As filed with the Securities and Exchange Commission on June 1, 1998
Registration No. 333-_____________
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U.S. Securities and Exchange Commission
Washington, D.C. 20549
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 31-1584691
State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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 (Name, address, including ZIP Code,
telephone number, including area code, and telephone number, including
of registrant's principal executive offices) area code, of agent for service)
Copies to:
Dennis P. Spates, Esq.
Schoeman, Marsh & Updike, LLP
60 East 42nd Street, 39th Floor
New York, New York 10165
(212) 661-5030
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Registration Statement becomes
effective.
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CALCULATION OF REGISTRATION FEE
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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
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2,500,000 Units of Limited
Partnership Interest $25,000,000 $10.00 $25,000,000 $7,576.00
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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.
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CROSS REFERENCE SHEET
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Location or Heading in
Item Number Caption Prospectus
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Item 1 Forepart of Registration Statement and Outside Outside Front Cover
Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages of Inside Front Cover; Outside Back Cover;
Prospectus Table of Contents; Additional Information;
Summary of Declaration of Trust - Quarterly
and Annual Reports
Item 3 Risk Factors, Ratio of Earnings to Fixed Charges Outside Front Cover; Summary of the Trust
and Other Information and the Operating Partnership; Tax Status;
Summary of Risk Factors; Risk Factors;
Federal Income Tax Considerations
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;
Proposed Initial Real Estate Investments;
Federal Income Tax Considerations;
Comparison of Rights of Holders of Exchange
Partnership Units, Operating Partnership
Units and Trust Common Shares
Item 5 Pro Forma Financial Information Not Applicable
Item 6 Material Contracts with the Company Being Acquired The Trust and the Operating Partnership;
Comparison of Rights of Holders of Exchange
Partnership Units, Operating Partnership
Units and Trust Common Shares
Item 7 Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
Item 8 Interests of Named Experts and Counsel Not Applicable
Item 9 Disclosure of Commission Position on Summary of Declaration of Trust - Liability
Indemnification of Securities Act Liabilities and Indemnification; Item 20 of Part II of
the Registration Statement
Item 10 Information with Respect to S-3 Registrants Not Applicable
Item 11 Incorporation of Certain Information by Reference Not Applicable
Item 12 Information with Respect to S-2 or S-3 Registrants Not Applicable
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Item 13 Incorporation of Certain Information by Reference Not Applicable
Item 14 Information with Respect to Registrants Other than Summary of the Trust and the Operating
S-2 or S-3 Registrants Partnership; the Exchange Offering; The
Trust and the Operating Partnership; Legal
Matters
Item 15 Information with Respect to S-3 Companies Not Applicable
Item 16 Information with Respect to S-2 or S-3 Companies Not Applicable
Item 17 Information with Respect to Companies Other than Summary of the Trust and the Operating
S-2 or S-3 Companies Partnership; The Trust and the Operating
Partnership; Proposed Initial Real Estate
Investments; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of the Exchange Properties;
Other Information - Financial Statements
Item 18 Information if Proxies, Consents or Authorizations
are to be Solicited Not Applicable
Item 19 Information if Proxies, Consents or Authorizations The Exchange Offering; Summary of Risk
are not to be Solicited or in an Exchange Offer Factors; Risk Factors - No Right of Dissent
Item 20 Indemnification of Directors and Officers Item 20 of Part II of the Registration
Statement
Item 21 Exhibits and Financial Statement Schedules Item 21 of Part II of the Registration
Statement
Item 22 Undertakings Item 22 of Part II of the Registration
Statement
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PART I
INFORMATION REQUIRED IN PROSPECTUS
Date of Issuance: ________________, 1998
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.
a Delaware limited partnership
2,500,000 Units of Limited Partnership Interest
This Prospectus constitutes the Prospectus for the exchange offering (the
"Exchange Offering") being conducted by Baron Capital Properties, L. P. (the
"Operating Partnership"), a Delaware limited partnership, under which it is
offering to acquire residential apartment property interests from owners in
exchange for units of limited partnership interest in the Operating Partnership
("Operating Partnership Units" or "Units"). Holders of Units ("Unitholders") 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 of beneficial interest in Baron
Capital Trust (the "Trust"), a Delaware business trust which is the general
partner of the Operating Partnership, so long as the exchange would not cause
the seller to own (taking into account certain ownership attribution rules) in
excess of 5.0% of the then outstanding Shares in the Trust, subject to certain
exceptions. This Prospectus and the enclosed transmittal form are first being
sent to Offerees in connection with initial transactions under the Exchange
Offering on or about June __, 1998. Offerees who elect to accept the Exchange
Offering are required to indicate their acceptance in the space provided on the
enclosed transmittal form and sign and return it to the Operating Partnership by
__________, 1998 [the twentieth day following the date of mailing of
Prospectus]. See "THE EXCHANGE OFFERING."
The Trust and Operating Partnership constitute a self-administered and
self-managed real estate company which has been organized to 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 Trust, indirectly through the Operating Partnership,
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. 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 property interests acquired. 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. As described below,
the Trust will also acquire an equity interest in the Operating Partnership with
the net proceeds of the $25,000,000 cash offering (the "Cash Offering") of
Common Shares of beneficial interest in the Trust ("Trust Common Shares" or
"Common Shares") currently being conducted by the Trust. See "THE TRUST AND THE
OPERATING PARTNERSHIP."
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The Trust and the Operating Partnership intend to make regular quarterly
distributions to their Shareholders and Unitholders, respectively, of net income
generated from investments in property interests. 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 of the Trust determines,
with the affirmative vote of a Majority of the Trust's 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 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 the Trust's 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 such property interests
and thereby provide the opportunity for deferral until a later date of any tax
liabilities that sellers of property interests otherwise would incur if they
received cash or Common Shares in the Trust in connection with their sale of
property interests. See "TAX STATUS" and "FEDERAL INCOME TAX CONSIDERATIONS."
The Managing Shareholder of the Trust is Baron Advisors, Inc. ("Baron
Advisors"), a Delaware corporation which will manage the 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 will be
comprised of Independent Trustees, 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. See "MANAGEMENT" and
"SUMMARY OF DECLARATION OF TRUST - Control of Operations."
All of the Operating Partnership Units being offered pursuant to this
Prospectus are being offered in connection with Exchange Offering. Sellers of
property interests which acquire Operating Partnership Units in the Exchange
Offering will be entitled to exchange such 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 seller to own (taking into account certain ownership
attribution rules) in excess of 5.0% of the then outstanding Shares in the
Trust, subject to certain exceptions. To facilitate such exchanges of Operating
Partnership Units into Trust Common Shares, 2,500,000 Trust Common Shares (in
addition to the 2,500,000 Trust Common Shares being offered by the Trust in the
Cash Offering) have been registered with the Commission in conjunction with the
registration of the Trust Common Shares being offered in the Cash Offering.
Concurrently with the Exchange Offering, the Trust is offering on a best
efforts basis a maximum of 2,500,000 Trust Common Shares in the Cash Offering at
a purchase price of $10 per Trust Common Share. As of the date of this
Prospectus, the Trust has sold _____ Common Shares in the Cash Offering
(representing gross proceeds of $_________. The Trust will use the net cash
proceeds of the Cash Offering to acquire Units in the Operating Partnership,
which, in turn, will use such proceeds (i) to acquire residential apartment
property interests, (ii) for capital improvements which may be required on
properties in which the Operating Partnership acquires an interest and (iii) for
working capital purposes. Concurrently with the Cash Offering and the Exchange
Offering, the Trust will apply for listing on the American Stock Exchange (the
"AMEX") 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 Trust will deliver at its own expense to each Offeree who
requests in writing a copy of the Prospectus of the Trust relating to the Cash
Offering and any amendments and supplements thereto.
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 Operating Partnership Units are exchangeable by Unitholders
into an identical number of Trust Common Shares at any time and the economic
interests represented by Operating Partnership Units and Trust Common Shares are
substantially identical.
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As its initial acquisition candidates in connection with the Exchange
Offering, the Operating Partnership will offer to acquire the entire equity
interests in 11 residential apartment properties (the "Exchange Properties")
indirectly owned by partners in 10 real estate limited partnerships managed by
Affiliates of the Managing Shareholder and by partners in a real estate limited
partnership managed by an Affiliate of Sigma Financial Corporation, the Dealer
Manager of the Trust's Cash Offering (collectively, the "Exchange Partnerships"
and individually, an "Exchange Partnership"). The targeted properties consist of
an aggregate of 638 residential units (comprised of studio and one, two, three
and four-bedroom units) and are all located in Florida with the exception of one
property which is located in Georgia. Such property interests are described in
further detail at "PROPOSED INITIAL REAL ESTATE INVESTMENTS" and in Exhibit B
hereto. 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
generally the same terms as currently exist. See "THE EXCHANGE OFFERING,"
"PROPOSED INITIAL REAL ESTATE INVESTMENTS," "SELECTED FINANCIAL DATA,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE EXCHANGE PROPERTIES" and "COMPARISON OF RIGHTS OF HOLDERS OF
EXCHANGE PARTNERSHIP UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON
SHARES."
The current book value of the 11 Exchange Properties is approximately $19.6
million. If acquisitions are consummated in respect of all 11 Exchange
Properties in the Exchange Offering, the property interests will have a deemed
purchase price totaling approximately $26.5 million, comprised of Operating
Partnership Units to be issued with a deemed value of approximately $12 million
plus first mortgage indebtedness of approximately $14.5 million to which the
properties are subject. The properties to be acquired with the balance of the
Operating Partnership Units to be offered in the Exchange Offering (with a
deemed value of approximately $13 million) have not yet been finally determined.
In addition, the net cash proceeds of the Cash Offering (approximately
$_________ as of the date of this Prospectus) have not yet been committed to
specific properties. Therefore, Offerees who elect to accept the Exchange
Offering may not have available any information on 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.
The Trust intends to investigate other investment opportunities to exchange
the balance of the registered Units for property interests in other Exchange
Offering transactions, including interests held in 13 additional properties by
other limited partnerships managed by Affiliates of the Managing Shareholder and
interests held in an additional property by a limited partnership managed by
Sigma Financial Corporation, the Dealer Manager of the Cash Offering. The Trust
will also investigate investment opportunities involving property interests
owned by unaffiliated persons. See "PRIOR PERFORMANCE BY AFFILIATES OF MANAGING
SHAREHOLDER."
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 ($22,500,000, after
payment of selling commissions and offering fees) 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
80.2% of the then outstanding Units and Gregory K. McGrath and Robert S. Geiger,
the founders of the Trust and the Operating Partnership (the "Original
Investors"), would own the remaining approximately 18.8%. See "THE TRUST AND THE
OPERATING PARTNERSHIP- Ownership of the Trust and the Operating Partnership."
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. 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 to be issued to the Dealer
Manager and participating broker-dealers in connection with the Cash Offering),
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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 the same number and percentage. 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."
The Trust or the Operating Partnership, as the case may be, intends to
investigate making an additional public or private offering of Common Shares or
Units within the 12-month period following the commencement of the Cash Offering
if the Managing Shareholder 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 Unitholders of the Operating Partnership and
Shareholders of the Trust, including Offerees who acquire Operating Partnership
Units in the Exchange Offering.
THE MATERIAL RISKS INVOLVED IN THE EXCHANGE OFFERING AND THE OWNERSHIP OF
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES INCLUDE THE FOLLOWING:
o Real estate investment risks exist such as the effect of economic and other
conditions on cash flows from residential apartment properties in which the
Trust and the Operating Partnership invest and on property values.
o 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 exchanges 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 the Cash Offering), immediately upon the
completion of the offerings, the Shareholders of the Trust (including
purchasers of Common Shares in the Cash Offering and broker-dealers who
earn Common Shares as commissions for effecting transactions in connection
with the Exchange Offering) 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. See "RISK
FACTORS Distributions to Shareholders and Unitholders Dependent upon
Profits of Operating Partnership" and "THE TRUST AND THE OPERATING
PARTNERSHIP - Ownership of the Trust and the Operating Partnership."
o Financing risks exist, including debt service obligations in respect of
debt secured by or associated with properties in which the Operating
Partnership invest and the ability of the Trust and the Operating
Partnership to incur additional debt; the need to refinance all of the
indebtedness of the Trust and the Operating Partnership at various
maturities; and the effect of any increase in interest rates on the
interest expenses of the Trust and the Operating Partnership in respect of
any adjustable interest rate financing or in respect of any required
refinancing, all of which risks could adversely affect their respective
cash flow from property investments.
o The Original Investors in the Operating Partnership serve as executive
officers of the Trust and the Managing Shareholder and collectively own an
amount of Operating Partnership Units which are exchangeable (subject to
escrow restrictions described below) into 19% of the Trust Common Shares
outstanding after the completion of
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the Cash Offering and the Exchange Offering, 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 other consideration and
such Units have been required to be 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 have
significant influence over the affairs of the Trust and the Operating
Partnership which may result in decisions that do not fully represent the
interests of all Shareholders of the Trust and Unitholders in the Operating
Partnership. In addition, Unitholders 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.
o The operation of the Trust and the Operating Partnership involves
transactions among the Trust, the Operating Partnership, the Managing
Shareholder, the Original Investors and certain Affiliates of the Managing
Shareholder which may involve conflicts of interest which could result in
decisions that do not fully represent the interest of all Shareholders of
the Trust and Unitholders of the Operating Partnership.
o Although Operating Partnership Units will be freely tradable, no public
market for their sale is expected to ever develop. In addition, although
Unitholders will be entitled in the future to exchange Operating
Partnership Units for an equivalent number of Trust Common Shares and the
Trust Common Shares have been registered under the Securities Act of 1933,
as amended, will be freely tradable (subject to certain restrictions
relating to REIT tax laws and rules) and are expected to be listed for
trading on AMEX immediately prior to the completion of the Cash Offering
and the Exchange Offering, it is possible that no public market for the
Trust Common Shares will ever develop or be maintained, resulting in lack
of liquidity of the Trust Common Shares.
o The distribution requirements for REITs under federal income tax laws may
limit the ability of the Trust and the Operating Partnership to finance
acquisitions and improvements of property without additional debt or equity
financing and may limit cash available for distribution to Shareholders of
the Trust and Unitholders of the Operating Partnership.
o Dependency on key management.
o Taxation of the Trust as a corporation results if it fails to qualify as a
REIT.
o Depending on the tax situation of a particular seller of a property
interest in exchange for Units in connection with the Exchange Offering,
there can be no assurance that gain will be deferred in whole or in part.
o Limitations on the ability of Shareholders to change control of the Trust
exist due to restrictions on ownership by any individual Shareholder (other
than the Original Investors) of more than 5.0% of the Trust Common Shares.
o The Trust and the Operating Partnership are newly formed and have no
significant assets or operating history, and, as a result, Offerees may not
have an opportunity prior to their election to accept the Exchange Offering
to evaluate a significant number of properties in which the Trust and the
Operating Partnership may acquire an interest.
o There can be no assurance as to the successful completion of this Exchange
Offering and the Cash Offering and it is unlikely that the cash proceeds
from the sale in the Cash Offering of only the minimum number of Trust
Common Shares required to complete the Cash Offering will be sufficient to
meet the investment objectives of the Trust and the Operating Partnership.
o The aggregate book value of the 11 Exchange Properties initially targeted
for acquisition in the Exchange Offering is less than the sum of the deemed
value of the Operating Partnership Units proposed to be paid for the
Exchange Properties plus first mortgage indebtedness to which the
properties are subject, due to depreciation
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taken against the original price of the properties paid by the Exchange
Partnerships and the appreciation of the properties since such purchase.
Because the aggregate book value of the Exchange Properties is less than
the deemed value of the Operating Partnership Units proposed to be paid for
the Exchange Properties plus first mortgage indebtedness to which the
properties are subject, the return on investment of the properties based on
the deemed value of the properties in connection with the Exchange Offering
will be less than the return on investment of the properties based on the
Exchange Partnerships' book value.
o If acquisitions are consummated in respect of all 11 Exchange Properties
initially targeted for acquisition in the Exchange Offering, the properties
will have a deemed purchase price totaling approximately $26.5 million,
comprised of Operating Partnership Units to be issued with a deemed value
of approximately $12 million plus first mortgage indebtedness of
approximately $14.5 million to which the properties are subject. The
properties to be acquired with the balance of the Operating Partnership
Units to be offered in the Exchange Offering (with a deemed value of
approximately $13 million) have not yet been finally determined. In
addition, the net cash proceeds of the Cash Offering (approximately
$_________ as of the date of this Prospectus) have not yet been committed
to 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. The additional properties
to be acquired will be determined by the management of the Trust taking
into account the objectives of the Trust to acquire residential apartment
properties which generate current cash flow for distribution to
Shareholders and Unitholders from rental payments from the rental of
apartment units and which provide the opportunity for capital appreciation.
The purchase price to be paid for additional properties will be determined
taking into account a number of factors, including, among others, the
operating history and financial results of the property, the property's
overall condition and the estimated appraised market value of the property
determined by a qualified independent appraisal firm.
o The terms of the Exchange Offering were determined by the Trust 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 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. 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 generally
the same terms as currently exist.
o Following the Exchange Offering, if a large majority of the Offerees in a
particular Exchange Partnership elect to accept the offering, limited
partnership interests which are retained in that partnership by Exchange
Limited Partners who elect not to accept the offering 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 would
be sold in the near future due to the REIT provisions of the Code which
would penalize the Trust if it sold a property interest in the short term.
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 AN INVESTMENT IN OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES, INCLUDING THE FOREGOING.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION
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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)
The date of this Prospectus is ______________, 1998
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TABLE OF CONTENTS
Page
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SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP ......................... 13
Summary of the Trust and the Operating Partnership ....................... 13
Reasons for this Exchange Offering and the Cash Offering ................. 16
Effects of the Formation Transactions and this Exchange
Offering and the Cash Offering .......................................... 17
SUMMARY OF RISK FACTORS .................................................... 18
TAX STATUS ................................................................. 21
The Operating Partnership ................................................ 21
The Trust ................................................................ 22
COMPENSATION OF MANAGING PERSONS AND AFFILIATES ............................ 22
Operating Partnership .................................................... 22
The Trust ................................................................ 22
CONFLICTS OF INTEREST ...................................................... 26
FIDUCIARY RESPONSIBILITY ................................................... 28
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS .......................... 30
RISK FACTORS ............................................................... 30
The Trust and the Operating Partnership .................................. 30
No Operating History .................................................. 30
Limited Marketability of Units and Common Shares ...................... 31
Effect on Price of Common Shares and Units 32
Available for Future Sale ............................................ 32
Effect of Market Interest Rates on Common Share Prices ................ 32
Arbitrary Offering Price .............................................. 32
Participation Rights of Unitholders and
Shareholders in Management ........................................... 32
Distributions to Shareholders and Unitholders
Affected by Many Factors ............................................. 32
Distributions to Shareholders and Unitholders
Dependent upon Profits of Operating Partnership ...................... 33
Liability and Indemnification of the Managing Persons ................. 34
Delaware Business Trust ............................................... 34
Issuance of Additional Securities ..................................... 34
Limits on Ownership and Transfers of Shares ........................... 35
Anti-Takeover Provisions .............................................. 35
Dependency on Key Management .......................................... 35
Influence of Original Investors ....................................... 36
Conflicts of Interest ................................................. 36
Success of Public Offerings ........................................... 37
Dilution .............................................................. 37
Uncertainty of Success of Exchange Offering and Cash Offering ......... 38
Prior Performance of Properties to be Acquired in
Exchange Offering .................................................... 38
Deemed Property Value in Exchange Offering Exceeds
Current Book Value ................................................... 39
Uncertainties Regarding Property Acquisitions ......................... 39
No Separate Representation of Offerees ................................ 40
No Rights of Dissent .................................................. 40
Lack of Liquidity of Retained Interest in an Exchange
Partnership Following the Exchange Offering .......................... 40
Property Investments ..................................................... 40
Investment Risks ...................................................... 40
Lack of Liquidity of Real Estate ...................................... 41
Capital Improvements .................................................. 42
Risk of Real Estate Acquisitions ...................................... 42
Real Estate Financing Risks ........................................... 42
Risks of Investments in Mortgages ..................................... 43
Operating Risks ....................................................... 43
Risk of Joint Activity with Others .................................... 44
Competition ........................................................... 44
Uninsured Loss ........................................................ 44
Regulatory Compliance ................................................. 44
Fair Housing Amendments Act of 1988 ................................ 44
Americans with Disabilities Act .................................... 45
Compliance with Environmental Laws ................................. 45
Extended and Uncertain Period for Returns ............................. 45
Lack of Diversification ............................................... 46
Utilization of Funds for Undesignated Properties ...................... 46
Dispositions of Trust Property ........................................ 46
Changes in Laws ....................................................... 47
Unaudited Financial Statements ........................................ 47
Potential Loss of Future Appreciation ................................. 47
More Successful Exchange Properties combined Economically
with Less Successful Exchange Properties ............................. 48
Income Tax Considerations ................................................ 48
Adverse Consequences of Failure to Qualify as a REIT .................. 48
Adverse Consequences of Failure of the Operating
Partnership to be Classified as a Partnership ..................... 49
State and Local Taxes ................................................. 49
8
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THE EXCHANGE OFFERING .................................................... 50
Reasons for the Exchange Offering ........................................ 51
Effects of the Formation Transactions and Cash
Offering and Exchange Offering ........................................ 52
Exchange Property Appraisals ............................................. 53
CAI ................................................................... 53
RAS ................................................................... 55
Exchange Of Certificates ................................................. 55
Expenses of the Exchange Offering ........................................ 56
PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER .................... 57
MANAGEMENT ................................................................. 67
Managing Shareholder ..................................................... 67
Trust Management Agreement ............................................... 69
Officers of the Trust .................................................... 70
The Board of the Trust; Committees; and Trustees ......................... 70
The Board of the Trust ................................................ 70
Independent Trustees .................................................. 71
Corporate Trustee ..................................................... 72
THE TRUST AND THE OPERATING PARTNERSHI ..................................... 74
The Operating Partnership ................................................ 74
Formation Transactions ................................................... 76
Ownership of the Trust and the Operating Partnership ..................... 77
Regulations .............................................................. 74
Fair Housing Amendments of 1988 ....................................... 80
Americans with Disabilities Act ("Act") ............................... 80
Environmental Regulations ............................................. 80
Rent Control Legislation .............................................. 81
Employees ................................................................ 81
INVESTMENT OBJECTIVES AND POLICIES ......................................... 81
General .................................................................. 81
Trust Policies with Respect to Certain Activities ........................ 82
Investment Policies ................................................... 83
Disposition Policies .................................................. 84
Financing Policies .................................................... 84
Conflicts of Interest Policies ........................................ 85
PROPOSED REAL ESTATE INVESTMENTS ........................................... 85
Property Description ..................................................... 90
Lease Agreements ......................................................... 90
Competition .............................................................. 90
Insurance ................................................................ 90
Property Management ...................................................... 90
SELECTED FINANCIAL DATA .................................................. 91
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE EXCHANGE PROPERTIES ...... 92
Overview ................................................................. 92
Results of Operations .................................................... 92
Comparison of Year Ended December 31, 1996 to
Year Ended December 31, 1997 ......................................... 92
Liquidity and Capital Resources .......................................... 93
FEDERAL INCOME TAX CONSIDERATIONS .......................................... 94
Classification as a Partnership .......................................... 94
Exchange of a Partnership Interest for Interest
in the Operating Partnership .......................................... 95
Relief from Liabilities/Deemed Cash Distribution ......................... 97
Disguised Sale Regulations ............................................... 98
1. Effect of Assumption of Liabilities Under
the Disguised Sale Regulations ..................................... 99
2. Effect of Cash Distributions Under the
Disguised Sale Regulations ......................................... 99
3. Effect of Right to Convert to a Share of the Trust ................. 100
4. Effect of Disguised Sale Characterization .......................... 100
Section 465(C) Recapture ................................................. 100
Transfer to an Investment Company ........................................ 101
Withholding .............................................................. 102
Tax Treatment of Unitholders Who Hold Operating
Partnership Units After the Exchange .................................... 103
Income and Deductions in General ...................................... 103
Treatment of Partnership Distributions ................................ 103
Initial Basis of Operating Partnership Units .......................... 103
Allocations of Partnership Income, Gain, Loss and Deductions .......... 104
Effect of the Exchange on Depreciation ................................ 104
Tax Allocations with Respect to Book-Tax
Difference on Contributed Properties ............................... 104
Dissolution of Partnership ............................................ 105
Limitations on Deductibility of Losses; Treatment of
Passive Activities and Portfolio Income .............................. 105
Section 754 Election .................................................. 105
Disposition of Operating Partnership Units by Unitholders ............. 106
Tax Treatment of Conversion Right ..................................... 106
Constructive Termination .............................................. 106
Tax-Exempt Organizations and Certain Other Investors ..................... 107
Partnership Income Tax Information Returns and Partnership
Audit Procedures ........................................................ 107
Registration as a Tax Shelter ............................................ 108
Organizational and Syndication Fees ...................................... 109
Anti-Abuse Regulations ................................................... 109
Alternative Minimum Tax Items of Tax Preference .......................... 110
State and Local Taxes .................................................... 110
Income Tax Considerations with Respect to the Trust ...................... 110
Taxation of the Trust .................................................... 111
General ............................................................... 111
Stock Ownership Tests ................................................. 112
Asset Tests ........................................................... 112
Gross Income Tests .................................................... 112
The 75% Test ........................................................ 112
The 95% Test ........................................................ 113
The 30% Test ........................................................ 114
Annual Distribution Requirements ...................................... 114
Failure to Qualify .................................................... 115
Tax Aspects of the Trust's Investment in the Operating Partnership ....... 115
Entity Classification ................................................. 115
Tax Allocations with Respect to Trust Properties ...................... 116
Sale of Trust Properties .............................................. 116
Taxation of Shareholders ................................................. 116
Taxation of Taxable Domestic Shareholders ............................. 116
Backup Withholding .................................................... 117
Taxation of Tax-Exempt Shareholders ................................... 117
Taxation of Foreign Shareholders ...................................... 117
Other Tax Considerations ................................................. 118
Possible Legislative or Other Actions Affecting Tax Consequences ...... 118
State and Local Taxes ................................................. 118
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SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT ............................ 120
SUMMARY OF DECLARATION OF TRUST ............................................ 120
Term ..................................................................... 120
Control of Operations .................................................... 120
Liability and Indemnification ............................................ 124
Distributions ............................................................ 125
Quarterly and Annual Reports ............................................. 126
Accounting ............................................................... 126
Books and Records; Tax Information ....................................... 126
Governing Law ............................................................ 126
Amendments and Voting Rights ............................................. 126
Dissolution of Trust ..................................................... 126
Removal and Resignation of the Managing Shareholder ...................... 127
Transferability of Shareholders' Interest ................................ 127
Independent Activities ................................................... 127
Power of Attorney ........................................................ 127
Meetings and Voting Rights ............................................... 127
Additional Offerings of Shares ........................................... 128
Temporary Investments .................................................... 128
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP
UNITS, OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES ............... 129
Issuance of Additional Securities ........................................ 129
Term of Existence ........................................................ 130
Management ............................................................... 130
Economic Interest ........................................................ 131
Property Investments ..................................................... 132
Restrictions on Transfers ................................................ 132
Tax Status ............................................................... 133
Pre-emptive Rights ....................................................... 133
Removal Rights ........................................................... 134
Reports .................................................................. 134
Assessments .............................................................. 135
Amendments of Governing Agreements ....................................... 135
Liability and Indemnification ............................................ 136
Compensation of Managing Persons and Affiliates .......................... 137
Meetings and Voting Rights ............................................... 138
Liquidation Rights ....................................................... 139
Accounting Method ........................................................ 140
CAPITAL STOCK OF THE TRUST ................................................. 140
General .................................................................. 140
Transfer Agent ........................................................... 140
Restrictions on Ownership and Transfer ................................... 140
CAPITALIZATION ............................................................. 142
TERMS OF THE CASH OFFERING ................................................. 143
OTHER INFORMATION ......................................................... 145
General .................................................................. 145
Authorized Sales Material................................................. 145
Financial Statements ..................................................... 145
LITIGATION ................................................................. 146
EXPERTS .................................................................... 146
EXPENSES OF THE EXCHANGE OFFERING .......................................... 146
ADDITIONAL INFORMATION ..................................................... 147
GLOSSARY ................................................................... 148
EXHIBITS
A... Prior Performance of Affiliates of Managing Shareholder
B... Summary of Exchange Property and Exchange Partnership Information
C... Financial Statements of the Trust, the Operating Partnership and the
Managing Shareholder
D... Financial Statements of the Exchange Properties
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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.
REFERENCE SHOULD BE MADE TO THE DECLARATION OF TRUST FOR THE TRUST
("DECLARATION") AND THE AGREEMENT OF LIMITED PARTNERSHIP OF THE OPERATING
PARTNERSHIP ("OPERATING PARTNERSHIP AGREEMENT"), SUPPORTING DOCUMENTS AND OTHER
INFORMATION AVAILABLE FROM THE TRUST FOR COMPLETE INFORMATION CONCERNING THE
RIGHTS AND OBLIGATIONS OF THE PARTIES. CERTAIN PROVISIONS OF SUCH AGREEMENTS ARE
SUMMARIZED IN THIS PROSPECTUS, BUT IT SHOULD NOT BE ASSUMED THAT THE SUMMARIES
ARE COMPLETE. SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
ACTUAL DOCUMENTS WHICH ARE AVAILABLE AT THE TRUST'S EXPENSE UPON WRITTEN REQUEST
OF THE OFFEREE. REPRODUCTION OF THIS PROSPECTUS OR ANY PORTION THEREOF OTHER
THAN BY THE TRUST, THE OPERATING PARTNERSHIP, THE MANAGING SHAREHOLDER OR ANY
AFFILIATE IS STRICTLY PROHIBITED.
THE MANAGING SHAREHOLDER HAS AGREED TO PROVIDE, DURING THE OFFERING PERIOD, TO
EACH OFFEREE IN THE EXCHANGE OFFERING (OR HIS REPRESENTATIVE(S) OR BOTH) THE
OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, THE MANAGING
SHAREHOLDER OR ANY PERSON ACTING ON ITS BEHALF CONCERNING THE TERMS AND
CONDITIONS OF THIS EXCHANGE OFFERING AND THE CASH OFFERING AND TO OBTAIN ANY
ADDITIONAL INFORMATION, TO THE EXTENT IT POSSESSES SUCH INFORMATION OR CAN
ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE, NECESSARY TO VERIFY THE
ACCURACY OF THE INFORMATION SET FORTH HEREIN. REQUESTS FOR FURTHER INFORMATION
SHOULD BE MADE TO THE TRUST AND SUCH INFORMATION SHOULD BE RELIED UPON ONLY WHEN
FURNISHED IN WRITTEN FORM AND SIGNED ON BEHALF OF THE TRUST. OFFEREES ARE NOT TO
CONSTRUE THE CONTENTS OF THIS PROSPECTUS (OR ANY PRIOR OR SUBSEQUENT
COMMUNICATION FROM THE MANAGING SHAREHOLDER, AFFILIATES OR EMPLOYEES OR ANY
PROFESSIONAL ASSOCIATED WITH THIS EXCHANGE OFFERING) AS LEGAL OR TAX ADVICE.
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
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<PAGE>
COVER PAGE. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY CONSUMMATION OF AN
EXCHANGE OFFERING MADE HEREUNDER SHALL CREATE ANY INFERENCE 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.
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<PAGE>
SUMMARY OF THE TRUST AND 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 which are
material to Offerees, including those summarized below. This Prospectus and
accompanying Exhibits and supporting documents referred to herein 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.
Summary of the Trust and the Operating Partnership
This Prospectus constitutes the Prospectus for the Exchange Offering being
conducted by Operating Partnership, under which it is offering to acquire
residential apartment property interests from owners in exchange for Operating
Partnership Units. The Operating Partnership will not receive any cash proceeds
in connection with this Exchange Offering. Holders of Operating Partnership
Units 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 seller to own (taking into account certain
ownership attribution rules) in excess of 5.0% of the then outstanding Shares in
the Trust, subject to certain exceptions. This Prospectus and the enclosed
transmittal form are first being sent to Offerees in connection with initial
transactions under the Exchange Offering on or about June __, 1998. Offerees who
elect to accept the Exchange Offering are required to indicate their acceptance
of the offering in the space provided on the transmittal form and sign and
return it to the Operating Partnership by _____________, 1998. As soon as
practicable after the closing date of a transaction in connection with the
Exchange Offering, the stock transfer agent will send transmittal instructions
to each Offeree who accepts the Exchange Offering describing the procedures for
surrendering their existing limited partnership units for certificates of
Operating Partnership Units. See "THE EXCHANGE OFFERING."
The Trust and the Operating Partnership constitute a self-administered and
self-managed real estate company which has been organized to acquire equity
interests in existing residential apartment properties located in the United
States and/or to provide or acquire debt financing secured by mortgages on such
types of property. The Trust, indirectly through the Operating Partnership,
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. 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 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. The initial
distribution by the Trust and the Operating Partnership is expected to be made
by _________, 1998. The Trust intends to operate as a REIT for federal income
tax purposes, provided, however, that if the Managing Shareholder of the Trust
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 property interests acquired. 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
13
<PAGE>
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 such property interests
and thereby provide the opportunity for deferral until a later date of any tax
liabilities that sellers of property 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
properties in which it acquires an interest. See "THE TRUST AND THE OPERATING
PARTNERSHIP."
The Managing Shareholder of the Trust is Baron Advisors, Inc. ("Baron
Advisors"), a Delaware corporation which will manage the 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 the members of which will be
comprised of Independent Trustees, 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. Gregory K. McGrath, the
Chief Executive Officer of the Trust and the President, sole shareholder and
sole director of the Managing Shareholder, and Robert S. Geiger, the Chief
Operating Officer of the Trust and the Managing Shareholder (together, the
"Original Investors"), and James H. Bownas and Peter M. Dickson, the initial
Independent Trustees of the Trust, will make investment decisions for the Trust.
See "MANAGEMENT" and "SUMMARY OF DECLARATION OF TRUST - Control of Operations."
All of the Operating Partnership Units being offered pursuant to this
Prospectus are being offered in connection with an exchange offering (the
"Exchange Offering") by the Operating Partnership. In the Exchange Offering, the
Operating Partnership will offer to issue Operating Partnership Units to sellers
of interests in residential apartment properties in exchange for such property
interests. The number of Operating Partnership Units which will be offered in
exchange for the property interests owned by Offerees will be based on
appraisals prepared by a qualified and licensed independent appraisal firm for
each residential apartment property involved in the Exchange Offering. For
purposes of the Exchange Offering, each Operating Partnership Unit will be
valued at the $10 offering price of each Trust Common Share offered in the Cash
Offering. As Unitholders, sellers of property interests that acquire Operating
Partnership Units in the Exchange Offering will be entitled to exchange all or a
portion of such 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 seller to own
(taking into account certain ownership attribution rules) in excess of 5.0% of
the then outstanding Shares in the Trust, subject to certain exceptions. To
facilitate such exchanges of Operating Partnership Units into Trust Common
Shares, 2,500,000 Trust Common Shares (in addition to the 2,500,000 Trust Common
Shares being offered by the Trust in the Cash Offering) have been registered
with the Commission in conjunction with the registration of the Common Shares
being offered in the Cash Offering.
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with the Cash Offering (approximately $_____ 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 Operating
Partnership will use 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
substantially all of whose assets consist of residential apartment property
interests, (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 the American Stock
Exchange (the "AMEX") 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.
Although this Prospectus has been prepared in connection with the offering
of Operating Partnership Units in connection with the Exchange Offering, this
Prospectus also describes the material terms of the Cash Offering and an
investment in Trust Common Shares since Operating Partnership Units are
exchangeable into an identical number of Trust Common Shares at any time
(subject to certain restrictions) and the economic interests represented by
Operating Partnership Units and Trust Common Shares are substantially identical.
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<PAGE>
The Trust and the Operating Partnership, as the case may be, intend to
investigate making an additional public or private offering of Trust Common
Shares or Operating Partnership Units within the 12-month period following the
commencement of the Cash Offering if the Managing Shareholder 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 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 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 the assets of
the Operating Partnership, 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 and certain
of its Affiliates will receive substantial fees and compensation from the Trust
in connection with the Cash 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" and "THE TRUST AND THE
OPERATING PARTNERSHIP."
As its initial acquisition candidates in the Exchange Offering, the
Operating Partnership is offering to acquire the entire equity interest in 11
residential apartment properties (individually, an "Exchange Property" and
collectively, the "Exchange Properties") indirectly owned by individual limited
partners (individually, an "Exchange Limited Partner" and collectively, the
"Exchange Limited Partners") in 11 real estate limited partnerships
(individually, an "Exchange Partnership" and collectively, the "Exchange
Partnerships") managed by affiliates of the Managing Shareholder. Each Exchange
Partnership directly or indirectly owns the entire equity interest in a single
residential apartment property. The Operating Partnership will acquire interests
in a particular property by acquiring from Exchange Limited Partners their units
of limited partnership interests in the respective partnership (the "Exchange
Partnership Units"). The 11 targeted Exchange Properties consist of an aggregate
of 638 residential units (comprised of studio, one, two, three and four-bedroom
units) and are all located in Florida with the exception of one property which
is located in Georgia. The Exchange Properties are described in further detail
at "PROPOSED INITIAL REAL ESTATE INVESTMENTS" and Exhibit B hereto. 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 generally the
same terms as currently exist. See "THE EXCHANGE OFFERING," "PROPOSED INITIAL
REAL ESTATE INVESTMENTS," "SELECTED FINANCIAL DATA," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE EXCHANGE
PROPERTIES" and "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES."
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The current book value of the 11 Exchange Properties is approximately $19.6
million. If acquisitions are consummated in respect of all 11 Exchange
Properties in the Exchange Offering, the property interests will have a deemed
purchase price totaling approximately $26.5 million, comprised of Operating
Partnership Units to be issued with a deemed value of approximately $12 million
plus first mortgage indebtedness of approximately $14.5 million to which the
properties are subject. The properties to be acquired with the balance of the
Operating Partnership Units to be offered in the Exchange Offering (with a
deemed value of approximately $13 million) have not yet been finally determined.
In addition, the net cash proceeds of the Cash Offering (approximately
$_________ as of the date of this Prospectus) have not yet been committed to
specific properties. Furthermore, 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 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.
The Trust intends to investigate other investment opportunities for the
Exchange Offering, including interests held in 13 additional properties by other
limited partnerships managed by Affiliates of the Managing Shareholder and
interests held in an additional property by a limited partnership managed by the
Dealer Manager of the Cash Offering. The Trust will also investigate investment
opportunities involving property interest owned by unaffiliated persons. 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 27-1/2 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 debt financing 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 estimated replacement cost of the property as
determined by the Managing Shareholder unless substantial justification exists.
For the definition of certain terms used in this Prospectus, see
"GLOSSARY."
Reasons for this Exchange Offering and the Cash Offering
The Original Investors have structured the formation of the Trust and the
Operating Partnership and caused the Trust and the Operating Partnership to
conduct this Exchange Offering and the Cash Offering because they believe that
the following benefits will occur:
o Opportunity for Offerees who participant in the Exchange Offering (who
in most cases now have an interest in a single property) and
purchasers of Common Shares in the Cash Offering to participate in a
diversified portfolio of residential apartment properties through
beneficial ownership of interests in a publicly traded REIT.
o Anticipated ability of the Trust and the Operating Partnership to
obtain capital as a result of (i) access to public equity and debt
markets; (ii) the financial strengths of the combined enterprise,
which should enable the Trust and the Operating Partnership to obtain
financing at better rates and on better terms than would otherwise be
available to single-asset owners and (iii) the potential for reduced
leverage and enhanced borrowing capacity of the Trust and the
Operating Partnership.
o The potential for Shareholders of the Trust and Unitholders of the
Operating Partnership in the growth of the Trust.
o The potential deferral of the income tax consequences of the
contributions of Offeree property owners who elect to participate in
the Exchange Offering and in future similar transactions and the
improved liquidity that will be available to such participants.
Offerees who accept the Exchange Offering will
16
<PAGE>
receive Operating Partnership Units (which will be exchangeable for
publicly traded Common Shares) and will thus have improved the
liquidity of their investment.
o The issuance in the Cash Offering of up to $25 million of Trust Common
Shares, which will provide funds to permit the Trust and the Operating
Partnership to achieve their investment objectives.
o Additional professional expertise from the individuals who will serve
as members of the Board of the Trust and officers of the Trust and the
Managing Shareholder who are not currently associated therewith.
Effects of the Formation Transactions and this Exchange Offering and the Cash
Offering
The completion of the formation transactions and the Exchange Offering and
the Cash Offering will have various beneficial effects on the operations of the
Trust and the Operating Partnership, including the operation of the properties
to be acquired, for Offerees who accept the Exchange Offering and purchasers of
Common Shares in the Cash Offering:
The principal benefits include the following:
o The enhanced ability of the Trust and the Operating Partnership to
obtain unsecured financing or financing secured by all or a portion of
the portfolio of assets to be acquired by the Trust and the Operating
Partnership.
o The ability of the Trust and the Operating Partnership to issue Common
Shares and Units in connection with acquisitions that the Trust and
the Operating Partnership may undertake in the future.
o The ability to solicit institutional investors for investment in
residential apartments properties.
17
<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 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 "RISK FACTORS" below.
o Real estate investment considerations, such as 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, 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 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, which considerations, individually or in the aggregate,
may negatively impact the ability of the Trust and Operating Partnership to
make distributions to Shareholders and Unitholders.
o Risks associated with debt financing, including 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 Junior Mortgages on property which may not be recorded,
and the risk of higher interest rates on any adjustable interest rate debt
or debt incurred to refinance indebtedness.
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 Original Investors in the Operating Partnership serve as executive
officers of the Trust and the Managing Shareholder and collectively own an
amount of Operating Partnership Units which are exchangeable (subject to
escrow restrictions described below) into 19% of the Trust Common Shares
outstanding after the completion of the Cash Offering and the Exchange
Offering, 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 other consideration and such Units have been required to be
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 have significant influence over the affairs of the Trust
and the Operating Partnership which may result in decisions that do not
fully represent the interests of all Shareholders of the Trust and
Unitholders in the Operating Partnership. In addition, Unitholders 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 TRUST AND THE OPERATING
PARTNERSHIP - Formation Transactions" and " - Ownership of the Trust and
the Operating Partnership."
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, the Original
Investors and certain Affiliates of the Managing Shareholder, including
certain Affiliates which have sponsored and/or managed, or may in the
future sponsor, real estate investment programs which seek to acquire
interests in properties similar to those which the Trust will seek to
acquire. In addition, there will be competing demands for management
resources of the Managing Shareholder, the Trust and the Operating
Partnership, the possibility of transactions between the Trust, the
Operating Partnership and Affiliates of the Managing
18
<PAGE>
Shareholder, and a lack of independent representation of Offerees in
structuring this Exchange Offering and of prospective Shareholders in
structuring the Cash Offering. See "CONFLICTS OF INTEREST" and "INVESTMENT
OBJECTIVES AND POLICIES - Conflict of Interest Policies."
o Although Unitholders, subject to certain ownership restrictions, will be
entitled to exchange Units for an identical number of Common Shares and the
Common Shares have been registered under the Securities Act of 1933, as
amended, and will be freely tradable (subject to certain restrictions
relating to REIT tax laws and rules) and are expected to be listed for
trading on AMEX immediately prior to the completion of the Cash Offering
and the Exchange Offering, 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.
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 and may limit cash
available for distribution to Shareholders and Unitholders. See "TAX
STATUS" and "FEDERAL INCOME TAX CONSIDERATIONS."
o Dependency on key management. See "MANAGEMENT."
o Taxation of the Trust as a corporation if it fails to qualify as a REIT for
federal income tax purposes, the Trust's liability for certain federal,
state and local income taxes in such event, and the resulting decrease in
cash available for distribution to Shareholders and Unitholders; 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 Potential taxation of an Exchange Limited Partner upon the exchange of
Exchange Partnership Units for Operating Partnership Units. See "FEDERAL
INCOME TAX CONSIDERATIONS - Exchange of Exchange Partnership Units for
Operating Partnership Units."
o Potential anti-takeover effects of provisions in the Declaration of Trust
for the Trust which 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 5.0% of the outstanding Shares and other
Declaration and statutory provisions that may limit the opportunity for
Shareholders to receive a premium for their Trust Common Shares that might
otherwise exist if an investor were attempting to assemble a block of
Common Shares in excess of 5.0% of the then outstanding Common Shares or
otherwise effect a change in control of the Trust.
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 Trust and the Operating Partnership are newly formed and have no
significant assets or operating history, and, as a result, Offerees may not
have an opportunity prior to their election to accept the Exchange Offering
to evaluate a significant number of properties in which the Trust and the
Operating Partnership may acquire an interest.
o There can be no assurance as to the successful completion of this Exchange
Offering and the Cash Offering and it is unlikely that the cash proceeds
from the sale in the Cash Offering of only the minimum number of Common
Shares required to complete the Cash Offering will be sufficient to meet
the investment objectives of the Trust and the Operating Partnership.
o The possible issuance by the Trust and the Operating Partnership of
additional Shares and Units subsequent to the completion of this Exchange
Offering and the Cash Offering, which may result in the dilution of
Offerees who elect to accept this Exchange Offering and Shareholders of the
Trust and effect the then prevailing market price of Common Shares.
19
<PAGE>
o The use of Units being offered in this 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.
o The aggregate book value of the 11 Exchange Properties initially targeted
for acquisition in the Exchange Offering is less than the sum of the deemed
value of the Operating Partnership Units proposed to be paid for the
Exchange Properties plus first mortgage indebtedness to which the
properties are subject, due to depreciation taken against the original
price of the properties paid by the Exchange Partnerships and the
appreciation of the properties since such purchase. Because the aggregate
book value of the Exchange Properties is less than the deemed value of the
Operating Partnership Units proposed to be paid for the Exchange Properties
plus first mortgage indebtedness to which the properties are subject, the
return on investment of the properties based on the deemed value of the
properties in connection with the Exchange Offering will be less than the
return on investment of the properties based on the Exchange Partnerships'
book value.
o If acquisitions are consummated in respect of all 11 Exchange Properties
initially targeted for acquisition in the Exchange Offering, the properties
will have a deemed purchase price totaling approximately $26.5 million,
comprised of Operating Partnership Units to be issued with a deemed value
of approximately $12 million plus first mortgage indebtedness of
approximately $14.5 million to which the properties are subject. The
properties to be acquired with the balance of the Operating Partnership
Units to be offered in the Exchange Offering (with a deemed value of
approximately $13 million) have not yet been finally determined. In
addition, the net cash proceeds of the Cash Offering (approximately $______
as of the date of this Prospectus) have not yet been committed to 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. The additional properties to be
acquired will be determined by the management of the Trust taking into
account the objectives of the Trust to acquire residential apartment
properties which generate current cash flow for distribution to
Shareholders and Unitholders from rental payments from the rental of
apartment units and which provide the opportunity for capital appreciation.
The purchase price to be paid for additional properties will be determined
taking into account a number of factors, including, among others, the
operating history and financial results of the property, the property's
overall condition and the estimated appraised market value of the property
determined by a qualified independent appraisal firm.
o The terms of the Exchange Offering were determined by the Trust 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 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. 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 generally
the same terms as currently exist.
o Following the Exchange Offering, if a large majority of the Exchange
Limited Partners in a particular Exchange Partnership elect to accept the
offering, limited partnership interests which are retained in that
partnership by Exchange Limited Partners who elect not to accept the
offering 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 would be sold in the near future due to
the REIT provisions of the Code which would penalize the Trust if it sold a
property interest in the short term.
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<PAGE>
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 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 treated as a
regulated investment company were it a domestic corporation. A domestic
corporation generally will be treated as a regulated investment company only if
it is required to be registered under the Investment Company Act of 1940 (the
"1940 Act").
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 Trust have represented to special Tax
Counsel that the Units of the Operating Partnership will not be traded on an
established securities market. 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 required to register under the 1940 Act. 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.
21
<PAGE>
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 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 Trust
The Trust intends to elect to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (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). For taxable years beginning
after August 5, 1997, the Taxpayer Relief Bill of 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. 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
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 and other rights as other holders
of Operating Partnership Units. See "THE TRUST AND THE OPERATING PARTNERSHIP -
The Operating Partnership." The Agreement of Limited Partnership authorizes the
Trust to cause the Operating Partnership to issue additional Operating
Partnership 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 or any affiliates, in connection with the Exchange Offer.
Broker-dealers who assist the Operating Partnership in consummating the Exchange
Offering with individual Offerees who accept the Exchange Offering will be paid
as a commission a number of unregistered Common Shares of the Trust equal to 5%
of the Units exchanged in the particular transactions as a result of their
efforts.
The Trust
The following table describes all the material fees, compensation, and
other payments that may be received by the Managing Shareholder and Affiliates
in exchange for their respective services and expenses in connection with the
Cash Offering and preparation of the Prospectus relating thereto, the operation
of the Trust and the acquisition and disposition of the Trust's Property. The
determination of the type and amount of such compensation was not the result of
arms'-length negotiation. See "CONFLICTS OF INTEREST."
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<PAGE>
OFFERING AND ORGANIZATIONAL STAGE
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder (Baron Non-recurring non-accountable fee to cover $250,000
Advisors) distribution, due diligence and
organizational expenses associated with the
formation of the Trust and the Operating
Partnership and with the Cash Offering (1% of
gross proceeds from the Cash Offering) Managing
Shareholder Non-recurring non-accountable fee to
cover $250,000 legal, accounting and consulting
fees, filing, recording, printing, postage and
other miscellaneous expenses associated with the
Cash Offering (1% of gross proceeds from the Cash
Offering)
Baron Capital Properties, No compensation will be payable to the Corporate Reimbursible expenses are
Inc. (the Corporate Trustee Trustee for performing services on behalf of the expected to be limited to the
of the Trust) Trust at the direction of the Managing expense of operating an office
Shareholder; however, reimbursement will be made in Delaware (approximately
for reasonable expenses incurred on behalf of the $1,500 per year initially) as
Trust which are approved in advance by the required by the Delaware Act -
Managing Shareholder. see "MANAGEMENT - Corporate
Trustee."
Managing Shareholder The Managing Shareholder and certain Affiliates Amount of reimbursible expenses
and Affiliates are entitled to be reimbursed by the Trust for all incurred on behalf of the Trust.
reasonable direct expenses incurred on behalf of
the Trust, 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 for the Trust and
do not constitute payment for activities for which
they already receive a fee or compensation as
described herein.
</TABLE>
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<PAGE>
ACQUISITION AND OPERATING STAGE
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Managing Shareholder Investment fee in an amount (up to $1,000,000; the Managing
$1,000,000) equal to 4% of gross proceeds Shareholder may, in its sole
from the Cash Offering as compensation for discretion, share all or a
investigating and evaluating investment portion of this fee with
opportunities for the Trust and assisting in non-Affiliates.
the consummation of its investments; one-half
of the fee is payable at the same time that
selling commissions are payable in connection
with the Cash Offering, and the balance is
payable proportionately at investment
closings based on amount invested
Managing Shareholder Annual fee payable under the Trust $500,000 per year payable on a
Management Agreement for ongoing monthly basis during the term of
management, administrative, and investment the agreement beginning June 1,
advisory services for the Trust (in an 1998; at its option the Managing
amount equal to 1% of gross proceeds of the Shareholder may elect to be paid
Cash Offering plus 1% of the initial value in Common Shares with an
of Units issued in connection with the equivalent value.
Exchange Offering)
Brentwood Management, LLC or Property Management Fee for managing 5% of collected rental income
an Affiliate properties in which the Trust invests from each apartment property it
manages for the Trust plus $325
monthly bookkeeping fee; it may
earn a monthly performance fee of
$2.00 per residential unit if
greater than 96% of gross
potential rents are collected.
Managing Shareholder or an Fee payable to the Managing Shareholder or Fee limited to an amount equal
Affiliate an Affiliate by a seller, in certain cases to up to five percent of the
where the Trust acquires one or more First amount raised in the Cash
Mortgage Loans or Junior Mortgage Loans or Offering.
accounts receivable from existing creditors
of such obligations, title to a particular
property, or an equity interest in an
entity which owns title to a particular
property at a discount to the appraised
value of such property or equity interest
determined at the time of such
acquisition.
</TABLE>
24
<PAGE>
ACQUISITION AND OPERATING STAGE (cont'd)
<TABLE>
<CAPTION>
Recipient Type of Compensation Maximum Amount
- --------- -------------------- --------------
<S> <C> <C>
Baron Capital Properties, No compensation will be paid for performing Reimbursible expenses are
Inc. (the Corporate Trustee services on behalf of the Trust at the expected to be limited to the
of the Trust) direction of the Managing Shareholder; expense of operating an office
however, reimbursement will be made for in Delaware (approximately
reasonable expenses incurred on behalf of $1,500 per year initially) as
the Trust which are approved in advance by required by the Delaware Act -
the Managing Shareholder. see "MANAGEMENT - Corporate
Trustee."
Managing Shareholder and Subject to operational limitations on REITs The compensation, price or fee
Affiliates for federal income tax purposes, the Trust is payable must be comparable to and
authorized to contract with the Managing competitive with that charged by
Shareholder and Affiliates to provide goods a third party rendering
and services other than those specified comparable goods and services
herein, but no such contract is contemplated which could reasonably be made
at this time. Any such contract would available to the Trust.
require, among other things, that such
persons be previously engaged in the business
of providing such goods or services as an
ongoing business and that the compensation,
price or fee does not exceed that specified
in the third column.
Managing Shareholder The Managing Shareholder and certain Amount of reimbursible expenses
and Affiliates Affiliates are entitled to be reimbursed by incurred on behalf of the Trust.
the Trust for all reasonable direct expenses
incurred on behalf of the Trust, 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 and do not
constitute payment for activities for which
they already receive a fee or compensation as
described herein.
</TABLE>
25
<PAGE>
CONFLICTS OF INTEREST
The Managing Shareholder 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 46 other Delaware or Florida real
estate limited partnerships that were previously organized to invest in separate
residential apartment properties and single-family housing and retail projects
located in southeastern and mid-western portions of the United States.
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.
Certain Affiliates of the Managing Shareholder 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 managed by Affiliates of the Managing Shareholder that directly or
indirectly own interests in properties or from investors in such partnerships.
Furthermore, the Original Investors, Mr. McGrath and Mr. Geiger, serve as
executive officers of the Trust and the Managing Shareholder and are principal
Unitholders in the Operating Partnership. Therefore, individually and
collectively they have significant influence over the affairs of the Trust which
may result in decisions that do not fully represent the interests of all
Shareholders of the Trust. Mr. McGrath is also the sole principal of the
corporate general partners of the real estate investment limited partnerships
described above, certain of which own interests in residential apartment
properties in which the Trust may acquire an interest.
In order to eliminate or minimize conflicts of interest among the Trust and
such 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."
In addition, the Trust has adopted the following method of allocation of
the acquisition of properties between the Trust and such other affiliated
partnership programs seeking similar properties. Except in unusual
circumstances, the Trust will not invest the net proceeds from the Cash Offering
in property investments until such similar programs sponsored prior to the Cash
Offering have specified for investment or committed to invest at least 50% of
their investment funds in respect of particular properties, and no such similar
program sponsored subsequent to the Cash Offering will invest in respect of a
particular property until the Trust has specified for investment or committed to
invest at least 50% of its net offering proceeds in respect of particular
properties. The Board and the Independent Trustees are responsible for
overseeing the allocation of the acquisition of properties under the
circumstances described above to insure that the foregoing allocation method is
applied fairly to the Trust. 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.
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In most cases, the management of the Managing Shareholder and its
Affiliates is identical. For example, the President, 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. However, the Managing
Shareholder will devote as much attention to the Trust's activities as is
reasonably necessary to manage the Trust.
In the event that any dispute arises in which the interests of the Trust
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 and certain Affiliates are entitled under the
Declaration to receive certain fees and other compensation, payments and
reimbursements discussed in this Prospectus. Such fees and other compensation
generally were not determined through a process of arm's length bargaining. The
prices payable and terms of such transactions may not necessarily be determined
by reference to costs to the Managing Shareholder or such Affiliates,
independent appraisals or comparable third party transactions. As a result, the
fees, compensation, prices or terms may not reflect the fair market value of the
services to be rendered to the Trust by the Managing Shareholder or Affiliates
or the value of the property acquired or disposed of.
In addition, the level of compensation payable to the Managing Shareholder
or its Affiliates in connection with the organization and operation of the Trust
may be greater or less than that 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. The Managing
Shareholder and certain of its Affiliates, by reasons of their interests in the
Trust and their receipt of compensation and fees 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 Trust's
Property 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 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 Operating Partnership" and " - The Trust."
The Managing Shareholder 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
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advised to request further information from the Managing Shareholder and to
independently evaluate such relationships.
The Managing Shareholder has provided no independent representation of
Offerees in connection with this Exchange Offering, and each Offeree should seek
independent advice and counsel before deciding whether to accept the Exchange
Offering.
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, 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 1933, 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, 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 provides
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 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 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
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in the Securities Act and is, therefore,
unenforceable. See "SUMMARY OF DECLARATION OF TRUST - Liability and
Indemnification."
The Managing Shareholder 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.
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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, 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," "PROPOSED 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 Trust's business, financial condition and results of operations
are the effects of risks associated with (i) changes in the competitive
marketplace for acquisitions of interests in residential apartment properties,
(ii) changes in the performance of the operations of properties in which 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
Offerees should carefully consider the following material risk factors, in
addition to the other information set forth in this Prospectus, in connection
with this 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.
The Trust and the Operating Partnership
No Operating History
Operating Partnership Units offered hereby and Trust Common Shares into
which Operating Partnership 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 have no operating history. In addition, the Operating
Partnership's assets will consist primarily of direct or indirect equity or debt
investments it 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 Managing Shareholder and Affiliates has
substantial prior experience in and
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knowledge of the residential apartment property market and its financing, and
has significant experience in the management of investment programs. Subject to
the REIT provisions of the Code and regulations issued thereunder and certain
limitations set forth in Section 1.9 of the Declaration, the Trust and the
Operating Partnership will also be 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
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 the Trust regarding such permitted investments.
Limited Marketability of Units and Common Shares
Although Operating Partnership Units to be issued in this 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, such Units and Common Shares will not be
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or listed on a stock exchange immediately following the effective date of
such Securities Act registration. The Trust will apply for listing on the
American Stock Exchange ("AMEX") of the Common Shares to be issued in connection
with the Cash Offering and the Common Shares into which Units issued in the
Exchange Offering will be exchangeable, and expects to qualify for listing prior
to the completion of the offerings. However, there can be no assurance that the
Trust will qualify for such listing on AMEX or any other stock exchange and, if
so, of the timing of the effectiveness of any such listing. In addition, the
initial public offering price of Common Shares being offered in the Cash
Offering and the initial value of the Units to be issued in the Exchange
Offering may not be indicative of the market price for Common Shares after the
Exchange Offering and the Cash Offering.
Prior to the Exchange Offering and the Cash Offering, there has not been a
public market for Units or Common Shares. Although Common Shares are expected to
be listed for trading on AMEX immediately prior to the completion of the
Exchange Offering and the Cash Offering, it is possible that no public market
for the Common Shares will ever develop or be maintained after the completion of
the offerings. 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' 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 the Trust.
Effect on Price of Units and Common Shares Available for Future Sale
Future sales or issuances of a substantial number of Common Shares and
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 approximately
1,200,000 Operating Partnership Units (exchangeable into an equivalent number of
Common Shares subject to conditions described at "THE TRUST AND THE OPERATING
PARTNERSHIP- Formation Transactions") have been issued to the Original Investors
in the Operating Partnership in connection with its initial capitalization, and
up to 2,500,000 Units (exchangeable into an equivalent number of Common Shares)
may be issued in the Exchange Offering to sellers of property interests in
exchange for such property interests. In addition, the Compensation Committee of
the Board of the Trust may vote to reserve additional Common Shares for issuance
in connection with 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." The Original Investors
have entered into an escrow agreement with the Trust under which they have
agreed to not exchange such Units
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for Common Shares or sell Common Shares for a period of at least six years
following the date of the Cash Offering Prospectus (May 15, 1998) unless the
Trust achieves certain operating results described at "THE TRUST AND THE
OPERATING PARTNERSHIP- Formation Transactions."
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.
Arbitrary Offering Price
The offering price of $10.00 per Common Share and the equivalent initial
deemed value per Unit 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."
Participation Rights of Unitholders and Shareholders 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 property of the Trust and the Operating
Partnership or in the decisions of the Managing Shareholder relating to their
investments. See Sections 1.9, 6.1 and 7.1 of the Declaration of the 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 of the Trust
agreements, particularly the indemnification provisions and remedy provisions
for breaches of representations and warranties, could result in a substantial
monetary loss to the Trust.
Distributions to Shareholders and Unitholders Affected by Many Factors
Distributions by the Trust to Shareholders and by the Operating Partnership
to the Unitholders will be based principally on cash available for distributions
from properties in which the Operating Partnership invests. Increases in rents
under leases of properties acquired by the Operating Partnership 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.
The distribution requirements for REITs under federal income tax laws may
limit the Trust's ability to finance future acquisitions and capital
improvements of properties without additional debt or equity financing. If the
Trust 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 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 properties or in certain
other circumstances. No prediction can be made as to the number of such Common
Shares, Preferred Shares, Units or debt securities which may be issued, if any,
and, if issued, the effect on cash available for distribution, on a per Share or
Unit basis, to Shareholders and Unitholders,
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respectively. Such issuances, if any, would have a dilutive effect on cash
available for distribution on a per Share and Unit basis to Shareholders and
Unitholders.
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. 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. In addition, 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. Pursuant to the 1997 Act,
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.
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.
Distributions to Shareholders and Unitholders Dependent upon Profits of
Operating Partnership
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with the Cash Offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of Units. 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 (i.e., other Limited Partners) of the Operating Partnership,
including the Original Investors and offerees in the Exchange Offering who elect
to receive Units in exchange for such offeree's property interests, will own the
remaining economic interest in 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 Exchange Offering), immediately upon the completion of the offerings, the
Shareholders of the Trust (including offerees who acquire Common Shares in the
Cash Offering and certain broker-dealers who effect transactions in connection
with the Exchange Offering) 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 of the
Trust and the Unitholders of the Operating Partnership will be dependent upon
the number of Common Shares and Units outstanding as of the date of the
particular cash distribution, which in turn will be
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dependent 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."
Liability and Indemnification of the Managing Persons
Although the Managing Shareholder, Independent Trustees and 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 the 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 and the Operating Partnership
Agreement. Moreover, the Declaration provides that the Trust 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 this Offering or the operation of the Trust and the
Operating Partnership on certain conditions. See Section 3.7 of the Declaration
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 and the Operating Partnership Agreement. See "FIDUCIARY
RESPONSIBILITY" and "SUMMARY OF DECLARATION OF TRUST - Liability and
Indemnification."
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, if not entirely, mitigated by the Trust conducting its activities
and holding its interest in properties in the Operating Partnership.
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 or otherwise. In order to facilitate the Exchange Offering, the
Trust has registered with the Commission 2,500,000 Units of the Operating
Partnership and 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 or Units within the 12-month period following the commencement of
the Cash Offering (May 18, 1998) if the Managing Shareholder 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
will have no 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 and Section 4.2 of the
Operating Partnership Agreement.
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Limits on Ownership and Transfers of Shares
In order for the Trust to maintain its qualification as a REIT, not more
than 50% in value of the outstanding Shares 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 its Shareholders, the Declaration of the Trust
limits actual or constructive ownership of the Shares by any single Shareholder
(other than the Original Investors) to 5.0% (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 for additional information regarding the Limit.
Anti-Takeover Provisions
The ownership limitations set forth in the Declaration of the Trust
described above at " - Limits on Ownership and Transfer of Shares" 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 for additional information regarding the ownership limitations.
Dependency on Key Management
The Trust and the Operating Partnership will be dependent upon the efforts
of management of the Trust and the Managing Shareholder (primarily Gregory K.
McGrath and Robert S. Geiger) 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.
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Influence of Original Investors
Following the completion of the Cash Offering and the Exchange Offering
(regardless of whether the minimum or maximum amount or any other amount of the
Cash Offering is sold or the Exchange Offering is completed in full or in part),
Mr. McGrath and Mr. Geiger, the Original Investors in the Operating Partnership,
will each own an amount of Units in the Operating Partnership 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 after the completion of the Cash Offering, 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 the Trust no other Shareholder may hold more than 5.0% of the
beneficial interest in the Trust. Although a majority of the members of the
Board will be unaffiliated Independent Trustees in accordance with the Trust's
Declaration of Trust, Mr. McGrath serves as the Chief Executive Officer of the
Trust and the President, sole stockholder and sole director of the Managing
Shareholder, and Mr. Geiger serves as Chief Operating Officer of each company.
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 and the Operating
Partnership Agreement if they were to act together in the future. Accordingly,
the Original Investors have significant influence over the affairs of the Trust
and the Operating Partnership which may result in decisions that do not fully
represent the interests of all Shareholders of the Trust and Unitholders of the
Operating Partnership. See "MANAGEMENT" and "INVESTMENT OBJECTIVES AND POLICIES
- - Trust Policies with Respect to Certain Activities - Conflict of Interest
Policies."
Conflicts of Interest
The Trust is subject to conflicts of interest arising out of its
relationship to the Operating Partnership, the Managing Shareholder, Affiliates
of the Managing Shareholder, the Original Investors, Shareholders, and offerees
in the Exchange Offering and other sellers of property interests who receive
Units in exchange for their property interests. For example, certain Affiliates
of the Managing Shareholder 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 may
seek to acquire. In addition, the Trust and the Operating Partnership may
attempt to acquire interests in properties from certain partnerships managed by
Affiliates of the Managing Shareholder that directly or indirectly own interests
in properties or from investors in such partnerships.
Furthermore, as described above at " - Influence of Original Investors,"
the Original Investors, Mr. McGrath and Mr. Geiger, serve as executive officers
of the Trust and the Managing Shareholder and have received a significant number
of Units in the Operating Partnership in connection with the formation of the
Trust and the Operating Partnership. Therefore, individually and collectively
they will have significant influence over the affairs of the Trust and the
Operating Partnership which may result in decisions that do not fully represent
the interests of all Shareholders of the Trust and Unitholders of the Operating
Partnership. Mr. McGrath is also the sole principal of the corporate general
partners of numerous real estate investment limited partnerships, certain of
which own interests in residential apartment properties in which the Trust and
the Operating Partnership may acquire an interest.
The Trust has adopted certain policies designed to eliminate or minimize
potential conflicts of interest. These policies include provisions in the
Declaration which require that (i) at least a majority of the members of the
Board 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, a Trustee, or
any of their respective Affiliates. See "INVESTMENT OBJECTIVES AND POLICIES -
Trust Policies with Respect to Certain Activities - Conflict of Interest
Policies." However, there can be no assurance that these policies will always be
successful in eliminating the influence of such potential conflicts, and, if
they are not successful, decisions could be made that might
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fail to reflect fully the interests of all Shareholders and Unitholders. While
the potential conflicts of interest cannot be eliminated, the Trust believes
that any actual conflicts will not materially affect the obligation of the
Managing Shareholder and the Board to act in the best interests of the Trust and
its Shareholders and the Operating Partnership and its Unitholders. See
"CONFLICTS OF INTEREST."
Success of Public Offerings
In the Cash Offering the Trust is offering 2,500,000 Common Shares for sale
at $10 per share (maximum gross proceeds of $25,000,000). To facilitate the
Exchange Offering, the Operating Partnership has registered with the Commission
2,500,000 Units in the Operating Partnership (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) which it intends to use, together with or
as an alternative to the cash proceeds of the Cash Offering, to acquire property
interests. There can be no assurance, however, as to the successful completion
of the Cash Offering and the Exchange Offering and it is unlikely that the cash
proceeds from the sale in the Cash Offering of only the minimum number of Common
Shares required to complete the Cash Offering will be sufficient to meet the
investment objectives of the Trust.
In addition, during the period of the Cash Offering 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. Therefore, despite the different nature and scope of proposed
activities of the Trust and such partnerships, the Trust will 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."
Dilution
In connection with the formation of the Trust and the Operating
Partnership, each of Mr. McGrath and Mr. Geiger, the Original Investors, has
received 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 after the completion of the Cash Offering and the Exchange Offering,
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 other consideration.
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 the investment fee payable to the Managing Shareholder in
connection with the acquisition of property interests using the net proceeds of
the Cash Offering, purchasers of Common Shares in this 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 TRUST AND THE OPERATING PARTNERSHIP -
Ownership of the Trust and the Operating Partnership." In addition, the Exchange
Properties which the Operating Partnership anticipates will be the initial
properties it will acquire in connection with the Exchange Offering have not
previously been put on the market for sale by the Exchange Partnerships, and the
acquisition of such properties by the Operating Partnership at their estimated
appraised value may result in the properties 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.
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Uncertainty of Success of Exchange Offering and Cash Offering
The Operating Partnership will conduct all of the Trust's real estate
operations and hold title to property interests acquired. In the Exchange
Offering, the Operating Partnership will offer to exchange registered Units to
acquire interests in residential apartment properties. As its initial
acquisition candidates in connection with the Exchange Offering, the Operating
Partnership anticipates that it will acquire property interests indirectly owned
by partners in 10 real estate limited partnerships managed by Affiliates of the
Managing Shareholder and by partners in a real estate limited partnership
managed by an Affiliate of the Dealer Manager of the Cash Offering. The Trust
intends to investigate other investment opportunities to issue the balance of
the Units to be registered in exchange for property interests in other Exchange
Offering transactions, including interests held in 13 additional properties by
other limited partnerships managed by Affiliates of the Managing Shareholder and
interests held in one additional property by a limited partnership managed by an
Affiliate of the Dealer Manager of the Cash Offering. The Operating Partnership
will also investigate investment opportunities involving property interests
owned by unaffiliated persons. See "SUMMARY OF THE TRUST AND THE OPERATING
PARTNERSHIP," "PROPOSED INITIAL REAL ESTATE INVESTMENTS" and "PRIOR PERFORMANCE
BY AFFILIATES OF MANAGING SHAREHOLDER."
Since 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 Operating Partnership Units, 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 at least in part upon successful completion of the Exchange
Offering and profitable operating results of the properties in which the
Operating Partnership acquires an interest in connection with the Exchange
Offering. There can be no assurance that a significant number of offerees will
accept the terms of the Exchange Offering or that properties acquired in the
Exchange Offering, if any, will generate operating profits sufficient to permit
the Trust and the Operating Partnership to make cash distributions to
Shareholders and Unitholders. See " - Investment Risks," " - Risks of Real
Estate Acquisitions" and " - Operating Risks."
Similarly, the Operating Partnership will use 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 substantially all of whose assets consist of residential
apartment property interests, (ii) for capital improvements which may be
required on properties in which 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.
Each of the 25 properties which the Trust contemplates acquiring in
connection with the Exchange Offering is a multi-family residential apartment
property located in the southeastern or midwestern portion of the United States.
These properties have been selected for acquisition by the Trust because the
Trust believes that they have the potential to provide attractive returns with
significant potential growth in cash flow from property operations and in
investment value. In addition, the Trust believes that such properties (i) are
strategically located, of high quality and competitive in their respective
markets and (ii) are available in exchange for registered Units of the Operating
Partnership and at prices below estimated replacement costs.
Prior Performance of Properties to be Acquired in Exchange Offering
The annual rate of return on investment for 1997 and for the first quarter
of 1998 generated by the properties contemplated to be acquired by the Operating
Partnership in connection with the Exchange Offering ranged between zero and ten
percent. The annual rate of return on investment for those periods
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generated by other residential apartment properties owned by other limited
partnerships managed by Affiliates of the Managing Shareholder of the Trust
ranged between zero 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 the Cash Offering and the Exchange Offering. There can be no
assurance that Shareholders of the Trust 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.
Deemed Property Value in Exchange Offering Exceeds Current Book Value
The aggregate book value of the Exchange Properties is less than the sum of
the deemed value of the Operating Partnership Units proposed to be paid for the
Exchange Properties plus first mortgage indebtedness to which the properties are
subject, due to depreciation taken against the original price of the properties
paid by the Exchange Partnerships and the appreciation of the properties since
such purchase. Because the aggregate book value of the Exchange Properties is
less than the deemed value of the Operating Partnership Units proposed to be
paid for the Exchange Properties plus first mortgage indebtedness to which the
properties are subject, the return on investment of the properties based on the
deemed value of the properties in connection with the Exchange Offering will be
less than the return on investment of the properties based on the Exchange
Partnerships' book value.
Uncertainties Regarding Property Acquisitions
In the Exchange Offering, the Operating Partnership will offer to exchange
registered Units to acquire interests in residential apartment properties. If
acquisitions are consummated in respect of all 11 Exchange Properties initially
targeted for acquisition in the Exchange Offering, the properties will have a
deemed purchase price totaling approximately $26.5 million, comprised of
Operating Partnership Units to be issued with a deemed value of approximately
$12 million plus first mortgage indebtedness of approximately $14.5 million to
which the properties are subject. The properties to be acquired with the balance
of the Operating Partnership Units to be offered in the Exchange Offering (with
a deemed value of approximately $13 million) have not yet been finally
determined.
Similarly, the Operating Partnership will use a portion of the net cash
proceeds of the Cash Offering to acquire interests in residential apartment
properties or interests in other partnerships substantially all of whose assets
consist of residential apartment property interests. As of the date of this
Prospectus, the net cash proceeds of the Cash Offering (approximately
$___________) have not yet been committed to specific properties. Although the
Managing Shareholder has several investment opportunities under review for the
application of such proceeds, none of such potential opportunities has developed
beyond the negotiating stage. The Trust may direct a substantial portion of the
proceeds to investment opportunities that have not been designated in this
Prospectus, as it may be amended or supplemented from time to time, and the
Trust may be unable to or may decline to apply the proceeds to any specific
investments that may be described in this Prospectus or any amendments or
supplements thereto.
Therefore, prior to deciding whether to accept the Exchange Offering,
Offerees may not have available any information to evaluate any properties which
the Operating Partnership intends to acquire using Units in the Exchange
Offering or net cash proceeds of the Cash Offering. In addition, Offerees will
not have any vote in the selection of property investments after they accept the
Exchange Offering. Consequently, Offerees will be relying upon the judgment of
the Trust's management for such decisions. The additional properties to be
acquired will be determined by the management of the Trust taking into account
the objectives of the Trust to acquire residential apartment properties which
generate current cash flow for distribution to Shareholders and Unitholders from
rental payments from the rental of apartment units and which provide the
opportunity for capital appreciation. The purchase price to be paid for
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additional properties will be determined taking into account a number of
factors, including, among others, the operating history and financial results of
the property, the property's overall condition and the estimated appraised
market value of the property determined by a qualified independent appraisal
firm.
No Separate Representation of Offerees
The terms of the Exchange Offering were determined by the Trust 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," the Trust has retained two reputable independent appraisal firms to
prepare appraisal reports as to the fair market value of each of the Exchange
Properties to be involved in the initial transactions of the Exchange Offering.
Offerees should note, however, that appraisals are only opinions of the value
and cannot be relied upon as measures of realizable value. The amount that an
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.
No Rights of Dissent
Offerees who elect not to accept the Exchange Offering being made by the
Operating Partnership pursuant to this Prospectus will retain their existing
limited partnership interest in their respective Exchange Partnership. Upon the
completion of the Exchange Offering, ownership of the limited partnership
interests in each Exchange Partnership will be held by the Operating Partnership
and any Exchange Limited Partners of the respective Exchange Partnership who
elect not to accept the Exchange Offering. 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.
Lack of Liquidity of Retained Interest in an
Exchange Partnership Following the Exchange Offering
Exchange Limited Partners who elect not to accept the Exchange Offering
will retain their limited partnership interest in their respective Exchange
Partnership with generally the same rights they had prior to the offering.
Following the Exchange Offering, if a large majority of the Exchange Limited
Partners in a particular Exchange Partnership elect to accept the offering,
limited partnership interests which are retained in that partnership by Exchange
Limited Partners who elect not to accept the offering 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 would be sold in
the near future due to the REIT provisions of the Code which would penalize the
Trust if it sold a property interest in the short term.
Property Investments
Investment Risks
The results of the Trust's operations will depend, among other things, upon
the quality of opportunities available for investment. It is possible that the
properties in which the Trust invests 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 will depend on many factors over which the Trust 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 the Trust's
investments, 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
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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, 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 the Trust's
investments, the availability of financing for operating or capital needs and
the management capabilities of the management of the Managing Shareholder and
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 in connection with Mortgage Loans
that may be provided or acquired by the Trust. In the event of a default under
such an obligation, the Trust may experience substantial delays in enforcing its
rights as mortgagee and may incur substantial costs associated with protecting
its investment. The Trust 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 may be
required to attempt to borrow or raise additional funds and may not be able
ultimately to recover its investment.
The Trust 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 such property. There is no
assurance that either replacement financing or a sale can be obtained 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 may be compelled to institute foreclosure
proceedings.
The Trust 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 the Trust would be able to look only
to the unencumbered assets of the property for repayment. In many cases, the
Trust is expected to be secured by a Second Mortgage that is subordinated to a
First Mortgage. In the event of a default on a Senior Mortgage, the Trust may
find it necessary to make payments to prevent foreclosure on the Senior
Mortgage, without necessarily improving the Trust's 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 Trust's Junior
Mortgage. In such event, the Trust's entire investment in the property could be
lost. In addition, non-payment of any subordinated Mortgage Loan that may be
made or acquired by the Trust 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 in the Trust and
Unitholders in the Operating Partnership will receive any return on their
investment in Common Shares and Units, respectively. Furthermore, Mortgage Loans
will not be insured or guaranteed by governmental agencies or otherwise.
If the Trust 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, the
Trust remedies may be limited by the size of the Trust's investment relative to
that of other participants.
Lack of Liquidity of Real Estate
Real estate investments are relatively illiquid, and, therefore, the Trust
will have limited ability to vary its 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 Trust's
ability to sell properties without adversely affecting distributions to the
Shareholders and Unitholders.
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Capital Improvements
Properties in which the Trust 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 intends to acquire an interest from real estate limited partnerships
managed by Affiliates in connection with the Exchange Offering) may be funded
out of the net proceeds of the Cash Offering, available cash flow of the Trust
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.
Risks of Real Estate Acquisitions
The Trust intends to actively seek to acquire interests in residential
apartment properties to the extent they can be acquired on advantageous terms
and meet the Trust's 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 new real estate
investment.
The Trust will acquire property interests from time to time in exchange for
cash or unissued Units. The Trust will obtain appraisals with respect to the
market value of any property interest that the Trust will acquire or an opinion
as to the fairness of the allocation of Units in the Operating Partnership to
sellers of property interests. Appraisals and fairness opinions are only
estimates of value and should not be relied upon as precise measures of true
worth or realizable value. 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 reflects the fair market
value of the interests of the purchasers of Common Shares in the Cash Offering
or that the cash price for any properties acquired by the Trust is fair and
reasonable.
Real Estate Financing Risks
The Trust will be subject to the risks normally associated with debt
financing, including the risks that the Trust's cash flow will be insufficient
to meet required payments of principal and interest on any indebtedness of the
Trust, the risk that the interest rates on any adjustable interest rate
indebtedness will increase, the risk that indebtedness on the Trust's properties
will not be refinanced at maturity or that the terms of such refinancing will
not be as favorable as the terms of such indebtedness. If the Trust were unable
to refinance its indebtedness on acceptable terms, if at all, the Trust might be
forced to dispose of one or more of its properties upon disadvantageous terms,
which might result in losses to the Trust 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 Trust's interest expense would increase,
which would adversely affect the Trust's 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 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, 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 and 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 Trust's acquisition of an equity interest in a given
property, the Trust 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
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require a "balloon" payment upon the maturity of its term. The ability of the
Trust 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 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 be dependent upon
general economic conditions, the value of the property and the financial
strength of the Trust. There is no assurance that any such property would 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 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 the Trust, the Trust may incur aggregate
borrowings in an amount up to 300% of the amount of its net assets, except where
the Trust determines that a higher level of borrowing is appropriate. Therefore,
the Trust 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 will maximize the level of distributions to
Shareholders and Unitholders.
Risks of Investments in Mortgages
The Trust may invest in mortgages, either by acquiring mortgages or
providing mortgage financing. 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 on the
mortgages may be lower than the Trust's cost of funds. If the Trust invested in
mortgages and if any of the above occurred, the Trust's ability to make
distributions to Shareholders and Unitholders could be adversely affected.
Any subordinated Mortgage Loan the Trust may make or acquire may or may not
be recorded. If the Trust's Mortgage is not recorded, the Trust's security
interest in such Mortgage would not be perfected and the Trust 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 made or acquired by the
Trust 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 the Trust.
Operating Risks
There can be no assurance that the Trust will be able to avoid operating
losses in the future in respect of properties in which it acquires an interest
or that an Investor's investment in the Trust will be recovered. In order for
the Trust and the Operating Partnership to make cash distributions to
Shareholders and Unitholders on acquired residential apartment properties,
certain occupancy percentages and rental rates will need to be achieved and
expense levels maintained. 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 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
is partially dependent upon general economic conditions, the value of the
property and the financial strength of the Trust. See " - Real Estate Financing
Risks."
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Risk of Joint Activity with Others
It is anticipated that the Trust will provide or acquire financing in
respect of existing residential apartment properties and thus will jointly
participate with one or more other entities, including without limitation
developers, property owners, and First Mortgage lenders and other financing
sources. If any such other participants fail to fulfill their obligations or
have divergent interests or are in a position to take action contrary to the
policies or objectives of the Trust, the Trust's interest in such project may be
adversely affected. Although the Trust will remain closely involved in all
aspects of the Trust's activities, the Trust may initially rely upon others as
to the operation of any property in which it participates. It will monitor or
take part in those activities to the extent it deems appropriate. The successful
operation of each property in which the Trust participates will, to a large
extent, be determined by the quality and performance of its managers.
Competition
The Trust 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. See "INVESTMENT OBJECTIVES
AND POLICIES." Many of these competitors will have greater resources than the
Trust and some may have, or may have access to, more extensive real estate and
financial experience than does the Managing Shareholder and the Independent
Trustees.
It is expected that all properties in which the Trust 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 Trust's ability to lease apartment units to tenants at such
properties and on the rents charged. The Trust may be competing for tenants with
others that have greater resources than the Trust and whose officers and
directors have more experience than the officers and members of the Board of the
Trust, including the Managing Shareholder. In addition, other forms of
multifamily residential properties provide housing alternatives to potential
tenants of residential apartment properties.
Uninsured Loss
Properties in which the Trust invests 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 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
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.
Regulatory Compliance
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. 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 ensure that properties subject
to the FHA in which it acquires an interest will be in compliance with such law.
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Americans with Disabilities Act. Properties in which the Trust acquires 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
requirements requires that public accommodations "reasonably accommodate"
individuals with disabilities, which includes removal of structural barriers to
handicapped access in certain public areas of the Trust's properties, 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
accommodation or commercial facilities except to the extent portions of such
facilities, such as a leasing office, are open to the public. The Trust 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 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 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 substances. The Trust 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 that a material environmental condition does not otherwise exist as to
any particular property in which the Trust acquires an interest. If it is ever
determined that hazardous substances are present, the Trust 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 the
Trust.
Extended and Uncertain Period for Returns
The use of the net proceeds of the Cash Offering and Units in the Operating
Partnership to acquire interests in one or more existing residential apartment
properties may occur over an extended period during which the Trust 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 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 Trust's real estate investments.
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Lack of Diversification
Although the Trust is expected to invest in several residential apartment
properties, the number of properties in which the Trust ultimately invests may
be insufficient to afford adequate diversification against the risk that its
investments will not be profitable or return the Trust's invested capital. There
can be no assurance that the Trust's properties will earn a return or that the
returns on its properties will be sufficient to permit distributions to
Shareholders and Unitholders.
Utilization of Funds and Units for Undesignated Properties
In the Exchange Offering, the Operating Partnership will offer to exchange
registered Units to acquire interests in residential apartment properties. If
acquisitions are consummated in respect of all 11 Exchange Properties initially
targeted for acquisition in the Exchange Offering, the properties will have a
deemed purchase price totaling approximately $26.5 million, comprised of
Operating Partnership Units to be issued with a deemed value of approximately
$12 million plus first mortgage indebtedness of approximately $14.5 million to
which the properties are subject. See "PROPOSED INITIAL REAL ESTATE
INVESTMENTS." The properties to be acquired with the balance of the Operating
Partnership Units to be offered in the Exchange Offering (with a deemed value of
approximately $13 million) 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 and of
the Dealer Manager of the Cash Offering.
Similarly, the Operating Partnership will use a portion of the net cash
proceeds of the Cash Offering to acquire interests in residential apartment
properties or interests in other partnerships substantially all of whose assets
consist of residential apartment property interests. As of the date of this
Prospectus, the net cash proceeds of the Cash Offering (approximately
$___________) have not yet been committed to specific properties. Although the
Managing Shareholder has several investment opportunities under review for the
application of such proceeds, none of such potential opportunities has developed
beyond the negotiating stage. The Trust may direct a substantial portion of the
proceeds to investment opportunities that have not been designated in this
Prospectus, as it may be amended or supplemented from time to time, and the
Trust may be unable to or may decline to apply the proceeds to any specific
investments that may be described in this Prospectus or any amendments or
supplements thereto.
Therefore, prior to deciding whether to accept the Exchange Offering,
Offerees may not have available any information to evaluate any properties which
the Operating Partnership intends to acquire using Units in the Exchange
Offering or net cash proceeds of the Cash Offering. In addition, Offerees will
not have any vote in the selection of property investments after they accept the
Exchange Offering. Consequently, Offerees will be relying upon the judgment of
the Trust's management for such decisions.
The actual number of properties in which the Trust will acquire an interest
will depend upon the number of suitable investment opportunities available, the
amount of net proceeds from the Cash Offering the Trust has available to invest,
the willingness of Offerees in the Exchange Offering to accept Units in the
Operating Partnership in exchange for their property interests, and the amount
of funds and number of Units required for each investment opportunity. See "RISK
FACTORS," "MANAGEMENT," "THE TRUST AND THE OPERATING PARTNERSHIP," "INVESTMENT
OBJECTIVES AND POLICIES" and "PROPOSED INITIAL REAL ESTATE INVESTMENTS."
Dispositions of Trust Property
The Trust will periodically review the portfolio of assets which the Trust
may acquire. It has no current intention to dispose of any interest in
properties it may acquire, although it reserves the right to do so. 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
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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 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."
Changes in Laws
Increased costs resulting from changes in real estate taxes or other
governmental requirements may generally not be passed directly through tenants,
inhibiting the Trust's ability 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.
Unaudited Financial Statements
In making an investment decision in respect of any given property, the
Trust may rely on financial statements covering the operations of the property
which may have been prepared by the current owner or property manager of the
property and which may have not been compiled, reviewed or audited by
independent public accountants or reviewed by counsel to the Managing
Shareholder or the Trust. In any such case, therefore, there will not have been
any independent assessment of any of such financial statements and accordingly
the Trust would be subject to the risk that such financial statements do not
properly reflect the prior operation of the property.
Potential Loss of Future Appreciation
In the absence of the consummation of the Exchange Offering, one or more of
the Exchange Properties 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
than they would receive under the terms and conditions of the Exchange Offering.
More Successful Exchange Properties Combined
Economically with Less Successful Exchange Properties
In connection with the Exchange Offering, Exchange Limited Partners are
being offered 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 a value in the range of 102% to 110% of the amount of
an Offeree's original investment in his Exchange Partnership. For purposes of
the Exchange Offering, the Units have a deemed value of $10 per unit, which is
the same price at which the Trust is offering Common Shares in its Cash
Offering. Holders of Operating Partnership Units may exchange their Units into
an equivalent number of Common Shares at any time, subject to certain
conditions.
The number of Operating Partnership Units being offered in respect of each
property differs based upon a number of factors, including, among others, the
operating history of the property, the amount of distributed cash flow generated
by the property, the period of time that the property has been held by the
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underlying Exchange Partnership and the property's overall condition and
estimated appraised market value. An affiliate of one of the Original Investors
has agreed to supplement the number of Operating Partnership Units offered to
Exchange Limited Partners in certain partnerships by contributing to the
Operating Partnership at no cost a portion of such affiliate's appraised
interest in an unrelated residential property. Therefore, by participating in
the Exchange Offering, Exchange Limited Partners in Exchange Partnerships whose
properties are performing relatively better than other properties would lose any
such advantage while Exchange Limited Partners in partnerships whose properties
are performing relatively poorer than the average would be correspondingly
advantaged.
Income Tax Considerations
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 summary 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 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 are binding on the IRS or on any court.
Prospective Unitholders and prospective Shareholders 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.
Adverse Consequences of Failure to Qualify as a REIT
The Trust intends to operate so as 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 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 intends to 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 REIT or the
federal income tax consequences of such qualification. The Trust has been
advised by tax counsel regarding various issues affecting the Trust's ability to
qualify, and continue to qualify, as a REIT. See "FEDERAL INCOME TAX
CONSIDERATIONS - Taxation of the Trust" and "LEGAL MATTERS." No assurance can be
given that actual operating results will meet the REIT requirements.
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
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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."
Adverse Tax Consequences of Failure of the
Operating Partnership 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 it net
income would be taxed to the 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 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 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.
Risks Associated with Exchange for Operating Partnership Units
Based on certain factual representations made by the Operation Partnership
and the Trust (in its capacity as General Partner of the Operating Partnership)
to special Tax Counsel, a contribution to the Operating Partnership of Exchange
Partnership Units by an Exchange Limited Partner in exchange for Operating
Partnership Units (the "Exchange") should not result in the recognition of
taxable gain at the time of the Exchange. This deferral of recognition of gain
will only apply so long as the Exchange Limited Partner does not receive 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. 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 person's adjusted tax basis in his or her
Exchange Partnership Units at such time, the assets that the Exchange Limited
Partner originally contributed to the Exchange Partnership in exchange for
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 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."
The general rule of deferral of gain upon the Exchange by each Exchange
Limited Partner is subject to various exceptions, including the following:
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 have received a cash
distribution from the Exchange Limited Partnership. 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."
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 Operating Partnership or the Trust
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.
EACH OFFEREE IS URGED AND EXPECTED TO CONSULT WITH HIS PERSONAL TAX ADVISOR
WITH RESPECT TO THE TAX CONSEQUENCES CONNECTED WITH AN INVESTMENT IN THE TRUST.
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THE EXCHANGE OFFERING
All of the Operating Partnership Units being offered pursuant to this
Prospectus are being offered in connection with the Exchange Offering by the
Operating Partnership. In the Exchange Offering, the Operating Partnership is
offering to issue registered Units to sellers of interests in residential
apartment properties in exchange for such property interests. As its initial
acquisition candidates in the Exchange Offering, the Operating Partnership is
offering to acquire the property interests owned by individual limited partners
(individually, an "Exchange Limited Partner" and collectively, the "Exchange
Limited Partners") in 10 real estate limited partnerships managed by affiliates
of the Managing Shareholder and by individual limited partners in a real estate
limited partnership managed by an affiliate of the Dealer Manager of the Cash
Offering (individually, an "Exchange Partnership" and collectively, the
"Exchange Partnerships"). Each Exchange Partnership directly or indirectly owns
the entire equity interest in a single residential apartment property. The
Operating Partnership will acquire interests in a particular property by
acquiring from Exchange Limited Partners their units of limited partnership
interests in the respective partnership (the "Exchange Partnership Units").
The 11 targeted properties (individually, an "Exchange Property" and
collectively, the "Exchange Properties") consist of an aggregate of 638
residential units (comprised of studio, one, two, three and four-bedroom units)
and are all located in Florida with the exception of one property which is
located in Georgia. The Exchange Properties are described in further detail at
"PROPOSED INITIAL REAL ESTATE INVESTMENTS" and Exhibit B hereto. 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 generally the
same terms as currently exist. See "THE EXCHANGE OFFERING," "PROPOSED INITIAL
REAL ESTATE INVESTMENTS," "SELECTED FINANCIAL DATA," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE EXCHANGE
PROPERTIES" and "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES."
The current book value of the 11 Exchange Properties is approximately $19.6
million. If acquisitions are consummated in respect of all 11 Exchange
Properties in the Exchange Offering, the property interests will have a deemed
purchase price totaling approximately $26.5 million, comprised of Operating
Partnership Units to be issued with a deemed value of approximately $12 million
plus first mortgage indebtedness of approximately $14.5 million to which the
properties are subject. The properties to be acquired with the balance of the
Operating Partnership Units to be offered in the Exchange Offering (with a
deemed value of approximately $13 million) have not yet been finally determined.
In addition, the net cash proceeds of the Cash Offering (approximately
$_________ as of the date of this Prospectus) have not yet been committed to
specific properties. Furthermore, 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 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.
The Trust intends to investigate other investment opportunities for the
Exchange Offering, including interests held in 13 additional properties by other
limited partnerships managed by Affiliates of the Managing Shareholder and
interests held in an additional property by a limited partnership managed by the
Dealer Manager of the Cash Offering. The Trust will also investigate investment
opportunities involving property interest owned by unaffiliated persons. See
also "PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER."
In the initial transactions of the Exchange Offering, the Operating
Partnership is offering to exchange Operating Partnership Units to each
individual Exchange Limited Partner in exchange for his respective limited
partnership interest in an Exchange Partnership. On June __, 1998, the initial
transactions of the Exchange Offering described herein were approved by the
Board of the Trust, comprised of the Managing Shareholder and the two
Independent Trustees. The number of Operating Partnership Units being offered to
each Exchange Limited Partner for his interest in a given Exchange Partnership
have a deemed value in the range of 102% to 110% of the amount of an Exchange
Limited Partner's original investment in the partnership. For such purposes,
each Operating
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Partnership Unit will be initially valued at the $10 offering price of each
Trust Common Share offered in the Cash Offering. As described below, Holders of
Operating Partnership Units may exchange their Units into an equivalent number
of Common Shares at any time, subject to certain conditions. The number of Units
being offered to each Exchange Limited Partner in a given Exchange Partnership
is indicated at the bottom of the table relating to such partnership set forth
at Exhibit B to this Prospectus.
The number of Operating Partnership Units being offered in respect of each
Exchange Property differs based upon a number of factors, including, among
others, the operating history of the property, the amount of distributed cash
flow generated by the property, the period of time that the property has been
held by the underlying Exchange Partnership and the property's overall condition
and estimated appraised market value. An affiliate of one of the Original
Investor has agreed to supplement the number of Operating Partnership Units
offered to Exchange Limited Partners in certain partnerships by contributing to
the Operating Partnership at no cost a portion of its appraised interest in an
unrelated residential property. 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."
A description of certain differences between (i) the Exchange Partnership
Units currently owned by Exchange Limited Partners and (ii) the Operating
Partnership Units being offering in the Exchange Offering and the Trust Common
Shares into which the Operating Partnership Units are exchangeable, is set forth
under "COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS, OPERATING
PARTNERSHIP UNITS AND TRUST COMMON SHARES."
As Unitholders, sellers of property interests which acquire Operating
Partnership Units in the Exchange Offering will be entitled to exchange all or a
portion of such 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 seller to own
(taking into account certain ownership attribution rules) in excess of 5.0% 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 Operating Partnership Units into
Trust Common Shares, 2,500,000 Trust Common Shares (in addition to the 2,500,000
Trust Common Shares being offered by the Trust in the Cash Offering) have been
registered with the Commission in conjunction with the registration of the
Common Shares being offered in the Cash Offering. The Trust has applied for
listing on the American Stock Exchange (the "AMEX") 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. 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 Cash 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.
Reasons for the Exchange Offering
The Original Investors have structured the formation of the Trust and the
Operating Partnership and caused the Trust and the Operating Partnership to
conduct the Cash Offering and the Exchange Offering because they believe that
the following benefits will occur:
1. Offerees, who in most cases now have an interest in single property,
and Shareholders of the Trust will have the opportunity to participate
in a diversified portfolio of residential apartment properties through
beneficial ownership of interests in a publicity traded REIT.
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2. The anticipated ability of the Trust and the Operating Partnership to
obtain capital as a result of (i) access to public equity and debt
markets; (ii) the financial strengths of the combined enterprise,
which should enable the Trust and the Operating Partnership to obtain
financing at better rates and on better terms than would otherwise be
available to single-asset owners and (iii) the potential for reduced
leverage and enhanced borrowing capacity of the Trust and the
Operating Partnership.
3. The potential for the Offerees who accept the Exchange Offering and
Shareholders of the Trust in the growth of the Trust.
4. The potential deferral of the income tax consequences, subject to
certain limitations, of the contributions of Offerees who elect to
participate in the Exchange Offering and the improved liquidity that
will be available to the Offerees as a result of the consummation of
the Exchange Offering. Offerees who accept the Exchange Offering will
receive Operating Partnership Units (which are exchangeable for
publicly traded Common Shares) and will thus have improved the
liquidity of their investment.
5. The issuance of up to $25 million of Trust Common Shares in the Cash
Offering, which will provide funds to permit the Trust and the
Operating Partnership to achieve their investment objectives.
6. Additional professional expertise from the individuals who will serve
as members of the Board of the Trust and officers of the Trust and the
Managing Shareholder who are not currently associated therewith.
Effects of the Formation Transactions and Cash Offering and Exchange Offering
The formation transactions and the Cash Offering and Exchange Offering will
have various beneficial effects on the operations of the Trust and the Operating
Partnership, including the operation of the Exchange Properties and other
properties 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:
1. The Trust and the Operating Partnership will be better able to obtain
unsecured financing or financing secured by all or a portion of the
portfolio of assets to be acquired by the Trust and the Operating
Partnership.
2. The ability of the Trust and the Operating Partnership to issue Common
Shares and Units in connection with acquisitions that the Trust and
the Operating Partnership may undertake in the future.
3. The ability to solicit institutional investors for investment in
residential apartments properties.
The principal disadvantages to the purchasers of Common Shares in the Cash
Offering and Offerees who accept the Exchange Offering of the method by which
the Trust and Operating Partnership were formed are as follows (see "RISK
FACTORS"):
1. Conflicts of interests between the Trust, the Operating Partnership
and the Original Investors with respect to the formation and future
operations of the Trust and the Operating Partnership.
2. The significant influence of the Original Investors over the affairs
of the Trust and the Operating Partnership and by virtue of their
collective ownership of Operating Partnership Units.
3. Purchasers of Common Shares in the Cash Offering and Offerees who
accept the Exchange
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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
The Trust has retained Consortium Appraisal, Inc. ("CAI"), Winter Park,
Florida, and Richards Appraisal Services, Inc. ("RAS"), Melbourne, Florida, to
prepare appraisal reports as to the fair market value of each of the Exchange
Properties proposed to be acquired by the Operating Partnership in connection
with the initial transactions of the Exchange Offering. CAI prepared appraisal
reports in respect of 10 of the Exchange Properties and RAS prepared an
appraisal report in respect of one of the properties. The number of Operating
Partnership Units which will be issued to each property interest owner which
elects to accept the Exchange Offering will be based on the respective
appraisal. CAI and RAS 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. In addition, CAI is familiar
with the Exchange Properties it appraised, having completed appraisals for
previous acquisitions and/or financings of such properties.
CAI and RAS 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 stated therein. The appraised value of each Exchange Property is
set forth on the table contained on 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 ownership interest in the property. The appraisal reports constitute
only CAI=s and RAS's opinion as to the estimated fair market values 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.
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 by the Trust to any interested Offeree or
his representative upon written request and payment by the requesting Offeree of
$75 to cover copying and administrative expenses relating thereto. 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 CAI and RAS.
CAI
The Trust or an institutional mortgage lender has retained Consortium
Appraisal, Inc. ("CAI") or Consortium Appraisal and Consulting Services, Inc.
("CACSI") to prepare an appraisal report as to the fair market value of each of
the Exchange Properties, excluding Grove Hamlet Apartments, proposed to be
acquired by the Operating Partnership in connection with the initial
transactions of the Exchange Offering. The number of Operating Partnership Units
which will be issued to each property interest owner which elects to accept the
Exchange Offering will be based on these and other appraisals. 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 (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)
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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 recommend 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.
According to CAI or CACSI, as the case may be, each Exchange Property
appraised to date by it is in generally good overall condition. In the appraisal
reports relating to certain of the properties, CAI and CACSI conditioned their
market value estimate on the completion of certain specified minor deferred
maintenance items, estimated at no more than $35,000 in respect of any Exchange
Property appraised.
In preparing their appraisal reports, CAI and CACSI employed the three
traditional property valuation methods: the cost approach, the direct sales
comparison approach, and the income approach. The "cost approach" is based on
the principle that an informed purchaser would pay no more than the cost of
building a comparable property. This approach involves the estimation of the
current market value of the land and the replacement cost of improvements.
Accrued depreciation of the improvements is then calculated and deducted from
such estimation to indicate the value of the property. Generally, the land value
is determined using the direct sales comparison approach described below. The
replacement cost of improvements is estimated based on current prices for
building materials, less depreciation, after analyzing the disadvantages or
deficiencies of the existing building compared to a new building.
The "income approach" is based on the principle that value is created by
the expectation of economic benefits to be derived in the future. This approach
to valuation takes into account the amount of income a property is expected to
earn in the future and its present value. Under this approach, net income before
payment of debt service obligations is first estimated. That amount is then
converted into present value through a process called capitalization, which
involves dividing the net income by a capitalization rate. Factors such as risk,
time, interest on the capital investment and the recapture of the depreciating
assets are taken into account to determine the capitalization rate. The
selection of an appropriate capitalization rate is one of the most important
factors to be analyzed under the income approach of valuation. One important
method to determine the capitalization rate is to extract the rate based on
comparable residential apartment properties.
The "direct sales comparison" approach is based on the principle that an
informed purchaser will pay no more for a property than the cost of acquiring an
existing property with the same characteristics. The appraiser first gathers
data relating to sales of comparable properties and then analyzes the nature and
condition of each comparable sale, making adjustments for dissimilar
characteristics. To determine land value, the price per acre or price per unit
is the common denominator. For improvements, the common denominator may be price
per square foot, price per unit or room, or a gross rent multiplier (i.e., a
comprehensive unit of comparison based on the relationship between gross
potential rental income and value).
The final step in 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.
In connection with the Exchange Offering, CAI or CACSI has prepared, or is
in the process of preparing, for the Trust appraisal reports in respect of
________ residential apartment properties directly or indirectly owned by
entities managed by affiliates of the Managing Shareholder of the Trust. CAI and
CACSI are to be paid fees ranging from $3,000 to $4,000 by the Trust or the
mortgage lender for each appraisal report prepared in connection with the
initial transactions of the Exchange Offering, or a total of approximately
$34,000. CAI or CACSI has
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completed 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. It is anticipated that CAI
and CACSI will perform additional appraisal services for the Trust and its
affiliates in the future.
RAS
The Trust or an institutional mortgage lender retained RAS to prepare an
appraisal report as to the fair market value of one of the Exchange Properties,
the Grove Hamlet Apartments. The appraisal was prepared based on the assumed
future use of the property as condominium units. RAS researched the subject
market area and selected three recent sales of condominium properties which are
similar and in close proximity to the subject property. RAS principally relied
upon the direct sales comparison approach as described above under " - CAI." Its
appraisal estimate was supported by the cost approach and the income approach.
An RAS representative inspected the interior and exterior areas of the 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.
Exchange of Certificates
From and after the closing date of the relevant transactions of the
Exchange Offering, Exchange Limited Partners who accept the Exchange Offering
will be entitled to receive the number of Operating Partnership Units per $1,000
of their original investment indicated at the bottom of the table relating to
his respective Exchange Partnership set forth at Exhibit B to this Prospectus.
The closing dates of the initial transactions of the Exchange Offering described
in this Prospectus are expected to occur in July 1998. As soon as practicable
after each closing date, the stock transfer agent will mail transmittal
instructions and a form of transmittal letter to each Offeree who accepts the
Exchange Offering. The transmittal instructions will describe the procedures for
surrendering certificates representing Exchange Partnership Units ("Exchange
Partnership Certificates") in exchange for certificates representing Operating
Partnership Units ("Operating Partnership Certificates"). Offerees who accept
the Exchange Offering should not submit their Exchange Partnership Certificates
for exchange unless and until they have received the transmittal instructions
and a form of letter of transmittal from the stock transfer agent.
Offerees who accept the Exchange Offering will not be entitled to receive
any dividend or other distributions on the Operating Partnership Units until
they have exchanged their Exchange Partnership Certificates for Operating
Partnership Certificates. Subject to applicable laws, any such dividends and
distributions after the closing date of the particular transactions of the
Exchange Offering will be accumulated and, at the time the Exchange Partnership
Certificates are surrendered to the stock transfer agent, all such accrued and
unpaid dividends and distributions will be paid without interest. When a Offeree
delivers his Exchange Partnership Certificates to the stock transfer agent along
with a properly executed letter of transmittal and any other required documents,
such Exchange Partnership Certificates will be canceled and the Exchange Limited
Partner will receive an Operating Partnership Certificate representing the
number of full Units to which the Exchange Limited Partner is entitled under the
Exchange Offering. The Operating Partnership will not issue any fractional Units
in connection with the Exchange Offering, and neither the Trust or the Operating
Partnership nor any of their respective affiliates will be required to be make
any cash or other payment in respect of any fractional Units. From and after the
respective closing date, the Operating Partnership will be registered as the
owner of all limited partnership interests in the particular Exchange
Partnership owned prior to the completion of the Exchange Offering in respect of
such Exchange Partnership by Exchange Limited Partners who accept the Exchange
Offering.
If any Operating Partnership Certificate is to be issued in a name other
than that in which the corresponding Exchange Partnership Certificate is
registered, it is a condition to the exchange that the Exchange Limited Partner
comply with applicable transfer requirements and pay any applicable transfer or
other taxes.
Except as described herein, Offerees who elect not to accept the Exchange
Offering will retain their limited partnership interest in their respective
Exchange Partnership on substantially the same basis as their original
investment in the partnership. Upon the completion of the Offering Exchange in
respect of an Exchange
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Partnership, the Offerees who elect not to accept the Exchange Offering and the
Operating Partnership will constitute all the limited partners of such
partnership. In addition, the Trust will replace the current corporate general
partner of such partnership in its capacity as general partner.
Expenses of the Exchange Offering
All expenses incurred in connection with the Exchange Offering and the
transactions contemplated thereby will be paid by the party incurring such
expenses, except that expenses incurred in connection with filing, printing and
distributing the Prospectus and effecting the Exchange Offering will be paid by
the Trust. No special fees or commissions were 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.
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 deemed value of Operating Partnership Units exchanged
in the particular transactions.
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PRIOR PERFORMANCE OF
AFFILIATES OF MANAGING SHAREHOLDER
This section provides certain historical information regarding 46 private
limited partnerships sponsored and/or managed by Affiliates of the Managing
Shareholder of the Trust. 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.
Gregory K. McGrath, the President, sole director and sole stockholder of
the Managing Shareholder and the Chief Executive Officer of the Trust, 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 46 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 November
1994. As of May 14, 1998, the prior partnerships had raised aggregate capital
contributions of approximately $39,705,030 from approximately 1,617 investors
(including investors who have invested in two or more programs). The annual rate
of return on investment for 1997 and for the first quarter of 1998 generated by
the residential apartment properties owned by the prior partnerships ranged
between zero 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.
To date, the prior partnerships have acquired interests in 52 properties,
28 of which are located in Florida (Bartow, Brandon, Clearwater, Cocoa, Cocoa
Beach, Crystal River, Daytona Beach, 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 five in Ohio (Bellefontaine and Cincinnati). All acquisitions
occurred within the last four years. The aggregate dollar amount of property
interests acquired and initial cash reserves held was approximately $32,032,772.
The property interests acquired have consisted of the following: direct or
indirect equity interests in 19 residential apartment properties comprised of
1,189 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; and a mortgage financing interest in respect
of the conversion of a 144-unit residential apartment property into an
extended-stay hotel. Each of the properties is subject to first mortgage
financing. One property interest has been sold to date. 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 SB-2 registration statement filed
with the Commission in connection with the Exchange
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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.
As its initial acquisition candidates in connection with the Exchange
Offering, the Operating Partnership will offer to acquire property interests
owned by partners in 10 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 interests held in 13 additional properties by other limited
partnerships managed by Affiliates of the Managing Shareholder. The Operating
Partnership will also investigate investment opportunities involving property
interests owned by unaffiliated persons. Each partnership currently managed by
an Affiliate of the Managing Shareholder that may be involved in the Exchange
Offering is indicated where applicable in the following paragraphs. Additional
information relating to the property interests owned by these partnerships and
the Exchange Offering is included at "PROPOSED INITIAL REAL ESTATE INVESTMENTS"
and in Exhibits A and B to this Prospectus.
In 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.
In 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 April 1995. The partnership invested
the net proceeds of its offering to acquire title to a 77-unit residential
apartment community located in Port Orange, Florida. 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
"THE EXCHANGE OFFERING" and "PROPOSED 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 in the first half of 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. 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 "THE EXCHANGE OFFERING"
and "PROPOSED 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 in the first half of 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. 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 "THE
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EXCHANGE OFFERING" and "PROPOSED 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 in the first half of 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. 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 "THE
EXCHANGE OFFERING" and "PROPOSED 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 Capital Income Fund II, Ltd., a
Florida limited partnership, which in the first half of 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. 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 "THE EXCHANGE OFFERING"
and "PROPOSED INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this
Prospectus.
In April 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.
In May 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 November 1995. The
partnership invested the net proceeds of its offering to acquire title to a
60-unit residential apartment community located in Daytona Beach, Florida.
Following the completion of the initial transactions of the Exchange Offering,
the Operating Partnership intends to investigate other investment opportunities
to exchange the balance of the Units to be registered for property interests in
other Exchange Offering transactions, including this partnership's interests in
one or more other properties. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included in
Exhibit A to this Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED
INITIAL REAL ESTATE INVESTMENTS," respectively.
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. 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
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Offering is included at "THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL
ESTATE INVESTMENTS" and in Exhibits A and B to this Prospectus.
In June 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.
In August 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. 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
"THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL ESTATE INVESTMENTS" and in
Exhibits A and B to this Prospectus.
In September 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. 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 "THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this Prospectus.
In November 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 community located in Orlando, Florida. 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 "THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL ESTATE
INVESTMENTS" and in Exhibits A and B to this Prospectus.
In December 1995, 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, 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 acquire a second mortgage loan which is secured by a
64-unit residential apartment community located in Melbourne, Florida. Following
the completion of the initial transactions of the Exchange Offering, the
Operating Partnership intends to investigate other investment opportunities to
exchange the balance of the Units to be registered for property interests in
other Exchange Offering transactions, including this partnership's interests in
one or more other properties. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included in
Exhibit A to this
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Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL ESTATE
INVESTMENTS," respectively.
In December 1995, 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.
In January 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.
In March 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 September 1996. The
partnership invested the net proceeds of its offering to acquire debt and equity
interests in a limited partnership that owns title to an 80-unit residential
apartment community located in Bellefontaine, Ohio. Following the completion of
the initial transactions of the Exchange Offering, the Operating Partnership
intends to investigate other investment opportunities to exchange the balance of
the Units to be registered for property interests in other Exchange Offering
transactions, including this partnership's interests in one or more other
properties. Additional information relating to the property interests owned by
this partnership and to the Exchange Offering is included in Exhibit A to this
Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL ESTATE
INVESTMENTS," respectively.
In April 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 acquire notes receivable associated
with an 81-unit residential apartment community located in Tampa, Florida.
Following the completion of the initial transactions of the Exchange Offering,
the Operating Partnership intends to investigate other investment opportunities
to exchange the balance of the Units to be registered for property interests in
other Exchange Offering transactions, including this partnership's interests in
one or more other properties. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included in
Exhibit A to this Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED
INITIAL REAL ESTATE INVESTMENTS," respectively.
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.
In May 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
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net proceeds of its offering to make a subordinated mortgage loan to the
developer of approximately 82 single-family homes in Louisville, Kentucky.
In 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.
In May 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. Following the completion of the initial transactions of the Exchange
Offering, the Operating Partnership intends to investigate other investment
opportunities to exchange the balance of the Units to be registered for property
interests in other Exchange Offering transactions, including this partnership's
interests in one or more other properties. Additional information relating to
the property interests owned by this partnership and to the Exchange Offering is
included in Exhibit A to this Prospectus and at "THE EXCHANGE OFFERING" and
"PROPOSED INITIAL REAL ESTATE INVESTMENTS," respectively.
In May 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 acquire notes
receivable associated with a 68-unit residential apartment community located in
Orlando, Florida. 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 "THE EXCHANGE OFFERING"
and "PROPOSED INITIAL REAL ESTATE INVESTMENTS" and in Exhibits A and B to this
Prospectus.
In June 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.
In July 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 has raised $297,750 as of May 14, 1998 and continues in progress. The
partnership has invested the net proceeds of its offering to acquire title to a
47-unit residential apartment community located in Bartow, Florida.
In October 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 1998. The
partnership has invested the net proceeds of its offering to make a subordinated
mortgage loan secured by a 73-unit residential apartment community located in
Tampa, Florida. Following the completion of the initial transactions of the
Exchange
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Offering, the Operating Partnership intends to investigate other investment
opportunities to exchange the balance of the Units to be registered for property
interests in other Exchange Offering transactions, including this partnership's
interests in one or more other properties. Additional information relating to
the property interests owned by this partnership and to the Exchange Offering is
included in Exhibit A to this Prospectus and at "THE EXCHANGE OFFERING" and
"PROPOSED INITIAL REAL ESTATE INVESTMENTS," respectively.
In October 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 second mortgage
loan to the developer of an 84-unit residential apartment community in
Alexandria, Kentucky.
In October 1996, Baron Capital XXXVIII, Inc., an Affiliate of 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 has raised $550,000 as of May 14, 1998 and continues in
progress. The partnership has invested the net proceeds of its offering to make
a second mortgage loan to the developer of a 114-unit residential apartment
community located in Louisville, Kentucky.
In October 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 purchase receivables
associated with two properties comprising 144 residential apartment units
located in Titusville, Florida. Following the completion of the initial
transactions of the Exchange Offering, the Operating Partnership intends to
investigate other investment opportunities to exchange the balance of the Units
to be registered for property interests in other Exchange Offering transactions,
including this partnership's interests in one or more other properties.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included in Exhibit A to this
Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL ESTATE
INVESTMENTS," respectively.
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 to acquire an equity
interest in a 91-unit residential apartment community in Orlando, Florida.
Following the completion of the initial transactions of the Exchange Offering,
the Operating Partnership intends to investigate other investment opportunities
to exchange the balance of the Units to be registered for property interests in
other Exchange Offering transactions, including this partnership's interests in
one or more other properties. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included in
Exhibit A to this Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED
INITIAL REAL ESTATE INVESTMENTS," respectively.
In November 1996, 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 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.
Following the completion of the initial transactions of the Exchange Offering,
the Operating Partnership intends to investigate other
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investment opportunities to exchange the balance of the Units to be registered
for property interests in other Exchange Offering transactions, including this
partnership's interests in one or more other properties. Additional information
relating to the property interests owned by this partnership and to the Exchange
Offering is included in Exhibit A to this Prospectus and at "THE EXCHANGE
OFFERING" and "PROPOSED INITIAL REAL ESTATE INVESTMENTS," respectively.
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.
In December 1996, 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.
In February 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.
In February 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 acquire notes
receivable associated with a 58-unit residential apartment community located in
Cocoa, Florida. Following the completion of the initial transactions of the
Exchange Offering, the Operating Partnership intends to investigate other
investment opportunities to exchange the balance of the Units to be registered
for property interests in other Exchange Offering transactions, including this
partnership's interests in one or more other properties. Additional information
relating to the property interests owned by this partnership and to the Exchange
Offering is included in Exhibit A to this Prospectus and at "THE EXCHANGE
OFFERING" and "PROPOSED INITIAL REAL ESTATE INVESTMENTS," respectively.
In March 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.
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 has raised $887,000 as of May 14, 1998 and continues
in progress. 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.
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In May 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.
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 has raised $974,146 as of May 14, 1998 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 200 entry-level
single-family homes in Cincinnati, Ohio.
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 $600,000 as of May 14, 1998 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.
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 to acquire a limited
partnership interest in the limited partnership which owns a 72-unit residential
apartment property in Lakeland, Florida and to make a subordinated mortgage loan
in respect of the development of a separate residential apartment property.
Following the completion of the initial transactions of the Exchange Offering,
the Operating Partnership intends to investigate other investment opportunities
to exchange the balance of the Units to be registered for property interests in
other Exchange Offering transactions, including this partnership's interests in
one or more other properties. Additional information relating to the property
interests owned by this partnership and to the Exchange Offering is included in
Exhibit A to this Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED
INITIAL REAL ESTATE INVESTMENTS," respectively.
In June 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 to acquire limited
partnership interests in two limited partnerships which own a 91-unit
residential apartment property in Orlando, Florida and a 72-unit residential
apartment property in Lakeland, Florida, respectively, and to provide
subordinated mortgage financing secured by a 41-unit residential apartment
property in Kissimmee, Florida. Following the completion of the initial
transactions of the Exchange Offering, the Operating Partnership intends to
investigate other investment opportunities to exchange the balance of the Units
to be registered for property interests in other Exchange Offering transactions,
including this partnership's interests in one or more other properties.
Additional information relating to the property interests owned by this
partnership and to the Exchange Offering is included in Exhibit A to this
Prospectus and at "THE EXCHANGE OFFERING" and "PROPOSED INITIAL REAL ESTATE
INVESTMENTS," respectively.
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
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the net proceeds of its offering to make a subordinated mortgage loan to the
developer of a 150-unit residential apartment community in Independence,
Kentucky.
In September 1997, Baron Capital LXVI, Inc., an Affiliate of 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 has raised $900,000 as of May 14, 1998 and continues
in progress. 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.
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 has raised $981,133 as of May 14, 1998 and continues
in progress. The partnership has invested the net proceeds of its offering to
make a subordinated mortgage loan to finance the conversion of a 144-unit
residential apartment community located in St. Petersburg, Florida into an
extended-stay hotel.
In November 1997, Baron Capital LXVIII, Inc., an Affiliate of 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 has raised $778,000 as of May 14, 1998 and continues
in progress. 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.
There have been no major adverse business developments or conditions
experienced to date by any of the prior limited partnerships 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.
Exhibit A sets forth certain historical information relating to the
offerings of 37 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
Table IV Results of Completed Programs
Table V Sales or Disposals of Properties
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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 audited balance sheets of the Trust and the Operating Partnership as
of February 3, 1998 and the audited balance sheet of the Managing Shareholder as
of February 28, 1998 are included in this Prospectus at Exhibit C.
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' 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 President, sole director and sole shareholder of Baron Advisors
is Gregory K. McGrath and its Chief Operating Officer is Robert S. Geiger. The
Managing Shareholder will be compensated for its services under the Trust
Management Agreement. 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. Such officers and employees generally will serve in
the same capacity for the Trust and will be compensated by the Trust 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 37, is the President, sole director and sole
shareholder of Baron Advisors and Chief Executive Officer of the Trust. 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 the President, sole director
and sole shareholder of Brentwood Management, LLP, an Ohio limited liability
company which may provide property
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management services in respect of properties in which the Trust may invest. 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 nine Delaware or Florida corporations which is the sole general partner
of one of nine 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 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 33 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 37 additional real estate
investment limited partnerships formed in Florida 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 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.
Since 1986, Robert S. Geiger, age 47, has been managing director of the law
firm of Geiger Kasdin Heller Kuperstein Chames & Weil, P.A., a Miami, Florida
law firm with a general practice, and its predecessor firms. Mr. Geiger=s
practice is concentrated in complex commercial and real property litigation,
insolvency law, business reorganizations and banking law. He serves as general
counsel for national, regional and local corporations engaged in a wide range of
business activities, including regulated industry matters. Mr. Geiger's firm has
performed and is expected to continue to perform legal services for Affiliates
of the Managing Shareholder and may perform legal services for the Trust in
connection with the purchase and sale of real estate assets and other related
activities. Compensation received by the firm for such services has not
represented a material portion of the firm's revenues. Mr. Geiger will continue
in his current capacity at the firm 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. McGrath and Mr. Geiger are the founders of the Trust and the Operating
Partnership. Each of them has contributed $25,000 for the initial capitalization
of the Operating Partnership and other consideration to 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 after the completion of this Offering and the Exchange Offering, 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
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Common Shares into which such Units are exhangeable). 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 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 is subject
to approval 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 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 Managing Shareholder is obligated to compensate the administrative
personnel and pay all administrative and service expenses necessary to perform
the foregoing obligations. The Trust will pay all other expenses of the Trust,
including transaction expenses, appraisal costs, expenses of preparing and
printing periodic reports for Investors, the Commission and securities
commissions of applicable states, postage for Trust mailings, Commission and
state securities commission fees, interest, taxes, legal, accounting and
consulting fees, litigation expenses, and other expenses properly payable by the
Trust. The Trust will reimburse the Managing Shareholder for all such Trust
expenses paid by it. As compensation for the Managing Shareholder's performance
under the Trust Management Agreement, beginning June 1, 1998, the Trust will pay
to the Managing Shareholder on a monthly basis during the term of the agreement
an annual management fee in an amount equal to 1% of the aggregate subscription
price paid for Common Shares in the Cash Offering and of the initial value of
Units issued in connection with the Exchange Offering. 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 Independent Trustees have responsibility for
determining that compensation 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.
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Officers of the Trust
The Declaration provides that the Managing Shareholder will appoint
officers of the Trust who may act on behalf of the Trust and sign documents on
behalf of the Trust 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 business. 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. Mr. McGrath serves as Chief Executive Officer of the
Trust and as President of the Managing Shareholder and Robert S. Geiger serves
as the Chief Operating Officer of each company. The Trust is currently
interviewing suitable candidates to serve as President and Chief Financial
Officer of the Trust upon the commencement of the Cash Offering. Mr. Geiger's
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). Mr. McGrath
has agreed to serve as Chief Executive Officer during 1998 in exchange for
compensation in the form of Common Shares in an amount to be determined by the
Executive Compensation Committee based upon his performance in 1998. The
Managing Shareholder will appoint a Secretary for 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. Such officers
and employees generally will serve in the same capacity for the Trust and will
be compensated by the Trust 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."
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 will be comprised
of the Managing Shareholder and two individuals described below who have agreed
to serve as the initial Independent Trustees upon the completion of the Cash
Offering. 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. At
its initial meeting, which is scheduled to be held in the second quarter of
1998, the Board of the Trust will establish an Audit Committee, Executive
Compensation Committee, and Nominating Committee. The Audit Committee will be
established to make recommendations concerning the engagement of independent
public accountants, review with the
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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 Trust's
internal accounting controls. The Executive Compensation Committee will
determine compensation for the Trust's executive officers and implement a Common
Share option plan and bonus incentive compensation plan for members of
management and key employees of the Trust. 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 intends to 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 and the
President of 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 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. Without prior approval of the Compensation
Committee of the Board, the Trust may not pay compensation to any Independent
Trustee or other member of the Board for consulting services provided to the
Trust. 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 one 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. 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."
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Described below are James H. Bownas and Peter M. Dickson, who have agreed
to serve as the initial Independent Trustees of the Trust upon the completion of
the Cash Offering. 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.
James H. Bownas, age 49, is a principal in Gamble Hartshorn Alden 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 Cardinal Realty Services, Inc. ("Cardinal")
(formerly known as Cardinal Industries, Inc.), a publicly traded company
headquartered in Reynoldsburg, Ohio which has sponsored numerous real estate
investment limited partnerships. At Cardinal, 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, Cardinal has engaged in several
arms-length transactions (none of which represented a material portion of
Cardinal's assets, liabilities, revenues or expenditures) with Affiliates of the
Managing Shareholder pursuant to which multi-family real estate was 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. He resides in Columbus, Ohio.
Since 1991, Peter M. Dickson, age 47, 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 Property will be in
the name of the Trust 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-
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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."
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THE TRUST AND THE OPERATING PARTNERSHIP
The Trust and the Operating Partnership constitute a self-administered and
self-managed 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 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. See
"INVESTMENT OBJECTIVES AND POLICIES" below. The management of the Trust has been
involved in the residential apartment business for over 10 years.
The Trust and the Operating Partnership intend to make regular quarterly
distributions to their Shareholders and Unitholders of net income generated from
its investments. 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 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 exchange of Units of limited partnership interest in
the Operating Partnership for such property interests and thereby provide an
opportunity for the deferral until a later date of any tax liabilities that
sellers of property 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.
The net cash proceeds from the issuance of Common Shares of the Trust in
connection with the Cash Offering and the net cash proceeds of any subsequent
issuance of Common Shares will be contributed by the Trust to the Operating
Partnership in exchange for an equivalent number of units of limited partnership
interest in the Operating Partnership ("Units"). The Operating Partnership will
use the 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 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 will offer to issue
Units in exchange for interests in residential apartment properties. As its
initial acquisition candidates in connection with the Exchange Offering, the
Operating Partnership will offer to acquire property interests owned by partners
in 10 real estate limited partnerships managed by Affiliates of the Managing
Shareholder and by partners in a limited partnership managed by an Affiliate of
the Dealer Manager of the Cash Offering. The targeted properties consist of an
aggregate of 638 residential units (comprised of studio and one, two, three and
four-bedroom units) and are all located in Florida with the exception of one
property which is located in Georgia. Such property interests are described in
greater detail below at "PROPOSED REAL ESTATE INVESTMENTS" and in Exhibit B
hereto. If property acquisitions are consummated in respect of all 11
properties, the deemed purchase price is expected to be approximately $26.5
million, comprised of Units in the Operating Partnership to be issued with a
deemed value of approximately $12 million plus first mortgage indebtedness of
approximately $14.5 million to which the properties are subject. 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
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Shareholder and of the Dealer Manager. See also "PRIOR PERFORMANCE BY AFFILIATES
OF MANAGING SHAREHOLDER."
In the initial transactions of the Exchange Offering, the Operating
Partnership will offer 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 will have a deemed value in the
range of 102% to 110% 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, the same offering price of each Trust Common
Share offered in the Cash Offering. As described below, holders of Operating
Partnership Units may exchange their Units into an equivalent number of Common
Shares at any time, subject to certain conditions. Any Exchange Limited Partner
that does not desire to participate in the Exchange Offering would be entitled
to retain his limited partnership interest in the partnership on generally the
same terms as currently exist. As part of the transaction, the Trust will assume
the corporate general partner's interest in each of the Exchange Partnerships
involved and manage the partnerships on an ongoing basis.
The number of Operating Partnership Units to be offered to the Exchange
Limited Partners in respect of each Exchange Property will differ based upon a
number of factors, including, among others, the operating history of the
property, the amount of distributed cash flow generated by the property, the
period of time that the property has been held by the underlying Exchange
Partnership and the property's overall condition and estimated appraised market
value. An Affiliate of one of the Original Investors has agreed to supplement
the number of Operating Partnership Units offered to Exchange Limited Partners
in certain Exchange Partnerships by contributing to the Operating Partnership at
no cost a portion of his appraised interest in an unrelated residential
property. 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 "THE EXCHANGE OFFERING - Exchange
Property Appraisals."
To facilitate the Exchange Offering, the Operating Partnership has
registered with the Commission 2,500,000 Units. Sellers of property interests
who receive Units as consideration in connection with 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 seller to own (taking into account certain
ownership attribution rules) in excess of 5.0% of the then outstanding Shares,
subject to the Trust's right to cash out any holder of Units who requests an
exchange. Therefore, in conjunction with the registration of the Common Shares
being offered 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 this
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 or Units within the
12-month period following the commencement of the Cash 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
property interest sellers who receive Units in exchange for such property
interests, 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
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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 exchange their Units into
Common Shares or sell Common Shares. As Unitholders exchange their Units for
Common Shares, the Trust's percentage interest in the Operating Partnership will
increase.
The Trust will hold one Unit in the Operating Partnership for (i) each
Common Share that it issues 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.
The net proceeds from the issuance of Common Shares of the Trust in connection
with the Cash Offering and of any other issuance of Common Shares will be
contributed to the Operating Partnership in exchange for an equivalent number of
Units.
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
Managing Shareholder of the Trust, has complete discretion in the 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 and the President of the Managing Shareholder, and Robert S.
Geiger, the Chief Operating Officer of the Trust and of 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 properties in which it acquires an
interest.
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 is the President, sole shareholder and sole director of the 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 46 real estate investment limited
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 "PROPOSED INITIAL REAL ESTATE
INVESTMENTS," certain of the prior partnerships own interests in properties
which the Trust may acquire in connection with the Exchange Offering.
In connection with the formation of the Trust and the Operating
Partnership, Mr. McGrath has received an amount of Units which are exchangeable
(with certain escrow restrictions described below) into 9.5% of the Common
Shares outstanding after the completion of the Cash Offering and the Exchange
Offering, 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. Mr. McGrath's consideration for the Units included an
initial capital contribution of $25,000 to the Operating Partnership; a waiver
of any ongoing economic interests (including back end interests and
administrative fees) attributable to the corporate general partners (which he
controls) which manage real estate investment limited partnerships whose
investors participate in the Exchange Offering; and the contribution to the
Trust and the Operating Partnership of the goodwill of the affiliated group of
Baron companies under his control.
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Mr. Geiger serves the Trust and the Managing Shareholder as their Chief
Operating Officer. In exchange for an initial capital contribution of $25,000 to
the Operating Partnership and his past and future participation in the formation
and operation of the Trust and the Operating Partnership, he has received a
number of Units in the Operating Partnership equivalent to that issuable to Mr.
McGrath in connection with the formation of the Trust and the Operating
Partnership.
Mr. McGrath and Mr. Geiger have entered into a security escrow agreement
with the Trust under which they have deposited into an escrow account with
American Stock Transfer & Trust Company (the transfer agent and registrar for
the Common Shares being offered in the Cash Offering and the Units being offered
in the Exchange Offering) Units issuable 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, (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.
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 exchange
their Units into Common Shares and sell any Common Shares. The Original
Investors will retain any voting rights to which the escrowed Units are
entitled. Any dividends paid on the escrowed Units will be held in the escrow
account and available for distribution to other Shareholders and Unitholders in
the event of any transaction which results in the 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.
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.
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 issued to offerees as a result of their efforts)
would own the remaining 125,000, or 4.8%, of the outstanding Common Shares. On a
fully diluted basis assuming that all then outstanding Units (other than those
owned by the Trust) have been exchanged into an equivalent number of Common
Shares, the purchasers of Common Shares in the Cash Offering, sellers of
property interests who receive 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 the 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 will also receive a
1% partnership interest in the Operating Partnership. Units held by the Trust
will not be exchangeable into Common Shares.
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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 of the Cash Offering by itself without
taking into account the Exchange Offering. The second table assumes the
consummation of this Offering and the Exchange Offering.
The Offering
------------------------------
Ownership:
Purchasers of
BARON CAPITAL TRUST Common
Shares in the Cash 100.0%
("TRUST") Offering
------------------------------
------------------------------
General Partner
Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 80.2%
("OPERATING PARTNERSHIP") Original Investors 18.8%
-----
100.0%
Total
------------------------------
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 the net proceeds of the Cash Offering
($22,500,000) (remaining after payment of commissions and offering
fees) 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.
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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The Cash Offering And Proposed Exchange Offering
------------------------------ Ownership:
Purchasers of Common
BARON CAPITAL TRUST Shares in the Cash
Offering 95.2%
("TRUST") Broker-dealers
participating
in the Exchange Offering 4.8%
100.0%
------------------------------ Total
------------------------------ Baron Capital Trust 1.0%
BARON CAPITAL PROPERTIES, L.P. Limited Partners
Baron Capital Trust 39.9%
("OPERATING PARTNERSHIP") Sellers of Property in
Exchange Offering 39.9%
Original Investors 19.2%
100.0%
------------------------------ Total
If the Trust sells all 2,500,000 Common Shares being offered in the Cash
Offering, and the Operating Partnership uses all 2,500,000 registered Units to
complete the Exchange Offering to acquire property interests, the following
would result:
o The Trust would use the net proceeds of the Cash Offering
($22,500,000) (remaining after payment of commissions and offering
fees) to acquire 2,500,000 Units in the Operating Partnership.
o The Operating Partnership would issue all 2,500,000 registered Units
to sellers of property interests in exchange for such interests and
acquire additional property interests with the cash proceeds received
from the Trust.
o Each broker-dealer who assists 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 number of Operating
Partnership Units exchanged in the respective transactions.
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 the Units of
the Operating Partnership would be owned as follows:
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Percentage
Limited Partners Units Interest
---------------- ----- --------
Baron Capital Trust (as limited partner) 2,500,000 39.9%
Sellers of Property Interests
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%
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
sellers of property interests who receive Units in the Exchange Offering would
own varying numbers of Units and percentages of the then outstanding Units,
depending upon how many Common Shares and Units were issued in connection with
the respective offerings. The Original Investors would own a varying number of
Units, but their collective Common Share beneficial ownership percentage would
remain at 19%. In addition, over time as Unitholders exercise their rights to
exchange Units for an equivalent number of Common Shares: (i) the number of
outstanding Common Shares would increase, resulting in changing percentages of
ownership among Shareholders, and (ii) the number of outstanding Units would
decrease, resulting in changing percentages of ownership among Unitholders.
However, such exchanges would not affect the ownership percentage interests of
any Shareholder or Unitholder.
Regulations
General. Residential apartment communities are subject to various laws,
ordinances and regulations, including regulations relating to recreational
facilities such as swimming pools, activity centers and other common areas. 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 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
Trust's ability to make expected distributions to Shareholders 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.
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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 is contemplating an investment, state and
local rent control laws in certain jurisdictions limit a property owner's
ability to increase rents and to cover increases in operating expenses and the
costs of capital improvements. Enactment of such laws has been considered from
time to time in other jurisdictions. 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 it will initially 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 has been organized to acquire equity interests in existing
residential apartment properties located in the United States and/or to provide
or acquire debt financing secured by mortgages on 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 provides or acquires which are secured by mortgages on such types of
properties. The Managing Shareholder expects that the Trust's 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 may acquire and/or principal and interest payments in
respect of Mortgage Loans which the Trust may provide or acquire and (2) provide
the opportunity for capital appreciation through the sale of all or a portion of
the Trust's investment in equity interests in residential apartment properties.
The Trust intends to pay regular quarterly distributions to the Shareholders and
the Unitholders. Properties in which the Trust will acquire an interest are
expected to use the straight-line method of depreciation over 27-1/2 years.
The management of the Trust 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 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. The
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Trust's strategy 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 the Trust's distributions and its 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.
The Trust's primary business objectives are 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 properties 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) Increasing cash flow of the Trust's properties through active leasing,
rent increases, improvement in tenant retention, expense controls, effective
property management, and regular maintenance and periodic renovations, including
additions to amenities;
(iii) Managing operating expenses through the use of affiliated leasing,
marketing, financing, accounting, legal, and data processing functions; and
(iv) Emphasizing capital improvements to enhance the Trust's competitive
advantages in its markets.
Brentwood Management, LLC ("Brentwood"), an Ohio limited liability company
which is an Affiliate of the Managing Shareholder, or an Affiliate may manage
properties in which the Trust may invest. For managing a residential apartment
property, the property manager would be paid a fee equal to 5% of the collected
rental income from the property plus a bookkeeping fee of $325 per month and it
may earn a performance fee of $2.00 per residential unit per month if greater
than 96% of gross potential rents are collected.
Services to be provided by Brentwood shall include only services
customarily furnished or rendered in connection with the rental of real
property. For this purpose, the services are "customary" only if, in the
geographic location in which each property is located, tenants in the respective
properties are customarily provided the services primarily for the convenience
or benefit of the tenant, to the guests, customers or subtenants of the tenant.
After the Trust has invested the 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 and the Operating
Partnership intend to investigate making an additional public or private
offering of Common Shares or Units within the 12-month period following the
commencement of the Cash 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.
The Trust expects to qualify 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 Managing Shareholder of the Trust and under the
Declaration 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.
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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 properties. The Trust intends to pursue these objectives by acquiring
equity interests in one or more existing residential apartment properties
located in the United States and/or making or investing in 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
Junior 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 acquire or provide 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 estimated replacement cost of the property 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. It is expected that in certain cases the Trust
will provide or acquire a Second Mortgage Loan that is subordinate to a 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.
Junior Mortgages securing Junior Mortgage Loans to be provided or acquired
by the Trust may or may not be recorded. If any Junior Mortgage in favor of the
Trust is not recorded, the Trust's security interest in the Mortgage would be
unperfected and 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 Junior Mortgage Loan that may be made 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.
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 $1,000 deductible per loss), and against public
liability in an amount that is reasonable taking into account the market value
of the property at the time insurance is obtained. There can be no assurance,
however, that the Trust's Property would not sustain losses in excess of its
applicable insurance coverage, and it could sustain losses as a
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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. In that case,
the Shareholders and Unitholders could suffer a complete loss of their
investment in the Trust.
Real estate investment programs previously sponsored by and which may in
the future be sponsored by Affiliates of the Managing Shareholder may seek to
acquire interests in properties similar to those which the Trust will seek to
acquire. The following method of allocation of the acquisition of such
properties between the Trust and such other programs will generally be followed
by the Trust in such cases. Except in unusual circumstances, the Trust will not
invest its net offering proceeds in property investments until such similar
programs sponsored prior to the Cash Offering have specified for investment or
committed to invest at least 50% of their investment funds in respect of
particular properties, and no such similar program sponsored subsequent to the
Cash Offering will invest in respect of a particular property until the Trust
has specified for investment or committed to invest at least 50% of its net
offering proceeds in respect of particular properties. The Board and the
Independent Trustees are responsible for overseeing the allocation of the
acquisition of properties under the circumstances described above to insure that
the foregoing allocation method is applied fairly to 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 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 way 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.
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 limited partnership interest in the
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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
any applicable 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 will have discretion in 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 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, 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.
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."
PROPOSED INITIAL REAL ESTATE INVESTMENTS
In the Exchange Offering, the Operating Partnership will offer to issue
Units to sellers of interests in residential apartment properties in exchange
for such property interests. As its initial acquisition candidates, the
Operating Partnership will offer to acquire property interests indirectly owned
by individual limited partners in 10 real estate limited partnerships managed by
Affiliates of the Managing Partnership and by individual limited partners in a
limited partnership managed by an Affiliate of the Dealer Manager of the Cash
Offering (such limited partners are collectively referred herein as the
"Exchange Limited Partners" and individually as an "Exchange Limited Partner,"
and such partnerships are collectively referred herein as the "Exchange
Partnerships" and individually as an "Exchange Partnership").
Each Exchange Partnership directly or indirectly owns the entire equity
interest in a single residential apartment property. The Operating Partnership
would acquire interests in a particular property by acquiring from
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Exchange Limited Partners their limited partnership interests in the respective
partnership (the "Exchange Partnership Units"). In connection with the Exchange
Offering, the corporate general partners of each of the Exchange Partnerships
have agreed to waive all but a one percent economic interest (retained for
federal income tax purposes), including back end interests and administrative
fees, attributable to such corporate general partners. In addition, the Trust
will replace the current corporate general partners of each Exchange Partnership
in their capacity as general partners.
The 11 properties initially targeted for the Exchange Offering
(collectively, the "Exchange Properties" and individually, an "Exchange
Property") consist of an aggregate of 638 residential units (comprised of studio
and one, two, three and four-bedroom units) and are all located in Florida with
the exception of one property which is located in Georgia. Certain information
relating to the 11 properties and mortgage indebtedness secured thereby is
summarized in the two tables set forth below. Assuming the Exchange Offering in
respect of the 11 properties is accepted by all Exchange Limited Partners, the
deemed purchase price is expected to be approximately $26.5 million, comprised
of Operating Partnership Units to be issued with a deemed value of approximately
$12 million plus first mortgage indebtedness of approximately $14.5 million to
which the properties are subject. The Trust and the Operating Partnership will
investigate other investment opportunities for the Exchange Offering, including
property interests held by unaffiliated owners and interests in 13 additional
residential apartment properties held by certain other limited partnerships
managed by Affiliates of the Managing Shareholder and property interests held by
a limited partnership managed by an Affiliate of the Dealer Manager of the Cash
Offering. See also "PRIOR PERFORMANCE BY AFFILIATES OF MANAGING SHAREHOLDER,"
THE TRUST AND THE OPERATING PARTNERSHIP" and "INVESTMENT OBJECTIVES AND
POLICIES."
Audited statements of revenues and certain expenses for the 11 Exchange
Properties described herein and the combined statement of revenues and certain
expenses for such properties for the years ended December 31, 1996 and December
31, 1997 are included in Exhibit D to this Prospectus. The statements of
revenues and certain expenses exclude material expenses described in the notes
thereto (including partnership administrative expenses, major maintenance,
depreciation, amortization and professional fees) that would not be comparable
to those resulting from the proposed future operations of the Exchange
Properties.
In the initial transactions of the Exchange Offering, the Operating
Partnership anticipates that it will offer to issue Operating Partnership 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 Operating Partnership Units in exchange for his limited partnership
interest in his respective Exchange Partnership or (ii) retain his interest in
the Exchange Partnership on substantially the same terms and conditions as
currently exist. The approval of Exchange Limited Partners holding a specified
percentage of the limited partnership interests in a particular Exchange
Partnership will not be required for the Operating Partnership to consummate the
Exchange Offering in respect thereof. 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
therein would then be owned by the Operating Partnership, if all Exchange
Limited Partners in such Exchange Partnership elect to accept the 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 a deemed
value in the range of 102% to 110% 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, the same offering
price of each Trust Common Share offered in the Cash Offering. As described
above, holders of Operating Partnership Units 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."
The number of Operating Partnership Units to be offered in respect of each
Exchange Property will differ based upon a number of factors, including, among
others, the operating history of the property, the amount of distributed cash
flow generated by the property, the period of time that the property has been
held by the underlying Exchange Partnership and the property's overall condition
and estimated appraised market value. An Affiliate of
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one of the Original Investors has agreed to supplement the number of Operating
Partnership Units offered to Exchange Limited Partners in certain partnerships
by contributing to the Operating Partnership at no cost a portion of his
appraised interest in an unrelated residential property. 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.
All expenses incurred in connection with the Exchange Offering to produce,
file, print and distribute the prospectus will be paid by the Trust. No special
fees or commissions were 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. 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.
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<PAGE>
Property Information
Initial Properties - Exchange Offering
The table set forth below summarizes certain information relating to the
initial 11 properties in which the Operating Partnership intends to acquire an
interest in connection with the Exchange Offering, including (i) the name and
location of the properties, (ii) the year each property was completed, (iii) the
number of units, acreage, rentable area, average unit size, average rental rate
per unit and per square feet of rentable area as of April 1, 1998, and (iv) the
weighted average physical occupancy of each property as of April 1, 1998.
<TABLE>
<CAPTION>
Approx. 4/1/98 Physical
Number Rentable Average Average Rental Rates/ Occupancy
Year Of Approx. Area Unit Size Month As of
Property Location Completed Units Acres (Sq. Ft.)* (Sq. Ft.) (Per Unit) (Per Sq. Ft.) 4/1/98
-------- -------- --------- ----- ------- --------- --------- ---------- ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blossom Corners Orlando, 1980 70 3.67 39,300 561 $431 $.77 100%
Apartments (Phase I) Florida
Blossom Corners Orlando, 1981 68 3.51 38,100 560 $431 $.77 100%
Apartments (Phase II) Florida
Bridgepoint Apartments Jacksonville 1986 48 3.39 27,360 570 $450 $.79 100%
(Phase II) Florida
Eagle Lake Apartments Port 1987 77 4.68 45,504 591 $445 $.75 100%
Orange,
Florida
Forest Glen Apartments Daytona 1985 52 6.85 62,692 1,205 $655 $.54 94%
(Phase I) Beach,
Florida
Forest Glen Apartments Daytona 1985 30 6.85 34,231 1,141 $638 $.56 93%
(Phase II) Beach,
Florida
Forest Glen Apartments Daytona 1985 26 6.85 29,931 1,151 $641 $.56 92%
(Phase III) Beach,
Florida
Forest Glen Apartments Daytona 1985 8 6.85 9,166 1,146 $639 $.56 94%
(Phase IV) Beach,
Florida
Glen Lake Apartments St. 1986 144 7.16 79,200 550 $674 $1.23 94%
Petersburg,
Florida
Grove Hamlet Deland, 1986 56 6.21 45,504 813 $467 $.57 96%
Apartments Florida
Stadium Club Apartments Statesboro, 1987 59 3.50 50,736 860 $853 $.99 92%
Georgia
-------------------------------------------------------------------------------
TOTAL
PROPERTIES: 638 59.52 461,724 724 $570 $.78 96%
===============================================================================
</TABLE>
- ----------
* Includes only residential apartment units and excludes common areas.
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Mortgage Information
Initial Properties - Exchange Offering
The table below sets forth certain information relating to the indebtedness
secured by or associated with the initial 11 properties in which the Operating
Partnership intends to acquire an interest in connection with the Exchange
Offering, including (i) the name and location of the properties, (ii) the
principal balances as of March 1, 1998, (iii) the interest rates, (iv) the
annual debt service, (v) the amortization term, (vi) the maturity dates, (vii)
the balances due on maturity, (viii) the monthly payments, and (ix) the name of
the lending institution.
<TABLE>
<CAPTION>
3/98 Annual Balance
Principal Interest Debt Amortization Maturity Due On Monthly
Property Location Balance Rate Service Term Date Maturity Payment Lender
-------- -------- ------- ---- ------- ------------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Blossom Corners Orlando, $1,038,151 9.04% $105,288 25 years 11/1/06 $882,430 $8,774 Column Financial,
Apartments Florida Inc.
(Phase I)
Blossom Corners Orlando, 1,119,428 8.24% 107,793 25 years 3/1/02 1,050,024 8,841 Main America
Apartments Florida Capital
(Phase II)
Bridgepoint Jacksonville, 724,971 9.52% 77,096 25 years 7/1/06 625,327 6,381 Huntington
Apartments Florida Mortgage
(Phase II) Co.
Eagle Lake Port 1,463,114 8.56% 144,638 25 years 11/1/05 1,244,562 12,053 Column Financial,
Apartments Orange, Inc.
Florida
Forest Glen Daytona 1,836,576 7.01% 145,921 30 years 3/05 1,681,926 12,160 Prudential Mortgage
Apartments Beach, Capital
(Phase I) Florida
Forest Glen Daytona 1,072,132 7.01% 85,188 30 years 3/05 981,813 7,099 Prudential Mortgage
Apartments Beach, Capital
(Phase II) Florida
Forest Glen Daytona 854,708 7.01% 67,909 30 years 3/05 782,744 5,659 Prudential Mortgage
Apartments Beach, Capital
(Phase III) Florida
Forest Glen Daytona 236,584 7.01% 18,797 30 years 3/05 216,712 1,566 Prudential Mortgage
Apartments Beach, Capital
(Phase IV) Florida
Glen Lake St. 2,738,157 9.55% 298,709 25 years 5/18/00 2,652,341 24,475 Republic Bank
Apartments Petersburg, 361,952 8.00% 34,728 25 years 5/1/05 343,772 2,894 Glen Lake Arms
Florida Joint Venture
Grove Hamlet Deland, 1,323,137 9.50% 156,030 25 years 6/27/98 1,314,872 13,002 Midland Loan
Apartments Florida Services
Stadium Club Statesboro, 1,750,000 7.87% 151,271 30 years 10/1/05 1,615,458 12,606 GMAC
Apartments Georgia
----------- ---------- --------
TOTAL
PROPERTIES: $14,518,910 $1,393,368 $115,510
=========== ========== ========
</TABLE>
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<PAGE>
Property Description
The Exchange Properties are primarily garden style, one and two-story
multi-family residential apartment dwellings which range in size from eight
units to 144 units. The Trust believes that the Exchange Properties generally
occupy strategic locations growing sub-markets. The average unit size for
properties is 724 square feet, with ___% of the units having two or more
bedrooms. A majority of the units have washer/dryer connections and walk-in
closets. The Exchange Partnerships have improved the attractiveness of the
Exchange Properties by investing in extensive landscaping and rehabilitating
certain units. Other features frequently included in the Exchange Properties are
swimming pools, playgrounds, volley ball courts, fitness centers and community
rooms.
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
terms 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 multi-family residential apartment
properties located in close proximity to each of the Exchange Properties. The
number of multi-family units available in any target metropolitan market could
have a material effect on a property's capacity to rent space and on the rents
charged. In addition, in many of the Trust's proposed sub-markets, institutional
investors and owners and developers of multi-family residential apartment
properties compete for the acquisition and leasing of multi-family properties.
Many of these persons have substantial resources and experience.
Insurance
The Managing Shareholder believes that all of the Exchange Properties are
adequately insured; however, an uninsured loss could result in loss of capital
investment and anticipated profits.
Property Management
Strategic Management Services Company currently manages all of the Exchange
Properties. During 1997, the Exchange Partnerships paid an aggregate of
approximately $208,000 in property management fees. After the Exchange Offering,
it is expected that some or a substantial portion of the properties to be
acquired in the Exchange Offering will ultimately be managed by an Affiliate of
the Trust.
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<PAGE>
SELECTED FINANCIAL DATA
The following table contains selected audited operating data for the
Exchange Properties on a consolidated basis for the twelve-month periods ended
December 31, 1996 and December 31, 1997, and prospective operating data for the
year ending December 31, 1998, based upon the current operations of the Exchange
Properties. The data was derived from the statement of revenues and certain
expenses of the limited partnerships which directly or indirectly hold record
title to the Exchange Properties. The audited 1996 and 1997 statements of
revenues and certain expenses are included in Exhibit D to this Prospectus, and
the data set forth below should be reviewed in conjunction with such statements
for the related period, including the notes thereto. 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.
<TABLE>
<CAPTION>
Actual Actual Prospective
Year Ended Year Ended Year Ending
December 31, December, 31, December 31,
1997 1996 1998*
<S> <C> <C> <C>
Revenues:
Rental income $3,258,959 $3,217,429 $3,906,995
Other income 148,713 206,285 145,000
---------- ---------- ----------
Total revenues $3,407,672 $3,423,714 $4,051,995
Certain Expenses:
Personnel $ 394,090 $ 387,334 $ 392,100
Advertising and promotion 84,291 73,409 91,100
Utilities 310,253 297,326 284,200
Repairs and maintenance 303,281 276,343 298,490
Real estate taxes and insurance 427,435 439,942 430,150
Mortgage interest expense 1,327,009 1,268,808 1,535,294
Management fees 207,902 219,251 248,499
Other operating expenses 64,411 50,561 62,100
---------- ---------- ----------
Total certain expenses $3,118,672 $3,012,974 $3,341,933
---------- ---------- ----------
Revenues in Excess of Certain Expenses $ 289,000 $ 410,740 $ 710,062
========== ========== ==========
</TABLE>
- ----------
* Prepared based on annualized unaudited operating results of the Exchange
Properties from January 1, 1998 to date without any assumed percentage increase
or decrease in operating income or operating expenses for the remainder of 1998.
Actual results may vary materially from the prospective financial information
shown as a result of any number of factors discussed elsewhere in this
Prospectus, including, without limitation, under the "RISK FACTORS," "THE
EXCHANGE OFFERING," "THE TRUST AND THE OPERATING PARTNERSHIP," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF THE
EXCHANGE PROPERTIES" and "FEDERAL INCOME TAX CONSIDERATIONS."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE EXCHANGE PROPERTIES
Overview
The operating results of the Exchange Properties depend primarily upon
income from residential apartment properties, which is substantially influenced
by (i) the demand for and supply of residential apartment units in their primary
target market and sub-markets, and (ii) operating expense levels. The operating
results of the Trust and the Operating Partnership, subsequent to the
effectiveness of the Cash Offering and the closing of any acquisitions in
connection with the Exchange Offering, will depend primarily upon these two
factors and upon the pace and price at which they can acquire and improve
additional properties.
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.
Results of Operations
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1997
For the year ended December 31, 1997, revenues in excess of certain
expenses were $289,000, representing a 29.6% decrease from revenues in excess of
certain expenses of $410,740 for the year ended December 31, 1996. The decrease
was primarily attributable to three factors. First, two Exchange Properties,
comprised of 172 residential units, were substantially removed from the rental
market during 1997 to be prepared for sale as individual condominium units.
Substantial rehabilitation was completed in the units, including new roofs,
exteriors and appliances and interior decorating. The residential units were
returned to the rental market in January 1998 and presently have an occupancy
rate of 94%. Second, one Exchange Property, comprised of 144 residential units,
was substantially removed from the rental market for six months in 1997 for
material rehabilitation to change its focus from that of long-term rentals to
that of short-term corporate rentals. The process has been substantially
completed and the occupancy rate as of the date of this Prospectus is 97%.
Third, two Exchange Properties, comprised of 138 residential units, were
materially rehabilitated during the first five months of 1997. The
rehabilitation included new roofs, exteriors and appliances and interior
decorating. Occupancy averaged 80% during the rehabilitation period. However,
occupancy has averaged 96% since August 1997, and continues at that rate as of
the date of this Prospectus. Despite such factors, rental income from the
Exchange Properties increased by $41,530, or 1.3%, from $3,217,429 in 1996 to
$3,258,959 in 1997. The increase in rental income in 1997 was attributable to
strong rental markets and ongoing capital improvements. Other income (comprised
primarily of one-time fees) decreased by $57,572, or 27.9%, from $206,285 in
1996 to $148,713 in 1997. The decrease in other income in 1997 was attributable
primarily to a reduction in laundry income.
Property operating expenses increased by $47,497, or 2.7%, from $1,744,166
in 1996 to $1,791,663 in 1997. The increase in property operating expenses in
1997 was attributable to an expensing of costs involved with the rehabilitation
and re-renting of the properties. Personnel expenses increased by $6,756 (1.7%),
advertising and promotion expenses increased by $10,882 (14.8%), utility
expenses increased by $12,927 (4.3%), repairs and maintenance expenses increased
by $26,938 (9.7%), real estate taxes and insurance expenses decreased by $12,507
(2.8%), mortgage interest expense increased by $58,201 (4.6%), management fees
decreased by $11,349 (5.2%),
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<PAGE>
and other operating expenses (comprised primarily of administrative costs
involved with refinancing) increased by $13,850 (27.4%).
Each Exchange Property secures the repayment of large-scale first mortgage
financing. At December 31, 1997, the aggregate principal balance of such loans
was approximately $15,900,000. The Exchange Properties, taken in the aggregate,
have significantly reduced interest rate risk through refinancings that have
occurred over the past two years. By April 10, 1998, the last of nine out of the
11 Exchange Properties is expected to be refinanced with fixed interest rate
mortgage debt. The first mortgage loans have terms in the range of five to 10
years, amortization periods of 25 to 30 years and interest rates ranging from
7.25% to 9.55% per annum. The weighted average interest rate is approximately
8.60%. The two remaining properties are expected to be refinanced over the next
six months, which is expected to result in the weighted average interest rate
dropping an additional 35 basis points to 8.25%. Other information relating to
mortgage financing secured by the Exchange Properties is summarized in the table
above at "PROPOSED INITIAL REAL ESTATE INVESTMENTS."
Liquidity and Capital Resources
The Exchange Properties, taken in the aggregate, had sufficient liquidity
and working capital to meet their obligations during 1996 and 1997 and to date
in 1998. They are expected to have sufficient liquidity and working capital to
meet their obligations during the next twelve-month period. Longer-term capital
needs for the properties, taken in the aggregate, include the completion of
certain deferred maintenance items (including, but not limited to, the complete
renovation of five residential units and the completion of the upgrading of
furnishings of 110 residential units. The Trust anticipates that no funds from
the Cash Offering will be applied to such items, as reserves are currently in
place for such events. The Trust does not anticipate that any funds from the
Cash Offering will be applied to other anticipated capital improvements.
The Trust believes that known trends, events or uncertainties which will or
are reasonably likely to affect the Exchange Properties short-term and long-term
liquidity and current and future prospects 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
Exchange Properties 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 on the operations of any of the
Exchange Properties which might have a material effect on the financial
condition or results of operation, except that for the last 32 months, one
student housing property, comprised of 60 units, has had an average occupancy
rate of 93% for nine months of the year and 40% for the remaining three months
per year.
See also "THE EXCHANGE OFFERING," "THE TRUST AND THE OPERATING
PARTNERSHIP," "INVESTMENT OBJECTIVES AND POLICIES" and "PROPOSED INITIAL REAL
ESTATE INVESTMENTS."
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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
This section is a summary of material tax considerations that may be
relevant to prospective holders of Operating Partnership Units, 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 will be required to represent in a
subscription agreement that he or she has consulted his or her own tax advisor
with respect to the federal, state, local and foreign tax consequences arising
from his or her purchase of the Units.
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 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, 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
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<PAGE>
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 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 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 treated as a
regulated investment company were it a domestic corporation. A domestic
corporation generally will be treated as a regulated investment company only if
it is required to be registered under the 1940 Act.
Under Regulation Section 1.7704-1, interests in a partnership are generally
considered readily tradeable 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. 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 required to register under the 1940
Act. 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 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 A PARTNERSHIP INTEREST FOR INTEREST IN THE OPERATING PARTNERSHIP
Based on certain factual representations made by the Operating Partnership
and the General Partner to special Tax Counsel, 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
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"Exchange") should not result in the recognition of taxable gain at the time of
the Exchange so long as the Exchange Limited Partner does not receive 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. 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 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 property other than "money," by a partnership to a partner does not result in
taxable gain to that partner. The nonrecognition rule of Section 721 ordinarily
applies 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
generally will 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. 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.
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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 interest 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 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
implies that netting is permissible. Thus, an Exchange Limited Partner has a
reasonable basis for offsetting 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. A
partnership liability is a recourse liability to the extent that any partner (or
a person related to any partner) bears the "economic risk of loss" for that
liability within the meaning of the Regulations, and a partnership liability is
nonrecourse to the extent that no partner (or related person) bears the
"economic risk of loss." The Operating Partnership and the General Partner have
represented to special Tax Counsel that no Unitholder will have any share of any
recourse liabilities of the Operating Partnership. Therefore, Exchange Limited
Partners who currently include in the basis for their Exchange Partnership Units
a share of the Exchange Partnership's recourse liabilities by reason of
indemnification or "deficit restoration" agreements that they have entered into
with the Exchange Partnership, will realize a deemed cash distribution in
connection with the Exchange because such indemnification and "deficit
restoration" agreements will be eliminated in the Exchange.
Pursuant to the Regulations, a partner's share of partnership nonrecourse
liabilities equals the sum of (i) the partner's share of "partnership minimum
gain," determined in accordance with the rules of Section 704(b) of the Code and
the Regulations thereunder ("Section 704(b) Gain"); (ii) the amount of any
taxable gain that would be allocated to the partner under Section 704(c) of the
Code (or in the same manner as Section 704(c) of the Code in connection with a
revaluation of partnership property) if the partnership disposed of (in a
taxable transaction) all partnership property subject to one or more nonrecourse
liabilities of the partnership in full satisfaction of the liabilities and for
no other consideration ("Section 704(c) Gain"); and (iii) the partner's share of
"excess nonrecourse
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liabilities" (i.e. those not allocated under (i) and (ii) above) which are to be
allocated in accordance with the partners' respective "shares of partnership
profits."
To the extent an Exchange Limited Partner had a share of the "partnership
minimum gain" from the Exchange Partnership immediately prior to the Exchange,
on contribution of the Exchange Limited Partner's Exchange Partnership Units to
the Operating Partnership such share of "partnership minimum gain" will be
converted into an equivalent amount of Section 704(c) Gain. Thus, there will not
be any Section 704(b) Gain for purposes of determining the Exchange Limited
Partner's share of partnership nonrecourse liabilities upon the Exchange. The
nonrecourse liabilities, if any, allocable for a particular former Exchange
Limited Partner of an Exchange Partnership by reason of Section 704(c) Gain will
depend on a number of factors, including, for example (i) the former Exchange
Limited Partner's share of existing Section 704(c) Gain of the Exchange
Partnership immediately prior to the Exchange (although the matter is not free
from doubt, the amount of such share appears to depend on, among other things,
the assets that such Exchange Limited Partner contributed (or was deemed to
contribute) to the Exchange Partnership in exchange for Exchange Partnership
Units of the Exchange Partnership, the tax basis of those assets at the time of
contribution relative to the fair market value at such time, and the amount of
nonrecourse liabilities of the Exchange Partnership currently secured by such
assets, relative to the current tax basis and "tax book value" of those assets),
(ii) the extent, if any, to which the Section 704(c) Gain attributable to the
assets of the Exchange Partnership increases by reason of the Exchange (because
the nonrecourse liabilities currently secured by particular assets exceed the
tax basis of such assets by more than the existing Section 704(c) Gain
attributable to such assets), and (iii) the extent to which the Operating
Partnership causes nonrecourse liabilities as to which there exists Section
704(c) Gain immediately prior to the Exchange to be repaid or refinanced in
connection with the Exchange in a manner that reduces or eliminates that Section
704(c) Gain.
The Operating Partnership will allocate any "excess nonrecourse
liabilities" among the Unitholders in accordance with their respective
Percentage Interests.
The Agreement of Limited Partnership of the Operating Partnership provides
that nonrecourse deductions for any taxable period are to be allocated to the
Unitholders in accordance with the respective Partnership Interests.
Additionally, the General Partner has been given the discretion to allocate the
Operating Partnership's nonrecourse deductions in a different manner to satisfy
the Safe Harbor requirements of the Regulations. There can be no assurance that
each Unitholder will be allocated nonrecourse deductions in a manner prescribed
by the Regulations.
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 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
in 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.
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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 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
allocable 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
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General Partner and the Operating Partnership have represented to special Tax
Counsel that no distribution of cash will be made by 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 Shares of Beneficial Interest
of the Trust (the "Conversion Right") may 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.
The Service has previously ruled in Revenue Ruling 69-265, in a case involving a
reorganization of a corporation under Section 368(a)(1)(C) of the Code, that a
conversion right is considered "other property" under certain circumstances.
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 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.
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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
Tax Counsel has relied on factual representations made by the Operating
Partnership and the General Partner 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 extended 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) either (i)
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), or (ii) the partnership would be a
regulated investment company or a real estate investment trust if it were
incorporated.
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 (i) through (iv) or clause (v) or clause (vii), (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
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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 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 an 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 representations made by 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.
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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 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. As discussed above, 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
will be taxable to an Exchange Limited Partner sooner than it would have 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 Consequences of the Exchange - 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 "Tax
Consequences of the Exchange - Relief from Liabilities/Deemed Cash
Distribution"), (iii) his or her share of any losses of the Operating
Partnership,
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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 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
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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 of the 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 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 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.
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A Section 754 Election is advantageous if the transferee's tax basis in his
or her interests 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 interests 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" 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 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 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 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 partners taxable income for
year of termination. New tax elections required to be made 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
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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 obtain credit for the taxes withheld. A
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 a Unit will be subject to federal income tax on gain realized on the
disposition of the such Unit to the extent that such gain is effectively
connected with the United States trade or business of the foreign Unitholder.
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. For taxable years beginning after December 31,
1997 (the first available year), the Operating Partnership may be able to elect
the simplified pass-through system for audits that
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was enacted as part of the 1997 Act. Such election is available to partnerships
that have 100 or more partners and meet certain other requirements set forth in
the 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 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.
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
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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 of 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 have represented
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, 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,
special Tax Counsel cannot give unqualified assurance 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 principals 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 incidentally 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. Special Tax Counsel is
not able to render an opinion regarding whether or not the Service will apply
the anti-abuse Regulations to recast the transactions of the Operating
Partnership.
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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, THE FORMER HOLDERS OF
EXCHANGE PARTNERSHIP UNITS, AND CURRENT UNITHOLDERS, 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, a Unitholder
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. A Unitholder should
consult with his or her personal tax advisor with respect to the state and local
income tax implications for such Unitholder 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, INCLUDING TAX CONSEQUENCES TO THE INVESTOR UPON
THE EXCHANGE OF HIS OR HER EXCHANGE PARTNERSHIP UNITS FOR UNITS OF THE OPERATING
PARTNERSHIP.
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.
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.
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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.
The Managing Shareholder of the Trust currently expects that the Trust will
operate in a manner that permits it to elect, and that it will elect, 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 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. For taxable years beginning after August 5, 1997, 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.
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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 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). Under the 1997 Act, for taxable years
beginning after August 5, 1997, if the Trust complies with the Treasury
regulations for ascertaining its actual ownership and did not know, or exercise
reasonable diligence would not have 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 three 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 three 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
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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 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."
For taxable years beginning after August 5, 1997, 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).
Brentwood Management, LLC ("Brentwood"), an Affiliate of the Managing
Shareholder which is wholly owned by the sole stockholder of the Managing
Shareholder (which is expected to satisfy the independent contractor
standard), may perform property management services in respect of one or
more of the properties in which the Trust acquires an interest. The Trust
believes that the services that may be provided by Brentwood on such
properties would be of the type usually or customarily rendered in
connection with the rental of space for occupancy only, and therefore, that
the provision of such services would not cause the rents received with
respect to such properties to fail to qualify as rents from real property
for purposes of the 75% and the 95% gross income tests. The Trust intends
to monitor any services that may be provided by managers on other
properties in which it owns an interest.
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, interests, or gains from the sale or other disposition
of Shares or other securities that are not dealer property. Dividends and
interest on any obligations not collateralized by an interest in real
property are included for purposes of the 95% test, but not for purposes of
the 75% test.
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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 have represented to
Special Tax Counsel that neither the Trust nor the Operating Partnership
will enter into transactions for the sale of dealer property. Special Tax
Counsel, is, however, unable to issue an opinion regarding whether or not
the Trust will recognize income from one or more prohibited transactions.
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.
3. The 30% Test. For taxable years beginning on or before August 5,
1997, a REIT was required to derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities (including an interest
rate swap or cap agreement) held for less than one year, and (iii) property
in a prohibited transaction. The Trust does not anticipate that it will
have difficulty in complying with this test. The 30% test has been repealed
for taxable years beginning after August 5, 1997.
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. For taxable years beginning after August 5, 1997 the Act (i)
expands the class of non-cash income that is excluded from the distribution
requirement to include income from the cancellation of indebtedness, and (ii)
extends the treatment of original issue discount ("OID") (over cash and the fair
market value of property received on the instrument) as such non-cash income to
OID instruments generally and for REITs that use an accrual method of
accounting. 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. For taxable years beginning after August 5, 1997, 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
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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
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; 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. 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.
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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."
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, owing, 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 (and for taxable years beginning after August 5, 1997,
undistributed amounts) 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 is
held as a capital asset). 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.
In general, any loss upon a sale or exchange of Common Shares by a
Shareholders who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from the Trust required to be treated by such
Shareholder as long-term capital gains.
The 1997 Act made certain changes to the Code with respect to taxation of
long-term capital gains earned by taxpayers other than a corporation. In
general, for sales made after May 6, 1997, the maximum tax rate for individual
taxpayers on net long-term capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) is lowered to 20% for most
assets. This 20% rate applies to sales on or after July 29, 1997 only if the
asset was held more than 18 months at the time of disposition. Capital gains on
the disposition of assets on or after July 29, 1997 held for more than one year
and up to 18 months at the time of disposition will be taxed as "mid-term gain"
at a maximum rate of 28%. Also, so called, "unrecaptured Section 1250 gain" is
subject to a maximum federal income tax rate of 25%. "Unrecaptured Section 1250
gain" generally includes the long-term capital gain
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realized on (i) the sale after May 6, 1997 of a real property asset described in
Section 1250 of the Code, or (ii) the sale after July 28, 1997 of a real
property asset described in Section 1250 of the Code which the taxpayer has held
for more than 18 months, but in each case not in excess of the amount of
depreciation (less the gain, if any, treated as ordinary income under Code
Section 1250) taken on such asset. The rate of 18% instead of 20% will apply
after December 31, 2000 for assets held more than five years. However, the 18%
rate applies only to assets acquired after December 31, 2000 unless the taxpayer
elects to treat an asset held prior to such date as sold for fair market value
on January 1, 2001. In the case of individuals whose ordinary income is taxed at
a 15% rate, the 20% rate is reduced to 10%, and the 10% rate for assets held
more than five years is reduced to 8%.
On November 12, 1997, the IRS issued Notice 97-64 which describes temporary
Treasury regulations that will be issued under Section 1(h) of the Code and
provides guidance regarding the application of the 1997 Act's new capital gain
rates to the sale of assets by REIT's and other pass-through entities.
Shareholders of the Trust should consult their tax advisor with regard to
(i) the application of the changes made by the 1997 Act with respect to taxation
of capital gains and capital gain dividends, and (ii) to state, local and
foreign taxes on capital gains.
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 on 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 "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 (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
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(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 for exemption. The Trust is required by applicable Treasury Regulations
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 should recognize that the present Federal income tax
treatment of investment in the Trust may be modified by legislative, judicial or
administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with Federal
income taxation are constantly under review by persons involved in the
legislative process and by the Service and the Treasury Department, resulting in
revisions of regulations and revised interpretations of established concepts as
well as statutory changes. 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.
State and Local Taxes. The Trust and its Shareholders may be subject to
state or local taxation in various jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the Trust
and its Shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective Shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in Common Shares.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE TAXED AS A
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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.
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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
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."
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"). 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 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
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 will manage and control 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/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. The
Managing Shareholder is obligated to manage the Trust in the best interest of
its Partners. (See "FIDUCIARY RESPONSIBILITY" 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 (and
any successor advisor of the Trust) prior to entering into or renewing a
management agreement relating to the administration and
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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 is deemed to have been approved by
Investors who acquire Common Shares in the 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.)
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, 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, 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
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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 item above 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, 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
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" 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 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,
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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) 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 o
mortgage loans (other than loans insured or guaranteed by a government or
government agency) unless an appraisal of replacement cost 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, 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
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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 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.)
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, 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 its Affiliates and each of
their respective 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
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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. 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."
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 above. 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 is the initial beneficiary.
Distributions
The Trust presently intends to make quarterly pro rata distributions of
available funds, if any, to its Shareholders. In order to maintain its
qualification as a REIT under the Code, 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 Trust is expected to adopt a distribution reinvestment program at the
initial meeting of the Board of the Trust scheduled for the second quarter of
1998. 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
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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 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 for proper Trust purposes. (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
The Managing Shareholder may amend the Declaration without notice to or
approval of the Shareholders for the following purposes: to cure ambiguities or
errors; to conform the Declaration to the description in this Prospectus; to
equitably resolve issues arising under the Declaration so long as similarly
situated Shareholders are not treated materially differently; to make other
changes that will not materially and adversely affect any Shareholder=s
interest; 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
Offering by the Managing Shareholder prior to the Termination Date of the
Offering, (e) any other event requiring dissolution by law. The Trust will wind
up its business after dissolution unless (i) any remaining Managing
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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 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, the
Managing Shareholder and each Shareholder may engage in whatever activities they
choose, whether or not such activities are competitive with the 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 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
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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 cure ambiguities or errors; (ii)
to conform the Declaration to the description in this Prospectus; (iii) to
equitably resolve issues arising under the Declaration so long as similarly
situated Shareholders are not treated differently; (iv) to make other changes
that will not materially and adversely affect any Shareholder's interest; (v) 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 (vi) 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 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.)
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. (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
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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.)
COMPARISON OF RIGHTS OF HOLDERS OF EXCHANGE PARTNERSHIP UNITS,
OPERATING PARTNERSHIP UNITS AND TRUST COMMON SHARES
The rights of the Exchange Limited Partners are governed by the agreement
of limited partnership of the Exchange Partnership pertaining to their
respective investments ("Exchange Partnership Agreements"). The rights of
Exchange Limited Partners under the various agreements are identical except as
described below. 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
will become limited partners in the Operating Partnership and have rights set
forth under the Operating Partnership Agreement as described below. Exchange
Limited Partners who accept the Exchange Offer and thereby receive Operating
Partnership Units will entitled to convert such units into Common Shares of the
Trust at any time, subject to certain restrictions described at "THE EXCHANGE
OFFERING." Holders of Trust Common Shares will have the rights set forth under
the Declaration of Trust for the Trust.
The rights of limited partners in the 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
upon conversion of Operating Partnership Units into Trust Common Shares. A
summary of these differences is set forth below. The following summary sets
forth the material differences in such rights but does not purport to be a
complete statement of such rights 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.
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. Additional partnership interests may be sold by an
Exchange Partnership in the future if the general partner thereof 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.
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 Limited Partner interests to be held
by the Trust and by property interest owners who sell such interests to the
Operating Partnership 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. 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 Operating Partnership
Limited Partners, subject to Delaware business trust law.
The Trust. Under the Declaration of Trust, the Trust, in its sole
discretion, may issue (i) Trust Common Shares in addition to Trust Common Shares
to be offered in the Cash Offering and in addition to Trust Common Shares into
which Operating Partnership Units are exchangeable by Operating Partnership
Limited Partners, (ii)
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Trust Preferred Shares, or (iii) rights, options, warrants, or convertible or
exchangeable securities containing the right to subscribe for or purchase Trust
Common Shares or Trust Preferred Shares. 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 convert
their Operating Partnership Units into 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 fortieth anniversary of its formation, 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.
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
Exchange Partnerships. Subject to the rights of limited partners in the
Exchange Partnerships set forth in the Exchange Partnership Agreements which are
described in this Prospectus, the general partner of each partnership has full
exclusive and complete discretion in management and control of the partnership.
Operating Partnership. Subject to the rights of Operating Partnership
Limited Partners set forth in the Operating Partnership Agreement, the Trust, as
General Partner of the Operating Partnership, has all management
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powers over the business and affairs of the Operating Partnership. As described
immediately below, the Managing Shareholder of the Trust has 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 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 Units in one or more Exchange
Partnerships in return for capital contributions. Each Exchange Partnership
maintains a capital account for each partner 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. Each limited partnership in an
Exchange Partnership owns an interest in the entire limited partnership
interests in the partnership in proportion to his respective ownership of
shares.
Each Exchange Limited 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. Schedule B to this Prospectus summarizes on a
partnership by partnership basis the interests of the limited partners and the
general partner in each Exchange Limited Partner in such distributable cash flow
and net sale or refinancing proceeds.
The general partner of each Exchange Limited Partner has agreed to waive
all of its ongoing economic interest in the partnership (including back-end or
carried interests and administrative fees) attributable to such general partner.
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.
Operating Partnership. Each property interest owner that sells a property
interest to the Operating Partnership, including each Exchange Limited
Partnership who accepts the Exchange Offering, will exchange such property
interest for a number of Operating Partnership Units based on the seller's
proportionate share of the appraised market value of the underlying property.
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.
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, pus (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
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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 (ii) thereafter, to holders of Operating Partnership
Units. Each holder of Operating Partnership Units, including the Trust and each
property interest seller that participates in the Exchange Offering, will
receive a share of such distributions in proportion to his respective ownership
of Operating Partnership Units.
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 their conversion
of Operating Partnership Units into 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 "--Additional Issuances of 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
conversion 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.
Property Investments
Exchange Partnerships. Each of the Exchange Partnerships was formed to
acquire and now owns an interest in one residential apartment property as
described at "PRIOR PERFORMANCE OF AFFILIATES OF MANAGING SHAREHOLDER" and in
Exhibits A and B to this Prospectus.
Operating Partnership and the Trust. The Operating Partnership and the
Trust have been formed to acquire a diversified portfolio of 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, to acquire property
interests. The Operating Partnership intends to issue up to $25 million 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 11 Exchange Properties described in this Prospectus at
"PROPOSED INITIAL REAL ESTATE INVESTMENTS" and at Exhibit B.
Restrictions on Transfers
Exchange Partnerships. Under each Exchange Partnership Agreement, no
limited partner of the partnership may sell or transfer his interest in a
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.
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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 entities more difficult for an acquiror. See "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 would not be subject to federal income
tax. Instead, each limited partner is required to report annually on his
personal income tax return his allocable share of his partnership's income,
gain, loss, deductions, credits and items of tax preference regardless of
whether any distribution of cash or property is made to 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. 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. See Exhibit B.
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 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 (and for taxable years
beginning after August 5, 1997, undistributed amounts) 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 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
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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, subject to certain conditions described at
"THE EXCHANGE OFFERING."
Removal Rights
Exchange Partnerships. Limited partners holding at least a majority of the
outstanding Exchange Units of any Exchange Partnership have the right to remove
the general partner of the partnership if they determine that the general
partner is not performing its powers, duties and obligations in the best
interests of the partnership.
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. The holders of at least 10% of the outstanding Trust 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 outstanding Trust Common Shares (excluding Trust 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 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.
Reports
Exchange Partnerships. Each Exchange Partnership Limited Partner is
entitled to receive annual 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 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
Partnership 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 with data necessary to report his distributive share of
partnership income, deductions and credits for federal income tax purposes.
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 calendar 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 Operating Partnership 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 United Holder,
(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
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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, 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.
In addition, the Trust will also be 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 (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) otherwise required 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 for proper Trust purposes. 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 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, change the capital contribution required from him,
change his economic interest or change his rights on dissolution or any voting
rights.
Operating Partnership. Amendments to the Operating Partnership Agreement
may be proposed by the Trust 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
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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:
(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 disqualify the Trust's REIT status and
holders of at least a majority of the Trust Common Shares approve such
determination); to comply with law and to make changes of an inconsequential
nature which will not materially adversely affect the Shareholders.
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. 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 liability to his
Exchange
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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.
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 Operating Partnership 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.
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, determines 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
general partner of each Exchange Partnership of distributable cash flow and net
proceeds from the sale or refinancing of property is described in Exhibit B to
this Prospectus. The allocation of net liquidation proceeds among the partners
is described below at " - Liquidation Rights." In addition, an affiliate of the
general partner of each Exchange Partnership is entitled to earn a property
management fee in an amount equal to 5% of collected rental income from the
partnership's property plus a monthly bookkeeping fee in the range of $250 to
$325 and a performance fee of $2 for each apartment unit per month if greater
than 96% of gross rents are collected. The general partner or an affiliate is
also entitled to earn a real estate commission in an amount equal to 50% of any
commissions paid to an outside broker on the sale of any partnership property,
but in no event greater than 3% of the sales proceeds.
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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. The allocation of net
liquidation proceeds among the partners of the Operating Partnership is
described below at " - Liquidation Rights."
The Trust. The table included in this Prospectus at "COMPENSATION OF
MANAGING PERSONS AND AFFILIATES - "The Trust" describes all the material fees,
compensation, and other payments that may be received by the Managing
Shareholder and its affiliates in exchange for their respective services and
expenses 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.
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 each 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 applicable 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.
Operating Partnership. Meetings of the partners of the Operating
Partnership may be called by the Trust 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 Operating Partnership, 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 of the Operating
Partnership 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 partner in any
jurisdiction or any other liability, except as provided in the Operating
Partnership Agreement or under the Delaware Limited Partnership Act [define in
"Definitions" section].
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. The
limited partners holding a majority
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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
take responsibility for overseeing 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 of at least a majority of the Shares entitled to vote: (a) 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; (b) the merger or reorganization
of the Trust; and (c) the dissolution or liquidation of the Trust following its
initial property investment.
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.
Liquidation Rights
Exchange Partnerships. The limited partners and general partner of each
Exchange Partnership are entitled to receive a share of the net liquidation
proceeds of the partnership (remaining after payment of, or the creation of a
reasonable reserve for, all of the partnership's liabilities and obligations) in
an amount based on their respective capital account balance in relation to
capital account balance of all partners.
Operating Partnership. The limited partners and the General Partner of the
Operating Partnership are entitled to receive a share of the net liquidation
proceeds of the partnership (remaining after payment of, or the creation of a
reasonable reserve for, all of the partnership's liabilities and obligations) in
an amount based on their respective capital account balance in relation to
capital account balance of all partners.
The Trust. The Shareholders of the Trust are entitled to receive the net
liquidation proceeds of the Trust (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.
Accounting Method
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 will utilize the accrual
method of accounting for their operations.
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CAPITAL STOCK OF THE TRUST
General
The Declaration 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. 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, sellers of
property interests 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 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
The escrow agent for the Cash Offering, and the transfer agent and
registrar for the Common Shares and the Units, will be American Stock Transfer &
Trust Company, New York, New York. The company 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 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 the Trust contains restrictions on the
acquisition of Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration, no Shareholder
(other than the Original Investors) may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 5.0% (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,
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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 of the Trust 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 retransfers the Excess
Shares. While these Excess Shares are held in trust, they will not be entitled
to vote or to share in any dividends or other distributions. Subject to the
Ownership Limit, the Excess Shares may be transferred by the intended transferee
to any person (if the Excess Shares would not be Excess Shares in the hands of
such person) at a price not to exceed the price paid by the intended transferee
(or, if no consideration was paid, fair market value), at which point the Excess
Shares will automatically be exchanged for the Shares to which the Excess Shares
are attributable. In addition, such Excess Shares held in trust are subject to
purchase by 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 5.0% (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.
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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 a
minimum number of 50,000 Common Shares and a maximum number of 2,500,000 Common
Shares being offered. As described above at "THE TRUST AND THE OPERATING
PARTNERSHIP - The Operating Partnership," the Trust will contribute the 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, fees, expenses and other costs of the Cash Offering, 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 to be registered by the Trust 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 $50,000
cash and other consideration. See "THE TRUST AND THE OPERATING PARTNERSHIP -
Formation Transactions."
<TABLE>
<CAPTION>
Minimum Common Shares Maximum Common Shares
Sold in Cash Offering (50,000) Sold in Cash Offering (2,500,000)
------------------------------ ---------------------------------
<S> <C> <C>
Capital Contribution by the Trust:
Units $450,000 $22,500,000
Total Capitalization $450,000 $22,500,000
</TABLE>
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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." 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 Cash Offering are sold and the
Exchange Offering is completed in whole or in part.
After payment of commissions and fees related to the Cash Offering, the
remaining funds will be contributed 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 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. 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.
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 Security 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 pay to the Managing Shareholder a non-accountable fee in an
amount equal to 1% of the aggregate subscription price paid for Common Shares in
the Cash Offering to cover distribution, due diligence and
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organizational expenses associated with the formation of the Trust and the
Operating Partnership and with 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 pay the Managing Shareholder a non-accountable fee in an amount equal to 1%
of the aggregate subscription price paid for Common Shares in the Cash Offering
to cover legal, accounting and consulting fees, printing, filing, recording,
postage and other miscellaneous expenses associated with the Cash Offering. Any
such expenses of the Managing Shareholder in excess of the fee will be paid by
the Managing Shareholder.
The Trust will also pay the Managing Shareholder a non-accountable
investment fee in an amount (up to $1,000,000) equal to 4% of the aggregate
subscription price paid for Common Shares in the Cash Offering for its services
and expenses in investigating and evaluating investment opportunities for the
Trust and assisting the Trust in effecting its investments. Half of the
investment fee will be payable at the same time that selling commissions are
payable and the balance will be payable proportionately upon the consummation of
each of the Trust's investments based on the amount invested.
The termination date of the Offering (the "Termination Date") is scheduled
to be December 31, 1998 or an earlier or later date (no later than November 30,
1999) 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 or extend the scheduled Termination Date
to any date or from date to date which is no later than the earlier to occur of
the date by which all 2,500,000 Common Shares being offered have been sold and
November 30, 1999.
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
does not intend to register the Common Shares under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or list them on any securities
exchange immediately after the commencement of the Cash Offering. The Trust will
apply for listing on the American Stock Exchange ("AMEX") 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 and expects to qualify for
AMEX listing and register such Common Shares under the Securities Exchange Act
of 1934, as amended, as early as the third or fourth quarter of 1998. However,
there can be no assurance whether the Trust will qualify for such listing on
AMEX or any other 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-KSB or Form 8-K current
reports) under the Exchange Act for the fiscal year in which its Securities Act
registration statement becomes effective and for any subsequent fiscal year in
which it has more than 300 Shareholders in any such year or it is otherwise
required by applicable law to do so. 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.
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<PAGE>
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, an
Offeree should carefully review and consider this entire Prospectus and any
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.
Authorized Sales Material
Sales material may be used in connection with this Exchange Offering of the
Operating Partnership Units 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 (i) a letter transmitting this Prospectus and any
amendments or supplements thereto which summarizes this 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,
this Exchange Offering is made only by this Prospectus 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 this Exchange Offering and Offerees must review this
Prospectus and supplements carefully for a comple te 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
The Trust, the Operating Partnership and the Managing Shareholder are newly
formed and as of the date of this Prospectus have not acquired any significant
assets or incurred any significant liabilities. The audited balance sheets of
the Trust and the Operating Partnership as of February 3, 1998 and the audited
balance sheet of the Managing Shareholder as of February 28, 1998 are set forth
in Exhibit C hereto. As of the date of this Prospectus, the Trust, the Operating
Partnership and the Managing Shareholder have not conducted material business
operations.
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<PAGE>
The statements of revenues and certain expenses for the 11 Exchange
Properties described in this Prospectus which the Operating Partnership will
offer to acquire in the initial transactions of the Exchange Offering and the
combined statement of revenues and certain expenses for such properties for the
years ended December 31, 1996 and December 31, 1997 are set forth in Exhibit D
hereto.
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 balance sheets of the Trust and the Operating Partnership as of
February 3, 1998 and the audited balance sheet of the Managing Shareholder as of
February 28, 1998 have been included herein and in the Registration Statement in
reliance upon the report of Rachlin Cohen & Holtz, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
The statements of revenues and certain expenses for the 11 residential
apartment properties described in this Prospectus which the Operating
Partnership anticipates it will offer to acquire in the initial transactions of
the Exchange Offering and the combined statement of revenues and certain
expenses for such properties for the years ended December 31, 1996 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.
LEGAL MATTERS
The authority of the Operating Partnership to issue Units offered hereby is
being passed upon for the Trust by Schoeman, Marsh & Updike, LLP, New York, New
York, 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. Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio, has
passed on certain tax matters as described under "FEDERAL INCOME TAX
CONSIDERATIONS." 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 the Trust and the Managing Shareholder as to
facts regarding the Operating Partnership, the Trust and the Managing
Shareholder and their respective affiliates and the proposed activities and has
not independently verified such representations and statements.
EXPENSES OF THE EXCHANGE OFFERING
The Trust will pay the expenses in connection with the filing, printing and
distribution of this Prospectus. The costs of making and consummating the
Exchange Offering in respect of individual Offerees will be borne by the Trust.
Such costs are estimated to be approximately $________. The Trust may elect to
reimburse brokers, fiduciaries, custodians and other nominees for reasonable
out-of-pocket expenses incurred in sending this
146
<PAGE>
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 deemed value of
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 is 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 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.
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.
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.
147
<PAGE>
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.
"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.
"AMEX" refers to the American Stock Exchange or any successor exchange.
"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 Board of the Trust in accordance with the terms of the
Declaration, and their successors.
"Cash Offering" refers to the public offering by the Trust of 2,500,000
Common Shares in the Trust for a purchase price of $10 per share pursuant to the
Trust's Prospectus dated May 15, 1998, as it may be 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.
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<PAGE>
"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" means the Amended and Restated Declaration of Trust for the
Trust made as of May 15, 1998 by the Corporate Trustee that 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.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" refers to the Securities Exchange Act of 1934, as amended,
and any rules and regulations promulgated thereunder.
"Exchange Limited Partners" refers to the individual limited partners to
which the Operating Partnership will make the Exchange Offering in connection
with the initial transactions thereunder, including the limited partners in 10
real estate limited partnerships managed by Affiliates of the Managing
Partnership and the limited partners in a real estate limited partnership
managed by an Affiliate of the Dealer Manager of the Cash Offering. See
"PROPOSED INITIAL REAL ESTATE INVESTMENTS."
"Exchange Offering" refers to the exchange offering, pursuant to this
Prospectus, of registered Units by the Operating Partnership in exchange for
property interests. See "SUMMARY OF THE TRUST AND THE OPERATING PARTNERSHIP."
"Exchange Partnerships" refers to the 10 real estate limited partnerships
managed by Affiliates of the Managing Partnership and a real estate limited
partnership managed by an Affiliate of the Dealer Manager of the Cash Offering
all of whose existing property interests the Operating Partnership anticipates
it will indirectly acquire by acquiring the limited partnership interests of
their individual limited partners in the initial transactions of the Exchange
Offering. See "PROPOSED INITIAL REAL ESTATE INVESTMENTS."
"Exchange Properties" refers to the 11 residential apartment properties
initially targeted for acquisition by the Operating Partnership in connection
with the Exchange Offering. See "PROPOSED INITIAL REAL ESTATE INVESTMENTS."
"First Mortgage" refers to a Mortgage which takes priority or precedence
over liens of Junior 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.
"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" who becomes an Independent Trustee of the Trust
under the terms of the Declaration. See Section 7.5 of Declaration of Trust.
149
<PAGE>
"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).
"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, 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.
"Operating Partnership" means Baron Capital Properties, L.P., a Delaware
limited partnership of which the Trust is the general partner and through which
the Trust's interests in residential apartment properties to be acquired will be
held and real estate operations will be conducted.
"Operating Partnership Agreement" means the Agreement of Limited
Partnership of Baron Capital Properties, L.P.
"Operating Partnership Units" refer to units of limited partnership
interest in the Operating Partnership.
"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."
"Person" refers to any natural person, partnership, corporation,
association, trust, limited liability company or other legal entity.
"Plans" means employee benefit plans and IRAs.
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<PAGE>
"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 for sale or issuance subsequent to completion of the Cash Offering.
"Property" means all real or personal property owned or acquired by the
Trust, which is expected to include but not be limited to (i) the land,
buildings and improvements comprising one or more existing residential apartment
properties in which the Trust may make an equity investment, and (ii) its rights
in connection with Mortgage Loans it may make or acquire which are secured by
Mortgages on the land, buildings and improvements comprising residential
apartment properties. See "INVESTMENT OBJECTIVES AND POLICIES."
"Prospectus" means this Prospectus of the Operating Partnership dated June
__, 1998, 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.
"Second Mortgage" means 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 a First Mortgage
and (ii) must be satisfied before such other charges or encumbrances (other than
the First Mortgage) are entitled to participate in the proceeds of any sale.
"Second Mortgage Loan" means a Mortgage Loan secured or collateralized by a
Second Mortgage.
"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.
"Shareholder" means an owner of Shares in the Trust.
"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 which is the General Partner of the Operating Partnership and the
issuer of the Common Shares being offered in the Cash Offering..
"Trustee" and "Trustees" "Trustee" means a person serving as a Corporate
Trustee or an Independent Trustee of the Trust; the term "Trustees" refers to
the Corporate Trustee and the Independent Trustees collectively.
"Trust Management Agreement" means the Trust Management Agreement dated as
of May 15, 1998 between 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.
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"Unitholder" or "Limited Partner" means an owner of Units in the Operating
Partnership (which will initially include the Trust and Offerees who accept the
Exchange Offering).
"Units" refer to units of limited partnership interest in the Operating
Partnership.
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<PAGE>
EXHIBIT A
PRIOR PERFORMANCE OF AFFILIATES
OF
MANAGING SHAREHOLDER
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS
The following table summarizes the experience of Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., in organizing 37 investment
programs whose offerings closed in the most recent three years. The 37 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 for current income and capital appreciation (except in the case of a
mortgage fund).
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund VIII, Appreciation Fund
I, Ltd. (Baron Ltd. (Baron Capital I, Ltd. (Baron Capital
Capital IV, Inc., IV, Inc., general IV, Inc., general
general partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $940,000 $1,020,000 $ 840,000
Dollar amount raised:
(percent relative to 940,000 1,020,000 205,000
amount offered): (100%) (100%) (24%)
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 partner interests 846,000 925,600 184,500
of existing limited 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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
IT SHOULD NOT BE ASSUMED THAT OFFEREES WHO ACCEPT THE EXCHANGE OFFERING WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PARTNERSHIPS DESCRIBED IN THE TABLES ABOVE AND BELOW. OFFEREES 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 OFFEREES WILL NOT HAVE ANY INTEREST IN ANY OF
THE PARTNERSHIPS AS A RESULT OF THE ACQUISITION OF UNITS IN THE OPERATING
PARTNERSHIP OR COMMON SHARES IN THE TRUST, EXCEPT AS OTHERWISE INDICATED IN THE
PROSPECTUS.
I-1
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Clearwater First
Home Buyer Fund Home Buyer Time Homebuyer
V, Ltd. (Baron Mortgage Fund IV, Program, Ltd.
Capital XXIX, Inc., Ltd. (Baron Capital (Baron Capital XVI,
general partner) XXVIII, Inc., general Inc., general
partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 $ 750,000
Dollar amount raised:
(percent relative to 500,000 500,000 750,000
amount offered): (100%) (100%) (100%)
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
(5%)
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 partner interests 425,000 430,000 672,500
of existing limited 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: 1/96 6/96 3/96
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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-2
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Income Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture Fund I,
Ltd. (Baron Capital Apartments, Ltd. Ltd. (Baron Capital
XI, Inc., general (Baron Capital IX, XXVI, Inc., general
partner) Inc., general partner)
partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,150,000 $700,000 $ 900,000
Dollar amount raised:
(percent relative to 1,150,000 700,000 900,000
amount offered): (100%) (100%) (100%)
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 partner interests 825,500 580,000 601,000
of existing limited 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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-3
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund, Investment Fund Investment Fund
Ltd. (Baron II, Ltd. VI, Ltd. (Baron
Capital XXXIII, (Baron Capital XXXI, Capital XXXI,
Inc., general Inc., general Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,200,000 $800,000 $ 1,200,000
Dollar amount raised:
(percent relative to 1,200,000 800,000 1,200,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 140,000 100,000 130,000
(12%) (13%) (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%) (77%) (79%)
Acquisition costs (percent):*
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 796,000 524,000 806,000
of existing limited 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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-4
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund, Ltd. Income Fund, Ltd. Income Fund II,
(Baron Capital II, (Baron Capital I, Ltd. (Baron Capital
Inc., general Inc., general IV, Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $807,000 $1,050,000 $920,000
Dollar amount raised:
(percent relative to 807,000 1,050,000 920,000
amount offered): (100%) (100%) (100%)
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
0 (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 partner interests 656,300 589,500 548,000
of existing limited 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 1/95
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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-5
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital Florida Tax Credit
Income Partners, Income Fund III, Fund, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital
III, Inc., general VII, Inc., general VI, Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $800,000 $ 626,000
Dollar amount raised:
(percent relative to 800,000 800,000 626,000
amount offered): (100%) (100%) (100%)
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%) 0
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 partner interests 543,000 549,000 546,000
of existing limited partners: (68%) (69%) (87%)
Investment fee: 24,000 40,000 0
(3%) (5%) 0
Percent leverage (mortgage financing
divided by total acquisition cost): 62% 56% 51%
Date offering began: 8/95 6/95 6/95
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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-6
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
GSU Stadium Florida Capital Brevard Mortgage
Student Apartment Income Fund IV, Program, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital
X, Inc., general V, Inc., general XII, Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $1,000,000 $1,820,000 $ 575,000
Dollar amount raised:
(percent relative to 1,000,000 1,820,000 575,000
amount offered): (100%) (100%) (100%)
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 partner interests 690,000 1,212,800 450,000
of existing limited partners: (69%) (67%) (78%)
Investment fee: 100,000 100,000 0
(10%) (5%) 0
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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-7
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Baron First Time Baron First Time
Home Buyer Homebuyer Home Buyer
Mortgage Fund II, Mortgage Fund III, Mortgage Fund, Ltd.
Ltd. (Baron Capital Ltd. (Baron Capital (Baron Capital VIII,
XV, Inc., general XXVII, Inc., general Inc., general
partner) partner) partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $500,000 $500,000 500,000
Dollar amount raised:
(percent relative to 500,000 500,000 500,000
amount offered): (100%) (100%) (100%)
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 partner interests 455,000 450,000 450,000
of existing limited 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: 2/96 5/96 1/96
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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-8
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Baron Income Baron Mortgage
Development Fund, Property Mortgage Development Fund
IX, Ltd. (Baron Fund VI, Ltd. (Baron Capital VII, Ltd (Baron
Capital XLII, Inc., XXIX, Inc., general Capital XXXVII, Inc.,
general partner) partner) general partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $750,000 $700,000
Dollar amount raised:
(percent relative to 800,000 750,000 700,000
amount offered): (100%) (100%) (100%)
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 partner interests 678,000 645,000 585,000
of existing limited 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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-9
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Mortgage Baron Mortgage Baron Mortgage
Development Fund, Development Fund, Development Fund
X, Ltd. (Baron XI, Ltd. (Baron Capital XVIII, LP (Baron
Capital XLIII, Inc., XXXIII, Inc., general Capital LXV, Inc.,
general partner) partner) general partner)
------------------ ------------------- -------------------
<S> <C> <C> <C>
Dollar amount offered: $800,000 $800,000 $800,000
Dollar amount raised:
(percent relative to 800,000 800,000 800,000
amount offered): (100%) (100%) (100%)
Less offering expenses (percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 122,000 122,000 132,000
(15%) (15%) (17%)
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 partner interests 678,000 678,000 668,000
of existing limited 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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-10
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Mortgage
Investment Fund V, Investment Fund VII, Development Fund
Ltd. (Baron Capital Ltd. (Baron Capital XV, Ltd.(Baron Capital
XL, Inc., general XLI, Inc., general XLVIII, Inc., general
partner) partner) partner)
------------------ ------------------- --------------------
<S> <C> <C> <C>
Dollar amount offered: $1,200,000 $1,900,000 $700,000
Dollar amount raised:
(percent relative to 1,200,000 1,900,000 $700,000
amount offered): (100%) (100%) (100%)
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%) (0%)
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 partner interests 818,000 1,253,000 575,000
of existing limited partners: (68%) (66%) (82%)
Investment fee: 120,000 228,000 0
(10%) (12%) (0%)
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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-11
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Mortgage
Investment Fund X, Investment Fund VIII, Development Fund
Ltd. (Baron Capital Ltd. (Baron Capital XIV, Ltd.(Baron Capital
LXIV, Inc., general XLIV, Inc., general XLVII, Inc., general
partner) partner) partner)
------------------- --------------------- ------------------------
<S> <C> <C> <C>
Dollar amount offered: $1,200,000 $1,200,000 $1,000,000
Dollar amount raised:
(percent relative to 1,200,000 1,200,000 $1,000,000
amount offered): (100%) (100%) (100%)
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
(0%) (10%) (0%)
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 partner interests 916,000 784,000 840,000
of existing limited 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>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-12
<PAGE>
Table I: BARON ADVISORS AND AFFILIATES' EXPERIENCE
IN RAISING AND INVESTING FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic
Investment Fund IV,
Ltd. (Baron Capital
XVII, Inc., general
partner)
---------------------
<S> <C>
Dollar amount offered: $1,000,000
Dollar amount raised:
(percent relative to 1,000,000
amount offered): (100%)
Less offering expenses
(percent):
Selling commissions and
due diligence expenses
paid to sponsor/affiliate: 210,000
(21%)
Cash reserve accounts: 100,000
(10%)
Amount raised available for
investment (percentage): 690,000
(69%)
Acquisition costs (percent):*
Cash payments to acquire interest
in investment property or to
redeem limited partner interests 690,000
of existing limited partners: (69%)
Investment fee: 0
(0%)
Percent leverage (mortgage financing
divided by total acquisition cost): 70%
Date offering began: 11/96
Length of offering (in months): 16
Months required to invest
90% of the amount
available for investment
(measured from beginning
of offering): 14
</TABLE>
* Net proceeds from the private offering of the partnership were paid to acquire
property interests either in the form of record title or a debt interest in
respect of a particular property or all of the limited partnership interest in a
subtier partnership which owns such an interest.
I-13
<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 37 real estate investment
programs sponsored by Affiliates of the Managing Shareholder from their
inception through December 31, 1997. 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 for current
income and capital appreciation (except in the case of a mortgage fund).
<TABLE>
<CAPTION>
Florida Income Realty Opportunity Florida Income
Advantage Fund Income Fund Appreciation
I, Ltd. VIII, Ltd. 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 expenses: $ 94,000 $ 94,400 $ 20,500
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (76,860) $ (103,015) $ (8,891)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $28,085 $34,209 $12,223
Partnership Management
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-1
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Capital Tampa Capital Florida Capital
Income Fund, Income Fund, Income
Ltd. Ltd. Fund II, Ltd.
--------------- ------------- ---------------
<S> <C> <C> <C>
Date offering began: 11/94 9/94 1/95
Dollar amount raised: $807,000 $1,050,000 $920,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $90,700 $115,000 $ 102,000
Acquisition fees: $60,000 $180,000 $71,000
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (206,594) $ (15,632) $ (75,620)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $44,773 $47,729 $36,059
Partnership Management
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-2
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Florida Opportunity Florida Capital Florida Tax
Income Partners, Income Fund III, Credit Fund,
Ltd. 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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (83,231) $ (85,491) $ (58,193)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $27,010 $19,276 $30,107
Partnership Management
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-3
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron First Time Florida Captial GSU Student
Homebuyer Mortgage Income Fund IV, Stadium Apartments
Fund, Ltd. Ltd. 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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ 10,327 $ (508,617) $ (242,440)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 $63,115 $35,980
Partnership Management
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-4
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Brevard Mortgage Baron First Time Clearwater First
Program, Ltd. Homebuyer Time Home Buyer
Mortgage Fund II, Program, Ltd.
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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (4,789) $ 6,331 $ 1,546
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Partnership Management
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 Baron First Time Baron First Time
Homebuyer Homebuyer Homebuyer Mortgage
Mortgage Fund III, Mortgage Fund V, Fund IV, Ltd.
Ltd. 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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $10,862 $15,500 $14,108
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: 0 0 0
Partnership Management
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 Lamplight Court Baron Strategic
Growth Fund V, of Bellefontaine Vulture
Ltd. 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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (213,239) $ 86,101 $ (88,795)
Dollar amount paid Baron
Advisors Affiliates from
operations:
Property Management
and Administrative Fees: $24,687 0 0
Partnership Management
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-7
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Strategic
Investment Fund, Investment Fund Investment
Ltd. 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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (84,157) $ (31,200) $ (78,733)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
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 Baron Income Baron Mortgage
Fund IX, Ltd. Property Mortgage Development
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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ 173 $ (776) $ (180)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
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 Baron Mortgage Baron Mortgage
Development Fund X, Development Fund Development
Ltd. XI, Ltd. Fund XVIII, LP
------------------- ---------------- --------------
<S> <C> <C> <C>
Date offering began: 11/96 3/97 7/97
Dollar amount raised: $800,000 $800,000 $800,000
Amount paid to Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (171) $ 91 $ 59
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
Fees: 0 0 0
Reimbursements: 0 0 0
</TABLE>
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-10
<PAGE>
Table II: COMPENSATION TO BARON ADVISORS AFFILIATES
FROM PRIOR FUNDS (cont'd)
<TABLE>
<CAPTION>
Baron Strategic Baron Strategic Baron Mortgage
Investment Fund, Investment Fund Development
V, Ltd. VII, Ltd. Fund XV, Ltd.
---------------- --------------- ----------------
<S> <C> <C> <C>
Date offering began: 11/96 1/97 6/97
Dollar amount raised: $1,200,000 $1,900,000 $700,000
Amount paid to Baron Advisors
Affiliates from proceeds
of offering:
Selling commissions and
due diligence 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ 1,458 $ (87,764) $ 7
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
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 Baron Strategic Baron Mortgage
Investment Fund Investment Fund Development
X, Ltd. VIII, Ltd. Fund XIV, L.P.
--------------- --------------- --------------
<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 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
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (13,665) $ (30,813) $ 75
Dollar amount paid Baron
Advisors Affiliates from
operations: 0 0 0
Property Management
and Administrative Fees: 0 0 0
Partnership Management
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)
Baron Strategic
Investment Fund
IV, Ltd.
---------------
Date offering began: 11/96
Dollar amount raised: $1,000,000
Amount paid to Baron Advisors
Affiliates from proceeds of
offering:
Selling commissions and
due diligence expenses: $90,000
Acquisition fees: $0
Dollar amount of cash
generated (deficiency)
by program from operations
from its inception through
December 31, 1997 before
deducting payments to
Baron Advisors Affiliates: $ (29,297)
Dollar amount paid Baron
Advisors Affiliates from
operations: 0
Property Management
and Administrative Fees: 0
Partnership Management
Fees: 0
Reimbursements: 0
Baron Advisors Affiliates have received no fees or other payments related to
property sales or refinancings by the programs.
II-13
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS
The following table includes operating results for the periods indicated of 37
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 for current income and capital appreciation (except in the case of a
mortgage fund).
Florida Capital Income Fund, Ltd.
---------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $346,154 $348,348 $377,296
Other: 21,065 32,140 3,670
Less:
Operating Expenses: (182,429) (169,938) (201,404)
Interest Expenses: (158,727) (159,163) (128,897)
Depreciation and Amortization: (64,402) (63,327) (69,441)
Other: Major Maintenance: (19,712) 0 (40,663)
Net Income (Loss) - Tax Basis: (58,051) (11,940) (59,439)
Cash generated from operations: (14,714) 19,247 6,332
Less: Cash distributions: 80,700 80,700 56,059
Cash generated after cash distributions: (95,414) (61,453) (49,727)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (72) (15) (73)
Cash distributions to investors: 100 100 69
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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
and interest income.
III-1
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Advantage Fund, Ltd.
-----------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $170,175 $180,549 $165,493
Other: 7,031 5,721 47,756
Less:
Operating Expenses: (79,292) (73,049) (89,479)
Interest Expenses: (49,070) (49,964) (29,185)
Depreciation and Amortization: (70,922) (50,446) (49,641)
Major Maintenance Expense (18,353) 0 (28,185)
Net Income (Loss) - Tax Basis: (40,431) 12,811 16,759
Cash generated from operations: 23,460 57,536 18,644
Less: Cash distributions: 0 82,500 94,000
Cash generated after cash distributions: 23,460 (24,964) (75,356)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (43) 14 18
Cash distributions to investors: 0 88 100
Annualized cash on cash yield
to investors: 0% 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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 and 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $159,093 $181,587 $216,535
Other: 6,252 3,616 37,068
Less:
Operating Expenses: (93,216) (89,343) (98,705)
Interest Expenses: (60,222) (59,048) (38,897)
Depreciation and Amortization: (56,180) (55,941) (55,265)
Other: Major Maintenance: (21,967) 0 (23,632)
Net Income (Loss) - Tax Basis: (66,240) (19,129) 37,104
Cash generated from operations: (16,312) 33,196 55,301
Less: Cash distributions: 0 80,800 94,400
Cash generated after cash distributions: (16,312) (47,604) (39,099)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (65) (19) 37
Cash distributions to investors: 0 86 100
Annualized cash on cash yield
to investors: 0% 8% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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 and 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $56,139 $57,348 $69,986
Other: 2,437 2,565 8,944
Less:
Operating Expenses: (26,488) (26,417) (36,080)
Interest Expenses: (17,843) (15,898) (13,692)
Depreciation and Amortization: (16,264) (16,172) (10,878)
Other: Major Maintenance: (6,317) 0 (9,754)
Net Income (Loss) - Tax Basis: (8,336) 1,426 8,526
Cash generated from operations: 5,491 15,033 10,460
Less: Cash distributions: 0 19,375 20,500
Cash generated after cash distributions: 5,491 (4,342) (10,040)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (41) 7 41
Cash distributions to investors: 0 95 100
Annualized cash on cash yield
to investors: 0 9% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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 and advances from affiliates. "Other" includes ancillary
income such as forfeited security deposits, laundry and vending income, pet
fees, distribution supplements and interest income.
III-4
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Tampa Capital Income Fund, Ltd.
-------------------------------
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Gross Revenues: $409,146 $404,384
Other: 0 0
Less:
Operating Expenses: (207,313) (213,327)
Interest Expenses: (131,405) (88,632)
Depreciation and Amortization: (77,185) (69,040)
Other: Major Maintenance: 0 (25,157)
Net Income (Loss) - Tax Basis: (6,757) 8,228
Cash generated from operations: 70,428 77,268
Less: Cash distributions: 105,000 58,328
Cash generated after cash distributions: (34,572) 18,940
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (6) 8
Cash distributions to investors: 100 56
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $379,763 $319,640 $355,612
Other: 7,968 16,405 3,084
Less:
Operating Expenses: (158,953) (154,720) (195,088)
Interest Expenses: (149,908) (130,820) (66,611)
Depreciation and Amortization: (79,077) (78,505) (76,341)
Other: Major Maintenance: (86,899) 0 (43,168)
Net Income (Loss) - Tax Basis: (87,106) (28,000) (22,512)
Cash generated from operations: (15,997) 34,100 50,745
Less: Cash distributions: 0 92,000 52,468
Cash generated after cash distributions: (15,997) (57,900) (1,723)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (95) (30) (24)
Cash distributions to investors: 0 100 57
Annualized cash on cash yield
to investors: 0 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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
and interest income.
III-6
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Opportunity Income Partners, Ltd.
-----------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $218,018 $311,719 $207,207
Other: 0 0 9,634
Less:
Operating Expenses: (153,765) (149,572) (100,163)
Interest Expenses: (98,851) (78,273) (47,679)
Depreciation and Amortization: (44,069) (47,371) (24,532)
Other: Major Maintenance: (22,392) 0 (8,649)
Net Income (Loss) - Tax Basis: (101,059) 36,503 35,818
Cash generated from operations: (56,990) 83,874 50,716
Less: Cash distributions: 80,000 77,441 3,390
Cash generated after cash distributions: (136,990) 6,433 47,326
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (126) 46 45
Cash distributions to investors: 100 97 4
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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
and interest income.
III-7
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund III, Ltd.
--------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
ross Revenues: $212,608 $228,451 $106,625
Other: 6,605 7,884 0
Less:
Operating Expenses: (116,044) (112,640) (54,323)
Interest Expenses: (69,345) (68,759) (12,597)
Depreciation and Amortization: (36,890) (37,979) (18,548)
Other: Major Maintenance: (13,630) 0 (3,488)
Net Income (Loss) - Tax Basis: (16,696) 16,957 17,669
Cash generated from operations: 13,589 47,052 36,217
Less: Cash distributions: 80,000 79,867 22,482
Cash generated after cash distributions: (66,411) (32,815) 13,735
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (21) 21 22
Cash distributions to investors: 100 100 28
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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
and interest income.
III-8
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Tax Credit Fund, Ltd.
-----------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $282,587 $266,240 $274,862
Other: 0 0 0
Less:
Operating Expenses: (191,445) (172,489) (194,953)
Interest Expenses (67,422) (69,122) (99,684)
Depreciation and Amortization: (51,408) (47,236) (25,740)
Major Maintenance Expense (28,357) (20,067) (13,149)
Net Income (Loss) - Tax Basis: (56,045) (42,674) (58,664)
Cash generated from operations: (4,637) 4,562 (32,924)
Less: Cash distributions: 0 25,194 0
Cash generated after cash distributions: (4,637) (20,632) (32,924)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (90) (68) (94)
Cash distributions to investors: 0 40 0
Annualized cash on cash yield
to investors: 1% 4% 2%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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
and interest income.
III-9
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron First Time Homebuyer Mortgage Fund, Ltd.
----------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $70,341 $46,970
Other: 0
Less:
Operating Expenses: (774) (674)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 69,567 46,296
Cash generated from operations: 69,567 46,296
Less: Cash distributions: 60,000 45,536
Cash generated after cash distributions: 9,567 760
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 139 93
Cash distributions to investors: 120 91
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-10
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Capital Income Fund IV, Ltd.
------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $745,649 $695,308 $422,209
Other: 22,536 60,265 9,640
Less:
Operating Expenses: (469,088) (435,005) (301,870)
Interest Expenses: (310,603) (312,704) (173,711)
Depreciation and Amortization: (132,061) (137,316) (120,000)
Other: Major Maintenance: (36,903) 0 (1,750)
Net Income (Loss) - Tax Basis: (180,470) (129,452) (165,482)
Cash generated from operations: (70,945) (52,401) (55,122)
Less: Cash distributions: 180,233 149,240 676
Cash generated after cash distributions: (251,178) (201,641) (55,798)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (99) (71) (91)
Cash distributions to investors: 99 82 0
Annualized cash on cash yield
to investors: 10% 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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 and 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Gross Revenues: $458,687 $427,919 $200,668
Other: 27,710 21,809 0
Less:
Operating Expenses: (242,603) (212,984) (106,361)
Interest Expenses: (146,120) (122,433) (50,645)
Depreciation and Amortization: (65,135) (66,830) (66,999)
Other: Major Maintenance: (35,113) (54,112) (46,277)
Net Income (Loss) - Tax Basis: (2,574) (6,631) (69,614)
Cash generated from operations: 34,851 38,390 (2,615)
Less: Cash distributions: 203,105 84,961 25,000
Cash generated after cash distributions: (168,254) (46,571) (27,615)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (3) (7) (70)
Cash distributions to investors: 203 85 25
Annualized cash on cash yield
to investors: 10% 10% 0
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100% 100%
</TABLE>
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
and interest income.
III-12
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Brevard Mortgage Program, Ltd.
------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $17,009 $73,267
Other: 0 0
Less:
Operating Expenses: (2,119) (874)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 14,890 72,393
Cash generated from operations: 14,890 72,393
Less: Cash distributions: 57,500 34,572
Cash generated after cash distributions: (42,610) 37,821
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 26 126
Cash distributions to investors: 100 60
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
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>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $69,051 $41,748
Other: 45 0
Less:
Operating Expenses: (938) (611)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 68,158 41,137
Cash generated from operations: 68,113 41,137
Less: Cash distributions: 60,300 42,619
Cash generated after cash distributions: 7,813 (1,482)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 136 82
Cash distributions to investors: 121 85
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-14
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Clearwater First Time Homebuyer Program, Ltd.
---------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $88,149 $46,999
Other: 0 0
Less:
Operating Expenses: (132) (93)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 88,017 46,906
Cash generated from operations: 88,017 46,906
Less: Cash distributions: 90,000 43,377
Cash generated after cash distributions: (1,983) 3,529
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 117 62
Cash distributions to investors: 120 58
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
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>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $70,425 $29,006
Other: 0 0
Less:
Operating Expenses: (315) (408)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 70,110 28,598
Cash generated from operations: 70,110 28,598
Less: Cash distributions: 60,000 27,846
Cash generated after cash distributions: 10,110 752
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 140 57
Cash distributions to investors: 120 56
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
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>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $75,400 $26,198
Other: 0 0
Less:
Operating Expenses: (713) (245)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 74,687 25,953
Cash generated from operations: 74,687 25,953
Less: Cash distributions: 60,000 25,140
Cash generated after cash distributions: 14,687 813
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 149 52
Cash distributions to investors: 120 50
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
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>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $74,020 $14,529
Other: 0 0
Less:
Operating Expenses: (164) (377)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 73,856 14,152
Cash generated from operations: 73,856 14,152
Less: Cash distributions: 60,000 13,900
Cash generated after cash distributions: 13,856 252
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 147 28
Cash distributions to investors: 120 28
Annualized cash on cash yield
to investors: 12% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-18
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Florida Income Growth Fund V, Ltd.
----------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 273,596 $ 278,590
Other: 20,987 26,698
Less:
Operating Expenses: (163,172) (172,943)
Interest Expenses: (94,358) (98,805)
Depreciation and Amortization: (52,504) (56,381)
Major Maintenance Expense (16,416) (27,704)
Net Income (Loss) - Tax Basis: (31,867) (45,963)
Cash generated from operations: (350) (20,862)
Less: Cash distributions: 114,988 77,039
Cash generated after cash distributions: (115,338) (97,901)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (28) (40)
Cash distributions to investors: 100 67
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-19
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Lamplight Court of Bellefontaine Apartments, Ltd.
-------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 70,793 $ 16,800
Other: 0 0
Less:
Operating Expenses: (1,262) (230)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 69,531 16,570
Cash generated from operations: 69,531 16,570
Less: Cash distributions: 69,525 16,593
Cash generated after cash distributions: 6 (23)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 99 24
Cash distributions to investors: 99 23
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-20
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Vulture Fund I, Ltd.
------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 28,581 $ 3,731
Other: 0 0
Less:
Operating Expenses: (16,705) (464)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 11,876 3,267
Cash generated from operations: 11,876 3,267
Less: Cash distributions: 89,894 14,044
Cash generated after cash distributions: (78,018) (10,777)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 13 4
Cash distributions to investors: 100 16
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-21
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund, Ltd.
-------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 61,000 $ 2,479
Other: 1,906 0
Less:
Operating Expenses: (25,685) (403)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 37,221 2,076
Cash generated from operations: 35,315 2,076
Less: Cash distributions: 112,664 8,884
Cash generated after cash distributions: (77,349) (6,808)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 31 2
Cash distributions to investors: 94 7
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-22
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund II, Ltd.
----------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 50,185 $ 1,666
Other: 3,349 0
Less:
Operating Expenses: (144) (364)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 53,390 1,302
Cash generated from operations: 50,041 1,302
Less: Cash distributions: 79,601 2,942
Cash generated after cash distributions: (29,560) (1,640)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 67 2
Cash distributions to investors: 100 4
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-23
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VI, Ltd.
----------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 8,050 $ 400
Other: 4,500 0
Less:
Operating Expenses: (1,962) (218)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 10,588 182
Cash generated from operations: 6,088 182
Less: Cash distributions: 85,003 0
Cash generated after cash distributions: (78,915) 182
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 9 0
Cash distributions to investors: 71 0
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-24
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Development Fund IX, Ltd.
-------------------------------
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Gross Revenues: $ 69,804
Other: 749
Less:
Operating Expenses: (11,234)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 59,319
Cash generated from operations: 58,570
Less: Cash distributions: 58,397
Cash generated after cash distributions: 173
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 74
Cash distributions to investors: 73
Annualized cash on cash yield
to investors: 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-25
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Income Property Mortgage Fund VI, Ltd.
--------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 66,807 $ 5,740
Other: 389 85
Less:
Operating Expenses: (1,479) (260)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 65,717 5,565
Cash generated from operations: 65,328 5,480
Less: Cash distributions: 65,250 6,334
Cash generated after cash distributions: 78 (854)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 88 7
Cash distributions to investors: 87 8
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-26
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund VII, Ltd.
-----------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Gross Revenues: $ 66,692 $ 10,012
Other: 542 2
Less:
Operating Expenses: (1,703) (10,079)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 65,531 (65)
Cash generated from operations: 64,989 (67)
Less: Cash distributions: 65,075 27
Cash generated after cash distributions: (86) (94)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 94 0
Cash distributions to investors: 93 0
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-27
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund X, Ltd.
---------------------------------------
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Gross Revenues: $ 77,526 $ 9,998
Other: $ 1,789 23
Less:
Operating Expenses: (584) (10,033)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 78,731 (12)
Cash generated from operations: 76,942 (35)
Less: Cash distributions: 76,878 200
Cash generated after cash distributions: 64 (235)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 98 0
Cash distributions to investors: 96 0
Annualized cash on cash yield
to investors: 12% 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-28
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XI, Ltd.
----------------------------------------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 61,200
Other: 0
Less:
Operating Expenses: 0
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 61,200
Cash generated from operations: 61,200
Less: Cash distributions: 61,109
Cash generated after cash distributions: 91
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 77
Cash distributions to investors: 76
Annualized cash on cash yield
to investors: 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-29
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XVIII, L.P.
-------------------------------------------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 46,473
Other: 759
Less:
Operating Expenses: (20,279)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 26,953
Cash generated from operations: 26,194
Less: Cash distributions: 26,135
Cash generated after cash distributions: 59
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 34
Cash distributions to investors: 33
Annualized cash on cash yield
to investors: 12%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-30
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund V, Ltd.
---------------------------------------
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Gross Revenues: $ 69,423 $ 10,145
Other: 0 109
Less:
Operating Expenses: (5,117) (10,125)
Interest Expenses: 0 0
Depreciation and Amortization: 0 0
Other: Major Maintenance: 0 0
Net Income (Loss) - Tax Basis: 64,306 129
Cash generated from operations: 64,306 20
Less: Cash distributions: 62,868 0
Cash generated after cash distributions: 1,438 20
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 54 0
Cash distributions to investors: 52 0
Annualized cash on cash yield
to investors: 10% 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100% 100%
</TABLE>
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
and interest income.
III-31
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VII, Ltd.
-----------------------------------------
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 3,050
Other: 0
Less:
Operating Expenses: (13,606)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: (10,556)
Cash generated from operations: (10,556)
Less: Cash distributions: 77,208
Cash generated after cash distributions: (87,764)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (6)
Cash distributions to investors: 41
Annualized cash on cash yield
to investors: 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-32
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund IV, Ltd.
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 0
Other: 883
Less:
Operating Expenses: (2,167)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: (1,284)
Cash generated from operations: (2,167)
Less: Cash distributions: 27,130
Cash generated after cash distributions: (29,297)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): (1)
Cash distributions to investors: 27
Annualized cash on cash yield
to investors: 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-33
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XIV, Ltd.
1997
----
Gross Revenues: $ 44,419
Other: 631
Less:
Operating Expenses: (274)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 44,776
Cash generated from operations: 44,145
Less: Cash distributions: 44,070
Cash generated after cash distributions: 75
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 45
Cash distributions to investors: 44
Annualized cash on cash yield
to investors: 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
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
and interest income.
III-34
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund X, Ltd.
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 0
Other: 1,756
Less:
Operating Expenses: (237)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 1,519
Cash generated from operations: (237)
Less: Cash distributions: 13,428
Cash generated after cash distributions: (13,665)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1
Cash distributions to investors: 11
Annualized cash on cash yield
to investors: 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-35
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Mortgage Development Fund XV, Ltd.
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 12,669
Other: 190
Less:
Operating Expenses: (300)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 12,559
Cash generated from operations: 12,369
Less: Cash distributions: 12,362
Cash generated after cash distributions: 7
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 18
Cash distributions to investors: 18
Annualized cash on cash yield
to investors: 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-36
<PAGE>
Table III: OPERATING RESULTS OF PRIOR PROGRAMS (cont'd)
Baron Strategic Investment Fund VIII, Ltd.
<TABLE>
<CAPTION>
1997
----
<S> <C>
Gross Revenues: $ 0
Other: 1,708
Less:
Operating Expenses: (363)
Interest Expenses: 0
Depreciation and Amortization: 0
Other: Major Maintenance: 0
Net Income (Loss) - Tax Basis: 1,345
Cash generated from operations: (363)
Less: Cash distributions: 30,450
Cash generated after cash distributions: (30,813)
Tax and distribution data per $1,000 invested:
Federal taxable income (loss): 1
Cash distributions to investors: 25
Annualized cash on cash yield
to investors: 10%
Amount (in percentage terms) remaining
invested in program property at the end
of last year reported in table: 100%
</TABLE>
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
and interest income.
III-37
<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
residential properties for current income and capital appreciation (except in
the case of a mortgage fund).
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 $295,000 (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) Portion of purchase price paid with promissory note payable in 36 equal
monthly payments including 9% annual interest rate.
IV-1
<PAGE>
TABLE V: SALES OR DISPOSAL 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.
-------------------------------
<TABLE>
<S> <C>
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 est.
</TABLE>
- ----------
(1) Portion of purchase price paid with promissory note payable in 36 equal
monthly payments including 9% annual interest rate.
(2) The entire gain ($145,000) will be treated as a capital gain for tax
purposes.
(3) Does not include offering costs.
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>
07/22/96 310,000 Florida Tax Credit Fund II, Ltd. Baron Capital XXXIV, Inc.
10/18/96 700,000 Baron Mortgage Development Fund VII, Ltd. Baron Capital XXXVII,
Inc.
04/02/97 1,000,000 Baron Mortgage Development Fund XII, Ltd. Baron Capital XLVI, Inc.
Inc.
05/20/97 1,000,000 Baron First Mortgage Development Fund XVI, Ltd. Baron Capital LX, Inc.
05/22/97 1,000,000 Baron First Mortgage Development Fund XVII, Baron Capital LXI, Inc.
Ltd.
06/03/97 1,200,000 Baron Strategic Investment Fund IX, Ltd. Baron Capital LXII, Inc.
09/15/97 1,000,000 Baron Mortgage Development Fund XIX, L.P. Baron Capital LXVI, Inc.
09/10/97 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.
</TABLE>
<PAGE>
EXHIBIT B
SUMMARY OF EXCHANGE PROPERTY
AND EXCHANGE PARTNERSHIP INFORMATION
<PAGE>
<TABLE>
<CAPTION>
FLORIDA INCOME GROWTH FUND V, LTD.
(GP: Baron Capital XI, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
--------------------
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1980
BLOSSOM CORNERS Fee Simple
APARTMENTS - PHASE I
2001 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.67
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 15 300 $360
--------------------------------------------------------------------------------------
1 BR 49 600 $440
--------------------------------------------------------------------------------------
2 BR 6 900 $540
--------------------------------------------------------------------------------------
Total 70 39,300
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $2,195,000
1997 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 1/98
1996 AVG. MONTHLY OCCUPANCY %: 89%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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: $105,228
3/1/98 BALANCE: $1,038,151 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 10/95 NUMBER OF UNITS SOLD: 2,300
NUMBER OF INVESTORS: 49 PRICE PER UNIT: $500
PAID IN CAPITAL: $1,060,000 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%
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 108 Units Short Term Capital Gain (assuming 20% rate): $155
valued at $10 per Unit (or $1,080) Long Term Capital Gain (assuming 39% rate): $ 79
- ----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BARON STRATEGIC INVESTMENT FUND, LTD.
(GP: Baron Capital XXXII, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1981
BLOSSOM CORNERS Unrecorded Second Mortgage
APARTMENTS - PHASE II
2001 Raper Dairy Road
Orlando, Florida 32822
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.51
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 16 300 $360
--------------------------------------------------------------------------------------
1 BR 45 600 $440
--------------------------------------------------------------------------------------
2 BR 7 900 $540
--------------------------------------------------------------------------------------
Total 68 38,100
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $2,250,000
1997 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 1/98
1996 AVG. MONTHLY OCCUPANCY %: 81%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 3/1/02
Main America Capital
800 Mount Vernon Highway
Suite 120
Atlanta, Georgia 30328-4225
INITIAL PRINCIPAL BALANCE: $1,130,000 ANNUAL DEBT SERVICE: $107,793
3/1/98 BALANCE: $1,119,428 MONTHLY PAYMENT: $ 8,841
BALANCE DUE AT MATURITY: $1,050,024
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
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 distributed to the investors until they have
received a 12.5% non-cumulative return on their capital contributions; thereafter, the 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 the 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 a similar return on its capital contribution; thereafter the investors and the GP share any remaining
net proceeds 50%/50%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $108
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $ 56
------------------------------------------------------------ --------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND III, LTD.
(GP: Baron Capital VII, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1986
BRIDGE POINT APARTMENTS - PHASE II Fee Simple
1500 Monument Road
Suite 1102
Jacksonville, Florida 32225
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.39
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 6 288 $389
--------------------------------------------------------------------------------------
1 BR 37 576 $439
--------------------------------------------------------------------------------------
2 BR 5 864 $600
--------------------------------------------------------------------------------------
Total 48 27,360
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $1,520,000
1997 AVG. MONTHLY OCCUPANCY %: 93% APPRAISAL DATE: 5/95
1996 AVG. MONTHLY OCCUPANCY %: 95%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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: $77,096
3/1/98 BALANCE: $724,971 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
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%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 109 Units Short Term Capital Gain (assuming 20% rate): $101
valued at $10 per Unit (or $1,090) Long Term Capital Gain (assuming 39% rate): $ 52
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND, LTD.
(GP: Baron Capital II, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1987
EAGLE LAKE APARTMENTS Fee Simple
1025 Eagle Lake Trail
Port Orange, Florida 32119
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 4.68
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 BR 73 576 $439
--------------------------------------------------------------------------------------
2 BR 4 864 $550-555
--------------------------------------------------------------------------------------
Total 77 45,504
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 100% ESTIMATED APPRAISED VALUE: $2,530,000
1997 AVG. MONTHLY OCCUPANCY %: 94% APPRAISAL DATE: 1/98
1996 AVG. MONTHLY OCCUPANCY %: 96%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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: $144,638
3/1/98 BALANCE: $1,463,114 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
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; 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 (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%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFFERED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 105 Units Short Term Capital Gain (assuming 20% rate): $216
valued at $10 per Unit (or $1,050) Long Term Capital Gain (assuming 39% rate): $111
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND II, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE I Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 28 1,075 $619
--------------------------------------------------------------------------------------
3 BR 24 1,358 $699
--------------------------------------------------------------------------------------
Total 52 62,692
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $3,408,000
1997 AVG. MONTHLY OCCUPANCY %: 82% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 85%
=============================================================================================================================
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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: $145,921
3/98 BALANCE: $1,836,576 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 2/95 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 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, (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%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $181
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $ 93
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
* 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
REALTY OPPORTUNITY INCOME FUND VIII, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE II Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 23 1,075 $619
--------------------------------------------------------------------------------------
3 BR 7 1,358 $699
--------------------------------------------------------------------------------------
Total 30 34,231
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 93% ESTIMATED APPRAISED VALUE: $1,966,000
1997 AVG. MONTHLY OCCUPANCY %: 73% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 82%
=============================================================================================================================
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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
3/98 BALANCE: $ 1,072,132 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
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 any 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%.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $312
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $160
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
* The GP became a manager of this program in July 1995, replacing Realty Capital I, Inc., the initial sponsor.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA INCOME ADVANTAGE FUND I, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE III Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
(Sq. Ft.) RENTAL RATE
UNIT TYPE NUMBER
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 19 1,075 $619
--------------------------------------------------------------------------------------
3 BR 7 1,358 $699
--------------------------------------------------------------------------------------
Total 26 29,931
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 92% ESTIMATED APPRAISED VALUE: $1,678,000
1997 AVG. MONTHLY OCCUPANCY %: 88% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 94%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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: $67,909
3/98 BALANCE: $ 854,708 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
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: 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; 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%.
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $84
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $43
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
The GP became a manager of this program in July 1995, replacing Realty Capital IV, Inc., the initial sponsor.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA INCOME APPRECIATION FUND I, LTD.
(GP: Baron Capital IV, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1985
FOREST GLEN APARTMENTS - PHASE IV Beneficial interest in unrecorded
300 Forest Glen Boulevard land trust
Daytona Beach, Florida 32114
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.85
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
(Sq. Ft.) RENTAL RATE
UNIT TYPE NUMBER
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 BR 6 1,075 $619
--------------------------------------------------------------------------------------
3 BR 2 1,358 $699
--------------------------------------------------------------------------------------
Total 8 9,166
----------------------------------------------------------------
<CAPTION>
<S> > <C> <C>
4/1/98 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $524,000
1997 AVG. MONTHLY OCCUPANCY %: 91% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 91%
=============================================================================================================================
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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: $18,797
3/98 BALANCE: $ 236,584 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
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 ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 104 Units Short Term Capital Gain (assuming 20% rate): $106
valued at $10 per Unit (or $1,040) Long Term Capital Gain (assuming 39% rate): $ 55
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
- ---------------
The GP became a manager of this program in July 1995, replacing Realty Capital II, Inc., the initial sponsor.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FLORIDA CAPITAL INCOME FUND IV, LTD.
(GP: Baron Capital V, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1986
GLEN LAKE ARMS APARTMENTS Limited partnership interest in
2000 Gandy Boulevard North limited partnership which holds
St. Petersburg, Florida 33702 fee simple
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 7.16
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
1 BR 144 550 $674
--------------------------------------------------------------------------------------
Total 144 79,200
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 94% ESTIMATED APPRAISED VALUE: $6,433,079
1997 AVG. MONTHLY OCCUPANCY %: 78% APPRAISAL DATE: 3/98
1996 AVG. MONTHLY OCCUPANCY %: 81%
=============================================================================================================================
<CAPTION>
MORTGAGE INFORMATION
<S> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: SECOND MORTGAGE HOLDER AND ADDRESS:
Republic Bank Glen Lake Arms Joint Venture
1301 Sixth Avenue West 10490 Gandy Boulevard North, Suite 2E
Bradenton, Florida 34205 St. Petersburg, Florida 33702
INITIAL PRINCIPAL BALANCE: $2,812,500 INITIAL PRINCIPAL BALANCE: $375,000
3/1/98 BALANCE: $2,738,157 1/1/98 BALANCE: $361,952
BALANCE DUE AT MATURITY: $2,652,341 BALANCE DUE AT MATURITY: $343,772
MATURITY DATE: 5/18/00 MATURITY DATE: 5/01/05
ANNUAL DEBT SERVICE: $298,709 ANNUAL DEBT SERVICE: $34,728
MONTHLY PAYMENT: $ 24,475 MONTHLY PAYMENT: $2,894
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan
bears a fixed interest rate of 9.55% and amortizes on a bears a fixed interest rate of 8.0% and amortizes on a
25-year basis. 25-year basis.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 1/85 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 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 (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%.
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 108 Units Short Term Capital Gain (assuming 20% rate): $135
valued at $10 per Unit (or $1,080) Long Term Capital Gain (assuming 39% rate): $ 69
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL FLORIDA INCOME APPRECIATION FUND, LTD.
(GP: Sigma Financial Capital, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1986
GROVE HAMLET APARTMENTS Fee Simple
815B Grove Hamlet Way
Deland, Florida 32720
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 6.21
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
UNIT TYPE NUMBER (Sq. Ft.) RENTAL RATE
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 BR 10 576 $409
--------------------------------------------------------------------------------------
2 BR 46 864 $479
--------------------------------------------------------------------------------------
Total 56 45,504
----------------------------------------------------------------
<CAPTION>
<S> <C> <C>
4/1/98 OCCUPANCY %: 96% ESTIMATED APPRAISED VALUE: $2,508,900
1997 AVG. MONTHLY OCCUPANCY %: 71% APPRAISAL DATE: 11/97
1996 AVG. MONTHLY OCCUPANCY %: 75%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
FIRST MORTGAGE HOLDER AND ADDRESS: MATURITY DATE: 10/1/05
Midland Loan Services
210 West 10th Street
Kansas City, Missouri 64105
INITIAL PRINCIPAL BALANCE: $1,400,000 ANNUAL DEBT SERVICE: $ 156,030
3/1/98 BALANCE: $1,323,137 MONTHLY PAYMENT: $ 13,002
BALANCE DUE AT MATURITY: $1,314,872
MORTGAGE INTEREST AND AMORTIZATION PROVISIONS: The loan bears a fixed interest rate of 9.50% and amortizes on a 25-year
basis.
PREPAYMENT PROVISIONS: Prepayable without penalty.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
DATE OFFERING BEGAN: 8/94 NUMBER OF UNITS SOLD: 2,100
NUMBER OF INVESTORS: 48 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%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 102 Units Short Term Capital Gain (assuming 20% rate): $227
valued at $10 per Unit (or $1,020) Long Term Capital Gain (assuming 39% rate): $116
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GSU STADIUM STUDENT APARTMENTS, LTD.
(GP: Baron Capital X, Inc.)
=============================================================================================================================
PROPERTY INFORMATION
<S> <C> <C>
PROPERTY NAME AND ADDRESS: TYPE OF PROPERTY INTEREST: YEAR COMPLETED: 1987
STADIUM CLUB APARTMENTS Fee Simple
210 Lanier Drive
Statesboro, Georgia 30458
UNIT MIX AND RENTAL RATES: APPROXIMATE ACREAGE: 3.50
<CAPTION>
--------------------------------------------------------------------------------------
APPROXIMATE RENTABLE APPROXIMATE
AREA PER UNIT AVERAGE MONTHLY
(Sq. Ft.) RENTAL RATE
UNIT TYPE NUMBER
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Studio 2 288 $375
--------------------------------------------------------------------------------------
3 BR 2 880 $688
--------------------------------------------------------------------------------------
4 BR 55 880 $876
--------------------------------------------------------------------------------------
Total 59 50,736
----------------------------------------------------------------
<S> <C> <C>
4/1/98 OCCUPANCY %: 92% ESTIMATED APPRAISED VALUE: $2,800,000
1997 AVG. MONTHLY OCCUPANCY %: 86% APPRAISAL DATE: 9/97
1996 AVG. MONTHLY OCCUPANCY %: 90%
=============================================================================================================================
<CAPTION>
FIRST MORTGAGE INFORMATION
<S> <C> <C> <C> <C>
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: $151,271
3/1/98 BALANCE: $1,750,000 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.
=============================================================================================================================
<CAPTION>
INVESTMENT PROGRAM INFORMATION
<S> <C> <C> <C>
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; 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%
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C>
NUMBER OF OPERATING PARTNERSHIP UNITS ESTIMATED DEFERRED TAXABLE GAIN FROM EXCHANGE OFFERING (per
TO BE RECEIVED IN EXCHANGE OFFERING $1,000 of Investors' original investment):
(per $1,000 of Investors' original investment): 110 Units Short Term Capital Gain (assuming 20% rate): $125
valued at $10 per Unit (or $1,100) Long Term Capital Gain (assuming 39% rate): $ 64
- -----------------------------------------------------------------------------------------------------------------------------
(See Endnotes)
</TABLE>
<PAGE>
Endnotes:
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 multi-family
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. The Property is a multi-family residential apartment property which
generally leases units to tenants under one-year term lease agreements
common in the industry.
6. The estimated appraised value of the Property was determined by a qualified
and licensed independent appraisal firm. See the Prospectus at "THE TRUST -
The Operating Partnership."
7. Offerees who accept the Exchange Offering 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)" indicates the amount of taxable gain each
Offeree who accepts the Exchange Offering will defer in connection with
such transaction per each $1,000 of his original investment. See "THE TRUST
- The Operating Partnership."
<PAGE>
EXHIBIT C
FINANCIAL STATEMENTS OF THE TRUST,
THE OPERATING PARTNERSHIP AND
THE MANAGING SHAREHOLDER
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
BARON CAPITAL TRUST
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
Balance Sheet F-2
Notes to Financial Statements F-3
BARON CAPITAL PROPERTIES, L.P.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-4
FINANCIAL STATEMENTS
Balance Sheet F-5
Notes to Financial Statements F-6
BARON ADVISORS, INC.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-7
FINANCIAL STATEMENTS
Balance Sheet F-8
Notes to Financial Statements F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Trustees and Shareholders
Baron Capital Trust
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Capital Trust (the
"Trust") as of February 3, 1998. This financial statement is the responsibility
of the Trust's management. Our responsibility is to express an opinion on this
financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 statement referred to above presents fairly, in
all material respects, the financial position of Baron Capital Trust as of
February 3, 1998 in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
March 20, 1998
F-1
<PAGE>
BARON CAPITAL TRUST
BALANCE SHEET
FEBRUARY 3, 1998
ASSETS
Current Assets:
Cash $100
====
SHAREHOLDERS' EQUITY
Shareholders' Equity:
Common shares, no par value; 25,000,000 shares
authorized; none issued and outstanding $ --
Additional paid-in-capital 100
----
$100
====
See notes to financial statements.
F-2
<PAGE>
BARON CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1998
NOTE 1. ORGANIZATION
Baron Capital Trust (the "Trust"), a Delaware business trust, and its
affiliate, Baron Capital Properties, L.P. (the "Operating Partnership"), a
Delaware limited partnership, constitute a self-administered and
self-managed 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 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.
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. Prior to the proposed offering referred
to below, there were no shares outstanding.
NOTE 2. PROPOSED PUBLIC OFFERING
The Trust is proposing to offer, in an initial public offering, 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. Funds received will be held in escrow
until the minimum of 50,000 common shares is sold. 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.
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Partners
Baron Capital Properties. L.P.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Capital Properties, L.P.
(the "Partnership") as of February 3, 1998. This financial statement is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 statement referred to above presents fairly, in
all material respects, the financial position of Baron Capital Properties, L.P.
as of February 3, 1998 in conformity with generally accepted accounting
principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
March 20, 1998
F-4
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
BALANCE SHEET
FEBRUARY 3, 1998
ASSETS
Current Assets:
Cash $50,000
=======
PARTNERS' CAPITAL
Partners' Capital:
General partner $ --
Limited partners 50,000
-------
$50,000
=======
See notes to financial statements.
F-5
<PAGE>
BARON CAPITAL PROPERTIES, L.P.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1998
NOTE 1. ORGANIZATION
Baron Capital Properties, L.P. (the "Operating Partnership"), a Delaware
limited partnership, is the operating partner of Baron Capital Trust (the
"Trust"). Together, both the Trust and Operating Partnership constitute a
self-administered and self-managed 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 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.
The operations of the Trust will be carried on through the Operating
Partnership. 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.
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder
Baron Advisors, Inc.
Cincinnati, Ohio
We have audited the accompanying balance sheet of Baron Advisors, Inc. (the
"Managing Shareholder") as of February 28, 1998. This financial statement is the
responsibility of the Managing Shareholder's management. Our responsibility is
to express an opinion on this financial statement 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 statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 statement referred to above presents fairly, in
all material respects, the financial position of Baron Advisors, Inc. as of
February 28, 1998 in conformity with generally accepted accounting principles.
RACHLIN COHEN & HOLTZ
Miami, Florida
March 26, 1998
F-7
<PAGE>
BARON ADVISORS, INC.
BALANCE SHEET
FEBRUARY 28, 1998
ASSETS
Current Assets:
Cash $100
====
SHAREHOLDER'S EQUITY
Shareholder's Equity:
Common shares, no par value; 1,000 shares
authorized; none issued and outstanding $ --
Additional paid-in-capital 100
----
$100
====
F-8
<PAGE>
BARON ADVISORS, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 3, 1998
NOTE 1. ORGANIZATION
Baron Advisors, Inc., the Managing Shareholder of the Baron Capital Trust
("the Trust") was incorporated in July 1997 as a Delaware corporation.
As Managing Shareholder 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 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 Capital Properties, Inc. (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.
NOTE 2. TRUST MANAGEMENT AGREEMENT
The Trust will enter into a Trust Management Agreement with the Managing
Shareholder under which the Managing Shareholder will be obligated to
provide management, administrative and investment advisor services to the
Trust from the commencement of the Offering. The services to be rendered
will 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 Managing
Shareholder 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 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 shareholders entitled to vote on such matter or (ii) a majority of
the Independent Trustees.
The Trust will reimburse the Managing Shareholder for all Trust expenses
paid by it. As compensation for the Managing Shareholder's performance
under the Trust Management Agreement, beginning June 1, 1998, the Trust
will pay to the Managing Shareholder, on a monthly basis during the term of
the agreement, an annual management fee in an amount equal to 1% of the
aggregate subscription price paid for common shares in the proposed public
offering of the Trust's common shares and of the initial value of units
issued in connection with the proposed exchange offering. 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.
F-9
<PAGE>
EXHIBIT D
FINANCIAL STATEMENTS OF THE EXCHANGE PROPERTIES
<PAGE>
EXHIBIT D
BARON CAPITAL TRUST
INDEX TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
OF EXCHANGE PROPERTIES PURSUANT TO REGULATION SB 310
EXCHANGE PROPERTIES (Combined):
Independent Auditors Report
Combined Statement of Revenues and Certain Expenses
for the Years Ended December 31, 1996 and 1997
BLOSSOM CORNERS APARTMENTS PHASE I:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
BLOSSOM CORNERS APARTMENTS PHASE II:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
BRIDGEPOINT APARTMENTS PHASE II:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
EAGLE LAKE APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
FOREST GLEN APARTMENTS PHASE I:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
FOREST GLEN APARTMENTS PHASE II:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
FOREST GLEN APARTMENTS PHASE III:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS PHASE IV:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
GLEN LAKE ARMS APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
GROVE HAMLET APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
STADIUM CLUB APARTMENTS:
Independent Auditors Report
Statement of Revenues and Certain Expenses for the
Years Ended December 31, 1996 and 1997
Notes to Statement of Revenues and Certain Expenses
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION
The Board of Baron Capital Trust:
I have audited the statements of revenues and certain expenses (defined as being
operating revenues less direct operating expenses) for the years ended December
31, 1996 and 1997 of the following apartment properties:
Blossom Corners Apartments, Phase I
Blossom Corners Apartments, Phase II
Bridgepoint Apartments
Eagle Lake Apartments
Forest Glen Apartments, Phases I, II, III, IV (Combined)
Glen Lake Arms Apartments
Grove Hamlet Apartments
Stadium Club Apartments
The audits were made primarily to form an opinion on the statement of revenues
and certain expenses for each property separately. The accompanying supplemental
combined statement of revenues and certain expenses for these properties is
presented hereafter only for analysis purposes and is not a required part of the
basic audited financial statements.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 12, 1998
<PAGE>
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997:
- -----------------------------
Blossom Blossom Forest
Corners Corners Eagle Glen
Phase I Phase II Bridgepoint Lake Phases I-IV
------- -------- ----------- ---- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income $ 273,596 $ 296,025 $ 212,608 $ 346,154 $ 705,170
Other income 20,987 18,612 6,605 21,065 23,688
---------- ---------- ---------- ---------- ----------
Total revenues 294,583 314,637 219,213 367,219 728,858
---------- ---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 38,493 37,555 14,531 34,983 79,318
Advertising and promotion 9,946 6,318 5,783 9,811 18,292
Utilities 23,989 19,454 36,174 26,117 20,547
Repairs and maintenance 30,808 29,923 17,054 30,289 87,761
Real estate taxes and insurance 33,224 29,850 24,715 49,694 100,094
Mortgage interest expense 94,358 145,636 69,345 158,727 277,043
Management fees 20,039 25,331 14,751 26,702 39,306
Other operating expenses 6,673 3,116 3,036 4,833 12,631
---------- ---------- ---------- ---------- ----------
Total certain expenses 257,530 297,183 185,389 341,156 634,992
---------- ---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 37,053 $ 17,454 $ 33,824 $ 26,063 $ 93,866
========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1996:
- -----------------------------
REVENUES
Rental income $ 278,590 $ 271,230 $ 228,451 $ 348,348 $ 739,124
Other income 26,698 18,237 7,884 32,140 28,307
---------- ---------- ---------- ---------- ----------
Total revenues 305,288 289,467 236,335 380,488 767,431
---------- ---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 40,705 44,561 11,767 29,559 68,595
Advertising and promotion 8,660 4,564 5,075 5,020 13,401
Utilities 19,108 19,146 28,846 30,819 18,726
Repairs and maintenance 40,641 23,139 21,224 25,777 75,906
Real estate taxes and insurance 36,627 39,547 26,194 49,359 105,642
Mortgage interest expense 98,805 124,833 68,759 159,163 255,729
Management fees 21,186 20,931 17,019 24,129 48,622
Other operating expenses 6,016 5,191 2,515 5,275 9,240
---------- ---------- ---------- ---------- ----------
Total certain expenses 271,748 281,912 181,399 329,101 595,861
---------- ---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 33,540 $ 7,555 $ 54,936 $ 51,387 $ 171,570
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997:
- -----------------------------
Glen Lake Grove Stadium Combined
Arms Hamlet Club Total
--------- ------ ---- -----
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 745,649 $ 221,070 $ 458,687 $3,258,959
Other income 22,536 7,510 27,710 148,713
---------- ---------- ---------- ----------
Total revenues 768,185 228,580 486,397 3,407,672
---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 85,191 31,912 72,107 394,090
Advertising and promotion 20,726 1,530 11,885 84,291
Utilities 120,687 13,915 49,370 310,253
Repairs and maintenance 67,235 8,245 31,966 303,281
Real estate taxes and insurance 118,041 35,289 36,528 427,435
Mortgage interest expense 310,603 125,177 146,120 1,327,009
Management fees 42,276 14,028 25,469 207,902
Other operating expenses 14,932 3,912 15,278 64,411
---------- ---------- ---------- ----------
Total certain expenses 779,691 234,008 388,723 3,118,672
---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES ($ 11,506) ($ 5,428) $ 97,674 $ 289,000
========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1996:
- -----------------------------
REVENUES
Rental income $ 695,308 $ 228,459 $ 427,919 $3,217,429
Other income 60,265 10,945 21,809 206,285
---------- ---------- ---------- ----------
Total revenues 755,573 239,404 449,728 3,423,714
---------- ---------- ---------- ----------
CERTAIN EXPENSES
Personnel 81,963 42,952 67,232 387,334
Advertising and promotion 25,227 1,388 10,074 73,409
Utilities 122,890 18,450 39,341 297,326
Repairs and maintenance 36,584 27,052 26,020 276,343
Real estate taxes and insurance 118,627 32,966 30,980 439,942
Mortgage interest expense 312,704 126,382 122,433 1,268,808
Management fees 43,434 15,889 28,041 219,251
Other operating expenses 6,280 4,748 11,296 50,561
---------- ---------- ---------- ----------
Total certain expenses 747,709 269,827 335,417 3,012,974
---------- ---------- ---------- ----------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 7,864 ($ 30,423) $ 114,311 $ 410,740
========== ========== ========== ==========
</TABLE>
[LETTERHEAD OF ELROY D. MIEDEMA]
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, 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 Blossom Corners Apartments, Phase I, for the years ended December 31,
1996 and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 9, 1998
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
----------- ------------
REVENUES
Rental income $273,596 $278,590
Other income 20,987 26,698
-------- --------
Total revenues 294,583 305,288
-------- --------
CERTAIN EXPENSES
Personnel 38,493 40,705
Advertising and promotion 9,946 8,660
Utilities 23,989 19,108
Repairs and maintenance 30,808 40,641
Real estate taxes and insurance 33,224 36,627
Mortgage interest expense 94,358 98,805
Management fees 20,039 21,186
Other operating expenses 6,673 6,016
-------- --------
Total certain expenses 257,530 271,748
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 37,053 $ 33,540
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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, 1996 83%
December 31, 1997 93%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the 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.
<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 II, for the years ended December 31, 1995 and
1996. 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 Blossom Corners Apartments, Phase II, for the years ended December 31,
1995 and 1996 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
December 10, 1997
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE II
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
September 30, September 30, December 31, December 31,
1997 1996 1996 1995
------------- ------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Rental income $ 219,057 $ 199,372 $ 271,230 $ 230,871
Other income 11,424 16,181 18,237 19,978
--------- --------- --------- ---------
Total revenues 230,481 215,553 289,467 250,849
--------- --------- --------- ---------
CERTAIN EXPENSES
Personnel 28,994 31,457 44,561 36,160
Advertising and promotion 4,029 3,480 4,564 13,785
Utilities 14,466 14,591 19,146 24,244
Repairs and maintenance 25,202 15,137 23,139 22,154
Real estate taxes and insurance 25,922 29,881 39,547 37,027
Mortgage interest expense 104,723 92,409 124,833 126,886
Management fees 20,619 14,921 20,931 9,388
Other operating expenses 2,291 4,752 5,191 4,226
--------- --------- --------- ---------
Total certain expenses 226,246 206,628 281,912 273,870
--------- --------- --------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 4,235 $ 8,925 $ 7,555 $ (23,021)
========= ========= ========= =========
</TABLE>
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BLOSSOM CORNERS APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Descriptions and Summary of Significant Accounting Policies
Description
Blossom Corners Apartments, Phase II, consist of 68 units located in
Orlando, Florida. The property was acquired during 1981 by Blossom Corners
Apartments II, Ltd. The following percentage of units were occupied at the
various period ending dates:
December 31, 1995 96%
September 30, 1996 93%
December 31, 1996 97%
September 30, 1997 91%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Blossom Corners 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.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Baron Capital Trust:
I have audited the accompanying statement of revenues and certain expenses
(defined as being operating revenues less direct operating expenses) of
Bridgepoint Apartments for the years ended December 31, 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 Bridgepoint Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
BRIDGEPOINT APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $212,608 $228,451
Other income 6,605 7,884
-------- --------
Total revenues 219,213 236,335
-------- --------
CERTAIN EXPENSES
Personnel 14,531 11,767
Advertising and promotion 5,783 5,075
Utilities 36,174 28,846
Repairs and maintenance 17,054 21,224
Real estate taxes and insurance 24,715 26,194
Mortgage interest expense 69,345 68,759
Management fees 14,751 17,019
Other operating expenses 3,036 2,515
-------- --------
Total certain expenses 185,389 181,399
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 33,824 $ 54,936
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
BRIDGEPOINT APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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, 1996 92%
December 31, 1997 85%
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.
<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, 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 Eagle Lake Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
EAGLE LAKE APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $346,154 $348,348
Other income 21,065 32,140
-------- --------
Total revenues 367,219 380,488
-------- --------
CERTAIN EXPENSES
Personnel 34,983 29,559
Advertising and promotion 9,811 5,020
Utilities 26,117 30,819
Repairs and maintenance 30,289 25,777
Real estate taxes and insurance 49,694 49,359
Mortgage interest expense 158,727 159,163
Management fees 26,702 24,129
Other operating expenses 4,833 5,275
-------- --------
Total certain expenses 341,156 329,101
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 26,063 $ 51,387
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
EAGLE LAKE APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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, 1996 96%
December 31, 1997 94%
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.
<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, 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 Forest Glen Apartments, Phase I, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $319,763 $319,640
Other income 7,968 16,405
-------- --------
Total revenues 327,731 336,045
-------- --------
CERTAIN EXPENSES
Personnel 35,958 30,797
Advertising and promotion 7,548 5,897
Utilities 8,955 8,939
Repairs and maintenance 38,692 35,151
Real estate taxes and insurance 45,223 49,696
Mortgage interest expense 149,908 130,820
Management fees 17,219 20,223
Other operating expenses 5,358 4,017
-------- --------
Total certain expenses 308,861 285,540
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 18,870 $ 50,505
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE I
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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 the various period
ending dates:
December 31, 1996 98%
December 31, 1997 87%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the 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.
<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, 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 Forest Glen Apartments, Phase II, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $159,093 $181,587
Other income 6,252 3,616
-------- --------
Total revenues 165,345 185,203
-------- --------
CERTAIN EXPENSES
Personnel 20,767 17,966
Advertising and promotion 4,802 3,462
Utilities 5,827 4,397
Repairs and maintenance 23,120 20,667
Real estate taxes and insurance 25,939 26,594
Mortgage interest expense 60,222 59,048
Management fees 9,454 12,281
Other operating expenses 3,307 2,047
-------- --------
Total certain expenses 153,438 146,462
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 11,907 $ 38,741
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE II
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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 the various period
ending dates:
December 31, 1996 77%
December 31, 1997 70%
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.
<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, 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 Forest Glen Apartments, Phase III, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $170,175 $180,549
Other income 7,031 5,721
-------- --------
Total revenues 177,206 186,270
-------- --------
CERTAIN EXPENSES
Personnel 17,461 15,378
Advertising and promotion 4,557 3,033
Utilities 4,271 4,050
Repairs and maintenance 19,603 15,315
Real estate taxes and insurance 21,947 22,105
Mortgage interest expense 49,070 49,964
Management fees 8,646 11,062
Other operating expenses 2,807 2,106
-------- --------
Total certain expenses 128,362 123,013
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 48,844 $ 63,257
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE III
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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 various period
ending dates:
December 31, 1996 96%
December 31, 1997 96%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase III.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<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, 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 Forest Glen Apartments, Phase IV, for the years ended December 31, 1996
and 1997 in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $56,139 $57,348
Other income 2,437 2,565
------- -------
Total revenues 58,576 59,913
------- -------
CERTAIN EXPENSES
Personnel 5,132 4,454
Advertising and promotion 1,385 1,009
Utilities 1,494 1,340
Repairs and maintenance 6,346 4,773
Real estate taxes and insurance 6,985 7,247
Mortgage interest expense 17,843 15,897
Management fees 3,987 5,056
Other operating expenses 1,159 1,070
------- -------
Total certain expenses 44,331 40,846
------- -------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $14,245 $19,067
======= =======
See Note to Statement of Revenues and Certain Expenses
<PAGE>
FOREST GLEN APARTMENTS, PHASE IV
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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 various period
ending dates:
December 31, 1996 100%
December 31, 1997 100%
Basis Of Presentation
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying financial statement is not
representative of the actual operations for the period presented as certain
expenses, which may not be comparable to the expenses expected to be
incurred by Baron Capital Properties, L.P., a Delaware limited partnership
which will conduct the future real property operations of Baron Capital
Trust, have been excluded. Expenses excluded consist of depreciation due to
basis and method changes, professional fees, and other costs not directly
related to the future operations of the Forest Glen Apartments, Phase IV.
Income Recognition
Rental income attributable to residential leases is recorded when due from
tenants.
Leases
Apartment units are rented under lease agreements with terms of one year or
less.
<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, 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 Glen Lake Arms Apartments for the years ended December 31, 1996 and 1997
in conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 3, 1998
<PAGE>
GLEN LAKE ARMS APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $ 745,649 $ 695,308
Other income 22,536 60,265
--------- ---------
Total revenues 768,185 755,573
--------- ---------
CERTAIN EXPENSES
Personnel 85,191 81,963
Advertising and promotion 20,726 25,227
Utilities 120,687 122,890
Repairs and maintenance 67,235 36,584
Real estate taxes and insurance 118,041 118,627
Mortgage interest expense 310,603 312,704
Management fees 42,276 43,434
Other operating expenses 14,932 6,280
--------- ---------
Total certain expenses 779,691 747,709
--------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (11,506) $ 7,864
========= =========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GLEN LAKE ARMS APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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. The following percentage of units were
occupied at the various period ending dates:
December 31, 1996 79%
December 31, 1997 81%
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 are rented under lease agreements with terms of one year or
less.
<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 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 Grove Hamlet Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
February 27, 1998
<PAGE>
GROVE HAMLET APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $ 221,070 $ 228,459
Other income 7,510 10,945
--------- ---------
Total revenues 228,580 239,404
--------- ---------
CERTAIN EXPENSES
Personnel 31,912 42,952
Advertising and promotion 1,530 1,388
Utilities 13,915 18,450
Repairs and maintenance 8,245 27,052
Real estate taxes and insurance 35,289 32,966
Mortgage interest expense 125,177 126,382
Management fees 14,028 15,889
Other operating expenses 3,912 4,748
--------- ---------
Total certain expenses 234,008 269,827
--------- ---------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ (5,428) $ (30,423)
========= =========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
GROVE HAMLET APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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, 1996 86%
December 31, 1997 82%
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.
<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, 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 Stadium Club Apartments for the years ended December 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
/s/ ELROY D. MIEDEMA
Elroy D. Miedema
Certified Public Accountant
Ft. Lauderdale, Florida
March 3, 1998
<PAGE>
STADIUM CLUB APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
December 31, December 31,
1997 1996
------------ ------------
REVENUES
Rental income $458,687 $427,919
Other income 27,710 21,809
-------- --------
Total revenues 486,397 449,728
-------- --------
CERTAIN EXPENSES
Personnel 72,107 67,232
Advertising and promotion 11,885 10,074
Utilities 49,370 39,341
Repairs and maintenance 31,966 26,020
Real estate taxes and insurance 36,528 30,980
Mortgage interest expense 146,120 122,433
Management fees 25,469 28,041
Other operating expenses 15,278 11,296
-------- --------
Total certain expenses 388,723 335,417
-------- --------
REVENUES IN EXCESS
OF CERTAIN EXPENSES $ 97,674 $114,311
======== ========
See Note to Statement of Revenues and Certain Expenses
<PAGE>
STADIUM CLUB APARTMENTS
NOTE TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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, 1996 90%
December 31, 1997 86%
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.
<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
Summary of the Trust and the Operating
Partnership ........................................................... 13
Summary of Risk Factors .................................................. 18
Tax Status of the Trust .................................................. 21
Compensation of Managing Persons and Affiliates .......................... 22
Conflicts of Interest .................................................... 26
Fiduciary Responsibility ................................................. 28
Special Note Regarding Forward-Looking Statements ........................ 30
Risk Factors ............................................................. 30
The Exchange Offering .................................................... 50
Prior Performance of Affiliates of Managing Shareholder .................. 57
Management ............................................................... 67
The Trust and the Operating Partnership .................................. 75
Investment Objectives and Policies ....................................... 82
Proposed Initial Real Estate Investments ................................. 85
Selected Financial Data .................................................. 91
Management's Discussion and Analysis of
Financial Condition and Results of Operations of
the Exchange Properties ................................................ 92
Federal Income Tax Considerations ........................................ 94
Summary of the Operating Partnership Agreement ........................... 120
Summary of Declaration of Trust .......................................... 120
Comparison of Rights of Holders of Exchange
Partnership Units, Operating Partnership
Units and Trust Common Shares ......................................... 129
Capital Stock of the Trust ............................................... 140
Capitalization ........................................................... 142
Terms of the Cash Offering ............................................... 144
Other Information ........................................................ 145
Litigation ............................................................... 146
Experts .................................................................. 146
Legal Matters ............................................................ 146
Expenses of the Exchange Offering ........................................ 146
Additional Information ................................................... 147
Glossary ................................................................. 148
Exhibits
A ... Prior Performance of Affiliates
of Managing Shareholder
B ... Summary of Exchange Property and
Exchange Partnership Information
C ... Financial Statements of the Trust, the Operating
Partnership and the Managing Shareholder
D ... Financial Statements of the Exchange Properties
BARON CAPITAL PROPERTIES, L.P.
------------
2,500,000 Units
of
Limited Partnership Interest
PROSPECTUS
_____________, 1998
------------
- --------------------------------------------------------------------------------
<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 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cincinnati, State of Ohio
on June 1, 1998.
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 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 June 1, 1998
Gregory K. McGrath Trust, General Partner of Registrant
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequential
Number Document Description Page No.
- ------ -------------------- --------
<S> <C> <C>
3.1 Certificate of Limited Partnership of the Registrant. 292
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 294
5.1 Form of Opinion of Schoeman, Marsh & Updike, LLP as to legality of
securities being registered 295
5.2 Form of Opinion of Keating, Muething & Klekamp P.L.L. on certain tax
matters 297
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 May 15, 1998 (incorporated herein by reference to Exhibit 3.1 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). --
10.3 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 attached hereto as
Exhibit 3.2)
10.4 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 299
23.1 Consent of Schoeman, Marsh & Updike, LLP (included in the opinion filed
as Exhibit 5.1 to this Registration Statement). --
23.2 Consent of Keating, Muething & Klekamp, P.L.L. (included in the opinion
filed as Exhibit 5.2 to this Registration Statement). --
99.1 Consent of Elroy D. Miedema, Certified Public Accountant. 310
99.2 Consent of Rachlin Cohen & Holtz, Independent Certified Public
Accountants. 312
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. 316
</TABLE>
State of Delaware
Office of the Secretary of State Page 1
----------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
PARTNERSHIP OF "BARON CAPITAL PROPERTIES, L.P.", FILED IN THIS OFFICE ON THE
EIGHTH DAY OF JANUARY, A.D. 1998, AT 9:02 O'CLOCK A.M.
[STATE OF DELAWARE SEAL]
[SEAL] /s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
2856331 8100 AUTHENTICATION: 8908139
981031027 DATE: 02-06-98
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:02 AM 01/08/1998
981031027 - 2856331
CERTIFICATE OF LIMITED PARTNERSHIP
OF
BARON CAPITAL PROPERTIES, L.P.
FIRST: The name of the limited partnership is BARON CAPITAL PROPERTIES,
L.P. (the "Partnership").
SECOND: The address of the registered office of the Partnership in the
State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805, County of New
Castle. The name and address of the registered agent for service of process
required to be maintained by Section 17-104 of the Delaware Revised Uniform
Limited Partnership Act (the "Delaware Act") are Corporation Service Company,
1013 Centre Road, Wilmington, Delaware 19805, County of New Castle.
THIRD: The name and business address of the sole general partner of the
Partnership are Baron Capital Trust, 7826 Cooper Road, Cincinnati, Ohio 45242.
THE UNDERSIGNED, on behalf of himself and the sole general partner of the
Partnership, for the purpose of forming a limited partnership under the laws of
the State of Delaware, do make, file and record this Certificate of Limited
Partnership and certify that the facts herein stated are true, and accordingly,
have hereto set my hand this 8th day of January, 1998.
GENERAL PARTNER:
BARON CAPITAL TRUST,
a Delaware business trust
By: /s/ GREGORY K. MCGRATH
----------------------------------------
Gregory K. McGrath, President
LIMITED PARTNER:
By: /s/ GREGORY K. MCGRATH
----------------------------------------
Gregory K. McGrath
================================================================================
NON-NEGOTIABLE, NON-TRANSFERABLE, NON-ASSIGNABLE
BARON CAPITAL PROPERTIES, L.P.
The undersigned hereby acknowledges that Units in Baron Capital Properties,
L.P. (the "Partnership"), organized under the Revised Uniform Limited
Partnership Act of the State of Delaware, are registered on the records of said
Partnership in the amount and in the name set forth below:
Certificate Social Security or Taxpayer Number and
Number Name and Address Identification Number Class of Units
------ ---------------- --------------------- --------------
This document has been issued solely to evidence that the above number of
Units stands in the name of such holder of Units, as of the date appearing
hereon, in the Partnership's Agreement of Limited Partnership, as amended (the
"Partnership Agreement"), pursuant to Article IV of the Partnership Agreement,
and does not grant or carry with it any rights to the income, profits or assets
of the Partnership, such rights being derived solely from the Partnership
Agreement. This document is NON-NEGOTIABLE, NON-TRANSFERABLE and NON-ASSIGNABLE.
Assignment of Units can only be accomplished in accordance with the procedure
set forth in the Partnership Agreement, and such assignment is subject to
certain limitations contained in Articles IV and XI of the Partnership
Agreement. Subject to Section 8.6 of the Partnership Agreement, a holder of
Units has the right to exchange Units for Common Shares of the General Partner
as provided in Section 4.2 of the Partnership Agreement. THIS DOCUMENT IS NOT A
SECURITY UNDER THE APPLICABLE PROVISIONS OF THE UNIFORM COMMERCIAL CODE, AND
NEGOTIATION, TRANSFER OR ASSIGNMENT OF INTERESTS CANNOT BE ACCOMPLISHED BY ANY
ATTEMPT TO NEGOTIATE, TRANSFER OR ASSIGN THIS DOCUMENT. Copies of the
Partnership Agreement may be obtained from the General Partner by contacting
Baron Capital Trust, 7826 Cooper Road, Cincinnati, Ohio, Attention: Secretary.
Terms used herein have the meanings ascribed to such terms in the Partnership
Agreement.
Date: ___________________, 199___ /s/ Gregory K. McGrath
----------------------------------
Chief Executive Officer of
Baron Capital Trust,
General Partner
================================================================================
[SMU LETTERHEAD]
DRAFT
[This opinion letter will be dated and signed as of the commencement of the
Offering and is subject to any changes in the documents or the laws
concerned, which may occur before such date] _______________, 1998
Baron Capital Properties, L.P.
7826 Cooper Road
Cincinnati, Ohio 45242
Ladies and Gentlemen:
We have acted as securities counsel to Baron Capital Properties, L.P., a
Delaware limited partnership (the "Partnership"), in connection with the
exchange offering (the "Exchange Offering") by the Partnership of up to
2,500,000 Units (the "Units") of limited partnership interest in the Partnership
pursuant to a Prospectus dated ______________, 1998 (the "Prospectus").
Capitalized terms used and not otherwise defined herein shall have the
respective meanings ascribed to them in the Prospectus.
We have examined and relied upon originals or copies certified or otherwise
identified to our satisfaction of such agreements, documents, certificates and
other statements of government officials of the State of Delaware, officers and
representatives of the Partnership, its General Partner, Baron Capital Trust
(the "Trust"), and Baron Advisors, Inc., the managing shareholder of the Trust
(the "Managing Shareholder"), and such other documents as we have deemed
necessary or advisable for the purpose of rendering this opinion, including
without limitation, the Certificate of Limited Partnership of the Partnership
and the Declaration of Trust for the Trust in effect on the date hereof; the
specimen certificate for the Units; the Prospectus and all Exhibits and
Schedules thereto. As to various questions of fact, material to our opinion, we
have relied upon certificates of representatives and officers of the
Partnership, the Trust and the Managing Shareholder.
In our examination of the aforesaid agreements, instruments, certificates
and other documents, we have assumed that:
(i) The statements made therein are accurate and complete, except where we
have actual knowledge to the contrary;
(ii) The signatures on documents and instruments submitted to us as
originals are authentic;
(iii) The documents submitted to us as copies conform with the originals;
<PAGE>
(iv) Each Offeree who accepts the Exchange Offering has complied with all
of its obligations and agreements arising under the Subscription Documents and
any other agreements, instruments and other documents to which it is a party
which are relevant to this opinion; and
(v) Each Offeree who accepts the Exchange Offering has full power and
authority (by virtue of having taken all requisite action) to execute and
deliver and to perform its obligations under said agreements and to engage in
the transactions contemplated thereby.
We have made such inquiry of the Partnership, the Trust and the Managing
Shareholder and have examined the Certificate of Limited Partnership of the
Partnership and other records, documents, agreements and instruments,
certificates of representatives and officers of the Partnership, the Trust and
the Managing Shareholder and of public officials and have made such
investigations as to matters of fact and law as we have deemed necessary or
relevant in connection with the opinions hereinafter set forth. In making such
investigation, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all documents submitted to us as copies, whether certified
or not, as well as the legal capacity of natural persons.
The opinion set forth herein is based on the laws of the State of Delaware,
and no opinion is expressed as to the laws of any other jurisdiction.
The opinion hereinafter expressed is subject to the following additional
qualifications:
(a) We express no opinion herein with respect to the availability of
equitable remedies, including specific performance or injunctive relief; and
(b) We express no opinion herein as to compliance or non-compliance with
the antifraud provisions of any state or federal securities law, rule or
regulation.
Based on the foregoing and in reliance thereon, and upon consideration of
such matters of law as we have deemed appropriate, and with the foregoing
qualifications, we are of the opinion that the Units will, when issued in
connection with the Exchange Offering, be legally issued, fully paid and
non-assessable.
We hereby consent to the reference made to us under the heading "Legal
Matters" in the Prospectus.
This opinion is rendered only to you and is solely for your benefit and may
not be relied upon any party other than you.
Very truly yours,
SCHOEMAN, MARSH & UPDIKE, LLP
EXHIBIT 5.2
___________, 1998
Baron Capital Properties, L.P.
7826 Cooper Road
Cincinnati, Ohio 45242
Ladies and Gentlemen:
We have acted as special tax counsel for Baron Capital Properties, L.P., a
Delaware Limited Partnership ("Partnership") and Baron Capital Trust, a Delaware
Business Trust ("Trust") as the General Partner of the Partnership, in
connection with the proposed offering by the Partnership of its Units ("Units").
You have requested our opinions as to the qualification of the Partnership as a
partnership for federal income tax purposes and the accuracy of certain tax
disclosures made in the ________________________.
In connection with the opinions expressed herein, we have reviewed (i) the
Registration Statement on Form S-4, and the prospectus constituting a part
thereof, dated _____________, relating to the issuance of up to $25,000,000
aggregate public offering price of Units of the Partnership, (ii) the
Certificate of Limited Partnership of the Partnership, and (iii) the Agreement
of Limited Partnership of the Partnership.
In rendering our opinions, we have also reviewed and relied upon the
representations of the General Partner of the Partnership pursuant to an
Officer's Certificate of even date herewith and such other documents as we
considered necessary or appropriate in rendering the opinions expressed herein.
In our review of the foregoing documents, we have assumed, with your
consent, the accuracy of all information set forth in such documents, the
genuiness of all signatures on the documents which we have reviewed, the
conformity with the originals (and the authenticity of such originals) of all
documents submitted to us as copies and the legal existence of the Trust and the
Partnership. Our opinions are conditioned on the accuracy of the factual
statements made in the documents, and on timely and full compliance with the
terms of the documents by all relevant parties to such documents. It should be
emphasized that although we have no reason to believe that these representations
and assumptions are not true, we have not independently attempted to verify
them. Any modification of the facts and assumptions underlying these
representations may require modification of the opinions expressed herein.
<PAGE>
It must also be emphasized that our opinions are rendered under existing
federal statutes, regulations, rulings, judicial decisions, and interpretations
thereof. Specifically, our opinions are based upon existing provisions of the
Internal Revenue Code of 1986 as amended ("Code"), together with the existing,
proposed, and temporary regulations promulgated under the Code. We caution that
the tax law, or the judicial and administrative interpretation thereof, may
change in such a manner as to make the conclusions expressed herein no longer
accurate.
Subject to the assumptions, qualifications and conditions set forth herein,
it is our opinion that:
(1) The Partnership will be treated as a partnership for federal income tax
purposes and will not be subject to federal income tax as a corporation or an
association taxable as a corporation.
(2) The discussion in the ___________________ under the caption "Federal
Income Tax Considerations", to the extent that it discusses matters of law or
legal conclusions, fairly summarizes the federal income tax considerations that
are likely to be material to a holder of a Partnership Unit.
This opinion is limited solely to matters of federal tax law discussed
herein, is subject to the qualifications and restrictions noted herein and is
based upon our understanding of the material facts as stated in the registration
statement. This opinion is expressed as of the date hereof and we disclaim any
undertaking to advise you of any subsequent changes to the facts stated or
assumed in the registration statement, or any subsequent changes in applicable
law.
This opinion is rendered solely for use in connection with the Registration
Statement. We hereby consent to the filing of this opinion as Exhibit 5.2 to the
Registration Statement and to all references to our name in the Prospectus. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules or regulations of the Securities and Exchange Commission
thereunder. This opinion may not be used by any other person or for any other
purpose without our prior written consent.
Sincerely,
KEATING, MUETHING & KLEKAMP, P.L.L.
BY: ___________________________________
Joseph P. Mellen
SECURITY ESCROW AGREEMENT
THIS ESCROW AGREEMENT made and entered into this 15th day of May 1998,
among Gregory K. McGrath and Robert S. Geiger (herein referred to individually
as a "Security Holder" and collectively as the "Security Holders"), Baron
Capital Trust (the "Trust"), and American Stock Transfer & Trust Company (the
"Escrow Agent").
WITNESSETH THAT:
A. Each Security Holder is owner of the number of units of limited
partnership interest ("Units") in Baron Capital Properties, L.P. (the
"Partnership"), an affiliate of the Trust, listed opposite his name on Exhibit A
attached hereto which he acquired in exchange for his initial capital
contribution to the Partnership and other consideration.
B. The Trust has applied to the Securities and Exchange Commission (the
"Commission") for registration of 2,500,000 Common Shares of the Trust pursuant
to a Form SB-2 Registration Statement in connection with a proposed public
offering of Common Shares for cash (the "Offering") and will apply for
registration of 2,500,000 Units in the Partnership (which Units may be exchanged
for an equivalent number of Common Shares as described in the Prospectus
contained in the Form SB-2 Registration Statement), pursuant to a Form S-4
Registration Statement in connection with a proposed public exchange offering of
Units (the "Exchange Offering"). As a condition of such registrations, the
Security Holders, the Escrow Agent, and the Trust agree to be bound by this
Agreement.
C. Each Security Holder has deposited the Units listed opposite his name on
Exhibit A or documents evidencing the ownership of the Units listed on Exhibit A
with the Escrow Agent, and the Escrow Agent hereby acknowledges receipt thereof.
Such Units and/or the documents evidencing the ownership of such Units are
herein collectively referred to as "Escrowed Shares."
NOW THEREFORE, the parties hereto agree as follows:
1. Deposit of Certificates. Simultaneously with the execution of this
Agreement, each Security Holder has deposited with the Escrow Agent, and the
Escrow Agent hereby acknowledges receipt of, the certificates or documents
evidencing the ownership of Units listed on Exhibit A, representing a number of
Units in the Partnership which are exchangeable (subject to the restrictions set
forth below) into 9.5% of the Common Shares of the Trust to be outstanding upon
the completion of the Offering and the Exchange Offering, on a fully diluted
basis assuming all then outstanding Units (other than those to be acquired by
the Trust) have been exchanged into an equivalent number of Common Shares.
Copies of certificates representing the Escrowed Shares are attached hereto as
Exhibits A-1 and A-2.
<PAGE>
2. Term. The term of this Agreement and of the escrow provided herein shall
commence on the date that the Offering is declared effective by the Commission.
The certificates or documents evidencing the securities are to be deposited with
the Escrow Agent and are to be held until their release pursuant to paragraph 3
of this Agreement.
2. Release of Shares. The Escrowed Shares owned by each Security Holder
shall be released to such Security Holder as follows:
a. 25% of the Escrowed Shares shall be released from escrow on the sixth,
seventh, eighth, and ninth anniversary dates of the effectiveness of
the Offering; or
b. 100% of the Escrowed Shares shall be released from escrow after the
Trust has had annual net earnings per share according to generally
accepted accounting principles ("GAAP") equal to at least 5% of the
public offering price (after taxes and excluding extraordinary items)
for any two consecutive fiscal years following the date of
effectiveness of the Offering; or
c. 100% of the Escrowed Shares shall be released from escrow after the
Trust has had average annual net earnings per share according to GAAP
(after taxes and excluding extraordinary items) equal to at least 5%
of the public offering price, for any five consecutive fiscal years
following the date of effectiveness of the Offering; or
d. 100% of the Escrowed Shares shall be released from escrow after the
Trust's Common Shares have traded on a national stock exchange at a
price equal to at least 175% of the initial public offering price for
at least 90 consecutive trading days following the first anniversary
of the date of effectiveness of the Offering.
3. Documentation to Escrow Agent Regarding Release of Escrowed Shares. A
request for termination of the escrow, based on the satisfaction of either
paragraph 3.a, 3.b, 3.c or 3.d above, shall be forwarded by each Security Holder
to the Escrow Agent. A request for termination of the escrow based upon
paragraph 3.b or 3.c. shall be accompanied by an earnings per share calculation
audited and reported on by an independent certified public accountant retained
by the Trust. A request for termination of the escrow based upon paragraph 3.d
shall be accompanied by evidence of the stock price conditions provided therein.
4. Terminated or Partial Offering. The foregoing notwithstanding, the
Escrowed Shares will be released by the Escrow Agent:
2
<PAGE>
a. If the Offering and the Exchange Offering have been terminated and no
securities were sold or exchanged thereunder; or
b. If the Offering is terminated without sale of the minimum offering
amount required to complete the Offering and all proceeds have been
returned to investors in such offering.
5. Restriction on Transfer. The Escrowed Shares may be transferred by will,
or pursuant to the laws of descent and distribution, or through appropriate
legal proceedings, but in all cases the Escrowed Shares shall remain in escrow
and subject to the terms of this Agreement until released pursuant to paragraph
3 above. Upon the death of the holder of any Escrowed Shares, the Escrowed
Shares of the deceased holder may be hypothecated, subject to all of the terms
of this Agreement, to the extent necessary to pay the expenses of the estate.
The Escrowed Shares in escrow may be transferred by gift to family members,
provided that the Escrowed Shares shall remain subject to the terms of this
Agreement. The Escrowed Shares may not be pledged to secure a debt except as
noted above.
6. Voting Power. The Security Holders shall be entitled to exercise all
voting rights in respect of the Escrowed Shares to which the non-escrowed Units
are entitled.
7. Dividends. Any dividends paid on the Escrowed Shares while they are held
in escrow hereunder shall be paid to the Escrow Agent by checks of the
Partnership made payable to the Escrow Agent with a notation of this Agreement
thereon, and any such dividends shall be held pursuant to the terms of this
Agreement. The Escrow Agent shall treat such dividends as assets of the
Partnership, available for distribution under the terms of paragraph 11 below,
except as provided herein. The Escrow Agent shall place the dividends in an
interest-bearing account. The dividends and the interest earned thereon (less
the amount of any fees payable to the Escrow Agent under paragraph 13 below)
will be disbursed in proportion to the number of Escrowed Shares released from
the escrow at the time the Escrowed Shares are released pursuant to paragraph 3
above.
8. Stock Dividends or Splits. Stock dividends on, and shares resulting from
stock splits of, the Escrowed Shares shall be delivered to the Escrow Agent and
shall be held pursuant to this Agreement as if they were original shares of
Escrowed Shares deposited hereunder. In the event of any stock dividend, stock
split or recapitalization of the Partnership, the per share requirements set
forth in paragraph 3 hereof shall be adjusted appropriately.
9. Additional Shares. Upon the exercise by a Security Holder of his
conversion rights, warrants or options to acquire additional Units in the
Partnership pursuant to the documents listed on Exhibit A, the additional Units
received from the exercise of such warrants or options shall forthwith be
deposited in escrow with the Escrow Agent and shall be subject to the terms and
conditions of this Agreement.
3
<PAGE>
10. Dissolution Preference. Each Security Holder agrees that in the event
of dissolution, liquidation, merger, consolidation, sale of assets, exchange, or
any transaction or proceeding that results in the distribution of the assets of
the Partnership, the Security Holder hereby waives all his right, title,
interest and participation in the assets of the Partnership until the holders of
all non-escrowed Units have been paid, or have had irrevocably set aside for
them an amount equal to 100% of the initial public offering price per Common
Share, adjusted for stock splits and stock dividends. Thereafter, the Escrowed
Shares shall be entitled to receive an amount per Unit equal to 100% paid to, or
set aside for, the non-escrowed Units. Thereafter, the Security Holder shall
participate on a pro rata basis with all Unitholders of the Partnership.
Mergers, consolidations, or reorganizations may proceed on terms and conditions
different than those stated above if the holders of at least of a majority of
Units, other than the Security Holders, approve the terms and conditions by vote
at a meeting held for such purpose.
11. Reliance by Escrow Agent. The Escrow Agent may conclusively rely on,
and shall be protected, when its acts in good faith upon, any statement,
certificate, notice, request, consent, order or other document which it believes
to be genuine and signed by the proper party. The Escrow Agent shall have no
duty or liability to verify any such statement, certificate, notice, request,
consent, order or other document and its sole responsibility shall be to act
only as expressly set forth in this Agreement. The Escrow Agent shall be under
no obligation to institute or defend any action, suit or proceeding in
connection with this Agreement unless it is indemnified to its reasonable
satisfaction. The Escrow Agent may consult counsel with respect to any question
arising under this Agreement and the Escrow Agent shall not be liable for any
action taken, or omitted, in good faith upon advice of counsel. In performing
any of its duties hereunder, the Escrow Agent shall not incur any liability to
anyone for any damages, losses or expenses except those which arise out of the
Escrow Agent's willful default or negligence, and it shall accordingly not incur
any such liability with respect to: (i) any action taken or omitted in good
faith upon advice of its counsel or counsel of the Trust given with respect to
any questions relating to the duties and responsibility of the Escrow Agent
under this Agreement, or (ii) any action taken or omitted in reliance upon any
instrument, including written advice provided for herein, not only as to its due
execution and the validity and effectiveness of its provisions, but also as to
the truth and accuracy of any information contained therein, which the Escrow
Agent shall in good faith believe to be genuine, to have been signed or
presented by a proper person or persons, and to conform with the provisions of
this Agreement. All Escrowed Shares and funds held pursuant to this Agreement
shall constitute trust property. The Escrow Agent shall not be liable for any
interest on the Escrowed Shares.
12. Compensation to Escrow Agent. The Escrow Agent shall be entitled to
receive from the Trust reasonable compensation for its services as set forth in
Exhibit B attached hereto. In the event that the Escrow Agent renders any
additional services not provided for herein, or if any controversy arises
hereunder, or if the Escrow Agent is made a party to, or intervenes in any
action, suit or proceeding pertaining to this Agreement, it shall be entitled to
receive from the Security Holders or at the option of the Escrow Agent, the
Trust, reasonable compensation for such additional services. Upon notice to the
Security Holders, the Escrow Agent may deduct its
4
<PAGE>
compensation from any cash dividends or distributions held pursuant to paragraph
8 above.
13. Qualification and Independence of Escrow Agent. The Trust and each of
the Security Holders hereby represent that a complete list of its respective
officers and members of the Board of the Board is attached hereto as Exhibit C.
Based thereon, the Escrow Agent hereby represents and warrants that it is not
affiliated with the Trust, the Security Holders or any of their respective
officers or directors.
14. Indemnification. The Trust and each Security Holder agrees to hold the
Escrow Agent harmless from, and indemnify the Escrow Agent for, any and all
costs of investigation or claims, costs, expenses, reasonable attorney fees or
other liabilities or disbursements arising out of any administrative
investigation or proceeding or any litigation, commenced or threatened, relating
to this Agreement, including without limitation, the implementation of this
Agreement, the distribution of stock or funds, the investment of funds, the
interpretation of this Agreement or similar matters, provided that the Escrow
Agent shall not be indemnified for any costs of investigation or claims, costs,
expenses, attorney fees or other liability arising from its bad faith or
negligence or that of any of its employees, officers, directors or agents.
15. Scope. This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto, their heirs, successors and assigns.
16. Termination. Except for the indemnification provisions of paragraph 15
above, which shall survive in any event, this Agreement shall terminate in its
entirety when all the Escrowed Shares have been released as provided in
paragraph 3 above.
17. Substitute Escrow Agent. The Escrow Agent may, upon not less than 60
days prior written notice to the Trust and the Security Holders, resign as the
Escrow Agent. The Trust and the Security Holders shall, before the effective
date of the Escrow Agent's resignation, enter into a new identical Escrow
Agreement with a substitute Escrow Agent. If the Trust and the Security Holders
fail to enter into a new Escrow Agreement and appoint a successor Escrow Agent
within 60 days after the Escrow Agent has given notice of its resignation, the
Escrow Agent then serving under this Agreement shall retain the Escrowed Shares
in escrow until a new, identical Escrow Agreement has been executed and a
successor Escrow Agent has been appointed. The Escrow Agent shall not be liable
for such retention of the Escrowed Shares in escrow.
19. Notice of Non-liability. Under the Delaware Business Trust Act and
Sections 3.3 and 3.4 of the Declaration, neither the Shareholders, the Trustees
nor any other members of the Board of the Trust shall be personally liable
hereunder, and the Security Holders and the Escrow
5
<PAGE>
Agent shall look solely to the Trust's property for the satisfaction of any
claims hereunder against the Trust.
IN WITNESS WHEREOF, the Security Holders, the Trust and the Escrow Agent
have entered into this Agreement as of the date first above written, in multiple
counterparts, each of which shall be considered an original.
SECURITY HOLDERS:
/s/ Gregory K. McGrath
-------------------------------
Gregory K. McGrath
/s/ Robert S.Geiger
-------------------------------
Robert S. Geiger
TRUST:
BARON CAPITAL TRUST
/s/ Gregory K.McGrath
By:___________________________
Gregory K. McGrath
Chief Executive Officer
ESCROW AGENT:
AMERICAN STOCK TRANSFER
& TRUST COMPANY
/s/ Herbert J. Lemmer
By:___________________________
Herbert J. Lemmer
Vice President
6
<PAGE>
EXHIBIT A
---------
Name of Security Holder Number of Units Owned
- ----------------------- ---------------------
Gregory K. McGrath A number of Units in the Partnership which are
exchangeable (subject to the restrictions set forth
below) into 9.5% of the Common Shares of the Trust to
be outstanding upon the completion of the Offering and
the Exchange Offering, on a fully diluted basis
assuming all then outstanding Units (other than those
to be acquired by the Trust) have been exchanged into
an equivalent number of Common Shares.
Robert S. Geiger A number of Units in the Partnership which are
exchangeable (subject to the restrictions set forth
below) into 9.5% of the Common Shares of the Trust to
be outstanding upon the completion of the Offering and
the Exchange Offering, on a fully diluted basis
assuming all then outstanding Units (other than those
to be acquired by the Trust) have been exchanged into
an equivalent number of Common Shares.
<PAGE>
================================================================================
Exhibit A-1
NON-NEGOTIABLE, NON-TRANSFERABLE, NON-ASSIGNABLE
BARON CAPITAL PROPERTIES, L.P.
The undersigned hereby acknowledges that Units in Baron Capital Properties,
L.P. (the "Partnership"), organized under the Revised Uniform
Limited Partnership Act of the State of Delaware, are registered on the records
of said Partnership in the amount and in the name set forth below:
Certificate Number: 000001
Name and Address: Gregory K. McGrath
7826 Cooper Road
Cincinnati, Ohio 45242
Social Security Number: ###-##-####
Number and Class of Units: A number of Units in the Partnership which are
exchangeable (subject to escrow restrictions described in the Prospectus of
Baron Capital Trust dated May 15, 1998) into 9.5% of the Common Shares of Baron
Capital Trust (the "Trust") outstanding after the completion of the Offering and
the proposed Exchange Offering, 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.
This document has been issued solely to evidence that the above number of
Units stands in the name of such holder of Units, as of the date appearing
hereon, in the Partnership's Agreement of Limited Partnership, as amended (the
"Partnership Agreement"), pursuant to Article IV of the Partnership Agreement,
and does not grant or carry with it any rights to the income, profits or assets
of the Partnership, such rights being derived solely from the Partnership
Agreement. This document is NON-NEGOTIABLE, NON-TRANSFERABLE and NON-ASSIGNABLE.
Assignment of Units can only be accomplished in accordance with the procedure
set forth in the Partnership Agreement, and such assignment is subject to
certain limitations contained in Articles IV and XI of the Partnership
Agreement. Subject to Section 8.6 of the Partnership Agreement, a holder of
Units has the right to exchange Units for Common Shares of the General Partner
as provided in Section 4.2 of the Partnership Agreement. THIS DOCUMENT IS NOT A
SECURITY UNDER THE APPLICABLE PROVISIONS OF THE UNIFORM COMMERCIAL CODE, AND
NEGOTIATION, TRANSFER OR ASSIGNMENT OF INTERESTS CANNOT BE ACCOMPLISHED BY ANY
ATTEMPT TO NEGOTIATE, TRANSFER OR ASSIGN THIS DOCUMENT. Copies of the
Partnership Agreement may be obtained from the General Partner by contacting
Baron Capital Trust, 7826 Cooper Road, Cincinnati, Ohio, Attention: Secretary.
Terms used herein have the meanings ascribed to such terms in the Partnership
Agreement.
Date: May 15, 1998 /s/ Gregory K. McGrath
----------------------
Chief Executive Officer of
Baron Capital Trust,
General Partner
================================================================================
<PAGE>
================================================================================
Exhibit A-2
NON-NEGOTIABLE, NON-TRANSFERABLE, NON-ASSIGNABLE
BARON CAPITAL PROPERTIES, L.P.
The undersigned hereby acknowledges that Units in Baron Capital Properties,
L.P. (the "Partnership"), organized under the Revised Uniform Limited
Partnership Act of the State of Delaware, are registered on the records of said
Partnership in the amount and in the name set forth below:
Certificate Number: 000002
Name and Address: Robert S. Geiger
7826 Cooper Road
Cincinnati, Ohio 45242
Social Security Number: ###-##-####
Number and Class of Units: A number of Units in the Partnership which are
exchangeable (subject to escrow restrictions described in the Prospectus of
Baron Capital Trust dated May 15, 1998) into 9.5% of the Common Shares of Baron
Capital Trust (the "Trust") outstanding after the completion of the Offering and
the proposed Exchange Offering, 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.
This document has been issued solely to evidence that the above number of
Units stands in the name of such holder of Units, as of the date appearing
hereon, in the Partnership's Agreement of Limited Partnership, as amended (the
"Partnership Agreement"), pursuant to Article IV of the Partnership Agreement,
and does not grant or carry with it any rights to the income, profits or assets
of the Partnership, such rights being derived solely from the Partnership
Agreement. This document is NON-NEGOTIABLE, NON-TRANSFERABLE and NON-ASSIGNABLE.
Assignment of Units can only be accomplished in accordance with the procedure
set forth in the Partnership Agreement, and such assignment is subject to
certain limitations contained in Articles IV and XI of the Partnership
Agreement. Subject to Section 8.6 of the Partnership Agreement, a holder of
Units has the right to exchange Units for Common Shares of the General Partner
as provided in Section 4.2 of the Partnership Agreement. THIS DOCUMENT IS NOT A
SECURITY UNDER THE APPLICABLE PROVISIONS OF THE UNIFORM COMMERCIAL CODE, AND
NEGOTIATION, TRANSFER OR ASSIGNMENT OF INTERESTS CANNOT BE ACCOMPLISHED BY ANY
ATTEMPT TO NEGOTIATE, TRANSFER OR ASSIGN THIS DOCUMENT. Copies of the
Partnership Agreement may be obtained from the General Partner by contacting
Baron Capital Trust, 7826 Cooper Road, Cincinnati, Ohio, Attention: Secretary.
Terms used herein have the meanings ascribed to such terms in the Partnership
Agreement.
Date: May 15, 1998 /s/ Gregory K. McGrath
----------------------
Chief Executive Officer of
Baron Capital Trust,
General Partner
================================================================================
<PAGE>
EXHIBIT B
---------
COMPENSATION OF ESCROW AGENT
----------------------------
One-time only fee of $1,000.00.
<PAGE>
EXHIBIT C
---------
LIST OF OFFICERS AND MEMBERS OF THE BOARD OF THE TRUST
------------------------------------------------------
Name of Officer and
Member of the Board Position
- ------------------- --------
Gregory K. McGrath Chief Executive Officer
Robert S. Geiger Chief Operating Officer
Baron Advisors, Inc. Member of the Board
James H. Bownas Member of the Board
Peter M. Dickson Member of the Board
EXHIBIT 99.1
CONSENT OF ELROY D. MIEDEMA,
CERTIFIED PUBLIC ACCOUNTANT
<PAGE>
Consent of Independent Auditor
The Board of Baron Capital Trust:
I consent to the use of my report in respect of certain residential
apartment properties included in this Form S-4 Registration Statement of Baron
Capital Trust and incorporated herein by reference and to the reference to my
firm and such report under the heading "Experts" in the prospectus.
Elroy D. Miedema
Certified Public Accountant
Miami, Florida
April 2, 1998
EXHIBIT 99.2
CONSENT OF RACHLIN COHEN & HOLTZ,
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-4 of our report dated March 20, 1998 relating
to the financial statements of Baron Capital Trust appearing in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
RACHLIN COHEN & HOLTZ
Miami, Florida
April 1, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-4 of our report dated March 20, 1998 relating
to the financial statements of Baron Capital Properties, L.P. appearing in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
RACHLIN COHEN & HOLTZ
Miami, Florida
May 14, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-4 of our report dated March 26, 1998 relating
to the financial statements of Baron Advisors, Inc. appearing in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
RACHLIN COHEN & HOLTZ
Miami, Florida
May 14, 1998
EXHIBIT 99.3
PRIOR PERFORMANCE TABLE VI:
ACQUISITIONS OF PROPERTIES BY PROGRAMS
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
The following table includes information concerning the acquisition of property
interests by 37 prior programs sponsored by Affiliates of the Managing
Shareholder of the Trust, Baron Advisors, Inc., in the most recent three 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 for current income and capital appreciation (other than
the mortgage funds).
Florida Income Advantage Fund I, Ltd.
-------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase III
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 26 Units
square feet of units: 30,654 total square feet
Date investment made: 2/94
Principal amount of mortgage
financing existing at date of
investment: $625,000
Contract Investment Price (1): $846,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $846,000
</TABLE>
Realty Opportunity Income Fund VIII, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase II
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 30 Units
square feet of units: 38,802 total square feet
Date investment made: 3/94
Principal amount of mortgage
financing existing at date of
investment: $784,000
Contract Investment Price (1): $849,600
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $849,600
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-1
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Florida Income Appreciation Fund I, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase IV
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 8 Units
square feet of units: 9,800 total square feet
Date investment made: 4/94
Principal amount of mortgage
financing existing at date of
investment: $173,000
Contract Investment Price (1): $184,500
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $184,500
</TABLE>
Florida Capital Income Fund, Ltd.
---------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Eagle Lake Apartments
Port Orange, Florida
Residential Apartment Community
Number of units and total 77 units
square feet of units: 45,504 total square feet
Date investment made: 11/94
Principal amount of mortgage
financing existing at date of
investment: $1,443,000
Contract Investment Price (1): $656,300
Cash Reserve: $0
Acquisition Fee: $60,000
Total Investment Cost: $716,300
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-2
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Tampa Capital Income Fund, Ltd,
-------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Lakewood Apartments
Brandon, Florida
Residential Apartment Community
Number of units and total 83 Units
square feet of units: 44,928 total square feet
Date investment made: 12/94
Principal amount of mortgage
financing existing at date of
investment: $1,500,000
Contract Investment Price (1): $589,500
Cash Reserve: $165,500
Acquisition Fee: $180,000
Total Investment Cost: $935,000
</TABLE>
Florida Capital Income Fund II, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of Phase I
property: Forest Glen Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 52 Units
square feet of units: 62,696 total square feet
Date investment made: 1/95
Principal amount of mortgage
financing existing at date of
investment: $1,343,000
Contract Investment Price (1): $548,000
Cash Reserve: $199,000
Acquisition Fee: $71,000
Total Investment Cost: $818,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-3
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Florida Opportunity Income Partners, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Camellia Court Apartments
Daytona Beach, Florida
Residential Apartment Community
Number of units and total 60 Units
square feet of units: 34,848 total square feet
Date investment made: 3/95
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $543,000
Cash Reserve: $143,000
Acquisition Fee: $24,000
Total Investment Cost: $710,000
</TABLE>
Florida Capital Income Fund III, Ltd.
-------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Bridgepoint Apartments
Jacksonville, Florida
Residential Apartment Community
Number of units and total 48 Units
square feet of units: 27,360 total square feet
Date investment made: 7/95
Principal amount of mortgage
financing existing at date of
investment: $700,000
Contract Investment Price (1): $549,000
Cash Reserve: $121,000
Acquisition Fee: $40,000
Total Investment Cost: $710,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-4
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Florida Tax Credit Fund, Ltd.
-----------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Spring Glade Apartments
Tampa, Florida
Residential Apartment Community
Number of units and total 78 Units
square feet of units: 42,912 total square feet
Date investment made: 6/95
Principal amount of mortgage
financing existing at date of
investment: $564,000
Contract Investment Price (1): $564,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $546,000
</TABLE>
Baron First Time Homebuyer Mortgage Fund, Ltd.
----------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Pleasant Grove
Louisville, Kentucky
Residential Community
Number of units and total 39 Units
square feet of units: 54,600 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $400,000
Contract Investment Price (1): $450,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $450,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-5
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Florida Capital Income Fund IV, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Glen Lake Apartments
St. Petersburg, Florida
Residential Apartment Community
Number of units and total 144 Units
square feet of units: 79,200 total square feet
Date investment made: 5/94
Principal amount of mortgage
financing existing at date of
investment: $2,812,500
Contract Investment Price (1): $1,212,800
Cash Reserve: $305,200
Acquisition Fee: $100,100
Total Investment Cost: $1,618,100
</TABLE>
GSU Stadium Student Apartments, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Stadium Club Apartments
Statesboro, Georgia
Student Residential Apartment Community
Number of units and total 60 Units
square feet of units: 51,624 total square feet
Date investment made: 11/95
Principal amount of mortgage
financing existing at date of
investment: $1,372,000
Contract Investment Price (1): $690,000
Cash Reserve: $100,000
Acquisition Fee: $100,000
Total Investment Cost: $890,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-6
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Brevard Mortgage Program, Ltd.
------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Meadowdale Apartments
Melbourne, Florida
Residential Apartment Community
Number of units and total 64 Units
square feet of units: 39,168 total square feet
Date investment made: 12/95
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $450,000
Cash Reserve: $57,500
Acquisition Fee: $0
Total Investment Cost: $507,500
</TABLE>
Baron First Time Homebuyer Mortgage Fund II, Ltd.
-------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: East Bay Village
Louisville, Kentucky
Residential Community
Number of units and total 54 Units
square feet of units: 75,600 total square feet
Date investment made: 2/96
Principal amount of mortgage
financing existing at date of
investment: $450,000
Contract Investment Price (1): $455,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $455,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-7
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Clearwater First Time Homebuyer Program, Ltd.
---------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Palm Bay Condominiums
Seminole, Florida
Residential Condominium Community
Number of units and total 195 Units
square feet of units: 165,750 total square feet
Date investment made: 3/96
Principal amount of mortgage
financing existing at date of
investment: $4,900,000
Contract Investment Price (1): $672,500
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $672,500
</TABLE>
Baron First Time Homebuyer Mortgage Fund III, Ltd.
--------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Independence Condominium
Independence, Kentucky
Residential Condominium Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 5/96
Principal amount of mortgage
financing existing at date of
investment: $5,600,000
Contract Investment Price (1): $450,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $450,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-8
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron First Time Homebuyer Mortgage Fund V, Ltd.
------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Independence Condominiums
Independence, Kentucky
Residential Condominium Community
Number of units and total 84 Units
square feet of units: 100,800 total square feet
Date investment made: 1/96
Principal amount of mortgage
financing existing at date of
investment: $5,600,000
Contract Investment Price (1): $425,000
Cash Reserve: $25,000
Acquisition Fee: $0
Total Investment Cost: $450,000
</TABLE>
Baron First Time Homebuyer Mortgage Fund IV, Ltd.
-------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Villas at Meadowview
Louisville, Kentucky
Residential Community
Number of units and total 84 Units
square feet of units: 88,200 total square feet
Date investment made: 6/96
Principal amount of mortgage
financing existing at date of
investment: $375,000
Contract Investment Price (1): $430,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $430,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-9
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Florida Income Growth Fund V, Ltd.
----------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Blossom Corners Apartments
Orlando, Florida
Residential Apartments Community
Number of units and total 70 Units
square feet of units: 37,728 total square feet
Date investment made: 4/96
Principal amount of mortgage
financing existing at date of
investment: $1,050,000
Contract Investment Price (1): $825,500
Cash Reserve: $142,000
Acquisition Fee: $57,500
Total Investment Cost: $1,025,000
</TABLE>
Lamplight Court of Bellefontaine Apartments, Ltd.
-------------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Lamplight Court Apartments
Bellefontaine, Ohio
Residential Apartment Community
Number of units and total 80 Units
square feet of units: 46,944 total square feet
Date investment made: 7/96
Principal amount of mortgage
financing existing at date of
investment: $1,400,000
Contract Investment Price (1): $580,000
Cash Reserve: $0
Acquisition Fee: $40,000
Total Investment Cost: $620,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-10
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Vulture Fund I, Ltd.
------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Curiosity Creek Apartments
Tampa, Florida (69%)
Residential Apartment Community
Number of units and total 81 Units
square feet of units: 44,064 total square feet
Date investment made: 10/96
Principal amount of mortgage
financing existing at date of
investment: $1,200,000
Contract Investment Price (1): $601,000
Cash Reserve: $90,000
Acquisition Fee: $90,000
Total Investment Cost: $781,000
</TABLE>
Baron Strategic Investment Fund, Ltd.
-------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Blossom Corners II Apartments
Orlando, Florida
Residential Apartment Community
Number of units and total 68 Units
square feet of units: 36,576 total square feet
Date investment made: 10/96
Principal amount of mortgage
financing existing at date of
investment: $1,000,000
Contract Investment Price (1): $796,000
Cash Reserve: $120,000
Acquisition Fee: $144,000
Total Investment Cost: $1,060,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-11
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Investment Fund II, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Gaslight Apartments
Anderson, Indiana
Residential Apartment Community
Number of units and total 72 Units
square feet of units: 42,720 total square feet
Date investment made: 11/96
Principal amount of mortgage
financing existing at date of
investment: $1,254,307
Contract Investment Price (1): $524,000
Cash Reserve: $80,000
Acquisition Fee: $96,000
Total Investment Cost: $700,000
</TABLE>
Baron Strategic Investment Fund VI, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Pine View Apartments
Orlando, Florida (57%)
Residential Apartment Community
Number of units and total 91 Units
square feet of units: Approximately 50,000 total square feet
Date investment made: 10/97
Principal amount of mortgage
financing existing at date of
investment: $1,620,000
Contract Investment Price (1): $806,000
Cash Reserve: $120,000
Acquisition Fee: $144,000
Total Investment Cost: $1,070,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-12
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Development Fund IX, Ltd.
--------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Glen Oaks
Louisville, Kentucky
Single Family Homes
Number of units and total 320 Units
square feet of units: Development Only
Date investment made: 1/97
Principal amount of mortgage
financing existing at date of
investment: $0
Contract Investment Price (1): $678,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $678,000
</TABLE>
Baron Income Property Mortgage Fund VI, Ltd.
--------------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Brentwood at Independence Apartments Phase 1
Independence, Kentucky
Residential Apartment Community
Number of units and total 150 Units
square feet of units: 136,500 total square feet
Date investment made: 8/96
Principal amount of mortgage
financing existing at date of
investment: $6,900,000
Contract Investment Price (1): $645,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $645,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-13
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Mortgage Development Fund VII, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Brentwood at Alexandria Apartments Phase 1
Alexandria, Kentucky
Residential Apartment Community
Number of units and total 84 Units
square feet of units: 76,440 total square feet
Date investment made: 12/96
Principal amount of mortgage
financing existing at date of
investment: $3,875,000
Contract Investment Price (1): $585,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $585,000
</TABLE>
Baron Mortgage Development Fund X, Ltd.
---------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Townhomes at Aspen Glen
Cincinnati, Ohio
Residential Condominium Community
Number of units and total 226 Units
square feet of units: 305,100 total square feet
Date investment made: 12/96
Principal amount of mortgage
financing existing at date of
investment: $450,000
Contract Investment Price (1): $678,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $678,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-14
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Mortgaqe Development Fund XI, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: The Villas at Lake Sycamore
Cincinnati, Ohio
Residential Condominium Community
Number of units and total 168 Units
square feet of units: 226,800 total square feet
Date investment made: 4/97
Principal amount of mortgage
financing existing at date of
investment: $900,000
Contract Investment Price (1): $678,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $678,000
</TABLE>
Baron Mortgage Development Fund XVIII, LP
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Brentwood at Independence Apartments Phase II
Independence, Kentucky
Residential Apartment Community
Number of units and total 150 Units
square feet of units: 136,500 total square feet
Date investment made: 7/97
Principal amount of mortgage
financing existing at date of
investment: $6,900,000
Contract Investment Price (1): $668,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $668,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-15
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Investment Fund V, Ltd.
---------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Sunrise I / Curiosity (31%)
Titisville / Tampa, Florida
Residential Apartment Communities
Number of units and total 141 Units
square feet of units: 74,540 total square feet
Date investment made: 1/97
Principal amount of mortgage
financing existing at date of
investment: $1,810,000
Contract Investment Price (1): $818,000
Cash Reserve: $0
Acquisition Fee: $120,000
Total Investment Cost: $938,000
</TABLE>
Baron Strategic Investment Fund VII, Ltd.
-----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Crystal I (19%) / Longwood II / Sunrise II
Lakeland / Cocoa Beach / Titisville, Florida
Residential Apartment Communities
Number of units and total 145 Units
square feet of units: 76,654 total square feet
Date investment made: 4/97
Principal amount of mortgage
financing existing at date of
investment: $1,860,000
Contract Investment Price (1): $1,253,000
Cash Reserve: $190,000
Acquisition Fee: $228,000
Total Investment Cost: $1,671,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-16
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Mortgage Development Fund XV, Ltd.
----------------------------------------
<TABLE>
<S> <C>
Name, location, type of
property: Brentwood at Alexandria
Alexandria, Kentucky
Residential Apartment Community
Number of units and total 84
square feet of units: 81,648 total square feet
Date investment made: 7/97
Principal amount of mortgage
financing existing at date of
investment: $3,875,000
Contract Investment Price (1): $575,000
Cash Reserve: $0
Acquisition Fee: $20,000
Total Investment Cost: $595,000
</TABLE>
Baron Strategic Investment Fund X, Ltd.
---------------------------------------
<TABLE>
<S> <C> <C> <C>
Name, location, type of
property: Heatherwood Pine View Crystal Court I
Apartments II Apartments Apartments
Kissimmee,Florida Orlando,Florida Lakeland,Florida
Residential Apt. Residential Apt. Residential Apt.
Community (52%) Community (43%) Community (55%)
Number of units and total 41 Units 91 Units 72 Units
square feet of units: 22,176 Sq.Feet 46,656 Sq.Feet 43,776 Sq.Feet
Date investment made: 10/97 10/97 10/97
Principal amount of mortgage
financing existing at date of
investment: $ 710,000 $ 1,620,000 $ 1,222,000
Contract Investment Price (1): $ 174,000 $ 263,000 $ 359,000
Cash Reserve: $ 26,200 $ 39,650 $ 54,100
Acquisition Fee: $ 31,477 $ 45,578 $ 64,944
Total Investment Cost: $ 231,677 $ 348,228 $ 478,044
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-17
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Mortgage Development Fund XIV, Ltd.
-----------------------------------------
Name, location, type of
property: The Shoppes of Burlington
Burlington, Kentucky
Retail Shopping Center
Number of units and total
square feet of units: 97,000 square feet
Date investment made: 3/98
Principal amount of mortgage
financing existing at date of
investment: $3,000,000
Contract Investment Price (1): $840,000
Cash Reserve: $0
Acquisition Fee: $0
Total Investment Cost: $840,000
Baron Strategic Investment Fund IV, Ltd.
----------------------------------------
Name, location, type of
property: Country Square Phase I
Tampa, Florida (78%)
Residential Apartment Community
Number of units and total 73 units
square feet of units: 40,150 square feet
Date investment made: 1/97
Principal amount of mortgage
financing existing at date of
investment: $1,600,000
Contract Investment Price (1): $690,000
Cash Reserve: $100,000
Acquisition Fee: $100,000
Total Investment Cost: $890,000
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-18
<PAGE>
Table VI: ACQUISITION OF PROPERTIES BY PROGRAM
(continued)
Baron Strategic Investment Fund VIII, Ltd.
------------------------------------------
<TABLE>
<S> <C> <C> <C>
Name, location, type of
property: Longwood Heatherwood The Shoppes
Apartments I Apartments II of Burlington
Cocoa, Florida Kissimmee,Florida Burlington, Kentucky
Residential Residential Retail
Apartment Apartment (48%) Shopping
Community Community Center
Number of units and total 58 Units 41 Units
square feet of units: 35,712 sq.feet 22,176 sq.feet 97,000 sq. feet
Date investment made: 10/97 10/97 7/97
Principal amount of mortgage
financing existing at date of
investment: $ 1,037,000 $ 710,000 $ 3,000,000
Contract Investment Price (1): $ 525,150 $ 160,500 $ 98,000
Cash Reserve: $ 80,000 $ 24,000 $ 15,000
Acquisition Fee: $ 96,500 $ 29,500 $ 18,000
Total Investment Cost: $ 701,650 $ 214,000 $ 131,000
</TABLE>
- ----------
Footnote:
(1) Program applied net investment proceeds to acquire interest in investment
property, to redeem limited partner interests of prior limited partners or
to acquire subordinated debt.
VI-19
