchase price totaling approximately $24,980,660, comprised of Operating
Partnership Units to be issued. The property interests to be acquired with
the balance of the Operating Partnership Units to be offered in the
Exchange Offering have not yet been finally determined. In addition, as
described in this Supplement and the Prospectus, the Operating Partnership
has acquired beneficial interests in four properties for cash, entered
into an agreement to acquire two properties under development and invested
in other real estate limited partnerships (including certain of the
Exchange Partnerships) as of the date of this Prospectus, but has not
committed the available net cash proceeds raised to date or to be raised
in the future to any additional specific properties. Therefore, Offerees
who elect to accept the Exchange Offering may not have available any
information on additional properties to be acquired, in which case they
will be required to rely on management's judgment regarding those
purchases. In addition, Offerees will not have the benefit of knowing in
advance of deciding whether to accept the offering the extent of the
Operating Partnership's investment in respect of properties involved in
the offering until the offering is completed.
- - POSSIBLE ADVERSE INFLUENCE OF ORIGINAL INVESTORS - The Original Investors
in the Operating Partnership serve as executive officers of the Trust, the
Operating Partnership and the Managing Shareholder (wholly owned and
controlled, along with the general partner of each of the Exchange
Partnerships, by Mr. McGrath) and collectively will own an amount of
Operating Partnership Units (up to 1,202,160 Units) which are exchangeable
(subject to escrow restrictions described below) into
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19% of the Trust Common Shares outstanding as of the earlier to occur of
the completion of the Cash 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 the Trust) have been
exchanged into an equivalent number of Common Shares. (The Original
Investors received the Units in exchange for their initial capitalization
of the Operating Partnership and such Units have been deposited into a
security escrow account for a period of six to nine years, subject to
earlier release under certain conditions described in the Prospectus at
"THE TRUST AND THE OPERATING PARTNERSHIP - Formation Transactions.")
Accordingly, the Original Investors and affiliates have significant
influence over the affairs of the Trust and the Operating Partnership, and
the Exchange Offering involves transactions among them which may result in
decisions that do not fully represent the interests of all Shareholders of
the Trust, Unitholders in the Operating Partnership and Exchange Limited
Partners. In addition, Offerees who acquire Operating Partnership Units in
the Exchange Offering will pay a higher price per unit than the Original
Investors paid for their Operating Partnership Units. See below at
"Compensation" and the Prospectus at "MANAGEMENT" and "THE TRUST AND THE
OPERATING PARTNERSHIP - Formation Transactions" and " - Ownership of the
Trust and the Operating Partnership."
- - NO ASSURANCE THAT VALUES OF PROPERTIES WILL REFLECT FAIR MARKET VALUE -
The Operating Partnership and the Trust will use Units, Common Shares, net
proceeds from the sale of securities, including the Trust's Cash Offering,
and available cash flow from operations to acquire direct or indirect
equity and debt interests in residential apartment properties. The
purchase price to be paid for equity interests in properties will be 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 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 for mortgage
interests in properties or other debt interests will be 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 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 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 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 property
interests acquired is fair and reasonable and will reflect their fair
market value.
- - CONFLICTS OF INTEREST - Although the Trust has adopted certain policies
designed to eliminate or minimize their effect, potential conflicts of
interest may arise among the Trust, the Operating Partnership, the
Managing Shareholder (wholly owned and controlled, along with the general
partner of each of the Exchange Partnerships, by Mr. McGrath), the
Original Investors and their respective Affiliates, including certain
Affiliates which 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 the Trust and the Operating
Partnership will seek to acquire. The Trust and the Operating Partnership
may be restricted from investing in certain properties since Affiliates of
the Managing Shareholder may have other investment vehicles investing in
similar properties. In addition, there will be competing demands for
management resources of the Managing Shareholder, the Trust and the
Operating Partnership and transactions are expected to be completed by the
Trust and the Operating Partnership with affiliates of the Managing
Shareholder. Also, a significant
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portion of the value of the equity and mortgage interests in properties
owned by the Exchange Partnerships was determined subjectively by the
Managing Shareholder which is affiliated with the general partner of such
Exchange Partnership. This affiliation creates a potential conflict in
making such determination of value. See also above at "Possible Adverse
Influence of Original Investors" and the Prospectus at "CONFLICTS OF
INTEREST" and "INVESTMENT OBJECTIVES AND POLICIES - Conflict of Interest
Policies."
- - VALUATION OF MORTGAGE INTERESTS TO BE ACQUIRED MAY EXCEED ACTUAL VALUE -
Subject to certain exceptions, the Trust and the Operating Partnership 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 the Trust or the
Operating Partnership, 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).
- - FUTURE RETURNS MAY NOT BE COMPARABLE TO PAST RETURNS - Offerees who accept
the Exchange Offering may not experience returns comparable to or in
excess of those experienced by Limited Partners in the Exchange
Partnerships.
- - CURRENT RETURNS MAY NOT BE ACHIEVED - The current returns of the Exchange
Partnerships may not be achieved by the Trust and the Operating
Partnership after completion of the Exchange Offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnerships.
- - PROPERTY NOT LISTED FOR SALE WITHIN ANTICIPATED PERIOD - It was
anticipated that the property owned by the Exchange Partnership would be
listed for sale in 1999, but no listing has occurred to date.
- - REAL ESTATE INVESTMENT CONSIDERATIONS MAY NEGATIVELY IMPACT RETURNS - Real
estate investment considerations, individually or in the aggregate, may
negatively impact the ability of the Trust and Operating Partnership to
make distributions to Shareholders and Unitholders, including without
limitation the effect of national and local economic and other conditions
on residential apartment property values, the general lack of liquidity of
investments in real estate, the risks associated with investments in
mortgages, the ability of tenants to pay rents, the possibility that
rental units may not be occupied or may be occupied on terms unfavorable
to the Trust and the Operating Partnership, the frequent need for capital
improvements, the possibility that (including the effects of depreciation
and interest) certain properties may have experienced recurring losses for
financial reporting purposes, the possibility of uninsured losses, the
ability of the property investments of the Trust and the Operating
Partnership to generate sufficient cash flow to meet expenses, including
debt service requirements, or to be sold on favorable terms, if at all,
the availability of capital for investment, and competition in seeking
properties for acquisition and in seeking tenants.
- - FINANCING RISKS EXIST - Financing risks exist, including debt service
obligations, the ability of the Trust and the Operating Partnership to
incur additional debt, the potential inability to refinance any mortgage
indebtedness of the Trust and the Operating Partnership upon maturity,
risks associated with possible investments in loans secured by
Subordinated Mortgages on property which may or may not be recorded, and
the risk of higher interest rates on any adjustable interest rate debt or
debt incurred to refinance indebtedness.
- - SUBORDINATED MORTGAGES TO BE ACQUIRED MAY NOT BE RECORDED - The Operating
Partnership expects to acquire mortgage interests which are not recorded
because of restrictions in subordination agreements executed in connection
with First Mortgages issued to other unrelated lenders. If a Mortgage is
not recorded, the security interest of the Operating Partnership would not
be perfected and the respective debt would rank pari passu with all other
unsecured creditors of the borrower.
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- - RISKS OF HIGH LEVERAGE - The Trust and the Operating Partnership will each
be permitted to incur indebtedness in an aggregate amount up to 300% of
their respective net assets (subject to certain exceptions described in the
Prospectus at "INVESTMENT OBJECTIVES AND POLICIES - Trust Policies with
respect to Certain Activities - Financing Policies"), which could result in
the Trust and the Operating Partnership becoming highly leveraged, which in
turn could adversely affect the ability of the Trust and the Operating
Partnership to make distributions to Shareholders and Unitholders and
increase the risk of default under their respective indebtedness.
- - IMPACT OF DISTRIBUTION REQUIREMENTS - The distribution requirements for
REITs under federal income tax laws may limit the Trust's ability to
finance acquisitions and improvements of property without additional debt
or equity financing; financing such acquisitions and improvements in turn
may limit cash available for distribution to Shareholders and Unitholders.
See below at "Tax Consequences" and the Prospectus at "TAX STATUS" and
"FEDERAL INCOME TAX CONSIDERATIONS."
- - DEPENDENCE ON MANAGEMENT - The successful operation of the Trust and the
Operating Partnership is dependent on key management. In addition, each of
the Original Investors, Mr. McGrath and Mr. Geiger, have other business
interests and neither will devote full business time to the Trust, the
Operating Partnership or the Managing Shareholder. See the Prospectus at
"MANAGEMENT."
- - NO ASSURANCE OF COMPLETION OF CASH OFFERING AND EXCHANGE OFFERING - There
can be no assurance of the successful completion of the Exchange Offering
and the Cash Offering and it is unlikely that the cash proceeds from the
sale in the Cash Offering of only a minimum number of Common Shares will be
sufficient to meet the investment objectives of the Trust and the Operating
Partnership.
- - NO PUBLIC MARKET FOR SALE OF UNITS OR COMMON SHARES - No public market for
the sale of Units is expected to ever develop, and, although Common Shares
(into which Units are exchangeable) may eventually be listed on a national
stock exchange, it is possible that no public market for the Common Shares
will ever develop or be maintained, resulting in lack of liquidity of the
Common Shares.
- - ACCEPTANCE OF EXCHANGE OFFERING MAY MEAN UNLIMITED DURATION OF INVESTMENT -
If the Exchange Offering is completed in respect of their Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in a particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration. See "COMPARISON OF RIGHTS OF
HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND
TRUST COMMON SHARES."
- - FAILURE TO QUALIFY AS A REIT - The Trust will be taxed as a corporation if
it fails to qualify as a REIT for federal income tax purposes. In that
event, the Trust will be liable for certain federal, state and local income
taxes and cash available for distribution to Shareholders and Unitholders
will decrease. Even if the Trust qualifies for taxation as a REIT, the
Trust may be subject to certain Federal, state and local taxes on its
income and property. See below at "Tax Consequences" and the Prospectus at
"FEDERAL INCOME TAX CONSIDERATIONS."
- - POTENTIAL ADVERSE TAX CONSEQUENCES - Under certain circumstances described
below at "Tax Consequences" and the Prospectus at "FEDERAL INCOME TAX
CONSIDERATIONS - Exchange of Exchange Partnership Units for Operating
Partnership Units," an Exchange Limited Partner may recognize tax upon the
exchange of Exchange Partnership Units for Operating Partnership Units.
- - POSSIBLE DILUTION FROM ISSUANCE OF ADDITIONAL SHARES AND UNITS - The
possible issuance by the Trust and the Operating Partnership of additional
Shares and Units subsequent to the completion of the Exchange Offering and
the Cash Offering may result in the dilution of Offerees who elect to
accept this Exchange Offering and Shareholders of the Trust and affect the
then prevailing market price of Common Shares.
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- - POSSIBLE ADVERSE EFFECT OF ANTITAKEOVER PROVISIONS OF TRUST - Certain
provisions in the Declaration of Trust for the Trust and other statutory
provisions have the potential to delay or prevent a takeover of the Trust
or other transaction in which the holders of some, or a majority, of the
outstanding Common Shares might receive a premium on their Common Shares
over the then prevailing market price or which such holders might believe
to be otherwise in their best interest. Such provisions generally limit
the actual or constructive ownership by any one person or entity (other
than the Original Investors) of equity securities in the Trust to 5% of
the outstanding Shares.
- - POSSIBLE ADVERSE IMPACT OF NON-PARTICIPATING LIMITED PARTNERS - As a
result of certain amendments which will be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Offerees who elect not to accept the Exchange Offering (the
"Non-participating Limited Partners") following the Exchange Offering,
such Non-participating Limited Partners, voting as a class, will have the
ability to veto certain actions of the partnership, such as the sale of
the partnership's property, which might be in the best interest of the
partnership, the Operating Partnership, the Trust or the holders of
securities of the Trust and the Operating Partnership. There can be no
assurance that Non-participating Limited Partners will not use such voting
power in a manner which may have an adverse effect on the operations of
the Trust or the Operating Partnership.
- - ILLIQUIDITY OF NON-PARTICIPATING LIMITED PARTNERS - Following the Exchange
Offering, the limited partnership interests of Non-participating Limited
Partners in Participating Exchange Partnerships are likely to remain
extremely illiquid because they will represent a small minority interest
in the partnership and because of the uncertainty whether the property
interests held by the partnership would be sold in the near future due to
the REIT and other provisions of the Code which would penalize the Trust
and possibly limited partners in the partnership who accept the offering
if the Operating Partnership sells the property interest in the short
term.
- - REGULATORY NON-COMPLIANCE COULD RESULT IN FINES OR JUDGMENT - The
potential liability of the Trust and the Operating Partnership for unknown
or future environmental liabilities and the costs of compliance with the
Americans with Disabilities Act and other governmental regulations, which
may negatively impact the financial condition and results of operations of
the Trust and the Operating Partnership and cash available to them for
distribution to Shareholders and Unitholders.
- - RETURN ON INVESTMENT BASED ON EXCHANGE VALUE WILL BE LESS THAN BOOK VALUE
- The $13,069,079 aggregate book value of the 23 Exchange Partnerships
initially targeted for investment in the Exchange Offering is less than
the $24,980,660 total of the initial value assigned to the Operating
Partnership Units being offered for limited partnership interests in the
Exchange Partnerships. This discrepancy is due to depreciation taken
against the original price paid by Exchange Equity Partnerships and the
Exchange Hybrid Partnerships for direct or indirect equity interests in
properties, and the appreciation of the properties since such purchase. As
a result, the return on investment of the Exchange Partnerships based on
the initial assigned value of the Units offered for limited partnership
interests in such partnerships will be less than the return on investment
of the partnerships based on their respective book value.
- - NON-PARTICIPATING LIMITED PARTNERS HAVE NO APPRAISAL RIGHTS - Any Offeree
who is a limited partner of an Exchange Partnership and does not desire to
participate in the Exchange Offering will be entitled to retain his or her
limited partnership interest in his or her respective Exchange Partnership
on substantially the same terms and conditions as his or her original
investment. Neither applicable law nor the limited partnership agreement
relating to any Exchange Partnership provides any rights of dissent or
appraisal to Offerees who do not elect to accept the Exchange Offering.
- - POSSIBLE ADVERSE EFFECT OF CHANGES IN INTEREST RATES AND REAL ESTATE
MARKET - The use of Units being offered in the Exchange Offering and the
net proceeds of the Cash Offering to acquire interests in one or more
existing residential apartment properties may occur over an extended
period during which the Trust and the Operating Partnership will face
risks of changes in interest rates and adverse changes in the real estate
market. Similarly, during periods in which proceeds are invested in
interim investments prior to such application, the Trust and the Operating
Partnership may be affected by changes in prevailing interest rate levels.
Such interim investments would be expected to earn rates
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of return which are lower than those earned on the real estate investments
of the Trust and the Operating Partnership.
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TAX CONSEQUENCES
THE OPERATING PARTNERSHIP
No ruling has been or will be sought from the Internal Revenue Service
("IRS") as to the status of the Operating Partnership as a partnership for
federal income tax purposes. Instead, the Operating Partnership has relied on
the opinion of special tax counsel that, based upon the Internal Revenue Code of
1986, as amended (the "Code"), the regulations thereunder, published revenue
rulings and court decisions, the Operating Partnership will be classified as a
partnership for federal income tax purposes. In rendering its opinion, tax
counsel has relied on certain factual representations discussed in the
Prospectus made by the Operating Partnership and the Trust, as its general
partner. See the Prospectus at "Tax Status" and "Federal Income Tax
Considerations."
If the Operating Partnership were taxed as a corporation in any taxable
year, its items of income, gain, loss and deduction would be reflected only on
its tax return rather than being passed through to Unitholders, and its net
income would be taxed to the Operating Partnership at corporate rates currently
ranging to a maximum federal rate of 35%. In addition, any distribution made to
a Unitholder would be treated as either taxable dividend income at a rate
currently ranging to a maximum federal rate of 39.6% (to the extent of the
Operating Partnership's current or accumulated earnings and profits) or (in the
absence of earnings and profits) a non-taxable return of capital (to the extent
of the Unitholder's tax basis in his or her Units) or taxable capital gain
(after the Unitholder's tax basis in the Units has been reduced to zero).
Accordingly, treatment of the Operating Partnership as an association taxable as
a corporation would result in a material reduction in a Unitholder's cash flow
and after-tax return and thus would likely result in a substantial reduction of
the value of the Units.
EXCHANGE OF EXCHANGE PARTNERSHIP UNITS FOR OPERATING PARTNERSHIP UNITS
In general, a contribution by a Limited Partner of Exchange Partnership
Units to the Operating Partnership in exchange for Units of the Operating
Partnership (the "Exchange") will not result in the recognition of taxable gain
at the time of the Exchange. There is an exception to this general rule if the
Limited Partner receives in connection with the Exchange a cash distribution (or
a deemed cash distribution resulting from relief from liabilities) that exceeds
such Limited Partner's aggregate adjusted basis in his or her Exchange
Partnership Units at the time of the Exchange and other exceptions to
nonrecognition of gain described in the Prospectus. See the Prospectus at
"Federal Income Tax Considerations - Exchange of Exchange Partnership Units for
Operating Partnership Units" for a more detailed discussion of other factors
that could result in the recognition of gain upon the Exchange.
The Limited Partners will not receive any cash distributions in
connection with the Exchange Offering. Whether any Limited Partner will receive
a deemed cash distribution attributable to relief from liabilities in connection
with the Exchange that exceeds his or her adjusted basis in his or her Exchange
Partnership Units at the time of the Exchange will depend on a number of
variables, including such Limited Partner's adjusted tax basis in his or her
partnership interest at such time; the assets that the Limited Partner
originally contributed to the Exchange Partnership in exchange for such Exchange
Partnership Units; the indebtedness, if any, of the Exchange Partnership at the
time of the Exchange; the tax basis of any such contributed assets in the hands
of the Exchange Partnership at the time of the Exchange; the Limited Partner's
share of the "unrealized gain" with respect to the Exchange Partnership's assets
at the time of the Exchange; and the extent to which the Limited Partner
includes in his or her basis for his or her Exchange Partnership Units a share
of the Exchange Partnership's recourse liabilities by reason of indemnification
or "deficit restoration" obligations that will be eliminated by reason of the
Exchange. See "Federal Income Tax Considerations - Exchange of Exchange
Partnership Units for Operating Partnership Units."
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THE TRUST
The Trust will elect to be taxed as a real estate investment trust
("REIT") under Sections 856 through 860 of the Code commencing with its taxable
year ending December 31, 1998. To maintain REIT status, an entity must meet a
number of organizational and operational requirements, including a requirement
that it currently distribute to its Shareholders at least 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains). Certain noncash items are excluded from the
distribution requirement.
As a REIT, the Trust generally will not be subject to federal income
tax on net income it distributes currently to its Shareholders. If the Trust
fails to qualify as a REIT in any taxable year, it 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. See the Prospectus at "Risk Factors -
Potential Adverse Tax Consequences - Taxation of the Trust as a Corporation if
it Fails to Qualify as a REIT" and "Federal Income Tax Considerations - Taxation
of the Trust." Even if the Trust qualifies for taxation as a REIT, the Trust may
be subject to certain federal, state and local taxes on its income and property.
EFFECTS OF THE FORMATION TRANSACTIONS,
CASH OFFERING AND EXCHANGE OFFERING
The transactions relating to the formation of the Trust and the
Operating Partnership and to the Cash Offering and Exchange Offering will have
various beneficial effects on the operations of the Trust, the Operating
Partnership and the Exchange Partnerships, including the operation of the
Exchange Properties and other properties to be acquired, but may have certain
disadvantages for Limited Partners who accept the Exchange Offering. See the
Prospectus at "The Exchange Offering - Effects of the Formation Transactions,
Cash Offering and Exchange Offering."
The principal benefits to Limited Partners who accept the Exchange
Offering include the following:
- The Limited Partners will be able to participate in a more
diversified investment in a more advantageous form of
ownership with a greater potential for marketability of the
security. The Operating Partnership intends to continue the
Exchange Partnerships in their present structure as limited
partnerships, but it does not intend to pursue the sale of
assets of the Exchange Partnership within the time frame set
forth in the original offering documents because the Trust is
subject to certain asset requirements to maintain its status
as an REIT. The Operating Partnership intends to evaluate each
of its assets yearly to determine whether to sell any of its
real estate interests in light of current market conditions
and other relevant considerations. By participating in the
Exchange Offering, a limited partner's investment will not be
tied to a single property, but a range of property interests
owned by the Trust. Also, the Trust intends to list its shares
on a national stock exchange. If this listing occurs, limited
partners who elect to participate will have a greater
opportunity for liquidity than they have now.
- The Trust and the Operating Partnership have been able to
attract highly experienced management and financial personnel
capable of managing a substantially larger real estate
portfolio.
- The Trust and the Operating Partnership, on the one hand, and
each of the Exchange Partnerships, on the other hand, will
benefit from a highly qualified management team which has been
assembled and the economy of scale attendant to operation of
the Exchange Properties as part of a single business entity.
The General Partner (wholly owned and controlled, along with
the Managing Shareholder of the Trust, by Mr. McGrath)
believes that a single self-managed structure of ownership by
the Exchange Partnerships and administration of the property
interests which are controlled by them and which were
projected to be acquired by future affiliated programs would
be far more efficient, cost effective and advantageous for
operations and for the various program investors.
- The Trust and the Operating Partnership will be able to
acquire interests in residential apartment properties with
cash and Units.
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- The Trust and the Operating Partnership will have enhanced
ability to obtain more favorable terms for the financing of
their assets including, where appropriate, the Exchange
Properties.
- The Exchange Offering has been designed to afford Limited
Partners who accept the offering the benefit of a deferral of
any recognition of taxable gain until they exercise their
right to exchange all or a portion of their Units for an
equivalent number of Common Shares of the Trust. The exchange
to Common Shares may be made at any time at the sole
discretion of each Limited Partner.
- The General Partner considered various alternatives to the
Exchange Offering, including continuation of the Exchange
Partnership in accordance with its existing business plan and
sale or liquidation of the partnership assets held, and has
determined that the Exchange Offering provides equal or
greater value to the Limited Partners compared with any other
considered alternative. Continuation of the existing business
plan and liquidation have been determined to be impractical
and disadvantageous for the Limited Partners. The General
Partner has either explored the sale of the partnership assets
or determined that such a sale would be premature as it would
not maximize investor value.
The principal disadvantages to Limited Partners who accept the Exchange
Offering include the following (see the Prospectus at "Risk Factors"):
- Conflicts of interests exist among the Trust, the Operating
Partnership, the Managing Shareholder (wholly owned and
controlled, along with the general partner of each of the
Exchange Partnerships, by Mr. McGrath), the Original Investors
and their affiliates with respect to the formation and future
operations of the Trust and the Operating Partnership.
- The Original Investors have significant influence over the
affairs of the Trust and the Operating Partnership by virtue
of their collective ownership of Operating Partnership Units.
- Limited Partners who accept the Exchange Offering will pay
greater consideration per Unit than the Original Investors
paid for their Units.
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VALUATION METHOD
The value of the Exchange Partnership is set forth in the following
table. The value is derived from a number of factors beginning with an appraisal
performed on the partnership's direct or indirect property interests by a
qualified and licensed independent appraisal firm and other considerations with
respect to property interests, or where applicable is based upon the current
principal balance of mortgage interests in properties held by the partnership,
independent appraisals on the property securing such indebtedness and other
considerations with respect to mortgage or debt interests. See the Prospectus at
"The Exchange Offering Exchange Property Appraisals." The number of Units being
offered in respect of the Exchange Partnership, each of the other Exchange
Equity Partnerships and each of the Exchange Hybrid Partnerships (to the extent
of their direct or indirect equity interests in properties) differs based upon
the following: (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 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 number of Units being offered in respect to 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 and other indebtedness to which 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 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 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 General Partner (wholly owned and controlled, along with the
Managing Shareholder of the Trust, by Mr. McGrath) believes that the Exchange
Offering is fair to the Limited Partners and recommends that they accept the
Exchange Offering for the following reasons:
- The Units to be issued in the Exchange Offering have values
derived from qualified independent third party appraisals of
the Exchange Partnership's property interests and other
subjective factors which the Managing Shareholder believes are
appropriate to consider and reflect a value greater than the
Limited Partners' original investments.
- The Exchange Offering has been structured to permit each
Limited Partner, if desired, to decide not to accept the
offering and instead retain his or her existing interest in
the partnership on terms substantially the same as those of
his or her original investment.
- The Operating Partnership will not complete the offering in
respect of any Exchange Partnership unless limited partners
holding at least 90% of the limited partnership interests
therein affirmatively elect to accept the offering. In
addition, the Operating Partnership will not complete any
transaction in the offering whatsoever unless a sufficient
number of Offerees accept the offering such that the offering
involves the issuance of Operating Partnership Units with an
initial assigned value of at least $6,000,000.
- The Exchange Offering will provide each Limited Partner with a
significantly more diverse interest in income producing real
property and debt interests with a possible opportunity that
the Operating Partnership Units received will be marketable in
the future.
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- The Trust and the Operating Partnership have been able to
attract highly experienced management and financial personnel
capable of managing a substantially larger real estate
portfolio.
- Upon completion of the Exchange Offering it is anticipated
(but not assured) that the large number of residential units
to be owned by the Operating Partnership will provide the
Exchange Partnership with a lower operating cost per
residential unit and as a consequence increase operating
performance.
- The General Partner believes that a single integrated
structure of ownership by the Exchange Partnerships and
administration of the property interests which are controlled
by them and which were projected to be acquired by future
affiliated programs would be far more efficient, cost
effective and advantageous for operations and for the various
program investors.
- The Exchange Offering has been designed to afford Limited
Partners who accept the offering the benefit of a deferral of
any recognition of taxable gain until they exercise their
right to exchange their Units for an equivalent number of
Common Shares of the Trust. The exchange to Common Shares may
be made at any time at the sole discretion of each Limited
Partner.
- The General Partner considered various alternatives to the
Exchange Offering, including continuation of the Exchange
Partnership's existing business plan and sale or liquidation
of the partnership assets held, and has determined that the
Exchange Offering provides equal or greater value to the
Limited Partners compared with any other considered
alternative.
Set forth below is certain information relating to (i) the appraised
value of the property interests held by the Exchange Partnership, (ii) the
principal balance as of March 31, 1999 of mortgage financing secured by the
underlying property, (iii) other assets and liabilities of the partnership and
(iv) the valuation of Units to be offered to the Limited Partners in the
Exchange Offering:
20
<PAGE>
<TABLE>
<CAPTION>
VALUATION OF PARTNERSHIP FLORIDA INCOME GROWTH FUND V, LTD.
Blossom Corners I
<S> <C>
Appraised value of underlying property interests: $ 2,195,000
Cash and cash equivalent assets: $ 78,457
Other assets (1): $ 123,453
3/31/99 principal balance of mortgage financing
secured by the property: $(1,020,990)
Other liabilities(2): $ (65,573)
Adjustment: -0-
Valuation of the partnership $ 1,310,347
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value)
131,035
Number of Units offered to each Limited Partner
in the Partnership per $1,000 of original
investment (dollar value)
114
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited
Partners in all Exchange Partnerships: 5.25%
Total Number of Partnership Units
Original Price Per Unit
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves
and other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to
vendors, notes or advances to third parties (including affiliates)
and accrued expenses (such as real estate taxes).
Operating history of the Partnership: Florida Income Growth Fund V, Ltd.'s
historical net income is as follows: 1995 - ($7,722); 1996 - ($7,339); 1997 -
$37,053; 1998 - $95,243; as of March 31, 1999 - $20,252. Cash flow thorugh June
30, 1999 has been $258,542 or $112.41 per limited partnership unit.
21
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $13,930 $13,680 $17,459 $10,921
Accounting Fee $ 3,900 3,900 3,900 1,950
----- ----- ----- -----
$17,830 $17,680 $21,369 $22,871
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $7,025 $10,829 $4,618 $1,717
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
- -------------------------
22
<PAGE>
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.
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 the Cash Offering and the Units being offered in
the Exchange Offering), the Original Investors have deposited into an escrow
account with ASTTC the Units issued to them in connection with the formation of
the Trust and the Operating Partnership. 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 the Cash Offering,
provided that the escrowed Units may be released in their entirety earlier if
either (i) the Trust achieves annual net earnings per Common Share of at least
$.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 the Cash Offering, or (ii) the Trust achieves average annual net
earnings per share of at least $.50 (after taxes and excluding extraordinary
items) for any consecutive five-year period following the commencement of the
Cash 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 the Cash Offering. In addition, the Original
Investors' Units will be subject to the trading restrictions under Rule 144
issued under the Securities Act of 1933, as amended.
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 the Operating Partnership 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 the 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 and available for distribution of the assets of
the Operating Partnership (such as its dissolution, liquidation, merger or sale
of substantially all of its assets) to the extent that the other Shareholders
and Unitholders otherwise would not receive in connection with such transaction,
distributions in an amount equal to at least the initial public offering price
of the Common Shares.
23
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES
The rights and obligations of the general partner (wholly owned and
controlled, along with the Managing Shareholder of the Trust, by Mr. McGrath)
and Exchange Limited Partners in respect of each Exchange Partnership are
governed by the agreement of limited partnership of the partnership
(collectively, the "Exchange Partnership Agreements" and individually, an
"Exchange Partnership Agreement"). The rights and obligations under the various
Exchange Partnership Agreements described below are identical except as stated.
Exchange Limited Partners are urged to review the Exchange Partnership Agreement
pertaining to their investment which was attached as Exhibit A to the Private
Placement Memorandum they received in connection with their original purchase of
Exchange Partnership Units in such partnership's private offering.
Upon their acceptance of the Exchange Offering, Exchange Limited
Partners of Participating Exchange Partnerships (i.e.., Exchange Partnerships
whose limited partners holding at least 90% of the limited partnership interests
therein elect to accept the Exchange Offering, assuming the offering is
completed) will become limited partners in the Operating Partnership and have
rights set forth under the Operating Partnership Agreement as described below.
See also the Prospectus at "THE TRUST AND THE OPERATING PARTNERSHIP - The
Operating Partnership." Exchange Limited Partners of Participating Exchange
Partnerships who accept the Exchange Offer and thereby receive Operating
Partnership Units will entitled to exchange all or a portion of such units for
an equivalent number of Common Shares of the Trust at any time and from time to
time, subject to the Trust's right to cash out any holder of Units who requests
an exchange (at a price equal to the average of the daily market price for the
10 consecutive trading days immediately preceding the date the Trust receives
the exchange notice, or, in the absence of a public trading market, at a price
determined in good faith by the Trust) and subject to certain other restrictions
described in the Prospectus at "THE EXCHANGE OFFERING." Holders of Trust Common
Shares will have the rights set forth under the Declaration of Trust for the
Trust which are summarized in the Prospectus at "SUMMARY OF DECLARATION OF
TRUST" and below. The Declaration of Trust also contains certain additional
limitations on the Trust's activities which will affect the operation of the
Trust and the Operating Partnership. See the Prospectus at "SUMMARY OF THE
DECLARATION OF TRUST - Control of Operations" and Section 1.9 of the Declaration
of Trust.
The rights of limited partners in the Participating Exchange
Partnerships differ in many respects from the rights they will have as limited
partners in the Operating Partnership if they accept the Exchange Offering and
the rights they will have if they exercise their right to exchange Operating
Partnership Units for an equivalent number of Trust Common Shares. The following
discussion compares the material provisions of each type of security but does
not purport to be a complete statement of such provisions under Florida and
Delaware limited partnership law, as applicable, Delaware business trust law,
the Exchange Partnership Agreements, the Operating Partnership Agreement and the
Declaration of Trust of the Trust or a comprehensive comparison of the rights of
holders of Exchange Partnership Units, the holders of Operating Partnership
Units and holders of Trust Common Shares under such agreements or laws. This
summary is qualified in its entirety by reference to such agreements and laws.
Following the Exchange Offering, each Non-participating Limited Partner
(i.e., each limited partner in a Participating Exchange Partnership who elects
not to accept the Exchange Offering) will retain his existing interest in his
Exchange Partnership. The Non-participating Limited Partners will retain all of
their economic and voting rights, rights to receive reports and substantially
all other rights as set forth in the Exchange Partnership Agreement pertaining
to their Exchange Partnership. As described in further detail in this Prospectus
at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS
WITH NON-PARTICIPATING LIMITED PARTNERS," the partnership agreement of each
Participating Exchange Partnership which has one or more Non-participating
Limited Partners following the Exchange Offering will be amended so that such
partners will be entitled to vote as a class in respect of all matters as to
which limited partners are entitled to vote under the partnership agreement
prior to the completion of the Exchange Offering, with certain exceptions. In
addition, the Trust and the Operating Partnership have agreed that in respect of
certain proposed actions, the Participating Exchange Partnership must obtain the
prior approval of Non-participating Limited Partners holding a majority of the
limited partnership interests held by all Non-
24
<PAGE>
participating Limited Partners in the partnership. For example, the partnership
may not sell its existing property interest, acquire any additional property
interests or cease to exist without such approval. The partnership agreement, as
amended, will continue in full force and effect after the completion of the
offering as long as any Non-participating Limited Partners remain limited
partners of the Exchange Partnership. See the Prospectus at "THE EXCHANGE
OFFERING."
Set forth below under the applicable category is a summary of the
specific Exchange Partnership Agreement amendments that will be effected in
respect of each Participating Exchange Partnership which has one or more
Non-participating Limited Partners immediately following the completion of the
Exchange Offering as to such partnership.
ISSUANCE OF ADDITIONAL SECURITIES
EXCHANGE PARTNERSHIPS: Under the Exchange Partnership Agreements, the interests
of the partners are comprised of general partner interests and limited partner
interests only. Except as described in the next paragraph, all of the Exchange
Partnerships may issue securities in addition to those issued in connection with
their respective private offering of limited partnership interests, as described
below in this paragraph. Additional partnership interests may be sold by each
such Exchange Partnership in the future if the general partner thereof (wholly
owned and controlled, along with the Managing Shareholder of the Trust, by Mr.
McGrath) determines it to be in the best interest of the partnership to commit
additional funds to its property and that such funds should not be financed from
the partnership's earnings or through additional indebtedness.
The partnership agreement provisions of three of the Exchange
Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income Appreciation
Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.) permit the issuance
of additional securities only if such issuance is approved by the general
partner of, and the limited partners holding at least a majority of the limited
partnership interests in, the respective partnership.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering, without the
majority approval of the Non-participating Limited Partners of the partnership
voting as a class, the partnership will not be authorized to admit any
additional persons as limited partners other than pursuant to provisions of the
agreement, including those described above, which set forth procedures for
admission or pertain to transfers of limited partnership interests. In addition,
as a result of such amendments, the general partner of each Participating
Exchange Partnership (other than the three partnerships excepted above) will
continue to have discretion to issue additional units of limited partnership
interest of the same class as units held by the limited partners of the
partnership and to determine the terms of such issuance, provided, however, that
the majority approval of Non-participating Limited Partners voting as a class is
required to approve such issuance in advance where the selling price for such
shares is not less than the approximate market value of the units. See the
Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE
PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
OPERATING PARTNERSHIP: Under the Operating Partnership Agreement, the initial
interests of the partners are comprised of the general partner interest held by
the Trust and Operating Partnership Units of limited partnership interest to be
held by the Trust, the Original Investors and the recipients of Operating
Partnership Units in connection with the Exchange Offering. The Trust, as
general partner of the Operating Partnership, is authorized to cause the
Operating Partnership to issue additional partnership interests in the Operating
Partnership for any purpose of the Operating Partnership at any time to the
partners in the Operating Partnership or to other persons for such consideration
and on such terms and conditions as may be established by the Trust in its sole
and absolute discretion, provided, however, the Operating Partnership may not
issue redeemable equity securities (other than Units which by their terms are
exchangeable into Common Shares). The Trust may cause the Operating Partnership
to issue additional interests in the Operating Partnership in one or more
classes, or one or more series of any such classes, with such designations,
preferences and relative rights, powers and duties senior to interests of
Operating Partnership limited partners, subject to Delaware business trust law.
Since Units are exchangeable by Unitholders (other than the Trust) into an
equivalent number of Common Shares of the
25
<PAGE>
Trust, the maximum number of Units that may be issued by the Operating
Partnership is limited to the number of authorized Shares of the Trust, which is
25,000,000.
THE TRUST: The Trust has authority to issue an aggregate of 25,000,000 Shares.
The Managing Shareholder of the Trust is authorized to issue from the authorized
but unissued Shares of the Trust, additional Common Shares as well as Preferred
Shares in one or more series and to establish from time to time the number of
Preferred Shares to be included in each such series and to fix the designations
and any preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption of the shares of each series, provided, however, (i) the Managing
Shareholder will be authorized to issue Preferred Shares only upon approval of
either Shareholders of the Trust holding a majority of the then outstanding
Shares entitled to vote upon such matter or a majority of the disinterested
Independent Trustees, (ii) the voting rights for each Preferred Share that is
issued may not exceed one vote per share, and (iii) the Trust may not issue
redeemable equity securities. If the Trust issues additional securities in the
future, (x) the Trust must cause the Operating Partnership to issue to the
Trust, interests in the Operating Partnership which represent economic interests
in the Operating Partnership which are substantially similar to such additional
securities and (y) the Trust must contribute to the Operating Partnership the
net proceeds from, or the property received in consideration for, the issuance
of any such additional securities and from the exercise of rights contained in
such additional securities.
In addition, upon the exercise of an option granted by the Trust for
Trust Common Shares pursuant to an employee stock option plan, the Trust must
cause the Operating Partnership to issue to the Trust one Operating Partnership
Unit for each Trust Common Share acquired upon such exercise and the Trust must
contribute to the Operating Partnership the net proceeds received from such
exercise. The Operating Partnership will also issue Operating Partnership Units
to employees of the Operating Partnership or any subsidiary of the Operating
Partnership upon the exercise by any such employees of an option to acquire
Operating Partnership Units granted by the Operating Partnership pursuant to an
employee stock option plan.
The Trust will also issue Trust Common Shares on a one-for-one basis to
holders of Operating Partnership Units who exercise their rights to exchange
their Operating Partnership Units for an identical number of Trust Common
Shares, subject to certain exceptions described in the Prospectus at "THE
EXCHANGE OFFERING."
TERM OF EXISTENCE
EXCHANGE PARTNERSHIPS: The term of each Exchange Partnership terminates on
December 31 of the year of the twenty-ninth to thirty-second anniversary of its
formation, as the case may be, unless terminated earlier by law or under the
provisions of the respective Exchange Partnership Agreement, including (i) the
determination of a majority in interest of limited partners to dissolve the
partnership, (ii) actions affecting the activities of the general partner
(including, among other things, resignation or dissolution) unless a majority in
interest of the limited partners vote to continue the partnership and appoint a
successor general partner, and (iii) the sale of all or substantially all of the
property of the partnership.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering, without the
majority approval of the Non-participating Limited Partners of the partnership
voting as a class, the partnership will not be permitted to cease to exist.
In addition, as a result of such amendments, following the Exchange
Offering, the partnership may be dissolved by the vote of at least a majority of
the outstanding limited partnership interests in the partnership, but only with
the approval of Non-participating Limited Partners holding a majority of the
then outstanding units of the partnership held by all Non-participating Limited
Partners. Furthermore, the partnership will be dissolved if the last remaining
general partner of the partnership (each of the Exchange Partnerships currently
has only one general partner) ceases to act as general partner, unless the
limited partners of the partnership (including the Operating Partnership and
Non-participating Limited Partners) holding at least a majority of the then
outstanding units of the partnership elect to continue the partnership and elect
a new general partner and such continuation, election of such general partner(s)
and
26
<PAGE>
the amount, type and purchase price of any interest in the partnership such
successor general partner(s) may acquire in connection therewith have been
approved in advance by Non-participating Limited Partners of the partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners. See the Prospectus at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS."
OPERATING PARTNERSHIP: The term of the Operating Partnership terminates on
December 31, 2098 unless terminated earlier by law or under the provisions of
the Operating Partnership Agreement, including (i) the withdrawal of the Trust
as general partner, unless a majority in interest vote to continue the Operating
Partnership and appoint a successor general partner, (ii) the general partner's
election to dissolve the Operating Partnership with the approval of limited
partners holding a majority in interest of the Operating Partnership Units, (ii)
the sale of all or substantially all of the properties of the Operating
Partnership, (iv) the merger of the Operating Partnership with or into another
entity, (v) the bankruptcy or insolvency of the Trust, and (vi) the commencement
of any proceedings against the Trust seeking its reorganization, liquidation,
dissolution or similar relief or the involuntary appointment of a trustee to
receive or liquidate the Trust or any substantial portion of its properties and
such proceeding or appointment has not been dismissed, vacated or stayed within
a specified period of time.
THE TRUST: The term of the Trust terminates on December 31, 2098 unless
terminated earlier (i) by law, (ii) the determination of the holders of at least
a majority of the Trust Shares then outstanding to dissolve the Trust, (iii) the
sale of all or substantially all of the Trust's property or (iv) the withdrawal
of the Cash Offering by the Managing Shareholder of the Trust prior to the
termination date of the Cash Offering.
MANAGEMENT CONTROL
EXCHANGE PARTNERSHIPS: Subject to the rights of limited partners in the Exchange
Partnerships set forth in the Exchange Partnership Agreements which are
described below at "Meetings and Voting Rights," the general partner of each
partnership has full exclusive and complete discretion in management and control
of the partnership.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering, any
amendment of any agreement entered into between any Participating Exchange
Partnership and any affiliates of the general partner following the Exchange
Offering (other than any agreement described in the offering documents relating
to the original private offering of the partnership) will require the approval
of Non-participating Limited Partners of the partnership holding a majority of
the then outstanding units of the partnership held by all Non-participating
Limited Partners. See the Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
OPERATING PARTNERSHIP: Subject to the rights of Operating Partnership limited
partners set forth in the Operating Partnership Agreement which are set forth
below at "Meetings and Voting Rights," the Trust, as general partner of the
Operating Partnership, has all management powers over the business and affairs
of the Operating Partnership. As described immediately below, the Managing
Shareholder of the Trust has day to day management control over the Operating
Partnership and the Trust.
THE TRUST: Subject to the rights of Shareholders set forth in the Declaration of
Trust, the Managing Shareholder of the Trust has full exclusive and complete
discretion in the day to day management and control of the Trust and the
Operating Partnership, subject to the general supervision and review by the
Independent Trustees and the Managing Shareholder of the Trust acting together
as the Board of the Trust and subject to the prior approval of the Board and the
Independent Trustees in respect of certain activities of the Trust and the
Operating Partnership. See the Prospectus at "SUMMARY OF DECLARATION OF TRUST -
Control of Operations" and Section 1.9 of the Declaration of Trust.
27
<PAGE>
ECONOMIC INTEREST
EXCHANGE PARTNERSHIPS: In private offerings commenced between 1994 and 1997,
Exchange Limited Partners acquired Exchange Partnership Units in one or more
Exchange Partnerships in return for capital contributions. Each Exchange
Partnership maintains a capital account for each of its partners to which it
allocates the partner's share of all items of partnership income, gain, expense,
loss, deduction and credit determined in accordance with the Internal Revenue
Code of 1986, as amended, and regulations issued thereunder. Except as described
in the next paragraph below, the partnership agreement provisions of all of the
Exchange Partnerships relating to the allocation of taxable income and loss
among the general partner and the limited partners are substantially the same.
Such provisions are described below in this paragraph. Under the respective
Exchange Partnership Agreement, after giving effect to certain technical special
allocation provisions, (i) taxable income is allocable 100% to the general
partner until the profit allocated plus the cumulative profit allocable 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
and the balance, if any, is allocated to the Exchange Limited Partners and (ii)
taxable losses are allocable 99% to the Exchange Limited Partners and 1% to the
general partner, provided, however, that losses are not allocable to any
Exchange Limited Partner to the extent that such allocation would cause such
Exchange Limited Partner to have an adjusted capital account deficit at the end
of the taxable year (which excess losses are allocable to the general partner).
Each limited partner in an Exchange Partnership owns an interest in the entire
limited partnership interests in the partnership in proportion to his respective
ownership of units.
Described below are the partnership agreement provisions of three of
the Exchange Partnerships (Florida Income Advantage Fund I, Ltd.; Florida Income
Appreciation Fund I, Ltd.; and Realty Opportunity Income Fund VIII, Ltd.)
relating to the allocation of taxable income and loss. Assuming that all
distributions (including distributions required under the special distribution
provisions of the Code) required to be made have been made, taxable income
attributable to operations is allocable first to those partners who have deficit
balances in their capital accounts, in proportion to such deficit balances,
until the capital accounts have been restored to zero; and then 90% to the
limited partners and 10% to the general partner. Taxable losses attributable to
operations are allocable 90% to the limited partners and 10% to the general
partner. Taxable gain attributable to the sale of partnership property is
allocable first to those partners who have deficit balances in their capital
accounts, in proportion to those deficit balances, until the capital accounts
are restored to zero, and then in accordance with the partners' capital
accounts. Taxable losses attributable to the sale of partnership property are
allocable among the partners in proportion to the positive or negative balances
of their respective capital accounts; provided, however that, in the event that
some partners have positive capital account balances and other partners have
negative capital account balances, then such losses will be allocated first to
those partners who have positive capital account balances in proportion to such
positive balances until the capital account balances of such partners have been
reduced to zero, and then 90% to the limited partners and 10% to the general
partner.
Each Exchange Partnership is required to distribute at least quarterly
distributable cash flow (defined as all cash received by the partnership from
any source, other than capital contributions, loan proceeds and proceeds from
the sale or refinancing of property, less operating expenses, principal and
interest payments on indebtedness, capital expenditures, general partner fees
and reasonable cash reserves). Each Exchange Limited Partner has a preferential
interest over the general partner in respect of his partnership's distributable
cash flow and net proceeds from the sale or refinancing of property owned by the
partnership. The interests of the Exchange Limited Partners and the general
partner in a particular Exchange Partnership in such distributable cash flow and
net sale or refinancing proceeds are set forth in Exhibit I to the Prospectus
Supplement delivered to each Exchange Limited Partner in the partnership.
Schedule B to the Prospectus contains a table for each Exchange Partnership
which summarizes on a partnership by partnership basis such allocations.
28
<PAGE>
The general partner of each Participating Exchange Partnership has
agreed to waive all fees that may be earned by it, including without limitation
administrative fees, investments fees and real estate commissions. The general
partner of each Participating Exchange Partnership has also agreed to assign to
the Operating Partnership all of its back-end economic interests in each such
partnership.
Upon the liquidation and dissolution of an Exchange Partnership, and
after payment of or the creation of reserves for the payment of partnership
liabilities, the proceeds of the sale or other disposition of the partnership's
remaining property will be distributed to the limited partners and the general
partner in proportion to their respective capital accounts in the partnership.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering, without the
majority approval of the Non-participating Limited Partners of the partnership
voting as a class, the partnership will not be permitted to sell its existing
property interest, acquire any additional property interests, cease to exist, or
modify the rights of limited partners to receive 100% of the quarterly cash
distributions and net proceeds from the sale or refinancing of the partnership's
property until they have received the preferred amount specified in the
respective Exchange Partnership Agreement. See the Prospectus at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS."
OPERATING PARTNERSHIP: Each limited partner in a real estate limited partnership
who agrees to sell his limited partnership interest to the Operating Partnership
in an exchange transaction, including each Exchange Limited Partner in a
Participating Exchange Partnership who accepts the Exchange Offering, will
exchange such limited partnership interests for a number of Operating
Partnership Units based upon, among other considerations, the seller's
proportionate share of the valuation determined for the Participating Exchange
Partnership or such other limited partnership.
The Operating Partnership will maintain for each partner in the
Operating Partnership a capital account to which will be allocated the partner's
share of all items of partnership income, gain, expense, loss, deduction and
credit determined in accordance with the Internal Revenue Code of 1986, as
amended, and regulations issued thereunder. After giving effect to certain
technical special allocation provisions, (i) taxable income is allocable 100% to
the general partner to the extent that, on a cumulative basis, net losses
previously allocated to the general partner exceed net income previously
allocated to the general partner, and the balance is allocable to limited
partners and the general partner in proportion to their respective ownership of
Operating Partnership Units, and (ii) net losses are allocable to the limited
partners and the general partner in proportion to their respective ownership of
Operating Partnership Units, provided, however, that net losses are not
allocable to any limited partner to the extent that such allocation would cause
such limited partner to have an adjusted capital account deficit at the end of
such taxable year (which excess losses are allocable to the general partner).
The Operating Partnership is required to distribute at least quarterly
all available cash flow of the Operating Partnership (defined as (i) all cash
revenues received by the Operating Partnership from any source, other than
capital contributions to the Operating Partnership, and cash flow treated as net
capital gains under the Code, plus (ii) the amount of any reduction in reserves
of the Operating Partnership). Such distributions are to be made in the
following priority: (x) first to holders of any class of partnership interest
having a preference over Operating Partnership Units (no such preferred class
exists as of the date of this Prospectus or is currently anticipated to be
issued by the management of the Operating Partnership) and (y) thereafter, to
holders of Operating Partnership Units. Each holder of Operating Partnership
Units, including the Trust and each recipient of Operating Partnership Units in
the Exchange Offering, will receive a share of such distributions in proportion
to his respective ownership of Operating Partnership Units.
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Upon liquidation of the Operating Partnership, the limited partners and
the general partner are entitled to receive a share of the net liquidation
proceeds of the Operating Partnership (remaining after payment of, or the
creation of a reasonable reserve for, all of the partnership's liabilities and
obligations) in proportion to their respective capital account balances.
THE TRUST: Holders of Trust Common Shares will acquire such shares (i) in
connection with the Cash Offering or any subsequent public or private offering
of Trust Common Shares that may be made by the Trust, (ii) upon the exercise of
their right to exchange Operating Partnership Units for an equivalent number of
Trust Common Shares, or (iii) upon their exercise of options or their receipt of
Trust Common Shares under any stock option plan or employee bonus plan that may
be adopted by the Board of the Trust.
As discussed above under "Issuance of Additional Securities," the Trust
is authorized to issue Shares in addition to the Trust Common Shares offered in
the Cash Offering and Trust Common Shares to be issued in connection with the
exchange of Operating Partnership Units.
The Managing Shareholder has full discretion as to the timing and
amount of distributions to be made by the Trust, provided, however, the Managing
Shareholder is required to endeavor to declare and make distributions as
required for the Trust to quality as a REIT under the Code so long as the
Managing Shareholder believes it is in the best interest of the Trust to
continue to so qualify. As of the date of this Prospectus Supplement, the Trust
intends to make quarterly distributions of available funds, if any to its
Shareholders. Shareholders will be entitled to receive any such distributions on
a pro rata basis for each outstanding class of Shares taking into account the
relative rights of priority of each class entitled to receive distributions. No
preferred class which has a priority over Common Shares exists as of the date of
this Prospectus Supplement or is currently anticipated by the management of the
Trust to be issued.
Upon liquidation of the Trust, the Shareholders are entitled to receive
the net liquidation proceeds (remaining after payment of, or the creation of a
reasonable reserve for, all of the Trust's liabilities and obligations) on a pro
rata basis for each class of Shares taking into account the relative rights of
priority of each class
PROPERTY INVESTMENTS AND ANTICIPATED HOLDING PERIOD
EXCHANGE PARTNERSHIPS: Each of the Exchange Partnerships was formed to acquire
and now owns an interest in one or more residential apartment properties
described in the Prospectus at "DESCRIPTION OF EXCHANGE PARTNERSHIPS" and "PRIOR
PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER," in Exhibits A and B to the
Prospectus and in the Prospectus Supplement accompanying the Prospectus prepared
for each particular Exchange Partnership and delivered to each Exchange Limited
Partner in such partnership. The anticipated holding periods of the respective
properties in which the Exchange Partnerships own a direct or indirect interest
were not stated in the original private placement offering materials, although
the offering materials in respect of certain of the Exchange Partnerships
indicated that the general partner intended to list the property interests on
the market for sale within two to five years following the private offering.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering, without the
majority approval of the Non-participating Limited Partners of the partnership
voting as a class, the partnership will not be permitted to sell all or
substantially all of its existing property interest, acquire any additional
property interests or cease to exist. See the Prospectus at "AMENDMENTS TO
PARTNERSHIP AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH
NON-PARTICIPATING LIMITED PARTNERS."
OPERATING PARTNERSHIP AND THE TRUST: The Operating Partnership and the Trust
have been formed to acquire a diversified portfolio of equity and debt interests
in residential apartment properties, including without limitation property
interests owned by the Exchange Partnerships and other real estate limited
partnerships which are managed by affiliates of the Managing Shareholder of the
Trust. The Operating Partnership will use net cash proceeds from the Trust's
Cash Offering and from any future public or private offering of securities that
may be made by the Trust or the Operating Partnership, together with
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unissued securities of the Trust or the Operating Partnership and available cash
flow and other financing sources, to acquire property interests. The Operating
Partnership intends to issue up to $25,000,000 of registered Operating
Partnership Units in connection with the Exchange Offering. The first candidates
targeted for acquisition in the Exchange Offering are property interests in 26
Exchange Properties described in the Prospectus at "INITIAL REAL ESTATE
INVESTMENTS" and at Exhibit B to the Prospectus. The Trust and the Operating
Partnership contemplate acquiring assets for long-term ownership, and in any
given case, for a minimum of four years.
RESTRICTIONS ON TRANSFERS OF SECURITIES
EXCHANGE PARTNERSHIPS: Under each Exchange Partnership Agreement, no limited
partner of the respective Exchange Partnership may sell or transfer his interest
in the partnership unless the general partner of the partnership consents to
such sale or transfer and certain other conditions are fulfilled.
OPERATING PARTNERSHIP: Each Operating Partnership limited partner may sell or
transfer his Operating Partnership Units without the prior written consent of
the Trust (acting as general partner of the Operating Partnership) except where,
in the opinion of legal counsel to the Operating Partnership, such transfer
would require the filing of a registration statement under the Act or would
otherwise violate applicable federal or state securities laws.
THE TRUST: The Trust Common Shares are freely transferable by Shareholders
subject to certain restrictions on transfer which the Managing Shareholder deems
necessary to comply with the REIT provisions of the Code. Such restrictions are
described in the Prospectus at "Capital Stock of the Trust - Restrictions on
Ownership and Transfers." The restrictions may have the effect of making an
attempted takeover of the Trust more difficult for an acquiror. See the
Prospectus at "RISK FACTORS - Anti-Takeover Provisions."
TAX STATUS
EXCHANGE PARTNERSHIPS: The Exchange Partnerships were designed to be classified
and treated as partnerships for federal income tax purposes. As partnerships,
the Exchange Partnerships are not be subject to federal income tax. Instead,
each limited partner in an Exchange Partnership is required to report annually
on his personal income tax return his allocable share of the partnership's
income, gain, loss, deductions, credits and items of tax preference regardless
of whether any distribution of cash or property is made by the partnership to
limited partners during any given year. A distribution from an Exchange
Partnership, including a distribution in final liquidation, results in the
recognition of income by each limited partner to the extent that any cash
distributed exceeds his adjusted tax basis in his Existing Partnership Units at
that time.
Each Offeree should review the "TAX ASPECTS" section of the original
private placement memorandum pertaining to his investment in his Exchange
Partnership. Generally, a limited partner who sells or transfers his Exchange
Partnership Units will realize gain or loss equal to the difference between the
amount realized on the sale or transfer and the adjusted basis of the units
disposed of. However, the Exchange Offering has been designed to afford Exchange
Limited Partners who accept the offering the benefit of a deferral of any
recognition of taxable gain until they exercise their right to exchange the
Units received in the offering for an equivalent number of Common Shares of the
Trust. The exchange into Common Shares may be made at any time at the sole
discretion of each Exchange Limited Partner, subject to certain limitations
described in the Prospectus at "THE EXCHANGE OFFERING." The estimated deferred
taxable gain of each Exchange Limited Partner who elects to participate in the
Exchange Offering is set forth in Exhibit A to the Prospectus Supplement of the
Exchange Partnership of which he is a limited partner.
OPERATING PARTNERSHIP: The Operating Partnership has been designed to be
classified and treated as a partnership for federal income tax purposes. The tax
consequences of an investment in the Operating Partnership are identical to
those described immediately above under " - Exchange Partnerships."
THE TRUST: In any year in which the Trust qualifies as a real estate investment
trust ("REIT"), in general it will not be subject to federal income tax on that
portion of its REIT taxable income or gain which is
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distributed to Shareholders. The Trust may, however, be subject to tax at normal
corporate rates upon any taxable income or capital gain not distributed in any
given year. As long as the Trust qualifies as a REIT, distributions made to the
Trust's taxable domestic non-tax-exempt Shareholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will be taken 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 the Trust's actual net capital gain for the taxable
year) without regard to the period for which the Shareholder has held his Trust
Common Shares.
In general, any loss upon a sale or exchange of Trust Common Shares by
a Shareholder who has held such shares for six months or less will be treated as
a long-term capital loss, to the extent of distributions from the Trust required
to be treated by such Shareholder as long-term capital gains. A more detailed
description of the foregoing tax considerations and those applying to tax-exempt
and foreign Shareholders is set forth in the Prospectus at "FEDERAL INCOME TAX
CONSIDERATIONS." The federal income tax treatment of REITs and shareholders of a
REIT are complex and should be reviewed with each Offeree's tax advisor.
PRE-EMPTIVE RIGHTS
EXCHANGE PARTNERSHIPS, OPERATING PARTNERSHIP AND THE TRUST: Holders of Exchange
Partnership Units, holders of Operating Partnership Units and holders of Trust
Common Shares have no conversion, redemption, preemptive or exchange rights to
subscribe to any securities issued by the Exchange Partnership, the Operating
Partnership or the Trust in the future, except in two instances as follows.
First, if the general partner of an Exchange Partnership determines that it is
necessary or in the best interest of the partnership to commit additional funds
to its property and that such funds should not be financed from the
partnership's earnings or through additional indebtedness, the general partner
intends whenever possible to give limited partners the first opportunity for a
limited time to purchase any additional units that may be offered by the
partnership. Second, holders of Operating Partnership Units are entitled to
exchange such units into an equivalent number of Trust Common Shares at any time
and from time to time, subject to certain conditions described in the Prospectus
at "THE EXCHANGE OFFERING."
MANAGING ENTITY REMOVAL AND RESIGNATION RIGHTS
EXCHANGE PARTNERSHIPS: Except as described in the next paragraph, the
partnership agreement provisions of all of the Exchange Partnerships relating to
the removal or resignation of the general partner are substantially the same.
These provisions are described below in this paragraph. Limited partners holding
at least a majority of the outstanding Exchange Partnership Units of such
Exchange Partnerships have the right to remove the general partner of the
partnership if they determine that it is not performing its powers, duties and
obligations in the best interests of the partnership (unless any officer or
affiliate of the general partner would continue to have personal liability for
any debts of the partnership). The general partner may resign by delivering
written notice to the limited partners, provided, however, such resignation will
be effective not less than 90 days after notice thereof is delivered to the
limited partners only if the limited partners owning at least a majority of the
Exchange Partnership Units then outstanding have consented to such resignation.
Described below are the partnership agreement provisions of three of
the Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
relating to the removal of their respective general partner. The general partner
of each of these partnerships may be removed on the condition that (i) the
limited partners holding at least a majority of the limited partnership
interests in the respective partnership vote to remove the general partner and
provide notice thereof to the general partner and (ii) the removed general
partner receives a written release from the partnership and all of the limited
partners which releases the general partner from any claims by them in respect
of the partnership. In addition, following removal, a removed general partner is
entitled to retain its economic interest in the partnership unless the
partnership acquires such interest at a price determined by applying an 8%
capitalization rate to the projected net operating income of the partnership
during the year of removal minus major maintenance expenditures.
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OPERATING PARTNERSHIP: The Trust may not be removed as general partner of the
Operating Partnership by the limited partners with or without cause. The Trust
may not transfer any of its general partnership interest or withdraw as general
partner except in certain limited circumstances.
THE TRUST: The holders of at least 10% of the outstanding Trust Common Shares
may propose the removal of the Managing Shareholder, an Independent Trustee or
any other member of the Board of the Trust either by calling a meeting or
soliciting consents in accordance with the terms of the Declaration. Removal of
any of the foregoing requires either the affirmative vote of a majority of the
outstanding Trust Common Shares (excluding Trust Common Shares held by the
Managing Shareholder, Independent Trustee or other member of the Board which is
the subject of the vote or by its affiliates) or the affirmative vote of a
majority of the disinterested Independent Trustees.
The Managing Shareholder or a majority of the Independent Trustees may
terminate the Trust Management Agreement and the Managing Shareholder may resign
as Managing Shareholder without cause or penalty by giving the Trust at least 60
days prior written notice. The holders of at least a majority of the outstanding
Trust Common Shares, at a meeting called for such purpose in accordance with the
terms and conditions of the Declaration, may also terminate the Trust Management
Agreement.
Any member of the Board may resign by giving notice to the Trust, and
may be removed (i) for cause by the action of at least two-thirds of the
remaining members of the Board or (ii) with or without cause by action of the
holders of at least a majority of the then outstanding Shares entitled to vote
thereon.
REPORTING RIGHTS
EXCHANGE PARTNERSHIPS: Each limited partner of an Exchange Partnership is
entitled to receive annual financial statements relating to the partnership,
including a balance sheet and related statements of income and retained earnings
and changes in financial position. On the written request of limited partners
holding at least 20% of the outstanding limited partnership interests in an
Exchange Partnership, the statements must be audited by an independent public
accountant and presented in accordance with generally accepted accounting
principles ("GAAP"). Exchange Limited Partners also have the right to obtain
other information about their respective partnerships and receive a list of
names and addresses of
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the partners of the partnership for proper partnership purposes. Within 90 days
after the close of each year, each Exchange Partnership is required to provide
each limited partner therein with data necessary to report his distributive
share of partnership income, deductions and credits for federal income tax
purposes.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering,
Non-participating Limited Partners of a Participating Exchange Partnership
holding a majority of the then outstanding units of the partnership held by all
Non-participating Limited Partners may require that the annual financial
statements required to be delivered by the partnership to limited partners be
audited. See the Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
OPERATING PARTNERSHIP: Within 120 days after the close of each partnership year,
the Operating Partnership is required to mail to each limited partner, an annual
report containing financial statements of the Operating Partnership presented in
accordance with GAAP and audited by a nationally recognized firm of qualified
independent public accountants. Within 60 days after the close of each quarter
(except the last quarter), the Operating Partnership is required to mail to each
limited partner a report containing unaudited financial statements of the
Operating Partnership. The Operating Partnership is required to use all
reasonable efforts to furnish to limited partners, within 90 days after the
close of each taxable year, the tax information reasonably required by the
limited partners for federal and state income tax reporting purposes.
Each limited partner is entitled, upon written request and at his
expense, to obtain for proper partnership purposes a copy of the following from
the Operating Partnership: (i) most recent annual and quarterly reports filed
with the Commission by the Trust under the 1934 Act, (ii) the Operating
Partnership's federal, state and local income tax returns for each year, (iii) a
current list of the name and address of each Unitholder, (iv) the Operating
Partnership Agreement, the Certificate of Limited Partnership of the Operating
Partnership filed in the State of Delaware and all amendments thereto, and (v)
information relating to the amount of cash and other consideration contributed
by each limited partner and the date each limited partner became a partner of
the Operating Partnership.
Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of 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, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units 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 of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
THE TRUST: The Trust is required to keep each Shareholder currently advised as
to activities of the Trust by reports furnished at least quarterly. Each
quarterly report is required to contain a condensed statement of "cash flow from
operations" for the year to date as determined by the Managing Shareholder.
Within 120 days after the close of each fiscal year, the Trust is required to
prepare and mail to each Shareholder an annual report which includes the
following: (i) audited financial statements prepared in accordance with GAAP by
the Trust's independent certified public accountants; (ii) the ratio of the
costs of raising capital during the period to the capital raised; (iii) the
aggregate amount of advisory fees and other fees paid to the Managing
Shareholder and its affiliates; (iv) the total operating expenses stated as a
percentage of the book amount of the Trust's investments and as a percentage of
its net income; (v) a report from the Independent Trustees that the policies
being followed by the Trust are in the best interests of its Shareholders and
the basis for such determination and; (vi) full disclosure of all material
terms, factors, and circumstances surrounding any and all transactions involving
the Trust, the Managing Shareholder, the Trustees, any other members of the
Board and any of their respective affiliates occurring during the year.
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Additionally, within 60 days after the end of each fiscal quarter for
which the Trust or the Operating Partnership incurs total operating expenses
(less certain items, including capital raising expenses, interest payments,
taxes, non-cash expenditures such as depreciation, and acquisition fees and
expenses) for the 12 months then ended in excess of 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, the Trust is required to send to Trust
Shareholders and holders of Operating Partnership Units 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 of the Trust do not determine such excess
expenses are justified, the Managing Shareholder is required to reimburse the
Trust or the Operating Partnership, as the case may be, at the end of such
12-month period the amount of such excess.
In addition, the Trust is also required to deliver to its Shareholders
periodic reports required to be delivered under the 1934 Act (I.E., Form 10-KSB
or Form 10-K annual reports, Form 10-QSB or Form 10-Q quarterly reports, and
Form 8-KSB or Form 8-K current reports) for the fiscal year in which the Trust's
Securities Act registration statement becomes effective and thereafter if either
(i) the Trust registers the Trust Common Shares under the 1934 Act and qualifies
for the listing of such shares on a stock exchange, (ii) the Trust has more than
300 Shareholders, or (iii) the Trust is otherwise required to do so by the
applicable exchange or applicable law.
The Trust is required to use its reasonable best efforts to obtain tax
and accounting information required for federal income tax returns as soon as
possible after the conclusion of each year and to cause the resulting
information to be delivered to the Shareholders as soon as possible after
receipt from the accounting firm responsible for preparing such reports.
Shareholders have the right under the terms of the Declaration to obtain other
information about the Trust and may, at their expense, obtain a list of the
names and addresses of the Shareholders. See the Prospectus at "SUMMARY OF
DECLARATION OF TRUST - Quarterly and Annual Reports" and " Books and Records;
Tax Information."
ASSESSMENTS
EXCHANGE PARTNERSHIPS, OPERATING PARTNERSHIP AND THE TRUST: No future
assessments may be required of holders of limited partnership interests in an
Exchange Partnership, holders of Operating Partnership Units or holders of Trust
Common Shares.
AMENDMENTS OF GOVERNING AGREEMENTS
EXCHANGE PARTNERSHIPS: The amendment of the partnership agreement pertaining to
each Exchange Partnership requires the consent of the holders of at least a
majority of the outstanding limited partnership interests in the partnership
except that (i) the general partner may amend the agreement in respect of
certain specified matters which will not adversely affect limited partners, and
(ii) any amendment may not without a limited partner's consent increase his
liability or change the capital contribution required from him, his economic
interest, rights on dissolution or any voting rights.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering, except in
certain circumstances, the partnership agreement of the partnership may be
amended only with the approval of both (i) limited partners holding at least a
majority of the outstanding limited partnership interests in the partnership and
(ii) Non-participating Limited Partners of the partnership holding a majority of
the then outstanding units of the partnership held by all Non-participating
Limited Partners. See the Prospectus at "AMENDMENTS TO PARTNERSHIP AGREEMENTS OF
PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED PARTNERS."
OPERATING PARTNERSHIP: Amendments to the Operating Partnership Agreement may be
proposed by the Trust (as general partner) or by holders of at least 25% of the
outstanding Operating Partnership Units. Except in the cases described below,
the consent of holders of at least a majority of the outstanding Operating
Partnership Units is required for amendments to the Operating Partnership
Agreement. The
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Trust may amend the Operating Partnership Agreement without the consent of any
limited partners for the following purposes: (i) to add to the obligations of
the Trust in its capacity as general partner of the Trust or to surrender for
the benefit of limited partners any right or power granted to the Trust or any
of its affiliates, (ii) to set forth the rights, powers, duties and preferences
of the holders of any additional interests in the Operating Partnership which
may be issued in the future, (iii) to satisfy any requirements contained in an
order, ruling or regulation of any federal or state agency or contained in any
federal or state law and (iv) for certain other specified matters of an
inconsequential nature and not materially adversely affecting the limited
partners.
The Operating Partnership Agreement may not be amended, without a
limited partner's consent, to convert his partnership interest into a general
partner's interest; modify his limited liability; alter his rights to receive
distributions or allocations of partnership income, gains, loss and deductions;
cause the dissolution of the Operating Partnership prior to the time provided
for in the Operating Partnership Agreement; amend the amendment provision of the
Operating Partnership Agreement described in this paragraph; or amend Article VI
of the Operating Partnership Agreement or any definition used therein which
would have the effect of causing the allocations in Article VI to fail to comply
with the requirements of Section 514(c)(9)(E) of the Code.
The consent of all limited partners of the Operating Partnership is
also required to alter the restrictions on the Trust's authority set forth in
Section 7.3 of the Operating Partnership Agreement. In addition, the consent of
the holders of at least two-thirds of the outstanding Operating Partnership
Units is required to amend any of the following sections of the Operating
Partnership Agreement: (i) Section 4.2(a) (pertaining to the Trust's authority,
without the approval of any limited partner, to cause the Operating Partnership
to issue additional partnership interests in the Operating Partnership in the
future); (ii) the second sentence of Section 7.1(a) (which provides that the
Trust may not be removed as general partner of the Operating Partnership by the
limited partners); (iii) Section 7.5 (pertaining to limitations on the outside
activities of the Trust); (iv) Section 7.6 (pertaining to contracts among the
Operating Partnership, the Trust and any of their respective affiliates or
subsidiaries); (v) Section 7.8 (pertaining to limitations on the liability of
the Trust as general partner of the Operating Partnership); (vi) Section 11.2
(pertaining to limitations on the Trust's right to transfer its interest in the
Operating Partnership): (vii) Section 13.1(c) (which provides that the Operating
Partnership may be terminated prior to December 31, 2098 with the consent of the
holders of at least a majority of the outstanding Operating Partnership Units);
(viii) Section 14.1(d) (which provides for super-majority voting requirements
described herein; or (ix) Section 14.2 (pertaining to meetings of limited
partners).
THE TRUST: The Managing Shareholder of the Trust may amend the Declaration
without approval of the Shareholders to maintain the federal income tax status
of the Trust as a REIT (unless the Managing Shareholder determines that it is in
the best interests of the Shareholders to discontinue the Trust's REIT status
and holders of at least a majority of the Trust Common Shares approve such
determination), and to comply with law.
Other amendments to the Declaration may be proposed either by the
Managing Shareholder or holders of at least 10% of the outstanding Trust Common
Shares, either by calling a meeting of the Shareholders or by soliciting written
consents. 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.
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LIABILITY AND INDEMNIFICATION
EXCHANGE PARTNERSHIPS: Except as described in the paragraph following the next
paragraph, the partnership agreement provisions of all of the Exchange
Partnerships relating to liability and indemnification of the general partners
and limited partners are substantially the same. These provisions are described
below in this paragraph and the next paragraph. The general partner of each
Exchange Partnership is generally liable for all liabilities and obligations of
the partnership to the extent such obligations are not paid by the partnership
and are not by their terms limited to recourse against specific property. Each
limited partner of an Exchange Partnership is generally not liable for the
liabilities and obligations of the partnership.
Each Exchange Partnership is required to indemnify its general partner,
each of the general partner's affiliates, and each of their respective officers,
directors, shareholders, partners, agents and employees (provided such
indemnified persons have acted within the scope of the applicable partnership
agreement) against any loss, liability or damage incurred by such indemnified
person arising out of the partnership's private offering of limited partnership
interests and the management of the partnership's affairs within the scope of
the partnership agreement, unless such indemnified person's negligence or
intentional or criminal wrongdoing is involved; provided, however, such
indemnification will not be made with respect to any liability imposed by
judgment arising out of any violation of federal or state securities laws
associated with such offering. No indemnified person is liable to his Exchange
Partnership or to any partner thereof for any loss suffered by the Exchange
Partnership which arises out of any action or inaction of such person if such
person, in good faith, determined that such course of conduct was in the best
interests of the Exchange Partnership and within the scope of the applicable
partnership agreement and did not constitute the negligence or intentional or
criminal wrongdoing of such person.
The liability and indemnification provisions relating to three of the
Exchange Partnerships (Florida Income Advantage Fund I, Ltd., Florida Income
Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.) are
substantially similar to the provisions described in the two immediately
preceding paragraphs except that only the general partner (and not its
affiliates) are covered by such provisions.
OPERATING PARTNERSHIP: The Trust, as general partner of the Operating
Partnership, is generally liable for all obligations of the Operating
Partnership to the extent such obligations are not paid by the Operating
Partnership and are not by their terms limited to recourse against specific
property. The limited partners (other than the Trust in its capacity as general
partner thereof) have no responsibility for the liabilities or obligations of
the Operating Partnership.
The Trust has no liability for monetary damages to the Operating
Partnership or any partners or assignees for losses sustained or liabilities
incurred as a result of errors in judgment for any act or omission, unless (i)
the Trust actually received an improper benefit in money, property or services
(in which case, such liability shall be for the amount of the benefit actually
received), or (ii) the Trust's action or inaction was the result of active and
deliberate dishonesty and was material to the cause of action being adjudicated.
The Operating Partnership is required to indemnify the Trust, officers
of the Operating Partnership and trustees, officers and members of the Board of
the Trust and any other persons the Trust may designate, against any and all
losses, claims, damages, liabilities, expenses, judgments, fines, settlements,
and other amounts arising from any claims, demands, actions, suits or
proceedings that relate to the operations of the Operating Partnership in which
any such indemnified person may be involved, or threatened to be involved, as a
party or otherwise, unless it is established that: (i) the act or omission of
the indemnified person was material to the matter giving rise to the proceeding
and either was committed in bad faith, or was the result of active and
deliberate dishonesty; (ii) the indemnified person actually received an improper
personal benefit; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful.
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THE TRUST: Neither the Managing Shareholder, the Trustees, any other members of
the Board or any of their respective affiliates nor any Shareholders of the
Trust are liable for the liabilities and obligations of the Trust to third
parties. In addition, such persons are not liable to the Trust or to any
Shareholder for any loss suffered by the Trust which arises out of any action or
inaction of such person, if such person, in good faith, determined that such
course of conduct was in the Trust's best interest and within the scope of the
Declaration and did not constitute negligence or misconduct, in the case of any
such person who is not an Independent Trustee, or gross negligence or wrongful
misconduct, in the case of any such person who is an Independent Trustee.
The Trust is required to indemnify the Managing Shareholder, the
Trustees, other members of the Board and their respective affiliates, and each
of their respective officers, directors, shareholders, partners, agents and
employees (provided such persons have acted within the scope of the Declaration)
against any loss, liability or damage incurred by such person arising out of the
Cash Offering and the management of the Trust's affairs within the scope of the
Declaration, unless such person's negligence or intentional or criminal
wrongdoing is involved. However, such persons will not be indemnified for
liabilities arising under the Securities Act, except under certain limited
circumstances. See the Prospectus at "SUMMARY OF DECLARATION OF TRUST -
Liability and Indemnification."
COMPENSATION OF MANAGING PERSONS AND AFFILIATES
EXCHANGE PARTNERSHIPS: The allocation between the limited partners and general
partner of each particular Exchange Partnership of distributable cash flow and
net proceeds from the sale or refinancing of property is described in Exhibit I
to the Prospectus Supplement pertaining to that partnership. Exhibit B to the
Prospectus contains such information as to each of the Exchange Partnerships.
The allocation of net liquidation proceeds among the partners is described above
at " - Economic Interest." The general partner or an affiliate of each of the
Exchange Partnerships (except Baron Strategic Investment Fund II, Ltd.) is also
entitled to earn a real estate commission for its efforts leading to a sale of
any partnership property or any property securing a subordinated mortgage loan
provided or acquired by the partnership. The commission in respect of all such
Exchange Partnerships (except Florida Income Advantage Fund I, Ltd., Florida
Income Appreciation Fund I, Ltd., and Realty Opportunity Income Fund VIII, Ltd.)
may be in an amount equal to 50% of any commissions paid to an outside broker on
the sale, but in no event greater than 3% of the sales proceeds. The general
partners of such three Exchange Partnerships and their affiliates may earn a
real estate commission of up to 6% of the sale price, if permitted under
applicable law. The payment of any real estate commission earned as described
above is subordinated to the preferred return of the limited partners of such
partnerships.
Each of the Exchange Partnerships pays their general partner a monthly
administrative fee of $500, except Central Florida Income Appreciation Fund,
Ltd. and Brevard Mortgage Program, Ltd., which pay a monthly administrative fee
of $750, and Baron Strategic Investment Fund IV, Ltd., Baron Strategic
Investment Fund V, Ltd., Baron Strategic Investment Fund VI, Ltd., Baron
Strategic Investment Fund VIII, Ltd., Baron Strategic Investment Fund IX, Ltd.,
Baron Strategic Investment Fund X, Ltd., Florida Capital Income Fund IV, Ltd.,
and GSU Stadium Student Apartments, Ltd., which pay a monthly administrative fee
of $1,000.
The general partner of each Participating Exchange Partnership has
agreed to waive all fees payable to it by the partnership following the Exchange
Offering, including without limitation annual administrative fees, acquisition
fees and real estate commissions, and to assign to the Operating Partnership all
back-end economic interests attributable to the general partner's interest in
the partnership. Accordingly, the Exchange Partnership Agreement of each
Participating Exchange Partnership will be amended following the Exchange
Offering to delete the payment of the foregoing fees.
OPERATING PARTNERSHIP: The Trust is not entitled to receive any compensation for
services performed in its capacity as general partner of the Operating
Partnership. The Trust, however, is entitled to be reimbursed on a monthly basis
for expenses incurred on behalf of the Operating Partnership. The Trust will use
net proceeds of the Cash Offering to acquire Operating Partnership Units, and as
the owner of such units will have the same economic rights as other holders of
Operating Partnership Units on a per unit basis, except that the Trust may not
elect to exchange Units held for an equivalent number of Trust
38
<PAGE>
Common Shares. The allocation of net liquidation proceeds among the partners of
the Operating Partnership is described above at " - Economic Interest."
THE TRUST: The table included in the Prospectus at "COMPENSATION OF MANAGING
PERSONS AND AFFILIATES - The Trust" describes all reimbursement payments that
may be received by the Managing Shareholder and its affiliates for expenses
incurred in connection with the preparation of the prospectus for the Cash
Offering, the Cash Offering, the operation of the Trust and the acquisition and
disposition of the Trust's property. No compensation for consulting services may
be paid to the Independent Trustees or other members of the Board without prior
approval of the Compensation Committee of the Board.
MEETINGS AND VOTING RIGHTS
EXCHANGE PARTNERSHIPS: Meetings of the partners of each Exchange Partnership may
be called at any time, either by the general partner or by limited partners
holding at least 25% of the outstanding Exchange Partnership Units, for any
matter on which limited partners may vote. The following actions require the
affirmative vote of limited partners holding at least a majority of the
outstanding Exchange Partnership Units in respect of an Exchange Partnership:
(a) reforming the partnership to replace the general partner; (b) acceptance of
the resignation of the general partner; (c) revising any contract between the
Exchange Partnership and any affiliate of the general partner; (d) removal of
the general partner; (e) dissolution of the Exchange Partnership prior to the
expiration of its term except as otherwise provided in the applicable
partnership agreement or as required by law; (f) removal and replacement of the
party appointed to supervise a liquidation of the partnership's assets upon its
dissolution; (g) the sale of all or substantially all of the partnership's
property; and (h) amending the partnership agreement as described above at " -
Amendments of Governing Agreements."
The consent of all limited partners is required for the following
actions by each Exchange Partnership: (a) contravening the respective
partnership agreement or certificate of limited partnership; (b) actions making
it impossible to carry on the ordinary course of business of the partnership;
(c) confession of a judgment in excess of 20% of the partnership's assets; and
(d) allowing the general partner to possess partnership assets for other than a
partnership purpose.
As a result of certain amendments to be made to the partnership
agreement of each Participating Exchange Partnership with one or more
Non-participating Limited Partners following the Exchange Offering, the general
partner of the partnership or Non-participating Limited Partners holding a
majority of the then outstanding units held by all Non-participating Limited
Partners in the partnership, may call a meeting of the partnership to act on any
matter upon which the limited partners of the partnership are permitted to act.
In addition, the approval of Non-participating Limited Partners of the
partnership holding a majority of the then outstanding units of the partnership
held by all Non-participating Limited Partners will be required to replace the
general partner in its capacity as liquidating trustee or receiver or the
receiver or trustee appointed by the general partner in connection with the
liquidation of the partnership. See the Prospectus at "AMENDMENTS TO PARTNERSHIP
AGREEMENTS OF PARTICIPATING EXCHANGE PARTNERSHIPS WITH NON-PARTICIPATING LIMITED
PARTNERS."
OPERATING PARTNERSHIP: Meetings of the partners of the Operating Partnership may
be called by the Trust (as general partner) and by limited partners holding at
least 25% of the outstanding Operating Partnership Units. The consent of limited
partners holding at least a majority of the outstanding Operating Partnership
Units is required for action by the limited partners, except where otherwise
provided in the Operating Partnership Agreement as described below. Voting by
the limited partners may be conducted at a meeting of the partners or without a
meeting by written consent. Limited partners are entitled to vote on proposed
amendments to the Operating Partnership Agreement as described above at " -
Amendments of Governing Agreements."
The following actions of the Operating Partnership require the consent
of all limited partners of the Operating Partnership: (a) any action that would
make it impossible to carry on the ordinary business of the Operating
Partnership; (b) the possession of partnership property, or the assignment of
any right in specific partnership property, for other than a partnership
purpose, except as otherwise provided in the
39
<PAGE>
Operating Partnership Agreement; (c) the admission of any new partner to the
Operating Partnership, except as otherwise provided in the Operating Partnership
Agreement; or (d) any action that would subject a limited partner to liability
as a general partner in any jurisdiction or any other liability, except as
provided in the Operating Partnership Agreement or under the Delaware Act.
In addition, the consent of the limited partners holding at least a
majority of the outstanding Operating Partnership Units is required to approve
the Trust's election to dissolve the Operating Partnership prior to the
termination of its term as specified in the Operating Partnership Agreement.
Limited partners holding a majority of the outstanding Operating Partnership
Units are also entitled, in the absence of any general partner of the Operating
Partnership, to elect a liquidator to oversee the winding up and dissolution of
the Operating Partnership and to perform a full accounting of the Operating
Partnership's liabilities and properties.
THE TRUST: The Trust is required to conduct an annual meeting of Shareholders at
which all members of the Board (including all Independent Trustees) (except
where the Managing Shareholder and Shareholders holding at least a majority of
the outstanding Trust Shares entitled to vote on such matter approve staggered
elections for such positions, in which case only the class of the Board up for
election) will be elected or reelected and any other proper business may be
conducted. Each Trust Common Share entitles the holder to one vote on all
matters requiring a vote of Shareholders, including the election of members of
the Board. Special meetings of the Shareholders may be called at any time,
either by the Managing Shareholder, a majority of the Independent Trustees, any
officer of the Trust, or Shareholders holding at least 10% of the outstanding
Trust Common Shares, for any matter on which such Shareholders may vote. The
Trust may not take any of the following actions without approval of Shareholders
holding at least a majority of the Shares entitled to vote: (a) amendment of the
Declaration (except as otherwise specified in the Declaration and except for
amendments which do not adversely affect the rights, preferences and privileges
of Shareholders, including amendments to provisions relating to qualifications
of the Trustees and members of the Board, fiduciary duty, liability and
indemnification, conflicts of interest, investment policies or investment
restrictions); (b) the sale, exchange, lease, mortgage, pledge or transfer of
all or substantially all of the Trust's assets if not in the ordinary course of
operation of the Trust or in connection with liquidation and dissolution; (c)
the merger or reorganization of the Trust; and (d) the dissolution or
liquidation of the Trust following its initial property investments.
In addition, Shareholders holding at least a majority of Shares
entitled to vote 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 Declaration of Trust, terminate the Trust, and elect and/or remove
one or more members of the Board.
ACCOUNTING METHOD AND PERIOD
EXCHANGE PARTNERSHIPS, OPERATING PARTNERSHIP AND THE TRUST: The accounting
period of the Exchange Partnerships, the Operating Partnership and the Trust
will end on December 31 of each year. Each of them utilize the accrual method of
accounting for their operations.
40
<PAGE>
CAMELLIA COURT
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA OPPORTUNITY INCOME PARTNERS, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in
<PAGE>
the offering, although such other partnerships may offer higher future
growth potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1997, but no listing has occurred to date.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in December 1994. In May 1995, Baron Capital III, Inc., the General Partner of
the Exchange Partnership and an affiliate of the Managing Shareholder, sponsored
a private offering of 800 units of limited partner interest in the Exchange
Partnership at a purchase price of $1,000 per unit (gross proceeds of $800,000).
The offering was fully subscribed and closed in December 1995. The
partnership invested the net proceeds of its offering to acquire all of the
limited partnership interests in a limited partnership which holds a fee simple
interest in a 60 unit residential apartment property referred to as the Camellia
Court Apartment Property located in Daytona Beach, Florida. The property is
subject to a first mortgage and other indebtedness having a principal balance at
June 30, 1999 of approximately $1,065,887.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP's Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 77,440 $ 96.80
1997: $ 80,000 $ 100.00
1998 : $ 80,000 $ 100.00
6/30/99: $ 20,000 $ 25.00
--------- --------
Total: $ 257,440 $ 321.93
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Units offered
to Limited Partners in the
Aggregate number of Number of Units Exchange Partnership in
Units offered to offered to each relation to Units offered to
all Limited Partners Limited Partner per limited partners in all
Valuation of in the Exchange $1,000 of original partnerships participating
Exchange Partnership (assigned investment (assigned in the initial transactions
Partnership(1) dollar value)(2) dollar value)(2) of the Exchange Offering
<S> <C> <C> <C>
$840,996 84,100 Units ($841,000) 105 Units ($1,050) 3.37%
- -------------- ------------------------ -------------------- ----------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA OPPORTUNITY PARTNERS
Camellia Court
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,830,000
Cash and cash equivalent assets: $ 52,999
Other assets (1): 88,147
3/31/99 principal balance of mortgage financing secured by
the property: $(1,069,633)
Other liabilities (2): $ (60,517)
Adjustment: -0-
Valuation of the partnership $ 840,996
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 84,100
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 105
Percentage of all Units offered to the Limited Partners in
the Partnership in relation to the maximum number of Units
offered to Limited Partners in all Exchange Partnerships 3.37%
Total Number of Partnership Units 800
Original Price Per Unit $ 1,000
</TABLE>
- ----------
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Florida Opportunity Income Partners,
Ltd.'s historical net income is as follows: 1995 - $25,605; 1996 - $29,356; 1997
- - ($18,821); 1998 - $33,874; as of March 31, 1999 - $15,517. The total
distributable cash flow through June 30, 1999 has been $257,440 or $321.93 per
limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for theyear ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $13,736 $11,512 $14,524 $ 9,758
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
------- ------- ------- -------
$17,836 $15,412 $18,424 $10,708
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
1996 1997 1998 JUNE 30, 1999
------ ------ ------ -------------
<S> <C> <C> <C> <C>
9.5% Distribution $7,357 $7,600 $7,600 $1,046
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
STRATEGIC X
(EXCHANGE HYBRID)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND X, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in June 1995. In November 1995, Baron Capital XI, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) and an affiliate of the Managing
Shareholder, sponsored a private offering of 2,400 units of limited partner
interest in the Exchange Partnership at a purchase price of $500 per unit (gross
proceeds of $1,200,000). The offering was fully subscribed and closed in
February 1997.
The Exchange Partnership invested the net proceeds of its offering to
acquire: 1) a 43.5% limited partnership interest in Crystal Court I; 2) a 43%
limited partnership interest in Pineview; 3) an undivided interest in two
recorded 2nd mortgage loans secured by Garden Terrace III; and 4) an undivided
interest in an unrecorded 2nd mortgage loan secured by Heatherwood II and three
unsecured loans associated with such property.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1997: $ 37,108 $ 15.46
1998 : $ 97,950 $ 40.81
6/30/99: $ 21,160 $ 8.82
Total: $156,218 $ 65.09
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Units offered
to Limited Partners in the
Exchange Partnership in
Aggregate number of Units Number of Units relation to Units offered to
offered to all Limited offered to each Limited limited partners in all
Valuation of Partners in the Exchange Partner per $1,000 of partnerships participating
Exchange Partnership original investment in the initial transactions
Partnership(1) (assigned dollar value)(2) (assigned dollar value)(2) of the Exchange Offering
<S> <C> <C> <C>
$1,282,220 128,222 Units ($1,282,220) 111 Units ($1,110) 5.13%
- -------------- -------------------------- ------------------------- ----------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND X, LTD.
Crystal Court I, Heatherwood II, Pineview,
Garden Terrace
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,663,250
Cash and cash equivalent assets: $ 107,153
Other assets (1): $ 105,852
3/31/99 principal balance of mortgage financing secured by $(1,506,098)
the property:
Other liabilities (2): $ (87,937)
Adjustment -0-
Valuation of the partnership $ 1,282,220
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 128,222
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 111
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships
5.13%
Total Number of Partnership Units 2400
Original Price Per Unit $ 500
</TABLE>
- ----------
(1) Comprised of mortgage escrow account balance held by first mortgage lender
to cover taxes, insurance, maintenance and repair reserves and other items,
and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors, notes
or advances to third parties (including affiliates) and accrued expenses
(such as real estate taxes).
Operating history of the Partnership: Baron Strategic Investment Fund X, Ltd.'s
historical net income is as follows: 1997 - ($15,829); 1998 - ($67,077); as of
March 31, 1999 - $1,907. The total distributable cash flow through June 30, 1999
has been $156,218 or $65.09 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Management Fee 0 0 0 0
Accounting Fee 0 0 0 0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $ 0 $3,525 $9,305 -0-
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
STRATEGIC VIII
(EXCHANGE MORTGAGE)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND VIII, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XLIV, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in February 1997. In May 1997, Baron Capital XLIV, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath), sponsored a private offering of 2,400
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (gross proceeds of $1,200,000). The offering was fully
subscribed and closed in February 1998.
The Exchange Partnership invested the net proceeds of its offering to
provide or acquire undivided interests in (i) five unrecorded second mortgage
loans (the "Second Mortgage Loans") and (ii) three unsecured loans associated
with residential apartment properties located in Cocoa, Florida (Longwood
Property); Kissimmee, Florida (Heatherwood Property) and Cincinnati, Ohio
(Sycamore Property, which is under development). The Second Mortgage Loans are
subordinated to large-scale first mortgage financing and are non-recourse beyond
the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1997: $ 59,176 $ 24.66
1998 : $ 98,407 $ 41.00
6/30/99: $ 4,900 $ 2.04
Total: $162,483 $ 67.70
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Units offered
to Limited Partners in the
Exchange Partnership in
Aggregate number of Units Number of Units relation to Units offered to
offered to all Limited offered to each Limited limited partners in all
Valuation of Partners in the Exchange Partner per $1,000 of partnerships participating
Exchange Partnership original investment in the initial transactions
Partnership(1) (assigned dollar value)(2) (assigned dollar value)(2) of the Exchange Offering
<S> <C> <C> <C>
$1,289,726 128,973 Units ($1,289,730) 107 Units ($1,070) 5.16%
- -------------- -------------------------- --------------------------- ----------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND VIII, LTD.
Heatherwood, II, Longwood I, Sycamore
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,648,100
Cash and cash equivalent assets: $ 90,215
Other assets (1): $ 100,684
3/31/99 principal balance of mortgage financing secured by
the property: $(1,430,985)
Other liabilities (2): $ (118,287)
Adjustment: -0-
Valuation of the partnership $ 1,289,726
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 128,973
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 107
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 5.16%
Total Number of Partnership Units 2400
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Baron Strategic Investment Fund VIII,
Ltd.'s historical net income is as follows: 1997 - $26,147; 1998 - $69,630; as
of March 31, 1999 - $21,097. The total distributable cash flow through June 30,
1999 has been $162,483 or $67.70 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 March 31, 1999
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $5,241 $8,028 $8,235 $3,485
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
VULTURE I
(EXCHANGE MORTGAGE)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC VULTURE FUND I, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XXVI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in April 1996. In May 1997, Baron Capital XXVI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath), sponsored a private offering of 1,800 units of limited
partner interest in the Exchange Partnership at a purchase price of $500 per
unit (gross proceeds of $900,000). The offering was fully subscribed and closed
in October 1996.
The Exchange Partnership invested the net proceeds of its offering to
provide or acquire undivided interests in four unrecorded second mortgage loans
(the "Second Mortgage Loans") secured by a residential apartment property
located in Tampa, Florida (Curiosity Creek Property). The Second Mortgage Loans
are subordinated to large-scale first mortgage financing and are non-recourse
beyond the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1997: $ 84,500 $ 46.94
1998: $ 86,679 $ 48.16
6/30/99 $ 22,500 $ 12.50
Total: $193,679 $107.60
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Units offered
to Limited Partners in the
Exchange Partnership in
Aggregate number of Units Number of Units relation to Units offered to
offered to all Limited offered to each Limited limited partners in all
Valuation of Partners in the Exchange Partner per $1,000 of partnerships participating
Exchange Partnership original investment in the initial transactions
Partnership(1) (assigned dollar value)(2) (assigned dollar value)(2) of the Exchange Offering
<S> <C> <C> <C>
$990,101 99,010 Units ($990,100) 110 Units ($1,100) 3.96%
- -------------- -------------------------- -------------------------- ----------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC VULTURE I FUND, LTD.
Curiosity Creek
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,843,000
Cash and cash equivalent assets: $ 66,686
Other assets (1): 102,333
3/31/99 principal balance of mortgage financing secured by
the property: $ (980,126)
Other liabilities (2): $ (41,793)
Adjustment: -0-
Valuation of the partnership $ 990,101
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 99,010
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 110
Percentage of all Units offered to the Limited Partners in
the Partnership in relation to the maximum number of Units
offered to Limited Partners in all Exchange Partnerships 3.96%
Total Number of Partnership Units 1,800
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage lender
to cover taxes, insurance, maintenance and repair reserves and other items,
and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors, notes
or advances to third parties (including affiliates) and accrued expenses
(such as real estate taxes).
Operating history of the Partnership: Baron Strategic Vulture Fund I, Ltd.'s
historical net income is as follows: 1996 - $3,330; 1997 - $69,806; 1998 -
$85,755; as of March 31, 1999 - $22, 641. The total distributable cash flow
through June 30, 1999 has been $193,679 or $107.60 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $0 $5,622 $9,349 $4,042
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
BRIDGEPOINT
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA CAPITAL INCOME FUND III, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
5
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in April 1995. In May 1995, Baron Capital VII, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder of the Trust,
by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 1,600 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (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
all of the limited partnership interests in a limited partnership which holds a
fee simple interest in a 48-unit residential apartment property referred to as
the Bridge Point Apartment Property located in Jacksonville, Florida. The
property is subject to a first mortgage and other indebtedness having a
principal balance at June 30, 1999 of approximately $710,868.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 78,400 $ 49.00
1997: $ 66,648 $ 41.65
1998 : $ 11,790 $ 7.37
6/30/99: $ 4,000 $ 2.50
Total: $160,830 100.52
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percentage of Units offered
to Limited Partners in the
Exchange Partnership in
Aggregate number of Units Number of Units relation to Units offered to
offered to all Limited offered to each Limited limited partners in all
Valuation of Partners in the Exchange Partner per $1,000 of partnerships participating
Exchange Partnership original investment in the initial transactions
Partnership(1) (assigned dollar value)(2) (assigned dollar value)(2) of the Exchange Offering
<S> <C> <C> <C>
$936,442 93,644 Units ($936,442) 117 Units ($1,170) 3.75%
- -------------- --------------------------- -------------------------- ----------------------------
</TABLE>
- ----------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA CAPITAL INCOME FUND III, LTD.
Bridgepoint
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,610,000
Cash and cash equivalent assets: $ 60,353
Other assets (1): $ 40,572
3/31/99 principal balance of mortgage financing secured by
the property: $ (713,208)
Other liabilities (2): $ (61,275)
Adjustment: -0-
Valuation of the partnership $ 936,442
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 93,644
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 117
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 3.75%
Total Number of Partnership Units 1600
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage lender
to cover taxes, insurance, maintenance and repair reserves and other items,
and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors, notes
or advances to third parties (including affiliates) and accrued expenses
(such as real estate taxes).
Operating history of the Partnership: Florida Capital Income Fund II, Ltd.'s
historical net income is as follows: 1995 - $9,086; 1996 - $29,837; q997 -
$33,824; 1998 - $44,334; as of March 31, 1999 - $17,998. The total distributable
cash flow through June 30, 1999 has been $160,830 or $100.52 per limited
partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Management Fee $11,423 $10,951 $12,582 $ 8,703
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,700
------- ------- ------- -------
$15,323 $14,861 $16,482 $10,403
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
------ ------ ------ -------------
<S> <C> <C> <C> <C>
9.5% Distribution $7,448 $6,331 $1,120 $1,531
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
BROOKWOOD WAY
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
MIDWEST INCOME GROWTH FUND VI, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in
<PAGE>
the offering, although such other partnerships may offer higher future
growth potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1999, but no listing has occurred to date.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Michigan limited partnership in
June 1996. In March 1996, Baron Capital of Ohio III, Inc., (formerly named Sigma
Financial Capital VI, Inc.), the General Partner of the Exchange Partnership and
an affiliate of the Managing Shareholder, sponsored a private offering of 600
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (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 interests in a limited partnership which holds a fee simple
interest in a 66-unit residential apartment property referred to as the
Brookwood Way Apartment Property located in Mansfield, Ohio. The property is
subject to a first mortgage and other indebtedness having a principal balance at
June 30, 1999 of approximately $1,043.073.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
ALL LP'S PER LP UNIT
-------- -----------
<S> <C> <C>
1996: $ 12,847 $ 21.41
1997: $ 30,000 $ 50.00
1998 : $ 30,000 $ 50.00
6/30/99: $ 4,000 $ 6.67
-------- -------
Total: $ 76,847 $128.08
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$381,063 38,106 Units ($381,060) 127 Units ($1,270) 1.53%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP MIDWEST INCOME GROWTH FUND VI, LTD.
Brookwood Way
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,780,000
Cash and cash equivalent assets: $ 69,184
Other assets (1): $ 48,250
3/31/99 principal balance of mortgage financing secured by
the property: $(1,046,599)
Other liabilities (2): $ (469,772)
Adjustment: -0-
Valuation of the partnership $ 381,063
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 38,106
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 127
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 1.53%
Total Number of Partnership Units 600
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Midwest Income Growth Fund VI, Ltd.'s
historical net income is as follows: 1996 - $40,060; 1997 - $58,857; 1998 -
$54,346; as of March 31, 1999 - $20,354. The total distributable cash flow
through June 30, 1999 has been $76,847 or $128.08 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $12,138 $12,847 $14,802 $ 9,472
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
----- ----- ----- -----
$16,038 $16,747 $18,702 $11,422
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $1,220 $2,850 $2,850 -0-
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
FOREST GLEN II
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
REALTY OPPORTUNITY INCOME FUND VIII, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1999, but no listing has occurred to date.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1993. In January 1995, Baron Capital IV, Inc., an affiliate of the
Managing Shareholder, became General Partner of the Exchange Partnership, which
in February 1994 commenced a private offering of 944 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $944,000). The offering was fully subscribed and closed in
June 1994.
The partnership invested the net proceeds of its offering to acquire all of
the limited partnership interests in a limited partnership which holds a fee
simple interest in a 30-unit residential apartment property referred to as the
Forest Glen Apartment Property (Phase II) located in Daytona Beach, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at June 30, 1999 of approximately $1,022,174.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
ALL LP'S PER LP UNIT
-------- -----------
<S> <C> <C>
1996: $56,185 $ 59.52
1997: $ 3,000 $ 3.18
1998 : $16,000 $ 16.95
6/30/99: $ 1,000 $ 1.06
------- -------
Total: $76,185 $ 80.71
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$987,220 98,722 Units ($987,220) 105 Units ($1,050) 3.95%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP REALTY OPPORTUNITY INCOME FUND VIII, LTD.
Forest Glen II
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,959,310
Cash and cash equivalent assets: $ 48,523
Other assets (1): $ 57,642
3/31/99 principal balance of mortgage financing secured by
the property: $(1,025,794)
Other liabilities (2): $ (52,461)
Adjustment: -0-
Valuation of the partnership $ 987,220
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 98,722
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 105
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 3.95%
Total Number of Partnership Units 944
Original Price Per Unit $ 1,000
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Realty Opportunity Income Fund VIII,
Ltd.'s historical net income is as follows: 1994 - $44,259; 1995 - $42,117; 1996
- - $52,007; 1997 - $11,907; 1998 - $43,069; as of March 31, 1999 - $12,722. The
total distributable cash flow through June 30, 1999 has been $76,185 or $80.71
per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $ 9,260 $ 8,267 $10,806 $ 8,493
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
----- ----- ----- -----
$13,160 $12,167 $14,506 $10,443
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $5,385 $285 $1,520 $98
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
EAGLE LAKE
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA CAPITAL INCOME FUND , LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - The property owned by the Exchange Partnership was listed for sale in 1997,
but no sale has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
August 1994. In November 1994, Baron Capital II, Inc., the General Partner of
the Exchange Partnership and an affiliate of the Managing Shareholder, sponsored
a private offering of 1,614 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $807,000).
The offering was fully subscribed and closed in June 1995.
The partnership invested the net proceeds of its offering to acquire all of
the limited partnership interests in a limited partnership which holds a fee
simple interest in a 77-unit residential apartment property referred to as the
Eagle Lake Apartment Property located in Orlando, Florida. The property is
subject to mortgage and other indebtedness having a principal balance at June
30, 1999 of approximately $1,427,797.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
ALL LP'S PER LP UNIT
-------- -----------
<S> <C> <C>
1996: $ 80,700 $ 50.00
1997: $ 66,525 $ 41.22
1998 : $ 10,000 $ 6.20
6/30/99: $ 21,000 $ 13.01
------- -----
Total: $178,225 $110.43
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$924,487 92,449 Units ($924,490) 115 Units ($1,150) 3.70%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA CAPITAL INCOME FUND, LTD.
Eagle Lake
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,530,000
Cash and cash equivalent assets: $ 73,296
Other assets (1): $ 102,599
3/31/99 principal balance of mortgage financing secured by
the property: $(1,433,616)
Other liabilities (2): $ (347,792)
Adjustment: -0-
Valuation of the partnership $ 924,487
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 92,449
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 115
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 3.70%
Total Number of Partnership Units 1614
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating History of the Partnership: Florida Capital Income Fund Ltd.'s
historical net income is as follows: 1994 - ($4,397); 1995 - ($46,244); 1996 -
$29,846; 1997 - $26,063; 1998 - $48,957; as of March 31, 1999 - $20,246. The
total distributable cash flow through June 30, 1999 has been $178,225 or $110.43
per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $19,024 $18,361 $20,527 $11,707
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
------ ------ ------ ------
$22,924 $22,261 $24,427 $13,657
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $7,667 $6,320 $950 $3,441
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
STEEPLECHASE
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND II, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1999, but no listing has occurred to date.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1996. In May 1996, Baron Capital XXXI, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 1,600 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (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 all of the
limited partnership interests in a limited partnership which holds a fee simple
interest in a 72-unit residential apartment property referred to as the
Steeplechase Apartment Property located in Anderson, Indiana. The property is
subject to mortgage and other indebtedness having a principal balance at June
30, 1999 of approximately $1,260,000.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
ALL LP'S PER LP UNIT
-------- -----------
<S> <C> <C>
1996: $19,543 $ 12.21
1997: $68,000 $ 42.50
1998 : $13,600 $ 8.50
6/30/99: $ 2,000 $ 1.25
------- --------
Total: $103,143 $ 64.46
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$824,306 82,431Units ($824,310) 103 Units ($1,030) 3.30%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND II, LTD.
Steeplechase
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,690,000
Cash and cash equivalent assets: $ 10,299
Other assets (1): $ 55,111
3/31/99 principal balance of mortgage financing secured by
the property: $(1,260,000)
Other liabilities (2): $ (148,553)
Adjustment (3): $ 477,449
Valuation of the partnership $ 824,306
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 82,431
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 103
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 3.30%
Total Number of Partnership Units 1600
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the following
factors: Since the appraisal, rental rates per unit have been raised an
average of $22 per apartment. This translates into $200,100 in value when
a capitalization rate of 9.5% is applied. Next, both the gas utility and
the water, sewer and refuse utilities have been submetered and are being
turned over to become resident paid. This equates to an approximate
$17,900 in expense savings per year, and when capitalized at 9.5% adds an
additional $188,400 in value. Finally, we applied a 9.5% capitalization
rate to the net operating income which adds an additional $88,900 to the
value. Summing the above, the subjective adjustments total $477,400.
Operating history of the Partnership: Baron Strategic Investment Fund II, Ltd.'s
historical net income is as follows: 1996 - $3,758; 1997 - ($47,300); 1998 -
$3,664; as of March 31, 1999 - $27,239. The total distributable cash flow
through June 30, 1999 has been $103,143 or $64.46 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $12,265 $12,252 $15,353 $10,326
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
------- ------- ------- -------
$16,165 $16,152 $19,253 $12,276
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $1,857 $6,460 $1,292 0
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>>
FOREST GLEN I
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA CAPITAL INCOME FUND II, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1998, but no listing has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1993. In May 1995, Baron Capital IV, Inc., an affiliate of the Managing
Shareholder, became General Partner of the Exchange Partnership, which in the
first half of 1994 commenced a private offering of 1,840 units of limited
partner interest in the Exchange Partnership at a purchase price of $500 per
unit (gross proceeds of $920,000). (The partnership also issued 160 units to
four investors in exchange for property interests acquired by them in an
unrelated program which was terminated.) The offering was fully subscribed and
closed in July 1995.
The partnership invested the net proceeds of its offering to acquire all of
the limited partnership interests in a limited partnership which holds a fee
simple interest in a 52-unit residential apartment property referred to as the
Forest Glen Apartment Property (Phase I) located in Daytona Beach, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at June 30, 1999 of approximately $1,771,768.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
ALL LP'S PER LP UNIT
-------- -----------
<S> <C> <C>
1996: $ 66,750 $ 36.28
1997: $ 4,941 $ 2.69
1998 : $ 25,369 $ 13.79
6/30/99 $ 10,000 $ 5.43
-------- -------
Total $107,060 $ 58.19
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,554,087 155,409 Units ($1,554,090) 169 Units ($1,690) 6.22%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA CAPITAL INCOME FUND II, LTD.
Forest Glen I
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 3,396,138
Cash and cash equivalent assets: $ 78,837
Other assets (1): $ 97,093
3/31/99 principal balance of mortgage financing secured by
the property: $(1,778,043)
Other liabilities (2): $ (239,938)
Adjustment: -0-
Valuation of the partnership $ 1,554,087
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 155,409
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 169
Percentage of all Units offered to the Limited Partners in
the Partnership in relation to the maximum number of Units
offered to Limited Partners in all Exchange Partnerships 6.22%
Total Number of Partnership Units 1840
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Florida Capital Income Fund II, Ltd.'s
historical net income is as follows: 1994 - $31,362; 1995 - $37,673; - 1996 -
$41,836; 1997 - $18,870; 1998 - $66,888; as of March 31, 1999 - $29,963. The
total distributable cash flow through June 30, 1999 has been $107.060 or $58.19
per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $ 9,260 $ 8,267 $10,806 $12,059
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
------- ------- ------- -------
$13,160 $12,167 $14,506 $14,009
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $6,341 $469 $2,410 $3,245
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
GLEN LAKE
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA CAPITAL INCOME FUND IV, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL V, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1998, but no listing has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
August 1995. In August 1995, Baron Capital V, Inc., the General Partner of the
Exchange Partnership and an affiliate of the Managing Shareholder, sponsored a
private offering of 3,640 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (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 all of
the limited partnership interests in a limited partnership which holds a fee
simple interest in a 144-unit residential apartment property referred to as the
Glen Lake Apartment Property located in St. Petersburg, Florida. The property is
subject to mortgage and other indebtedness having a principal balance at June
30, 1999 of approximately $3,036,393.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $160,644 $ 44.13
1997: $176,333 $ 48.44
1998 : $ 95,506 $ 26.51
6/30/99: $ 0 $ 0
-------- -------
Total: $432,483 $119.08
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$2,270,000 227,000 Units ($2,270,000) 125 Units ($1,250) 9.09%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which
the Trust is currently offering Common Shares in its Cash Offering. As
described below at "The Exchange Offering," Unitholders, including recipients
of Units in the Exchange Offering, may exchange all or a portion of their
Units for an equivalent number of Common Shares at any time following the
completion of the offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA CAPITAL INCOME FUND IV
Glen Lake
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 6,433,079
Cash and cash equivalent assets: $ 128,565
Other assets (1): $ 130,459
3/31/99 principal balance of mortgage financing secured by
the property: $(3,044,468)
Other liabilities (2): $(1,172,134)
Adjustment (3): $ 205,501
Valuation of the partnership $ 2,270,000
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 227,000
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 125
Percentage of all Units offered to the Limited Partners in
the Partnership in relation to the maximum number of Units
offered to Limited Partners in all Exchange Partnerships 9.09%
Total Number of Partnership Units 3,640
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the fact that
the property has had a high speed internet access system installed into
all units. The additional monthly revenue is approximately $240 per
apartment per annum. At an expected 60% absorption of the service, the
income stream capitalized at 9.5% yields an additional $206,000 in value.
The cost of the system was borne by the service provider.
Operating history of the Partnership: Florida Capital Income Fund IV, Ltd.'s
historical net income is as follows: 1995 - $(38,325); 1996 - $(7,851); 1997 -
$(11,506); 1998 - $293, 352); as of March 31, 1999 - $25,813. The total
distributable cash flow through June 30, 1999 has been $432,483 or $119.08 per
limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $37,779 $38,409 $38,486 $17,068
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
------- ------- ------- -------
$41,679 $42,309 $40,386 $19,018
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED(1)
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $15,261 $16,752 $9,168 $0
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
LAUREL OAKS
(FORMERLY GROVE HAMLET)
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
CENTRAL FLORIDA INCOME APPRECIATION FUND LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - The property owned by the Exchange Partnership was listed for sale in 1997,
but no sale has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
April 1993. In July 1994, Baron Capital of Ohio III, Inc., (formerly named Sigma
Financial Capital, Inc.), the General Partner of the Exchange Partnership and an
affiliate of the Managing Shareholder, sponsored a private offering of 2,100
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (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 interests in a limited partnership which holds a fee simple
interest in a 56-unit residential apartment property referred to as the Grove
Hamlet Apartment located in Deland, Florida. The property is subject to mortgage
and other indebtedness having a principal balance at June 30, 1999 of
approximately $1,588,191.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 73,875 $ 35.18
1997: $ 0 $ 0
1998 : $ 4,114 $ 1.96
6/30/99 $ 26,000 $ 12.38
-------- -------
Total $103,985 $ 49.52
</TABLE>
3
<PAGE>
VALUATION OF PARTNERSHIP CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD.
Laurel Oaks
<TABLE>
<CAPTION>
<S> <C>
Appraised value of underlying property interests $ 2,881,000
Cash and cash equivalent assets: $ 61,997
Other assets (1): $ 118,953
3/31/99 principal balance of mortgage financing secured by
the property: $(1,592,583)
Other liabilities (2): $ (109,130)
Adjustment: -0
-
Valuation of the partnership $ 1,360,237
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 136,024
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 118
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 5.45%
Total Number of Partnership Units 2,100
Original Price Per Unit 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Central Florida Income Appreciation Fund,
Ltd.'s historical net income is as follows: 1995 - ($101,930); 1996 - ($81,793);
1997 - ($5,428); 1998 - $28,463; as of March 31, 1999 - $10,982. The total
distributable cash flow through June 30, 1999 has been $103,985 or $49.52 per
limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $11,970 $11,429 $14,649 $ 11,1135,
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
------- ------- ------- ------------
$15,870 $15,329 $18,549 $13,0636,396
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED(1)
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $7,018 $0 $391 $668
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
FOREST GLEN III
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA INCOME ADVANTAGE FUND I, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1996, but no listing has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
September 1993. In January 1995, Baron Capital IV, Inc., an affiliate of the
Managing Shareholder, became General Partner of the Exchange Partnership, which
in February 1994 commenced a private offering of 940 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $940,000). The offering was fully subscribed and closed in
June 1995.
The partnership invested the net proceeds of its offering to acquire all of
the limited partnership interests in a limited partnership which holds a fee
simple interest in a 26-unit residential apartment property referred to as the
Forest Glen Apartment Property (Phase III) located in Daytona Beach, Florida.
The property is subject to mortgage and other indebtedness having a principal
balance at June 30, 1999 of approximately $885,884.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $58,058 $ 61.76
1997: $11,058 $ 11.76
1998 : $20,900 $ 22.23
6/30/99 $ 5,000 $ 5.32
------- -------
Total $95,016 $101.07
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,006,575 100,658 Units ($1,006,580) 107 Units ($1,070) 4.03%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which
the Trust is currently offering Common Shares in its Cash Offering. As
described below at "The Exchange Offering," Unitholders, including recipients
of Units in the Exchange Offering, may exchange all or a portion of their
Units for an equivalent number of Common Shares at any time following the
completion of the offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA INCOME ADVANTAGE FUND I, LTD.
Forest Glen III
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,698,069
Cash and cash equivalent assets: $ 40,832
Other assets (1): $ 49,718
3/31/99 principal balance of mortgage financing secured by
the property: $ (889,021)
Other liabilities (2): $ (39,978)
Adjustment (3): $ 146,955
Valuation of the partnership $ 1,006,575
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 100,658
Number of Units offered to each Limited Partner in the 107
Partnership per $1,000 of original investment (dollar
value)
Percentage of all Units offered to the Limited Partners in
the Partnership in relation to the maximum number of Units
offered to Limited Partners in all Exchange Partnerships 4.03%
Total Number of Partnership Units 940
Original Price Per Unit $ 1,000
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the fact that
rental rates per unit have increased $40 since the appraisal. The yield
on the $40 capitalized at 9.15% yields an additional $146,900 in value.
Operating history of the Partnership: Florida Income Advantage Fund I, Ltd.'s
historical net income is as follows. 1994 - $53,744, 1995 - $48,106; 1996 -
$61,076; 1997 - $48,844; 1998 - $40,189; as of March 31, 1999 - $11,850. The
total distributable cash flow through June 30, 1999 has been $95,016 or $101.07
per limited partnership unit. M:\DC\ClientMatter\21307\030\ds.8d5qgb9.0000c.doc
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $ 9,314 $ 8,860 $ 9,397 $7,434
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $1,950
------- ------- ------- ------
$13,214 $12,760 $13,297 $9,384
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $5,516 $1,051 $1,986 $281
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
BLOSSOM CORNERS I
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA INCOME GROWTH FUND V, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true
<PAGE>
worth or realizable value. There can be no assurance that the value of
property interests acquired will reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1999, but no listing has occurred to date.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In November 1995, Baron Capital XI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,300 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (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 all of
the limited partnership interests in a limited partnership which holds a fee
simple interest in a 70-unit residential apartment property referred to as the
Blossom Corners Apartment Property (Phase I) located in Orlando, Florida. The
property is subject to mortgage and other indebtedness having a principal
balance at June 30, 1999 of approximately $1,017,387.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 73,947 $ 32.15
1997: $113,987 $ 49.56
1998 $ 48,608 $ 21.13
6/30/99 $ 22,000 $ 9.57
-------- -------
Total $258,542 $112.41
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,310,347 131,035 Units ($1,310,350) 114 Units ($1,140) 5.25%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
- -------------------
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which
the Trust is currently offering Common Shares in its Cash Offering. As
described below at "The Exchange Offering," Unitholders, including recipients
of Units in the Exchange Offering, may exchange all or a portion of their
Units for an equivalent number of Common Shares at any time following the
completion of the offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA INCOME GROWTH FUND V, LTD.
Blossom Corners I
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,195,000
Cash and cash equivalent assets: $ 78,457
Other assets (1): $ 123,453
3/31/99 principal balance of mortgage financing secured by
the property: $(1,020,990)
Other liabilities (2): $ (65,573)
Adjustment (3): -0-
Valuation of the partnership $ 1,310,347
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 131,035
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 114
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 5.25%
Total Number of Partnership Units
Original Price Per Unit
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Florida Income Growth Fund V, Ltd.'s
historical net income is as follows: 1995 - ($7,722)' 1996 - ($7,339); 1997 -
$37,053; 1998 - $952432; as of March 31, 1999 - $20,252. Cash flow through June
30, 1999 has been $258,542 or $112.41 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for theyear ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $13,930 $13,680 $17,459 $10,921
Accounting Fee $ 3,900 $ 3,900 $ 3,900 $ 1,950
------- ------- ------- -------
$17,830 $17,680 $21,871 $10,708
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED(4)
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $7,025 $10,829 $4,618 $1,717
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
STRATEGIC IX
(EXCHANGE HYBRID)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND IX, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL LXII, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership in
June 1995. In November 1995, Baron Capital XI, Inc., the partnership's General
Partner (wholly owned and controlled, along with the Managing Shareholder of the
Trust, by Mr. McGrath) and an affiliate of the Managing Shareholder, sponsored a
private offering of 2,400 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $1,200,000).
The offering was fully subscribed and closed in February 1997.
The Exchange Partnership invested the net proceeds of its offering to
acquire (i) a 41.1% limited partnership interest in a limited partnership which
holds fee simple title to a residential apartment property located in Lakeland,
Florida (Crystal Court Property), and (ii) undivided interest in four unrecorded
second mortgage loans secured by residential apartment properties located in
Tampa, Florida (Candlewood Property), Orlando, Florida (Garden Terrace Property)
and Cincinnati, Ohio (Lake Sycamore Property - under construction). The second
mortgage loans are subordinated to large-scale first mortgage financing and are
non-recourse beyond the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its original
private offering, the property interest it holds, the mortgage to which the
underlying property may be subject, and the estimated deferred taxable gain of
each Limited Partner who elects to participate in the Exchange Offering, please
refer to the tables set forth in the Exhibit I attached hereto. Also see the
tables relating to all of the Exchange Partnerships set forth in the Prospectus
at "Initial Real Property Investments" and in Exhibit B to the Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made cash
distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1997: $ 11,490 $ 4.79
1998 : $ 83,734 $ 34.89
6/30/99 $ 10,000 $ 4.17
-------- -------
Total $105,224 $ 43.85
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,251,000 125,100 Units ($1,251,000) 104 Units ($1,040) 5.01%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which
the Trust is currently offering Common Shares in its Cash Offering. As
described below at "The Exchange Offering," Unitholders, including recipients
of Units in the Exchange Offering, may exchange all or a portion of their
Units for an equivalent number of Common Shares at any time following the
completion of the offering.
20
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND, IX, LTD.
Candlewood II, Crystal Court 1, Garden Terrace,
Sycamore
<TABLE>
<S> <C>
Appraised value of underlying property interests $1,856,161
Cash and cash equivalent assets: $ 5,184
Other assets (1): $ 40,995
3/31/99 principal balance of mortgage financing secured by
the property: $ (723,967)
Other liabilities (2): $ (41,601)
Adjustment (3): $ 114,227
Valuation of the partnership $1,251,000
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 125,100
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 104
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 5.01%
Total Number of Partnership Units 2400
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the fact that
there was a $14 average per unit rental increase since the appraisal at
the Crystal Court property capitalized at 9.5%, which amounts to
$114,200.
Operating history of the Partnership: Baron Strategic Investment Fund IX, Ltd.'s
historical net income is as follows: 1997 - ($6,258); 1998 - ($18,767); as of
March 31, 1999 - $10,726. Cash flow through June 30, 1999 has been $105,224 or
$43.85 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and its
affiliates by paying management and accounting fees. No other payments are made
to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee 0 0 0 0
Accounting Fee 0 0 0 0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $0 $1,092 $7,955 1,616
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
FOREST GLEN IV
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
FLORIDA INCOME APPRECIATION FUND I, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed in 1996, but no listing has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in September 1993. In January 1995, Baron Capital IV, Inc., an affiliate of the
Managing Shareholder, became General Partner of the Exchange Partnership, which
in February 1994 commenced a private offering of 250 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $205,000). The offering was fully subscribed and closed in
September 1994.
The partnership invested the net proceeds of its offering to acquire
all of the limited partnership interests in a limited partnership which holds a
fee simple interest in a 8-unit residential apartment property referred to as
the Forest Glen Apartment Property (Phase IV) located in Daytona Beach, Florida.
The property is subject to mortgage and other indebtedness having a principal
balance at June 30, 1999 of approximately $272,580.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $18,111 $ 88.35
1997: $ 1,990 $ 9.71
1998 : $ 8,160 $ 39.80
6/30/99 $ 1,000 $ 4.00
------- -------
Total $29,261 $141/97
------- -------
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------- ------------------------------------ ------------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$254,159 25,416 Units ($254,160) 124 Units ($1,240) 1.02%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP FLORIDA INCOME APPRECIATION FUND, I, LTD.
Forest Glen IV
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 522,483
Cash and cash equivalent assets: $ 12,302
Other assets (1): $ 11,637
3/31/99 principal balance of mortgage financing secured by
the property: $(273,545)
Other liabilities (2): $ (18,718)
Adjustment: -0-
Valuation of the partnership $ 254,159
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 25,416
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 124
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 1.02%
Total Number of Partnership Units 800
Original Price Per Unit $ 1,000
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage lender
to cover taxes, insurance, maintenance and repair reserves and other items,
and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors, notes
or advances to third parties (including affiliates) and accrued expenses
(such as real estate taxes).
Operating history of the Partnership: Florida Income Appreciation Fund I, Ltd.'s
historical net income is as follows: 1994 - $22,038; 1995 - $44,126; 1996 -
$17,599, 1997 - $14,245; 1998 - $6,464 as of March 31, 1999 - $2,504. Cash flow
through June 30, 1999 has been $29,261 or $141.86 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $2,996 $2,929 $2,852 $4,503
Accounting Fee $3,900 $3,900 $3,900 $1,950
------ ------ ------ ------
$6,896 $6,829 $6,752 $6,453
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $1,721 $189 $775 $274
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
STADIUM CLUB
(EXCHANGE EQUITY)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
GSU STADIUM STUDENT APARTMENTS, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed for sale in 1999, but no listing has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in June 1995. In September 1995, Baron Capital X, Inc., the General Partner of
the Exchange Partnership and an affiliate of the Managing Shareholder, sponsored
a private offering of 2,000 units of limited partner interest in the Exchange
Partnership at a purchase price of $500 per unit (gross proceeds of $800,000).
The offering was fully subscribed and closed in February 1996.
The partnership invested the net proceeds of its offering to acquire
all of the limited partnership interests in a limited partnership which holds a
fee simple interest in a 60-unit residential apartment property referred to as
the Stadium Club Apartment Property located in Statesboro, Georgia. The property
is subject to mortgage and other indebtedness having a principal balance at June
30, 1999 of approximately $1,712,134.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $100,059 $ 50.03
1997 $102,680 $ 51.34
1998 : $ 74,828 $ 37.41
6/30/99: $ 10,000 $ 5.00
-------- -------
Total: $287,567 $143.78
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------- --------------------------------- ---------------------- ----------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,051,818 105,182 Units ($1,051,820) 105 Units ($1,050) 4.21%
- --------------- --------------------------------- ----------------------- ----------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP GSU STUDENT STADIUM APARTMENTS, LTD.
Stadium Club
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,800,000
Cash and cash equivalent assets: $ (32,163)
Other assets (1): $ 104,058
3/31/99 principal balance of mortgage financing secured by
the property: $(1,718,457)
Other liabilities (2): $ (119,620)
Adjustment (3): $ 18,000
Valuation of the partnership $ 1,051,818
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) $ 105,183
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 105
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 4.21%
Total Number of Partnership Units 2000
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage lender
to cover taxes, insurance, maintenance and repair reserves and other items,
and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors, notes
or advances to third parties (including affiliates) and accrued expenses
(such as real estate taxes).
(3) The judgment which resulted in this adjustment was based on the fact that a
computer lab was created, which includes 5 computers, printers and a
copier. Internet access is on each. The partnership paid for the
installation of the computer lab ($18,000).
Operating history of the Partnership: GSU Stadium Apartments, Ltd.'s historical
net income is as follows: 1995 - $33,599; 1996 - $51,820; 1997 - $97,674; 1998 -
$17,399; as of March 31, 1999 - $33,789. Cash flow through June 30, 1999 has
been $287,567 or $143.78 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $22.486 $24,320 $22,082 $ 9,330
Accounting Fee $ 3,900 3,900 3,900 2,125
------- ------- ------- -------
$26,366 $28,220 $25,982 $11,455
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $9,506 $9,755 $7,109 $2,390
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
BREVARD
(EXCHANGE MORTGAGE)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BREVARD MORTGAGE PROGRAM, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XII, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in November 1995. Commencing September 1994 Baron Capital XII, Inc., the General
Partner of the Exchange Partnership and an affiliate of the Managing
Shareholder, sponsored a private offering of 575 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(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 acquire
three unrecorded Subordinated Mortgage Loans secured by a 64-unit residential
apartment property referred to as the Meadowdale Property located in Melbourne,
Florida. The Subordinated Mortgage Loans are subordinated to first mortgage
financing and are non-recourse beyond the underlying property and/or the assets
of the debtor.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 48,995 $ 85.21
1997: $ 57,500 $100.00
1998 : $ 57,500 $100.00
6/30/99 $ 14,375 $ 25.00
--------- -------
Total $ 178,370 $310.21
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$624,738 62,474 Units ($624,740) 109 Units ($1,090) 2.50%
- --------------- ---------------------------------- ----------------------- -----------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BREVARD MORTGAGE PROGRAM, LTD.
Meadowdale
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 1,717,000
Cash and cash equivalent assets: $ 30,819
Other assets (1): $ 28,450
3/31/99 principal balance of mortgage financing secured by
the property: $ (949,411)
Other liabilities (2): $ (202,120)
Adjustment: -0-
Valuation of the partnership $ 624,738
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 62,474
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 109
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 2.50%
Total Number of Partnership Units 575
Original Price Per Unit $ 1,000
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Brevard Mortgage Program, Ltd.'s
historical net income is as follows: 1996 - $59,431; 1997 - $62,090; 1998 -
$61,014; as of March 31, 1999 - $15,383. Cash flow through June 30, 1999 has
been $178,370 or $310.21 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $4,655 $5,463 $5,463 $0
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
STRATEGIC
(EXCHANGE MORTGAGE)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
Partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in April 1996. In June 1996, Baron Capital XXXII, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath), sponsored a private offering of 2,400
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (gross proceeds of $1,200,000). The offering was fully
subscribed and closed in December, 1996.
The Exchange Partnership invested the net proceeds of its offering to
acquire or provide (1) three unrecorded second mortgage loans secured by the
Blossom Corners Property (Phase II) and (2) an unrecorded second mortgage loan
secured by the Lake Sycamore Property under development (the "Second Mortgage
Loans"). The second mortgage loans are subordinated to large-scale first
mortgage financing and are non-recourse beyond the underlying property and/or
the assets of the debtor.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 31,409 $ 13.09
1997: $ 116,000 $ 48.33
1998 : $ 51,000 $ 21.25
6/30/99 $ 32,000 $ 13.33
--------- -------
Total $ 230,409 $ 96.00
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------- --------------------------------- ----------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,327,230 132,723 Units ($1,327,230) 111 Units ($1,110) 5.31%
- ----------------- ---------------------------------- ----------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND, LTD.
Blossom Corners II
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,250,000
Cash and cash equivalent assets: $ 11,374
Other assets (1): $ 114,593
3/31/99 principal balance of mortgage financing secured by
the property: $(1,098,950)
Other liabilities (2): $ (40,787)
Adjustment (3): $ 91,000
Valuation of the partnership $ 1,327,230
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 132,723
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 111
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 5.31%
Total Number of Partnership Units 2,400
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the fact that
there are $8,650 in projected annual expense savings in marketing and
payroll due to the combining of offices of phase I and phase II. The
value of $91,000 is obtained by capitalizing the expense savings at 9.5%.
Operating history of the Partnership: Baron Strategic Investment Fund, Ltd.'s
historical net income is as follows: 1997 - $62,142; 1998 - $75,752; as of March
31, 1999 - $19,419. Cash flow through June 30, 1999 has been $230,409 or $96.00
per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $2,984 $11,020 $4,845 $3,520
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
STRATEGIC IV
(EXCHANGE MORTGAGE)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND IV, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XVII, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership. Mr. McGrath has sponsored this
transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in October 1996. In November1996, Baron Capital XVII, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath), sponsored a private offering of 2,000
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (gross proceeds of $1,000,000). The offering was fully
subscribed and closed in April 1997.
The Exchange Partnership invested the net proceeds of its offering to
provide or acquire two unrecorded second mortgage loans (the "Second Mortgage
Loans") secured by the Country Square Property - Phase I. The second mortgage
loans are subordinated to large-scale first mortgage financing and are
non-recourse beyond the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1997: $ 43,484 $ 21.74
1998 : $ 88,764 $ 44.38
6/30/99 $ 10,000 $ 5.00
-------- -------
Total $143,248 $ 71.12
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------- --------------------------------- ----------------------- ------------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,040,000 104,000 Units ($1,040,000) 104 Units ($1,040) 4.16%
- ---------------- --------------------------------- ----------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND, IV, LTD.
Country Square I
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,185,000
Cash and cash equivalent assets: $ 11,500
Other assets (1): $ 38,722
3/31/99 principal balance of mortgage financing secured by
the property: $(1,586,283)
Other liabilities (2): $ (27,244)
Adjustment (3): $ 418,305
Valuation of the partnership $ 1,040,000
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 104,000
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 104
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 4.16%
Total Number of Partnership Units 2,000
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the following
factors: Average rental rates on the property have increased $40 per unit
since the appraisal. Capitalized at 9.5%, this rental increase adds
$368,900 in value. In addition, an affiliate of the general partner has
acquired the general partner interest in the adjacent property. By
combining the management, net expense savings on payroll and marketing of
$4,700 should be realized. When capitalized at 9.5%, additional value of
$49,400 is added. The sum of the two adjustments totals $418,300.
Operating history of the Partnership: Baron Strategic Investment Fund IV, Ltd.'s
historical net income is as follows: 1997 - $44,740; 1998 - $103,047; as of
March 31, 1999 - $28,312. Cash flow through June 30, 1999 has been $143,248 or
$71.12 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- ---------------
<S> <C> <C> <C> <C>
9.5% Distribution $32 $4,131 $8,433 $5,301
</TABLE>
In connection with the formation of the Trust and the Operating Partnership, the
Original Investors (comprised of Mr. McGrath and Robert S. Geiger, who had no
prior affiliation with the Trust, the Operating Partnership, the Managing
Shareholder or any of the Exchange Partnerships) each subscribed for 601,080
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, the Units
received by each of the Original Investors would represent 9.5% 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
completed 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
Investor represents a percentage greater than 9.5% 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. 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.
21
<PAGE>
STRATEGIC V
(EXCHANGE MORTGAGE)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND V, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XL, INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership.
Mr. McGrath has sponsored this transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in October 1996. In November1996, Baron Capital XL, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath), sponsored a private offering of 2,400
units of limited partner interest in the Exchange Partnership at a purchase
price of $500 per unit (gross proceeds of $1,200,000). The offering was fully
subscribed and closed in June 1997.
The Exchange Partnership invested the net proceeds of its offering to
provide or acquire 10 unrecorded second mortgage loans (the "Second Mortgage
Loans") secured by the residential apartment properties located in Tampa,
Florida (Candlewood Property and Curiosity Creek Property) and Titusville,
Florida (Sunrise Property). The second mortgage loans are subordinated to
large-scale first mortgage financing and are non-recourse beyond the underlying
property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1997: $ 92,054 $ 38.36
1998 : $120,000 $ 50.00
6/30/99 $ 30,000 $ 12.50
------ ------
Total $242,054 $100.86
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- ------------------------------------------------------------------------------------------------------------------
- -------------------- ------------------------------------ ------------------------- ------------------------------
<S> <C> <C> <C>
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
$1,265,358 126,536 Units ($1,265,360) 105 Units ($1,050) 5.07%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which
the Trust is currently offering Common Shares in its Cash Offering. As
described below at "The Exchange Offering," Unitholders, including recipients
of Units in the Exchange Offering, may exchange all or a portion of their
Units for an equivalent number of Common Shares at any time following the
completion of the offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND V, LTD.
Curiosity Creek, Sunrise I, Candlewood II
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,334,350
Cash and cash equivalent assets: $ 126,231
Other assets (1): $ 91,834
3/31/99 principal balance of mortgage financing secured by
the property: $(1,488,703)
Other liabilities (2): $ (46,353)
Adjustment (3): $ 248,000
Valuation of the partnership $ 1,265,358
Aggregate number of Units offered to all Limited
Partners in the Partnership (dollar value) 126,536
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 105
Percentage of all Units offered to the Limited Partners in
the Partnership in relation to the maximum number of
Units offered to Limited Partners in all
Exchange Partnerships
5.07%
Total Number of Partnership Units 2,400
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the fact that
the average rental rate per unit at Sunrise has increased $30 since the
appraisal, and the average rental rate at Curiosity Creek has increased
$30 in the same period. Capitalizing the additional income potential adds
$248,000 in additional value.
Operating history of the Partnership: Baron Strategic Investment Fund V, Ltd.'s
historical net income is as follows: 1997 - $42,000; 1998 - $74,778; as of March
31, 1999 - $22,093. Cash flow through June 30, 1999 has been $242,054 or $100.86
per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
Compensation
Which Would Have
Been Paid to General Partner
And Affiliates If Exchange Offer
Had Been Concluded1
<TABLE>
<CAPTION>
1996 1997 1998 June 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $77 $8,745 $11,400 $3,977
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
LAMPLIGHT
(EXCHANGE HYBRED)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("Operating Partnership")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
LAMPLIGHT COURT OF BELLEFONTAINE APARTMENTS, LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL IX INC.)
This Supplement relates to the offer (the "Exchange Offering") of Baron
Capital Properties, L.P. (the "Operating Partnership") to all limited partners
(the "Limited Partners") in the Exchange Partnership (and limited partners of 22
other real estate limited partnerships) to issue its units of limited
partnership interest ("Units" or "Operating Partnership Units") in exchange for
limited partnership interests in the Exchange Partnership (and in such other
limited partnerships). Limited Partners who do not participate in the Exchange
Offering will be entitled to retain their limited partnership interest in the
Exchange Partnership on substantially the same terms and conditions as their
original investment. The general partner of the Operating Partnership is managed
by an entity controlled by Gregory K. McGrath, who is one of the founders of the
Operating Partnership. Mr. McGrath also controls the entity which is the general
partner of this Exchange Partnership.
Mr. McGrath has sponsored this transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - It was anticipated that the property owned by the Exchange Partnership
would be listed in 1999, but no listing has occurred.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
2
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in February 1996. Commencing April 1996, Baron Capital IX, Inc., the General
Partner of the Exchange Partnership and an affiliate of the Managing
Shareholder, sponsored a private offering of 700 units of limited partner
interest in the Exchange Partnership at a purchase price of $1,000 per unit
(gross proceeds of $700,000). The offering was fully subscribed and closed in
November 1996.
The partnership invested the net proceeds of its offering to acquire
(i) a 31.7% limited partnership interests in a limited partnership which holds a
fee simple interest in a 80-unit residential apartment property referred to as
the Lamplight Court Apartment Property located in Bellefontaine, Ohio and (ii)
two unrecorded Subordinated Mortgage Loans secured by such property. The
property is subject to mortgage and other indebtedness having a principal
balance at June 30, 1999 of approximately $1,356,867.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP's Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 32,925 $ 47.04
1997: $ 69,779 $ 99.68
1998 : $ 56,500 $ 80.71
6/30/99 $ 7000 $ 10.00
-------- -----------
Total $166,204 $237.43
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
$781,757 78,176 Units ($781,760) 112 Units ($1,120) 3.13%
- -------------------- ------------------------------------ ------------------------- ------------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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
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 valuation of the Exchange
Partnership to the extent of its mortgage interest in properties and other
debt interests is 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 and other indebtedness to which 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 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 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.
(see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which
the Trust is currently offering Common Shares in its Cash Offering. As
described below at "The Exchange Offering," Unitholders, including recipients
of Units in the Exchange Offering, may exchange all or a portion of their
Units for an equivalent number of Common Shares at any time following the
completion of the offering.
4
<PAGE>
VALUATION OF PARTNERSHIP LAMPLIGHT COURT OF BELLEFONTAINE, LTD.
Lamplight
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,183,000
Cash and cash equivalent assets: $ 13,782
Other assets (1): $ 80,864
3/31/99 principal balance of mortgage financing secured by
the property: $(1,363,062)
Other liabilities (2): $ (187,827)
Adjustment (3): $ 55,000
Valuation of the partnership $ 781,757
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 78,176
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 112
Percentage of all Units offered to the Limited Partners in the Partnership in
relation to the maximum number of Units offered to Limited Partners in all
Exchange Partnerships 3.13%
Total Number of Partnership Units 700
Original Price Per Unit $ 1,000
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
(3) The judgment that resulted in this adjustment was based on the fact there
was a $5,200 expense reduction in utilities due to the submetering
program, which when capitalized at 9.5% results in a value of $55,000.
The submetering cost is being paid for by the service provider.
Operating history of the Partnership: Lamplight Court of Bellefontaine
Apartments, Ltd.'s historical net income is as follows: 1996 - ($37,244); 1997 -
$57,899, 1998 - $55,580; as of March 31, 1999 - $13,888. Cash flow through June
30, 1999 has been $166,204 or $237.43 per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $3,128 $6,629 $5,368 $2,381
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
STRATEGIC VI
(EXCHANGE HYBRID)
SUPPLEMENT DATED _____, 1999
TO PROSPECTUS OF
BARON CAPITAL PROPERTIES, L.P.
("OPERATING PARTNERSHIP")
DATED _____, 1999
THIS PROSPECTUS SUPPLEMENT FORMS A PART OF AND
SHOULD BE READ TOGETHER WITH THE PROSPECTUS
BARON STRATEGIC INVESTMENT FUND VI LTD.,
A FLORIDA LIMITED PARTNERSHIP
(THE "EXCHANGE PARTNERSHIP")
(GENERAL PARTNER: BARON CAPITAL XI, INC.)
This Supplement relates to the offer (the "Exchange Offering") of
Baron Capital Properties, L.P. (the "Operating Partnership") to all limited
partners (the "Limited Partners") in the Exchange Partnership (and limited
partners of 22 other real estate limited partnerships) to issue its units of
limited partnership interest ("Units" or "Operating Partnership Units") in
exchange for limited partnership interests in the Exchange Partnership (and
in such other limited partnerships). Limited Partners who do not participate
in the Exchange Offering will be entitled to retain their limited partnership
interest in the Exchange Partnership on substantially the same terms and
conditions as their original investment. The general partner of the Operating
Partnership is managed by an entity controlled by Gregory K. McGrath, who is
one of the founders of the Operating Partnership. Mr. McGrath also controls
the entity which is the general partner of this Exchange Partnership. Mr.
McGrath has sponsored this transaction.
Each Limited Partner should consider all factors discussed below under
"Certain Risks" and under the heading "Risk Factors" set forth in the Prospectus
(the "Prospectus") of the Operating Partnership in evaluating the Exchange
Offering, the Operating Partnership, Baron Capital Trust (the "Trust"), the
general partner and a limited partner of the Operating Partnership, and the
business of the Operating Partnership and the Trust, including the following
material risk factors:
- - The valuation of $10.00 per Unit used in the Exchange Offering is an
arbitrary amount, and it is possible that Common Shares of beneficial
interest in the Trust ("Common Shares") (into which the Units are
exchangeable on a one-for-one basis), if listed on a national securities
exchange, will trade at a lower price.
- - The terms of the Exchange Offering were determined by the founders of the
Trust and the Operating Partnership (the "Original Investors") (described
below under "Compensation") with no separate counsel or advisor for the
Limited Partners.
- - Offerees may not have an opportunity prior to their decision to accept the
Exchange Offering to evaluate a significant number of properties in which
the Operating Partnership and the Trust may acquire an interest, and they
will not have the benefit of knowing the extent of the Operating
Partnership's investment in respect of properties involved in the Exchange
Offering until the offering is completed.
- - The Original Investors and affiliates have significant influence over the
operation of the Trust, the Operating Partnership and the Exchange
Partnerships, and the Exchange Offering involves transactions among them
which involve conflicts of interest which may result in decisions that do
not fully represent the interests of all Shareholders of the Trust, holders
of Units in the Operating Partnership (individually, a "Unitholder" and
collectively, the "Unitholders") and limited partners of the Exchange
Partnerships.
- - The purchase price to be paid by the Operating Partnership and the Trust
for property interests will be based upon appraisals prepared by qualified
and licensed independent appraisal firms in respect of individual
residential apartment properties and other considerations. Offerees should
note, however, that appraisals are only estimates of value and should not
be relied upon as precise measures of true worth or realizable value. There
can be no assurance that the value of property interests acquired will
reflect their fair market value.
- - A significant portion of the value of the property interests owned by the
Exchange Partnership was determined subjectively by the Managing
Shareholder which is affiliated with the general partner of each Exchange
partnership. This affiliation creates a potential conflict in making such
determination of value.
- - Offerees who accept the offering may not experience returns comparable to
or in excess of those experienced by Limited Partners in the Exchange
Partnership.
<PAGE>
- - The current returns of the Exchange Partnership may not be achieved by the
Operating Partnership after completion of the offering and may be higher
than the current returns of other partnerships which participate in the
offering, although such other partnerships may offer higher future growth
potential than the Exchange Partnership.
- - If the Exchange Offering is completed in respect of the Exchange
Partnership, Offerees who accept the Exchange Offering will be tendering
their current investment in the particular Exchange Partnership with an
expected limited duration in exchange for an investment in the Operating
Partnership, which has an unlimited duration.
- - Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from real estate interests acquired by the Trust
and the Operating Partnership.
- - Financing risks exist, including debt service obligations, the ability of
the Trust and the Operating Partnership to incur additional debt, the need
to refinance current indebtedness at various maturities, and the effect of
any increase in interest rates.
- - The Operating Partnership expects to acquire subordinated mortgage
interests which are not recorded because of restrictions in subordination
agreements executed in connection with First Mortgages issued to other
unrelated lenders. If a mortgage is not recorded, the security interest of
the Operating Partnership would not be perfected and the respective debt
would rank pari passu with all other unsecured creditors of the borrower.
- - The successful operation of the Trust and the Operating Partnership is
dependent on key management.
- - There can be no assurance of the successful completion of the Exchange
Offering and the Trust's Cash Offering (described below).
- - In exchange for his capital contribution of $50,000, each of the Original
Investors will receive Units initially valued at $6,010,800 if all
2,500,000 Common Shares are sold in the Cash Offering by November 30, 1999
and all 2,500,000 Units being offered in the Exchange Offering are issued
by such date. In addition, each will serve as an officer of the Trust, the
Operating Partnership and the Managing Shareholder and will receive
compensation for such services.
- - No public market for the sale of Units is expected to ever develop, and,
although Common Shares (into which Units are exchangeable) may eventually
be listed on a national securities exchange, it is possible that no public
market for the Common Shares will ever develop or be maintained.
- - Limited Partners who acquire Units in the Exchange Offering will pay a
higher price per Unit than the consideration the Original Investors paid
for Units issued to them in connection with the formation of the Trust and
the Operating Partnership.
- - The Trust will be taxed as a corporation if it fails to qualify as a REIT.
<PAGE>
BUSINESS OF THE EXCHANGE PARTNERSHIP
The Exchange Partnership was organized as a Florida limited partnership
in June 1995. In November 1995, Baron Capital XI, Inc., the partnership's
General Partner (wholly owned and controlled, along with the Managing
Shareholder of the Trust, by Mr. McGrath) and an affiliate of the Managing
Shareholder, sponsored a private offering of 2,400 units of limited partner
interest in the Exchange Partnership at a purchase price of $500 per unit (gross
proceeds of $1,200,000). The offering was fully subscribed and closed in
February 1997.
The Exchange Partnership invested the net proceeds of its offering to
acquire (i) a 57% limited partnership interest in a limited partnership which
holds fee simple title to a residential apartment property located in Orlando,
Florida (Pineview Property), (ii) undivided interests in four unrecorded second
mortgage loans secured by residential apartment properties located in Tampa,
Florida (Candlewood Property) and Tampa, Florida (Garden Terrace Property), and
(iii) a note payable from another Exchange Partnership which is secured by two
unrecorded second mortgages on a property located in Tampa, Florida. The second
mortgage loans are subordinated to large-scale first mortgage financing and are
non-recourse beyond the underlying property and/or the assets of the debtor.
For further information concerning the Exchange Partnership, its
original private offering, the property interest it holds, the mortgage to which
the underlying property may be subject, and the estimated deferred taxable gain
of each Limited Partner who elects to participate in the Exchange Offering,
please refer to the tables set forth in the Exhibit I attached hereto. Also see
the tables relating to all of the Exchange Partnerships set forth in the
Prospectus at "Initial Real Property Investments" and in Exhibit B to the
Prospectus.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
During each year since inception, the Exchange Partnership has made
cash distributions to the Limited Partners in the following amounts:
<TABLE>
<CAPTION>
All LP'S Per LP Unit
-------- -----------
<S> <C> <C>
1996: $ 2,844 $ 1.19
1997: $112,157 $ 46.73
1998 : $ 98,850 $ 41.19
6/30/99 $ 17,100 $ 7.12
-------- ---------
Total $230,951 $ 96.23
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF EXCHANGE VALUES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------- --------------------------------- ----------------------- ----------------------------
Valuation of Aggregate number of Units offered Number of Units Percentage of Units offered
Exchange to all Limited Partners in the offered to each Limited to Limited Partners in the
Partnership(1) Exchange Partnership (assigned Partner per $1,000 of Exchange Partnership in
dollar value)(2) original investment relation to Units offered to
(assigned dollar limited partners in all
value)(2) partnerships participating
in the initial transactions
of the Exchange Offering
<S> <C> <C> <C>
$1,253,314 125,331 Units ($1,252,310) 104 Units ($1,040) 5.02%
- ----------------- --------------------------------- ----------------------- ----------------------------
</TABLE>
(1) The valuation of this Exchange Equity Partnership to the extent of its
direct or indirect equity interest in a 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 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 valuation of the Exchange Partnership to the extent
of its mortgage interest in properties and other debt interests is 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 and other indebtedness
to which 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 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 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. (see "Valuation Method" below.)
(2) For purposes of the Exchange Offering, each Unit to be issued has been
assigned an initial value of $10.00, which is the price per share at which the
Trust is currently offering Common Shares in its Cash Offering. As described
below at "The Exchange Offering," Unitholders, including recipients of Units in
the Exchange Offering, may exchange all or a portion of their Units for an
equivalent number of Common Shares at any time following the completion of the
offering.
4
<PAGE>
VALUATION OF PARTNERSHIP BARON STRATEGIC INVESTMENT FUND VI, LTD.
Pineview, Garden Terrace, Candlewood II,
<TABLE>
<S> <C>
Appraised value of underlying property interests $ 2,467,233
Cash and cash equivalent assets: $ 81,648
Other assets (1): $ 71,291
3/31/99 principal balance of mortgage financing secured by
the property: $(1,118,128)
Other liabilities (2): $ (248,730)
Adjustment: -0-
Valuation of the partnership $ 1,253,314
Aggregate number of Units offered to all Limited Partners
in the Partnership (dollar value) 125,331
Number of Units offered to each Limited Partner in the
Partnership per $1,000 of original investment (dollar
value) 104
Percentage of all Units offered to the Limited Partners in
the Partnership in relation to the maximum number of Units
offered to Limited Partners in all Exchange Partnerships 5.02%
Total Number of Partnership Units 2,400
Original Price Per Unit $ 500
</TABLE>
(1) Comprised of mortgage escrow account balance held by first mortgage
lender to cover taxes, insurance, maintenance and repair reserves and
other items, and miscellaneous assets.
(2) Comprised of security deposits payable, accounts payable to vendors,
notes or advances to third parties (including affiliates) and accrued
expenses (such as real estate taxes).
Operating history of the Partnership: Baron Strategic Investment Fund VI, Ltd.'s
historical net income is as follows: 1997 - $28,182; 1998 - $38,895; as of March
31, 1999 - $17,036. Cash flow through June 30, 1999 has been $230,951 and $96.23
per limited partnership unit.
20
<PAGE>
COMPENSATION
The Exchange Partnership currently compensates the general partner and
its affiliates by paying management and accounting fees. No other payments are
made to the general partner and its affiliates by the Exchange Partnership. Mr.
McGrath, an affiliate of the General Partner, is the sole shareholder and
director of the Managing Shareholder of the Trust. As described in greater
detail below, Mr. McGrath has agreed to serve as Chief Executive Officer of the
Operating Partnership and the Trust in exchange for up to 25,000 Common Shares
of the Trust or up to 25,000 Operating Partnership Units (amount to be
determined by the Executive Compensation Committee of the Trust) and health
benefits for the first year of operations and thereafter in exchange for
compensation and benefits determined annually by that committee. No such
compensation was awarded for the year ended December 31, 1998. Additionally, Mr.
McGrath would have received 9.5% of all distributions on Units subscribed for by
him in connection with the formation of the Operating Partnership.
COMPENSATION PAID
TO GENERAL PARTNER AND AFFILIATES
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Management Fee $0 $0 $0 $0
Accounting Fee $0 $0 $0 $0
</TABLE>
COMPENSATION
WHICH WOULD HAVE
BEEN PAID TO GENERAL PARTNER
AND AFFILIATES IF EXCHANGE OFFER
HAD BEEN CONCLUDED
<TABLE>
<CAPTION>
1996 1997 1998 JUNE 30, 1999
---- ---- ---- -------------
<S> <C> <C> <C> <C>
9.5% Distribution $270 $10,655 $9,391 $0
</TABLE>
In connection with the formation of the Trust and the Operating
Partnership, the Original Investors (comprised of Mr. McGrath and Robert S.
Geiger, who had no prior affiliation with the Trust, the Operating Partnership,
the Managing Shareholder or any of the Exchange Partnerships) each subscribed
for 601,080 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, the Units received by each of the Original Investors would represent
9.5% 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 completed 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 Investor represents a percentage greater than 9.5% 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.
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.
21
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Trust or the Operating Partnership. This Prospectus does not constitute
an offer to sell or exchange, or a solicitation of an offer to buy or exchange,
the Units in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor any
sale or exchange 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 the Trust or the Operating Partnership since the
date hereof.
SUMMARY OF TABLE OF CONTENTS
Page
----
Cover.......................................................................
Summary of the Trust and the Operating
Partnership..............................................................
Description of Exchange Partnerships........................................
Summary of Risk Factors.....................................................
Tax Status..................................................................
Compensation of Managing Persons and Affiliates.............................
Conflicts of Interest.......................................................
Fiduciary Responsibility....................................................
Special Note Regarding Forward-Looking
Statements................................................................
Risk Factors................................................................
The Exchange Offering.......................................................
Prior Performance of Affiliates of Managing
Shareholder...............................................................
Management..................................................................
The Trust and the Operating Partnership.....................................
Investment Objectives and Policies..........................................
Initial Real Estate Investments.............................................
Management's Discussion and Analysis or Plan of
Operation ..............................................................
Federal Income Tax Considerations...........................................
Summary of the Operating Partnership Agreement..............................
Summary of Declaration of Trust.............................................
Reports to Unitholders and Shareholders.....................................
Comparison of Rights of Holders of Exchange
Partnership Units, Operating Partnership Units and
Trust Common Shares......................................................
Capital Stock of the Trust..................................................
Capitalization..............................................................
Terms of the Cash Offering..................................................
Amendments to Partnership Agreements of
Participating Exchange Partnerships with Non-
participating Limited Partners..........................................
Other Information...........................................................
Litigation..................................................................
Experts.....................................................................
Legal Matters...............................................................
Expenses of the Exchange Offering...........................................
Additional Information......................................................
Glossary....................................................................
Exhibits
A ... Prior Performance of Affiliates
of Managing Shareholder
B ... Summary of Exchange Property and
Exchange Partnership Information
C. ... Exchange Property Appraisal Reports
BARON CAPITAL PROPERTIES, L.P.
____________
2,500,000 Units
of
Limited Partnership Interest
PROSPECTUS
_____________, 1999
____________
<PAGE>
Financial Statements
Financial Statements of the Trust, the Operating
Partnership and the Managing Shareholder
Financial Statements of the Exchange Properties/Exchange
Partnerships and Acquired Properties
Combined Statement of Estimated Taxable Operating Results and
Cash Available From Operations
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Under Section 17-108 of the Delaware Revised Uniform Limited Partnership
Act, subject to such standards and restrictions, if any, contained in its
limited partnership agreement, a limited partnership organized in Delaware may,
and shall have the power to, indemnify and hold harmless any partner or other
person from and against any and all claims and demands whatsoever.
Under Section 7.7(a) of the Agreement of Limited Partnership of the
Registrant ("Partnership Agreement"), the Registrant shall indemnify an
Indemnitee (defined as any person made a party to a proceeding by reason of his
status as (i) the General Partner of the Registrant (including as a guarantor of
any debt of the Registrant) or (ii) an officer of the Registrant or a trustee,
officer or member of the Board of the General Partner of the Registrant, and (b)
such other persons (including affiliates of the General Partner of the
Registrant or the Registrant) as the General Partner of the Registrant may
designate from time to time, in its sole and absolute discretion) from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Registrant as set forth in its Partnership in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in Section 7.7(a). The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
an entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
Section 7.7(a). Any indemnification pursuant to Section 7.7 shall be made only
out of the assets of the Registrant.
Under Section 7.7(b) of the Partnership Agreement, reasonable expenses incurred
by an Indemnitee who is a party to a proceeding may be paid or reimbursed by the
Registrant in advance of the final disposition of the proceeding upon receipt by
the Registrant of (a) a written affirmation by the Indemnitee of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Registrant as authorized in Section 7.7 of the
Partnership Agreement has been met, and (b) a written undertaking by or on
behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
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 21. Exhibits and Financial Statement Schedules.
A list of exhibits included as part of this Registration Statement is set
forth in the Index to Exhibits which immediately precedes such exhibits.
II-1
<PAGE>
Item 22. Undertakings.
The Registrant undertakes to do the following:
1. If the Registrant is registering the securities under Rule 415 of
the Securities Act of 1933, as amended (the "Securities Act"), the
Registrant 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;
(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 Registrant will deliver to Offerees who accept the Exchange
Offering certificates representing Units in such nominations and
registered in such names as such Offerees shall indicate in their
Subscription Documents.
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.
II-2
<PAGE>
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 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
Unitholders. 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 Unitholders at least once each
quarter after the distribution period of the offering has ended.
7. The Registrant hereby undertakes to respond to requests for
information that is incorporated by reference in the Prospectus
pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one
business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement
through the date of responding to the request.
8. The Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the Registrant Statement when it became
effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement Amendment No. 8 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati,
State of Ohio on November 4, 1999.
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
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment No. 8 has been signed by the following person
in the capacity and on the date stated.
Name Title Date
---- ----- ----
/s/ Gregory K. McGrath President of Baron Advisors, Inc.,
- ---------------------- Managing Shareholder of Baron Capital November 4,
Gregory K. McGrath Trust, General Partner of Registrant 1999
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit Sequential
Number Document Description Page No.
- ------ -------------------- --------
3.1* Certificate of Limited Partnership of the --
Registrant.
3.2* Agreement of Limited Partnership of Registrant,
dated as of May 15, 1998 (incorporated herein by
reference to Exhibit 10.6 to Amendment No. 3 to
the Form SB-2 Registration Statement of Baron
Capital Trust filed with the Securities and --
Exchange Commission on May 15, 1998 (Registration
No. 333-35063).
4.1* Form of Unit Certificate --
5.1* Form of Opinion of Dennis P. Spates, Esq. as to
legality of securities being registered. --
5.2* Form of 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. (incorporated herein by reference to Exhibit
10.1 to Amendment No. 3 to the Form SB-2
Registration Statement of Baron Capital Trust --
filed with the Securities and Exchange Commission
on May 15, 1998 (Registration No. 333-35063).
10.2* Amended and Restated Declaration of Trust for
Baron Capital Trust made as of August 11, 1998. --
10.3* Indemnification Agreement among the Registrant,
Baron Capital Trust (its General Partner),
officers of the Registrant and trustees, officers
and members of the Board of Baron Capital Trust
and such other persons as Baron Capital Trust may
designate (included in Section 7.7 of the --
Agreement of Limited Partnership of the
Registrant referenced above in Exhibit 3.2)
10.4* Amended and Restated Security Escrow Agreement
dated as of May 15, 1998 among Gregory K.
McGrath, Robert S. Geiger, Baron Capital Trust --
and American Stock Transfer & Trust Company.
10.5* Founders' Subscription Agreement. --
10.6* First Amendment to Amended and Restated Security
Escrow Agreement, dated April 30, 1999. --
10.7* Amendment to Founders' Subscription Agreement,
dated April 30, 1999.
23.1* --
Consent of Dennis P. Spates, Esq. (included in
the opinion filed as Exhibit 5.1 to this
Registration Statement).
23.2* Consent of Manatt, Phelps & Phillips, LLP
(included in the opinion filed as Exhibit 5.2 to --
this Registration Statement).
23.3 Consents of Elroy D. Miedema, Certified Public --
Accountant.
<PAGE>
23.4 Consents of Rachlin Cohen & Holtz LLP,
Independent Certified Public Accountants. --
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 Consortium Appraisal, Inc. and
Consortium Appraisal and Consulting Services, --
Inc., Appraisal Firms.
99.5* Consent of Richards Appraisal Service, Inc., --
Appraisal Firm.
99.6* Appraisal Reports relating to Exchange Properties --
99.7 Computation of Ratio of Earnings to Fixed Charges
and Calculation of Weighted Average Partnership
Units Outstanding
- -------------------------
*Previously filed.
243
<PAGE>
EXHIBIT 23.3
CONSENT OF ELROY D. MIEDEMA,
CERTIFIED PUBLIC ACCOUNTANT
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Blossom Corners Apartments, Phase I,
included in this Form S-4 Registration Statement of Baron Capital Properties,
L.P. and incorporated herein by reference and to the reference to my firm and
such report under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Bridgepoint Apartments included in this
Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Brookwood Way Apartments included in this
Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Camellia Court Apartments included in this
Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Eagle Lake Apartments included in this Form
S-4 Registration Statement of Baron Capital Properties, L.P. and incorporated
herein by reference and to the reference to my firm and such report under the
heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Forest Glen Apartments, Phase I, included
in this Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Forest Glen Apartments, Phase II, included
in this Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Forest Glen Apartments, Phase III, included
in this Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Forest Glen Apartments, Phase IV, included
in this Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Glen Lake Arms Apartments included in this
Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Grove Hamlet Apartments (Laurel Oaks)
included in this Form S-4 Registration Statement of Baron Capital Properties,
L.P. and incorporated herein by reference and to the reference to my firm and
such report under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Stadium Club Apartments included in this
Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Steeplechase Apartments included in this
Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such report
under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Capital Court Apartments, Phase II
included in this Form S-4 Registration Statement of Baron Capital Properties,
L.P. and incorporated herein by reference and to the reference to my firm and
such report under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Riverwalk Apartments included in this
Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such
report under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
Exhibit 23.3
Consent of Independent Auditor
The Board of Baron Capital Properties, L.P.:
I consent to the use of my report of Heatherwood Apartments, Phase I included
in this Form S-4 Registration Statement of Baron Capital Properties, L.P. and
incorporated herein by reference and to the reference to my firm and such
report under the heading "Experts" in the prospectus.
/s/ Elroy D. Miedema
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
November 3, 1999
<PAGE>
EXHIBIT 23.4
CONSENTS OF RACHLIN COHEN & HOLTZ LLP,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 of our
report dated April 13, 1999 relating to the financial statements of Baron
Capital Properties, L.P., and to all references to our firm appearing in such
Registration Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 of our
report dated April 13, 1999 relating to the financial statements of Baron
Capital Trust, and to all references to our firm appearing in such Registration
Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 of our
report dated April 13, 1999 relating to the financial statements of Baron
Advisors, Inc., and to all references to our firm appearing in such Registration
Statement.
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 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, Florid
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Registration Statement on Form S-4 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
November 4, 1999
<PAGE>
Exhibit 99.7
COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES AND
CALCULATION OF WEIGHTED
AVERAGE PARTNERSHIP
UNITS OUTSTANDING
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
Net Income (Loss) $(731,854)
----------
Add:
Interest 890,569
Interest expense to affiliate 42,969
----------
Interest on indebtedness 933,538
----------
Income as Adjusted $ 201,684
==========
Fixed Charges:
Interest on indebtedness $933,538
==========
Ratio of Earnings to Fixed Charges 0.22
==========
Dollar Amount of Deficiency in the Ratio of
Earnings to Fixed Charges $731,854
==========
</TABLE>
E-1
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
Net Income (Loss) $(563,184)
----------
Add:
Interest 343,224
Interest expense to affiliate 23,496
----------
Interest on indebtedness 366,720
----------
Income as Adjusted $(196,464)
==========
Fixed Charges:
Interest on indebtedness $ 366,720
==========
Ratio of Earnings to Fixed Charges (0.54)
==========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 563,184
==========
</TABLE>
E-2
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
Net Income (Loss) $(451,964)
----------
Add:
Interest 481,034
Interest expense to affiliate 23,496
----------
Interest on indebtedness 504,530
----------
Income as Adjusted $ 52,566
==========
Fixed Charges:
Interest on indebtedness $ 504,530
==========
Ratio of Earnings to Fixed Charges 0.10
==========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 451,964
==========
</TABLE>
E-3
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
Net Income (Loss) $(731,178)
----------
Add:
Interest 307,828
Interest expense to affiliate 19,836
----------
Interest on indebtedness 327,664
----------
Income as Adjusted $(403,514)
==========
Fixed Charges:
Interest on indebtedness $ 327,664
==========
Ratio of Earnings to Fixed Charges (1.23)
==========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 731,178
==========
</TABLE>
E-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MAXIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(1,693,499)
-----------
Add:
Interest 1,633,926
Interest expense to affiliate 76,425
-----------
Interest on indebtedness 1,710,350
-----------
Income as Adjusted $ 16,851
===========
Fixed Charges:
Interest on indebtedness $ 1,710,350
===========
Ratio of Earnings to Fixed Charges 0.01
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,693,499
===========
</TABLE>
E-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MINIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(1,358,862)
Add:
Interest on indebtedness 751,935
-----------
Income as Adjusted $ (606,927)
===========
Fixed Charges:
Interest on indebtedness $ 751,935
===========
Ratio of Earnings to Fixed Charges (0.81)
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,358,862
===========
</TABLE>
E-6
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING MID-CASE OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(1,315,558)
-----------
Add:
Interest 964,076
Interest expense to affiliate 39,799
-----------
Interest on indebtedness 1,003,875
-----------
Income as Adjusted $ (311,683)
===========
Fixed Charges:
Interest on indebtedness $ 1,003,875
===========
Ratio of Earnings to Fixed Charges (0.31)
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,315,558
===========
</TABLE>
E-7
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATIONS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(1,430,001)
Add:
Interest 706,330
-----------
Income as Adjusted $ (723,671)
===========
Fixed Charges:
Interest on indebtedness $ 706,330
===========
Ratio of Earnings to Fixed Charges (1.02)
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,430,001
===========
</TABLE>
E-8
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Net Income (Loss) $(984,612)
---------
Add:
Interest expense to affiliate 42,969
Interest 890,569
---------
Total interest 933,538
---------
Income as Adjusted $ (51,074)
=========
Fixed Charges:
Interest on indebtedness $ 933,538
=========
Ratio of Earnings to Fixed Charges (0.05)
=========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 984,612
=========
</TABLE>
E-9
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Net Income (Loss) $(822,718)
---------
Add:
Interest expense to affiliate 23,496
Interest 343,224
---------
Total Interest 366,720
---------
Income as Adjusted $(455,998)
=========
Fixed Charges:
Interest on indebtedness $ 366,720
=========
Ratio of Earnings to Fixed Charges (1.24)
=========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 822,718
=========
</TABLE>
E-10
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Net Income (Loss) $(704,724)
---------
Add:
Interest expense to affiliate 23,496
Interest 481,034
---------
Total interest 504,530
---------
Income as Adjusted $(200,194)
=========
Fixed Charges:
Interest on indebtedness $ 504,530
=========
Ratio of Earnings to Fixed Charges (0.40)
=========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 704,724
=========
</TABLE>
E-11
<PAGE>
BARON CAPITAL TRUST
ASSUMING LOWEST COMBINED NET CASH PROVIDED BY OPERATING ACTIVITIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<S> <C>
Net Income (Loss) $(983,938)
---------
Add:
Interest expense to affiliate 19,837
Interest 307,828
---------
Total interest 327,665
---------
Income as Adjusted $(656,273)
=========
Fixed Charges:
Interest on indebtedness $ 327,665
=========
Ratio of Earnings to Fixed Charges (2.00)
=========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 983,938
=========
</TABLE>
E-12
<PAGE>
BARON CAPITAL TRUST
ASSUMING MAXIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(2,161,690)
-----------
Add:
Interest expense to affiliate 76,425
Interest 1,633,926
-----------
Interest on indebtedness 1,710,350
-----------
Income as Adjusted $ (451,340)
===========
Fixed Charges:
Interest on indebtedness $ 1,710,350
===========
Ratio of Earnings to Fixed Charges (0.26)
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 2,161,690
===========
</TABLE>
E-13
<PAGE>
BARON CAPITAL TRUST
ASSUMING MINIMUM OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(1,827,052)
-----------
Add:
Interest expense to affiliate 39,799
Interest 712,136
-----------
Interest on indebtedness 751,935
-----------
Income as Adjusted $(1,075,117)
===========
Fixed Charges:
Interest on indebtedness $ 751,935
===========
Ratio of Earnings to Fixed Charges (1.43)
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,827,052
===========
</TABLE>
E-14
<PAGE>
BARON CAPITAL TRUST
ASSUMING MID-CASE OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(1,805,748)
-----------
Add:
Interest expense to affiliate 39,799
Interest 964,076
-----------
Interest on indebtedness 1,003,875
-----------
Income as Adjusted $ (801,873)
===========
Fixed Charges:
Interest on indebtedness $ 1,003,875
===========
Ratio of Earnings to Fixed Charges (0.80)
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,805,748
===========
</TABLE>
E-15
<PAGE>
BARON CAPITAL TRUST
ASSUMES LOWEST OFFERING
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FROM INCEPTION (FEBRUARY 3, 1998) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Net Income (Loss) $(1,898,190)
-----------
Add:
Interest expense to affiliate 33,949
Interest 672,381
-----------
Income as Adjusted $(1,191,859)
===========
Fixed Charges:
Interest on indebtedness $ 672,381
===========
Ratio of Earnings to Fixed Charges (1.77)
===========
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,898,190
===========
</TABLE>
E-16
<PAGE>
BARON CAPITAL TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Inception
Six Months Ended (February 3,
------------------------- 1998) to
June 30, June 30, December 31,
1998 1999 1998
------------ ---------- ------------
<S> <C> <C> <C>
Loss Before Minority Interest $(412,717) $(898,443) $(1,677,060)
Add Interest on Indebtedness 50,217 144,491 164,333
--------- --------- -----------
Income as Adjusted $(362,500) $(753,952) $(1,512,727)
--------- --------- -----------
--------- --------- -----------
Fixed Charges:
Interest on indebtedness $ 50,217 $ 144,491 $ 164,333
--------- --------- -----------
--------- --------- -----------
Ratio of Earnings to Fixed Charges $ (7.22) $ (5.22) $ (9.21)
--------- --------- -----------
Dollar Amount of the Deficiency in
the Ratio of Earnings to Fixed Charges $412,717 $ 898,443 $ 1,677,060
--------- --------- -----------
--------- --------- -----------
</TABLE>
E-17
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Inception
Six Months Ended (February 3,
---------------- 1998) to
June 30, June 30, December 31,
1998 1999 1998
-------- -------- ------------
<S> <C> <C> <C>
Net Income (Loss) $(383,372) $(645,683) $(1,108,870)
Add Interest on Indebtedness -- 144,491 164,333
--------- --------- ------------
Income as Adjusted $(383,372) $(501,192) $ (944,537)
--------- --------- ------------
--------- --------- ------------
Fixed Charges:
Interest on indebtedness $ -- $ 144,491 $ 164,333
--------- --------- ------------
Ratio of Earnings to Fixed Charges N/A (3.47) (5.75)
--------- --------- ------------
Dollar Amount of the Deficiency in
the Ratio of Earnings to Fixed Charges N/A $ 645,683 $ 1,108,870
--------- --------- ------------
</TABLE>
E-18
<PAGE>
BARON STRATEGIC INVESTMENT FUND V, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Inception
(October 1,
Six Months Ended 1996) to
---------------------- December 31, Year Ended
June 30, June 30, ---------------------- December 31,
1999 1998 1998 1997 1996
-------- -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 2,400 2,400 2,400 220 --
Additions During the Year -- -- -- 2,180 220
Days additional units outstanding -- -- -- 180 60
Weighted average additional units -- -- -- 1,075 220
Weighted average total units outstanding 2,400 2,400 2,400 1,295 220
Ending units outstanding 2,400 2,400 2,400 2,400 220
</TABLE>
E-19
<PAGE>
BARON STRATEGIC INVESTMENT FUND VIII, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Inception
Six Months Ended (February 25,
--------------------- Year Ended 1997) to
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Beginning units outstanding 2,400 2,298 2,298 --
Additions During the Year -- -- 102 2,298
Days additional units outstanding -- -- 184 306
Weighted average additional units -- -- 51 2,298
Weighted average total units outstanding 2,400 2,298 2,349 2,298
Ending units outstanding 2,400 2,298 2,400 2,298
</TABLE>
E-20
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Inception
Six Months Ended (June 26,
---------------------- Year Ended 1997) to
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
-------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss) $(30,145) $(27,785) $ (67,077) $ (15,829)
Add Interest on Indebtedness 19,836 17,271 37,436 --
-------- -------- -------- ---------
Income as Adjusted $(10,309) $(10,514) $ (29,641) $ (15,829)
-------- -------- -------- ---------
-------- -------- -------- ---------
Fixed Charges:
Interest on indebtedness 19,836 17,271 37,436 --
-------- -------- -------- ---------
-------- -------- -------- ---------
Ratio of Earnings to Fixed Charges (0.52) (0.61) (0.79) N/A
---- ---- ---- ---------
---- ---- ---- ---------
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 30,145 $ 27,785 $ 67,077 N/A
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
E-21
<PAGE>
BARON STRATEGIC INVESTMENT FUND X, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Inception
Six Months Ended (June 26,
---------------------- Year Ended 1997) to
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Beginning units outstanding 2,400 2,256 2,256 --
Additions During the Year -- -- 144 2,256
Days additional units outstanding -- -- 184 188
Weighted average additional units -- -- 73 2,256
Weighted average total units outstanding 2,400 2,256 2,329 2,256
Ending units outstanding 2,400 2,256 2,400 2,256
</TABLE>
E-22
<PAGE>
BARON STRATEGIC INVESTMENT FUND IX, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Inception
---------------- Year Ended (June 2, 1997) to
June 30, June 30, December 31, December 31,
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning units outstanding 2,400 1,246 1,246 --
Additions During the Year -- -- 1,154 1,246
Days additional units outstanding -- -- 184 211
Weighted average additional units -- -- 582 1,246
Weighted average total units outstanding 2,400 1,246 1,828 1,246
Ending units outstanding 2,400 1,246 2,400 1,246
</TABLE>
E-23
<PAGE>
BREVARD MORTGAGE PROGRAM, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended
---------------- Year Ended December 31,
June 30, June 30, ----------------------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 575 575 575 575 --
Additions During the Year -- -- -- -- 575
Days additional units outstanding -- -- -- -- 365
Weighted average additional units -- -- -- -- 575
Weighted average total units outstanding 575 575 575 575 575
Ending units outstanding 575 575 575 575 575
</TABLE>
E-24
<PAGE>
LAMPLIGHT COURT OF BELLAFONTAINE APARTMENTS, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Year Ended Inception
---------------- December 31, (February 16, 1996)
June 30, June 30, ------------ to December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 700 700 700 700 --
Additions During the Year -- -- -- -- 700
Days additional units outstanding -- -- -- -- 299
Weighted average additional units -- -- -- -- 700
Weighted average total units outstanding 700 700 700 700 700
Ending units outstanding 700 700 700 700 700
</TABLE>
E-25
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (October 1,
---------------- December 31, 1996) to
June 30, June 30, ------------ December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $ 55,803 $ 44,925 $ 103,047 $ 44,740 $ (2,513)
Add Interest on Indebtedness 19,473 20,915 40,388 67,699 --
-------- -------- --------- -------- ---------
Income as Adjusted $ 75,276 $ 65,840 $ 143,435 $112,439 $ (2,513)
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
Fixed charges:
Interest on indebtedness $ 19,473 $ 20,915 $ 40,388 $ 67,699 $ --
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
Ratio of Earnings to Fixed Charges 3.87 3.15 3.55 1.66 N/A
-------- -------- --------- -------- ---------
-------- -------- --------- -------- ---------
</TABLE>
E-26
<PAGE>
BARON STRATEGIC INVESTMENT FUND IV, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (October 1,
---------------- December 31, 1996) to
June 30, June 30, ------------ December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 2,000 1,719 1,719 180 --
Additions During the Year -- -- 281 1,539 180
Days additional units outstanding -- -- 180 180 61
Weighted average additional units -- -- 139 759 180
Weighted average total units outstanding 2,000 1,719 1,858 939 180
Ending units outstanding 2,000 1,719 2,000 1,719 180
</TABLE>
E-27
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Year Ended Inception
---------------- December 31, (April 9, 1996)
June 30, June 30, --------------- to December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $ 42,543 $ 45,824 $ 85,755 $ 69,806 $ (761)
Add Interest on Indebtedness 3,660 2,731 6,451 -- --
-------- -------- -------- -------- ------
Income as Adjusted $ 46,203 $ 48,555 $ 92,206 $ 69,806 $ (761)
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
Fixed charges:
Interest on indebtedness $ 3,660 $ 2,731 $ 6,451 $ -- $ --
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
Ratio of Earnings to Fixed Charges 17.78 12.62 14.29 N/A N/A
-------- -------- -------- -------- ------
-------- -------- -------- -------- ------
</TABLE>
E-28
<PAGE>
BARON STRATEGIC VULTURE FUND I, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Year Ended Inception
---------------- December 31, (April 9, 1996)
June 30, June 30, --------------- to December 31,
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 1,800 1,800 1,800 1,800 --
Additions During the Year -- -- -- -- 1,800
Days additional units outstanding -- -- -- -- 251
Weighted average additional units -- -- -- -- 1,800
Weighted average total units outstanding 1,800 1,800 1,800 1,800 1,800
Ending units outstanding 1,800 1,800 1,800 1,800 1,800
</TABLE>
E-29
<PAGE>
BARON STRATEGIC INVESTMENT FUND VI, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (October 30, 1996)
---------------- December 31, to December 31,
June 30, June 30, --------------- ------------
1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 2,400 2,400 2,400 1,064 --
Additions During the Year -- -- -- 1,336 1,064
Days additional units outstanding -- -- -- 180 61
Weighted average additional units -- -- -- 659 1,064
Weighted average total units outstanding 2,400 2,400 2,400 1,723 1,064
Ending units outstanding 2,400 2,400 2,400 2,400 1,064
</TABLE>
E-30
<PAGE>
BARON STRATEGIC INVESTMENT FUND, LTD.
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Inception
Six Months Ended Year Ended (April 24,
----------------------- December 31, 1996) to
June 30, June 30, ---------------------- December 31,
1999 1998 1998 1997 1996
--------- --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 2,400 2,400 2,400 2,400 --
Additions During the Year -- -- -- -- 2,400
Days additional units outstanding -- -- -- -- 225
Weighted average additional units -- -- -- -- 2,400
Weighted average total units outstanding 2,400 2,400 2,400 2,400 2,400
Ending units outstanding 2,400 2,400 2,400 2,400 2,400
</TABLE>
E-31
<PAGE>
BARON STRATEGIC INVESTMENT FUND II, LTD. (STEEPLECHASE)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Year Ended
----------------------- December 31, October 1, 1996
June 30, June 30, ------------------------ to December 31,
1999 1998 1998 1997 1996
--------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $ (5,229) $(46,040) $(90,525) $(178,747) $ 10,512
Add Interest on Indebtedness 48,895 45,469 91,982 93,448 --
-------- -------- -------- --------- --------
Income as Adjusted $ 43,666 $ (571) $ 1,457 $ (85,299) $ 10,512
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Fixed Charges:
Interest on indebtedness $ 48,895 $ 45,469 $ 91,982 $ 93,448 $ --
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Ratio of Earnings to Fixed Charges 0.89 (0.01) 0.02 (0.91) --
-------- -------- -------- --------- --------
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 5,229 $ 46,040 $ 90,525 $ 178,747 N/A
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
E-32
<PAGE>
BARON STRATEGIC INVESTMENT FUND II, LTD. (STEEPLECHASE)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Year Ended
----------------------- December 31, October 1, 1996
June 30, June 30, ------------------------ to December 31,
1999 1998 1998 1997 1996
--------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 1,600 1,600 1,600 1,600 --
Additions during the year -- -- -- -- 1,600
Days additional units outstanding -- -- -- -- 174
Weighted average additional units -- -- -- -- 1,600
Weighted average total units outstanding 1,600 1,600 1,600 1,600 1,600
Ending units outstanding 1,600 1,600 1,600 1,600 1,600
</TABLE>
E-33
<PAGE>
MIDWEST INCOME GROWTH FUND VI, LTD. (BROOKWOOD WAY)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Year Ended
----------------------- December 31, November 1996
June 30, June 30, ------------------------ to December 31,
1999 1998 1998 1997 1996
--------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Income (Loss) $(20,159) $ (7,800) $(27,340) $ (87,437) $ 22,650
Add Interest on Indebtedness 53,841 48,925 102,287 106,664 28,631
-------- -------- -------- --------- --------
Income as Adjusted $ 33,682 $ 41,125 $ 74,947 $ 19,227 $ 51,281
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Fixed Charges:
Interest on indebtedness $ 53,841 $ 48,925 $102,287 $ 106,664 $ 28,631
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Ratio of Earnings to Fixed Charges 0.63 0.84 0.73 0.18 1.79
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 20,159 $ 7,800 $ 27,340 $ 87,437 N/A
-------- -------- -------- --------- --------
-------- -------- -------- --------- --------
</TABLE>
E-34
<PAGE>
MIDWEST INCOME GROWTH FUND VI, LTD. (BROOKWOOD WAY)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Year Ended
----------------------- December 31, November 1996
June 30, June 30, ------------------------ to December 31,
1999 1998 1998 1997 1996
--------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Beginning units outstanding 600 600 600 600 --
Additions during the year -- -- -- -- 600
Days additional units outstanding -- -- -- -- 253
Weighted average additional units -- -- -- -- 600
Weighted average total units outstanding 600 600 600 600 600
Ending units outstanding 600 600 600 600 600
</TABLE>
E-35
<PAGE>
CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD. (LAUREL OAKS)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
-------------------- ------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- --------- --------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 6,495 $(24,902) $(61,279) $(134,636) $(81,793) $(157,583) $ 15,213
Add Interest on Indebtedness 34,102 60,174 117,215 124,413 124,291 110,703 76,166
------- --------- --------- ---------- --------- ---------- ------------
Income as Adjusted $40,597 $ 35,272 $ 55,936 $(10,223) $ 42,498 $(46,880) $ 91,379
------- --------- --------- ---------- --------- ---------- ------------
------- --------- --------- ---------- --------- ---------- ------------
Fixed Charges:
Interest on indebtedness $34,102 $ 60,174 $117,215 $124,413 $124,291 $110,703 $ 76,166
------- --------- --------- ---------- --------- ---------- ------------
Ratio of Earnings to Fixed Charges 1.19 0.59 0.48 (0.08) 0.34 (0.42) 1.20
------- --------- --------- ---------- --------- ---------- ------------
Dollar Amount of the Deficiency
in the Ratio of
Earnings to Fixed Charges N/A $ 24,902 $ 61,279 $134,636 $ 81,793 $157,583 N/A
------- --------- --------- ---------- --------- ---------- ------------
</TABLE>
E-36
<PAGE>
CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD. (LAUREL OAKS)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
-------------------- ------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- --------- --------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 2,100 2,100 2,100 2,100 2,100 2,003 --
Additions during the year -- -- -- -- -- 97 2,003
Days additional units outstanding -- -- -- -- -- 180 153
Weighted average additional units -- -- -- -- -- 48 2,003
Weighted average total units
outstanding 2,100 2,100 2,100 2,100 2,100 2,051 2,003
Ending units outstanding 2,100 2,100 2,100 2,100 2,100 2,100 2,003
</TABLE>
E-37
<PAGE>
FLORIDA CAPITAL INCOME FUND III, LTD. (BRIDGEPOINT)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, July 17, 1995
June 30, June 30, --------------------------------------- to December 31,
1999 1998 1998 1997 1996 1996
--------- --------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 20,638 $ (3,595) $(12,987) $(24,067) $ (2,710) $ (6,121)
Add Interest on Indebtedness 33,979 31,402 68,575 69,345 68,759 28,173
--------- --------- --------- ---------- ---------- -----------
Income as Adjusted $ 54,617 $ 27,807 $ 55,588 $ 45,278 $ 66,049 $ 22,052
--------- --------- --------- ---------- ---------- ------------
--------- --------- --------- ---------- ---------- ------------
Fixed Charges:
Interest on indebtedness $ 33,979 $ 31,402 $ 68,575 $ 69,345 $ 68,759 $ 28,173
--------- --------- --------- ---------- ---------- ------------
--------- --------- --------- ---------- ---------- ------------
Ratio of Earnings to Fixed Charges 1.61 0.89 0.81 0.65 0.96 0.78
--------- --------- --------- ---------- ---------- ------------
Dollar Amount of the Deficiency
in the Ratio of
Earnings to Fixed Charges N/A $ 3,595 $ 12,987 $ 24,067 $ 2,710 $ 6,121
--------- --------- --------- ---------- ---------- -----------
--------- --------- --------- ---------- ---------- -----------
</TABLE>
E-38
<PAGE>
FLORIDA CAPITAL INCOME FUND III, LTD. (BRIDGEPOINT)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, July 17, 1995
June 30, June 30, --------------------------------------- to December 31,
1999 1998 1998 1997 1996 1996
--------- --------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 1,600 1,600 1,600 1,600 1,600 --
Additions during the year -- -- -- -- -- 1,600
Days additional units outstanding -- -- -- -- -- 184
Weighted average additional units -- -- -- -- -- 1,600
Weighted average total units outstanding 1,600 1,600 1,600 1,600 1,600 1,600
Ending units outstanding 1,600 1,600 1,600 1,600 1,600 1,600
</TABLE>
E-39
<PAGE>
FLORIDA CAPITAL INCOME FUND II, LTD. (FOREST GLEN I)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, July 17, 1995
June 30, June 30, -------------------------------------------------- to December 31,
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- ---------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 34,161 $(49,826) $(145,604) $(141,990) $(36,669) $(38,668) $ 30,628
Add Interest on Indebtedness 62,533 85,336 168,581 147,139 130,820 105,222 59,481
-------- -------- --------- --------- -------- -------- --------
Income as Adjusted $ 96,694 $ 35,510 $ 22,977 $ 5,149 $ 94,151 $ 66,554 $ 90,109
======== ======== ========= ========= ======== ======== ========
Fixed Charges:
Interest on indebtedness $ 62,533 $ 85,336 $ 168,581 $ 147,139 $130,820 $105,222 $ 59,481
======== ======== ========= ========= ======== ======== ========
Ratio of Earnings to Fixed Charges 1.55 0.42 0.14 0.03 0.72 0.63 1.51
-------- -------- --------- --------- -------- -------- --------
Dollar Amount of the Deficiency in
the Ratio of Earnings to Fixed
Charges N/A $ 49,826 $ 145,604 $ 141,990 $ 36,669 $ 38,668 N/A
======== ======== ========= ========= ======== ======== ========
</TABLE>
E-40
<PAGE>
FLORIDA CAPITAL INCOME FUND II, LTD. (FOREST GLEN I)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, July 17, 1995
June 30, June 30, ----------------------------------------------- to December 31,
1999 1998 1998 1997 1996 1995 1994
-------- -------- ----- ----- ----- ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 1,840 1,840 1,840 1,840 1,840 160 --
Additions during the year -- -- -- -- -- 1,680 160
Days additional units outstanding -- -- -- -- -- 245 180
Weighted average additional units -- -- -- -- -- 1,128 160
Weighted average total units
outstanding 1,840 1,840 1,840 1,840 1,840 1,288 160
Ending units outstanding 1,840 1,840 1,840 1,840 1,840 1,840 160
</TABLE>
E-41
<PAGE>
FLORIDA INCOME OPPORTUNITY PARTNERS, LTD. (CAMELLIA COURT)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, March 6, 1995
June 30, June 30, ------------------------------------ to December 31,
1999 1998 1998 1997 1996 1995
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 11,061 $(20,329) $(63,375) $(76,079) $ (8,250) $ 6,209
Add Interest on Indebtedness 48,156 54,452 98,619 98,851 78,273 68,829
-------- -------- -------- -------- -------- --------
Income as Adjusted $ 59,217 $ 34,123 $ 35,244 $ 22,772 $ 70,023 $ 75,038
======== ======== ======== ======== ======== ========
Fixed Charges:
Interest on indebtedness $ 48,156 $ 54,452 $ 98,619 $ 98,851 $ 78,273 $ 68,829
======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 1.23 0.63 0.36 0.23 0.89 1.09
======== ======== ======== ======== ======== ========
Dollar Amount of the Deficiency in the
Ratio of Earnings to Fixed Charges N/A $ 20,329 $ 63,375 $ 76,079 $ 8,250 N/A
======== ======== ======== ======== ======== ========
</TABLE>
E-42
<PAGE>
FLORIDA INCOME OPPORTUNITY PARTNERS, LTD. (CAMELLIA COURT)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, March 6, 1995
June 30, June 30, -------------------------------- to December 31,
1999 1998 1998 1997 1996 1995
-------- -------- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 800 800 800 800 800 --
Additions during the year -- -- -- -- -- 800
Days additional units outstanding -- -- -- -- -- 129
Weighted average additional units -- -- -- -- -- 800
Weighted average total units
outstanding 800 800 800 800 800 800
Ending units outstanding 800 800 800 800 800 800
</TABLE>
E-43
<PAGE>
FLORIDA CAPITAL INCOME FUND IV, LTD. (GLEN LAKES)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, May 18, 1995
June 30, June 30, ------------------------------------- to December 31,
1999 1998 1998 1997 1996 1995
--------- -------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $(335,081) $(131,011) $(477,732) $ (94,667) $(134,841) $ (73,631)
Add Interest on Indebtedness 213,202 128,357 305,278 310,602 312,704 225,598
--------- --------- --------- --------- --------- ---------
Income as Adjusted $(121,879) $ (2,654) $(172,454) $ 215,935 $ 177,863 $ 151,967
========= ========= ========= ========= ========= =========
Fixed Charges:
Interest on indebtedness $ 213,202 $ 128,357 $ 305,278 $ 310,602 $ 312,704 $ 225,598
========= ========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges (0.57) (0.02) (0.56) 0.70 0.57 0.67
========= ========= ========= ========= ========= =========
Dollar Amount of the Deficiency in the
Ratio of Earnings to Fixed Charges $ 335,081 $ 131,011 $ 477,732 $ 94,667 $ 134,841 $ 73,631
========= ========= ========= ========= ========= =========
</TABLE>
E-44
<PAGE>
FLORIDA CAPITAL INCOME FUND IV, LTD. (GLEN LAKES)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, May 18, 1995
June 30, June 30, ------------------------------------- to December 31,
1999 1998 1998 1997 1996 1995
--------- -------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 3,640 3,640 3,640 3,640 2,440 --
Additions (February 15, 1995) -- -- -- -- 1,200 440
Days additional units outstanding -- -- -- -- 184 320
Weighted average additional units -- -- -- -- 605 386
Additions (September 1, 1995) -- -- -- -- -- 427
Days additional units outstanding -- -- -- -- -- 122
Weighted average additional units -- -- -- -- -- 143
Additions (November 15, 1995) -- -- -- -- -- 1,573
Days additional units outstanding -- -- -- -- -- 15
Weighted average additional units -- -- -- -- -- 65
Weighted average total units
outstanding 3,640 3,640 3,640 3,640 3,045 594
Ending units outstanding 3,640 3,640 3,640 3,640 3,640 2,440
</TABLE>
E-45
<PAGE>
FLORIDA INCOME GROWTH FUND V, LTD. (BLOSSOM CORNERS I)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Year Ended December 31, July 7, 1995
June 30, June 30, ------------------------------------- to December 31,
1999 1998 1998 1997 1996 1995
--------- -------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 18,072 $ 18,471 $ 5,416 $ (5,533) $(45,962) $ (20,886)
Add Interest on Indebtedness 45,917 51,977 93,253 94,358 79,488 34,249
-------- -------- -------- -------- -------- --------
Income as Adjusted $ 63,989 $ 70,448 $ 98,669 $ 88,825 $ 33,526 $ 13,363
======== ======== ======== ======== ======== =========
Fixed Charges:
Interest on indebtedness $ 45,917 $ 51,977 $ 93,253 $ 94,358 $ 79,488 $ 34,249
======== ======== ======== ======== ======== =========
Ratio of Earnings to Fixed Charges 1.39 1.36 1.06 0.94 0.42 0.39
======== ======== ======== ======== ======== =========
Dollar Amount of the Deficiency in the
Ratio of Earnings to Fixed Charges N/A N/A N/A $ 5,533 $ 45,962 $ 20,886
======== ======== ======== ======== ======== =========
</TABLE>
E-46
<PAGE>
FLORIDA INCOME GROWTH FUND V, LTD. (BLOSSOM CORNERS I)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended
---------------------- Year Ended December 31, July 7, 1995
June 30, June 30, --------------------------------- to December 31,
1999 1998 1998 1997 1996 1995
-------- -------- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 2,300 2,300 2,300 2,300 722 --
Additions during the year -- -- -- -- 1,578 722
Days additional units outstanding -- -- -- -- 275 81
Weighted average additional units -- -- -- -- 1,189 722
Weighted average total units
outstanding 2,300 2,300 2,300 2,300 1,911 722
Ending units outstanding 2,300 2,300 2,300 2,300 2,300 722
</TABLE>
E-47
<PAGE>
GSU STADIUM STUDENT APARTMENTS, LTD. (STADIUM CLUB)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31, June 30, 1995
---------------- -------------------------- to December 31,
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 23,572 $(12,976) $(106,126) $(22,159) $ (12,966) $ 2,859
Add Interest on Indebtedness 67,703 71,200 138,585 146,120 122,433 51,600
-------- -------- --------- -------- --------- -------
Income as Adjusted $ 91,275 $ 58,224 $ 32,459 $123,961 $ 109,467 $ 54,459
-------- -------- --------- -------- --------- -------
-------- -------- --------- -------- --------- -------
Fixed Charges:
Interest on indebtedness $ 67,703 $ 71,200 $138,585 $146,120 $ 122,433 $ 51,600
-------- -------- --------- -------- --------- -------
-------- -------- --------- -------- --------- -------
Ratio of Earnings to Fixed Charges 1.35 0.82 0.23 0.85 0.89 1.06
-------- -------- --------- -------- --------- -------
-------- -------- --------- -------- --------- -------
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges N/A $ 12,976 $ 106,126 $ 22,159 $ 12,966 N/A
-------- -------- --------- -------- --------- -------
-------- -------- --------- -------- --------- -------
</TABLE>
E-48
<PAGE>
GSU STADIUM STUDENT APARTMENTS, LTD. (STADIUM CLUB)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31, June 30, 1995
---------------- -------------------------- to December 31,
1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 2,000 2,000 2,000 2,000 1,212 --
Additions during the year -- -- -- -- 788 1,212
Days additional units outstanding -- -- -- -- 340 56
Weighted average additional units -- -- -- -- 734 1,212
Weighted average total units outstanding 2,000 2,000 2,000 2,000 1,946 1,212
Ending units outstanding 2,000 2,000 2,000 2,000 2,000 1,212
</TABLE>
E-49
<PAGE>
FLORIDA INCOME APPRECIATION FUND, LTD. (FOREST GLEN IV)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Eight Months
---------------- Year Ended December 31, Ended
June 30, June 30, ------------------------------------ December 31,
1999 1998 1998 1997 1996 1995 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ (1,062) $(10,332) $(22,466) $ (7,587) $ 1,427 $44,122 $ 22,038
Add Interest on Indebtedness 9,727 9,648 20,825 17,697 15,897 17,438 43,450
-------- -------- -------- -------- -------- ------- --------
Income as Adjusted $ 8,665 $ (684) $ (1,641) $ 10,110 $ 17,324 $61,560 $ 65,488
-------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- ------- --------
Fixed Charges:
Interest on indebtedness $ 9,727 $ 9,648 $ 20,825 $ 17,697 $ 15,897 $17,438 $ 43,450
-------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- ------- --------
Ratio of Earnings to Fixed Charges 0.89 (0.07) (0.08) 0.57 1.09 3.53 1.51
-------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- ------- --------
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 1,062 $ 10,332 $ 22,466 $ 7,587 N/A N/A N/A
-------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- ------- --------
</TABLE>
E-50
<PAGE>
FLORIDA INCOME APPRECIATION FUND, LTD. (FOREST GLEN IV)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Eight Months
---------------- Year Ended December 31, Ended
June 30, June 30, ------------------------------------ December 31,
1999 1998 1998 1997 1996 1995 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 205 205 205 205 205 205 --
Additions during the year -- -- -- -- -- -- 205
Days additional units outstanding -- -- -- -- -- -- 260
Weighted average additional units -- -- -- -- -- -- 205
Weighted average total units outstanding 205 205 205 205 205 205 205
Ending units outstanding 205 205 205 205 205 205 205
</TABLE>
E-51
<PAGE>
REALTY OPPORTUNITY INCOME FUND VIII (FOREST GLEN II)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Ten Months
---------------- Year Ended December 31, Ended
June 30, June 30, ------------------------------------ December 31,
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $(14,970) $ (6,468) $(36,781) $(58,925) $ (3,934) $ 42,117 $ 44,259
Add Interest on Indebtedness 36,130 35,431 76,857 57,242 59,048 57,517 49,158
-------- -------- -------- -------- -------- -------- --------
Income as Adjusted $ 21,160 $ 28,963 $ 40,076 $ (1,683) $ 55,114 $ 99,634 $ 93,417
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Fixed Charges:
Interest on indebtedness $ 36,130 $ 35,431 $ 76,857 $ 57,242 $ 59,048 $ 57,517 $ 49,158
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges 0.59 0.82 0.52 (0.03) 0.93 1.73 1.90
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges $ 14,970 $ 6,468 $ 36,781 $ 58,925 $ 3,934 N/A N/A
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
E-52
<PAGE>
REALTY OPPORTUNITY INCOME FUND VIII (FOREST GLEN II)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Ten Months
-------------------- Year Ended December 31, Ended
June 30, June 30, ---------------------------- December 31,
1999 1998 1998 1997 1996 1995 1994
-------- -------- ------ ----- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 944 944 944 944 944 944 --
Additions during the year -- -- -- -- -- -- 944
Days additional units outstanding -- -- -- -- -- -- 275
Weighted average additional units -- -- -- -- -- -- 944
Weighted average total units outstanding 944 944 944 944 944 944 944
Ending units outstanding 944 944 944 944 944 944 944
</TABLE>
E-53
<PAGE>
FLORIDA INCOME ADVANTAGE FUND, LTD. (FOREST GLEN III)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended Ten Months
-------------------- Year Ended December 31, Ended
June 30, June 30, --------------------------------------- December 31,
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $(14,043) $(14,786) $(49,188) $(38,748) $ 10,630 $ 27,912 $ 53,744
Add Interest on Indebtedness 30,572 31,567 66,620 55,728 49,964 46,216 42,439
-------- -------- -------- -------- -------- -------- --------
Income as Adjusted $ 16,529 $ 16,781 $ 17,432 $ 16,980 $ 60,594 $ 74,128 $ 96,183
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Fixed Charges:
Interest on indebtedness $ 30,572 $ 31,567 $ 66,620 $ 55,728 $ 49,964 $ 46,216 $ 42,439
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges 0.54 0.53 0.26 0.30 1.21 1.60 2.27
-------- -------- -------- -------- -------- -------- --------
Dollar Amount of the Deficiency in
the Ratio of Earnings to Fixed Charges $ 14,043 $ 14,786 $ 49,188 $ 38,748 N/A N/A N/A
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
E-54
<PAGE>
FLORIDA INCOME ADVANTAGE FUND, LTD. (FOREST GLEN III)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Ten Months
-------------------- Year Ended December 31, Ended
June 30, June 30, ---------------------------------- December 31,
1999 1998 1998 1997 1996 1995 1994
-------- ------- ----- ----- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 940 940 940 940 940 940 --
Additions during the year -- -- -- -- -- -- 940
Days additional units outstanding -- -- -- -- -- -- 309
Weighted average additional units -- -- -- -- -- -- 940
Weighted average total units outstanding 940 940 940 940 940 940 940
Ending units outstanding 940 940 940 940 940 940 940
</TABLE>
E-55
<PAGE>
FLORIDA CAPITAL INCOME FUND, LTD. (EAGLE LAKE)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months Ended
------------------- Year Ended December 31,
June 30, June 30, -----------------------------------------------------
1999 1998 1998 1997 1996 1995
--------- ---------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 36,266 $(20,017) $(48,964) $(49,578) $(33,481) $ (103,277)
Add Interest on Indebtedness 61,321 71,054 127,820 152,753 159,163 157,757
--------- --------- --------- -------- -------- ----------
Income as Adjusted $ 97,587 $ 51,037 $ 78,856 $ 103,175 $ 125,682 $ 54,480
--------- --------- --------- -------- -------- ----------
--------- --------- --------- -------- -------- ----------
Fixed Charges:
Interest on indebtedness $ 61,321 $ 71,054 $ 127,820 $ 152,753 $ 159,163 $ 157,757
--------- --------- --------- -------- -------- ----------
--------- --------- --------- -------- -------- ----------
Ratio of Earnings to Fixed Charges 1.59 0.72 0.62 0.68 0.79 0.35
--------- --------- --------- -------- -------- ----------
--------- --------- --------- -------- -------- ----------
Dollar Amount of the Deficiency in the Ratio of
Earnings to Fixed Charges N/A $ 20,017 $ 48,964 $ 49,578 $ 33,481 $ 103,277
--------- --------- --------- -------- -------- ----------
--------- --------- --------- -------- -------- ----------
</TABLE>
E-56
<PAGE>
FLORIDA CAPITAL INCOME FUND, LTD. (EAGLE LAKE)
CALCULATION OF WEIGHTED AVERAGE PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
Six Months Ended Four Months
--------------------- Year Ended December 31, Ended
June 30, June 30, --------------------------------- December 31,
1999 1998 1998 1997 1996 1995
-------- -------- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Beginning units outstanding 1,614 1,614 1,614 1,614 455 --
Additions during the year -- -- -- -- 1,159 455
Days additional units outstanding -- -- -- -- 306 33
Weighted average additional units -- -- -- -- 972 455
Weighted average total units outstanding 1,614 1,614 1,614 1,614 1,427 455
Ending units outstanding 1,614 1,614 1,614 1,614 1,614 455
</TABLE>
E-57
